We have audited the attached Balance Sheet of TERRYFAB (INDIA) LIMITED
 as at 31st March, 2002 and also the Profit and Loss Account for the
 year ended on that date annexed thereto. These financial statements are
 the responsibility of the Companys management. Our responsibility is
 to express an opinion on these financial statements based on our audit.
 
 We conducted our audit in accordance with auditing standards generally
 accepted in India. Those standards require that we plan and perform
 audit to obtain reasonable assurance about whether the financial
 statements are free of material misstatements. An audit includes
 examining, on a test basis, evidence supporting the amounts and
 disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by the management as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion and report that:-
 
 1. As required by the manufacturing and other Companies (Auditors
 Report Order, 1988) issued by the Central Government of India in terms
 of sub section (4A) of section 227 of the Companies Act. 1956, we
 enclose in the Annexure I, a statement on the matters specified in
 paragraphs 4 & 5 of the said order.
 
 2. Our observation on the statement of accounts referred to above, are
 given in Annexure II to this report.
 
 3. Further subject to our comments in the Annexure I & II referred
 above, we state that:
 
 (i) We have obtained all the information and explanations, which to the
 best of our knowledge and belife were necessary for the purpose of our
 audit.
 
 (ii) In our opinion, proper books of account as required by law have
 been kept by the company so far as it appears from our examination of
 such books.
 
 iii) The Balance Sheet and Profit & Loss Account dealt with by this
 report are in agreement with the books of account.
 
 (iv) In our opinion, the Balance Sheet and Profit & Loss Account dealt
 with by this report comply with the Accounting Standards referred to in
 sub section (30 of section 211 of the companies act, 1956.
 
 (v) On the basis of written representations received from the directors
 as on 31st March 2002 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on 31st March 2002
 from being appointed as a director in terms of clause (g) of sub
 section (1) of section 274 of the Companies Act, 1956.
 
 (vi) In our opinion and to the best of our information and according to
 the explanations given to us the said accounts read together with the
 Significant Accounting Policies and Notes on accounts as reffered to in
 Schedule P and further subject to our observations in Annexure I and
 II of this report, give the information required by the companies act,
 1956 in the manner so required and give a true and fair veiw in
 conformity with the accounting principles generally accepted in India.
 
 (a) In the Case of Balance Sheet of the state of afflairs of the
 Company as at 31st march 2002 and
 
 (b) In the case of the Profit & Loss Account, of the `Loss for the
 year ended on that date.
 
 ANNEXURE I
 
 AS REFERRED TO IN PARA 1 OF AUDITIORS REPORT OF EVEN DATE OF TERRYFAB
 (INDIA) LIMITED, FOR THE YEAR ENDED ON MARCH 31, 2002
 
 1. The company has maintained records of fixed assets but without
 showing full particulars of quantitative details and locations thereof.
 According to the information and explanation given to us, the fixed
 assets have been physically verified by the management during the
 financial year. In our opinion the frequency of such verification is
 reasonable. However, in absence of complete details regarding quantity
 and location etc. of fixed assets, same could not be compared with the
 records and discrepancies, if any, could not be determined.
 
 2. None of the fixed assets have been revalued during the year.
 
 3. The stock of finished goods, stores, spare parts and raw materials
 have been physically verified by the management at reasonable
 intervals.
 
 4. The procedures of physical verification of stock followed by the
 management are reasonable and adequate in relation to the size of the
 company and nature of its business.
 
 5. The discrepancies noticed on physical verification of stock as
 compared to book records, which in our opinion were not material, have
 been properly dealt with in the books of account.
 
 6. On the basis of our examination of stock records, we are of the
 opinion that. the valuations of stocks of stores, spares and raw
 material have been fair and proper and is in accordance with the
 normally accepted accounting principales except valuation of finished
 goods done. at realisable value and not on the basis of lower of cost
 or net realisable value as required by accounting standard (AS) - 2
 issued by the Institute of chartered accountants of India. The
 valuation is on the same basis as in the preceding year.
 
 7. The company has not taken any secured and unsecured loans from
 Companies, Firms or other parties listed in register maintained under
 section 301 of the companies act, 1956 and from the companies under the
 same management defined under sub section (1 B) of section 370 of the
 companies act, 1956.
 
 8. The company has not granted any loans, secured and unsecured to
 companies, Finns or other parties listed in register maintained under
 section 301 of the companies act, 1956 and to the companies under the
 same management as defined under sub-section, (1B) of section 370 of
 the companies act, 1956.
 
 9. The Employees to whom loans and advance in the nature of loans have
 been given are generally repaying principal and interest thereon as
 stipulated.
 
 10. In out opinion and according to the information and explanations
 given to us the internal control procedures for the purchase of stores,
 raw material, including components, plant and machinery, equipments and
 other assets and for the sale of goods and job work need to be further
 strengthened.
 
 11. In our opinion and according to the information and explanations
 given to us, there are no transactions of purchase of goods and
 material and sale of goods/material and services made in pursuance of
 contracts or agreements required to be entered in the register
 maintained under section 301 of the companies act, 1956 and aggregating
 during the period to Rs. 50,000/- or more in respect of each party.
 
 12. As explained to us, the Company has a regular procedure for the
 determination of unserviceable or damaged stores, raw materials and
 finished goods.
 
 13. According to the information and explanations given to us, the
 company has not accepted and deposits from the public covered under
 section 58-A of the companies Act, 1956.
 
 15. As per the information and explanation given to us, there are no
 realisable by-products. Consequently, question of maintaining the
 records for the same does not arise. However, company has maintained
 records for realisable scrap.
 
 16. As per the information and explanation given to us, internal audit
 was not earned out during the year.
 
 17. As explained to us the maintenance of cost records have not been
 prescribed by the Central Government U/s 209 (11 (d) of the companies
 act. 1956, hence, this clause is not applicable.
 
 18. The company is not regular in depositing provident fund dues with
 the appropriate authorities. As per information given to us employees
 state insurance act is not application to the company.
 
 19. According to the information and explanation given to us, there
 were no undisputed amounts payable in respect of Income Tax, Wealth
 Tax, Sales Tax. Customs Duty and Excise Duty as at 31st March, 2002
 which were outstanding for a period of more than six months from the
 date they became payable.
 
 20. According to the information and explanations given to us and on
 the basis of the records of the company examined by us, no personal
 expenses have been charged to revenue account other than those payable
 under contractual obligations or in accordance with generally accepted
 business practices.
 
 21. The company is a sick industrical company within the meaning of
 clause (O) of sub section (1) of Sec. 3 of the Sick Industrial
 Companies (Special provisions) act, 1985. Reference to Board of
 Industrial and Financial Reconstruction was made by the Company and the
 same has been accepted) by BIFR vide their order dated 27.12.2001
 declaring the company as sick industrial company.
 
 22. Damaged goods have been determined and adequate provision has been
 made in the accounts for the items so determined.
 
 23. In respect of service activities:
 
 (a) The company has system of recording receipts, issues and
 consumption of material and stores for job work.
 
 (b) The system of allocating man hours utilized to the relative job is
 not yet formalized.
 
 (c) The system of authorisation at proper level and internal control of
 issue and allocation of stores to job is satisfactory.
 
 ANNEXURE II AS REFERRED TO IN PARA 2 OF AUDITIORS REPORT OF EVEN DATE
 OF TERRYFAB (INDIA) LIMITED. FOR THE YEAR ENDED ON MARCH 31, 2002
 
 Our report and together with Accounting Policies and Notes to Accounts
 mentioned in Schedule `P is subject to:
 
 1. CST reimbursement claims are accounted for other than on accural
 basis (as required by AS-9) (Para(1)(b)).
 
 2. Finished goods are valued at net realisable value and not on lower
 cost or net realisable value and also that cost does not exclude CST
 reimbursable amount. (As required by AS-2) {Para I (4)].
 
 3. No provision of liability for gratuity and leave encashment benefits
 on retirements of employees on accural basis as on 31.03.2002 has been
 made (As required by As-15) {Para II (5)1.
 
 4. No segregation of amount payable to SSI suppliers and also
 bifurcation in 30 days and more than 30 days of the same has been done
 and also no provision for interest due, if any, as per the interest on
 delayed payments to small scale and ancillary industries undertaking
 act, 1993 has been made (Para II (6)1.
 
 In the absence of complete details quantum of above items i. e. from
 (1) to (4) and impact of the same on loss/profit could not be
 ascertained.
 
 5. BIFR vide its order dated 27.12.2001 has declared the company as
 sick industrial company in terms of section 3 (1) (0) of the sick
 Industrial Companies (Special Provisions) Act, 1985 and appointed IDBI
 as opera ting Agency, with directions for conducting a Techno-Economic
 viability study (TEVS) of the company and Preparation of viability
 study report and revival scheme for it (Para II (3)1.
 
 6. In spite of company being a sick industrial company as referred at
 point No. 6 above, accounts have been prepared on a going concern basis
 (Para II (.4)].
 
 7. (a) The company has not provided for interest for the year
 aggregating to Rs. 51366258.30 on the terms loans from IDBI and Central
 Bank of India on the assumption that it intends to submit a proposal
 for rehabilitation before the operating agency seeking relief in
 interest on loans and reschedulement for repayment. Till date no
 rehabilitation plan has been submitted by the company to the operating
 agency and thus, in the absence any approved rehabilitation scheme,
 non-accounting of material amount of interest for the year, has
 resulted into under statement of loss and loans liability to the extent
 of Rs. 51366258.30 (Para 13).
 
 (b) Company has not provided for penal interest in respect of C. B. I,
 term loan. In the absence of rate thereof, its quantum is
 unascertainable.
 
 8. Balances of sundry debtors, creditors and loans & advances are
 subject to confirmation and reconciliation (Para II (11)1.
 
 9. Accounting for taxes on Income (AS-22): Deferred Tax Assets are
 arising mainly on account of brought forward losses and unabsorbed
 depreciation under Tax laws.
 
 In view of heavy losses there is no reasonable certainty that there
 will be sufficient future taxable income against which deferred tax
 assets can be realised and accordingly deferred tax assets are not
 recognised and carried forward, and no deferred tax is recognised on
 the same.
 
 10. There is no compliance of certain accounting standards to the
 extent referred in Para 1, 2 and 3 above.
 
 11. Rs. 1,10,000/- is due from director {Para II (16)i.
 
 12. We further report that:
 
 a) In the absence of complete details, it is not possible for us to
 quantify the effect of item No. 1, 2, 3, 4 and 7 (b) on the loss for
 the year.
 
 (b) Had the accounting adjustment on our above observation been carried
 out, the loss for the year would have been Rs. 74434608.38 (as against
 the reported figure of Rs. 23068350.091 and the total secured loan
 liability would have been Rs. 303725769.00 (as against reported figure
 of Rs. 255102753.00) and current liabilities would have been Rs.
 11607214.10 (as against reported figure of Rs. 8863971.80).
 
                                                   For S. BHANDARI & CO.
                                                   Chartered Accountants
 
                                                                    -Sd-
 PLACE: JAIPUR                                          (S. C. Bhandari)
 DATE: 2nd Sept, 2002                                            Partner