Alfa Laval (India) Limited ("the Company") is a public company. It is incorporated under the Indian Companies Act, VII of 1913. The Company is primarily engaged in the manufacture and sale of industrial equipment and process solutions. The Company sells high speed separators, heat exchangers and flow equipment amongst other products, besides offering process solutions to various industries.

2. a) Capital and other commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. 20,943,682 (previous year Rs. 152,820,798), net of advances Rs. Nil (previous year Rs. 55,044,250).

Other commitments

For commitments relating to lease arrangements refer note 28.

b) Contingent liabilities not provided for:

Particulars                          December                  December
                                     31,2014                   31,2013

(ii) Advance Licence - Liability if export obligations are not fulfilled in future years.** 19,253,000 18,512,500

* The claims against the Company comprises of:

a. Income tax matters amounting to Rs. 124,528,151 (previous year Rs. 22,074,140)

b. Rs. 2,360,000 (excluding interest thereon, if any) (previous year Rs. 2,360,000) in respect of claims raised against the Company by the customers which are presently pending with various courts.

c. Cases for labour matters amounting to Rs. 4,566,408 (excluding interest thereon, if any) (previous year Rs. 4,566,408) in respect of claims raised against the Company which are pending before the honourable High Courts.

d. Indirect tax matters amounting to Rs. 361,311,480 (previous year Rs. 194,097,406) (excluding interest and penalty)

e. "Certain temporary workers hired through labour contractors at Dapodi, Pune plant were on strike since October 2013. These temporary workers were demanding absorption into permanent employment in the Company. Upon a complaint filed by an external Union representing these temporary workers, the matter was referred to the Industrial Tribunal (IT) by the Deputy Labour Commissioner. Alongside this reference, the external labour union had filed an application requesting IT for an interim relief in the form of granting a status quo order in the matter pending the final disposal of the reference. However the Company received on March 01, 2014, a favourable order dated February 13, 2014 from IT, rejecting the application for interim relief filed by the external union.

Further the external union had also filed a writ petition in Bombay High Court in April 2014 against the order dated February 13, 2014 passed by IT. The said writ petition was rejected by the Bombay High Court vide order dated July 14, 2014.

Given the fact that the financial impact of the strike, if any, cannot be quantified as at reporting date but considering the opinion of the solicitors, the Management is confident that no material financial liability will arise as a result of the strike.

As regards matters stated in (a) - (e) above, based on legal/ expert opinion obtained by the Company and its discussion with solicitors, the Management believes that there is a fair chance of the decision being ruled in favour of the Company. Accordingly no provision has been considered necessary.

** Differential amount of customs duty payable by the Company in case of non-fulfillment of obligation of submission of requisite documents against the import of goods made at concessional rate of duty. The Management is confident of fulfilling the said obligations in the future.

3. Unbilled revenue amounting to Rs. 3,673,557 (previous year Rs. 27,362,910) has been reflected under the head "Other current assets" and billing in excess of contract revenue amounting to Rs. 758,835,154 (previous year Rs. 479,009,497) has been reflected as "Billing in excess of revenue for contract" under the head "Other current liabilities".

4. Provisions

(a) Octroi duty and local body tax represents additional probable claims for earlier years based on inspection carried out by the octroi department.

(b) Export obligation represents estimated liability due to non - fulfilment of export obligations on import of material against advance licences.

(c) Sales Tax represents demand on the Company based on assessment under progress.

(d) Excise matters represents demand on the Company from Excise authorities.

(e) The nature of employee related costs have not been disclosed due to confidentiality of the costs involved.

(f) Warranty provision is recognised for expected warranty claims on products sold based on past experience. Assumptions used to calculate the provision for warranties were based on current sales level and current information available.

(g) The timing and amount of the cash flow for items (a) - (f) above, which will arise from these matters,

will be determined by the relevant authorities on settlement of the cases or on receipt of claims from

customers.

5. Information in respect of related parties

A. Related parties where control exists

Alfa Laval Corporate AB, Sweden (Holding Company) Alfa Laval AB, Sweden (Ultimate Holding Company)

General description of leasing arrangements:

(i) The Company has taken premises, computers and vehicles on non- cancellable operating leases and premises for employees on cancellable operating lease.

(ii) Lease rentals are charged to the Statement of profit and loss for the year.

(iii) There are no sub-leases.

(iv) The arrangement for leased premises range between 1 to 6 years. These are usually renewable by mutual consent on mutually agreeable terms. Escalation clauses for scheduled rent increases have been imposed by the lease agreements. As the lessee's benefits do not change over the period of the lease, the total rentals are recognised on a straight line basis over the period of the lease.

(v) The arrangement for computers and vehicles range from 3-5 years. These are usually renewable by mutual consent on mutually agreeable terms.

(vi) At the expiry of the lease term, the Company has an option to return the asset or extend the term by giving notice in writing.

(vii) Future lease rental payments are determined on the basis of the lease payments as per the agreement. The leasing arrangement restrict the company to sub-lease the assets.

6. Defined benefit plans [AS 15 Revised]

Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with insurance companies in the form of qualifying insurance policies.

Provident fund

The Company manages provident fund through provident fund trust for its employees which is permitted under the Employees' Provident Fund and (Miscellaneous Provision) Act, 1952. The plan envisages contribution by employer and employees and guarantees interest at the rate notified by the provident fund authority. The contribution by employer and employee together with interest is payable at the time of separation from service or retirement, whichever is earlier. The benefit under this plan vests immediately on rendering of service.

The following tables summarise the components of net benefits expense recognised in the Statement of profit and loss and the funded status and amounts recognised in the Balance sheet for the plan.

7. Segment reporting

a) Identification of segments

The Company's operating businesses are organised and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate.

b) Business segments

The Company has considered "Business Segments" as the "Primary Segment" for disclosure.

Equipment Segment reflects sales of equipment which are primarily of standard Alfa Laval design and are generally intended for stand alone use in a wide spectrum of industries. The Equipment division consists of five customer segments: Industrial Equipment, Marine and Diesel, OEM (Original Equipment Manufacturers), Sanitary Equipment and the aftermarket segment Service. This also includes exports of such equipment to Alfa Laval Group Companies.

Process Technology Segment reflects, primarily, "Projects" business of the Company. The Process Technology division consists of four customer segments: Energy and Environment, Food Technology, Process Industry and the aftermarket segment Service. This business mainly comprises of process line solutions which use standard Alfa Laval products, bought-out equipment and erection and commissioning activities. Sale of stand alone equipment which are meant for use as a part of system and / or process line is also included in this segment.

c) Geographical segments

Geographical segment is the "Secondary Segment" and location of its market i.e. "India", "Europe", "Asia (excluding India)" and "Rest of the world" have been used. Since sales out of India other than Europe are made to many countries without any significant difference in the value of supplies made to individual countries, these have been aggregated under "Rest of the world".

Disclosures relating to Segment Assets and capital expenditure are based on the location of assets.

d) Segment revenue

Segment revenue comprises of sales, sale of spare parts and services that are directly identifiable with the segment.

Inter segment Transfer Pricing Policy: All inter segment transfers are recorded on cost.

e) Segment expenses

i. Expenses directly identifiable with the segment are charged to the respective segment.

ii. Common expenses like Depreciation, Information Technology, Import/Export, Industrial Relation Department etc. pertaining to the factories are apportioned between the Divisions on the basis of cost of goods sold.

iii. Expenses incurred on the Field Sales Office are charged to the Divisions on the basis of yearly order booking.

f) Unallocated corporate expenses

Unallocated corporate expenses include expenses of common Departments like Managing Director, Finance department, Legal and Secretarial department, as well as expenses which are incurred at a corporate level and which are not amenable to an apportionment between the business segments by their very nature.

g) Unallocated corporate income

Unallocated corporate income includes income which is earned at a corporate level and which are not amenable to an apportionment between the business segment by their very nature.

h) The Company prepares its segment information in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole.

40 The Company has entered into an intercompany loan agreement ("agreement") with Tranter India Private Limited ("Participant") on 9 December 2009. The agreement is in the nature of Cash Pool Arrangement, wherein funds are paid into the Participant's current account at day end and the amount is repaid by the Participant on the start of the following day. Accordingly, as on 31 December 2014, the Company has advanced loan amounting to Rs. 503,662,271.

Considering that the Participant is a fellow subsidiary, the Company has evaluated whether the agreement is in compliance with section 185 of the Companies Act, 2013. Emphasis is placed on explanation (e) to section 185, which states that no company shall directly or indirectly advance any loan to any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

The Company has considered the following factors in evaluating whether the Participant's Board or its Managing Director is accustomed to act in accordance with the directions and instruction of the Company's Board:-

* There is no substantial interest of the Company in the financial and/or operating policies of the Participant.

* The Board of Participant takes independent decisions

* The loan agreement has been approved by the Board of both the companies on an arm's length basis

* Both the companies have a separate business vertical and at a group level the two companies are in competing business and their brands are different.

Based on above factors and legal opinion obtained from a renowned law firm, the Company has concluded that the agreement is not within the purview of section 185 of the Companies Act, 2013.

41 The previous year's financial statements were audited by a firm other than B S R & Associates LLP.