For 18 months  For 12 months
                                              as at 31st     as at 30th
                                              March 2008 September 2006
                                                  Rupees         Rupees

2. Contingent Liabilities :

Corporate Guarantee given as collateral security to The Pradeshiya Industrial And Investment Corporation of UP Ltd. (PICUP) for term loan of Rs.500 Lacs sanctioned Jayna Mefa (India) Ltd. as collateral security. 3,72,78,548 3,72,78,548

3. The present liability for future payment of gratuity to employees in accordance with the payment of Gratuity Act, 1972 as per actuarial valuation amounts to Rs. 6,98,30,250 /- against which there is a provision of Rs15,000/- amount not provided aggregating to. 6,98,1,5,250 573,71,696

4. a) Based on the Legal Opinion the depreciation in respect of addition to Plant & Machinery of Textile Division during the period 01-01-1968 to 31-12-1986 has been provided without considering the extra shift working as provided under section 205(2) (b) of Companies Act, 1956. Accordingly, the Net Fixed Assets and Reserves and Surplus as on 31-03-2008 are overstated by Rs. 54,08,581/-. (Previous Year Rs. 65,33,969/-).

b) The company has not provided the Depreciation in the Books of accounts during the period from 1st October,1999 to 31" March, 2001 for Rs.6,50,72,115/-. Accordingly, the Net Fixed Assets and Reserve and Surplus are over stated by Rs.6,50,72,115/-. (Previous Year Rs.6,50,72,115-).

5. In absence of the complete information regarding the status of the suppliers as micro small or medium enterprise as per the Micro, Small and Medium Enterprise Development Act, 2006, the information regarding the amount due to such parties as on the balance sheet date and provision for interest, if any required by the provisions of said act is not been made.

6. As per various agreements entered into by the Company with Textile Labour Association (TLA) for VRS of the employees of Unit No 1, the company has paid an amount of Rs. 24,36,727/- (Previous Year Rs 1,46,38,476) towards the compensation and Rs. 45,43,664/ - (Previous Year Rs.1,34,08,817/-) towards gratuity to the workers of the company.

7. In view of Notification No 29/ 2004 and No 30/2004 dated 9th July 2004 an option was given to avail CENVAT credit and pay duty or do not avail CENVAT credit on inputs and capital goods and the clearance of final products without payment of excise duty. Consequently effective from 25th June 2005 the company has followed the practice of not availing CENVAT credit in any inputs and capital goods and clearance of final products without payment of excise duty. Hence no provision is required on the valuation of finished goods inventory.

8. In view of the losses in the current year from operating activities and the accumulated losses brought forward of the previous years, the company has not made any Provision for Taxes in the Books of Accounts including deferred tax and the company does not envisage any Tax liability in the near future.

9. The Company has filed fresh reference on the basis of Financial Accounts for the year 2002-2003 and the said fresh reference was registered with BIFR vide case no. 262/2003. The hearing of the case has been held on 05.12.2005 and BIFR has declared unit as a "Sick-Unit" under provision of Section 3(1 )(0) of the sick industrial Companies Act. 1985.

10. Though Polymer Division does not fall under reporting requirement as stipulated under Accounting Standard -17 (Segment Reporting), the management has voluntarily disclosed segment information of Polymer Division.

11. The Companys Scheme of Arrangement and Debt Restructuring, filed under Section 391 and 394 of the Companies Act 1956, has been approved by Honble High Court of Gujarat on 01-07-2006. Certified copy of the said order has been given on 11-08-2006. The Company has filed Form No 21 with the Registrar of Companies on 21-08-2006.

The salient features and its compliance of the Scheme are as follows

a. The Packaging Division of the Company has been demerged and vested info a separate company i.e. M H Packaging (India) Ltd. (MHPL) and the assets and liabilities pertaining to the said division has been transferred to this separate company. The debts of the MHPL has been restructured as per Appendix D Option 1 and Appendix E of the Scheme of Arrangement approved by Honble High Court of Gujarat. This division is to be disposed off on or before March .31,2007. The ARCIL has advertised for sale of Packaging Division being a separate company on account of demerger of division and in response to that no proposal has been received and hence the matter is still pending for its disposal.

b. As a result of the demerger and transfer of Packaging Division of the Company to MHPL, the existing paid up Equity Share Capital of the MH Mill & Industries Ltd. has been written down by 50% in number of shares i.e. existing 1,21,33,669 equity shares has been written down to 60,66,834 equity shares of Rs.10/- each by fixing Record Date i.e. 19/9/2006 and the thereby effect of the same in the books of accounts has been given on 29/9/06. Thus, share capital of the company has been reduced by Rs.6.07 Crs. The reduced capital is listed on BSE on 24th August 2007.

c. The Principal Retained debt of Rs 30.43 Crores of the First Charge holders in M H Mills (70.86 %) and Rs 12.51 Crores in MHPL (29.14%) has been allocated as detailed in Appendix D Option 1 of the Scheme. As per Appendix E of the Scheme the Retained debt of Second charge holders in Parent company is Rs 24.22 Crores and in MHPL is Rs 9.96 Crores. The Principal Debts of MH Mills & Industries Ltd. has been restructured as under consequent to the Scheme of Arrangement becoming effective. The effect of the same is given in the previous years financial statements.

d. Interest of Rs.86.44 Cr on secured loan and Rs.1.06 Cr on unsecured loan have been waived off consequent to the Scheme of Arrangement becoming effective. Total amount of Rs.87.50 Cr has been shown as Extra ordinary item in Profit and Loss Account. The effect for the same is given in previous year financial statements.

e. Principal secured debt of Rs.14.98 Cr and principal unsecured debt of Rs.0.75 Cr have been waived off consequent to the Scheme of Arrangement becoming effective and transferred to Capital Reserve. The effect for the same is given in previous year financial statements.

f. Polymer Division is to be dispose off after inviting bids from interested buyers for consideration of not less than Rs 3.25 Crores. Out of this Rs 1.05 Crores would be utilized to repay the lenders dues as per the Debt Restructuring Scheme and the balance amount would be utilized to meet the Parent companys working capital operations. The lenders have undertaken a valuation of the Polymer Division to facilitate the sale and complete the same in a transparent process. In view of this the ARCIL has advertised for the sale of Polymer division and in response they have received one proposal for a consideration of Rs. 3.25 Crs. The sale of polymer division was finalised in the monetering committee which was.held on 17th January 2007 and sale deed was executed on 22nd February 2007. In pursuance of this the company has received full consideration of Rs 3.25 Crs. Out of which the company has distributed Rs. 1.05 Crs to the ARCIL/lenders as per the scheme of arrangement.

g. As per the Scheme of Arrangement, the promoters shall infuse Rs.3.50 Crs by way of additional equity i.e. Rs.1.50 Cr on or before 15th July.2006 and Rs.2.00 Cr on or before 30th June, 2007. As against this, Promoters have already infused Rs.2.01 Crs as on 15th July ,2006 and company has allotted the shares to the promoters on 29th September 2006 and the balance amount of Rs. 1.49 Crs are infused by promoters on 31st March 2007. The company has allotted the infused promoters contributions by way of shares on 19th June 2007.

h. The company has called extraordinary general meeting of the shareholders on 12th July 2007 for preferential allotment of equity shares of Rs. 5 Crs to the promoters/ promoters group or such other investors. It was subject to approval of the regulatory authorities i.e. BSE and no-objection from ARCIL/other lenders. The promoters/ promoters group and other investors have already infused Rs 3.62 Crs by 31st March 2008. the company has not received no-objection from Bank of Baroda and BSE. In view of this the company has not allotted shares of Rs. 3.62 Crs and the promoters/ promoters group and other lender further contribution of Rs. 1.38 Crs.

i. The company has not performed as per Part III clause 6 of the Scheme whereby the Company has to generate EBITDA and Cash Accruals amounting to 14.45 Crs for the period under review.

j. In terms of scheme of arrangement company has to make payment of Statutory and Contingent Liabilities on account of Electricity Duty, duty on generation of power, property tax, land revenue and sales tax deferment to the tune of Rs. 6.09 Crs. The company due to insufficient Cash Accruals has not made payment of said statutory dues and Contingent Liabilities.

k. As per scheme of arrangement the company was required to make the payment of restructured debts to ARCIL/other lenders in 10 equal quarterly instalments of Rs. 82.30 lacs. In view of this the company was required to make payment of six instalments for the period under review. Out of outstanding dues of Rs. 493.8 lacs for the period under review the company has made payment of Rs. 41.18 lacs and thereby resulting into default in repayment of Rs.452.62 lacs/-. Also the company has defaulted in payment of penal interest of Rs.38.58 lacs as a consequence of non payment of instalments. The company had not made the provision of penal interest amounting to Rs.38.58 Lacs and due to this the loss for the period and provision is understated by Rs.38.58 Lacs.

12. As per part III clause 3.4 Para 3 of the Scheme, the Company shall dispose off Polymer Division for consideration of Rs.3.25 Crores subject to approval of Monitoring committee based on assets valuation report as on 31st December 2006. In view of this the company has carried out valuation of fixed assets from GITCO and being Polymer division as a going concern the value of net current assets are based on the date of execution of sale deed. In pursuance of this the company has executed sale deed on 22nd February 2007 at Rs. 3.25 Crs and effect of disposal of Polymer division is given in final statements as per balances appearing in the books as on 22nd February 2007.

13. Accounting Standard (AS-15) on Employee benefits

Contributions are made to Recognised Provident Fund/Government Provident Fund, Family Pension Fund, ESIC and other Statutory Funds which covers all regular employees. While both the employees and the Company make predetermined contributions to the Provident Fund and ESIC, contribution to the Family Pension Fund are made only by the Company. The contributions are normally based on a certain proportion of the employees salary. Amount recognised as expense in respect of these defined contribution plans, aggregate to Rs. 2,34,84,882 (Previous year Rs.1,42,78,522).