1. As required by the manufacturing and Other Companies (Auditor's Report) Order 1988, issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956 and on the basis of such checks of books and records of the Company as were considered appropriate and the information and explanations given to us during the course of audit, we enclose in the Annexure, a statement on the matters specified in paragraph 4 and 5 of the said order.

2. Further to our comments in the Annexure referred to in paragraph 1 above:

a. Subject to non availability of books of account, and others records of Ghaziabad branch, investment scrips and non confirmation of balance of debtors, loans and advances as explained in Note No 14 & 6 respectively of Schedule of "P" (Part-B) on notes on accounts, 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 accounts, as required by law have been kept by the company so far as appears from our examination of such books and proper returns adequate for the purpose of audit have been received from the branches, not visited by us except for as in para (a) above.

c. In our opinion, the Profit and Loss Account and the Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956.

d. The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

e. On the basis of written representations received from the Directors as on 30th June, 2001 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 30th June, 2001 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

f. In our opinion and to the best of our information and according to the explanations given to us, the said accounts, subject to (a) capitalization of expenses net of sales & other income and including interest on borrowing on blast furnaces as further explained in note no. 7(a) of Schedule "P" (Part-B) on Notes on Accounts and (b) non provision of rental charges Rs. 74592 thousand on equipment in bonded warehouse resulting decrease in Capital Work in Progress and current liabilities to that extent, gives the information required by the Companies Act, 1956 in the manner so required and give a true and fair view:

(i) in the case of Balance Sheet of the state of affairs of the Company as at 30th June, 2001 and

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

ANNEXURE TO THE AUDITORS' REPORT

(Annexure referred to in paragraph 1 of our Report of even date on the accounts of Malvika Steel Limited for the year ended on 30th June, 2001.

1. The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. Physical verification of fixed assets was not carried out by the management during the year however, the physical verification was conducted in the previous year and after the date of balance sheet and having regard to the size of the company and nature of the assets non material discrepancy between the book records and the physical inventory was noticed.

2. None of the fixed assets of the Company has been revalued during the year.

3. Physical verification of stocks have been conducted by the management during the year in respect of finished goods, stores, spare parts, and raw-materials and stock in transit.

4. The discrepancies, if any between the physical stocks and book records were ascertained and have been properly dealt with in the books of account.

5. The valuation of stocks of finished goods, stores and spare parts, raw materials is fair and proper and in accordance with normally accepted accounting principles and is on the same basis as in the previous year.

6. The company has not taken any loans, secured or unsecured from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 and Companies under the same management as defined under sub section (1B) of Section 370 of the Companies Act, 1956.

7. The Company has not granted any loans, secured or unsecured to the Companies, firms or other parties listed in the register maintained under section 301 and / or to the companies under the same management as defined under sub section (1B) of Section 370 of the Companies Act, 1956.

8. There is no Loans or Advances in the nature of Loans other than the staff advances given by the Company who are repaying the principal amounts as stipulated and are in general regular in payment of interest wherever applicable.

9. There is an adequate Internal Control Procedure commensurate with the size of the Company and the nature of its business for the purchase of stores, raw materials including components, plant and machinery equipments and other assets and for the sale of goods.

10. There is no transaction for purchase of goods and materials and sale of goods, material and services made in pursuant of contracts or arrangement entered in the register maintained under section 301 of the Companies Act, 1956 as aggregating during the year Rs. 50000 or more.

11. On the basis of evaluation made by person responsible for custody of stocks, unserviceable and damaged stores, raw materials and finished goods have been determined by the company and necessary adjustments for loss have been made in accounts.

12. The Company has not accepted any deposits during the year from public as per the provision of Section 58-A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits) Rules, 1975.

13. In our opinion reasonable records have been maintained by the company for the sale and disposal of realisable scrap and by-products.

14. In our opinion company has an internal audit system commensurate with the size and nature its business.

15. Maintenance of Cost Records under Section 209(1)(d) of the Companies Act, 1956 has not been prescribed by the Central Government.

16. The Company has been regular in depositing Provident Fund except for the months from April, 2001 to June, 2001 and Employees State Insurance dues with the appropriate authorities during the year.

17. There were no undisputed amounts payable in respect of income tax wealth tax, sales tax, excise duty and customs duty outstanding as at the end of the financial year for a period of more than six months from the date they became payable.

18. During the course of our examination of the books of accounts carried out in accordance with the generally accepted auditing practices and according to the information and explanations given to us, we have not come across any persona expense which have been charged to Profit and Loss Account other than those payable under contractual obligations or in accordance with prevailing business practices.

19. The Company is not a sick industrial Company within the meaning of clause (O) of sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985.

20. In case of trading activity, we were informed that there were no damaged goods.