We have audited the accompanying financial statements of N.K.Industries Ltd. which comprise the Balance Sheet as at March 31, 2014, the Statement of Profit and Loss and the Cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of these 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 Standards notified under the Companies Act, 1956 ("the Act) read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies act,2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. 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. 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 companies internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by 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 qualified audit opinion.

Basis for Qualified Opinion

1. We draw attention to Note 30 to the financial statements which indicates that the company had incurred huge losses in past years, including the financial year under audit and the company's net worth is negative. In spite of this in view of the management, the accounts have been prepared on "Going Concern basis".

Further, a Winding up petition before the Hon'ble High Court of Gujarat has been filed by Vemag Engineering Pvt. Ltd. for its dues of Rs 17.38 lacs. The aforesaid Debt is disputed by the Company, and has been disclosed as a contingent liability (Refer note No 25 b of notes to financial statements).Pending decision of the Hon'ble High Court of Gujarat and considering the fact that the company is registered and declared "Sick" by Hon'ble Board for Industrial & Financial Reconstruction under SICA Act, the accounts have been prepared on "Going concern basis".

2. The Company has entered into financial arrangement with National Spot Exchange Ltd (NSEL) through trading and Clearing Member, N.K.Proteins Ltd (Group Company) by way of purchase and sales of various goods,without physical delivery of the goods, during the previous fiscal year. Further although the balances of long term creditors include the creditors resulting out of such transactions, the liability of NSEL could not be ascertained due to the difference between the balance as per the books of the company and balance due as per the demand of NSEL through the trading and clearing member N.K.Proteins Ltd. In view of the fact that matter is still under reconciliation and under dispute, we are unable to quantify the amount of liability or unable to make any comments on the same .Further NSEL suspended the trading on 31st July 2013 and has moved an arbitration petition in the H'onble Mumbai High Court for recovery of outstanding amount from N.K. Proteins Limited, and has made the company a Respondent The matter is pending with H'onble Bombay High Court. The matter being Subjudice we are unable to comment on the same. (Refer Note no 31 of notes to financial Statements)

3. The income tax department had carried out survey under section 133A on the company along with other group companies. The investigation is pending with Income Tax Department. Further, the Investigation by Economic Offence Wing of Mumbai Police (EOW) is also in progress against trading and clearing member N.K.Proteins Limited relating to the issue. The matter being subjudice we are unable to comment on the same. (Refer Note no 33 of notes to financial Statements)

4. Trade payables include amounts payable to third parties as elaborated vide note no 31 above, and trade receivables include receivable from third parties towards transactions through National Spot Exchange Ltd (NSEL). The said balances as on date are subject to confirmation by respective parties and reconciliation/adjustments if any. The Balance amount of trade payables and receivables and other loans and advances are also subject to confirmation and we are unable to comment on the same. (Refer Note no 32 of notes to financial Statements).

5. Sales Tax Department has completed the assessment for various assessment years and raised demand of Rs 5423.55 lacs for the earlier previous years and further an amount of Rs 130.88 Lacs for the year under review making total demand of Rs 5554.43 Lacs. The company has not made any provision for the above demand raised by the sales tax authority in view of the fact that the company had preferred an appeal before the appellate authority. Had the provision for sales tax would have been made for the earlier years as well as for the year under review, the loss for the current year would have been higher by Rs 130.77 Lacs and loss for the earlier year would have been higher by Rs 5423.55 Lacs and Liabilities would have been higher by Rs 5554.43 Lacs (Refer Note no 36 of notes to financial Statements).

6. No provision for interest is made during the year on advances of Rs 2920.25 Lacs (P.Y. Rs 1171.60 Lacs), since the same is considered as doubtful. (Refer Note no 28 of notes to financial Statements)

7. Impact, if any, of the rehabilitation scheme by operating agency appointed by Hon'ble Board for Industrial & Financial Restructuring (BIFR) is not ascertainable since the scheme is pending. (refer note No.26 of notes to financial statements).

Qualified Opinion

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion Paragraph, the 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:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2014;

(ii) in the case of the Statement of Profit and Loss Account, of the Loss 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.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor's Report), Order, 2003 ("the Order"), as amended, issued by the Central Government of India in terms of sub-section(4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 purpose 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 comply with the Accounting Standards notified under the Companies Act,1956 ("the Act) read with the General Circular 15/2013 dated 13th September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies act,2013

e. on the basis of written representations received from the directors as on March 31, 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

Annexure to the Auditors' Report

Referred to in paragraph of our report of even date on the accounts of N. K. Industries Limited for the year ended on 31st March 2014.

i) a) The company has maintained records showing full particulars, including quantitative details & the situation of the fixed assets with effect from 1st April 2008 onwards.

b) As explained to us, a major portion of the fixed assets has been physically verified by the management during the year in accordance with a phased programme of verification adopted by the Company. In our opinion, the frequency of verification is reasonable having regard to the size of the company & nature of its assets. In absence of availability of fixed asset register prior to period 1st April 2008,we are unable to comment on material discrepancies noticed on physical verification of fixed assets & its effect in the books of accounts.

c) According to the information and explanation given to us, no Fixed assets has been disposed off during the year and hence the question of affecting going concern assumption does not arise.

ii) a) As explained to us, inventories were physically verified by the management at reasonable intervals during the year.

b) In our opinion & according to the information & explanations given to us, the procedures of physical verification of inventories followed by the management were reasonable & adequate in relation to the size of the company & nature of its business.

c) In our opinion and according to the information and explanations given to us, the company is maintaining proper records of inventory. The discrepancies noticed on verification between the Physical stocks and the book records were not material.

iii) a) The company has granted interest free unsecured loans to five companies covered in the register maintained under section 301 of the Companies Act, 1956. The net worth of four companies is negative. The said loans are doubtful for recovery. The maximum amount involved during the year was Rs 2507.46 lacs and the year-end balance of such loan was Rs 2507.46 lacs.

b) The loans are interest free loans and are considered doubtful of recovery.

c) There is no stipulation for repayment of loan.

d) There is no stipulation in respect of repayment of loans granted, therefore, the question of overdue amount thereon does not arise.

e) The company has not taken any loan from any company, firm or other parties covered in the register maintained under section 301 of the Companies Act, 1956.

iv) In our opinion and according to information given to us, there are adequate internal control system 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. There is no continuing failure to correct major weaknesses in internal control system;

v) (a) In our opinion and according to the information & explanations given to us, the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under section 301 of the Companies Act, 1956

(b) In our opinion, and according to information and explanation given to us, the transactions of purchase of goods & materials, sales of goods, materials,& services made in pursuance of contract or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 aggregating during the year Rs 5.00 Lacs or more in respect of such parties have been made at prices which are reasonable having regard to the prevailing market prices for such goods, materials, fixed assets & services or the prices at which the transactions for similar goods, materials, & services have been made with other parties.

vi) The Company has not accepted any deposits from the public.

vii) In our opinion the Company has an in house internal audit system, commensurate with the size of the Company and nature of its business, however the same is required to be strengthened with regard to the scope, reporting and its compliance.

viii) We have broadly reviewed the books of accounts maintained by the company in respect of products where pursuance to the rules made by the Central Government of India, the maintenance of Cost records has been prescribed u/s 209(1) clause (d) of the Companies Act 1956 and we are of the opinion that prima facie, the prescribed accounts & records have been maintained. We have however, not made a detailed examination of the records.

ix) a) According to the information and explanations given to us, the company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund, Employees' State Insurance, Income- tax, Sales-tax, Wealth tax, Service tax, Custom Duty, Excise Duty, Cess and any other material statutory dues applicable to it. According to the information and explanations given to us, no undisputed amount payable in respect of Income Tax, Sales Tax, Wealth Tax, Service Tax, Excise Duty and Cess were in arrears as at the end of the year, for a period of more than six months from the date they become payable.

b) On the basis of records produced before us for our verification and according to the information and explanations given to us, the details of disputed, Sales Tax & Income Tax dues aggregating to Rs 5886.67 lacs that have not been deposited as on 31st March, 2014 on account of matters pending before appropriate authorities, the details of which are as under.

a) Name of the Statute          Nature of Dues        Amount
                                                   (Rs in Lacs)

Income Tax Act                  Corporate Tax       30.26 Lacs
                                                  (upto 31/3/14)

Income Tax Act                  Corporate Tax      161.72 Lacs

Income Tax Act                  Corporate Tax      140.26 Lacs

Guj. Sales Tax                  Sales Tax          5423.55
                                                  (Net of payments)

Guj. Sales Tax                  Sales Tax          130.88 

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

Income Tax Act             Block Assessment           Gujarat HighCourt
                           from 1989 to 1999

Income Tax Act             A.Y.2006-2007                     CIT Appeal

Income Tax Act             A.Y.2007-2008                     CIT Appeal

Guj. Sales Tax             F.Y. 1989-90, 90-91,    Sales Tax Tribunal /
                           97-98 to 2001-02        Commercial Tax
                                                   Officer

Guj. Sales Tax             F.Y. 2008-09            Commissioner of
                                                   Commercial Tax,
                                                   Appeal-I, Ahmedabad

xi) As there are no loans taken by the company during the year, the question of default in repayment does not arise.

xii) In our opinion and according to the information and explanation given to us, no loans and advances have been granted by the company on the basis of security by way of pledge of shares, debenture and other securities.

xiii) According to the information & explanations given to us, the company is not a chit fund or a nidhi /mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003, are not applicable to the company.

xiv) According to the information & explanations given to us, the company is not dealing or trading in shares, Securities, debentures & other investments. Therefore, the provisions of clause 4(xiv) of the Companies (Auditors Report) Order, 2003, are not applicable to the company.

xv) According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from bank or financial institutions.

xvi) The Company has not raised any new term loans during the year.

xvii) Based on the information and explanations given to us and on an overall examination of the balance sheet of the company, in our opinion Rs 2155.40 lacs raised on Short term basis stands utilized for long term investments.

xviii) The Company has not made any Preferential allotment of shares during the year under review.

xix) The company has not issued any debentures during the year.

xx) The company has not raised any money by way of public issue during the year.

xxi) According to the information and explanation given to us, no fraud on the company has been noticed or reported during the course of our audit. As regards frauds by the company is concerned, we have been informed that the company has been made a joint respondent with N.K. Proteins Limited (one of the group companies) in the Arbitration Petition filed by National Spot Exchange Limited (NSEL) in Mumbai High Court, in view of the fact that the investigations/litigations related to the transactions with NSEL are still under progress and the matter is subjudice, we are unable to give our comments under this head.

                                                 For PARIKH & MAJMUDAR
                                                 Chartered Accountants
                                                        FR No. 107525W

                                                                  sd/-
                                                  [CA Dr HITEN PARIKH]
Place : Ahmedabad                                              PARTNER
Date : 16th July, 2014                                    M. No. 40230