To

The members of Gammon India Limited

1. Report on Financial Statements

We have audited the accompanying Financial Statements of Gammon India Limited ("the Company"), which comprises of the Balance sheet as at March 31, 2016, the Statement of Profit and Loss and the Cash Flow Statement for the period October 01, 2014 to March 31, 2016 ("Period"), and a summary of significant accounting policies and other explanatory notes.

We did not audit the financial statement of Gammon India Limited - Nagpur Branch that incorporates the financial results of the overseas branches at Algeria, Nigeria, Bhutan, Afghanistan, Ethiopia, Rwanda, Yemen & Italy. The financial statements of the Nagpur Branch include total assets of Rs. 1118.29 crores and total revenues of Rs. 1277.63 crores for the eighteen-month period ended 31st March 2016. The financial information of the aforesaid branch has been audited by the Branch Auditors whose report has been received by us. Our conclusion so far as transactions of the said Branches are concerned, is based solely on the Auditors' Report of the Branch Auditor.

2. Management's Responsibility for the Financial Statements

The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

3. Auditor's Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made there under. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control . An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by Company's directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

4. Basis of Qualified Opinion

a. We invite attention to note no 33(c) relating to one of the subsidiaries M/s Franco Tosi Meccanica S.p.A (FTM). As described in the note, the control of the operating/core asset of the said FTM has been transferred to the successful bidder and the Company is entitled only to the surplus arising out of disposal of non-core assets of FTM after paying off all other creditors/liabilities of FTM. The funded and non-funded exposure of the Company to FTM is Rs. 892.19 crores as at 31st March 2016 including towards the corporate guarantees issued towards the bank guarantees issued in favour of the said FTM. The management as detailed in the said note is awaiting the details of the surplus arising out of the disposal of the non-core assets and the recovery of the liabilities there from. The management expects that the surplus will be adequate to cover the exposure however in the absence of any indication of the value of the non-core assets or the surplus we are unable to quantify the possible provision towards the exposure of the Company and therefore also the effect on the loss/profit of the Company for the quarter and the period ended 31st March 2016.

b. We invite attention to note no 32, detailing the recognition of claims during the year ended 31st March 2016 in respect of ongoing, completed and/or terminated contracts aggregating to Rs. 1343.97 crores including a further claim of Rs. 300 crores during the quarter ended 31st March 2016 but excluding amounts recognized in quarters before September 2015 of Rs. 313.25 based on management estimates of reasonable realization which were subject matter of our emphasis of matter in our earlier reports. These additional claims are recognized only on the basis of opinion of an expert in the field of claims and arbitration as part of the requirement of the Strategic Debt Restructuring scheme with the lenders. In view of the above-mentioned circumstances and facts we are unable to comment upon the amounts recognized, its realization and the consequent effect on the financial results of the quarter ended 31st March 2016 and the eighteen-month period ended 31st March 2016.

c. We invite attention to note no 33(e), As reported by the branch auditors, the exposure of the Company through the Branch in SAE Powerlines Srl, Italy ("SAE"), a subsidiary of the Company and ATSL BV, Netherlands, the holding company of SAE, towards investments, loans, including guarantees towards the acquisition loan taken by the SPV are Rs. 196.84 crores. The Branch has made provision for impairment of investments and Loan aggregating to Rs. 62.52 crores and provision of Rs. 88.29 crores for risk and contingencies for corporate guarantees for acquisition loan of the SPV and thus, the net exposure of the Branch is Rs. 46.03 crores. The Branch has a further net exposure of Rs. 139.48 crores after provision of Rs. 65.57 crores towards receivables due from SAE, which are outstanding for a long time. The Company had carried out a valuation of the business of SAE by an independent valuer in September, 2014, who determined an enterprise value of Rs. 71.34 crores, which however is not updated to cover the present financial position. In the absence of a fresh valuation of the business of SAE and in the absence of audited financial Statements of SAE for the period ended 31st December 2015, we are unable to comment whether further impairment provision is required with respect to the total net exposure of the Branch of Rs. 185.51 crores in respect of loans, investment and receivables.

d. The Company's Application for managerial remuneration aggregating to Rs. 26.29 crores for the Chairman and Managing Director has been rejected for the accounting years 2012-13 and 9-month period ended December 2013 and 30th September 2014 and for the current eighteen months ended 31st March 2016 for want of NOC from the CDR lenders. The MCA has directed to recover the excess remuneration or make an application for waiver. The Company had once again made applications to the Ministry for the aforementioned periods on obtaining the NOC from the CDR Lenders. The Board however on the recommendation of the Nomination and Remuneration Committee has, subject to shareholders’ approval, decided to seek approval from the Central Government for waiver of excess remuneration paid. Pending the same no adjustments have been made for the amount of Rs. 26.29 crores. In the absence of the final decision of the MCA pursuant to the application being made by the Company we are unable to ascertain the impact on profits on this account for the eighteen-month period ended 31st March 2016 (Refer Note 23(a)).

e. Trade receivables and loans and advances includes an amount of Rs 355.56 crores in respect of disputes in six projects of the Company and/or its SPVs. The Company is pursuing legal recourse/ negotiations for addressing the disputes in favour of the Company Pending the conclusion of the matters we are unable to state whether any provisions would be required against the Company's exposure (refer Note 35(iv)).

f. The Company has given unsecured loans of Rs. 19.83 crores to its joint ventures as a lead partner for which it does not have any prior approval of the members (refer Note 12(vi)).

g. We invite attention to note no 11A(f) relating to the decision for sale of 30% interest of Gammon Infrastructure Projects Limited (GIPL) held through two wholly owned subsidiaries and its consequent classification and valuation in these financial statements. The carrying value of the equity interest in GIPL is Rs. 884.41 crores held through the two wholly owned subsidiaries. The current market value based on the traded price as on March 31, 2016 is Rs. 270.25 crores. The management contends that the market price is not indicative of the intrinsic value of GIPL considering that the same is a strategic Investment. However in the absence of a detailed valuation of the intrinsic value of GIPL being carried out by the Management we are unable to comment whether any provision for diminution or impairment in the carrying amount of the equity interest is required.

5. Qualified Opinion

Except for the possible effects of the matter mentioned hereinabove in the basis of qualified opinion, in our opinion and to the best of our information and according to the explanations given to us, the standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India of the state of affairs of the Company as at March 31, 2016, its profit and its cash flows for the period October 01, 2014 to March 31, 2016.

6. Emphasis of Matter:

Without qualifying our opinion, we draw attention to the following matters:

(a) We draw attention to Note no 35(i), 35(ii) and 35(iii) of the Statement relating to recoverability of an amount of Rs.135.75 crores as at 31st March 2016 under trade receivables in respect of contract revenue where the Company has received arbitration awards in its favour in respect of which the client has preferred an appeal for setting aside the said arbitration awards, recognition of claims while evaluating the jobs of Rs. 153.29 crores and Rs. 155.03 crores where the Company is confident of recovery based on advanced stage of negotiation and discussion. The recoverability is dependent upon the final outcome of the appeals & negotiations getting resolved in favour of the company.

(b) Note no 36 detailing that the lenders have invoked Strategic Debt Restructuring and have converted part of their principal and interest outstanding into equity shares and as part of the SDR scheme is in the process of approving the restructuring scheme, which includes carving out the EPC business, and the T & D business into separate entities wherein new investors would be invited to take control as detailed in the Note. Pending the same due to the liquidity situation and the continuing losses the Company is unable to meet its various liabilities on time. These conditions, along with other matters as set forth in the Note, indicate the existence of a significant uncertainty as to timing and realization of cash flow to support the going concern assumption and operations of the Company.

(c) The Company as detailed in Note 33(b) has exposure of Rs. 887.82 crores towards the combined stake of 67.50 %, which includes 35% stake which is under process of being transferred in favour of M/s Gammon Holding Mauritius Limited, wholly owned subsidiary of the Company, that is pending from a long time. Considering the combined stake held through two separate SPVs, the Company's exposure does not require any impairment which is supported by the order book position and valuation made by an independent valuer.

(d) Note no 33(g) the accounts of a subsidiary M/s Campo Puma Oriente S.A. have not been audited since December 2012, due to certain disputes with the partner in the project. The exposure of the Company in the said subsidiary is Rs. 411.67 crores net of provisions made. The company has received a valuation report for $ 60 Million approximately from an independent merchant banker for its share. On the basis of this report and the other matters detailed in the note the management is confident that there will be no provision required for impairment

(e) (e) Note no 12(v) G&B Contracting LLC where the management has made assertions about the investment and reasons why the same does not require any provision towards diminution in the value of investment and loans provided. Relying on the assertions no adjustments have been made in the financials towards possible impairment.

7. Report on Other Legal and Regulatory Requirements

A. As required by the Companies (Auditor's Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure A, a statement on the matters Specified in paragraphs 3 and 4 of the said Order.

B. As required by section 143 (3) of the Act, we report that:

(a) We have sought and 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 it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us. As stated above we have received the audit report of the branches not visited by us from the branch auditors.

(c) The report on the accounts of the branch office of the company not audited by us but audited under sub-section 143(8) by the branch auditor has been received by us under the proviso to that sub-section and the same has been properly dealt with it in preparing our report.

(d) The Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(e) In our opinion, except for the possible effect of the matters mentioned in the basis of qualified opinion paragraph, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

(f) The matters mentioned in the basis of qualified opinion paragraph and the matters mentioned in paragraph (b) of the emphasis of matter paragraph, relating to the matter of significant uncertainty in the timing and realization of cash flows, may have an adverse impact on the functioning of the Company.

(g) On the basis of written representations received from the directors as on March 31, 2016 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2016 from being appointed as a director in terms of section 164(2) of the Act.

(h) The possible effects of matters mentioned in the basis for qualified opinion paragraph may have an adverse effect on the maintenance of the records of the Company.

(i) With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 41 to the financial statements.

ii. The Company has provided for all material foreseeable losses arising out of long-term contracts including derivative contracts..

iii. The Company has to transfer amount of Rs. 0.33 Crore to the Investor Education and Protection Fund during the year.

ANNEXURE REFERRED TO IN PARAGRAPH 1 OF REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 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) Fixed assets have been physically verified by the management during the period at reasonable intervals and no material discrepancies were identified on such verification except assets at some of their terminated sites where the access to the assets are presently prohibited and the matter is under dispute. The total value of assets at such sites is Rs. 23.56 crores (Net WDV).

(ii) (a) Inventories, being project materials have been physically verified by the management at reasonable intervals during the year.

In our opinion, the frequency of such verification is reasonable.

(b) In our opinion and according to the information and explanations given to us, the procedure of physical verification of stock followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The discrepancies noticed between the physical stocks and books stocks were not material and the valuation of stock has been done on the basis of physically verified quantity. Therefore Shortage / Excess automatically get adjusted and the same is properly dealt in the books of accounts.

(iii) According to the information and explanation given to us, the Company has granted unsecured loan to 5 parties covered in the register maintained u/s 189 of the Companies Act 2013. In respect of such loans;

(a) Loans granted during the year amounts to Rs. 889.48 crores and the amount outstanding as at the end of the year is Rs.907.17 crores. As per the terms of the loan the same is given for long term and hence the repayment of interest and loan is not due as at Balance sheet date.

(b) Since repayment of aforesaid loans is not due, there is no overdue amounts for more than Rs one lakhs from parties covered under section 189 and therefore the requirements of clause 4(iii)(b) of the Companies (Auditors Report) Order, 2015 are not applicable.

(iv) In our opinion and according to the information and explanations given to us, the implementation of the internal control procedure and assessment of risks in respect of the sub-contract and other site expenditure, material reconciliations, purchases needs strengthening to make it commensurate with the size and nature of its operations. In respect of the purchase of fixed assets and sale of goods and services the internal control procedures are commensurate with the size of the Company and the nature of its business. The weakness with respect to the adherence to the Internal control procedures for above referred activities are still continuing as at the Balance Sheet date which were reported upon in the previous audit reports.

(v) The Company has not accepted any deposits from the public pursuant to sections 73 to 76 or any other relevant provisions of the Companies Act 2013 and rules framed there under. Therefore, the provisions of clause 3(v) of the Companies (Auditors Report) Order 2015 are not applicable to the Company. As informed to us, there is no order that has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal in respect of the said sections.

(vi) As informed to us the maintenance of the cost records under the sub-section (1) of section 148 of the Companies Act, 2013 has been prescribed and we are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have not, however, carried out a detailed examination of the records to ascertain whether they are accurate or complete.

(vii) (a) The company has several instances of delay in depositing undisputed statutory dues including Provident Fund, Professional

Tax, Employees State Insurance, works contract tax, Service tax/VAT, Cess and sales tax dues with the appropriate authorities observed on a test check basis. On the basis of the audit procedures followed, test checks of the transaction and the representation from the Management there are arrears amounting to Rs 11.45 crores in case of Income Tax, Rs 1.62 crores in case of Provident Fund, Rs. 1.90 crores in case of Works contract tax, Rs.0.61 crores in case of Entry tax, Rs. 0.04 crores in case of Value added tax, Rs.0.34 crores in case of Professional tax, Rs. 0.01 crores in case of labour welfare fund , Rs 0.01 crores in case of Health Contribution Bhutan, Rs.0.26 crores in case of Employee's State Insurance Scheme, Rs 1.23 crores in case of Royalty and Rs.0.49 crores in case of Road tax which were outstanding as at the last day of the financial year for a period of more than six months from the date they became payable.

(b) According to the information and explanation given to us, the details of Sales tax, Income Tax, Service Tax and Excise duty that have not been deposited on account of dispute are stated in the Statement of statutory dues outstanding attached herewith.

(c) The amounts to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made there under has been transferred to such fund within time except for Rs 0.33 crores which is required to be transferred to Investor Education and protection funds.

(viii) The Company has accumulated losses at the end of the financial period which is more than 50% of its net worth. However, except for the possible effect of the matters mentioned in our basis of qualified opinion, the Company has not incurred cash losses during the current financial period and in the immediately preceding financial period.

(ix) According to information and explanations given to us, the company has defaulted in servicing interest and principal repayment due to debenture holders, financial institutions and banks. The amounts of delays in interest servicing in respect of Rupee Term Loan, FITL, Priority Loan, Working capital term loan, Short term Loan, NCD, NCD FITL, CC and OD were Rs 646.61 Crores for a period ranging from 1 to 366 days. And Principal for the said facility amounts to Rs 231.98 Crores ranging from 16 to 366 days The amounts of default on account of overdrawn of Cash credit facility was Rs.150.58 Crores as at March 2016. The amounts include the continuing defaults at balance sheet on repayment of interest and principal which is annexed to the financial statements.

(x) According to the information and explanations given to us and the records examined by us, the terms and conditions of guarantee given by the Company for loan taken by its wholly owned subsidiary from bank are not prima facie prejudicial to the interest of the Company.

(xi) Based on information and explanations given to us by the management, no fresh term loans were taken during the year except availing of working capital term loan which were applied for the business. Therefore the requirements of clause 4(xi) of the Companies (Auditors Report) Order, 2015 are not applicable.

(xii) According to the information and explanations given to us and to the best of our knowledge and belief no fraud on or by the Company has been noticed or reported during the current eighteen month period.

For Natvarlal Vepari & Co.

Firm Registration Number: 106971W

Chartered Accountants

N Jayendran

Partner M.No. 40441

Place: Mumbai

Dated: June 17, 2016