INDEPENDENT AUDITORS' REPORT

To

The Members of Bhushan Steel Ltd.

Report on the Standalone Ind AS Financial Statements

We have audited the accompanying standalone Ind AS financial statements of Bhushan Steel Ltd. ("the Company"), which comprise the Balance Sheet as at 31st March, 2017, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information (herein after referred to as "Standalone Ind AS Financial Statements).

Management's Responsibility for the Standalone Ind AS 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 of these standalone Ind AS financial statements that give a true and fair view of the state of affairs (financial position), profit or loss (including other comprehensive income), cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act read with rules issued there under.

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 controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone Ind AS 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 provisions of the Act and the Rules made there under.

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

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone Ind AS financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the standalone Ind AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Board of Directors, as well as evaluating the overall presentation of the standalone Ind AS financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements.

Basis of Qualified Opinion

The Supreme Court of India, vide its order dated 24.09.2014, cancelled number of coal blocks allocated to various entities, which includes one coal block allocated to the company, which was under development. Subsequently, the Government of India has issued the Coal Mines (Special Provision) Act, 2015, which inter-alia deal with the payment of compensation to the effected parties in regard to investment in the coal blocks.

No effect has been taken on the value of investment made by the company in the de-allocated coal blocks amounting to '56289.96 lacs (including expenditure incurred of '13546.46 lacs and advance given of '42743.50 lacs). In the opinion of the management, the company will receive back the payments / expenditure paid / made, including borrowing cost and other incidental expenditure, relating to de-allocated coal block. The company has filed its claim for compensation with the Government of India, Ministry of Coal. Subsequently, the company has filed a petition before the Hon'ble Delhi High Court for early recovery of amount, in which notice has been issued to the Union of India and the matter is still pending for disposal.

We are unable to comment on the impact on the value of investment made by the company in the de-allocated coal blocks and their consequent impact on the losses for the financial year ended March 31, 2017.

Qualified Opinion

In our opinion, and to the best of our information and according to the explanations given to us, except for the matter described in the Basis of Qualified Opinion paragraph above, the aforesaid standalone Ind AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India including the Ind AS, of the state of affairs of the Company as at 31st March, 2017, and its loss (including other comprehensive income), its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matter

1. We draw attention on Note No. 50 to the Ind AS financial statements, which indicates that the company has negative net worth as at

31.03.2017. Further, it has incurred net cash losses of '2,43,278 lacs in the current financial year and '2,46,462 lacs in the immediate preceding financial year. The current liabilities of the company exceeded its current assets as at the balance sheet date by '21,74,381 lacs. These conditions may cast doubt about the Company's ability to continue as a going concern. However, the financial statements of the company are prepared on a going concern basis for the reasons stated in the said Note.

2. Indian Accounting Standard (Ind AS) - 101 requires to provide details of material adjustments relating to Balance Sheet and Statement of Profit and Loss in compliance to all applicable Ind AS in the Equity Reconciliation Statement as on 01.04.2015 and 31.03.2016 with respect of reported and restated figures; the company has disclosed net effect of these adjustments due to transition to Ind AS in the Equity Reconciliation Statement. (Refer Note No. 45 to the Ind AS financial statements)

Our opinion is not modified in respect of these matters.

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 in terms of Section 143(11) of the Act, we give in "Annexure A" 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) We have sought and except for the possible effect of the matter described in the Basis of Qualified Opinion paragraph above, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of

our audit;

(b) Except for the possible effect of the matter described in the Basis of Qualified Opinion paragraph above, 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 including other Comprehensive Income, the statement of cash flows and the statement of changes in equity dealt with by this Report are in agreement with the books of account;

(d) Except for the possible effect of the matter described in the Basis of Qualified Opinion paragraph above, in our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards specified under section 133 of the Act read with Rules issued there under;

(e) The matters described in the 'Basis of Qualified Opinion' and 'Emphasis of Matter' paragraphs above, in our opinion may have an adverse effect on the functioning of the Company;

(f) On the basis of written representations received from the directors as on March 31, 2017, taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2017, from being appointed as a director in terms of sub-section

(2) of Section 164 of the Act; whereas in fact, the company has defaulted in redeeming certain debentures on due date and in payment of interest thereon. However, according to information and explanations given to us, LIC has shown its willingness to restructure it as per S4A scheme of RBI vide its letter dated 12.04.2017. Meanwhile as per directions of RBI dated 13.06.2017, the lenders are considering to refer the matter of restructuring of borrowings to National Company Law Tribunal (NCLT) for final resolution.

(g) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the basis of Qualified Opinion paragraph above;

(h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure B"; and

(i) 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 Ind As financial Statements - Refer Note - 42 to the standalone Ind AS financial statements;

ii. the company has made provisions, as required under applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note - 43 to the standalone Ind AS financial statements;

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

iv. the Company has provided requisite disclosures in its standalone Ind AS financial statements as regards to holdings as well as dealings in Specified Bank Notes as defined in the Notification S.O. 3407(E) dt. 8th November, 2016 of the Ministry of Finance, during the period from 8^th November, 2016 to 30^th December, 2016. Based on audit procedure performed and the representation provided to us by the management, we report that the disclosure are in accordance with the books of account maintained by the Company as produced to us by the management. - Refer Note 11 to the standalone Ind AS financial statements.

The Annexure 'A' referred to in our Independent Auditors' Report to the members of the Company on the standalone Ind AS financial statements of Bhushan Steel Ltd. for the year ended 31st March, 2017, we report that:

(i) In respect of its property, plant and equipment:

(a) The Company is maintaining proper records showing full particulars including quantitative details and situation of property, plant and equipment on the basis of available information;

(b) The property, plant and equipment covering significant value were physically verified during the year by the management at such intervals which in our opinion, provides for the physical verification of all the property, plant and equipment at reasonable intervals having regard to the size of the Company and nature of its business. According to the information and explanations given to us, no material discrepancies were noticed on such verification;

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of company except in respect of guest house building at Mumbai having Gross block of Rs,74.00 lacs and Net block of Rs,65.64 lacs as at 31st March, 2017.

(ii) According to the information and explanations given to us, the inventory of finished goods, semi-finished goods and raw material at works were, during the year physically verified by the management. In respect of stores spare and stock at yards in the custody of the third party and stock in transit were verified with the confirmation or statement of account or correspondence of the third parties or certification by management or reports of inspection and different audits carried out by the banks. In our opinion and according to the information and explanations given to us, the interval of such physical verification is reasonable having regard to the size of the Company and nature of its business and according to the information and explanations given to us, no material discrepancies were noticed on such verification.

(iii) According to the information and explanations given to us, the Company has not granted secured or unsecured loan to a company, firm, LLP or other entity covered in the register maintained under Section 189 of the Companies Act, 2013. Accordingly, the provisions of sub-paragraph (a) and (b) of the Order are not applicable.

(iv) In our opinion and according to the information and explanations given to us, the Company has generally complied with the provisions of section 185 and 186 of Companies Act, 2013 with respect to the loans, investments, guarantees and security.

(v) According to the information and explanations given to us, the Company has not accepted any deposits during the year. Hence, the directives issued by the Reserve Bank of India and the provisions of section 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there-under are not applicable to the Company.

(vi) In our opinion and according to the information and explanations given to us, specified accounts and records as prescribed by the Central Government in terms of sub-section (1) of section 148 of the Companies Act, 2013 have been prima facie made and maintained by the company. However, we have not, nor we are required, carried out any detailed examination of such accounts and records.

(vii) (a) According to the information and explanations given to us and

on the basis of our examination of the records, the Company has generally been regular in depositing undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales-tax, service tax, duty of customs, value added tax, cess and any other material statutory dues with some delays to the appropriate authorities to the extent these are applicable except deposit of duty of excise, where payment is continuously irregular.

According to the information and explanations given to us, no undisputed dues were in arrears as at 31st March, 2017 for a period of more than six months from the date they become payable except dues of excise including interest of Rs,9,861.41 lacs and electricity duty of Rs,399.21 lacs.

(b) According to the information and explanations given to us, the following dues of sales tax, duty of excise, service tax, value added tax and other statutory dues have not been deposited by the Company on account of disputes:

(viii) Based on our audit procedure and according to the information and explanations given to us, we are of the opinion that the Company has defaulted in repayment of loans / borrowings to the financial institutions, banks, Government or debenture holders as per details given here-under:

The Company is enjoying working capital facility (funded and nonfunded) and there is outstanding balance of Rs,13,02,454.78 lacs as at 31st March, 2017 against which, interest of Rs,1,28,246.42 lacs is overdue.

(ix) According to the information and explanations given to us, the Company has raised money by way of term loans during the year and to the best of our knowledge and according to the information and explanations given to us, the amount received by means of these loans have been pooled and utilized through Trust Retention Account (TRA) maintained by State Bank of India, the lead banker, on behalf of all other consortium members.

(x) To the best of our knowledge and according to the information and explanations given to us, no material fraud by the company or on the Company by its officers or employees has been noticed or reported during the course of our audit.

(xi) According to our information and explanations given to us and based on our examination of the records of the Company, managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act except the payment of leave encashment, provident fund and taxable car perquisites for which clarification sought by the management from Central Government is awaited. (Refer Note - 54 to the standalone Ind AS financial statements)

(xii) In our opinion and according to the information and explanations given to us, the Company is not a Nidhi company. Accordingly, para 3 (xii) of the Order is not applicable to the Company.

(xiii) According to the information and explanations given to us and based on our examination of the records of the company, transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable and details of such transactions have been disclosed in the standalone Ind AS financial statement as required by the applicable accounting standards.

(xiv) According to the information and explanations given to us and based on our examination of the records of the company, the company has made private placement of redeemable cumulative preference shares during the year under review and in our opinion, the requirement of section 42 of the Act have been complied with and the amount raised have been used for the purposes for which the funds were raised.

(xv) According to the information and explanations given to us and based on our examination of the records of the company, the company has not entered into non-cash transactions with directors or persons connected with him.

(xvi) As per our information, the company is not required to be registered under Section 45-1A of the Reserve Bank of India Act, 1934.

Annexure - B to the Auditors' Report

Report on the Internal Financial Controls under Clause (i) of Subsection 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the internal financial controls over financial reporting of Bhushan Steel Limited ("the Company") as of 31^st March 2017 in conjunction with our audit of the standalone Ind AS 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 standalone Ind AS 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, to the best of our information and according to the explanation given to us, 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 2017, 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 MEHRA GOEL & CO. For MEHROTRA & MEHROTRA

Chartered Accountants Chartered Accountants

(FRN:000517N) (FRN:000226C)

sd/- sd/-

R.K. Mehra M.P. Mehrotra

Partner Partner

M. No: 006102 M. No : 005699

Place: New Delhi

Dated: 5th July, 2017