We have audited the attached Balance Sheet of M/s. UMA MAHESWARI MILLS
 LIMITED, as at 31st March, 2001 and also the Profit and Loss Account
 for the year ended on that date annexed thereto. These financial
 statements are the responsibility of the Company's 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 the
 audit to obtain reasonable assurance about whether the financial
 statements are free of material misstatement. 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 management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 Subject to:
 
 1) Regarding non-reconciliation/confirmation of balances of financial
 institutions, sundry debtors, sundry creditors, loans and advances.
 (Refer Note No. 11).
 
 2) Regarding non provision of Interest on interest, penal interest and
 other charges if any on financial institution (Refer Note No. 12).
 
 3) Regarding non accounting of Transfer of 3,300 equity shares sold to
 a finance company at par (Refer Note No. 14).
 
 4) Regarding non accounting of Transfer of Personal house property to
 Cholamandalam Investment Finance Company Limited. (Refer Note No. 15).
 
 5) Regarding non provisions of bad and doubtful debts and advances
 amounting to Rs. 2,78,06,916/- and Rs. 60,92,721/- respectively. (Refer
 Note No. 17).
 
 6) Non provision of Group Gratuity premium due to Life Insurance
 Corporation of India for the year ended 31.3.2000 & 31.3.2001 amounting
 to Rs. 5,00,778/- and Rs. 4,60,979/- respectively. (Refer Note No. 18).
 
 7) Regarding non provision of minimum bonus for the year ended
 31.3.2000 & 31.3.2001 amounting to Rs. 14,96,027/- and Rs. 19,29,793/-
 respectively. (Refer Note No. 19).
 
 8) Regarding non provision of interest on hire purchase loan for the
 year ended 31.3.2000 & 31.3.2001 amounting to Rs. 34,06,646/- and
 Rs. 3,91,732/- respectively (Refer Note No. 20).
 
 9) Regarding non provision of interest payable to Bank and financial
 institutions interest for the year ended 31.3.2000 & 31.3.2001
 amounting to Rs. 2,62,87,931/- and Rs. 2,95,99,267/- respectively.
 (Refer Note No. 21).
 
 10) Regarding non provision of interest on companies loan, directors
 loan and trade deposit for the year ended 31.3.2000 and 31.3.2001
 amounting to Rs. 77,35,147/- and Rs. 77,86,962/- respectively. (Refer
 Note No. 22).
 
 11) Regarding non provision of carrying charges and interest for the
 year ended 31.3.2000 an amounting of Rs. 75,96,348/-. (Refer Note
 No. 23).
 
 12) Regarding sale of machinery & Motor vehicles amounting to Rs.
 42,97,615/- and Rs. 4,60,000/- respectively without the approval of
 BIFR and respective charge holders (Refer note No. 24).
 
 13) During the year deferred revenue expenditure public issue expenses
 amounting to Rs. 40,91,076/- written off which is 1/5th of the expenses
 (Refer Note No. 25).
 
 14) Regarding Non compliance of section 58A for four years (Refer
 Annexure to the Auditors Report 10).
 
 15) Regarding non payment of PF and ESI dues for the year ended
 31.3.1999 to 31.3.2001 amounting to Rs. 1,20,62,618/- & Rs. 34,10,467/-
 respectively. (Refer Note No. 28).
 
 As referred to in Notes forming part of Accounts, and the consequent
 effect of deviation as disclosed in the notes, the Balance Sheet gives
 a true and fair view of the state of affairs as at 31.03.2001 and the
 Profit and Loss Account gives a true and fair view of the loss of the
 company for the year ended on that date.
 
 As required by the Manufacturing and other Companies [Auditor's 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 a statement on the matters specified in paragraphs 4
 and 5 of the said Order.
 
 Further without qualifying we state that:
 
 The accumulated losses (before adjustment of Revaluation reserve) of
 the Company have far exceeded its entire networth. The accounts have,
 however, been prepared by the Management on a going concern basis as
 explained in Note No. 27 of notes forming part of accounts. This being
 technical matter in view of uncertainties and other facts and
 circumstances of the case, we are unable to comment on the same.
 However, should the company be unable to continue as a going concern,
 the extent of the effect of the resultant adjustments on the networth
 of the Company as at the Balance Sheet date and loss for the year is
 presently not ascertainable.
 
 i) We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purpose of our
 Audit.
 
 ii) In our opinion proper books of accounts as required by law have
 been kept by the Company so far as appears from our examination of
 those books.
 
 iii) The Balance Sheet and Profit and Loss Account dealt with by this
 report are in agreement with books of accounts.
 
 iv) In our opinion, the Balance Sheet and Profit and Loss Account dealt
 with by this report comply with the accounting standards referred to in
 Sub-section (3C) of section 211 of the Companies Act 1956;
 
 v) On the basis of written representations received from the directors,
 as on 31st March, 2001, and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st March
 2001 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 give the information
 required by the Companies Act, 1956, in the manner so required and give
 a true and fair view in conformity with the accounting principles
 generally accepted in India;
 
 a) in the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2001; and
 
 b) in the case of the Profit and Loss Account, of the Loss for the year
 ended on that date.
 
 ANNEXURE TO THE AUDITORS' REPORT
 
 1. The Company has not maintained proper records to show full
 particulars including quantitative details and situation of Fixed
 Assets. The Fixed Assets of the Company have been physically verified
 by the management during the year and no serious discrepancies between
 the book records and the physical inventory have been noticed.
 
 2. None of the Fixed Assets have been revalued during the year.
 
 3. The stock-in-trade (including raw materials) and the stock of stores
 and spare parts of the Company at all its locations have been
 physically verified by the management during the year. In our opinion,
 the procedures of physical verification of stocks followed by the
 management are reasonable and adequate in relation to the size of the
 Company and nature of its business. The discrepancies between the
 physical stocks and the book stocks, which have been properly dealt
 with in the books of account, were not material. In our opinion and on
 the basis of our examination, the valuation of stocks is fair and
 proper and in accordance with the normally accepted accounting
 principles and is on the same basis as in the previous year.
 
 4. In our opinion, the terms and conditions of loans secured or
 unsecured taken by the Company during the year, from Companies, Firms
 and other parties listed in the Register maintained under section 301
 of the Companies Act, 1956 are not prima facie, prejudicial to the
 interest of the Company. There are no companies under the same
 management as defined under section 370(1-B) of the Companies Act,
 1956.
 
 5. No loans have been granted to Companies, firms or other parties, as
 listed in the register maintained under section 301. There are no
 companies under the same management as defined under section 370 (1-B)
 of the Companies Act, 1956.
 
 6. Employees to whom loans or advances in the nature of loans have been
 given by the company are repaying the Principal as stipulated or as
 scheduled. The loans are interest free.
 
 7. In our opinion, there is adequate internal control procedure
 commensurate with the size of the company and the nature of its
 business for the purchase of stores, raw materials including
 components, plant and machinery equipments and other assets and for the
 sale of goods.
 
 8. In our opinion, the transactions of purchase of goods and materials
 and sale of goods made in pursuance of contracts or arrangement entered
 in the Register maintained under section 301 of the Companies Act, 1956
 and aggregating during the year to Rs. 50,000/- or more in respect of
 each party were made at price which were reasonable having regard to
 prevalent market were made with other parties.
 
 9. As explained to us, unserviceable or damaged stores, finished goods
 and raw material are determined by the company. Adequate provisions has
 been made in the accounts for the loss arising on the items so
 determined.
 
 10. In our opinion and according to the information and explanations
 given to us, the company has not been complying with the provisions of
 section 58A of the Companies Act, 1956 and the rules framed thereunder.
 15% on liquid assets not deposited to separate bank and FD return not
 yet filed to R. O. C.
 
 11. In our opinion, reasonable records have been maintained by the
 Company for the sale and disposal of realisable scrap/byproducts where
 applicable and significant.
 
 12. In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 13. On the basis of the records produced, we are of the opinion that
 prima facie, the cost records and accounts prescribed by the Central
 Government under section 209(1)(d) of the Companies Act, 1956 have
 been maintained by the Company. However, we are not required to carry
 out and have not carried out any detailed examination of such accounts
 and records.
 
 14. According to the records maintained by the Company, Provident Fund
 and Employees State Insurance dues have not been regularly deposited
 with appropriate authorities amounting to Rs. 1,20,62,618/- and Rs.
 34,10,467/- respectively for the under various period from April to
 March 2001.
 
 15. According to the books and records examined by us and the
 information and explanations given to us, there was no undisputed
 amounts payable in respect of Income-Tax, Wealth-Tax, Custom Duty,
 Excise Duty and Sales Tax which have remained outstanding as at 31st
 March, 2001 for a period exceeding six months from the date they become
 payable.
 
 16. 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 the generally
 accepted accounting business practice.
 
 17. The Company is a Sick Industrial Company, within the meaning of
 Section 3(l)(o) of the Sick Industrial Companies (Special Provisions)
 Act, 1985 and the company had referred to BIFR vide Case No. 90/2001.
 
 18. In respect of the service activities of the Company:-
 
 i) There is a reasonable system of recording receipts, issues and
 consumption of materials and stores commensurate with the size and
 nature of service activities undertaken and such system provided for a
 reasonable allocation of the materials and stores consumed to the
 relative jobs.
 
 ii) There is a reasonable system of allocating man hours utilised to
 the relative jobs commensurate with the size and nature of the Company.
 
 iii) There is reasonable system of authorisation at proper levels with
 necessary control on the issue of stores and allocation of stores and
 labour to jobs. There is a reasonable system of internal control
 commensurate with the size and nature of the company's service
 activity.
 
                                     For S. V. VISVANATHAN & ASSOCIATES,
                                                   M. J. VIJAYARAAGHAVAN
 
 Camp: Salem,                                                   Partner,
 Dated: 17th May 2002.                   Chartered Accountants, Auditors