SEL Manufacturing Company Ltd Auditors Report.

To the Members of SEL Manufacturing Company Limited

Report on the Audit of the Standalone Financial Statements

Qualified Opinion

We have audited the accompanying standalone financial statements of SEL Manufacturing Company Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2019, the Statement of Profit and Loss (including other comprehensive income), the Statement of Changes in Equity and the Statement of Cash Flows for the year ended on that date and a summary of significant accounting policies and other explanatory information (hereinafter referred as "the Standalone Financial Statements") .

In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of our observations described in the Basis for Qualified Opinion Pargraph below, the aforesaid Standalone financial statements read with Paragraph Material Uncertainty relating to Going Concern and paragraph Emphasis of Matters described below give the information required by the Companies Act, 2013 (" the Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules,2015 as amended ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2019 , the loss and total Comprehensive loss , changes in equity and its cash flows for the year ended on that date.

Basis for Qualified Opinion

We conducted our audit of the Standalone Financial Statements in accordance with the Standards on Auditing specified under section 143(10) of the Act (SAs). Our responsibilities under those Standards are further described in the Auditors Responsibilities for the Audit of the Standalone Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) together with the independence requirements that are relevant to our audit of the Standalone financial statements under the provisions of the Act and the Rules made there under and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAIs Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Standalone Financial Statements.

We refer to:

1) Note No. 37 to the Standalone financial statements in respect of non provision of interest on borrowings from banks (classified as NPA) amounting Rs.53478 lakhs & Rs. 54084 lakhs (amount calculated after considering the rates and terms and conditions stipulated originally as per CDR package) for the year ended 31st March, 2019 & 31st March 2018 respectively. The same is not in compliance with the requirements of para 27 of the Ind AS 1-Presentation of Financial Statements w.r.t. preparation of financial statements on accrual basis. Consequently, borrowings are not reflected at fair value in standalone financial statements as required by Ind AS 109, Financial Instruments.

2) Note no. 12 (Other Financial Assets) to the Standalone financial statements includes interest subsidy receivable amounting to Rs.26621 Lakhs which consists of interest subsidy (i) under TUFS from Ministry of Textiles and (ii) Subsidy under Textile Policy of Government of Madhya Pradesh for the Financial years 2013-14 to 2016-17 for which no confirmation was available The company has not provided for any allowance under ECL there against this amount.

3) The company has not provided to us for our review any working regarding impairment testing being conducted to assess recoverable amount of Capital work in progress of Rs16940 lakhs outstanding as at 31st March 2019. We are unable to comment on whether the company needs to make a provision in respect of impairment losses on above as required under Ind AS 36.

4) Note no. 17, 19 and 21 to the Standalone financial statements in respect of Borrowings (Non Current), Short Term Borrowings and other Financial Liabilities (Current) contains secured loans from banks. There is shortfall in the carrying value of the security against the secured loans consequently the loans are not fully secured.

We further report that, had the impact of our observations made in paragraph 1 of Basis for qualified opinion paragraph been considered, the net loss for the year ended 31st March, 2019 would have been increased by Rs. 53478 lakhs and the borrowings for the year ended 31st March 2019 and 31st March 2018 would have been increased by Rs. 143463 lakhs & Rs. 89985 lakhs and Equity would have been reduced by the same amount for the years ended 31.3.2019 and 31.3.2018 respectively. The financial impact of matters stated in paragraphs 2,3 &4 to the Basis for Qualified Opinion cant be measured reliably.

Material Uncertainty Related to Going Concern

Note no. 36 of the Standalone financial results, stating thereto that the terms and conditions of the sanctioned CDR package w.r.t. interest and principal repayment were not complied with. Consequently, State Bank of India, in its capacity as financial creditor had filed a petition under Insolvency and Bankruptcy Code, 2016 (IBC) against the company with Honble National Company Law Tribunal, Chandigarh Bench (NCLT) which was admitted on 11th April 2018 and Corporate Insolvency Resolution Process (CIRP) has been initiated in terms of IBC. The company has preferred an appeal against the admission of petition and appointment of IRP with NCLAT. The CIRP has since been kept in abeyance vide order dated 22.06.2018 of Honble High Court of Punjab and Haryana. The matter has since been transferred to Honble Supreme Court of India and is pending for adjudication. The company has incurred net loss of Rs. 23596 lakhs resulting into accumulated losses of Rs. 320909 lakhs leading to erosion of entire net worth and current liabilities have exceeded the current assets of the company, Further concerning the companys ability to realize the value of inventories, trade receivables and other financial assets, meet its contractual/ financial obligations w.r.t. repayment of overdue principal and accrued interest on secured borrowings, arranging working capital for ensuring normal operations, further investments required towards ongoing projects under construction and the Corporate guarantee given on the behalf of its subsidiary namely SEL Textiles Limited. Due to financial constraints, the company has started job work operations in major spinning plants instead of pursuing its own manufacturing activities since November 2017 and major source of operating income during the year under consideration is from job work. This condition indicate the existence of a material uncertainty that may cast significant doubt on the companys ability to continue as going concern and therefore the company may be unable to realize its assets and discharge its liabilities in the normal course of business.

Emphasis of Matter

We draw attention to the following matters:

(1) Note No. 36(c) of the Standalone financial statements in respect of Contingency related to compensation payable in lieu of bank sacrifice, the outcome of which is materially uncertain and cannot be determined currently.

(2) Note No. 33 A (iii) of the Standalone financial statements in respect of contingency related to export incentives obligation refundable amounting Rs. 3855 lakhs in respect of allowance for foreign trade receivables, which is further subject to interest and penalties. The amount of such obligation cannot be determined currently.

(3) Note no. 38, to the Standalone financial statements regarding the balance confirmations of Trade Receivables, Capital/Trade Advances & Trade Payables. During the course of preparation of Standalone financial statements, e-mails/letters have been sent to various parties by the company with a request to confirm their balances as on 31st March, 2019 out of which few parties have confirmed their balances direct to us or to the company.

(4) As reported vide note 39 (a) and (b) to the Standalone financial statements, the company has made an allowance/impairment of Rs. 17057 lakhs in compliance of Ind AS 109 under Expected credit losses (under ECL Model) in respect of Trade Receivables and Capital/Trade Advances given to suppliers.

Our Opinion is not modified in respect of the matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Standalone Financial Statements of the current period. These matters were addressed in the context of our audit of the Standalone Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report.

Key Audit Matters

Contingency related to Income Tax Auditors Response
The disputed Income Tax Demands raised by the Income Tax Authorities amounting to Rs. 27854 lakhs (subject to Further Interest and Penalty Proceedings) was pending at ITAT Chandigarh. The ITAT Chandigarh passed an order in favour of the company and vacated the said demand. However the Income Tax Department has further right to appeal in Honble High Court within 120 days of order received. The period of 120 days has not expired on 31st March, 2019. Obtained details of completed tax assessments and demands for the year ended March 31, 2019 from management. We involved our internal experts to challenge the managements underlying assumptions in estimating the possible outcome of the disputes. Our internal experts also considered legal precedence and other rulings in evaluating managements position on these uncertain tax positions.
Additionally, we considered the effect of new information in respect of uncertain tax positions as at April 1, 2018 to evaluate whether any change was required to managements position on these uncertainties.
The Company has material uncertain tax positions which involves significant judgment to determine the possible outcome of this dispute We used our tax specialists to gain an understanding of the current status of the tax cases and monitored changes in the disputes where relevant, to establish that the tax provisions had been appropriately adjusted to reflect the latest external developments
For legal, regulatory and tax matter sour procedures included the following:
-testing key controls surrounding litigation, regulatory and tax procedures;
- performing substantive procedures on the underlying calculations supporting the provisions recorded;
- where relevant, reading external legal opinions obtained by the management;
-meeting with regional and local management and reading subsequent Group corres pondence;
-discussing open matters with the Group regulatory, general counsel and tax teams;
-assessing managements conclusions through under standing precedents set in similar cases ; and
-circularization where appro priate of relevant third party legal representatives and direct discussion with them regarding certain material cases.
Based on the evidence obtained, while noting the inherent uncertainty with such legal, regulatory and tax matters, we determined the said matter at 31 March 2019 to be appropriate.

Information Other than the Standalone Financial Statements and Auditors Report Thereon

The Companys Board of Directors is responsible for the preparation and presentation of its report herein after called the Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information but does not include the Standalone Financial Statements and our Auditors Report thereon. The Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information is expected to be made available to us after the date of this auditors report.

Our opinion on the standalone financial statements does not cover the Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements, our responsibility is to read the Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information and, in doing so, consider whether the Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

If based on the work we have performed, we conclude that there is material misstatement of this other information, we are required to report the fact.

When we read the Management Discussion and Analysis, Boards Report including Annexure to Boards Report, Business Responsibility Report, Corporate Governance and Shareholders Information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and describe actions applicable in the applicable laws and regulations.

Managements Responsibility for the Standalone Financial Statements

The Companys Board of Directors is responsible for the matter stated in Section 134(5) of the Act with respect to the preparation of these Standalone financial statements that give a true and fair view of the financial position, financial performance, total comprehensive loss, changes in equity and cash flows of the Company in accordance with the Ind As and other accounting principles generally accepted in India. 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 standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error

In preparing the standalone financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors are also responsible for overseeing the companys financial reporting process.

The Honble National Company Law Tribunal, Chandigarh ("NCLT") on April 11th, 2018 admitted the Corporate Insolvency Resolution Process ("CIRP") application filed against the Company and appointed Mr. Navneet Kumar Gupta having IP Registration No. IBBI/IPA-001/IP-P00001/2016-17/10009 as Interim Resolution Professional ("IRP") in terms of the Insolvency and Bankruptcy Code, 2016 ("Code")vide order dated 25th April 2018 to manage the affairs, business and assets of the company. The company has preferred an appeal against the admission of petition and appointment of IRP with National Company Law Appellate Tribunal (NCLAT). The CIRP has since been kept in abeyance vide order date 22nd June, 2018 of Honble High Court of Punjab & Haryana. The matter has since been transferred to Honble Supreme Court of India and is pending for adjudication. In view of the abovesaid order of Honble High Court of Punjab & Haryana, the powers and responsibilities to manage the affairs, business and assets of the company is vested with the Board of Directors of the company.

Auditors Responsibilities for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

1. As required by the Companies (Auditors Report) Order, 2016 ("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, a statement on the matters specified in the paragraph 3 and 4 of the order.

2. As required by Section 143 (3) of the Act based on our audit, 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 purpose of our audit;

b. In our opinion proper books of account as required by 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 (including other comprehensive income), Statement of Changes in Equity and the statement of Cash Flow dealt with by this Report are in agreement with the relevant books of account.

d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS 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 March 31, 2019 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2019 from being appointed as a director in terms of Section 164 (2) of the Act ;

f. In our opinion, the matters described in the " Basis of Qualified Opinion" and "Emphasis of Matter" paragraphs above may have an adverse impact on the functioning of the Company.

g. With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate report in "Annexure B"

h. With respect to the other matters to be included in the Auditors Report in accordance with the requirements of section 197(16) of the Act, as amended:

In our opinion and to the best of our information and according to the explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of section 197 of the Act.

i. With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014 as amended 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 standalone financial statements - Refer Note no. 33 to the standalone financial statements;

ii. The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses.

iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

FOR MALHOTRA MANIK & ASSOCIATES,
CHARTERED ACCOUNTANTS
FRN.: 015848N
(CA. MANIK MALHOTRA)
PLACE: LUDHIANA PROPRIETOR
DATED: 23.05.2019 M.No.: 094604

Annexure-A to the Independent Auditors Report

The Annexure-A referred to the Independent Auditors Report to the members of the company on the Standalone financial statements for the year ended on March 31, 2019. We report that:

(i) (a)The Company has maintained proper records showing particulars including quantitative details and situation of fixed assets except for certain items of fixed assets, the quantitative details of which are in the process of being compiled. As explained to us, the same will be compiled by the management in due course of time.

(b) The Company has a regular programme of physical verification of its fixed assets by which fixed assets are verified in a phased manner over a period of three years. As explained to us, in accordance with this programme, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanation given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company.

(ii) In our opinion and according to the information and explanation given to us, the physical verification of inventories has been conducted at reasonable interval by the management and no material discrepancy was noticed on physical verification of inventories carried out by the management as compared to the book records.

(iii) In our opinion and according to the information and explanation given to us, the Company has not granted any loans secured or unsecured, to Companies, Firms and other parties 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, the Company has complied with the provisions of Section 185 and 186 of the Companies Act, 2013 in respect of loans, investments, guarantees and security.

(v) The Company has not accepted deposits from the public within the meaning of provisions of sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed there under. No order under the aforesaid sections has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other Tribunal .

(vi) 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 148 of the Companies Act, 2013 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained. We have, however, not made a detailed examination of such records with a view to determine whether they are accurate or complete.

(vii) (a) According to the information and explanations given to us and the books and records examined by us, we state that the company is regular in depositing undisputed statutory dues including income tax, provident fund, employees state insurance, custom duty, Goods & services tax,cess and other statutory dues except The Punjab State Development Tax to the appropriate authorities. According to the information and explanations given to us, there were no undisputed amounts payable in respect of income tax, provident fund, employees state insurance, custom duty, Goods & services tax, cess and other material statutory dues except The Punjab State Development Tax amounting Rs. 254480 in arrears, as at 31st March, 2019 for a period of more than six months from the date the became payable.

(b) According to the information and explanations given to us there are no dues of income tax, provident fund, employees state insurance, custom duty, goods & services tax, The Punjab State Development Tax and other statutory dues, which have not been deposited on account of any dispute except disclosed as under:

Name of the statute Nature of dues Amount (In Lakhs) Period to which the amount relates (Assesment Year) Forum where dispute is pending
Income Tax Act, 1961 Tax 2139.47 2011-12 CIT (Appeals), Ludhiana
Income Tax Act, 1961 Penalty 698.66 2013-14 CIT(Appeals), Ludhiana
Income Tax Act, 1961 Penalty 16.26 2014-15 ITAT, Chandigarh
Income Tax Act, 1961 Penalty 54.07 2014-15 CIT(Appeals), Ludhiana
Income Tax Act, 1961 Tax Deducted at Source 3.52 2007-08 to 2012-13 Centralized Processing Cell (TDS)

(viii) In our opinion and according to the information and explanations given to us, the company has defaulted in repayment of loans / borrowings and interest thereon to banks/Financial Institution as given below:

Bank Name Nature of Amount Amount Overdue Since
State Bank of India Interest 12959490152 31.07.2016
Principle 2886857877 30.06.2016
Karur Vysya Bank Interest 23468535 30.04.2018
Principle 18494566 30.06.2018
Punjab & Sind Bank Interest 448989712.1 31.12.2015
Principle 237680064 31.12.2015
Bank of Maharashtra Interest 319862392.4 30.11.2015
Principle 279047214.1 31.09.2015
Punjab National Bank Interest 1492194887 28.02.2016
Principle 591774483.1 31.01.2016
Indian Bank Interest 971302354.2 30.06.2015
Principle 226591510.2 31.07.2015
Sber Bank Interest 295416634.2 31.03.2016
United Bank Interest 494999598.3 30.06.2015
Principle 458978200.6 31.07.2015
Union Bank of India Interest 763033808.7 30.04.2015
Principle 205478666.8 30.04.2015
UCO Bank Interest 994902162.7 30.09.2015
Principle 412032902 31.08.2015
Corporation Bank Interest 2882024455 31.01.2016
Principle 459023265.5 31.03.2016
Allahabad Bank Interest 4872004849 31.10.2015
Principle 1385584908 30.11.2015
Dena Bank Interest 467515889.5 31.10.2015
Principle 351253383.9 31.10.2015
Indian Overseas Bank Interest 1744530505 31.01.2016
Principle 130193857.2 31.03.2016
Vijaya Bank Interest 29256073.4 31.03.2016
Principle 28565630.05 31.03.2016
Andhra Bank Interest 1169851772 28.02.2016
Principle 109303172 31.03.2016
Exim Bank Interest 13160345.24 31.05.2016
Principle 10288926.65 31.01.2016

(ix) In our opinion and according to the information and explanations given to us, no money was raised by way of initial public offer or further public offer (including debt instruments) and term loans during the year.

(x) To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud on or by the Company, by its officers or employees has been noticed or reported during the year.

(xi) According to the information and explanations given to us and the audit procedures conducted by us, managerial remuneration paid or provided was in accordance with the requisite approvals mandated by the provisions of Section 197 read with Schedule V to the Companies Act, 2013.

(xii) In our opinion, the Company is not a Nidhi Company. Therefore, the provisions of clause 3 (xii) of the Companies (Auditors Report) Order, 2016, are not applicable to the Company.

(xiii) According to the information and explanations given to us and based on our examination of the records of the company, all transactions with the related parties are in compliance with Section 177 and 188 of Companies Act, 2013 where applicable and the details of the transactions have been disclosed in the standalone financial statements as required by the applicable accounting standards.

(xiv) According to the information and explanations given to us, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and therefore, the provisions of clause 3 (xiv) of the Companies (Auditors Report) Order, 2016, are not applicable to the Company.

(xv) According to the information and explanations given to us and based on our examination of the records of the company, the Company has not entered into any non-cash transactions with directors or persons connected with the directors and therefore, the provisions of clause 3 (xv) of the Companies (Auditors Report) Order, 2016, are not applicable to the Company.

(xvi) In our opinion and according to the information and explanations given to us, the Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934

FOR MALHOTRA MANIK & ASSOCIATES
CHARTERED ACCOUNTANTS
FRN. 015848N
PLACE: LUDHIANA (CA. MANIK MALHOTRA)
DATED: 23.05.2019 PROPRIETOR
M.No. 094604

ANNEXURE- B TO THE INDEPENDENT AUDITORS REPORT

(Referred to in paragraph (g) under the "Report on other legal and regulatory requirements" section of our report to the members of SEL Manufacturing Company Limited of even date)

Report on the Internal Financial Controls over Financial Reporting under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 ("the Act")

We have audited the Internal Financial Control over financial reporting of SEL Manufacturing Company Limited ("the Company") as of March 31, 2019 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Managements Responsibility for Internal Financial Controls

The Board of Directors of the Company is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to respective companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013.

Auditors Responsibility

Our responsibility is to express an opinion on the internal financial controls over financial reporting of the Company based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the "Guidance Note") issued by the Institute of Chartered Accountants of India and the Standards on Auditing prescribed under Section 143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal financial controls. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained, is sufficient and appropriate to provide a basis for our audit opinion on the internal financial controls system over financial reporting of the Company.

Meaning of Internal Financial Controls over Financial Reporting

A companys internal financial controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys Internal financial controls over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail ,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys 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 financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that internal financial controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Disclaimer of Opinion

The system of internal financial controls over Financial reporting with regard to the company were not made available to us to enable us to determine if the company has established adequate internal financial control over financial reporting and whether such internal financial controls operating effectively as on March 31, 2019.

Basis for Qualified Opinion

In our opinion and according to the information and explanations given to us and based on our audit of Standalone Financial Statements, in respect of the matters disclosed in paragraphs under "Basis of Qualified Opinion" and "Emphasis of Matter" of our main Independent Auditors Report which came to our notice during the course of audit of standalone financial statements indicates material weaknesses in the internal financial controls over financial reporting as at March 31, 2019.

A material weakness is a deficiency, or a combination of deficiencies, in internal financial control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on timely basis.

Qualified Opinion

In our opinion, the matters disclosed in above paragraphs under "Basis of Qualified Opinion" indicates material weaknesses in the internal financial controls over financial reporting.

We have considered the disclaimer of opinion as well as material weaknesses identified and reported in Qualified Opinion paragraph in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements of the Company for the year ended March 31, 2019 and the disclaimer and material weaknesses do not affect our opinion on the standalone financial statements of the Company.

FOR MALHOTRA MANIK & ASSOCIATES
CHARTERED ACCOUNTANTS
FRN. 015848N
(CA. MANIK MALHOTRA)
PLACE: LUDHIANA PROPRIETOR
DATED: 23.05.2019 M.No.:094604