1. Corporate Information

SEL Manufacturing Co. Limited (the Company) is a public company domiciled in India and is incorporated under the provisions of the Companies Act, applicable in India. Its shares are listed on the Bombay Stock Exchange and the National Stock Exchange. The Company is engaged in the manufacturing, processing & trading of yarns, fabrics, ready-made garments and towels. The registered office of the company is located at 274, G.T. Road, Dhandari Khurd, Ludhiana, Punjab.

*includes demand from tax authorities for various matters. In pursuance of the search conducted u/s 132(1) of the Income Act, 1961 assessments for the block period from Assessment Year 2008-09, 2009-10, 2012-13 and 201415 have been completed with no additional tax liability. However the income tax authorities have directed to initiate penalty proceedings in above said assessment orders. In respect of the assessment proceedings for the assessment years 2010-11, 2011-12 & 2013-14, the Department has raised demands aggregating to Rs. 28344.39 lakhs (which includes interest upto 30.01.17 and are further subject to penalty proceedings) by making some frivolous additions to the total income of the Company. The Company had filed the appeals against these additions before appropriate authorities and the Company is hopeful that it will get relief in appeal. Considering the facts of the matters, no provision is considered necessary by management with no additional tax liability.

2. The Company followed an aggressive growth path and had considerably grown its balance sheet, including debt. Due to the industry situation in general viz. slowdown and company specific issues such as growing debt, delayed realization of debtors, working capital shortfall, delay in project completion and cash flow mismatch, which had adversely affected the liquidity position of the company, the company was facing financial problems and finding difficulty in servicing its debt obligation. Therefore, it approached the lenders for restructuring its debts under Corporate Debt Restructuring (CDR) mechanism.

The Company's proposal for restructuring of its debts was approved by Corporate Debt Restructuring Cell ("CDR Cell") vides Letter of Approval (LOA) dt. 30.06.2014. The cut-off date (COD) for implementation of CDR was 30th September, 2013. The Company executed Master Restructuring Agreement (MRA) with CDR Lenders on 24th September, 2014. The details of the Restructuring package as approved by CDR cell were as under:

a) Restructuring of repayment schedule for term loans under Technology Upgradation Funds Scheme (TUFS) and Non-TUFS Term Loans, reduction in interest rates, additional facilities in the form of Working Capital Term Loan (WCTL) & Funded Interest Term Loan (FITL).

b) The promoters to bring contribution equivalent to 25% of the sacrifice amount of by lenders. Accordingly, promoters have brought in an amount of Rs. 6,971 lakhs as 1% Redeemable, Non-Cumulative, Non-Convertible Preference Shares.

c) Lenders with the approval of CDR EG shall have the right to recompense the reliefs/sacrifices/waivers extended by respective CDR lenders as per the CDR guidelines. The recompense payable is contingent on various factors including improved performance of the Company and many other conditions, the outcome of which is currently materially uncertain. Tentative recompense amount comes to Rs. 12,951 lakhs.

However, the credit facilities envisaged and sanctioned under CDR package were not released by the lenders to the Company, which resulted in sub-optimum utilization of manufacturing facilities. Due to non-disbursement of funds the Company could not complete one of its spinning projects where substantial amount was already incurred. All this has led to adverse financial performance and erosion in net worth of the Company. Also the company has been facing cash flow mismatch and is not able to serve debt obligations as per the terms of CDR package sanctioned earlier.

Since, the Company was finding it difficult to serve its debt obligations, the Company has requested its lenders for a second/deep restructuring of its debts. Considering the state of art manufacturing facilities of the Company, most modernized technology, skilled labor force, professional management and inherent viability of the Company, the lenders had in-principle agreed for second/deep restructuring of the debts. Pending discussions with the lenders, State Bank of India in its capacity as financial creditor has filed a petition on 12th October, 2017 under "Insolvency and Bankruptcy Code, 2016" (IbC) with Hon'ble National Company Law Tribunal, Chandigarh Bench (NCLT). On 11th April, 2018, the NCLT vide it's order of even date admitted the said petition and Corporate Insolvency Resolution Process (CIRP) has been initiated. Mr. Navneet Kumar Gupta having Registration No.IBBI/IPA-001/IP-P00001/2016-17/10009 was appointed as Interim Resolution Professional (IRP) vide order dt. 25th April, 2018 and the affairs, business and assets are being managed by the Interim Resolution Professional (IRP).The Company has preferred an appeal against the admission of petition and appointment of IRP with National Company Law Appellate Tribunal (NCLAT).

The Corporate Insolvency Resolution Process (CIRP) has since been kept in abeyance vide order dt. 22nd June, 2018 of Hon'ble High Court of Punjab & Haryana. Accordingly, the Company has prepared these financial statements on the basis of going concern assumption.

Due to non disbursement of credit facilities the Company had suffered operational losses as well as capital losses. Therefore, the Company has presented before the Adjudicating Authority counter claim & claim of set off against the banks.

3. The majority of secured lenders have stopped charging interest on borrowings, since the accounts of the Company have been categorized as Non Performing Asset. Further the Corporate Insolvency Resolution Process has been initiated under "Insolvency and Bankruptcy Code, 2016" (as referred in Note No. 37 above). In view of the above, the Company has stopped providing interest accrued and unpaid effective 1st April, 2016 in its books. The amount of such accrued and unpaid interest, calculated according to the CDR term, not provided for is estimated at Rs. 54,084 lakhs (Previous Year Rs. 35,901 lakhs) for the year ended 31st March, 2018 and the same has not been considered for preparation of the financial statements for the year ended 31st March 2018. Due to non provision of the interest expense, net loss for the year ended 31st March, 2018 is reduced by Rs. 54,084 lakhs. Further the Financial Liability is reduced by Rs. 89,985 lakhs and correspondingly the equity is increased by the same amount.

4. The balances of Trade Receivables, Loan and Advances, Deposits and Trade Payables are subject to confirmation/reconciliation and subsequent adjustments, if any. During the year, e-mails/letters have been sent to various parties with a request to confirm their balances as on 31st March, 2018 out of which few parties have confirmed their balances directly to the auditors or to the company.

5. Exceptional Items of Rs. 132,495.53 lakhs for the year includes:

a. During the year the Company has made an allowance for trade receivables under Expected credit losses (ECL) Method aggregating to Rs. 88093.33 lakhs in compliance of Ind AS 109 which is charged to Statement of Profit & Loss as an exceptional item. Though the company strongly believes that these trade receivables are fully recoverable.

b. The Company has given capital and trade advances amounting to Rs. 3,583.87 lakhs to the suppliers that are outstanding for a long time. In view of reduction in activities, the materials and services could not be called from such suppliers. In compliance of Ind AS 36 impairment for capital and trade advances amounting to Rs. 3,583.87 lakhs which is charged to Statement of Profit & Loss as an exceptional item. Though the company strongly believes that these advances are fully recoverable/adjustable.

c. Loss on sale of inventories, i.e. Raw Material, Work in Progress, Finished Goods, amounting Rs. 40710.65 lakhs had arisen due to sale of inventories identified as non-moving, slow moving, obsolete and damaged inventory during the year which was below the carrying values/cost of inventories resulting in an exceptional loss on sales.

6. There are no long term contracts, as on the date of balance sheet, including derivative contracts for which there are any material foreseeable losses.

7. The company had given financial guarantee to the extent of Rs 201,324 lakhs to the bankers of its subsidiary namely SEL Textiles Limited, to secure the credit facilities availed by it. The said financial guarantee amounting Rs. 201,324 lakhs (consisting of principal outstanding and interest thereon upto 31st March 2018 calculated as per terms of MRA with CDR lenders of subsidiary company) and has been duly recognised in financial statements as required by Ind AS 109. The said guarantee has been invoked by the bankers before initiation of Corporate Insolvency Resolution Process.

8. The company had recognized prior period errors in respect of measurement of unsecured loans and liability component of compound financial instrument in compliance with Ind AS 8. The said elements were measured at cost in previous year which is now measured at amortized cost and the same have been recasted in the financial statements.

9. Segment Information: Products and services from which reportable segments derive their revenues: In accordance with Ind AS 108 "Operating Segments", the chief operating officer (COO) of the Company reported that the company is engaged in the business of manufacturing &processing of textile products i.e. a single business and all business activities revolve around this segment.

Geographical information: The Company operates in two principal geographical areas - India and outside India.

The Company's revenue from continuing operations from external customers by location of operations and information about its non-current assets* by location of assets are detailed below.

b. Provident Fund: During the year the company has recognized an expense of Rs. 538.80 lakhs (Previous Year Rs. 676.95 lakhs) towards provident fund scheme

c. Leave Encashment: During the year the company has recognized an expense of Rs. 200.03 lakhs (Previous Year Rs. 99.51 lakhs).

The company has assessed that sufficient taxable profits would not be available in near future to utilize carried forward MAT credit entitlement of Rs 5,533.60 lakhs and deferred tax assets of Rs. 51,212.91 lakhs and the company has written down both the above tax assets. As a result, tax expenses increased by Rs. 56,746.51 lakhs included Rs.1286.97 lakhs through OCI. Further deferred tax asset in respect of unused tax losses amounting to Rs. 57,299.93 lakhs as of 2018, respectively have not been recognized by the Company.

10. The foreign branch of the company in United Arab Emirates is closed with effect from December 31st, 2017.

11. Financial Risk Management

The Company's principal financial liabilities comprises of loans and borrowings, trade and other payables, and other current liabilities. The main purpose of these financial liabilities is to raise finance for the Company's operations. The Company has loans and receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The management of the company has set out the company's overall business strategies and its risk management policy. The Company's overall financial risk management program seeks to minimize potential adverse effects on the financial performance of the company. The company policies include financial risk management policies covering specific areas, such as market risk (including foreign exchange risk, interest risk, liquidity risk and credit risk). Periodic reviews are undertaken to ensure that the company's policy guidelines are complied with.

There has been no change to the company's exposure to the financial risks or the manner in which it manages and measures the risk. The company is exposed to the following risks related to financial instruments. The company has not framed formal risk management policies; however, the risks are monitored by management on a continuous basis. The company does not enter into or trade in financial instruments, investment in securities, including derivative financial instruments, for speculative or risk management purposes.

The Board of Directors reviews and agrees policies for managing each of these risks which are summarized below:

(a) Market Risk: Market risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. Financial instruments affected by market risk include loans & borrowings and deposits. The sensitivity analyses in the following sections relate to the position as at 31 March 2018 and 31 March 2017.

The following assumption have been made in calculating the sensitivity analyses:

i) The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the net interest income for one year, based on the average rate of borrowings held during the year ended 31 March 2018, all other variables being held constant. These changes are considered to be reasonably possible based on observation of current market conditions.

(b) Foreign Currency Risk Management: The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.

(c) Liquidity Risk Management: The Company's principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company has outstanding bank borrowings. The Company is passing through a phase of liquidity stress and there is a mismatch in cash flows. Due to this, the capacities of the Company are running at sub-optimal level. The Company is at an advanced stage of negotiations with the banks for restructuring of its debt which would correct the cash flow mismatch. The Company believes that post restructuring, the Company would be able to generate enough cash inflows to meet its working capital requirements in the medium and long run.

The company manages liquidity risk by maintaining adequate reserves, continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

(d) Credit Risk Management: Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the company. Credit risk has always been managed by the company through credit approvals, establishing credit limits and continuously monitoring the credit worthiness of customers to which the company grants credit terms in the normal course of business. On account of adoption of Ind AS 109, the company uses expected credit loss model to assess the impairment loss or gain. The Company has exposure to credit risk from trade receivable balances on sale of Readymade Garments, Towel and Yarns. The Company has entered into short-term agreements with companies incorporated in overseas to sell the Readymade Garments, Towel and Yarns. Therefore the Company is committed, in the short term, to sell Readymade Garments, Towel and Yarns to these customers and the potential risk of default is considered low. For other customers, the Company ensures concentration of credit does not significantly impair the financial assets since the customers to whom the exposure of credit is taken are well established and reputed industries engaged in their respective field of business. The creditworthiness of customers to which the Company grants credit in the normal course of the business is monitored regularly.

(e) Capital Risk Management: The Company's objectives when managing capital is to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The director's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

No Changes were made in the objectives, policies or processes during the years ended 31st March 2018 and 31st March 2017.

12. Previous year amounts have been reclassified wherever necessary and conform to Ind AS presentation.

13. Note No. 1 to 53 forms integral part of balance sheet and statement of profit /loss.