Wockhardt

1.  We have audited the attached Balance Sheet of Wockhardt Limited
 (the Company) as at December 31, 2008 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 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. 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.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 (as
 amended) 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.
 
 4.  Further to our comments in the Annexure referred to above, we
 report that:
 
 i. 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.
 
 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
 those books.
 
 iii. The balance sheet, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account.
 
 iv. 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 sub-section (3C) of section 211 of the
 Companies Act, 1956.
 
 v. On the basis of the written representations received from the
 directors, as on December 31, 2008, and taken on record by the Board of
 Directors, we report that none of the directors is disqualified as on
 December 31, 2008 from being appointed as a director in terms of clause
 (g) of sub-section (1) of section 274 of the Companies Act, 1956.
 
 5.  Without qualifying our opinion, we draw attention to Note 32 to the
 Financial Statements with regards to the Companys ability to repay its
 loan and related liabilities falling due upto December 31, 2009 being
 dependant on the Company being able to successfully implement the
 actions proposed therein. These liabilities due for repayment in 2009
 amount to approximately Rs. 14,144 million, which is greater than the
 currently expected cash flows from business and any committed or
 contracted sources of funds of the Company. As informed by management,
 the Empowered Group (EG) of Corporate Debt Restructuring (CDR) Cell has
 admitted the Company to the CDR Scheme. The Companys ability to
 continue as a going concern is dependent on the successful outcome of
 its application under the CDR Scheme. In view of the above, no
 adjustments have been made to the accompanying financial statements.
 
 6.  As stated in Note 33(d) to the Financial Statements, the Company
 had, on certain derivative contracts with banks, stopped payment of
 margins called by the banks during the year. Subsequent to the balance
 sheet date the banks, based on the Early Termination clause in the
 agreement, terminated these contracts and claimed an amount of Rs
 4,895.24 million, being the loss incurred on termination of such
 contracts. The Company contends that the derivative transactions were
 unilaterally cancelled by the banks and the mark to market losses had
 arisen on account of counter positions advised by the banks. The
 Company has obtained a legal opinion that these contracts can be
 disputed. No provision has been made in the accounts for these demands
 which have been disclosed under contingent liabilities. The Company has
 not determined the quantum of mark to market losses as of the balance
 sheet date on the above contracts. Pending final settlement of the
 matter, we are unable to quantify the extent of provision that may be
 required to be made in this regard.
 
 7.  In our opinion, and to the best of our information and according to
 the explanations given to us, subject to the matter included in the
 paragraph 6 above, the effect of which can not be currently
 ascertained, 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 December 31, 2008;
 
 (b) in the case of the profit and loss account, of the loss for the
 year ended on that date; and
 
 (c) in the case of cash flow statement, of the cash flows for the year
 ended on that date.
 
 ANNEXURE REFERRED TO IN PARAGRAPH [3] OF OUR REPORT OF EVEN DATE
 
 Re: Wockhardt Limited
 
 (i) (a) The Company has maintained proper records showing full
 particulars, including quantitative details ana situation of fixed
 assets.
 
 (b) The Company has a program for phased physical verification of all
 of its fixed assets over a period of three years, which, in our
 opinion, is reasonable having regard to the size of the Company and the
 nature of its assets. Accordingly, certain fixed assets have been
 physically verified by the management during the year and discrepancies
 noticed on such verification, which were not material, have been
 properly dealt with in the books of account.
 
 (c) There was no substantial disposal of fixed assets during the year.
 
 (ii) (a) The management has conducted physical verification of
 inventory at reasonable intervals during the year.
 
 (b) The 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 and
 discrepancies noticed on physical verification of inventory were not
 material and have been properly dealt with in the books of account.
 
 (iii) (a) As informed, the Company has not granted any loans, secured
 or unsecured to companies, firms or other parties covered in the
 register maintained under section 301 of the Companies Act, 1956.
 
 (b) As informed, the Company has not taken any loans, secured or
 unsecured from companies, firms or other parties covered in the
 register maintained under section 301 of the Companies Act, 1956.
 Therefore, the provisions of clause 4(iii) (f) and 4(iii) (g) of the
 Companies (Auditors Report) Order, 2003 (as amended) are not
 applicable to the Company.
 
 (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 the nature of its business, for the
 purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of our audit, no major weakness has been
 noticed in the internal control system in respect of these areas.
 
 (v) (a) 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 Act that need to be
 entered into the register maintained under section 301 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 exceeding value of Rupees five lakhs have been entered
 into during the financial year at prices which are reasonable having
 regard to the prevailing market prices at the relevant time.
 
 (vi) The Company has not accepted any deposits from the public.
 
 (vii) The Company has an internal audit system, which commensurates
 with the size and nature of its business except that the scope needs to
 be enlarged in respect of its Treasury Operations.
 
 (viii) We have broadly reviewed the books of account 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 are of the opinion that prima facie, the prescribed
 accounts and records have been made and maintained. We have not,
 however made a detailed examination of the records with a view to
 determining whether they are accurate or complete.
 
 (ix) (a) Undisputed statutory dues including provident fund, investor
 education and protection fund, or employees state insurance,
 income-tax, sales-tax, wealth-tax, service tax, customs duty, excise
 duty, cess have generally been regularly deposited with the appropriate
 authorities.
 
 (b) According to the information and explanations given to us, no
 undisputed amounts payable in respect of provident fund, investor
 education and protection fund, employees state insurance, income-tax,
 wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and
 other undisputed statutory dues were outstanding, at the year end, for
 a period of more than six months from the date they became payable.
 
 (c) According to the records of the Company, there are no dues
 outstanding of income-tax, sales-tax, wealth-tax, service tax, customs
 duty, excise duty and cess on account of any dispute, other than as
 follows:
 
 Name of the statute     Nature of dues      Amount
                                             (Rs. in millions)
 
 Central Excise Act,     Reversal of               0.40
 1944                    CENVAT credit  
                         Penalty for               3.66
                         classification       
                         Differential Duty        21.92
                         Education Cess            0.24
                         Differential Duty         3.62
                         Cenvat Credit            33.17
                         wrongly availed
                         Demand and               21.96 
                         Penalty for                                         
                         classification       
 
 Period to which the               Forum where the dispute
 amount relates                    is pending
 
 April 1999 to August 1999         Commissioner Appeal
 
 February 2001 to February         CESTAT
 2003                               
 
 November 1996 to April            Commissioner
 1998
 
 July 2004 to August 2004          Deputy Commissioner
 
 December 2001 to January          Additional Commissioner
 2004
 
 August 2001 to January            Commissioner
 2003
 
 September 1991 to July            CESTAT
 1993
 
 Name of the statute    Nature of dues         Amount
                                            (Rs. in millions)
 
 Income Tax Act,        Demand under            36.42
 1961                   Section 143(3)
 
                        Demand under            47.90
                        Section 143(3)
 
                        Demand under           231.21
                        Section 143(3)
 
 Period to which the         Forum where the dispute is
 amount relates              pending
 
 April 2001 to March 2002    High Court
 
 April 2004 to March 2005    Commissioner of Income Tax
                             (Appeals)
 
 April 2005 to March 2006    Commissioner of Income Tax
                             (Appeals)
 
 (x) The Companys accumulated losses at the end of the financial year
 are less than fifty per cent of its net worth and it has not incurred
 cash losses in the current and immediately preceding financial year.
 
 (xi) Based on our audit procedures and as per the information and
 explanations given by the management, we report that the Company had
 defaulted in repayment of loans to two banks to the extent of Rs.50
 million and Rs.130 million which were due in December, 2008. Subsequent
 to the year end, loan of Rs. 50 million has been rescheduled and loan
 of Rs. 130 million has been repaid in March 2009.
 
 (xii) According to the information and explanations given to us and
 based on the documents and records produced to us, the Company has not
 granted loans and 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 or a nidhi/mutual
 benefit fund/society. Therefore, the provisions of clause 4(xiii) of
 the Companies (Auditors Report) Order, 2003 (as amended) are not
 applicable to the Company.
 
 (xiv) In our opinion, the Company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly, the
 provisions of clause 4(xiv) of the Companies (Auditors Report) Order,
 2003 (as amended) are not applicable to the Company.
 
 (xv) According to the information and explanations given to us, the
 Company has given guarantees for loans taken by subsidiaries from bank
 or financial institutions, the terms and conditions whereof in our
 opinion are not prima-facie prejudicial to the interest of the Company.
 
 (xvi) The Company had raised funds through unsecured Foreign Currency
 Convertible Bonds and through foreign currency borrowing, which
 pending/part utilization, have been gainfully deployed in Bank
 Deposits. Based on information and explanations given to us by the
 management, all other term loans were applied for the purpose for which
 the loans were obtained.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that no funds raised on short-term basis have been used for long-term
 investment.
 
 (xviii) 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.
 
 (xix) According to the information and explanations given to us, during
 the period covered by our audit report, the Company has issued
 debentures amounting to Rs.2,000 million. The Company has created
 security or charge in respect of debentures issued subsequent to the
 year end.
 
 (xx) The Company has not raised any money through a public issue during
 the year.
 
 (xxi) Based upon the audit procedures performed for the purpose of
 reporting the true and fair view of the financial statements and as per
 the information and explanations given by the management, we report
 that no fraud on or by the Company has been noticed or reported during
 the course of our audit.
 
                                       For S. R. Batliboi & Co.
 
                                         Chartered Accountants
                                               per Hemal Shah
                                                      Partner
                                         Membership No.:42650
 
 Mumbai
 April 24, 2009