HARYANA STEEL AND ALLOYS LIMITED ANNUAL REPORT 2006-2007 AUDITORS REPORT To The Members, Haryana Steel & Alloys Limited, Murthal, (Sonepat) Report on the Accounts for the year ended on 31st March, 2007 In compliance with section 227(2) of the Companies Act, 1956 1. We have audited the attached Balance Sheet of M/s. Haryana Steel & Alloys Limited as at 31st March, 2007 and the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the CSP responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based en our audit. 2. 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 about whether the financial statements are free from 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 the 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 (Auditor's Report) Order, 2003 issued by 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 purpose of our audit; ii) In our opinion, proper books of accounts as required by the Law hove been kept by the Company, so far as appears from our examination of the books; iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by the report are in agreement with the books of accounts; iv) In our opinion, the Balance Sheet and Profit & Loss Account and Cash Flow statement dealt with by this report comply with the Accounting Standards referred to in section 211(3C) of the Companies Act, 1956; v) On the basis of the written representations received from the Directors as on 31st March, 2007 and taken on/record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2007 from being appointed as Director in terms of clause (g) of Sub-section(1) of Section 274 of the Companies Act, 1956; VI. Attention is drawn to the under mentioned notes of Schedule S: a) Note B-2 regarding total contingent liability amounting to Rs. 72,37,63,371. b) Note B-3 regarding non-provision of interest on unsecured loans. c) Note B-6 regarding the non-compliance of the provisions of Small Scale and Ancillary Industrial Undertakings Act, 1993 and Schedule VI of the Companies Act, 1956. d) Note B-7(a) regarding provisioning for non-moving inventory for more than two year. e) Note B-7(b) regarding provisioning for bad & doubtful debts. Note B-12 regarding preparation of accounts on a going concern basis even though total liabilities exceeds its total assets. These accounts do not include any adjustments in case the Company ceases to be a going concern. g) Note B-13 regarding secured loan from Financial Institutions & others amounting to Rs. 2971.60 Lac become unsecured as on 31st March, 2007 due to inadequate security. h) Note B-21(a) regarding confirmation of balances from debtors, creditors, loans and advances and other parties. i) Note B-21 (b) regarding material prices and sales realisation. j) Note B-22 regarding purchase from sister concerns without approval from Central Government. k) Note B-25 (c) regarding no system for allocation of expenses into each segment. VII. Subject to our commencements in para (1) to (vi) above and their consequential effective on the net assets end/or losses of any report that, In our opinion and to the best our information and according to the explanations given to us, the said accounts read with the notes there on give on the information required by the Companies Act, 1956, for the manner so required and give a true and fair view: a) In the case of Balance sheet of the state of affairs of the Company as at 31st March 2007; b) In so far as it relates to the profit and Loss Account, of the loss 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 en that day. FOR P.C. BINDAL & CO Chartered Accountants C. A. K.C. Gupta Place : Murthal (Sonepat) Partner Dated : 27-8-2037 M. No. 088638 ANNEXURE REFERRED TO IN PARAGRAPH (3) OF OUR REPORT OF EVEN DATE TO THE MEMBERS OF HARYANA STEEL & ALLOYS LIMITED FOR THE YEAR ENDED ON 31ST MARCH, 2007 1. a) The Company has maintained proper records showing full particulars Including quantitative details and situation of Fixed assets. b) The Fixed Assets have been physically verified by the management during the year. No material discrepancies were noticed on such verification. c) During the year, the Company has not disposed off substantial/major part of fixed assets. 2.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 of 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 inventory, the Company is maintaining proper records of Inventory. The discrepancies noticed on verification between the physical stocks and the books records were not material and have been proper' dealt with in the books of accounts. 3. According to the information and explanation given to us, the company has not taken/granted any loan from/to parties covered in the register maintained under section 301 of the Companies Act, 1956, Accordingly,the provisions of clause 4(iii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the company. 4. In our opinion and according to the information and explanation given to us, there are adequate internal control procedures 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. During the course of our audit, we have not observed any major weakness in Internal controls. 5. a) According to Information and explanations given to us, we are of the opinion that the transactions that reed to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. b) In our opinion and according to the information and explanations given to us. the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Company Act, 1956 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time. 6.In our opinion according to the information and explanations given to us,the company has not accepted any deposits from public to which provisions of section 58A and 58AA or any other relevant provisions of the Act, apply. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal. 7. In our opinion, the company has an internal audit system commensurate with the size and nature of its business. 8. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the Company pursuant to the rules made by the Central Government for the maintenance of cost records under section 209(l)(d) of Companies Act, 1956 and we 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 correct. 9. a) According to the information and explanations given to us and according to the books and records produced before us, the company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund,employees state insurance, income tax, sales tax, wealth tax. service tax, custom duty, excise duty, cess and other material statutory dues applicable to it. b) According to the Information and explanations given to us no undisputed amounts payable in respect of income tax, sales tax, wealth tax, service tax, customs duty, excise duty and cess were in arrears, as at 31st March, 2007 for a period of more than six months from the date they become payable. c) According to the information and explanations given to us and the records of the Company examined by us, dues of sales tax, income tax, custom duty, wealth tax, excise duty and cess which have not been deposited on account of disputes and the forum where the dispute is pending as under: Name of the Statute Nature of Dues Amount Period to which Forum where (Rs.) Amount dispute is relates pending Central Excise Act Excise Duty & 20413799 01.12,93 to Commissioner Penalty 04.10.94 Central Excise Act Excise Duty & 6532659 01.06.99 to Commissioner Penalty 07.02.2000 Central Excise Act Excise Duty 372849 2005-2006 Dy.Commissioner Central Excise Act Excise Duty 246165937 01.05.2002 to Settlement 31.08.2005 Commission H.S.E.B. Service line 13742223 Aug. 97 to Arbitration Charges March, 2007 10. In our opinion, the net-worth of the company is negative. The Company has Incurred cash loss during the financial year covered by our audit, as well as in the immediately preceding financial year. 11. Based on our audit procedures and on the basis of the information and explanation. given to us. there is continuous default in repayment of dues to financial Institutions & bank since 1998. However, dues of original lenders have been taken over by other Banks/ARC as stated hereunder: Name of the original Lender Name of the Assignee Date of Assignment Panjap National Bank Dhir & Dhir Assets Recon. 28.03.2006 Securitisation Co. Ltd. IFCI ltd. Kotak Mahendra Bank Ltd. 06.12.2006 IIBI ltd. Yes Bank Ltd 25-04-2007 Total outstanding as on 31st March 2007 is Rs. 2971.60 lac excluding interest not provided (Refer to note no. 2(e) of Schedule (`S'). 12. According to the information and explanations given to us, the company had not granted loans and advances on the basis of the securities way of pledge of shares, debentures and other/securities. 13. In our opinion, the provisions of any special statute applicable to Chit Fund, Nidhi or Mutual Benefit fund/society are not applicable to the company. 14. a) Based on the records examined of by us and according to the company is maintaining proper, record of the transactions and contracts of dealing in shares and securities and those timely entries have been made in these record. b) Based on our audit procedures and to the best of our knowledge and belief and according to the information and explanation given to us,the Shares and securities have been held by the Company in its own name except to the extent of the exemption granted under section 49 of the companies Act, 1956. 15. The company has not given guarantees for loans taken by others from bank/financial Institutions. 16. According to the information and explanations given to us, the company has not availed any term loan during year under audit. 17. According to the information and explanations given to us and 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. 18. According to the information and explanations given to us, the company has not made preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the act. 19. According to the information and explanations given to us, the company had not issued any debentures during the year. 20. According to the information and explanation given to us, the company had not raised by 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. BINDAL & CO Chartered Accountants CA. K.C. GUPTA PLACE : Murthal (Sonepat) Partner M. NO.: 088638 DATED : 27-08-2007