Swan Defence and Heavy Industries Ltd. - Quarterly/Annual Result Disclosures and Notes dated 31 Mar 2020

1. On September 04, 2018. IDBI Bank in its capacity of financial creditor had filed a petition under the insolvency and Bankruptcy Code 2016 (the "IBC" / "Code") win tne Hon'ble National Company Law Tribunal Ahmedabad (the "NCLT") against Reliance Naval and Engineering Limited ("the Company'').

The NCLT vide its order dated January 15 2020 ("insolvency Commencement Date") initiated the Corporate Insolvency Resolution Process C'CISP1'] of the Company under the Code. The said NCLT Order also records the appointment of Mr. Pajeev Bal Saw angikar as the interim Resolution Professional ("IRP") in accordance with Section 16 of fhe Code.

Subsequently, pursuant to the meeting held on March 13 2020. the Committee of Creditors (the "CoC") has replaced the existing iRP with Mr. Sudip Bhaftacharya as the Resolution Professions ("RP'') for the Company. Upon the application riled by CoC. me NCLT has approved the appointment of RP vide its order dated 5th May. 2020.

Under the IBC proceedings the powers of the board have been suspended with effect from January 15. 2020. The powers of the Board of Directors are to be exercised by the RP.

The NCLT order also provided for a moratorium with effect from January 15, 2020 till fhe completion of the CIRP or until it approves the resolution plan under section 31(1) or passes an order for liquidation of the Company under Section 33. whichever is earlier. Currently, the Company is under CIRP.

2. The above audited Standalone Financial Results of the Company for the period nd year ended March 31. 2020 have been taken on record by the RP while discharging the power; of the erstwhile Board of Directors oi the Company which were conferred upon him by the aforementioned MCLT order dated May 5. 2020 to run the Company as a going concern during CIRP. Hence the financial results for the period and year ended March 31, 2020 have been prepared on going concern assumptions. The RP took charge of the Company on May 5. 2020 and authorized the Key Management Personnel (KMP's) to continue with their respective roles and charges as per their original work allocation.

3. The amounts of fhe claim admitted or to be admitted by the RP under CIRP process may differ from the amount reflecting in the books of account of the Company. The above audiied financial results are drawn on the basis of March 31. 2020 figures as per the books of account of the Company. The RP and support team believe that these figures may be interpreted solely for the purpose of satisfying the regulatory requirement for filing of quarterly and yearly audited financial results and that these figures could change during the CIRP process or thereafter.

4. The Company has outstanding borrowings from banks and financial institutions aggregating Rs. 11,15.631 Lakhs including interest thereon and bank balances (current account and term deposit) aggregating to Rs. 1 531 Lakhs, balance confirmation as at March 31. 2020 has not been received by the Company, During the year ended March 31, 2020. as a part of CIRP. financial ond operational creditors were called upon to submit their claims to the IRP os on January 15. 2020. These claims are under verification and the RP is in the process of receiving, collating, verifying, seeking clarification, sending communications for un-reconciled balances, seeking additional documents to substantiate whole or part of un-reconciled balances on such claims: hence no provision has been made in the books of accounts for the year ended on March 31. 2020. This matter has accordingly been qualified by the auditors in their audit report.

5. ONGC had placed an order for 12 Offshore Vessels fOSVs) in Financial Year (FY) 2009-10 out of which 7 OSVs have been delivered fill 2015-16. ONGC has cancelled fhe order and invoked oil the bank guarantees in FY 2013-19. The Arbitration Petition hos been filed by the Company against the cancellation of Order. Pending the Award no provision has been made against the shipbuilding contract receivables. Advance against purchase of Material/ Services and Inventories, which has been qualified by the auditors in their audit report.

6. As on March 31. 2020, the Company has shipbuilding contracts receivables of Rs, 173.960. lakhs, including invocation of the bank guarantees amounting to Rs. 93.739 Lakhs in Jonuary 2020. for 5 Naval Offshore Patrol Vessels (NOPVs) from the Ministry of Defence, New Delhi (the "MOD"). On February 3. 2020. the Company has received a Show Cause Notice from the Ministn/ of Defence for termination of aforesaid Contract. In response to the Notice. The Company replied to the notice and also filed a writ petition along with stay application before the Delhi High Court on February 15. 2020.

The captioned matter was listed for hearing before the Hon'ble Delhi High Court on February 17. 2020. After hearing the arguments of both parties at length, the Hon'ble Court was pleased to direct the MOD to consider the writ petition as a representation in response to the Impugned Termination Notice and take a decision on termination as per law. The Hon'ble Court was further pleased to direct that in case the final decision of the MOD in relation to termination of the NOPV Contract is adverse to the interests of the Company, the operation of the said decision shall remain suspended for ct period of 7 days after communication of such decision to the Company.

Although the MOD has not revived the contract, it has offered the Company an opportunity to present a proposal by August 31, 2020, outlying how it can complete two of the five NOPVs (NS001 and NS002) which are in advance stages of completion by outsourcing the remaining work to a PSU shipyard. This is at a proposal stage and only if the MOD is agreeable of the proposal, the MOD may accept the plan for two of the five NOPVs. However there is no clarity of fhe remaining three NOPVs. Pending the final decision by the MOD, no provision for shipbuilding contract receivables including bank guarantee invoked by MOD. Advance against purchase of Material/ Services and inventories has been made in the above results, which has been qualified by the auditors in their audit report.

7. The aggregate carrying value of Property. Plant and Equipment (PPE), Capital Work in Progress (CWIP), Investments. Other Non Current Assets. Inventories. Trade Receivables and Other Current Assets (Advances to vendors. Shipbuilding Contracts Receivables, etc) is Rs. 402.015 Lakhs. As explained in Note 1 above, the Company is under CIRP and RP is required to invite submission of resolution plan from potential resolution applicants, which shall be put up for necessary approvals before the CoC and the NCLT. The ORP is not yet concluded ond the final outcome is yet to be ascertained. The Company has not taken into consideration any impact on the value of tangible, financial and other assets, if any, in preparation of Financial Statements and has not made full assessment of impairment os required by the applicable Ind AS, if any. as on March 31. 2020 in the carrying value of the above assets. This matter has accordingly been qualified by the auditors in their audit report.

8. On March 16. 2020 and subsequent to year end on May 19. 2020, the Gujarat Pipavav Port Limited ("GPPl") has issued a termination notice to terminate the Sub-concession Agreement for non payment of lease rent. The agreement was entered between Gujarat Maritime Board ("GMB") GPPL and the Company to sub lease the certain land porcels owned by GMB to the Company in order to carry out business activities. As tge Company is under CIRP, it has requested GPPL to continue with the agreement for the smoot resolution process and expect to pay the lease rent as per the provision of the provision of the Code.

9. The outbreak of COVID-19 pandemic has significantly impacted businesses around the world. The Government of India ordered a nationwide lockdown, initially for 21 days which was extended twice to prevent community spread of COVID-19 in India. This has resulted in significant reduction fn economic activities. With respect to operations of the Company, it has impacted its business by way of interruption in construction activities, supply chain disruption, unavailability of personnel, closure/lock down of various other facilities etc. It has also led to delay in the Resolution process of the Company.

Few of the construction activities are already commenced albeit in a limited manner. Further the Company has availed protections available to it as per various contractual provisions to reduce the impact of COVID-19. Any changes due to the changes in situations/circumstances will be taken into consideration, if necessary, as and when it crystallizes; accordingly it is not possible to determine exact financial impact of COVID-19 pandemic over the business at this juncture.

10. Other expense includes Rs. 10,877 Lakhs for quarter ended March 31, 2020 (Rs. 1,776 Lakhs for the quarter ended March 31, 2019) and Rs. 11,015 Lakhs for year ended March 31,2020 (Rs. 1,776 Lakhs for year ended March 31, 2019) on account of provision for diminution in the value of

11. In respect of vessels other than the commercial vessels, including offshore support vessels, the Company accounts contract revenue and expenses based on the proportionate completion of contract method as certified by the technical experts. In order to evenly allocate the profit on the said contract to whole of the contract period, provision for proportionate cost to be incurred has been made and charged to statement of profit and loss as "Cost Estimated for Revenue Recognised", which gets adjusted to the statement of profit and loss as and when actual cost is incurred.

12. During the year, RMOL Engineering and Offshore Limited, a wholly owned subsidiary of the Company has been admitted for CIRP by the NCLT, Ahmedabad Bench and appointed Interim Resolution Professional (IRP). Further RP appointed as Resolution Professional and it is under CIRP.

13. During the year, application has been filed in the NCLT, Ahmedabad Bench, by financial creditors against E-Complex Private Limited and REDS Marine Services Limited, wholly owned subsidiaries of the Company. The application is yet to be admitted.

14. Reliance Underwater Systems Private Limited (RUSPL) ceased to be a subsidiary of the Company during the year.

15. Exceptional items for the year ended March 31, 2020 consist of impairment of CWIP amounting Rs, 6,608 Lakhs, For the year ended March 31, 2019 exceptional items includes impairment of PPE and CWIP of Rs. 783.304 Lakhs, Trade Receivables of Rs. 75,326 Lakhs and provision for financial guarantee obligation in respect of borrowing by one of the wholly owned subsidiary of Rs. 16,032 Lakhs.

16. The Company has adopted Ind AS 116 “Leases" effective from April 1, 2019 and applied the Standard to its leases. This has resulted in recognizing a Right-of-Use asset and a corresponding Lease Liability of Rs. 10,834 Lakhs as at April 1, 2019, The Impact of the same to the Statement of Profit and Loss for the quarter and year ended March 31, 2020 is not material.

17. The Company is engaged only in the business of Ship-building and Repairs. As such, there are no separate reportable segments.

18. "The Company’s Board of Directors are responsible for the matters stated in section 134(5) of the Act with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance, total comprehensive income, changes in equity and cash flows of the Company in accordance with the IND AS and 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 missfatement, whether due to fraud or error.

Pursuant to an application made by IDBI Bank, the Adjudicating Authority vide its order dated January 15, 2020, initiated CIR process of the Company in accordance with the provisions of the Code. The Adjudicating Authority appointed Mr. Rajeev Bal Sawangikar as the Interim Resolution Professional (IRP). Subsequently vide order dated May 5 ,2020, Mr Sudip Bhattacharya having registration number IBBI/IPA-003/ IPN 0080/2017-18/10703 was appointed as the Resolution Professional, In terms of Section 23 of the Code read with Section 25 of the Code, the powers of the Board of Directors stand suspended and the management of the affairs of the Company vests in the Resolution Professional (RP) of the Company i.e. Mr. Sudip Bhattacharya

These financial results have been prepared by the management of the Company and certified by CFO and Company secretary of the Company. These financial results were placed in the meeting of RP, CFO and Company Secretary for their considerations (CFO and Company Secretary are referred herein after as "Key Managerial Persons"). Accordingly, the audited financial results were considered and recommended in the meeting. In view thereof, the RP, in reliance of such examinations by and representations, clarifications and explanations provided by the key managerial persons, has approved the Financial Results. The key managerial persons has provided the certifications and representations with responsibility in respect of various secretarial, compliances and matters which are pertaining to the period prior to the appointment of Resolution Professional. The RP is relying on the management representation letters for all information and confirmations in relation to the day to day functioning of the Company.

19. The figures for the quarter ended March 31, 2020 and March 31, 2019 are the balancing figures between the audited figure in respect of full financial year and the published year to date figures up to the third quarter of the respective financial year. The figures for the previous periods and for the year ended March 31, 2019 have been restated and regrouped to make them comparable with those of current year.