1. We have audited the attached balance sheet of Nahar Sugar & Allied
 Industries Limited, as at 31st March 2004, the profit and loss account
 and also the cash flow statement for the year ended on that date
 annexed thereto. These financial statements are the responsibility of
 the companys management. Our responsibility is to express an opinion
 on these financial statements based on our audit.
 
 2. We conducted our audit in accordance with the 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 misstatements. 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 (Auditors Report) Order, 2003 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. 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, profit and loss account and cash flow statement
 dealt with by, this report are in agreement with the books of account;
 
 (d) in our opinion, the balance sheet, profit and loss account 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;
 
 (e) On the basis of written representations received from the directors
 as on 31st March 2004 and taken on record by the Board of Directors, we
 report that none of the directors is disqualified as on 31st March
 2004 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956;
 
 (f) Attention is invited to Note no. (C) (iii) of Annexure XVII
 regarding non-compliance of Accounting Standard (AS) 22 Accounting for
 Taxes on Income issued by the Institute of Chartered Accountants of
 India. The opening balance of liability for Deferred Tax amounting to
 Rs. 52395 thousands has been reversed and credited to General Reserve.
 The deferred tax asset amounting to Rs. 19040 thousands have not been
 accounted for during the year. Consequently the profit for the year is
 understated by Rs. 19040 thousands and reserve and surplus is
 overstated by Rs. 33355 thousands.
 
 We report that had the observations made by us in para (f) above been
 considered, the profit for the year would have been Rs. 43828 thousands
 (as against reported figure of profit for Rs. 24788 thousands), Reserve
 & Surplus would have been Rs. 268571 thousands (as against reported
 figure of Rs. 301926 thousands) and Deferred tax liability would have
 been Rs. 33355 thousands (as against reported figure of Rs. Nil).
 
 (g) Subject to the foregoing, in our opinion and to the best of our
 information and according to the explanations given to us, the said
 financial statements read together with the Significant Accounting
 policies and other notes 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 Balance sheet, of the state of affairs of the
 Company as at 31st March 2004;
 
 (ii) in the case of the Profit and Loss account, 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.
 
                                                     For Raj Gupta & Co.
                                                   Chartered Accountants
 Place : Ludhiana                                              R.K.Gupta
 Dated : 10th June, 2004                                         Partner
                                                Membership Number: 17039
 
 Annexure to the Auditors Report Re: Nahar Sugar & Allied Industries
 Limited (Referred to in paragraph 3 of our report of even date)
 
 i) a) The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 b) As explained to us, most of the fixed assets have been physically
 verified by the management at reasonable intervals. No material
 discrepancies were noticed on such verification.
 
 c) The company has not disposed off substantial part of fixed assets
 during the year.
 
 ii) a) According to information and explanations given to us, physical
 verification of inventories has been conducted at reasonable intervals
 by the management.
 
 b) In our opinion, 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) The company is maintaining proper records of inventory. As explained
 to us, the discrepancies noticed on physical
 
 verification were not material. However, the discrepancies noticed have
 been properly dealt with in the books of account.
 
 iii) a) The company has taken loan from one other company covered in
 the register maintained under section 301 of the Companies Act, 1956.
 The maximum amount involved during the year was Rs. 10,000 thousands
 and the year end balance of loans taken from such party was Rs. 10,000
 thousands. The company has not granted any loan to any Company, firms
 covered in the register maintained under section 301 of the Companies
 Act, 1956.
 
 b) In our opinion, the rate of interest and other terms and conditions
 on which loans have been taken from companies, firms or other parties
 listed in the register maintained under section 301 of the Companies
 Act, 1956 are not, prima facie, prejudicial to the interest of the
 company.
 
 c) The company is regular in repaying the principal amounts as
 stipulated and has been regular in the payment of interest.
 
 d) There is no overdue amount of loans taken from companies, firms or
 other parties listed in the register maintained under section 301 of
 the Companies Act, 1956.
 
 (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, with regard to purchases of inventory, fixed assets and with
 regard to the sale of goods. During the course of our audit, we have
 not observed any continuing failure to correct major weaknesses in
 internal controls.
 
 (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 prevailing market prices at the relevant
 time.
 
 vi) The company has not accepted any deposits from the public.
 
 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 and we are of the opinion that prima facie, the prescribed
 accounts and records have been made and maintained.
 
 ix) (a) Undisputed statutory dues including provident fund, investor
 education protection fund, employees state insurance, income tax,
 sales tax, wealth tax, customs duty, excise duty, cess have been
 regularly deposited by the company with the appropriate authorities in
 all the cases during the year.
 
 b) According to the information and explanations given to us, there are
 no disputed dues outstanding in the books of account for sales tax,
 income tax, custom duty, wealth tax, excise duty and cess. However,
 following demands have been raised by various statues for which the
 company has filed appeals:
 
 Name of the Statue Nature of the dues    Amount     Forum where dispute
                                   (Rs. In lacs)              is pending
 
 Punjab State       Demand against         21.00            Civil Court,
 Electricity Board  captive consumption            Oist. Fatehgarh Sahib
 
 The Central Excise Cenvat disallowance     0.70            Commissioner
 Act, 1944                                                       Appeals
 
 x) There are no accumulated losses at the end of the financial year.
 The company has not incurred cash losses during the financial year
 covered by our audit. There were cash losses 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 banks.
 
 xii) As explained 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 and Society. Therefore, the provisions of clause 4 (xiii)
 of the companies (Auditors Report) Order, 2003 are not applicable to
 the company.
 
 xiv) In our opinion, the company is not dealing in or trading in
 shares, securities, debentures and other investments. Accordingly, 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 guarantees for loans taken by others from
 banks or financial institutions.
 
 xvi) To the best of our knowledge and belief and according to the
 information and explanations given to us, no term loans were availed by
 the company during the year.
 
 xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we report
 that no funds raised on short-term basis have been used for long-term
 investment by the company. No long-term funds have been raised during
 the year.
 
 xviii) The company has not made any preferential allotment of shares to
 parties and companies covered in the register maintained under section
 301 of the Act.
 
 xix) The company has not issued debentures during the year.
 
 xx) The company has not raised any money by public issue during the
 year.
 
 xxi) According to the information and explanations given to us and to
 the best of our knowledge and belief no fraud on or by the company has
 been noticed or reported by the company during the year.
 
                                                     For Raj Gupta & Co.
                                                   Chartered Accountants
 Place: Ludhiana                                               R.K.Gupta
 Dated: 10th June, 2004                                          Partner
                                                Membership Number: 17039