DIRECTORS' REPORT The Shareholders IL&FS Engineering and Construction Company Limited Your Directors take pleasure in presenting the Twenty-Sixth Annual Report along with the Audited Financial Statements for the Financial Year ended March 31, 2015 II. DIVIDEND Due to inadequate profits of the Company, your directors express their inability to recommend any dividend for the year to Preference as well as to Equity Shareholders RESERVES The Board of Directors do not propose to carry any amounts to Reserves of the Company for the Financial Year ended March 31, 2015 THE STATE OF AFFAIRS OF THE COMPANY During the year under review, your Company had bagged various orders in the Roads, Buildings & Structures, Power and Oil & Gas Sectors. The Orders received during the year under review amounted to Rs. 2,166 Crores. Also, the Company already had orders worth Rs. 10,063 Crores at the beginning of the year. Out of the total orders in hand, the unexecuted order value stands at Rs. 10,088 Crores at the end of the year. Your Company is having operations beyond the territorial limits of India and is now operating from Saudi Arabia under a separate Joint Venture Subsidiary, and through Company's branches in Fujairah and Abu Dhabi The Board of Directors is hopeful of securing sizeable orders in the future and is confident of effective execution of the existing works of the order book. Also, the business support from the Promoter and Investor is facilitating entry into new market segments and in turn increasing capabilities of the Company. SHARE CAPITAL During the year under review, your Company had allotted 10,61,133 Equity Shares of Rs. 10 each fully paid at a price of Rs. 58.90 upon exercise of equal number of Employee Stock Options issued to Employees/ Directors / Directors of Subsidiary Companies under ESOP 2009 Scheme, as detailed below: During the year under review, an amount of Rs. 3.83 Cr pertaining to the expenses incurred towards Proposed Rights Issue of the Company were written off from the Securities Premium Account since, the Draft Letter of Offer filed with SEBI for Rights Issue was withdrawn by the Company. Accordingly, the Securities Premium Account stood at Rs. 171.38 Cr as on March 31, 2015. The movement in securities premium account is as follows: VI. DIRECTORS AND KEY MANAGERIAL PERSONNEL During the year under review, Mr. Ved Jain, Mr. Anil K Agarwal and Mr. Dhananjay Narendra Mungale, Ms. Alpa Ramesh Sheth and Ms. Kanika Tandon Bhal were appointed as Independent Directors on August 08, 2014 for a period of 5 years in terms of Listing Agreement and Section 149 of the Act. With the appointment of Ms. Alpa Ramesh Sheth and Ms. Kanika Tandon Bhal, the requirement of Women Director on the Board of the Company is complied with. The appointment of the Independent Directors is being proposed for the approval of the members in the forthcoming Annual General Meeting. Mr. Sundaram Srinivas Ranjan, Nominee Director appointed by State Bank of India, Industrial Finance Branch, Hyderabad on behalf of CDR participating banks had resigned from his position and the same was taken on record with effect from August 23, 2014. During the year, Mr. Ahmad Dabbous, Alternate Director to Mr. El Mouhtaz El Sawaf had vacated his office since Mr. Sawaf had attended the Board Meeting on November 10, 2014. Mr. Ahmad Dabbous was appointed as Alternate Director to Mr. Sawaf in the same meeting on November 10, 2014. Mr. Akber Moawalla, Alternate Director to Mr. Saleh Mohamad Bin Laden and Mr. Ahmad Dabbous, Alternate Director to Mr, Sawaf had vacated their offices since Mr. Binladen and Mr. Sawaf had attended the Board Meeting on February 11, 2015. Thereafter, on the same day i.e., on February 11, 2015, Mr. Akber Moawalla and Mr. Ahmad Dabbous were again appointed as Alternate Directors to Mr. Saleh MohamadBinLaden and Mr. El Mouhtaz El Sawaf respectively. None of the directors of the Company are inter-se related to each other. Mr. Murli Dhar Khattar who was appointed on December 26, 2013 as the Managing Director of the Company continued in the same capacity throughout the year under review. Dr. Sambhu Nath Mukherjee was appointed as Chief Financial Officer of the Company within the meaning of Section 203 of the Companies Act, 2013 with effect from January 01, 2015. The Company had already appointed Mr. G. Venkateswar Reddy in the earlier years who continue to be the Company Secretary of the Company during the year under review Independent Directors The Independent Directors were appointed in the meeting held on August 08, 2014 for a period of 5 years subject to the approval of the members. The appointments of Independent Directors are being proposed in the ensuing Annual General Meeting for the approval of the members. None of the Independent Directors are considered for re-appointment in the ensuing Annual General Meeting. Statement on Declaration given by Independent Directors The Independent Directors appointed in the Board Meeting held on August 08, 2014 have given declaration of Independence in terms of sub-section (6) of Section 149. Familiarization programme of Independent Directors The Company had appointed two new Independent Directors and appointment of three Independent Directors already holding office of directors in the Company was formalized by issuing Appointment Letter for Independent Directors. All the Independent Directors appointed are well versed in the business of Infrastructure Development. A Separate session was conducted in the Board Meeting held on November 10, 2014 and the independent directors were provided with the operations and projects of the Company as a part of familiarization programme to the Independent Directors of the Company. The details of such familiarization program have been provided under the head Corporate Governance section of the website of the Company i.e., www.ilfsengg.com Non-executive Directors The Non-executive directors are entitled for payment of sitting fee of Rs. 20,000 per meeting for attending the meetings of the Board and its Committees. Additionally, the actual out of pocket expenses incurred by them for attending the meetings are also borne by the Company. Except as mentioned above, no other payment is made by the Company to the Non-executive Directors and the Company does not have any pecuniary relationship or transactions with the Non-Executive Directors. The details of amount of Sitting Fee paid to the Directors is mentioned in the Corporate Governance Section of this Annual Report. However, Non-executive Directors, except Independent Directors, are/were entitled to employee stock options under the Employee Stock Option Schemes of the Company subject to compliance of applicable laws Performance Evaluation The Board has evaluated its performance during the Financial Year 2014-15 in the Meeting held on May 29, 2015. The evaluation was carried out as per the policy of the Company. The Board had assured that the performance of the Board was in line with the organization strategy. The Board had further assured that the Committees of the Board have performed as per the scope attributed to them. The Independent Directors have attended most of the Meetings and have sought adequate information required for arriving at decisions. Policies The following policies were formulated by the Board and are placed in the Corporate Governance Section of the website of the Company i.e., www.ilfsengg.com i. Directors Appointment and Remuneration Policy on matters specified in sub-section (3) of Section 178 of the Act ii. Policy on Corporate Social Responsibility as per Section 135 of the Act iii. A Policy on Performance Evaluation of the Board of Directors and Individual Directors was formulated during the year under review which consists of the annual evaluation plan of the Board Engineering Services iv. Vigil Mechanism Policy v. Policy on Material Subsidiaries vi. Policy on dealing with Related Party Transactions VII. DIRECTORS RESPONSIBILITY STATEMENT In terms of Section 134 (5) of the Companies Act, 2013 (Act), the Board of Directors state that: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period; (c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (d) the directors had prepared the annual accounts on a going concern basis; and (e) the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. (f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Details of conservation of energy, technology absorption, foreign exchange earnings and outgo (A) Conservation of energy (i) The steps taken or impact on conservation of energy; The conservation of energy in all the possible areas is undertaken as an important means of achieving cost reduction. Savings in electricity, fuel and power consumption receive due attention of the management on a continuous basis. (ii) The steps taken by the company for utilizing alternate sources of energy; NIL (iii) The capital investment on energy conservation equipments; NIL (B) Technology absorption (i) the efforts made towards technology absorption: Timely completion of the projects as well as meeting the budgetary requirements are the two critical areas where different techniques help to a great extent. Many innovative techniques have been developed and put to effective use in the past and the efforts to develop new techniques continue unabated. (ii) the benefits derived like product improvement, cost reduction, product development or import substitution; NIL (iii) in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)- NIL a) the details of technology imported; b) the year of import; c) whether the technology been fully absorbed (C) FOREIGN EXCHANGE Foreign Exchange EarningsRs. 272.48 Crores (accrual basis) Foreign Exchange Outgo Rs. 253.60 Crores (accrual basis) VIII. BOARD AND ITS COMMITTEES a) Board of Directors : During the year under review the Board of Directors of the Company have met five times on May 19, 2014, August 08, 2014, November 10, 2014, November 28, 2014 and February 11, 2015. The attendance, along with such other details as required, of each of the Directors is mentioned in the Corporate Governance section of this Annual Report b) Audit Committee The Audit Committee of the Company consists of 4 members and a permanent invitee. Mr. Ved Kumar Jain, Independent Director in the Company is the Chairman of the Committee. Mr. Anil Kumar Agarwal, Mr. MurliDhar Khattar and Mr. DhananjayNarendra Mungale are the members of the Audit Committee. The attendance of members to the meetings of Audit Committee and such other details are mentioned in the Corporate Governance report section of this Annual Report All the recommendations of the Audit Committee were accepted by the Board of Directors during the year under review. The Committee comprises with majority of Independent Directors c) Risk management policy The Board of Directors had formulated a Risk Management Policy consisting of various elements of Risk and mitigation measures. The Risk Management Committee of the Company is overseeing the implementation of the Policy. In the opinion of the Board, the policy on Risk Management addresses the risks associated with the business including identification of elements of risk which may threaten the existence of the Company d) Corporate Social Responsibility Committee The Board of Directors of the Company had constituted Corporate Social Responsibility Committee on March 18, 2014 and had formulated a policy on Corporate Social Responsibility which is available in the Corporate Governance Section of the website of the Company i.e., www.ilfsengg.com The CSR Committee of the Company was constituted with Mr. Anil Kumar Agarwal as the Chairman of the Committee. Mr. MurliDhar Khattar and Mr. Sundaram Srinivas Ranjan were the members. Ms. Alpa Ramesh Sheth was inducted as member of the Committee on November 10, 2014 after the resignation of Mr. Ranjan as director of the Company. The Committee met once on February 11, 2015 during the period under review.The members of the Committee are eminent persons with background in various social responsibility activities. The Company is required to spend two per cent of the average net profits for preceding three financial years as per Section 135 (5) of the Act. However, the Company has not made any profitsduring the previous three financial years and hence,the Company could not spend any amount on CSR activities. The details of CSR policy and activities as per Rule 9 of Companies (Corporate Social Responsibility) Rules, 2014 are attached as an Annexure e) Other Committees The details of composition, number of meetings and such other information as required regarding Nomination and Remuneration Committee and Stakeholders Relationship Committee are mentioned in the Corporate Governance section of this Annual Report. IX. SUBSIDIARIES As per Section 129 (3) of the Companies Act, 2013 and Clause 32 of the Listing Agreement, the consolidated financial statements of the Company forms part of this Report. The copies of Audited Financial Statements of the Subsidiaries, Joint Ventures and Associates are available on the website of the Company www.ilfsengg.com and a copy of the same will be provided upon written request to the Company Secretary Angeerasa Greedfields Private Limited, Ekadanta Greenfields Private Limited, Saptaswara Agro-farms Private Limited, Maytas Infra Assets Limited, Maytas Metro Limited, Maytas Vasishta Varadhi Limited and Maytas Infra Saudi Arabia Company are the subsidiaries of your Company. A step down subsidiary, namely Maytas Infra for Construction W.L.L. was incorporated as Subsidiary of Maytas Infra Saudi Arabia Company and the same was in the process of closing subsequent to Financial Year 2014-15 The performance and financial position of the Subsidiaries, Joint Venture and Associate Companies is attached as an Annexure to this Report ASSOCIATES & JOINT VENTURES During the year under review, the following have been associates and Joint Ventures of your Company: Associate: Hill County Properties Limited Joint Ventures (Association of Persons): NCC-Maytas (JV) NEC-NCC-Maytas(JV) Maytas-NCC (JV) NCC-Maytas (JV) (Singapore Classtownship) Maytas-CTR (JV) NCC-Maytas-ZVS (JV) Further, none of the entities have been associated / disassociated as Joint Ventures of your Company during the year under review: X. AUDITORS AND AUDITORS' REPORT a) Statutory Auditors M/s S. R. Batliboi & Associates LLP Chartered Accountants were appointed as Statutory Auditors of the Company to hold office from the 25th Annual General Meeting of the Company till the conclusion of 28th Annual General Meeting of the Company. The appointment of Statutory Auditors of the Company for the financial year 2015-16 is placed for ratification of the members of the Company in the ensuing 26th Annual General Meeting of the Company. The notes on financial statements referred to in the Auditors' Report are self explanatory and do not call for any further comments. The Auditors' Report does not contain any qualification, reservation or adverse remark. b) Cost Auditor The Board has appointed M/s S Mahadevan and Co, Cost Accountants as Cost Auditors of the Company for the Financial Year 2014-15. The remuneration payable to the Cost Auditors was approved by the members in the 25th Annual General Meeting of the Company. M/s S Mahadevan & Co are re-appointed as Cost Auditors of the Company for the Financial Year 2015-16 and the remuneration payable to them is recommended for the approval of the members in the ensuing Annual General Meeting. c) Secretarial Auditor The Board has appointed Mr. Y. Ravi Prasada Reddy, Practising Company Secretary to conduct the Secretarial Audit for the financial year 2014-15. The Secretarial Audit Report for the financial year ended March 31, 2015 is annexed herewith marked as Annexure to this report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark. XI. CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES All contracts / arrangements / transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. During the year, the Company had not entered into any contract / arrangement / transaction with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions, except with Infrastructure Leasing and Financial Services Limited wherein the Company has entered into following agreements which together constituted as a material related party transactions. >£IL^F$ Engineering Services i. Term loan of Rs. 100 Cr at an interest rate of 13% p.a. calculated at quarterly rests ii. Term loan of Rs. 100 Cr at an interest rate of 13% p.a. calculated at quarterly rests iii. Term Loan of Rs. 280 Cr at an interest rate of 13% p.a. calculated at quarterly rests iv. Corporate Guarantee for an amount of Rs. 123.20 Cr against Bank guarantee provided by IL&FS from its Bank Limits and commission @ 1.15% thereon v. Corporate Guarantee for an amount of Rs.67.75 Cr against Bank guarantee provided by IL&FS from its Bank Limits and commission @ 1.15% thereon vi. To provide Letter of Comfort and / or Letter of awareness on behalf of the Company in favour of the CDR Lenders for an amount of Rs.973 Cr in the manner as may be decided by the Board in consultation with the CDR Lenders / any other lenders of the Company from time to time vii. IL&FS agreed to CDR Banks of IECCL to keep the loan amount of Rs.400 Cr extended to IECCL as Core Funding in the Company The aforementioned transactions are not falling in the list of transactions specified in Section 188 of the Companies Act, 2013. However, the definition of Related Party Transaction in the Listing Agreement has a wider scope and covers the aforementioned transactions with related parties XII. EMPLOYEE STOCK OPTION SCHEME During the year under review, the Employee Stock Option Scheme 2007 was expired since all the options granted under the scheme were lapsed. The Company has allotted 10,61,133 Equity of Rs.10/- each at a price Rs.58.90 per share (including premium) upon exercise of the same number of ESOPs under ESOP 2009 Scheme. The Company has received a certificate from the Statutory Auditors of the Company that the ESOP scheme has been implemented in accordance with the SEBI Guidelines and the resolution passed by the members. The Certificate is mentioned elsewhere in this report and is available for inspection at the Meeting for the members. Further, the information regarding Grant I and Grant II of the Employee Stock Option Scheme 2009 are provided as an Annexure to this Report. XIII. MANAGEMENT DISCUSSION AND ANALYSIS A separate section titled "Management Discussion and Analysis" consisting of details in compliance with Clause 49 of the Listing Agreement is annexed hereto and forms part of the Annual Report. XIV. CORPORATE GOVERNANCE A separate section titled "Report on Corporate Governance including a certificate from the Practising Company Secretary confirming compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is annexed hereto and forms part of this Annual Report Further, the declaration signed by the Managing Director affirming the compliance with code of conduct for Board of Directors and senior management personnel is annexed to the Report on Corporate Governance. XV. DISCLOSURES a) Extract of Annual Return The extract of Annual Return as per Section 92(3) of the Companies Act, 2013 and rule 12 (1) of the Companies (Management and Administration) Rules, 2014 is appended to this Report. b) Vigil Mechanism The Company established a Vigil Mechanism which incorporates Whistle Blower policy to identify and report fraud. Please refer to the Corporate Governance section of the Annual Report for further details. c) Policy on Prevention of Sexual Harassment The Company has formulated and implemented a policy for Prevention of Sexual Harassment of Women at workplace. During the year under review, the Company has not received any complaints under the policy. The company has many systems, processes and policies to ensure professional ethics and harmonious working environment. We follow Zero Tolerance towards Corruption and unethical conduct. These are ensured through Whistle Blower Policy, Gift Policy, Sexual Harassment Policy and Redressal Guidelines. d) Transfers to IEPF During the year under review, the Company had transferred an amount of Rs. 3,18,780 which was unclaimed share application money, received at the time of Initial Public Offer of the Company in the year 2007. e) particulars of Loans, guarantees or investments under Section 186 Your Company is into the business of providing Infrastructure Facilities. Accordingly, the provisions of Section 186 pertaining to providing Loan or Guarantee to other corporates are exempted. All information regarding loans, guarantees and investments is mentioned in the notes to financial statements for the financial year ended 2014-15 which are self-explanatory. Further, your Company has made no further investments during the year 2014-15 and hence, the provisions of Section 186 are not attracted. However, your Company is proposing to make a further investment in the shares of its Subsidiary, Maytas Infra Saudi Arabia Company in the Financial Year 2015-16. The approval under Section 186 for this investment is being sought in the ensuing Annual General Meeting f) particulars of employees and related disclosures The disclosures relating to particulars of employees as per Section 197 (12) of the Act read with rules 5 (2) and 5 (3) of the Companies (Appointment and remuneration of Managerial Personnel) Rules, 2014 is appended as an Annexure with this Report. The disclosure pertaining to remuneration and other details as required under Section 197 (12) of the Act read with rule 5 (1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is appended as Annexure with this Report. XVI. ACKNOWLEDGMENTS: Your Directors place on record their gratitude to the Bankers, Financial Institutions, various Agencies of the State and the Central Government Authorities, Clients, Consultants, Suppliers, Sub-Contractors, Members and the Employees for their valuable support and co-operation and look forward to continue enriched relationships in the years to come. By order of the Board For IL&FS Engineering and Construction Company Ltd Ramchand Karunakaran Chairman Date:May 29, 2015 Place:New Delhi |