We conducted our audit in accordance with 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 of material misstatement. 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.

As required by the Companies (Auditors Report) Order, 2003 issued by the 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 paragraph 4 and 5 of the said order

Further to our comments in the Annexure referred to 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 those books;

(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 mandatory 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, 2005, and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2005 from being appointed as a Director in terms of Clause (g) of Sub-Section (1) of Section 274 of Companies Act, 1956;

(f) In our opinion and to the best of our information and according to the explanations given to us, subject to Note C-9 of the Notes on Accounts in respect of cash on hand being maintained for part of the year in excess of day to day requirements of the Company, the said accounts read together with the Notes and Significant Accounting Policies thereon, give the information re- quired 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 so far as it relates to the Balance Sheet, of the state of affairs of the Company as at March 31, 2005;

(ii) In so far as it relates to the Profit and Loss Account, of the loss of the Company for the year ended on that date; and

(iii) In so far as it relates to the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH (3) OF THE AUDITORS REPORT OF EVEN DATE TO THE MEMBERS OF NARANG INDUSTRIES LIMITED FOR THE YEAR ENDED MARCH 31,2005

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

b) According to the information and explanations given to us, the fixed assets have been physically verified by the management at reasonable intervals. No material discrepancies were noticed on such verification.

c) During the year, the Company has disposed of major part of its fixed assets. According to the information and explanation given to us, we are of the opinion that the sale of the said part of assets has not affected the going concern status of the Company.

ii) a) As explained to us, the Stocks of shares have been physically verified by the management during the year at reasonable intervals and 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 procedures of physical verification of stocks of shares 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, the Company is maintaining proper records of the stocks of shares. No discrepancies were noticed on verification between physical stocks of shares and the book records.

iii) During the year, the Company has not granted or taken any loan to/from any of the parties covered 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 are adequate internal control

systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and also with regard to sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal controls.

v) a) According to the information and explanations given to us, there are no transactions of purchase of goods and materials and sale of goods, material and services made in pursuance of contracts arrangements entered that need to be entered in the register maintained under section 301 of the Companies Act, 1956.

b) In our opinion and according to the information and explanations given to us, no transactions of purchase of goods and materials and sale of goods, material and services made in pursuance of contracts or arrangements entered in the register(s) maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs.5,00,000 (Rupees Five Lacs) or more in respect of each party have been made

vi) In our opinion and according to the information and explanations given to us, during the year the Company has not accepted any deposits from the public within the meaning of Section 58A and 58AA or any other related provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposit) Rules, 1975. No return as required to be filed by 30th June 2005, has been filed till date of signing of accounts. No order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other tribunal.

vii) The Company does not have a formal Internal Audit System. However, the internal checks applied by the Company, in our opinion, are commensurate with the size and the nature of Companys business

viii) The Central Government has not prescribed the maintenance of cost records under section 209(1) (d) of the Companies Act, 1956.

ix) a) According to the information and explanations given to us, the Company during the year is generally regular in depositing with the appropriate authorities the 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 any other statutory dues and no undisputed amounts payable were outstanding as at 31st March, 2005 for a period of more than six months from the date they became payable.

b) According to the information and explanations given to us, the particulars of the disputed statutory dues which have not been deposited on account of matters pending before the appropriate authorities have been stated in Note C-21 of the Notes on Accounts.

x) The companys accumulated losses as at the end of the year are not less than fifty percent of its net worth. Also,

the Company has incurred cash loss during the current financial year, however, it has not incurred cash losses during the immediately preceding financial year

xi) In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of dues to financial institutions or banks or debentures 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, Nidhi or Mutual Benefit Fund/Societies are not applicable to the Company.

xiv) The Company has maintained the proper records of transactions and contracts in respect of trading in securi- ties, debentures and other investments and timely entries have been made therein. All the shares, debentures and other investments have been held by the Company in its 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) According to the information and explanations given to us, the Company has not raised any new term loan during the year.

xvii) According to the information and explanations given to us and on the overall examination of the Balance Sheet of the Company, we are of the opinion that the Company has not used fun^ls raised on short term basis for long term investment.

xviii) During the year, the Company has not made any preferential allotment of shares to parties and companies covered under register maintained under section 301 of the Companies Act, 1956.

xix) The Company has not issued any debentures during the year.

xx) The Company has not raised money by any 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 was noticed or reported during the year.

                                           For S. P. Nagrath&Co.,
                                           Chartered Accountants

                                         (Sanjay Kumar Bejwani)
                                                Partner
New Delhi, June 28, 2005                    Membership No. 97225