1.  We have audited the attached Balance Sheet of VIDEOCON INDUSTRIES
 LIMITED, as at 31st December, 2010, Profit and Loss Account and also
 the Cash Flow Statement of the Company for the period 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.
 
 2.  We conducted our audit in accordance with the 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 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 (Auditor’s Report) Order, 2003, issued
 by the Central Government in terms of Section 227(4A) of the Companies
 Act, 1956, on the basis of such checks as considered appropriate and
 according to the information and explanations given to us during the
 course of the audit, we give in the Annexure hereto a statement on the
 matters specified in Paragraphs 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 it appears from our examination of those
 books. Proper returns adequate for the purpose of our audit have been
 received from branches not visited by us. The branch Auditors Reports
 have been forwarded to us and have been appropriately dealt with;
 
 c) The Balance Sheet, Profit and Loss Account and the Cash Flow
 Statement dealt with by the report are in agreement with the books of
 account and with the audited returns from the foreign branches;
 
 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) According to the information and explanations given to us and on the
 basis of written representations received from the directors and taken
 on record by the Board of Directors, we report that none of the
 directors is disqualified from being appointed as a director in terms
 of Section 274(1)(g) of the Companies Act, 1956;
 
 f) In our opinion and to the best of our information and according to
 explanations given to us, the said financial statements, read together
 with the signifcant accounting policies, paragraph 4 above 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 the Balance Sheet, of the state of affairs of the
 Company as at 31st December, 2010;
 
 (ii) In the case of the Profit and Loss Account, of the profit for the
 period ended on that date; and
 
 (iii) In the case of the Cash Flow Statement, of the cash flows for the
 period ended on that date.
 
 ANNEXURE REFERRED TO THE AUDITORS’ REPORT
 
 Statement referred to in paragraph 3 of the Auditors’ Report of even
 date to the Members of VIDEOCON INDUSTRIES LIMITED on the financial
 statements for the period ended 31st December, 2010.
 
 (i) (a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) As per the information and explanations given to us, physical
 verification of fixed assets, other than those under joint venture, has
 been carried out at reasonable intervals in terms of the phased
 programme of verification adopted by the Company and no material
 discrepancies were noticed on such verification. In our opinion, the
 frequency of verification is reasonable, having regard to the size of
 the Company and nature of its business.
 
 (c) In our opinion, during the period the Company has not disposed off
 any substantial part of fixed assets.
 
 (ii) (a) As per the information and explanation given to us, the
 inventories (excluding stock of crude oil lying at extraction site with
 the Operator) have been physically verified during the period by the
 management. In our opinion, having regard to the nature and location of
 stocks, the frequency of the physical verification is reasonable.
 
 (b) In our opinion and according to the information and explanations
 given to us, procedures of physical verification of inventory followed
 by the management are reasonable and adequate in relation to the size
 of the Company and the nature of its business.
 
 (c) The Company is maintaining proper records of inventory. As per the
 information and explanations given to us, the discrepancies noticed on
 physical verification of stocks were not material in relation to the
 operations of the Company and the same have been properly dealt with in
 the books of account.
 
 (iii) (a) As per the information and explanations given to us, the
 Company has not granted or taken any loans, secured or unsecured,
 to/from Companies, firms or other parties covered in the register
 maintained under Section 301 of the Companies Act, 1956.  
 
 (b) As the Company has neither granted nor taken any loans, secured or
 unsecured to/from companies, firms or other parties covered in the
 register maintained under Section 301 of the Companies Act, 1956,
 sub-clauses (b), (c), (d), (f) and (g) of Clause 
 
 (iii) of paragraph 4 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 systems commensurate
 with the size of the Company and the nature of its business with regard
 to purchases of inventory and fixed assets and for the sales of goods
 and services. During the course of our audit, we have not observed any
 continuing failure to correct the major weakness in the internal
 controls systems.  
 
 (v) (a) Based on the audit procedures applied by us
 and according to the information and explanations provided by the
 management, we are of the opinion that the particulars of contracts or
 arrangements referred to in Section 301 of the Companies Act, 1956,
 have been entered in the register required to be 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 the value of
 Rupees Five Lakhs, in respect of any party during the period, have been
 made at prices which are reasonable having regard to prevailing market
 price at the relevant time.
 
 (vi) The Company has not accepted any deposits from the public within
 the meaning of the provisions of Sections 58A and 58AA or any other
 relevant provision of the Companies Act, 1956 and rules made
 thereunder.
 
 (vii) In our opinion, the Company has an internal audit system
 commensurate with its size and nature of its business.
 
 (viii) The Central Government has prescribed maintenance of the cost
 records under Section 209(1)(d) of the Companies Act, 1956, in respect
 of the Company’s products.  As per the information and explanations
 provided to us, we are of the opinion that prima facie, the prescribed
 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 information and explanations given to us and
 the records examined by us, 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, Service tax, Custom duty,
 Excise duty, Cess and other statutory dues wherever applicable.
 According to the information and explanations given to us, no
 undisputed arrears of statutory dues were outstanding as on 31st
 December, 2010 for a period of more than six months from the date they
 became payable.
 
 (b) According to the records of the Company examined by us and
 information and explanations given to us, the particulars of dues of
 Sales tax, Income tax, Wealth tax, Service tax, Custom duty, Excise
 duty, Cess which have not been deposited on account of disputes, are
 given below:
 
 Nature of 
 Statute     Nature of Dues    Amount  
                               (Rs. Million)      Forum where
                                                  dispute is 
                                                  pending
 
 1. Customs 
 Act, 1962     Custom Duty      120.51            CESTAT
 
                                  1.13            Asst. Commissioner
 
                                  0.93            Commissioner (Appeals)
 
                                  1.31            Addl. Commissioner
 
                                200.61            Supreme Court
 
                                 18.86            Deputy Commissioner
  
                                 57.32            Commissioner
 
               Custom Penalty    11.00            Commissioner
 
 2. Central 
 Excise Act, 
 1944/ Finance 
 Act, 1994     Excise Penalty     8.25            Commissioner (Appeals) 
 (Service Tax 
 Provisions)                      0.12            Asst. Commissioner
 
                                 92.93            CESTAT
               Service Tax and 
               Education Cess     1.06            Asst. Commissioner
 
                                  9.73            Addl. Commissioner
 
                                  0.83            Commissioner 
                                                  (Appeals)
 
                                  1.91            CESTAT
 
                                 97.75            Commissioner
 
               Excise Duty        4.61            Joint Commissioner
 
                                 76.87            CESTAT
  
                                 12.61            Commissioner
 
                                  9.65            Commissioner 
                                                  (Appeals)
 
                                  0.20            Dy. Commissioner
 
                                  3.82            High Court
 
 3. Central 
 Sales Tax 
 Act, 1956 
 and State 
 Sales         Sales Tax       21.40            Jt.Commissioner 
                                                  (Appeals) 
 Tax Acts 
 of various 
 States                          14.65            Dy.Commissioner 
                                                  (Appeals)
 
                                 12.83            Appellate Tribunal
 
                                  0.46            Supreme Court
 
                                  2.28            Addl. Commissioner
 
                                  5.33            Commissioner 
                                                  (Appeals)
 
                                 20.17            Sr. Asst. Commissioner
 
 4. Income 
 Tax Act, 
 1961          Income Tax       351.13            Appellate Tribunal
 
 5. Navi 
 Mumbai 
 Municipal 
 Corporation   Cess             372.30            High Court
 
 (x) There are no accumulated losses as at 31st December, 2010. The
 Company has not incurred any cash losses during the period covered by
 our audit and the immediately preceding financial year.  
 
 (xi) Based on our audit procedures and the information and explanations
 given by the management, we are of the opinion that the Company has not
 defaulted in repayment of dues to financial institutions, banks or to
 debenture holders during the period.  
 
 (xii) Based on our examination of the records and the information and
 explanations given to us, the Company has not granted any loans and/or
 advances on the basis of security by way of pledge of shares,
 debentures and other securities.
 
 (xiii) In our opinion, the Company is not a chit fund Company or nidhi/
 mutual benefit fund/ society.  Therefore the Clause(xiii) of paragraph
 4 of the Order is not applicable to the Company.
 
 (xiv) The Company has maintained proper records of transactions and
 contracts in respect of dealing and trading in shares, securities,
 debentures and other investments and timely entries have generally been
 made therein. All shares, debentures and other securities have been
 held by the Company in its own name except to the extent of the
 exemption granted under Section 49 of the Companies Act, 1956.
 
 (xv) According to the information and explanations given to us, the
 terms and conditions of guarantees given by the Company for loans taken
 by others from banks or financial institutions are prima facie not
 prejudicial to the interest of the Company.
 
 (xvi) According to the information and explanations given to us, the
 term loans raised during the period were applied, on an overall basis,
 for the purposes for which the loans were obtained.
 
 (xvii) According to the information and explanations given to us and on
 our overall examination of the balance sheet of the Company, we report
 that the Company has not used funds raised on short term basis for
 long-term investments.
 
 
 (xviii) The Company has not made any preferential allotment of shares
 during the period to parties and companies covered in the register
 maintained under Section 301 of the Companies Act, 1956.  
 
 (xix) The Company has not issued any secured
 debentures during the period. The Company has created security in
 respect of debentures issued in earlier years.  
 
 (xx) During the period,
 the Company has raised money through right issue. The Company has
 disclosed on the end use of money raised and have verified the same.
 
 
 (xxi) According to the information and explanations given to us, no
 fraud on or by the Company has been noticed or reported during the
 period.
 
 
 For KHANDELWAL JAIN & CO.                       For KADAM & CO.
 Chartered Accountants                           Chartered Accountants
 Firm Registration No. 105049W                   Firm Registration 
                                                 No. 104524W
 
 SHIVRATAN AGARWAL                               U. S. KADAM
 Partner                                         Partner
 Membership No. 104180                           Membership No. 31055
 
 Place : Mumbai
 Date : 26th May, 2011