ESCORTS Auditors Report

1. We have audited the attached Balance Sheet of Escorts Limited as at
30th September, 2012, the Statement of Profit and Loss and also the
Cash Flow Statement for the year ended on that date, annexed thereto.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.


2. 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.


3. As required by the Companies (Auditor's Report) Order, 2003, as
amended, 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 paragraphs 4
and 5 of the said Order.


4. Attention is drawn to Note No. 40 of the financial statements. As
explained therein, pursuant to the order of the High Court, an amount
of Rs. 369.79 crores has been utilized from Business Reconstruction
Reserve and the consequential impact on the Balance Sheet and Statement
of Profit & Loss. The balance amount Rs. 70.28 crores in the Business
Reconstruction Reserve has been transferred to General Reserve.


5. We also draw attention to Note No. 41 of the financial statements
which describes in detail the salient features of the Scheme of
Arrangement and amalgamation of Escorts Construction Equipment Limited
(ECEL) and Escotrac Finance and Investments Private Limited (Escotrac)
and Escorts Finance Investments and Leasing Private Limited (EFILL)
with Escorts Limited sanctioned by the Hon'ble High Court of Punjab &
Haryana involving the following:


(a) Escorts Construction Equipment Limited and Escotrac Finance and
Investments Private Limited and Escorts Finance Investments and Leasing
Private Limited have been amalgamated with the Company with effect from
1st October, 2011 (appointed date). The amalgamation has been accounted
for under the "Pooling of Interest Method" in accordance with AS-14
Accounting for Amalgamations.


(b) Equity investments held by Escotrac and by EFILL in the share
capital of the Company and equity investment held by Escotrac and by
EFILL in the share capital of Escorts Finance Limited ultimately
transferred to the Escorts Benefit & Welfare Trust. The beneficiary
interest in the Escorts Benefit and Welfare Trust, has been accounted
for as an Investment by the Company in the manner prescribed in the
Scheme.


6. 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, Statement of Profit and Loss and Cash Flow
Statement dealt with by this report are in agreement with the books of
account.


(d) In our opinion, the Balance Sheet, Statement of Profit and Loss and
Cash Flow Statement dealt with by this report comply with the
Accounting Standards referred to in sub-section (3C) of Section 211 of
the Companies Act, 1956, except accounting treatment as described in
paragraph 4 above regarding utilization of Business Reconstruction
Reserve pursuant to the order of the Hon'ble High Court.


(e) On the basis of written representations received from the
directors, as on 30th September, 2012 and taken on record by the Board
of Directors, we report that none of the directors is disqualified as
on 30th September, 2012 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, read together with the
Significant Accounting Policies and Notes to Accounts thereon, give the
information required 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 the case of the Balance Sheet, of the state of affairs of the
Company as at 30th September, 2012,


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


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


Annexure Referred to in paragraph 3 of our Report of even date on the
Accounts of Escorts Limited, for the year ended 30th September, 2012.


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, physical
verification of fixed assets is being conducted in a phased manner by
the management under a programme designed to cover all the fixed assets
over a period of three years, which, in our opinion, is reasonable
having regard to the size of the Company and the nature of its assets.
Discrepancies noticed on such verification were not material and have
been properly dealt with in the books of account.


(c) According to the information and explanations given to us, the
Company has not disposed off a substantial part of its fixed assets
during the year under review.


ii) (a) As explained to us, the inventories have been physically
verified by the management at reasonable intervals during the year,
except for materials lying with third parties for which certificates
confirming stocks held by them have been obtained in most of the cases.


(b) In our opinion and according to the information and explanations
given to us, the procedures of physical verification of inventories
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 and according to information and explanations given
to us, the Company has maintained proper records of its inventories.
Discrepancies noticed on physical verification of inventories were not
material and have been properly dealt with in the books of account.


iii) (a) The Company has granted unsecured loans to a company covered
in the register maintained under Section 301 of the Companies Act,
1956. The maximum amount involved during the year was Rs. 1.46 crores
and balance of the loans granted to such company was Rs. 1.43 crores as
at 30th September, 2012.


(b) In our opinion and according to the information and explanations
given to us, the rate of interest and other terms and conditions of
such loans are not, prima-facie, prejudicial to the interest of the
Company.


(c) The receipt of the principal amount and interest, wherever
applicable, is as stipulated.


(d) There is no overdue amount of such loans granted to the aforesaid
companies.


(e) The Company has taken loan from a company covered in the register
maintained under Section 301 of the Companies Act, 1956. The maximum
amount involved during the year was Rs. 2.93 crores and the balance of
loan taken from such company was Rs. 2.02 crores as at 30th September,
2012.


(f) In our opinion and according to the information and explanations
given to us, the rate of interest and other terms and conditions of
such loans are not, prima facie, prejudicial to the interest of the
Company.


(g) The Company has been regular in repaying the principal amount and
interest, as stipulated.


iv) In our opinion and according to the information and explanations
given to us, there are adequate internal control procedures
commensurate with the size of the Company and the nature of its
business, for the purchase of inventory and fixed assets and for the
sale of goods and services. During the course of our audit, we have
neither come across nor have been informed of any continuing failure to
correct major weaknesses in the internal control systems.


v) (a) According to the information and explanations given to us, we
are of the opinion that the transactions that need to be entered into
the register maintained under Section 301 of the Companies Act, 1956
have been so entered.


(b) 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 301 of
the Companies Act, 1956 and exceeding the value of Rupees five lakhs in
respect of any party during the year have been made at prices which are
reasonable having regard to the prevailing market prices at the
relevant time except for items stated to be of a specialised nature
where no comparison is possible.


vi) In our opinion and according to the information and explanations
given to us, the Company has complied with the provisions of Sections
58A, 58AA and other relevant provisions of the Companies Act, 1956 and
the Companies (Acceptance of Deposits) Rules, 1975 with regard to
unpaid matured fixed deposits accepted from the public. The Company has
however, not accepted any fresh deposits during the year under review.


vii) In our opinion, the Company has an internal audit system
commensurate with the size and nature of its business.


viii) We have broadly reviewed the books of account maintained by the
Company pursuant to the Rules made by the Central Government for the
maintenance of cost records under Section 209(1)(d) of the Companies
Act, 1956 in respect of the products manufactured by the Company and
are of the opinion that prima-facie the prescribed accounts have been
made and maintained. We have, however, not made a detailed examination
of the records with a view to determine whether they are accurate and
complete.


ix) (a) The Company is generally regular in depositing with appropriate
authorities undisputed statutory dues including provident fund,
investor education and protection fund, employees' state insurance,
income- tax, sales-tax, wealth-tax, service tax, customs duty, excise
duty, cess and other material statutory dues applicable to it.


According to the information and explanations given to us, no
undisputed amounts payable in respect of provident fund, investor
education and protection fund, employees state insurance, income-tax,
sales-tax, wealth-tax, service tax, custom duty, excise duty and cess
were in arrears, as at 30th September, 2012 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
details of statutory dues of income-tax, sales-tax, wealth-tax, service
tax, customs duty, excise duty and cess which have not been deposited
on account of dispute are given below:


Name of the Statute Nature of Dues Amount
(Rs. Crores)


Sales Tax Acts Sales Tax 13.43


Central Excise Act, 1944 Excise Duty 0.61


Central Excise Act, 1944 Excise Duty 14.34 (Deposited
Rs. 3.84 crores)


Finance Act, 1994 Service Tax 1.53


Income Tax Act, 1961 Income Tax 14.44


Income Tax Act, 1961 Income Tax 116.08 (Deposited
Rs. 20 Crores)


0.81 (Deposited
Rs. 0.28 crores)


Haryana Local Area Local Area
Development Tax Act, Development
2000 Tax 12.90


Name of the Statute Period to Forum where
which the dispute is
amount pending
relates


Sales Tax Acts 1987-2011 Appellate Authority /
High Court


Central Excise Act,1944 1992-2008 Appellate Authority


Central Excise Act,1944 1995-2009 CESTAT


Finance Act,1994 2000-2010 CESTAT


Income Tax Act,1961 2001-2002 High Court


Income Tax Act,1961 2006-2007 CIT (Appeals)


2008-2009 ITAT


Haryana Local Area
Development Tax Act,2000 2006-2008 Supreme Court


x) The Company does not have accumulated losses as at 30th September,
2012 and has not incurred cash losses during the financial year covered
by our audit and in 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 repayment of dues to a
financial institution or bank or debenture holders.


xii) According to the information and explanations given to us, the
Company has not granted loans and advances on the basis of security by
way of pledge of shares, debentures and other securities.


xiii) In our opinion, the Company is not a chit fund or a nidhi/ mutual
benefit fund/ society. Therefore, provisions of Clause (xiii) of
Paragraph 4 of the Order are not applicable to the Company.


xiv) In our opinion and according to the information and explanations
given to us, the Company is not dealing or trading in shares,
securities, debentures and other investments. Accordingly, the
provisions of Clause (xiv) of Paragraph 4 of the Order are not
applicable to the Company.


xv) According to the information and explanations given to us, the
Company has not given guarantees for loans taken by others from banks
and financial institutions.


xvi) To the best of our knowledge and belief and according to the
information and explanations given to us, the term loans availed by the
Company were applied for the purposes for which the loans were
obtained.


xvii) According to the information and explanations given to us and on
an overall examination of the Balance Sheet of the Company, in our
opinion, there are no funds raised on short-term basis which have been
used for long-term investment.


xviii) According to the information and explanations given to us, the
Company has not made any preferential allotment of shares to parties
and companies covered in the register maintained under Section 301 of
the Companies Act, 1956.


xix) The Company has not issued any debentures during the year.
Therefore, the provisions of Clause (xix) of Paragraph 4 of the Order
are not applicable to the Company.


xx) The Company has not raised any money by public issue during the
year under review.


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
has been noticed or reported during the year.


For S. N. Dhawan & Co.


Chartered Accountants


(Firm Regn. No. 000050N)


(Vijay Dhawan)


Dated: 27th November, 2012 Partner


Place : New Delhi M. No.: 12565

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