TO THE MEMBERS OF N.K INDUSTRIES LIMITED
Report on the Audit of the Standalone Financial Statements
We have audited the accompanying standalone financial statements of M/sN.K.INDUSTRIES LIMITED (''the Company") which comprise the balance sheet as at March31 2019 and the statement of profit and loss (including other comprehensive income)statement of changes in equity and statement of cash flows for the year then ended andnotes to the financial statements including a summary of significant accounting policiesand other explanatory information.
In our opinion and to the best of our information and according to theexplanations given to us except for the effects of the matter described in the Basis for QualifiedOpinion Section of our report the aforesaid standalone financial statements give theinformation required by the Companies Act 2013 (the Act) in the manner so required andgive a true and fair view in conformity with the accounting principles generally acceptedin India including Indian Accounting standards (Ind AS) specified under section 133 of theAct of the state of affairs (financial Position )of the Company as at March 31 2019 andits losses (financial performance including other comprehensive income) its Cash flowsand changes in equity for the year ended on that date.
Basis for Qualified Opinion
1. The Company had entered into financial arrangement with NationalSpot Exchange Ltd (NSEL) through trading and Clearing Member N.K. Proteins Private Ltd(erstwhile N. K. Proteins Limited (NKPL) (Group Company) by way of purchase and sales ofvarious goods up to financial year 2012-13. The trade payables and trade receivablesarising out of the said transactions through National Spot Exchange Limited (NSEL) fromthe concerns other than the group concerns are subject to confirmations by the respectiveparties/NSEL and reconciliations/adjustments if any. Further NSEL has suspended thetrading on 31.07.2013 as per the directions issued by the Government of India Ministryof Consumer Affairs. NSEL has initiated recovery proceedings against the group companyNKPL and also against the company by filing a civil suit in the Hon'ble High Court ofMumbai for an alleged amount of around Rs.937 crores plus interest and the saidproceedings are pending as on date. Further the Home department Government ofMaharashtra has issued a notification under the Maharashtra Protection of Interest ofDepositors (in financial establishments)-Act 1999 (MPID Act) attaching the Land Building& Plant & Machinery of the company located at Kadi Gujarat. The company hadchallenged the notification issued by Home department of Maharashtra before Hon'bleGujarat High Court which was disposed off vides its order dated 29th March2017. The company preferred a Special Leave Petition before the Hon'ble Supreme Court ofIndia against the order of Hon'ble Gujarat High Court and The Hon'ble Supreme Court ofIndia had disposed off the Special Leave Petition on 17th April 2017 with aobservation to file an application before Hon'ble Bombay High Court Mumbai and asinformed by the management the company has filed petition before the Hon'ble Bombay HighCourt in June 2017 which is pending .Besides the above the company has also filed itsobjections against the attachment notification before the Designated Special MPID CourtMumbai.
In view of the above that the matter is subjudice and the allegedliability /claim are not accepted by the company we are unable to quantify the finalliability and its impact if any on the loss of the company for the Year ended on 31stMarch 2019.(Refer note No 35 of Standalone financial statements)
2. The Directorate of Enforcement Government of India has initiatedproceedings against the company under section 5(1) of the prevention of Money LaunderingAct 2002 along with group company NKPL and by virtue of the provisional attachmentorder dated 10/03/2015 attached the assets of the company comprising of Land buildingplant and machinery situated at Survey Nos.719 720 721 732/1 732/2 733 741 743744 745 Kadi Thol Road Village Kadi Kasba taluka- Kadi District Mehsana-382715Gujarat. As explained to us The Company has preferred an appeal before the Hon'bleAppellate Tribunal under the Prevention of Money laundering Act 2002 against the order ofAdjudicating Authority.
Further the Director of Enforcement (hereinafter referred to as ED)Government of India had initiated proceedings of search/seizure on 30.05.2018 on the groupcompany NKPL the promoters of the company Shri Nilesh Patel and Shri Nimish Patel one ofthe family member as well as on the company and thereafter on 29.06.2018 the EDGovernment of India had preferred an application u/s 17(4) of the Prevention of MoneyLaundering Act 2002 before the Adjudicating Authority New Delhi vide it's a ApplicationNo. OA/236 of 2018 against the company as well as group company NKPL and the promoters forretention of the seized properties and for continuation of order of freezing theproperties till finalization of the proceedings of the properties mentioned in theapplication u/s 17(4) of the PMLA Act 2002. The company along with Group Company andpromoters challenged the show cause notice issued by the adjudicating authority New Delhibefore the Hon'ble High Court of Delhi and the Hon'ble High Court has set aside the saidshow cause notice. The Director of Enforcement has attached assets of the company groupcompany NKPL and the promoters of the company by issuing a fresh show cause notice dated30/08/2018 and the company has filed an appeal before PMLA Appellate Tribunal Delhi .
In view of the above that the matter is subjudice and the allegedliability /claim are not accepted by the company we are unable to quantify the finalliability and its impact if any on the loss of the company for the Year ended on 31stMarch 2019.(Refer note No 36 of Standalone financial statements)
3. The Government of Maharashtra (at the instance of Economic wingoffence Mumbai) has filed supplementary Charge sheet dated 25th December 2018under the various sections of IPC AND MPID Act. against the company and its chairman ShriNimish Patel. Further MPID Court on the basis of above supplementary charge sheet hasissued summons dated 19th March2019 against the company asking them to remainpresent on 26th April 2019. As informed to us by the Company has complied withthe said summons and the matter is adjourned to 2nd August 2019. Thus in viewof the fact that the said criminal proceedings which have been initiated inter aliaagainst the company and its Chairman Shri Nimish Patel are pending we are unable toascertain/quantify the final liability if any that may arise from the said criminalproceedings and therefore we are unable to quantify its impact if any on the loss of thecompany for the year ended on 31.03.2019. (Refer note No 37 of Standalone financialstatements)
We conducted our audit in accordance with the Standards on Auditingspecified under section 143(10) of the Act. Our responsibilities under those Standards arefurther described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Company in accordance with theCode of Ethics issued by the Institute of Chartered Accountants of India (ICAI) togetherwith the ethical requirements that are relevant to our audit of the financial statementsunder the provisions of the Act and the Rules thereunder and we have fulfilled our otherethical responsibilities in accordance with these requirements and the Code of Ethics. Webelieve that the audit evidence we have obtained is sufficient and appropriate to providea basis for our opinion.
Key Audit Matters
Key audit matters are those matters that in our professional judgmentwere of most significance in our audit of the standalone financial statements of thecurrent period. These matters were addressed in the context of our audit of the financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters.
Key Audit Matter:
|Description of Key audit Matter ||Our response and results |
|Litigations and claims ||Our audit procedures inter alia included following: |
|(Refer note 27) to the standalone financial statements) |
The cases are pending with multiple tax authorities like Income Tax Sales tax etc. and there are claims against the company which have not been acknowledged as debt by the company.
|- Discussed disputed litigation matters with the company's management. |
|In normal course of business financial exposures may arise from pending proceedings and from claims of the customers not acknowledged as debt by the company. Whether a claim needs to be recognized as liability or disclosed as contingent liability in the financial statements is dependent on a number of significant assumptions and judgments. The amounts involved are potentially significant and determining the amount if any to be recognised or disclosed in the financial statements is inherently subjective. ||- Evaluated the management's judgment of tax risks estimates of tax exposures other claims and contingencies. Past and current experience with the tax authorities and management's correspondence/response including on the claims lodged by customers were used to assess the appropriateness of management's best estimate of the most likely outcome of each uncertain contingent liability. |
| || |
|We have considered Litigations and claims a Key Audit Matter as it requires significant management judgement including accounting estimates that involves high estimation uncertainty. ||- Critically assessed the entity's assumptions and estimates in respect of claims included in the contingent liabilities disclosed in the financial statements. Also assessed the probability of negative result of litigation and the reliability of estimates of related obligations. |
| || |
| ||Conclusion: |
| ||Based on the procedures described above we did not find any material exceptions to the management's assertions and treatment presentation & disclosure of the subject matter in the standalone financial statements. |
Emphasis of Matter
1. We draw attention to Note 32 to the Standalone Financial Statementsand according to the same the company is having accumulated losses (after taking intothe account the balance of reserves) of Rs 335.07 Crores as at 31.3.2019 and the net worthof the company is negative However as per the business plan and future cash flowprojections submitted by the management to us and accepted by us. The Company is makingsincere efforts for the revival of the Business & the management is confident torecover the losses through improved profitability in foreseeable future. Therefore noprovision for the impairment has been made and accounts for the year have been prepared on"going concern basis." Further the above projections also contains businessplan/ projected cash flow prepared by the management and accepted by us with respect tothe subsidiaries company the management is confident to also revive the operations of theloss making subsidiary companies hence no provision for impairment in the fair value ofthe investment made in the said subsidiary companies has been made in the books ofaccounts.
2. Attention is invited to note 38 of the Standalone FinancialStatements which states that the Income Tax Department had carried out survey u/s 133 ofthe Income tax Act 1961(the IT Act) on the company along with other group companiesduring FY 2013-14 and had ordered a special audit of the books of the company u/s 142(2A)of the IT Act 1961 for AY 2011-12 & A.Y 12-13. The department had raised a demand ofRs 133 Crores (Rs 6.63 Crores for A.Y 10-11 Rs57.07 crores for A.Y 11-12 Rs 60.33 Croresfor A.Y 12-13 Rs 7.97 Crores for A.Y 2013-14& Rs.0.86 Crores for A.Y(2014-15) on thecompany for the aforesaid assessment years and the said demand has been disputed by thecompany and the company has initiated appellate proceedings before appropriateauthorities. The said amount has been shown as contingent liability under Note No. 24 ofthe notes forming part of accounts. Further Income tax department has passed anattachment order on 22.04.2015 & 14.08.15 by which it has attached properties of thecompany in pursuant to a demand the details of the properties attached which are in thename of company is as under:
803 Manas Complex Opp Star Bazaar Nr Jodhpur Cross roadSatellite Ahmedabad 380015.
603 Manas Complex Opp Star Bazaar Nr Jodhpur Cross roadSatellite Ahmedabad 380015.
Land situated at Survey Nos.719 720 721 732/1 732/2 733741 743 744 745 Kadi Thol Road Village Kadi Kasba taluka-Kadi DistrictMehsana-382715.
Factory Building Situated at survey No 745 Kadi Thol RoadVillage Kadi Kasba taluka-Kadi District Mehsana-382715
3. Attention is invited to note 29 of the Standalone FinancialStatements and according to which a Search & Seizure action U/S 132 of the Income TaxAct took place on 24.2.99. The Income Tax department had raised demand of Rs. 33.12 Croresvide the block assessment Order dt. 30.4.2001. In case of the company the Hon'ble IncomeTax Appellate Tribunal (ITAT) Ahmedabad has subsequently given partial relief to theextent of Rs. 28.84 Crores. The company had preferred an appeal before the Hon'ble HighCourt of Gujarat against the order of Hon'ble ITAT Ahmedabad. The Hon'ble Gujarat HighCourt vide its order dated 20th June 2016 had given partial relief on some ofthe grounds and had also dismissed some of the grounds of the company. Against the groundsdismissed by Hon'ble High Court of Gujarat the company had further preferred an appealbefore Hon'ble Supreme Court of India and the Hon'ble Supreme Court of India vide orderdated 16th January 2017 had dismissed the appeal of the Company. The Companyhad already provided an amount of Rs 2.88 Crore against the grounds dismissed by Hon'bleITAT Ahmedabad during FY 2002-03 as well as Rs 1.27 Crores was provided in the books ofaccounts for the Assessment year in question for the interest payable up to 31-03-2005during FY 2004-05. However in view of the management and on the basis of the Judgment ofthe Hon'ble Gujarat High Court the amount provided/paid by the company towards totaldemand shall result in refund to the company. Pending effect of the various orders ofadjudicating authorities by the Income Tax Department the Company is yet to provide finalentries in its books of accounts even during the year under review. In view of nonavailability of order of the appeal effects from the Income Tax Department we are unableto opine on the same.
4. Attention is invited to note 40 of the Standalone FinancialStatements and according to which the Sales Tax Department has completed the assessmentproceedings for various assessment years and raised demand of Rs. 3314.22 lacs (Net ofrecovery) for the earlier financial years. The company has not made any provision for theabove demand raised by the sales tax authority in its books of accounts as in view of theManagement the said demand shall not withstand before the Appellate Authorities and thecompany has already preferred an appeal before the appellate authority which is stillpending. In view of the above the said amount has been shown as contingent liabilityunder Note No. 27 of the notes forming part of accounts.
5. Attention is invited to Note 44 of the Standalone FinancialStatements which states that the balance confirmation from the suppliers customers aswell as to various loans or advances given have been called for but the same are awaitedtill the date of audit. Thus the balances of receivables capital advances tradepayables as well as loans and advances have been taken as per the books of accountssubmitted by the company and are subject to confirmation from the respective parties.
6. As per the information obtained from the website of the Ministry ofCorporate Affairs (MCA) a suit has been filed against the company and its officers u/s383A (1A) 372A (9) 58A (6) (A) (I) of the Companies Act 1956 for the year 2016. Asinformed by the management the company is having basic information about such suit filedas reflected on the website of the MCA. However the company does not have anycommunication of such proceedings against the company and its officers. As the matter isstill subjudice we are unable to quantify the final liability and its impact if any onthe company and its officers. (Refer Note No 41 of the standalone financial statements)
Our opinion is not qualified on the above matters.
Information other than the Financial Statements and Auditor's Reportthereon
The Company's Board of Directors is responsible for the otherinformation. The other
Information comprises the information included in the Annual reportbut does not include the financial statements and our
auditor's report thereon.
Our opinion on the financial statements does not cover the otherinformation and we do not express any form of assurance
In connection with our audit of the financial statements ourresponsibility is to read the other information and in doing so consider whether theother information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If basedon the work we have performed we conclude that there is a material misstatement of thisother information; we are required to report that fact. We have nothing to report in thisregard.
Responsibilities of Management and Those Charged with Governance forthe Standalone Financial Statements
The Company's Board of Directors is responsible for the matters statedin section 134(5) of the Act with respect to the preparation of these standalone financialstatements that give a true and fair view of the state of affairs (financialposition)Profit or loss(financial performance including other comprehensive income)changes in equity and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Indian Accounting Standards ('IndAS') specified under section 133 of the Act. This responsibility also includes maintenanceof adequate accounting records in accordance with the provisions of the Act forsafeguarding of the assets of the Company and for preventing and detecting frauds andother irregularities; selection and application of appropriate accounting policies; makingjudgments and estimates that are reasonable and prudent; and design implementation andmaintenance of adequate internal financial controls that were operating effectively forensuring the accuracy and completeness of the accounting records relevant to thepreparation and presentation of the financial statements that give a true and fair viewand are free from material misstatement whether due to fraud or error.
In preparing the financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.
Those Board of Directors are also responsible for overseeing theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether thefinancial statements as a whole are .free from material misstatement whether due to fraudor error. and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith Standards on Auditing will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if; individuallyor in the aggregate they could reasonably be expected to influence the economic decisionsof users taken on the basis of these financial statements
As part of an audit in accordance with Standards on Auditing weexercise professional judgment and maintain professional skepticism throughout the audit.We also:
Identify and assess the risks of material misstatement of thefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not. detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.
Obtain an understanding of internal control relevant to theaudit in order to design audit procedures that are appropriate in the circumstances. Undersection 143(3)(i) of the Act we are also responsible for expressing our opinion onwhether the company has adequate internal financial controls system in place and theoperating effectiveness of such controls.
Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the goingconcern basis of accounting and based on the audit evidence obtained whether a materialuncertainty exists related to events or conditions that may cast significant doubt on theCompany's ability to continue as a going concern. If we conclude that a materialuncertainty exists we are required to draw attention in our auditor's report to therelated disclosures in the financial statement or if such disclosures are inadequate tomodify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor's report. However future events or conditions may cause the Companyto cease to continue as a going concern.
Evaluate the overall presentation structure and content of thefinancial statements including the disclosures and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fairpresentation.
We communicate with those charged with governance regarding amongother matters the planned scope and timing of the audit and significant audit findingsincluding any significant deficiencies in internal control that we identify during ouraudit.
We also provide those charged with governance with a statement that wehave complied with relevant ethical requirements regarding independence; and tocommunicate with them all relationships and other matters that may reasonably be thoughtto bear on our independence and where applicable related safeguards.
From the matters communicated with those charged with governance wedetermine those matters that were of most significance in the audit of the financialstatements of the current period and are therefore the key audit matters. We describethese matters in our auditor's report unless law or regulation precludes public disclosureabout the matter or when in extremely rare circumstances we determine that a mattershould not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of suchcommunication.
Report on Other Legal and Regulatory Requirements
1. As required by section 197(16) of the Act we report that thecompany has paid remuneration to its directors during the year in accordance with theprovisions of and limits laid down under section 197 read with schedule V to the Act. Theremuneration paid to any director is not in excess of the limit laid down under section197 of the Act. The Ministry of Corporate Affairs has not prescribed other details underSection 197(16) which are required to be commented upon by us.
2. As required by the Companies (Auditor's Report) Order 2016 (''theOrder") issued by the Central Government of India in terms of sub-section (11) ofsection 143 of the Act we give in the "Annexure A" a statement on the mattersspecified in paragraphs 3 and 4 of the Order.
3. As required by Section 143(3) of the Act we report that:
a. We have sought and except for the matters described in the Basis forQualified opinion obtained all the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit
b. Except for the possible effects of the matter described in the Basisfor Qualified opinion paragraph above In our opinion proper books of account asrequired by law have been kept by the Company so far as it appears from our examination ofthose books
c. The Balance Sheet the Statement of Profit and Loss including otherComprehensive Income Statement of Changes in Equity and the Statement of Cash FlowStatement dealt with by this Report are in agreement with the books of account.
d. The matter described under the Emphasis of Matters paragraph abovein our opinion may have an adverse effect on the functioning of the Company
e. In our opinion the aforesaid standalone financial statements complywith the Indian Accounting Standards specified under section 133 of the Act read withRule 7 of the Companies (Accounts) Rules 2014.
f. On the basis of written representations received from the directorsas on March 31 2019 taken on record by the Board of Directors none of the Directors isdisqualified as on March 31 2019 from being appointed as a director in terms of Section164(2) of the Act.
g. With respect to the adequacy of the internal financial controls overfinancial reporting of the Company and the operating effectiveness of such controls referto our separate Report in "Annexure B". Our report express an unmodified opinionon the adequacy and operating effectiveness of the company's internal financial controlover financial reporting.
h. With respect to the other matters to be included in the Auditor'sReport in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014asamended in our opinion and to the best of our information and according to theexplanations given to us:
i. The Company has disclosed the impact of pending litigations on itsfinancial position in the standalone Financial Statements (Refer Note No 27 to theStandalone Financial Statements.)
Ii The Company did not have any long term contracts includingderivative contracts for which there were any material foreseeable losses.
iii. There were no amounts which were required to be transferred to theInvestor Education and Protection Fund by the Company.
| ||For Parikh & Majmudar |
| ||Chartered Accountants |
| ||FR No. 107525W |
| ||[C.A (Dr) Hiten M. Parikh] |
|Place : Ahmedabad ||PARTNER |
|Date : 18/05/2019 ||Membership No. 40230 |