AUDITORS’ REPORT

To,

The Members of PSL Limited Report on the Financial Statements

We have audited the accompanying financial statements of PSL Limited (‘the Company’), which comprises of the Balance Sheet as at 31^st March 2016, the Statement of Profit and Loss Account and the Cash Flow Statement for the year ended on the said date, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation & presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules,

2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial reporting control, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatements, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provision of the Act and Rules made there under.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amount and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of the information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give true and fair view in conformity with the accounting principles generally accepted in India.

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31^st March 2016.

(ii) in the case of the Statement of Profit and Loss, of the Loss of the Company for the year ended on that date and

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Emphasis of Matter

We draw attention to:

1. Long Term Borrowings: Note No. 4 of Balance Sheet and Schedules.

Default In Payment to Banks

Based on our audit procedure and as per the information and explanation given to us, the company has defaulted in repayment of loans and interest to the banks and financial institutions as on 31^st March 2016.

2. Consequent upon the financial stress that the company had to suffer, it filed an application before Corporate Debt Restructuring (CDR) Cell on 6^th March, 2013 for restructuring of its entire debts as on 1^st January, 2013. After detailed deliberations at various meeting of company’s creditors at the CDR Cell a restructuring package for the Company was finally approved by CDR Empowered Group on 23^rd September, 2013. Since then, different terms and conditions included in the subject package are being complied with.

In terms of the aforesaid Letter of Approval, for the CDR package:

a) The promoters of the Company were required to make a total contribution of Rs. 146.81 Crore by way of subscribing to the equity capital of the Company/ unsecured loan so that the said contribution constitutes 25% of the total sacrifice computed for the aforesaid restructuring.

b) Since a portion of outstanding debts of various lenders of the company was compulsorily required to be converted

into equity shares and assignment of the debt of one of the Lender of the Company namely Yes Bank Limited to Edelweiss Assets Reconstructions Company (EARC) had taken place, the said EARC had executed a Deed of Accession to Master Restructuring Agreement (MRA). Accordingly, for the debt amount of Rs.2.72 Crores, 1046150 equity shares were allotted by the company at the rate of Rs.26/- per share. However, since after recompilation of EARCs debt it was observed that even the remaining debt of Rs.2.28 Crores was also required to be converted into equity share of the company, the process of allotment of 876926 equity shares to the said EARC’s on preferential allotment basis was initiated by the company as a result of which the in-principle approval from Bombay Stock Exchange (BSE) has been procured.

c) The Board of the Directors has, in accordance with the SEBI (ICDR) Regulations, by passing a resolution in circulation on 5^th February, 2015 also duly ratified on 10^th February, 2015 considered and approved, subject to the approval of the members of the company, the proposal of issuance of a total of 4,97,42,306 Equity Shares of face value of Rs.10/- (Total Ten only) each at a total price of Rs.26/- (Rupees Twenty Six only) per equity share (including premium of Rs.16/-) to the Promoters/Promoters Group Entities of the promoters group hereinafter collectively referred to “Proposed Allottees” of the Company as mentioned at Point a) and

b) above calculated in accordance with the Regulation 76 of Chapter VII of the SEBI (ICDR) Regulations for an aggregate value of Rs.129.33 Crores (Rupees One Hundred Twenty Nine Crores Thirty Three Lacs only).

i) The equity shares shall be subject to lock-in for a period in accordance with the provisions of the SEBI (ICDR) Regulations.

ii) The equity shares now to be issued shall rank pari passu with the existing equity shares of the Company in all respects.

d) The pre-preferential shareholding of Punj International (P) Ltd. and Punj Investment (P) Ltd. are pledged with ICICI Bank with effect from 18-2-2013.

e) The Company had allotted 1046150 equity shares to Edelweiss Assets Reconstruction Company Limited under CDR Scheme on 30.12.2014 which was locked in from 31-12-2014 to 5-2-2016. These shares are now further locked-in from 5-4-2016 to 31-12-2016.

f) For issuance of aggregate of 50619232 equity shares to the promoter group (as stated in C above) and to one of the creditors (as stated in b above), the company has procured an in-principle approval from Bombay Stock Exchange (BSE). However, the said shares are proposed to be allotted by the company in near future only after receipt of the similar approval from National Stock Exchange (NSE)

g) As some of the conditions of the CDR package could not be implemented in letter and spirit, various banks which had advanced its facilities to the company have chosen to treat their outstanding dues to the company as Non Performing Assets (NPA)

3. As the company has been continuously facing acute financial crunch, due to low turnover and profitability in the last few years, the Company’s Net Worth got eroded and became negative as a result of high quantum of accumulated losses. Due to such prevalent situation the company had become a Sick Industrial Company in terms of Section 3 (1)(o) of Sick Industrial Company Act (SICA) and therefore on 19^th June, 2015, a reference was made by it to the Board for Industrial and Financial Restructuring (BIFR). A said reference was admitted on 8^th September, 2015 the company has been restrained from disposing off or eliminating in any manner the fixed asset of the company without the prior consent of BIFR.

4. The financial statements being prepared on a going concern basis, notwithstanding the fact that the Company’s network is eroded a reference is made to the Board of Industrial and Financial Restructuring (BIFR), some of the conditions of the CDR package could not be implemented in letter and spirit, various banks which had advances its facilities to the company have chosen to treat their outstanding dues to the company as Non Performing Assets (NPA) and four lenders have declared the Company’s account as fraud or Red Flag account (RFA) in their books. These events cast significant doubt on the ability of the Company to continue as a going concern. The appropriateness of the said basis is inter-alia dependent on the Company’s ability to infuse requisite funds for meeting its obligations (including statutory liabilities and those in respect of contracts entered into for purchase of goods and assets), rescheduling of debt/other liabilities and resuming normal operations.

5. Lender Banks’ Balance Confirmation as on 31^st March 2016:

We have been informed by the officials of the company that although the company has requested its various bankers to issue their confirmation letters confirming the balances with respect to various Bank Accounts/Bank Guarantee/Letter of Credit/Corporate Guarantee given by company for its subsidiaries company as on 31^st March, 2016 but the same have not yet been issued. Pending balance confirmation, book balances as on 31^st March, 2016 have been taken in the accounts of the Company.

6. Due to non-implementation of CDR package, there is a Cash and Capital Crunch and the Company is under stress due to reduction in turnover, slow-down in economic environment, increase in the cost of production, as well as due to idle labour, lack of sufficient orders and reduced net realization in comparison to the increase cost of sales.

7. It is noticed that the business of the Company is at stand still and not much production activity is carried out except negligible production which has been carried out in Vizag, Chennai and Jaipur factories. Hence the overall sales of the Company are also very low.

8. The Company has reported a Net Loss of Rs.46.85 Crores for the 3 months ended or 31^st March, 2016 against preceding 3 months net loss of Rs. 84.4 Crores ended on 31^st December, 2015.

9.1 The Company has not provided for the interest amounting to Rs.627.21 Crores for the period from 1^st January, 2013 to 31^st December, 2014 which was to be built up as funded interest term loan (FITL) on the Working Capital Term Loan and Cash Credit.

9.2 The Company has also not provided for the interest amounting to Rs.364.66 Crores for the year 1-4-2015 to 31-3

2016. This would also increase the loss of the year.

9.3 The financial performance had deteriorated substantially in last 12 months. The manufacturing cost has gone up. There is weakness in demand. The Company continue to deal with a range of uncertainties. The interest payments exceeded its operating income. The Company is not able to service its debts.

9.4 The loss of the year is Rs.1,355.98 Crores.

10. Outstanding loan of Aditya Birla Finance Limited (ABFL)

Although one of company’s creditors namely ABFL has chosen for transaction specific membership of CDR Group, it has yet to execute the Master Restructuring Agreement already executed by super majority of CDR Lenders. Consequent upon ABFL’s complaint to Economic Offences Wing (EOW), the latter advised some of the bankers of the company for a debit freeze of the amount lying to company’s credit in some such bank accounts. As a result approximately Rs. 100 million which could have been used by the company for its Operating Expense, Insurance Payment, and payment of Loan to Company’s lenders got frozen. However, the Company has initiated legal steps for de-freezing the said amount.

11. Due to flood during the month of November, 2015, the Company’s Chennai factory has incurred loss of materials and machinery worth Rs.4.32 Crores. The claim received from Insurance Co. amounting to Rs.2.15 Crores and balance amount Rs.2.17 Crores yet to be received by the Company.

12. Inventory, Current Assets:

a) The closing inventory as on 31^st March, 2016 is Rs.156.38 Crores.

b) Closing inventory as on 31^st March, 2016, includes CWIP of Rs.17.07 Crores and was valued at cost. The valuation of stock was not done as per Accounting Standard 2 “Valuation of Inventory” issued by ICAI. It was explained that the items of stock on hand are of specific nature and tailor made for individual customer orders and accordingly valued at cost.

c) During the year some old and non-moving stock was sold as a distress sale and having realized Rs.25.78 Crores. The Company has provided for resultant loss on sale of old and non-moving stock and also made provision for remaining stock / non-moving stock totaling to Rs. 1006.48 Crores during the year. As certified by the management balance stock is Rs.156.38 Crores as of 31.03.2016 (valued at cost).

13. Depreciation:

The Company has not carried out detailed assessment of the useful life of Company’s assets and hence depreciation charge has not been adjusted accordingly as per the notification to Schedule II of the Companies Act, 2013.

14. Operations Maintenance and Management Agreement with Jindal Tubular (India) Ltd.

a) As per the Operations, Maintenance and Management Agreement with Jindal Tubular (India) Limited, they have taken over operations of the following three units of the Company on the dates shown against them:-

b) It will not be out of place to mention that Jindal Tubular (India) Limited has shifted from Varsana. Complete Pipe Mill on line and complete Coating Plant on line together with sheds, Trailors, Cranes etc. to their unit, Ambapura, Madhya Pradesh for their manufacturing purpose. This is contrary to the Agreement. This matter is pending with the Excise Department.

c) The Company has handed over the Jaipur facility to Jindal Tubular (India) Limited (JTIL) under OMMA. JTIL had taken a provisional excise license. The Excise Department has informed that the land on which Jaipur facility has been located is given on lease by the Govt. of Rajasthan to the Company and as per lease agreement the company can neither sub-let/sale any part of land nor can make anyone financial and technical partner without prior permission of the State Government. On the basis of this, Excise authorities issued a show cause notice and informed that any entity seeking excise registration has to have land possession in any manner. Without possession of land by JTIL, the provisional excise registration shall stand cancelled/revoked. Currently, JTIL and the company are collectively representing the case before excise authorities. JTIL has informed that in case of non-confirmation or revocation of excise registration, they may not be able to operate and indicated their inability to continue at Jaipur facility under OMMA. The matter is under negotiation.

d) Jindal Tubular (India) Limited have submitted the provisional unaudited Balance Sheet and Profit & Loss Account for the year ended 31^st March, 2016 and shown a loss of Rs.17.26 Crores. Besides this they have claimed legacy payment from PSL amounting to Rs.5.32 Crores. However the PSL Statements are showing outstanding of Rs.2.95 Crores including Rs.2.32 Crores on account of Legacy dues. The Company has not accepted their claim and the accounts are under reconciliations.

e) It appears that due to “Net Revenue” being a loss PSL, will not be entitled for any revenues.

15. Debtors: Note No. 16 of Balance sheet and Schedules

i) The Company has Sundry Debtors of Rs.287.23 Crores as on March 31, 2016.

ii) During the year, practically no recovery has been made from the clients. There is no certainty of arbitration matters and disputes with the parties. The Company has not produced confirmation of balances from sundry debtors confirming the amount outstanding as on March 31, 2016. In the absence of adequate evidence and information made available to us supporting the recoverability of this amount, we are further unable to comment on the financial impact of this matter on the profit / loss for the year ended on 31^st March 2016. We are of the opinion that, an amount of Rs.253.26 Crores being 100 percent provision need to be made towards bad and doubtful debts for sundry debtors outstanding for more than 3 years. Had this provision been made, the loss for the year would have been greater by Rs.253.26 Crores.

16. Sundry Creditors & Loans and Advances:

In the absence of pending confirmation of balances from Trade Payables, Other Loans & Advances as on 31.03.2016, provision for any adverse variation in the balances is not quantified.

17. Due to Micro and Small Supplies:

This information is not provided by the Company.

18. The management has decided not to provide for Gratuity, Leave Encashment for the period of 1^st April, 2014 to 31^st March 2016 because current provision is considered sufficient by the management for this purpose.

19. There is an existence of adequate internal financial controls and its operational effectiveness in the Company.

20. Based on the audit procedures applied by us and according to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements that need to be entered into the register maintained under section 189 of the Companies Act, 2013 have so been entered.

21. 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 189 of the Companies Act, 2013 have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

22. The Estate Office Kandla Port Trust under Public Premises (Evacuation of unauthorized) passed order on 27/03/2014 for the evacuation of the Kandla PCD-I premises because lease period was over, the Estate Office has taken over the possession of the land. Since the lease amount is under dispute, the lease payments have not been made and not provided in the accounts.

23. Investment in Subsidiaries

A) Foreign Subsidiaries:

i) PSL FZE (Sharjah) (Step down Subsidiary) of Pipeline Systems Ltd. Mauritius

a) The Company had invested Rs. 141.63 Crores in a wholly owned 'subsidiary namely Pipeline Systems Ltd. Mauritius. Due to cumulative losses in the subsidiary the value of investment is eroded. The Company has not provided for the same.

b) The share certificate of PSL FZE, Sharjah held by PSL Ltd. indirectly through the above said Company, amounting to 100% of the Equity Share Capital of the Company have been pledged in favour of National Bank of Oman S.A.O.G. acting as Security Agent of ICICI Bank Limited, Bahrain.

c) During the year PSL FZE has incurred loss of AED 36.45 Mio. Based on the audit procedure and the information obtained, we have observed some of the loans were rolled over / rescheduled by the bank. Also in some cases company was not able to make the payment on due date of installment due to the banks and banks claim was settled by claiming against the Standby Letter of Credit arranged by Parent company, PSL Limited, India.

d) PSL FZE has executed a project received from SWLL. Bank of Baroda has given guarantee in favour of State Bank, Bahrain to issue performance guarantee in favour of the client to the extent of USD 4.5 million. This is contingent liability of PSL FZE as on 31-3-2016.

e) A creditor has filed a suit for his dues of USD 22,58,175. The matter is sub-judice.

ii) PSL has given Corporate Guarantee covering facilities sanctioned by lender bankers for working capital of 104.76 Million AED Mio against Plant & Machinery, assignment of receivable and inventory against the security of the subordination of unsecured loans advances by PSL fixed assets on pari passu basis.

iii) Term Loan Rs.121.61 AED

Term Loan was secured by ICICI SBLC of USD 34.50 Million. As on date Credit Suisse has claimed the SBLC and the Loan from Credit Suisse has been paid off by ICICI Bank and the term loan is now due to ICICI Bank, Bahrain.

iv) PSL USA INC (USA)

PSL NA LLC (USA) (Step down Subsidiary)

The Company had invested Rs. 130.34 Crores in a wholly owned subsidiary namely PSL USA Inc. Due to cumulative losses in the step down subsidiary the value of investment is eroded. The Company has not provided for the same.

Also the outstanding debtors includes receivable amounting to Rs. 22.30 Crores from the subsidiary which is not provided for.

v) Due to continuous losses suffered by the company’s step down subsidiary namely PSL North America LLC, it was directly affecting the financial position of PSL/USA/Inc. (the holding Company of PSL North America LLC). The Company voluntary petitioned for relief under chapter XI of the Title 11 of United States code were filed in United States Bankruptcy court for the district of Delaware. All the assets of PSL North America LLC were put to sale/sold to a company for USD 100 Million. The impairment of loss/profit on sales of assets will be ascertained / recognized in the current year by the Company.

vi) The audited financial statements have not been received by the Company from foreign subsidiary companies and we have relied on the financial statements of the management. Based on our review conducted as above and subject to the possible effects of the matter described above, nothing has come to our attention that causes us to believe that the accompanying Statement, prepared in accordance with applicable accounting standards as specified u/s 133 of the Companies Act, 2013 reads with Rule 7 of the Companies (Account) Rules, 2014 and other recognized accounting practices and policies has not disclosed the information required to be disclosed in terms of regulation 63 of the SEBI (Listing Obligations and disclosure Requirements) Regulations, 2015 including the manner in which it is to be disclosed, or that it contains any material misstatement.

B) Indian Subsidiaries:

1) PSL Infrastructure & Ports Pvt. Ltd.

- Total investment in PSL Infrastructure and Ports Pvt. Limited is Rs.28.21 Crores.

- The company was awarded the construction of Jetty at Kandla Port. Till date the company has incurred construction Expenses of Rs 64.85 Crores.

- Due to restrictions imposed by CDR package of PSL Ltd, the parent company, could not inject/ contribute funds for the construction of the jetty.

- The Kandla Port authorities have given notice for the cancellation of the agreement. The matter is in dispute and under Arbitration. At present, project is incomplete.

2) PSL Corrosion Control Services Ltd.

- Due to high cost of working, the margins are going down.

- In our opinion and explanation given to us the Company has given Guarantees for loan taken by its subsidiaries from banks/financial institution the terms and conditions of such guarantees are not prejudicial to the interest of the Company.

3) PSL Gas Distribution (P) Ltd.

- The company was incorporated on 31^st December 2010 and has not commenced any business activity.

24. Impairment of Assets:

The Management has not carried out any evaluation of impairment of these assets and no provision for impairment has been recorded, as required by Accounting Standard-28.

25. Due to this, provision for diminution / impairment in the value of its investments in the above subsidiary companies is not considered.

26. Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained. However there is no new loan availed by the company during the year.

27. According to the information and explanations given to us & based on the documents & records produced to us, the Company has not granted loans or advances on the basis of security by way of pledge of shares, debentures & other securities.

28. The bankers have appointed a firm of Chartered Accountants to check the books of accounts of the Company for the last four years. The audit is in progress. The Company’s Management is of the view that the above investigations/ proceedings would not result in any additional material provisions / write-offs / adjustments (other than those already provided for / written-off or disclosed) in the financial statements of the Company. As per the Company’s Management, any adjustments, if required, in the financial statements of the Company would be made as and when the outcomes of the above matters are concluded.

29. Corporate Social Responsibility

Since average net profits of the Company made during the three immediately preceding financial years is negative, therefore the Company has not earmarked specific funding for Corporate Social Responsibility and sustainable activities as required under the provision of section 135 of the Act.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure I, a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by section 143(3) of the Act, we report that:

a) Except the matters described in Emphasis of Matter Paragraphs 1 to 12 and Annexure A Para Nos. 7 in our opinion, may have an adverse effect on the functioning of the Company, aforesaid standalone financial statements comply with the Accounting Standards specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

b) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

c) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

d) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement 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 31^st March, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2016 from being appointed as director in terms of Section 164(2) of the Act;

f) With respect to the adequacy of the internal financial controls over financial reporting of Company and the operating effectiveness of such controls, refer to our separate report in “Annexure B”; and

g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i) the Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements - Refer Note Nos. 1 to 12 and Annexure A-7 to the financial statements;

ii) the Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses.

iii) there have been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

1. a) The Company has computerized Assets Register. It is to be updated. All the factory units have kept details of their fixed assets at their level.

b) During the year, physical verification was done by the management of all the factory units of the Company. As the computerized Asset Register is not updated, the full particulars including total quantitative details could not be ascertained. Pending completion of reconciliations which has not been completed discrepancies if any cannot be ascertainable. Pending updating of records and reconciliation books balances as at 31-3-2016 have been adopted.

c) In our opinion the frequency of verification is reasonable having regard to the size of the Company and the nature of its assets.

d) The title deeds of the immovable properties are held in the name of the Company.

2. Subject to our remark in Item No. 1 in “Emphasis of Matter” the physical verification of inventory has been conducted at reasonable intervals by the management; and the procedures of physical verification of inventory followed by the management is reasonable and adequate in relation to the size of the Company and nature of its business. The stock is maintained on Excel Sheets. On line package is not installed and not integrated with books of accounts. The Company is maintaining proper records of inventory and any material discrepancies noticed on physical verification have been properly dealt with in the books of account.

3. The Company has not granted loans, secured/unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Companies Act, 2013

4. The Company has complied in respect of loan, investments, guarantees and securities as required under provision of sections 185 and 186 of the Companies Act, 2013.

5. The Company has not accepted any deposits from the public within the meaning of Section 73 to 76 of the Act and the Rules framed there under. Therefore, the provisions of Section 73 and 74 of the Act and any other relevant provisions of the Companies Act, 2013 and the Rules framed there under with regard to deposits accepted from the public are not applicable to the Company.

6. We have broadly reviewed the books of account maintained by the Company pursuant to the rules made by the Central Government of India, regarding the maintenance of cost records under sub-section (1) of Section 148 of the Act and are of the opinion that prima facie, the prescribed accounts and records have been maintained. We have, however not made a detailed examination of the records with a view to determine whether they are accurate or complete. The cost audit is completed up to the year ended 31^st March 2013. The Cost Audit Report is mandatory u/s 148(1) of the Companies Act 2013.

7. According to the records of the Company, the Company is not regular in depositing undisputed Statutory dues including Provident Fund, Employees State Insurance, Income Tax, Sales Tax, Service Tax, Duty of Excise, valued added tax, Cess and any other statutory dues with the appropriate authorities, however there is some delay in depositing Govt. dues due to financial difficulties. According to the information and explanations given to us, no undisputed amounts payable in respect of Income Tax, Sales Tax, Customs Duty, Service Tax, Excise Duty and Cess were outstanding, at the financial reporting period ending on 31^st March 2016 for a period of more than six months from the date they became payable.

7. a) As on 31^st March, 2016 according to the records of the Company the following are the particulars of disputed dues on account of Excise duty, Customs, Income Tax, Service Tax, Sales Tax & DGFT and have not been deposited.

Kotak Mahindra Bank

The Bank has initiated action under SARFAESI Act, 2002 u/s 14 of the said Act praying possession of property at Mouje, Nanicherai, Distt. Kutch, which property had been earlier mortgaged in favour of Kotak Mahindra Bank to secure the repayment of certain loan amounts.

The District Magistrate passed the Order in favour of Bank. The Company is filing appeal.

Indian Bank, Nariman Point, Mumbai

Issued Notice to the Company and Directors to pay Rs.64,57,90,389/- and Bank Guarantee Rs.3,21,90,190/- due to them and threatened to initiate legal proceedings.

Federal Bank

The Federal Bank has given a show cause notice in pursuance of the proceedings for declaring the Company as Willful defaulter. This is objected by the Company as unwarranted and non-tenable. The matter is under dispute.

Standard Chartered Bank

Given Notice u/s 433 and 434 of the Companies Act to pay outstanding dues and to initiate winding up proceedings against the Company.

7. b) Legal Matters

a) Initially five complaints were filed by two banks under the relevant provisions of Negotiable Instruments Act but after the order of Addl. Sessions Court of Bombay, one has been scrapped and only four are now pending for disposal.

b) Winding up Petition filed by JSW:

The winding up petition filed by JSW was withdrawn on 29.6.2015 as on direction of Bombay High Court an aggregate amount of Rs.25 Crores was paid by the Company. The Bombay High court has also directed the parties to execute necessary security documents in High Court in favour of JSW along with other CDR Lenders of the Company with respect to creation of charge over the movable fixed assets of the company on 15.6.2015. Further charge has also been created over the immovable assets of the company at Vizag, Kakinada, Varsana and Daman on 17.8.2015 by executing necessary security documents in favour of CDR Lenders and JSW.

c) A Petition has been filed before the High Court of Gujarat at Ahmadabad challenging compensation Bill raised by Kandla Port Trust (KPT) in respect of five plots of land of PCD-I unit located in East of NH No. 08A, Kandla Road, Gandhidham and two plots of land of PCD-II in Plot No. 5&6 in Block D, Sector

12, Gandhidham. Stay has been granted in favour of Company with regard to 5 of the 7 plots.

d) Termination of concession agreement executed by Kandla Port Trust in respect of PSL Infrastructure and Ports Private Limited. The matter is pending before arbitration Tribunal.

e) FIR’s have been registered against the Company, Managing Director, Whole Time Directors and an official. This matter is pending before Delhi High Court for quashing of said FIR. Two separate writ petitions are pending before Delhi High Court for quashing of subject FIR registered against the directors. Interim orders passed earlier shall continue.

f) Aggrieved by the Order of Metropolitan Magistrate

- the Company had earlier filed a Revision Petition before the Court of Additional Sessions Judge, Patiala House, New Delhi which was dismissed vide orders dated 22^nd July, 2015. Based on the advice of Advocate, the Company has now filed a Criminal Miscellaneous Petition being Cr. M.C. No. 5072 of 2015 under Section 482 of CRPC in the Delhi High Court challenging the order dated 22^nd July, 2015 of ASJ.

g) Another supplier of company had on 10-3-2015 filed a company petition No. 434 of 2015 against the Company under Section 433(e) and (f) read with Section 434 and 439 of Companies Act, 1956 before the Bombay High Court. The matter is pending.

h) A Civil Suit was filed by Chaitanya Blasting Works against the Company before the court of Additional District Judge at Vishakhapatnam for recovery of Rs.1.25 Crores along with interest @ 24% per annum along with an application for attachment before judgment of company’s stock lying at Gurrampalen, Vishakhapatnam which was dismissed by the Court of Addl.(ADJ) vide order dated 5-10-2015. The Chataniya Blasting Work has now challenged the order of ADJ by filing a petition under Article 227 of the Constitution of India in the High Court of Judicature at Hyderabad. This matter is pending.

8. The Company has defaulted in repayment of loan and borrowings to financial institution, bank and Govt. The lenders balance confirmations were not available.

9. The Company has not raised money by way of initial public offer (including debt instruments) and term loans were applied for the purposes for which those are raised.

10. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

11. The Company is not a Nidhi Company and Nidhi Rules 2015 is not applicable.

12. The Company has disclosed all transaction with the related parties are in compliance with section 177 and 188 of Companies Act, 2013 were applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable accounting standards.

13. The Company has not allotted any fully paid up shares to the Lenders / Creditors during the year. The proposed allotments are pending, awaiting approval of Stock Exchanges.

14. The Company has not entered into any non-cash transactions with directors or persons connected with him.

15. The Company is not required to be registered u/s 45-IA of the Reserve Bank of India Act, 1934. This is not applicable to the Company.

Reasons for Unfavorable Report

Due to non-implementation of CDR package, the financial position of the company has suffered a Setback. The production has fallen resulting in heavy losses. Due to financial crunch and non availability of funds, there are some delays in depositing the government dues. . There are defaults in repayment of bank loans. The debtors have stopped payment of their dues. The creditors have started filing legal suits for their recovery and winding up proceedings. The net worth has eroded. The BIFR application is pending. We have reported the matters in the Emphasis of matters in paragraph nos. 1 to 12 of our report of even date.

We have audited the internal financial controls over financial reporting of PSL Limited (“the Company”) as of 31^st March 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls

The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (‘ICAI’). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors’ Responsibility

Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed under section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31^st March 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

For Suresh C. Mathur & Co.

Chartered Accountants,

(Firm Regn. No. 000891N)

Place: New Delhi (Suresh C. Mathur)

Dated: 24^th May, 2016 PARTNER

M. No. 1276