BOARD'S REPORT & MANAGEMENT DISCUSSION AND ANALYSIS TO THE MEMBERS OF SOVEREIGN DIAMONDS LIMITED The Directors take pleasure in presenting the Forty Second Annual Report together with the audited financial statements for the year ended 31st March, 2016. The Management Discussion and Analysis has also been incorporated into this report 2. HIGHLIGHTS OF PERFORMANCE • Total net sales for the year were Rs. 5,321.16 lacs as compared to Rs. 6,013.81 lacs in 2015. • Total profit before tax for the year was Rs. 184.44 lacs as compared to Rs. 279.33 lacs in 2015. 3. BUSINESS OPERATIONS During the last 12 months, the Company has made a great deal of changes. • The total work force of the Company is 100 people. Some of these are contract workers and some them are fixed workers. The Company is controlling the output per worker and has almost cut any overtime expenses which otherwise puts any unnecessary load on the Company. After the Balance sheet date, the Company has let go of 15 manual workers, some production supervisors and manager in order to restructure further and reduce fixed costs. These will be replaced if and when required - on a need basis only. • The Company has worked in depth to cut its gold losses and has been very successful in bringing this loss down by almost 1.50 % using better suction machines, complete vacuum cleaning of all carpets twice in a day in gold dust areas and increasing hand washing to collect the gold dust in central setting tanks. • With the use of laser maker, there is saving in costs and enhances security of diamonds as no piece has to leave factory for any reason. This will satisfy the requirement of clients for engraving diamond weights inside the pieces. The use of 2 laser welders has increased the production and improves the quality of our product. • With the use of these 3D printers, all its designs and models are made in-house. This again leads to saving in costs and faster processing. Earlier this was also outsourced which used to result in leakage of designs. • The Company has concentrated mainly on the domestic market and increased our sales considerably working with safe clients. The Company has increased its business marginally in the Middle East and some African countries after exercising due caution by providing on time deliveries and receiving payments. • The Company's cautious and hands on approach combined with its high quality products has helped us to grow well during this year and the Company is hopeful to continue this trend in the years to come. There was no change in nature of business of the Company, during the year under review. 4. DIVIDEND Your Directors do not recommend any dividend for the year as the profits earned need to be ploughed back into the operations of the company and will be used for working requirements of the Company. 5. TRANSFER TO RESERVES The Company proposes to transfer an amount of Rs. 20.00 Lacs to the General Reserves. 6. SHARE CAPITAL The paid up Equity Share Capital as on 31st March, 2016 was Rs. 578.80 Lacs. During the year under review, the Company has not issued shares with differential voting rights nor granted stock options nor sweat equity. There was no change in the Company's share capital during the year under review. 7. DEPOSITS The Company has not accepted deposit from the public and shareholders falling within the ambit of Section 73 of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014. Hence, the requirement for furnishing details of deposits which are not in compliance with the Chapter V of the Act is not applicable. 8. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements. 9. SUBSIDIARY COMPANIES The Company has no Subsidiary Company. 10. DIRECTORS 10.1 Retirement by Rotation Pursuant to Section 152 (6) of the Companies Act, 2013 and in terms of the Articles of Association of the Company, Mr. Ajay Gehani, Managing Director, retires by rotation at the forthcoming Annual General Meeting. Being eligible, he offers himself for re-appointment 10.2 Declaration by Independent Directors The Company has received declarations from the Independent Directors of the Company confirming that they meet with the criteria of independence as prescribed both, under sub-section 6 of section 149 of the Companies Act, 2013 and under regulation 17 of the SEBI (LODR) Regulations, 2015. 10.3 Familiarisation Programme for Independent Directors The Program intends to provide insights into the Company so that the Independent Directors can understand the Company's business in depth and the roles, rights, responsibility that they are expected to perform/enjoy in the Company to keep them updated on the operations and business of the Company thereby facilitating their active participation in managing the affairs of the Company. In addition to the above, Directors are periodically advised about the changes effected in the Corporate Law, SEBI (LODR) Regulations, 2015 with regards to their roles, rights and responsibilities as Directors of the Company. 10.4 Board Evaluation The Board carried out an annual performance evaluation of its own performance, the individual Directors as well as the Board Committees, in due compliance with the provisions of the Companies Act, 2013 and the SEBI (LODR) Regulations, 2015. The performance evaluation of the Independent Directors was carried by the entire Board and the performance evaluation of the Chairman and Non - Independent Directors was carried out by the Independent Directors. The Board evaluation was carried out in accordance with the criteria laid down in the Nomination and Remuneration policy of the Company. 10.5 Key Managerial Personnel The following persons have been designated as Key Managerial Personnel of the Company pursuant to Section 2(51) and Section 203 of the Act, read with Rule 8(5)(iii) of the Companies (Accounts) Rules, 2014 framed thereunder. 1. Mr. Ramesh Gehani, Executive Chairman - Whole Time Director 2. Mr. Ajay Geheni, Managing Director 3. Mrs. Deepika Gehani, Director-CFO None of the Key Managerial Personnel have resigned during the year under review. 10.6 Remuneration Policy The Board has in accordance with the provisions of sub-section (3) of Section 178 of the Companies Act, 2013, formulated the policy setting out the criteria for determining qualifications, positive attributes, independence of a Director and policy relating to remuneration for Directors, Key Managerial Personnel and Senior Management Employees. The detail of the same has been disclosed in the Corporate Governance Report. 10.7 Meetings A calendar of Meetings is prepared and circulated in advance to the Directors. During the year the Company has held 4 (four) Board Meetings which were held on 30th May, 2015; 7th August, 2015; 6th November, 2015 and 06th February, 2016. The maximum interval between any two meetings did not exceed 120 days. 11. DIRECTORS' RESPONSIBILITY STATEMENT To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013: a) that in the preparation of the annual financial statements for the year ended 31st March, 2016, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; b) that such accounting policies as mentioned in Note 1 of the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2016 and of the profit of the Company for the year ended on that date; c) that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; d) that the annual financial statements have been prepared on a going concern basis; e) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; f) that systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively. 12. PLEDGE OF SHARES None of the equity shares of the Directors of the Company are pledged with any banks or financial institutions. 13. RELATED PARTY TRANSACTIONS All the related party transactions are entered on arm's length basis, in the ordinary course of business and are in compliance with the applicable provisions of the Companies Act, 2013 and the SEBI (LODR) Regulations, 2015. There are no materially significant related party transactions made by the Company with Promoters, Directors or Key Managerial Personnel etc. which may have potential conflict with the interest of the Company at large or which warrants the approval of the shareholders. Accordingly, no transactions are being reported in Form AOC-2 in terms of Section 134 of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014. However, the details of the transactions with Related Party are provided in the Company's financial statements in accordance with the Accounting Standards. All Related Party Transactions are presented to the Audit Committee and the Board. Omnibus approval is obtained for the transactions which are foreseen and repetitive in nature. A statement of all related party transactions is presented before the Audit Committee on a quarterly basis, specifying the nature, value and terms and conditions of the transactions. 14. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations. 15. DISCLOSURES UNDER SECTION 134 (3) (l) OF THE COMPANIES ACT, 2013 No material changes and commitments which could affect the Company's financial position have occurred between the end of the financial year of the Company and date of this report. 16. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013 The Company has in place an Anti Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy 17. COMPANIES WHICH HAVE BECOME OR CEASED TO BE ITS SUBSIDIARIES, JOINT VENTURES OR ASSOCIATE COMPANIES There are no companies which have become or ceased to be its Subsidiaries, Joint Venture or Associate Companies during the financial year 2015-16. 18. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES The criteria prescribed for the applicability of Corporate Social Responsibility under Section 135 of the Companies Act, 2013 is not applicable to the Company. 19. DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY The nature of business is manufacturing of Jewellery. The inheritant risks to the business of the company are as follows: a. Foreign Exchange Risk b. Gold Price Risk c. Stiff Competition d. Government Policy on import of gold e. Risk elements in business transactions f. Labour Risk All the above risk has been discussed in the Management Discussion & Analysis Report. The prices of Jewellery consist of Gold, Diamonds & Labour, out of this three, Gold and diamonds consist of 90% of the price of Jewellery. The Company has no control on the price of Gold and Diamonds and the same is available through Exchanges, Market and Banks. The said risk shall results in favourable / unfavourable to the Company. The nature of risk is dynamic of business and entrepreneurship. The Company has not formed Risk Management Committee as it is not applicable under regulation 21 of the SEBI (LODR) Regulations, 2015. 20. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit (IA) function is defined in the Internal Audit Charter. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board. The Company monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. 21. VIGIL MECHANISM / WHISTLE BLOWER POLICY The Company has a vigil mechanism to deal with instance of fraud and mismanagement, if any. The details of the Whistle Blower Policy are explained in the Corporate Governance Report. 22. AUDITORS 22.1 Statutory Auditors The Company's Auditors, M/s. J. D. Zatakia & Co., Chartered Accountants, who retire at the forthcoming Annual General Meeting of the Company, are eligible for re-appointment. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 and the Rules framed thereunder for re-appointment as Auditors of the Company. As required under regulation 33 of SEBI (LODR) Regulations, 2015, the auditors have also confirmed that they hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India. 22.2 Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s P. P. Shah & Co., Practicing Company Secretary to undertake the Secretarial Audit of the Company. The Report of the Secretarial Audit Report is annexed herewith as "Annexure A". 22.3 Qualifications in Secretarial Audit Report a) Appointment of Company Secretary: As per section 203 (1) (ii), the Company is required to appoint Company Secretary. The Company has not appointed Company Secretary, consequently the annual audited financial statements are not signed by Company Secretary. In this regard the management of the Company has provided the following reply: (i) The Company has appointed Mr. Ajay Gehani, Director Compliance Officer of the Company who looks after the compliance of Companies Act, 2013 and SEBI Act and rules made there under (ii) The Company has availed the services of Practicing Company Secretary for advising on compliance of Companies Act, 2013 and SEBI Act and rules made there under (iii) The Volume and Scope of work for the Company Secretary is less and it is not a full time work and the job of Company Secretary is not attractive commensurate with the scope of work and salary. b) Website Posting: As per the various sections of the Companies Act, 2013, SEBI (LODR) Regulations, 2015 and Secretarial Standard - 2, the Company is require to post various information / policies on the website of the Company. The Company has not posted any information /policies on the website of the Company. In this regard the management of the Company has provided the following reply: (i) The Company is filling regularly all the information with BSE and all the information is available on the website of BSE c) Composition of Nomination and Remuneration Committee: In respect of the composition of the Nomination and Remuneration Committee, we observe as follows: As per Section 178 of the Companies Act, 2013, the composition of Nomination and Remuneration Committee shall be as follows: 178 (1): "The Board of the Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of 3 or more non-executive directors out of which not less than one half shall be independent directors: Provided that the chairperson of the company (whether executive or nonexecutive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee." The Nomination and Remuneration Committee of the Company comprises of 2 independent directors and 1 executive director. In this regard, the Management has given the following reply: "The Company has 5 directors, out of them 3 are executive and 2 are independent directors. Accordingly the composition of the Board is such that the Nomination and Remuneration Committee cannot comprise of 3 non-executive directors. Mr. Ajay Gehani, Executive Director is 1 of the members of the Committee. However, with the present composition of Nomination and Remuneration Committee, it has been ensured that majority remains with Independent Directors and accordingly the spirit of Corporate Governance is achieved." 23. CORPORATE GOVERNANCE A separate report on Corporate Governance and a certificate from M/s. P. P. Shah & Co., Practicing Company Secretaries regarding compliance with the conditions of Corporate Governance is given in a separate section and forms part of the Annual Report. Further, a declaration signed by the Managing Director, affirming compliance with the code of conduct by all the Board members and senior management personnel along with certificate required under Schedule V (D) of SEBI (LODR) Regulations, 2015, is also given in this Annual Report. 24. MANAGEMENT DISCUSSION AND ANALYSIS As required under the schedule V (B) of SEBI (LODR) Regulations, 2015, report on "Management Discussion and Analysis" is attached and form part of this Annual Report. 25. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is annexed herewith as "Annexure B". 26. EXTRACT OF ANNUAL RETURN The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith as "Annexure C". 27. PARTICULARS OF EMPLOYEES There is no employee in the Company drawing monthly remuneration of Rs. 5,00,000/-per month or Rs. 60,00,000/- per annum. Hence, the Company is not required to disclose any information as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. 28. HUMAN RESOURCES The relations of the employees of the Company have been cordial during the year. Employees are considered to be team members being one of the most critical resources in the business which maximize the effectiveness of the Organization. Human resources build the Enterprise and the sense of belonging would inculcate the spirit of dedication and loyalty amongst them towards strengthening the Company's Polices and Systems. The Company maintains healthy, cordial and harmonious relations with all personnel and thereby enhancing the contributory value of the Human Resources. 29. ENVIRONMENT AND SAFETY The Company is conscious of the importance of environmentally clean and safe operations. The Company's policy requires conduct of operations in such a manner, so as to ensure safety of all concerned, compliances of environmental regulations and preservation of natural resources. 30. ENHANCING SHAREHOLDERS VALUE Your Company believes that its Members are among its most important stakeholders. Accordingly, your Company's operations are committed to the pursuit of achieving high levels of operating performance and cost competitiveness, consolidating and building for growth, enhancing the productive asset and resource base and nurturing overall corporate reputation. Your Company is also committed to creating value for its other stakeholders by ensuring that its corporate actions positively impact the socio-economic and environmental dimensions and contribute to sustainable growth and development. 31. GREEN INITIATIVES Electronic copies of the Annual Report 2015-16 and Notice of the 42nd Annual General Meeting are sent to all members whose email addresses are registered with the Company/ Depository Participant(s). For members who have not registered their email addresses, physical copies of the Annual Report 2015-16 and the Notice of the 42nd Annual General Meeting under Section 101 of the Companies Act, 2013 are sent in the permitted mode. Members requiring physical copies can send a request to the Company. Your Company provides e-voting facility to all its members to enable them to cast their votes electronically on all resolutions set forth in the Notice. This is pursuant to the Section 108 of the Companies Act 2013 and Rule 20 of the Companies (Management and Administration) Amendment Rules, 2015. 32. ACKNOWLEDGEMENTS Your Directors thank the various Central and State Government Departments, Organizations and Agencies for the continued help and co-operation extended by them. The Directors also gratefully acknowledge all stakeholders of the Company viz. customers, members, dealers, vendors, banks and other business partners for the excellent support received from them during the year. The Directors place on record their sincere appreciation to all employees of the Company for their unstinted commitment and continued contribution to the Company. 33. CAUTIONARY STATEMENT Statements in the Board's Report and the Management Discussion & Analysis describing the Company's objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations. For and on behalf of the Board of Directors (Ramesh Gehani) Executive Chairman (Ajay Gehani) Managing Director Place: Mumbai Date: 27th May, 2016 |