We have audited the attached Balance Sheet of VARUN SHIPPING COMPANY
 LIMITED, as at 31st March, 2011 and also the Profit and Loss Account
 and the Cash Flow Statement 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.
 
 1. 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 paragraphs 4 and 5 of the said Order.
 
 2. Further to our comments in the Annexure referred to in Paragraph (1)
 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 purposes 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 and proper returns adequate for the purposes of our audit have
 been received from the branches not visited by us;
 
 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 and Profit and Loss Account dealt
 with by this report comply with the applicable accounting standards
 referred to in sub-section (3C) of Section 211 of the Companies Act,
 1956;
 
 e. On the basis of 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 Directors is disqualified as on 31st March,
 2011 from being appointed as a Director in terms of clause (g) of
 sub-section (1) of Section 274 of the Companies Act, 1956;
 
 f. Subject to our comments in Annexure referred to in Paragraph 1, 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;
 
 i. In the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2011
 
 ii. In the case of the Profit and Loss Account, of the profit for the
 year ended on that date.
 
 iii. In the case of Cash Flow Statement, of the cash flows for the year
 ended on that date.
 
 Annexure referred to in Para 1 of our report of even date to the
 members of Varun Shipping Company Limited
 
 i a) The Company is maintaining proper records of its fixed assets
 except Furniture and Fixtures.
 
 b) The fixed assets have been physically verified by the Management
 during the year at reasonable intervals and no material discrepancies
 were noticed.
 
 c) 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 The Company owns and operates ships and hence a comment on inventory
 does not apply in this case. The Company does purchase stores and spare
 parts for its ships, which are directly treated as consumed as and when
 supplied to its ships. Stocks of bunkers have been physically verified
 by the Management.
 
 iii In respect of loans, secured or unsecured, granted or taken by the
 Company to / from Companies, Firms or other parties covered in the
 register maintained under Section 301 of the Companies Act, 1 956:
 
 a.  The Company has granted unsecured loans to five companies covered
 in the register maintained under Section 301 of the Companies Act,
 1956. In respect of the said loans, the maximum balance outstanding at
 any time during the year is Rs. 5,657,644,500 and the year end balance
 is Rs. 3,812,057,000.
 
 b.  In our opinion and according to the information and explanations
 given to us, the rate of interest and other terms and conditions of
 such loans, are not, prima facie, prejudicial to the interest of the
 company.
 
 c.  In respect of the said loans the borrower has been regular in
 payment of the interest as stipulated. The terms of arrangement do not
 stipulate any repayment schedule and is repayable on demand.
 Accordingly, paragraph 4(iii)(c) of the Order is not applicable to the
 Company in respect of repayment of the principal amount.
 
 d.  There is no overdue amount of more than rupees one lakh in respect
 of the loans granted to companies listed in the register maintained
 under Section 301 of the Companies Act, 1956.  Accordingly, paragraph
 4(iii)(d) of the Order is not applicable.
 
 e.  The Company has not taken any loans, secured or unsecured from
 Companies, Firms and other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956.  Accordingly paragraphs
 4(iii)(e) to 4(iii)(g) of the Order are not applicable.
 
 iv In our opinion and according to the information and explanations
 given to us, there are adequate internal control procedures
 commensurate with the size of the Company and the nature of its
 business with regard to purchases of stores, spare parts and fixed
 assets. During the course of our audit, we have not observed any major
 weaknesses in internal control system of the Company.
 
 v a) According to the information and explanations given to us, we are
 of the opinion that the particulars of all contracts or arrangements
 that need to be entered into the register maintained under Section 301
 of the Companies Act, 1956 have been so entered.
 
 b) In our opinion and according to the information and explanations
 given to us, the transactions made in pursuance of such contracts or
 arrangements entered in the register maintained under Section 301 of
 the Companies Act, 1956 and exceeding the value of rupees five lakhs in
 respect of any party during the year have been made at prices which are
 reasonable having regard to prevailing market prices at the relevant
 time.
 
 vi According to the information and explanations given to us, the
 Company has not accepted fixed deposits from public and hence,
 provisions of sections 58A and 58AA and other relevant provisions of
 the Companies Act, 1956 and the Companies (Acceptance of Deposits)
 Rules, 1975 with regard to the deposits accepted from the public are
 not applicable.
 
 vii In our opinion and according to the information and explanations
 given to us, the Company has an internal audit system commensurate with
 the size and nature of its business.
 
 viii Maintenance of cost records has not been prescribed by the Central
 Government under clause (d) of sub section (I) of section 209 of the
 Companies Act, 1956.
 
 ix (a) According to the records of the Company, the Company is regular
 in depositing with appropriate authorities undisputed statutory dues
 including Provident fund, investor education and protection fund,
 employees'' state Insurance, income-tax, sales-tax, wealth-tax, customs
 duty, cess and other statutory dues applicable to it, except for 
 the payment of Service Tax amounting to Rs. 84,324,275, which is 
 outstanding on 31st March, 2011 for a period of more than six months, 
 as the liability for the same has not been accepted by the receivers 
 of the services rendered by the Company.
 
 There were no dues on account of cess payable under Section 441A of the
 Companies Act, 1 956 since the aforesaid section has not yet been made
 effective by the Central Government of India.
 
 (b) According to the records of the Company, as at 31st March, 2011,
 the following are the particulars of disputed dues on account of
 various matters which have not been deposited:
 
 Name of the 
 Statute               Nature of 
                       demand       Amount   Period to 
                                             which      Forum where
                                     (Rs.)   the amount 
                                             relates    dispute is 
                                                        pending
 
 Tamil Nadu General 
 Sales Tax Act, 1959  Commercial 
                      Tax         83,284,324 1993-1997  Madras High Court
 
 The Income Tax Act, 
 1961                 Income Tax  90,619,892 2007-2008  CIT (A),Mumbai
 
 x The Company does not have any accumulated losses. The Company has not
 incurred any cash losses during the financial year covered by our audit
 and in the immediately preceding financial year.
 
 xi Based on our audit procedures and on the information and
 explanations given by the Management, we are of the opinion that the
 Company has not defaulted in repayment of dues to any financial
 institution, bank or debenture holders.
 
 xii In our opinion and according to the information and explanations
 given by the Management, the Company has not granted any loans and
 advances on the basis of security by way of pledge of shares,
 debentures or any other securities.
 
 xiii In our opinion the Company is not a chit fund or a nidhi /mutual
 benefit fund/society. Therefore, the provisions of clause 4(xiii) of
 the Order are not applicable.
 
 xiv In our opinion the Company is not dealing in or trading in shares,
 securities, debentures and any other investments. Therefore, the
 provisions of clause 4(xiv) of the Order are not applicable.
 
 xv In our opinion and according to the information and explanations
 given to us, the terms and conditions of the guarantees given by the
 Company for loans taken by others from banks are not prima facie
 prejudicial to the interest of the Company.
 
 xvi On the basis of the records examined by us, and relying on the
 information compiled by the Company for co-relating the funds raised to
 the end-use of term loans, we state that the Company has, prima facie,
 applied the term loans for the purpose for which they were obtained.
 
 xvii According to the information and explanations given to us and on
 an overall examination of the financial statements and after placing
 reliance on the reasonable assumptions made by the Company for
 classification of Short-term and Long-term usage of the funds, we are
 of the opinion that, prima facie, no funds raised on short-term basis
 have been utilized for long-term investment.
 
 xviii According to the information and explanations given to us, the
 Company has not made any preferential allotment of shares to parties or
 Companies covered in the register maintained under section 301 of the
 Companies Act, 1956. Accordingly paragraph 4(xviii) of the Order is not
 applicable.
 
 xix According to the information and explanations given to us, the
 Company has not issued any debentures during the year. Accordingly
 paragraph 4(xix) of the Order is not applicable.
 
 xx The Company has not raised any money by public issues during the
 year. Accordingly paragraph 4(xx) of the Order is not applicable.
 
 xxi Based upon the audit procedures performed and information and
 explanations given by the Management, we report that no fraud on or by
 the Company has been noticed or reported during the year.
 
                                       For SORAB S. ENGINEER & CO.
                                             Chartered Accountants
                                Firm Registration Number : 110417W
 
                                                        M.P. ANTIA
                                                           Partner 
 Mumbai: May 26, 2011                          Membership No. 7825