1.  We have audited the attached Balance Sheet of Vardhman Textiles
 Limited as at 31st March, 2011, the Profit and Loss Account and the
 Cash Flow Statement of the company 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.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. These 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 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.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 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 paragraph 4 and 5 of the said
 order.
 
 4.  Further to our comments in the annexure referred to in paragraph 3
 above, we report that:
 
 a) 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;
 
 b) in our opinion, proper books of account as required by law have been
 kept by the company so far as appears from our examination of those
 books;
 
 c) the balance sheet, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account;
 
 d) in our opinion, the balance sheet, profit and loss account and cash
 flow statement dealt with by this report comply with the accounting
 standards referred to in section 211 (3C) of the Companies Act; 1956.
 
 e) on the basis of the written representations received from the
 directors as on 31st March, 2011 and taken on record by the Board of
 Directors, we report that none of the director is disqualified as on
 31st March, 2011 from being appointed as a director in terms of section
 274(1)(g) of the Companies Act,1956; and
 
 f) As indicated in note-13 in Schedule-18 there is significant
 uncertainty associated with the derivative options referred to in the
 said note, resolution of which is dependant upon future events which
 are not under the direct control of the company, on account of which
 the company could not determine the possible loss, if any, on valuation
 of open derivative options.  The ultimate outcome of these future
 events and their affect on the financial statements cannot be
 ascertained at this stage.
 
 Subject to above, 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 thereon,
 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:
 
 i) in the case of Balance Sheet, of the state of affairs of the company
 as at 31st March, 2011;
 
 ii) in the case of Profit and Loss account, of the profit for the year
 ended on that date; and
 
 iii) in the case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 3) (i) a)
 The company has maintained proper records showing full particulars
 including quantitative details and situation of its fixed assets.
 
 b) According to the information and explanations given to us, the
 company has adopted a policy of physically verifying the fixed assets
 once in every three years.  Pursuant to the said policy, the company
 has physically verified the entire block of Plant and Machinery during
 the year. Discrepancies which were not material noticed on such
 physical verification have been properly dealt with in the books of
 account.  Further, in our opinion, the frequency of physical
 verification of fixed assets is reasonable having regard to the size of
 the company and nature of its business.
 
 c) In our opinion and according to the information and explanations
 given to us, the company has not disposed off substantial part of its
 fixed assets during the year.
 
 (ii) a) According to the information and explanations given to us,
 inventories have been physically verified by the management during the
 year. In our opinion the frequency of verification is reasonable.
 
 b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories
 followed by the management as evidenced by the written procedures and
 instructions are reasonable and adequate in relation to the size of the
 company and nature of its business.
 
 c) On the basis of our examination of the records of inventories, we
 are of the opinion that the company is maintaining proper records of
 inventories. The discrepancies noticed on physical verification of
 inventories as compared to book records were not material and have been
 dealt properly within the books of account.
 
 (iii) a) The company has not granted secured or unsecured loans to
 companies, firms or other parties covered in the register maintained
 under section 301 of the Companies Act, 1956. Therefore the provisions
 of paragraph 4 (iii) (b) (c) and (d) of the above said order are not
 applicable to the company.
 
 b) The company has during the year taken unsecured loans from twelve
 companies covered in the register maintained under section 301 of the
 Companies Act, 1956. The amount involved in the transaction is Rs.
 3,815.75 lacs. The amount payable as at the close of the year is Rs.
 1,943.55 lacs.
 
 c) According to the information and explanations given to us, the rate
 of interest and other terms and conditions in respect of unsecured loan
 taken by the company, are not prima-facie prejudicial to the interest
 of the company.
 
 d) In our opinion and according to the information and explanations
 given to us, the payment of principal amount and interest in respect of
 the aforesaid loan were regular.
 
 (iv) In our opinion and according to the information and explanations
 given to us, there is an adequate internal control system commensurate
 with the size of the company and nature of its business for the
 purchase of inventory and fixed assets and sale of goods and services.
 During the course of our audit, we have not observed any continuing
 failure to correct major weaknesses in internal control systems.
 
 (v) (a) In our opinion and according to the information and
 explanations given to us, the particulars of contracts or arrangements
 referred to in section 301 of the Companies Act, 1956 have been entered
 in the register maintained under that section.
 
 (b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of contracts or
 arrangements entered in the register maintained under section 301 of
 the Companies Act, 1956 and exceeding Rupees five lacs or more in
 respect of the party during the year, have been made at prices which
 are reasonable having regard to the prevalent market prices at the
 relevant time.
 
 (vi) According to the information and explanations given to us the
 company has complied with the provisions of section 58A and 58AA or any
 other relevant provisions of the Companies Act, 1956 and the Companies
 (Acceptance of Deposits) Rules 1975 with regard to deposits accepted
 from the public. According to the information given to us, no order has
 been passed by the Company Law Board or National Company Law Tribunal
 or Reserve Bank of India or any Court or any other Tribunal.
 
 (vii) In our opinion and according to the information and explanations
 given to us, the company has an internal audit system commensurate with
 its size and nature of its business.
 
 (viii) We have broadly reviewed the books of account relating to
 materials, labour and other items of cost maintained by the company
 pursuant to the Rules made by the Central Government for the
 maintenance of cost records under section 209(1)(d) of the Companies
 Act, 1956 and we are of the opinion that prima facie the prescribed
 accounts and records have been made and maintained. We have however not
 made a detailed examination of the records with a view to determine
 whether they are accurate or complete.
 
 (ix) a) According to the records of the company, undisputed statutory
 dues including provident fund, investor education and protection fund,
 employees state insurance, income tax, sales tax, wealth tax, service
 tax, custom duty, excise duty, cess and other material statutory dues
 applicable to the company, if any, have been regularly deposited with
 appropriate authorities.  According to the information and explanations
 given to us, no undisputed amounts payable in respect of the aforesaid
 dues were outstanding as at 31st March, 2011, for a period of more than
 six months from the date they became payable.
 
 b) According to the records of the company, the details of disputed
 statutory dues aggregating to Rs. 54,742,407/- that have not been
 deposited on account of matters pending before the appellate
 authorities in respect of income tax, sales tax, custom duty, service
 tax and excise duty are given below:
 
 Nature of Dues/       Disputed            Forum where Dispute is
 Name of Statute       Amount (Rs.)          pending
 
 Sales Tax
 
 The Punjab VAT Act,     82,500          Joint Director (Enforcement),
 2005                                    Patiala
 
 M.P. Commercial Tax     52,137          Commercial Tax Appellate
 Act, 1994                               Board, Bhopal
 
 M.P. Vat Act, 2002   45,69,672          Deputy Commissioner
                                         Circle-1, Bhopal
 
 M.P. Vat Act, 2002    3,21,432          Deputy Commissioner,
                                         Appeals Commercial
                                         Tax Ratlam
                                         Excise/Custom Duty
 
 Central Excise Act, 1,51,26,211         Custom, Excise & Service Tax
 1944                                    Appellate Tribunal,
                                              New Delhi
 
 Central Excise Act,  20,43,542          Commissioner (Appeals)
 1944                                    Central Excise, Chandigarh
 
 Central Excise Act, 10,833,843          Honble Supreme Court,
 1944                                    New Delhi
 
 Central Excise Act,     17,378          Asstt. Commissioner Central
 1944                                    Excise, Ludhiana
 
 Central Excise Act,   7,14,787          Custom, Excise & Service Tax
 1944                                    Appellate Tribunal,
                                         New Delhi
 
 Service tax
 
 Finance Act,          1,63,210          Commissioner (Appeals)
 1994                                    Central Excise, Chandigarh
 
 Finance Act,         12,17,695          Custom, Excise & Service Tax
 1994                                    Appellate Tribunal,
                                         New Delhi
 
 Income-tax
 
 Income-tax Act,    1,96,00,000          Commissioner of Income-Tax
 1961                                    (Appeals)
 
 According to the information and explanations given to us there are no
 disputed dues in respect of wealth tax and cess.
 
 (x) The company does not have accumulated losses as at 31st March 2011.
 The latter part of the question relating to net worth is thus not
 applicable to the company.  Further, the company has not incurred cash
 losses during the financial year covered under audit and in the
 immediately preceding financial year.
 
 (xi) According to the information and explanations given to us, the
 company has not defaulted in repayment of dues to banks.
 
 (xii) The company has not granted any loans and advances on the basis
 of security by way of pledge of shares, debentures and other
 securities. Therefore the provisions of the clause 4 (xii) of the above
 said order are not applicable to the company.
 
 (xiii) The company is not a chit fund or a nidhi mutual benefit
 fund/society. Accordingly, the provisions of clause 4 (xiii) of the
 above said order are not applicable to the company.
 
 (xiv) According to the information and explanations given to us, the
 company has not dealt or traded in share, securities, debentures and
 other investments. Therefore, the provisions of clause 4(xiv) of the
 above said order are not applicable to the company.
 
 (xv) The company has not given guarantees for loans taken by others
 from banks. Therefore provisions of clause 4(xv) of above said order
 are not applicable to the company.
 
 (xvi) In our opinion and according to the information and explanations
 given to us, the term loans taken during the year have been applied for
 the purpose for which they were obtained.
 
 (xvii) According to information and explanations given to us and on an
 overall examination of the balance sheet of the company, we report that
 funds raised on short-term basis have not been used for long term
 investment.
 
 (xviii) According to the information and explanations given to us, the
 company has not made any preferential allotment of shares during the
 year to parties and companies covered in the register maintained under
 section 301 of the Companies Act, 1956.
 
 (xix) According to the information and explanations given to us the
 company has not issued debentures during the year. Accordingly the
 provisions of clause 4 (xix) of the above said order are not applicable
 to the company.
 
 (xx) According to the information and explanations given to us the
 company has not raised any money by way of public issue during the
 year. However money raised by way of QIP issue has been utilized for
 the purpose it was raised.
 
 (xxi) We have been informed that some of the employees of the company
 had misappropriated funds amounting to Rs. 49 lacs by depositing
 certain cheques collected from customers in an unauthorized bank
 account not belonging to the company. A First Information Report has
 been lodged and registered at police station at Baddi (H.P.) and
 investigations are in progress. The company also filed an insurance
 claim in this matter. Further on the basis of information and
 explanations given to us, we report that no fraud by the company has
 been noticed or reported during course of our audit.
 
                                         For S.C. VASUDEVA & CO.
 
                                          CHARTERED ACCOUNTANTS
 
                                 Firm Registration No.: 000235N
 
                                                   SANJIV MOHAN
 PLACE:NEW DELHI                                        PARTNER
 
 DATED: 9th May, 2011                      MEMBERSHIP NO. 86066