We have audited the accompanying financial statements of Bhagheeratha Engineering Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of these 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 Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control 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.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. 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 procedure 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 control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, 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.

Opinion

(i) Loan liability to consortium of Bankers as at 31.03.2013 as per the books of the Company is Rs. 9031 lakhs excluding interest payable amounting to Rs. 2021 lakhs credited to interest payable account. All the loan accounts are defaulted since the financial year 2005-2006. The Company was under a Corporate Debt Restructuring Scheme with the Bankers since 2005. Since the company could not comply with the terms stipulated by bankers, the terms of the Scheme are no more applicable. But the company is still providing interest on the above loans as per terms agreed up on by the Bankers in COR Scheme. The company has provided interest at a concessional rate of 8.25 % p.aon loans amounting to Rs. 2719 lakhs, at 17.5% on Rs. 423 lakhs and no interest is charged on the balance amount of Rs. 5889 lakhs (for which interest moratorium was originally allowed). The Bankers have filed suits for recovery of these advances. It is informed that the Company has since submitted a scheme for One-Time-Settlement of these loans which is under the consideration of the banks. The balance in the loan accounts are not confirmed and reconciled. The total liability as claimed by the Bankers originally in the Debt Recovery Tribunal is reported to be Rs. 16400 lakhs and this is disputed by the Company. Since the matter is under litigation and application for One- Time-Settlement is under the consideration of bankers, short provisions of interest and other charges if any on these loan accounts are not presently ascertainable (Refer Note No. 5).

(ii) Balance with Bankers (a )Fixed deposits of Rs. 295 lakhs is appropriated by Bankers towards their loan accounts. The Company has disputed these appropriations by the bankers and has not given effect to the same in its books. Since the matter is under litigation, we are not in a position to comment on the correctness of the deposits shown by the company (b) Deposits amounting to Rs. 200 lakhs is earmarked by the Bankers against liability to one of the creditors of the Company on the basis of a Court Order (Refer Note No. 15).

(Hi) The Company has not provided overdue interest on hire purchase loans outstanding Rs.256 lakhs availed from a hire purchase finance Company, who have taken possession of the hypothecated assets, pending settlement of accounts in respect of the assets seized by it. Liability if any on this account is presently not ascertainable (Refer Note No. 5).

(iv) Receivables against Uncertified Work amounting to Rs. 623 lakhs, Security Deposit and Withholding from Contract Income amounting to Rs. 312 lakhs relating to closed projects are pending realization due to dispute with the clients and are in different stages of arbitration/legal proceedings. We are not in a position to comment on the realization of the above amounts at this stage (Refer Note No. 35).

(v) Balances in Trade Payables and Receivables, Loans & Advances and Clients accounts are long outstanding and subject to confirmation.

Subject to our observation in para above, in our opinion and to the best of our information and according to the explanations given to us, the 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:

(a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2013.

(b) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and

(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by Section 227(3) of the Act, 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 appears from our examination of those books;

(c) 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;

(d) in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the 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 March 31, 2013, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2013, from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

ANNEXURE TO THE AUDITORS'REPORT

Referred to in paragraph III of our report of even date

1. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of all fixed assets.

(b) Physical verification of fixed assets was carried out by the management during the year as per its program of verification. In this regard, we report that:

Fixed assets of the Company mainly consisting of Equipments and Machinery are located at various places including four terminated projects. Machinery and equipments with w.d.vof Rs. 318 lakhs are under the custody of the clients and creditors. Company continue to carry on the value of the above assets in its books of accounts pending settlement of disputes with them. It is reported that all the machinery and equipments are very old and are in a depleted condition due to non usage for a long time and lack of proper maintenance. Many of the assets are stated to be beyond commercial repairs. During the year the company has decided to scrap some of such assets the original cost of which is Rs. 727 lakhs (w.d. v- NIL). Realizable value if any of the scrapped assets is not taken in to account at this stage.

Company continues to carry the balance assets at book value. We have relied on the physical verification conducted by the management. Since a detailed report containing a technical study on the conditions of these assets are not made by the company, we are not in a position to assess the impairment loss if any in this respect.

(c) The fixed assets disposed of by the Company during the year are not substantial so as to affect the going concern assumption.

2. Inventory as on 31.3.2013 includes stock of construction materials and spares amounting to Rs.248 lakhs under the custody of the clients on termination of the projects, pending settlement of disputes with them. It is reported that the Company is not in a position to verify the stock physically and consequently any loss including deterioration in quality is not assessed and dealt with in the accounts. Subject to the above,

(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) According to the information and explanation given to us, in our opinion, the procedures for physical verification of inventories followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) According to the information and explanations given to us, in our opinion, the Company has maintained proper records of inventory. Stock of stores and spares with book value of Rs.48.37 lakhs is written off during the year since the same were obsolete and unusable. Scrap value if any, is not assessed and dealt with in the accounts.

3. Company has not granted loans to any parties listed in the register maintained under section 301 of the Companies Act, 1956 and hence reporting under clause nos. 3(a) to (d) are not applicable.

(a) The Company has taken loans from 39 persons covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.14.8 lakhs and the same balance is outstanding at the year-end.

Two persons covered in the register maintained u/s.301, who were guarantors of the loan from banks have remitted an amount of Rs.506 lakhs to bank on the basis of a Court Order. The bankers have adjusted the above amount against the dues of the Company. The Company has classified the above amount as unsecured loan in the accounts during the year.

(b) In our opinion the rate of interest and other terms and conditions on which loans have been taken from the parties listed in the register maintained under Section 301 of the Companies Act, 1956 are not prima facie, prejudicial to the interest of the company.

(c) The repayment schedules for the above loans taken are not fixed. Hence, we are not in a position to comment on the regularity of the repayment and the overdue position of these loans.

4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods and services. Further on the basis of our examination of the books and records of the Company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weakness in the above said internal control system.

5. (a) According to the information and explanations given to us, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 that needed to be entered into the register maintained under the said Section have been so entered.

(b) In our opinion and according to the information and explanations given to us, there were no transactions with parties listed in the register maintained under section 301 of the Companies Act, 1956, exceeding the value of rupees five lakhs in respect of any party during the year.

6. According to the information and explanations given to us, we are of the opinion that the Company has not complied with the provisions of section 58A and other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to deposits accepted from public. The following are the contraventions noticed.

(a) Company has defaulted in repayment of deposits matured amounting Rs.15 lakhs as at 31.03.2013.

(b) Company has not maintained the prescribed liquid deposits as at 31.03.2013.

(c) Considering the negative net worth as at 31.03.2012, thebalance of deposits outstanding as on 31.03.2013 exceeds the limit prescribed.

(d) Company has not filed the return of deposits during the year.

(e) Company has not filed intimation regarding the default made by it in repayment of deposits to small depositors to the Company Law Board as required under Section 58AA.

7. In view of the limited operations the Company had no internal audit system during the year.

8. To the best of our knowledge and information given to us, Central Government has not prescribed maintenance of cost records under section 209-(1) (d) of the Companies Act, 1956 for the company.

9. (a) According to the information and explanations given to us and according to the books and records as produced and examined by us, Company is generally regular in depositing undisputed statutory dues like, Income Tax, Sales Tax, Service Tax, Wealth Tax and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, there are no dues of Customs duty, Wealth tax, Excise duty, Cess and Value Added Tax, which have not been deposited on account of any dispute, except for VAT the details of which is as follows:

Nature of the 
dues            Amount Rs.   Period to which 
                             the amount relates  Forum where dispute 
                                                     is pending

VAT             2994873/-         2005-06        Pending before 
                                                 Revision Board 
                                                 Calcutta

VAT             8491609/-         2006-07        Pending before Joint
                                                 Commissioner
                2080000/-         2007-08        Appellate Appeals,
                                                 Medinipur

10. The Company has accumulated losses as at 31" March 2013 of more than fifty percent of the net worth. The Company has not incurred cash loss during the financial year and previous year covered by our audit.

11. According to the information and explanations given to us, all the credit facilities availed by the Company from the consortium of banks are over due through out the financial year. The balance outstanding as on 31.03.2013 is Rs.110.52 lakhs including amount outstanding in the interest payable account.

12. In our opinion and according to the information and explanations given 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.

13. In our opinion, the Company is not a chit fund or a nidhi mutual fund/society. Therefore, the provisions of clause 4 (xiii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

14. In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in shares, securities or other investments.

15. In our opinion and according to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks and other financial institutions.

16. In our opinion and according to the information and explanations given to us, the Company has not raised any term loans during the year.

17. According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, in our opinion, no funds raised on short term basis have been used for long term investments.

18. According to the information and explanations given to us, during the year the Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956.

19. According to the information and explanations given to us, the Company has not issued any debentures during the year.

20. The Company has not raised any money through public issue during the year.

21. 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.

 
                                         For P. C. VARGHESE & CO.

                                          Chartered Accountants

                                              (FRN: 004526S)

                                                 (Sd/-) 

                                       P.C. VARGHESE, B.Com, F.C.A.

Kochi                                            Partner

24.06.2013                                    (M. No. 10408)