Alfa-Laval India Pvt Ltd Auditor Reports

To

The Members of Alfa Laval (India) Limited Report on the Financial Statements

We have audited the accompanying financial statements of Alfa Laval (India) Limited(“the Company”), which comprise the Balance Sheet as at 31 December 2015, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31 December 2015, and its profit and its cash flows for the year ended on that date.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditor’s Report) Order, 2015 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order.

2. As required by Section 143 (3) of the Act, we report that:

(a) We have sought and 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 the law have been kept by the Company so far as it appears from our examination of those books.

(c) The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.

(d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

(e) On the basis of the written representations received from the directors as on 31 December 2015 taken on record by the Board of Directors, none of the directors is disqualified as on 31 December 2015 from being appointed as a director in terms of Section 164 (2) of the Act.

(f) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note 23 to the financial statements;

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts;

iii. There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Company.

For B S R & Associates LLP

Chartered Accountants

Firm Registration Number: 116231W /W-100024

Shiraz Vastani

Partner

Membership Number:103334

Place : Pune

Date : 9th March 2016

Annexure to the Independent Auditors’ Report - 31 December 2015 [Referred to in our report of even date]

With reference to the Annexure referred to in paragraph 1 in Report on Other Legal and Regulatory Requirements of the Independent Auditors Report to the members of the Company on the financial statements for the year ended 31 December 2015, we report that:

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified in a phased manner over a period of two years. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. Accordingly, certain fixed assets have been physically verified by the management during the current year and no material discrepancies were noticed on such verification.

(ii) (a) The inventory, except goods-in-transit, has been physically verified by the management during the year in accordance with the regular programme of verification. In our opinion, the frequency of such verification is reasonable. For stocks lying with third parties at the year-end, written confirmations have . been obtained.

(b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventories adopted by the management are reasonable and adequate in relation to the size of the Company and nature of its business.

(c) The Company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the book records were not material and were properly dealt with in the books of account.

(iii) The Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 189 of the Act. Also, refer Note 40 to the financial statements.

(iv) In our opinion and according to the information and explanations given to us, and having regard to the explanation that purchase of certain types of inventories and fixed assets are for the Company’s specialised requirements and similarly certain services rendered and goods sold are for the specialized requirements of the buyers and suitable alternative sources are not available to obtain comparable quotations, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories and fixed assets and with regard to the sale of goods and services. We have not observed any major weakness in the internal control system during the course of the audit.

(v) The Company has not accepted any deposit in accordance with the provisions of sections 73 to 76 of the Act and the rules made thereunder.

(vi) We have broadly reviewed the books of accounts maintained by the Company pursuant to the Rules prescribed by the Central Government for maintenance of cost records under sub-section (1) of section 148 of the Companies Act, 2013 in respect of products manufactured by the Company and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. However, we have not made detailed examination of the records.

(vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including Employees’ State Insurance,Provident fund, Income tax, Service tax, Duty of Customs, Duty of Excise, Sales tax, Wealth tax, Value Added Tax and any other statutory dues have generally been regularly deposited during the year by the Company with the appropriate authorities.

According to the information and explanations given to us, no undisputed amounts payable in respect of Employees’ State Insurance, Provident fund, Income tax, Service tax, Duty of Customs, Duty of Excise, Sales tax, Wealth tax, Value Added Tax and any other statutory dues were in arrears as at 31 December 2015, for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us there are no dues of Income tax, Service tax, Sales tax, Value Added Tax,Duty of Customs, Duty of Excise and Wealth tax which have not been deposited by the Company on account of disputes, except for the following:

Name of the Statute	Nature of the Dues	Amount (Rs.)	Period to which the amount relates	Forum where dispute is pending
Bihar Finance Act, 1981	Sales Tax	11,613,850	FY 1992-93 to 1998-99	Tribunal of Commercial Taxes, Bihar
Central Sales Tax Act, 1956	Central Sales Tax	194,507,053 (*)	FY 2003-04 to 2010-11	Joint Commissioner of Sales Tax (Appeals)
Central Sales Tax Act, 1956	Central Sales Tax	10,876,839 O	FY 2002-03	Maharashtra Sales Tax Tribunal
Central Excise Act, 1944	- Excise Duty	4,180,203 O	FY 1992-97	Commissioner of
	- Interest and penalty	4,519,138		Central Excise (Appeals)
Central Excise Act, 1944	- Excise Duty	81,190,0000	FY 2011-12	CESTAT, Mumbai
	- Interest and penalty	115,690,000
Central Excise Act, 1944	-Excise Duty	22,951,393 (*)	FY 2012-13	CESTAT, Mumbai
	- Interest and penalty	22,459,657
Finance Act, 1994	- Interest and penalty	1,788,260	2005-2008	CESTAT, Mumbai
Income Tax Act, 1961	Income Tax	117,457,400	AY 2011-12	CIT (Appeals)
Income Tax Act, 1961	Income Tax	133,806,320	AY 2010-11	Income Tax Appellate Tribunal
Income Tax Act, 1961	Income Tax	12,644,910	AY 2009-10	Income Tax Appellate Tribunal
Income Tax Act, 1961	Income Tax	1,660,741	AY 2007-08	Income Tax Appellate Tribunal
Income Tax Act, 1961	Income Tax	6,095,409	AY 2006-07	Income Tax Appellate Tribunal

(*) net of amount paid under protest amounting to Rs. 80,097,542.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the Company has transferred amounts required to be transferred to Investor Education and Protection Fund in accordance with the relevant provisions of the Companies Act, 1956 and rules thereunder within time.

(viii) The Company does not have any accumulated losses at the end of the financial year and has not incurred cash losses in the financial year and in the immediately preceding financial year.

(ix) The Company did not have any outstanding dues to any financial institution, banks or debenture holders during the year.

(x) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

(xi) The Company did not have any term loan outstanding during the year.

(xii) According to the information and explanations given to us, a fraud on the Company has been noticed during the year, which was perpetrated by certain employees in earlier years. On the basis of an investigation conducted by an external investigator, it was held by the management that the concerned employees had committed a fraud on the Company wherein the amount involved is expected to be in the range of Rs. 7,000,000 to Rs.8,400,000 per annum and accordingly their employment was terminated with immediate effect. An internal investigation is in progress to determine the extent of fraud. Apart from the aforesaid, according to the information and explanations given to us, there have been no cases of fraud on or by the Company which have been noticed or reported during the course of our audit.

For B S R & Associates LLP

Chartered Accountants

Firm Registration Number: 116231W /W-100024

Shiraz Vastani

Partner

Membership Number:103334

Place : Pune

Date : 9th March 2016