Auditors

Auditor's Report (Finolex Industries) Year End : M

We have audited the attached Balance Sheet of Finolex Industries
Limited as at 31st March 2010, 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.

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 whether the financial
statements are free of material mis-statement. 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 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 the 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 the books
and proper returns adequate for the purpose 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, 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;

e) On the basis of the written representations received from the

Directors as on 31st March, 2010 and taken on record by the Board of
Directors, we report that none of the Directors are disqualified as on
31st March, 2010 from being appointed as Director in terms of clause
(g) of sub-section (1) of Section 274 of the Companies Act, 1956 on the
said date;
f) 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
Companys accounting policies and the Notes thereto, 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 on 31st March, 2010;

ii) in the case of the 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.

Referred to in paragraph 1 of our Report of even date:

i. (a) The Company has maintained proper records showing full

particulars including quantitative details and situation of fixed
assets.

(b) Assets have been physically verified by the management during the
year based on the regular programme of verification, which in our
opinion is reasonable having regard to the size of the Company and the
nature of its assets. As explained, the discrepancies noticed were not
material and the same have been properly dealt with in the books of
account.

(c) In our opinion and according to the information and explanations

given to us, during the year, the Company has not disposed of any
substantial/major part of fixed assets.

ii. (a) As explained to us, the inventory has been physically verified
during the year by the management. 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 for the physical verification of
inventories followed by the management are reasonable and adequate in
relation to the size of the Company and the nature of its business.

(c) In our opinion and according to the information and explanations

given to us and on the basis of our examination of the records of the
inventory, the Company is maintaining proper records of inventory.
Discrepancies noticed on verification between the physical stocks and
the book records were not material and have been appropriately dealt
with in the books of account.

iii. 1. (a) The Company had granted an unsecured loan of Rs. 45 lakhs
to Finolex Plasson Industries Limited, an associate company, listed in
the register maintained under Section 301 of the Companies Act, 1956
which has been repaid during the year.

(b) According to the information and explanations given to us, in our

opinion, the rate of interest and other terms and conditions of the
above loan granted by the Company, were not prima facie, prejudicial to
the interest of the Company.

(c) According to the information and explanations given to us, the

company to whom loans and advances in the nature of loan were given had
been repaying the principal amount as stipulated and was also regular
in payment of interest.

(d) There is no overdue amount of loan granted to the company listed in

the register maintained under Section 301 of the Companies Act, 1956.

2. (a) According to the information and explanations given to us and on

the basis of our examination of the records, the Company has accepted
Inter-Corporate Deposits from the following parties listed in the
register maintained under Section 301 of the Companies Act, 1956 -

Name of the Company Relationship Maximum Outstanding

amount as at March
Rs. lakhs 31,2010
Rs. lakhs
AkashTatva Investments Pvt. Ltd. CommonDirector 277.00 207.00
Coated Fabrics Pvt. Ltd. Common Director 638.00 537.00
Corrugated Box Industries
(I) Pvt. Ltd. Common Director 125.00 125.00
Finolib Chemicals Pvt. Ltd. Common Director 70.00 70.00
Orbit Electricals Pvt. Ltd. Common Director 177.00 50.00

(b) According to the information and explanations given to us, in our

opinion, the rate of interest and other terms and conditions of above
loans granted to the Company, are not prima facie, prejudicial to the
interest of the Company.

(c) According to the information and explanations given to us, the

Company is regular in repayment of principal and payment of interest.

(d) There is no overdue amount of Inter-Corporate Deposits accepted

from the parties listed in the register maintained under Section 301 of
the Companies Act, 1956.

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 with regard
to purchase of inventories and fixed assets and with regard to the sale
of goods and services. In our opinion and according to the information
and explanations given to us, there is no continuing failure to correct
major weakness in internal control system. v. In respect of
transactions entered in the register maintained in pursuance of Section
301 of Companies Act, 1956;

a) Based on audit procedures applied by us, to the best of our

knowledge and belief and according to the information and explanations
given to us, we are of the opinion that the particulars of contracts or
arrangements have been entered in the register required to be
maintained under Section 301.

b) According to the information and explanations given to us and

excluding certain transactions of purchase of goods and materials of
special nature for which alternate quotations are not available, in our
opinion, the transactions have been made at prices which are, prima
facie, reasonable having regard to the prevailing market prices at the
relevant time.

vi. In our opinion and according to the information and explanations

given to us, the Company has not accepted any deposits from the public.
Hence, the provisions of Section 58A and 58AA and any other relevant
provisions of the Companies Act, 1956 and rules framed there under are
not applicable.

vii. In our opinion, the Company has an internal audit system

commensurate with the size and nature of its business. viii.We have
broadly reviewed the books of accounts maintained by the Company
relating to the manufacture of PVC Resin, 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
maintained. We have not, however, made a detailed examination of the
records with a view of determining whether they are accurate and
complete. ix. a) According to the information and explanations given
to us and on the basis of our examination of the records of the
Company, the Company has generally been regular in depositing
undisputed statutory dues including Provident Fund, Investor Education
and Protection Fund, Employees State Insurance Contribution, Income
Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty,
cess and other material statutory dues with the appropriate
authorities. b) According to the records of the Company and
information and explanations given to us, dues of Income Tax, Sales
tax, Wealth Tax, Service Tax, Customs Duty and Excise Duty and cess,
which have not been deposited on account of disputes and forum where
dispute is pending are as under:

Name of statute Nature of dues Amount Period to Forum where

(in Rs.which the pending
lakhs) amount
relates
Finance Act, 1994
(Service Tax) Service Tax Demand 167.45 2001-02 Commissioner
Finance Act, 1994
(Service Tax) Service Tax Demand 489.12 2005-06 High Court
Finance Act, 1994
(Service Tax) Service Tax Demand 67.22 2006-07 Commissioner
Finance Act, 1994
(Service Tax) Service Tax Demand 5.01 2007-08 CESTAT
Finance Act, 1994
(Service Tax) Service Tax Demand 0.79 2008-09 CESTAT
Finance Act, 1994
(Service Tax) Service Tax Demand 286.98 2008-09 Commissioner
Finance Act, 1994
(Service Tax) Service Tax Demand 18.54 2008-09 Deputy
Commissioner
Finance Act, 1994
(Service Tax) Service Tax Demand 6.18 2009-10 Deputy
Commissioner
Customs Customs Demand 26.94 2000-01 CESTAT
Customs Customs Demand 14.03 2001-02 CESTAT
Central Excise Excise Demand 32.54 1996-97 High Court
Central Excise Excise Demand 2.07 1999-00 High Court
Central Excise Excise Demand 18.17 2002-03 CESTAT
Central Excise Excise Demand 13.11 2005-06 Commissioner
(A)
Central Excise Excise Demand 0.96 2005-06 CESTAT
Central Excise Excise Demand 2.71 2005-06 High Court
Central Excise Excise Demand 0.46 2006-07 Commissioner
Central Excise Excise Demand 981.99 2007-08 Commissioner
Central Excise Excise Demand 9.49 2008-09 Additional
Commissioner
Central Excise Excise Demand 0.54 2009-10 Deputy
Commissioner

x. The Company does not have accumulated losses at the end of the
financial year and the Company has not incurred any cash losses in the
current and the immediately preceding financial year.

xi. Based on our audit procedures and on the basis of information and
explanations given by the management, we are of the opinion that the
Company has not defaulted in the payment of dues to its bankers,
financial institutions and debenture holders.

xii. According to the information and explanations given to us, the

Company has not granted any loans and advances on the basis of security
by way of pledge of shares, debentures and other securities.

xiii.The provisions of any Special Statute applicable to chit fund or

nidhi / mutual benefit fund / societies are not applicable to the
Company.

xiv. a) Based on the records examined by us and according to the

information and explanations given to us, we are of the opinion that
the Company is maintaining proper records of the transactions and
contracts of dealing in shares and securities and timely entries have
been made in these records.

b) Based on our audit procedures and to the best of our knowledge and
belief and according to the information and explanations given to us,
the shares and securities have been held by the Company in its own
name.

xv. According to the information and explanations given to us, the

Company has not given any guarantee for loans taken by others from
banks and financial institutions.

xvi.To the best of our knowledge and belief and according to

explanations given to us, term loans availed by the Company were, prima
facie, applied by the Company during the year for the purpose for which
loans were obtained.

xvii.On the basis of overall examination of the financial statements

including Cash Flow Statement and other financial information
furnished, we are of the opinion that the funds raised on short term
basis have not been used for long term investments, except to the
extent of approximately Rs. 10,860.01 lakhs for acquisition /
construction of fixed assets.
xviii.The Company has not made preferential allotment of shares to
parties covered in the register maintained under Section 301 of the
Companies Act, 1956 during the year.

xix.According to the information and explanations given to us, security

or charge has been created in respect of debentures issued.

xx. The Company has not raised any money by public issues during the
year.

xxi.To the best of our knowledge and belief and according to the
information and explanations given to us, no fraud on or by the
Company has been noticed or reported during the course of our audit.