To the Members of SEL Manufacturing Company Limited
Report on the Standalone Financial Statements
We have audited the accompanying standalone financial statements of SELManufacturing Company Limited ("the Company") which comprise the BalanceSheet as at March 31 2016 and the Statement of Profit and Loss the Cash Flow Statementfor the year then ended and a summary of significant accounting policies and otherexplanatory information in which are incorporated the returns for the year ended on thatdate from the company's overseas branch at Sharjah United Arab Emirates audited by otherauditors'.
Management's Responsibility for the Standalone Financial
The Company's Board of Directors is responsible for the matter stated in Section 134(5)of the Companies Act 2013 ("the Act") with respect to preparation of thesestandalone financial statements that give a true and fair view of the financial positionfinancial performance and cash flows of the Company in accordance with the accountingprinciples generally accepted in India including the Accounting Standards specified underSection 133 of the Act read with the Rule 7 of the Companies (Accounts) Rules 2014. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding of the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the financial statements thatgive a true and fair view and are free from material misstatement whether due to fraud orerror.
Our responsibility is to express an opinion on these standalone financial statementsbased on our audit. We have taken into account the provisions of the Act the accountingand auditing standards and matters which are required to be included in the audit reportunder the provisions of the Act and the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing specified underSection 143(10) of the Act. Those Standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor's judgment including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of the accountingestimates made by the Company's Directors as well as evaluating the overall presentationof the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the standalone financial statements.
In our opinion and to the best of our information and according to the explanationsgiven to us the aforesaid standalone financial statements give the information requiredby the Act in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India of the state of affairs of the Companyas at March 31 2016 and its loss and its cash flows for the year ended on that date.
Emphasis of Matter
We draw attention to the following matters:
(a) Note No. 33 of the financial statements regarding the balances of TradeReceivables Loan and Advances Deposits and Trade Payables which are subject toconfirmation/reconciliation and subsequent adjustments if any. During the course ofpreparation of financial statements e-mails have been sent to various parties by thecompany with a request to confirm their balances as on 31st March 2016 out of which fewparties have confirmed their balances direct to us or to the company. However themanagement does not expect any material changes on account of such reconciliation/nonreceipt of confirmation from parties. (b) No provision has been made for Trade Receivablesamounting to Rs 464.21 crores outstanding for more than 180 days from the due date.However the management claims that the said receivables are recoverable and no provisionis required to be made therefor.
(c) Note No. 38 of the financial statements which describes that the Corporate DebtRestructuring Package had been approved vide Letter of Approval (LOA) dated 30th June2014. The company executed Master Restructuring Agreement (MRA) on 24th September 2014.The credit facilities envisaged & sanctioned under CDR package were not fully releasedby the lenders which resulted in sub-optimum utilization of manufacturing facilities andthe company could not complete one of its spinning project where substantial amount wasalready incurred. Reasons for not release of those credit facilities were not explained tous. The company has accumulated losses of Rs. 425.77 crores as at March 31 2016 resultingnet worth reduced to Rs. 755.67 crores. Also the company is facing cash flow mismatch andis not servicing debt obligations as per the terms of CDR package sanctioned earlier.These situations give rise to material uncertainty in respect of company's ability tocontinue as going concern which is part dependent on successful outcome of the discussionswith the CDR lenders and company's ability to generate sufficient funds to support itsoperations and fulfill repayment obligations. The Company's Management is of the view thatthe company is an operative Company and will be able to meet its obligations to lendersIn view of the same the financial statements have prepared on a going concern basis.
(d) The company has recognized deferred tax asset amounting to Rs. 202.43 crores andMAT Credit Entitlement of Rs. 55.34 crores upto 31st March 2016 considering virtualcertainty that sufficient taxable income will be available during specified period againstwhich such deferred tax asset/MAT Credit Entitlement can be adjusted. However noconclusive documents/evidences are provided to support their claim. The company ability tocontinue as going concern is dependent on factors as discussed in para (c) above. In casethe going concern status of the company is suspect deferred tax asset/MAT CreditEntitlement recognized till date will require to be reversed.
(e) The management of the company represented to us that the recoverable amount ofassets within the meaning of Accounting Standard 28 "Impairment of Assets" ismore than their carrying value and as such no amount needs to be recognized in thefinancial statements for impairment losses but the company has not provided any workingregarding this to us for our review we are unable to comment on whether the company needsto make a provision in respect of impairment losses on such assets and the amount of suchprovision.
(f) The level of inventories maintained by the company is high. This may includeunidentified slow/non-moving and obsolete items of Inventories lying with the company forwhich no provision has been made.
g) Note No. 30(vi) of the financial statements relating to Search & Seizure actionu/s 132(1) of the Income Tax Act 1961 was carried on the Company its promoters and someother companies/entities during the financial year 2013-14. Assessments have beencompleted for Assessment Year 2008-09 2009-10 2012-13 and 2014-15. There is noadditional tax liability arises on account of completion of assessments for the saidyears. Pending proceedings for the remaining assessment years no provision has beenconsidered necessary by the Company in this regard.
(h) Note No. 38(c) of the financial statements in respect of Contingency related to'compensation payable in lieu of bank sacrifice' the outcome of which is materiallyuncertain and can not be determined currently. Our opinion is not modified in respect ofthese matters.
We did not audit the financial statements of Overseas branch included in the standalonefinancial statements of the Company whose financial statements reflect total assets of Rs.190.67 crores as at 31st March 2016 and total revenues of Rs. 52.57 crores for the yearended on that date as considered in the standalone financial statements. The financialstatements of the branch has been audited by the branch auditors whose reports have beenfurnished to us and our opinion in so far as it relates to the amounts and disclosuresincluded in respect of the branch is based solely on the report of such branch auditors.Our opinion is not modified in respect of this matter.
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 of India in terms of sub-section (11) of section 143 ofthe Act we give in the Annexure A a statement on the matters specified in the paragraph3 and 4 of the order.
2. As required by Section 143(1)(c) of the Act we report that : a. the company hadsold equity shares amounting Rs. 313316690/- at a price less than that at which theywere purchased and incurred loss of Rs. 67436054/- on account of their sale.
3. As required by Section 143 (3) of the Act we report that: a. We have sought andobtained all the information and explanations which to the best of our knowledge andbelief were necessary for the purpose of our audit; b. In our opinion proper books ofaccount as required by law have been kept by the Company so far as appears from ourexamination of those books and proper returns adequate for the purpose of our audit havebeen received from the company's overseas branch at United Arab Emirates not visited byus; c. The reports on the accounts of the branch office of the Company audited underSection 143 (8) of the Act by branch auditors have been sent to us and have been properlydealt with by us in preparing this report. d. The Balance Sheet the Statement of Profitand Loss and Cash Flow Statement dealt with by this Report are in agreement with thebooks of account and with the returns received from the company's overseas branch atUnited Arab Emirates audited by other auditors. e. In our opinion the aforesaidstandalone financial statements comply with the Accounting Standards specified undersection 133 of the Companies Act 2013 read with Rule 7 of the Companies (Accounts)Rules 2014. f. On the basis of written representations received from the directors as onMarch 31 2016 and taken on record by the Board of Directors none of the directors isdisqualified as on March 31 2016 from being appointed as a director in terms of Section164 (2) of the Companies Act 2013; g. With respect to the adequacy of the internalfinancial controls over financial reporting of the Company and the operating effectivenessof such controls refer to our separate report in "Annexure B"; and h. Withrespect to the other matters to be included in the Auditor's Report in accordance withRule 11 of the Companies (Audit and Auditors) Rules 2014 in our opinion and to the bestof our information and according to the explanations given to us: i. The Company hasdisclosed the impact of pending litigations on its financial position in its financialstatements - Refer Note 30 to the financial statements; ii. The Company did not have anylong term contracts including derivative contracts for which there were any materialforeseeable losses - Refer Note 36 to the financial statements; iii. There were no amountswhich were required to be transferred to the Investor Education and Protection Fund by theCompany.
| ||FOR DASS KHANNA & CO. |
| ||CHARTERED ACCOUNTANTS |
| ||FRN. 000402N |
|PLACE: LUDHIANA ||(CA. R.D. KHANNA) |
|DATED: 24.05.2016` ||PARTNER |
Annexure-A to the Independent Auditor's Report
The Annexure referred to in our Independent Auditors' Report to the members of SELManufacturing Co. Ltd. on the standalone financial statements for the year ended on 31stMarch 2016. We report that: (I) (a) The Company is maintaining proper records showingfull particulars including quantitative details and situation of fixed assets except forcertain items of fixed assets the quantitative details of which are in the process ofbeing compiled. As explained to us the same will be compiled by the management in duecourse of time. (b) The Company has a regular programme of physical verification of itsfixed assets by which fixed assets are verified in a phased manner over a period of threeyears. In accordance with this programme certain fixed assets were verified during theyear and no material discrepancies were noticed on such verification. In our opinion thisperiodicity of physical verification is reasonable having regard to the size of theCompany and the nature of its assets. (c) According to the information and explanationgiven to us and on the basis of our examination of the records of the Company the titledeeds of immovable properties are held in the name of the Company.
ii) According to the information and explanation given to us the physical verificationof inventories has been conducted at reasonable interval by the management. As explainedto us no material discrepancies were noticed on physical verification of inventoriescarried out by the management as compared to the book records.
(iii) In our opinion and according to the information and explanation given to us theCompany has not granted any loans secured or unsecured to Companies Firms and otherparties covered in the register maintained section 189 of the Companies Act 2013.
(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Section 185 and 186 of the Companies Act 2013in respect of loans investments guarantees and security.
(v) The Company has not accepted deposits from the public with in the meaning ofprovisions of sections 73 to 76 or any other relevant provisions of the Companies Act2013 and the rules framed there under. No order has been passed by the Company Law Boardor National Company Law Tribunal or Reserve Bank of India or any court or any otherTribunal. (vi) We have broadly reviewed the books of accounts maintained by the Companypursuant to the Rules made by the Central Government for the maintenance of Cost recordssub-section (1) of the section 148 of the Companies Act 2013 in respect of manufacturingactivities of the Company. We have broadly reviewed the accounts and records of theCompany in this connection and we are of opinion that prima facie the prescribed accountsand records have been made and maintained. We have not however carried out a detailedexamination of the same.
(vii)(a) According to the records of the company the company is regular in depositingundisputed statutory dues including income tax provident fund employees state insurancecustom duty sales tax excise duty service tax value added tax cess and otherstatutory dues to the appropriate authorities though there has been slight delays in fewcases of income tax deducted at source employee state insurance and provident fund whichare not material.
(b) According to the information and explanations given to us there were no undisputedamounts payable in respect of income tax provident fund employees state insurancecustom duty sales tax excise duty service tax value added tax cess and other materialstatutory dues in arrears as at 31st March 2016 for a period of more than six monthsfrom the date they became payable. According to the records of the Company the details ofdisputed income tax dues that have not been deposited by the Company as at March 31 2016are as follows:
|Name of the Nature of statute dues ||Amount (In Rs.) ||Accounting year to which the amount relates ||Forum where the dispute is pending |
|Income Tax Tax deducted Act 1961 at source ||36000 ||2013-14 ||DCIT Centralized Processing Cell (TDS) |
|Income Tax Tax deducted Act 1961 at source ||250990 ||2014-15 ||DCIT Centralized Processing Cell (TDS) |
|Income Tax Tax deducted Act 1961 at source ||19840 ||2015-16 ||DCIT Centralized Processing Cell (TDS) |
(viii) In our opinion and according to the information and explanations given to usthe company has defaulted in repayment of loans or borrowings to banks as given below:
|Bank Name ||Nature of Amount ||Amount ||Overdue Since |
|Allahabad Bank ||Interest ||181038999 ||31.10.2015 |
| ||Principle ||164764716 ||30.11.2015 |
|Andhra Bank ||Interest ||10874526 ||31.01.2016 |
| ||Principle ||5061204 ||31.03.2016 |
|Bank of Maharashtra ||Interest ||32327197 ||30.11.2016 |
| ||Principle ||55434812 ||31.08.2016 |
|Corporation Bank ||Interest ||46507198 ||31.12.2015 |
| ||Principle ||41028591 ||31.12.2015 |
|Dena Bank ||Interest ||38181322 ||31.10.2015 |
| ||Principle ||64787393 ||31.10.2015 |
|EXIM Bank ||Interest ||2393203 ||31.08.2015 |
| ||Principle ||1902843 ||30.11.2015 |
|Indian Bank ||Interest ||40457445 ||30.06.2015 |
| ||Principle ||49888396 ||31.07.2015 |
|Indian Overseas Bank ||Interest ||11932989 ||31.01.2016 |
| ||Principle ||5752924 ||31.03.2016 |
|Kurur Vyasya Bank ||Principle ||345326 ||31.03.2016 |
|Punjab & Sind Bank ||Interest ||116470194 ||30.11.2015 |
| ||Principle ||8319930 ||30.11.2015 |
|Punjab National Bank ||Interest ||28944878 ||31.01.2016 |
| ||Principle ||51145422 ||31.01.2016 |
|State Bank of Mysore ||Interest ||358859 ||30.11.2015 |
| ||Principle ||564732 ||28.02.2016 |
|State Bank of Bikaner & Jaipur ||Interest ||53730684 ||31.01.2016 |
| ||Principle ||46562934 ||31.01.2016 |
|State Bank of Hydrabad ||Interest ||56837004 ||31.08.2015 |
| ||Principle ||64721846 ||31.10.2015 |
|State Bank of India ||Interest ||113462759 ||31.05.2015 |
| ||Principle ||105641474 ||31.08.2015 |
|State Bank of Patiala ||Interest ||88544591 ||31.01.2016 |
| ||Principle ||85514032 ||31.01.2016 |
|State Bank of Travencore ||Interest ||62019643 ||31.01.2016 |
| ||Principle ||42390565 ||31.01.2016 |
|UCO Bank ||Interest ||65372635 ||30.09.2015 |
| ||Principle ||53714554 ||31.10.2015 |
|Union Bank of India ||Interest ||49724797 ||30.04.2015 |
| ||Principle ||52323345 ||30.04.2015 |
|United Bank ||Interest ||71319059 ||30.06.2015 |
| ||Principle ||115057356 ||31.07.2015 |
|Vijaya Bank ||Interest ||2846625 ||31.12.2015 |
| ||Principle ||1768279 ||31.01.2016 |
(ix) In our opinion the term loans raised during the year were applied prima facie forthe purpose for which the loans were raised except Rs. 32.31 Crores out of which Rs. 20.30Crores are lying with Banks in the form of Fixed deposits and TRA Account pendingutilization thereof and Rs. 12.01 Crores were adjusted by the banks towards payment ofoverdue interest. During the year no money was raised by way of initial public offer orfurther public offer.
(x) To the best of our knowledge and belief and according to the information andexplanations given to us no material fraud on or by the Company by its officers oremployees has been noticed or reported during the year. (xi) In our opinion themanagerial remuneration has been paid or provided in accordance with the requisiteapprovals mandated by the provisions of Section 197 read with Schedule V to the CompaniesAct 2013.
(xii) In our opinion the Company is not a Nidhi Company. Therefore the provisions ofclause 3 (xii) of the Companies (Auditor's Report) Order 2016 are not applicable to theCompany.
(xiii) In our opinion all transactions with the related parties are in compliance withSection 177 and 188 of Companies Act 2013 where applicable and the details have beendisclosed in the financial statements etc. as required by the applicable accountingstandards.
(xiv) According to the information and explanations given to us the Company has notmade any preferential allotment or private placement of shares or fully or partlyconvertible debentures during the year under review and therefore the provisions ofclause 3 (xiv) of the Companies (Auditor's Report) Order 2016 are not applicable to theCompany. (xv) In our opinion and according to the information and explanations given tous the Company has not entered into any non-cash transactions with directors or personsconnected with the directors.
(xvi) In our opinion and according to the information and explanations given to us theCompany is not required to be registered under Section 45-IA of the Reserve Bank of IndiaAct 1934.
| ||FOR DASS KHANNA & CO. |
| ||CHARTERED ACCOUNTANTS |
| ||Firm Registration No. 000402N |
|PLACE: LUDHIANA ||(CA. R.D. KHANNA) |
|DATED: 24.05.2016 ||PARTNER |
| ||M.No. 12391 |
ANNEXURE- B TO THE INDEPENDENT AUDITOR'S REPORT
(Referred to in paragraph 1(g) under "Report on other legal and regulatoryrequirements" of our report of even date) Report on the Internal Financial Controlsunder Clause (i) of Sub-section 3 of Section 143 of the Companies Act 2013 ("theAct")
We have audited the Internal Financial Controls over financial reporting of SELManufacturing Company Limited ("the Company") as of 31 March 2016 inconjunction with our audit of the standalone financial statements of the Company for theyear then ended.
Management's Responsibility for Internal Financial Controls
The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls over Financial Reportingissued by the Institute of Chartered Accountants of India ('ICAI'). These responsibilitiesinclude the design implementation and maintenance of adequate internal financial controlsthat were operating effectively for ensuring the orderly and efficient conduct of thecompanys business including adherence to company's policies the safeguarding ofits assets the prevention and detection of frauds and errors the accuracy andcompleteness of the accounting records and the timely preparation of reliable financialinformation as required under the Companies Act 2013.
Our responsibility is to express an opinion on the Company's Internal financialcontrols over financial reporting based on our audit. We conducted our audit in accordancewith the Standards on Auditing issued by the ICAI and deemed to be prescribed undersection 143(10) of the Companies Act 2013 to the extent applicable to an audit ofInternal financial controls over financial reporting and the Guidance Note issued by theICAI. Those Standards and the Guidance Note require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whetheradequate Internal financial controls over financial reporting were established andmaintained and if such controls operated effectively in all material respects.
Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system on financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgment including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.
We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls overfinancial reporting.
Meaning of Internal Financial Controls over Financial Reporting
A company's internal financial controls over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition use or disposition of thecompany'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 financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion the Company has in all material respects an adequate internalfinancial controls system over financial reporting and such internal financial controlsover financial reporting were operating effectively as at 31 March 2016 based on theinternal control over financial reporting criteria established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.
Emphasis of Matter
We would draw attention to matters disclosed in paragraph under 'Emphasis of matters'in our main Independent Auditor's Report which could indicate possible lapses in internalfinancial controls systems at various points in time. Our opinion is not modified inrespect of these matters.
| ||FOR DASS KHANNA & CO. |
| ||CHARTERED ACCOUNTANTS |
| ||Firm Registration No. 000402N |
| ||(CA. R.D. KHANNA) |
| ||PARTNER |
|PLACE: LUDHIANA ||M.No.: 12391 |
|DATED: 24.05.2016 || |