1. As required by Manufacturing and Other Companies (Auditors Report) Order, 1988 issued by the Company Law Board in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in the paragraphs 4 and 5 of the said Order.

2. Further to our comments in the Annexure referred to in paragraph (1) above, we state that:

2.1 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.

2.2 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.

2.3 The Balance Sheet and Profit and Loss Account referred to in this report are in agreement with the books of accounts.

2.4 In our opinion, the Balance Sheet and the Profit and Loss Account dealt with by this report comply with the accounting standards referred to in Section 211 (3C) of the Companies Act, 1956.

2.5 The Directors of the Company are disqualified from being appointed as Directors under clause(g) of sub-section (1) of Section 274 of the Companies Act, 1956.

3. Attention is invited to the following Para of the Notes of the Accounts:

3.1 Note No. 7 of Schedule - S with regard to non-reconciliation / confirmation of various debit and credit balances outstanding as on 30.9.2000 and the resultant impact thereof.

3.2 Wore No. 10 of Schedule - S with regard to provision of interest in many cases on amounts borrowed from NBFCs/ Private parties in earlier years on adhoc basis.

3.3 Note No. 11 of Schedule - S with regard to preparation of accounts on going concern basis inspite of having the net worth fully eroded as on 30.9.2000.

3.4 Note No. 12 of Schedule - S with regard to various legal suits filed by the lenders/parties against the Company and the promoter Directors. We are not in a position to comment on the outcome of these cases and the resultant impact of the same on the accounts of the Company.

3.5 We further report that the effect of the observations given by us in Para 3.1 to Para 3.4 above could not be determined and accordingly we are not in a position to comment on the same.

4. In our opinion and to the best of our information and according to the explanations given to us, subject to our comments in Paragraph 3 above, the said Balance Sheet and Profit & Loss Account read together with the Significant Accounting Policies and Notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view:-

(i) Insofar as it relates to the Balance Sheet, of the state of affairs of the Company as at 30th September, 2000 and

(ii) Insofar as it relates to the Profit and Loss Account, of the loss of the Company for the year ended on the date.

Annexure to the Auditors Report referred to in paragraph (1) of our report of even date on the Accounts of ELECTREX (INDIA) LTD as at September 30, 2000.

1. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. However, the details with regard to the purchase of assets along with the dates and name of supplier are not available with the Company as the records in this regard are stated to be destroyed in fire. However, the approved valuer appointed by the bankers has valued the fixed assets of the Company. The management has carried out physical verification of all the fixed assets and as explained to us, no significant discrepancies were noticed on such verification.

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

3. The stock of finished goods, stores, spare parts and raw materials has been physically verified by the management at reasonable intervals.

4. In our opinion and on the basis of information and explanations given to us, the procedure of physical verification of stocks followed by the management were reasonable and adequate in relation to the size of the Company and the nature of its business.

5. The discrepancies noticed on verification between the physical stock and book records were not material In relation to the operations of the Company and the same have been properly dealt with in the books of accounts.

6. On the basis of examination of stock records, we are of the opinion that the valuation of stocks is fair and proper, in accordance with the normally accepted accounting principles. In view of the revision in Accounting Standard - 2 on Valuation of Inventories, the Company has changed its method of valuation of raw materials and work-in-progress to cost or net realizable whichever is lower as compared to cost, which was applied in the previous years. This has resulted into increase in the losses by Rs.206.74 Lac in the current year.

7. In our opinion, the rate of interest and other terms and conditions on which loans have been taken from companies, firms or other parties listed in the register maintained under section 301 are prime facie not prejudicial to the interest of the Company. In terms of sub-section (6) of section 370 of the Companies Act, 1956, the provisions of the section are not applicable to companies on and after the commencement of the Companies (Amendment) Act, 1999.

8. An amount of Rs. 493.76 Lac (Previous Period Rs.493.24 Lac) is outstanding as recoverable from Electrex Robin industries Limited as on 30.9.2000, a Company in which the Directors are interested. Wo interest has been charged from this company and the details with regard to the terms and conditions of such advance are not available and accordingly we are not in a position to comment as to whether the same is prejudicial to the interest of the Company or not. The Company has informed that this amount mainly represents investment in this Company as part of a joint venture. Apart from the trade advances, the Company has not granted any loans to companies, firms, or other parties listed in the register maintained under section 301 of the Companies Act, 1956 and / or the companies under the same management except as given above.

9. On the basis of information and explanations given to us during the course of audit, in respect of loans and advances in the nature of loans given by the Company, including to employees, the parties are generally repaying the principal amount(s) as stipulated or re- stipulated and are also regular in the payment of interest,wherever applicable (Except as referred to in Para 8 above).

10. In our opinion and according to the information and explanations given to us, there are internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of materials, stores, spare parts, plant & machinery and other assets, and for the sale of goods. However, the same needs to be strengthened considering the losses made by the Company.

11. As per the information and explanations given to us, there are no transactions of purchases of goods and materials and sales of goods and materials, made in pursuance of contracts or arrangments entered in the register maintained under section 301 of the Companies Act, 1956 and aggregating during the year to Rs.50,000/- (Rs.Fifty thousand) or more in respect of each.

12. As explained to us, the Company has a regular procedure for the determination of unserviceable or damaged stores, raw materials or finished goods. Adequate provision has been made in the accounts for the loss arising on the items so determined.

13. According to information and explanations given to us and based on the test checks carried out by us, the Company has complied with the provisions of Section 58 A of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted by the Company excepting the clause relating to maintenance of liquid assets by the Company and the repayment of principal amount and payment of interest in time. The total amount due for payment, which has not been repaid as per terms and is outstanding as on 30.9.2000 aggregates to Rs.857.55 Lac with regard to principal and Rs.58.39 Lac for interest.

14. In our opinion, reasonable records have been maintained by the Company for sale and disposal of realizable scrap. As per explanations given to us, the Company does not generate any realizable by-products.

15. In our opinion and according to the information and explanations given us, the Company does not have an internal audit system commensurate with the size and the nature of its business. However, as explained the concurrent audits have been carried out on quarterly basis by the independent outside auditors appointed by the bankers of the Company.

16. As explained to us by the management, the provisions relating to maintenance of cost records under Section 209(1) (d) of the Companies Act, 1956 are not applicable to the Company.

17. According to the records of the Company, it was not regular in depositing Provident Fund and Employees State Insurance dues with the appropriate authorities. Provident Fund and ESI dues relating to the current as well as previous years aggregating to Rs. 19.56 Lac and Rs.2.71 Lac respectively, which had fallen due for deposit with the appropriate authorities, had not been deposited as at 30.9.2000. Out of the above, Rs.11.16 Lac has been deposited subsequently towards PF dues.

18. According to the information and explanations given to us, there were no undisputed amounts payable in respect of custom duty, excise duty, sales tax, income tax, wealth tax, whichever applicable to the Company, which was outstanding as on September 30, 2000 for a period of more than six months from the date they became payable excepting the Income Tax and Sales Tax amounting to Rs. 147.39 Lac and Rs.220.02 Lac respectively.

19. In our opinion and according to the information and explanations given to us and the records of the Company examined by us, no personal expenses have been charged to revenue account other than those payable under contractual obligations or in accordance with the generally accepted business practice.

20. Based on the erosion of the worth of the Company, the Company is 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. The Company has made a reference to the Board for Industrial and Financial Reconstruction (BIFR) under section 15 of the Act. However, the companys application to BIFR for registration as sick company based on previous year accounts is still pending.

For, T.R. Chadha & Co. Chartered Accountants

(Vikas Kumar)

Partner

Bangalore, March 22, 2001