(1) 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 misstatements. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating die overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

(2) As required by the Companies (Auditors report) order,2003(The order) issued by the central government of India in terms of sec.227(4A) of companies act 1956(The Act) ,and according to the information and explanation given to us and on the basis of such checks as we considered appropriate ,we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the said order to the extent applicable to the company.

(3) Further to our comments in Annexure referred to in paragraph 2 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 [subject to our comments below under para 3(b), 3(c), 3d(ii), 3d(iii), 3d(iv), 3d(v), 3d(vi), 3d(vii), 3d(viii), 3d(ix), 3d(xi), 3d(xii), 3d(xiii), 3d(xiv), 3d(xv) 3d(xvi), 3d(xvii) and 3d(xviii) ] Accordingly we are unable to comment on the correctness and completeness. '

(b) We have conducted audit (Note No 4 of Schedule 14) in respect of Kolkata Sales Office and Bharatpur Works on the basis of data/details available with other office/establishments of the company and authenticated by the management in the absence of books and original/primary records maintained at respective office/works, consequential impact arising out of verification of records, on various revenue heads, fixed assets, capital work-in- progress(CWIP), inventory, sundry debtors, sundry creditors and other balances will be accounted for in the year of verification;

(c) The accounts of the company have been prepared on the basis that it is a going concern for the reason stated in note no.03 of schedule 14. However, in view of its accumulated losses whereby the net worth of the Company has become negative and suspension of manufacturing and other operations of the Company, we are unable to express our opinion on its ability to _ * continue as a going concern. In the event of the same not being held to be a going concern and various assets and liabilities being consequently adjusted with respect to their realizable value, the impact thereof has not been ascertained and therefore cannot be commented upon by us.

(d) Attention is drawn on the following notes of Schedule 14 to the accounts:

(i) Note No.3-regarding preparation of accounts on "Going Concern Basis".

(ii) Note No.-4(a) and 4(b) regarding non-availability of records relating to fixed assets, capital work in progress, inventory and non carrying out of physical verification of fixed assets, capital work in progress and inventory.

(iii) Note No. 5 regarding non-availability of certain Secretarial records to the extent stated in the said note.

(iv) Note No.6 & 10- regarding pending confirmation/reconciliation of balances of respective parties, and balances of Financial Institutions and certain banks and their impact on the profit and loss account and state of affairs not being ascertained.

(v) Note No.7- regarding non-provision against diminution in value of stores & spares and raw materials (amount unascertained).

(vi) Note No.8 (a)- regarding non-provision of penal interest and liquidated damages on loans /debenture/credit facilities (amount unascertained). Note no.8 (b) and (c) regarding provision of interest on loan/ working capital from banks and the financial institutions on the basis of management's estimates based on past experience as stated in the said note and our inability to comment on correctness.

(vii) Note No.9- regarding accounting of interest income on ICD as stated in said note on receipt basis for the reason state in the said note.

(viii) Note No.10- regarding accounting of interest on fixed deposits certain debentures, loans to Bodies Corporate and Security Deposit (amount unascertained) on payment basis.

(ix) Note No.13- regarding non-provision against diminution in value of unquoted investments (amount unascertained)

(x) Note No.15- regarding non-provision against doubtful advances amounting to Rs.249.94 Lac

(xi) Note No. 16 regarding certain receipts and payment to bodies corporate without any supporting document /detail of our inability to comment on the correctness and realisibility of the same.

(xii) Note No.l 7-regarding loans and investments had been made without seeking prior approval of Financial Institutions under Section 372(A) of the Companies Act, 1956.

(xiii) Note No.18- regarding overdue sundry debtors and loans and advances aggregating to Rs.l243.38 Lac, the eventful recovery of which and provision there against, if any required cannot be commented upon presently.

(xiv) Note No.19 regarding the opinion of board of directors on realisablity of current assets loan and advance in the ordinary course of business and our inability to comment on the same.

(xv) Note No. 21 - regarding interests on overdue bill and fuel surcharge (Amount unascertained).

(xvi) Note No.-22 regarding non-provision of liability for Gratuity and Leave Encashment of Rs. 47.10 Lac and Rs.4.46 Lac respectively.

(xvii) Note No.24- regarding ascertainment of contingent liability on management estimation basis and our inability to comment on the same due to reason stated in para 3(c) and 3(b) above.

(xviii) Note No.- 26- regarding identification of related party relationship and transaction by management due to non availability of list of directors interested parties (copy of form 24AA) 301 register and other. Secretarial records, and also certain books and records of kolkata region and Bharatpur as stated in note No.4(a) of schedule 14 inability to comment on correctness and completeness of the same.

(e) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the Books of Accounts of the Company except as stated in 3(b) above;.

(f) In our opinion, proper books of accounts as required by law have been kept by the Company so far as appears from our examination of the Books of the Company subject to para 3(a),(b),(c)and (d) above.

(g) In our opinion, the Balance Sheet, the Profit & Loss Account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in Section 211(3C) of the Companies act, 1956, to the extent applicable, except in respect of the following:

(i) Regarding valuation of current investment on a global basis instead of individual or category basis (Refer schedule 14 as required in the terms ofAS-13 (Accounting for investment).

(ii) Non-determination of obsolete and unusable asset(Refer Note No.4(b) of schedule -14) as required in terms ofAS-10 )Fixed Assets).

(iii) Non-determination of current net Realizable Value (NRV) of inventory and loss in recoverable value , if any ,(Refer Note No. 7 of schedule 14) as required in terms of AS-2 (valuation of inventories).

(iv) Non- recognition of borrowing cost ( amount unascertained ) as expenses (Refer Note No.10) as required in terms ofAS-16 (Borrowing cost).

(v) Accounting for investment in Dalmia Frsenius Medical Limited (DFML) not being in terms of AS-23 (Accounting for associate in consolidated financial statement) or AS-27 (Accounting for investment in joint venture)

(vi) Non-provision against diminution (amount unascertained) in the value of investments (Refer Note No.12 of Schedule 14) as against the requirements of AS-13 (Accounting for Investments)

(vii) Non-provision of liability for Gratuity and Leave Encashment (Refer Note No.22 of Schedule 14) as against the requirements of AS-15 (Accounting for Retirement benefits).

(viii) Ascertainment of contingent liability on management estimations basis (Refer Note No.24 of schedule 14) without any reliable estimation as required in terms of AS- 4 (Contingencies and event occurring after the balance sheet date)

(ix) Identification of related party relationship and transaction with related party or management perception as required in terms of AS-18 (Related Party Disclosure).

(h) We further report, without considering items mentioned in 3(b),(c),d(v),d(vi),d(vii),d(viii),d(ix),d(xvi),d(xvii) above the effect of which could not be determined, had the observations made by us in Para 3 d(x),d(xiii),d(xviii) considered, the loss for the year would have been Rs.2360.84 lacs (as against the reported figure of Rs.815.96 lacs). Current assets would have been Rs.(420.74) lacs (as against the reported figure of Rs.1914.07 lacs) and total current liabilities would have been Rs.1537.28 lacs (as against reported figure of Rs.1485.72 lacs).

(i) On the basis of written representation received from Directors as on 31st March, 2007, and taken on record by the Board of the Directors and the information and explanation given to us, we report that none of the Directors are 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.However, all Directors are disqualified to be appointed as Directors in any other Public company.

(J) In our opinion and to the best of our information subject to our comments in paragraph 3h above read together with other notes there on give information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principle generally accepted in India.

i) In the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2007,

ii) In the case of Profit and Loss Account, of the loss for the year ended on that date, and

ANNEXURE TO THE AUDITOR'S REPORT

Statement referred to in Paragraph 2 the Auditors' Report of even date to the Members of BHARATPUR NUTRITIONAL PRODUCTS LIMITED (formerly known as Dalmia Industries Limited)

i) a) Proper records shouting full particulars including quantitative details and situation of Fixed assets were not made available for our verification as stated in note no.4 (a) and 4(b) of schedule 14..

b) Physical verification of Fixed Assets has not been carried out during the year as stated in note no. 4(a) and 4(b) of schedule 14 hence discrepancy, if any in this respect, cannot be ascertained and commented by us.

c) As per information and explanations and records given to us no fixed assets ham been disposed off during the year However we can't comment on the reasonableness and adequacy of the same for the reason stated in Note No. 4 (a) &4(b) of schedule 14.

ii) a) Physical verification of inventories has not been conducted by the Management during the year as stated in note no. 4 (a) and 4(b) of schedule 14.

b) He can't comment on the reasonableness and adequacy of the procedure of the physical verification of the stock followed by the management for the reason as indicated in the Note No. 4(a) and 4(b) of schedule 14.

c) For the reasons stated in note no. 4(a) and 4(b) of schedule 14, we are unable to comment whether the company has maintained proper records of inventory. In the absence of records & physical verification report, it is not possible to ascertain and comment on discrepancy between book records and physical inventory and adjustments to be carried out consequent to such verification and ascertainment of amount thereof.

iii) Register maintained u/s 301 of the Act and other relevant records have not been provided to us. For verification as stated in note no. 5 of schedule 12. Hence we are unable to comment on the clause 4 (iii) (a) to (d) of the order.

iv) In view of facts stated in note no. 4(a) and 4(b) of schedule 14 and non availability of fixed assets and inventory records etc. internal control procedures needs to be strengthened to be made commensurate with the size of the company and the nature of its business for the purchases of inventory, fixed assets and also for the sale of goods.

v) Register maintained u/s 301 of the Act and other relevant records have not been provided to us. For verification as stated in Note No. 5 of schedule 14. Hence we are unable to comment on the clause 4 (v) (a) and (b) of the order.

vi) According to records and information &explanation given to us. The company could not repay certain fixed deposits on maturity as stated in note no. 11(a) of schedule 14, resulted in non-compliance with the provision of sec. 58A and 58AA of the Companies Act 1956 and rules framed there under for Ok deposit accepted from public. On reference the company law board has extended the time limit for repayment of deposits, however the directives passed by the CLB have further been not complied with.

vii) . As explained to us, no Internal Audit has been carried out during the year.

viii) In view of the suspension of production facilities at BHARATPUR works of the company and non- availability of records as indicated in Note No.4 of schedule 14. Books of accounts maintained by the company pursuant to the order made by central government for the maintenance of cost records u/s 209(1) of the companies ' act 1956 in respect of infant milk food could not be reviewed by us.

ix) a) According to the records made available and information & explanations given to us, the company is generally regular in depositing undisputed statutory dues including investor Education and Protection Fund, Wealth Tax, Excise Duty, Cess and other Material Statutory dues with the appropriate authorities and there is no undisputed statutory dues payable for a period of more than six months from the date they became payable as at 31st march, 2007, except TDS Rs. 0.02 lacs, Professional tax 0.14 lacs, Sales tax amounting to Rs. 85.24 lacs, PF Rs. 0.01 lacs, ESI Rs. 0.31 lacs, Bonus Rs. 8.73 lacs, Turn Over Tax Rs. 0.98 lacs. Excise duty Rs.2.18 lacs, Market tax payable Rs.8.30 lacs, Otroi Rs.05 lacs , Investment education and protection funds Rs.0.55 lacs and Superannuation fund Rs. 5.06 lacs respectively.

b) According to the records made available and information and explanations given to us subject to our comment in para 3(xix) above there are no dues in respect of Income Tax, Wealth Tax, Excise, custom duty and Cess that have not been deposited with the appropriate authorities on account of any dispute and the dues in respect of Sales Tax, that have not been deposited with the appropriate authorities on account of dispute are given below: -

Name of the Statute   Nature of the   Forum where dispute is   Amount *
                      Dues            pending*                (Rs. In
                                                               Lacs)

Sales Tax Act         Sales Tax       Appellate Authority         84.71

Sales Tax Act         Sales Tax       Appellate Tribunal         113.60

Sales Tax Act         Sales Tax       Hon'ble High Court           4.27

* As explained and ascertained by the management read with note no.26 & 4(a) of Schedule 14 and our inability to comment on the correctness and completeness of the same.

x) The accumulated loss at the end of the financial year of the company are more than its net worth, on erosion of the entire net worth the company has become a sick industrial company with in the meaning of section. 3(1) (a) of the sick industrial companies act 1985, as stated in Note No. 8(a) of schedule 14. And the company has incurred cash loss in the financial year and also in the financial year immediately preceding financial year.

xi) As per records made available and according to the information and explanations given to us, the company has defaulted in repayment of dues to financial institutions and banks as stated in note no. 8(a). of schedule 14. However records/details etc. regarding the same have not been provided to us.

xii) According to the information and explanations given to us, no loans and advances have been granted by company on the basis of security by way of pledge of shares, debentures and other securities.

xiii) According to the information and explanations given to us, the company has given guarantees for loans taken by others from banks and financial institutions, as stated in Note No. 17 of schedule 14. In absence of records and relevant information, we are unable to comment, whether the term and conditions are prejudicial to the interest of the company.

xiv) In our opinion and according to the information and explanations given to us, the company has not availed any term loans during the year.

xv) Based on the examination of the documents and records made available and on the basis of information and explanations given to us the company has not used any funds raised on short-term basis for long-term investment and vice versa.

xvi) Based on the audit procedures performed and on the basis of information and explanations provided by the management which have been relied upon by us, no material fraud on or by the unit has been noticed or reported during the course of our audit

For Sushil K. Jain & Co.

Chartered Accountants

Pushil Kumar Jain

PARTNER

PLACE: NEW DELHI

DATE: 18 AUG 2007