AFFLUENCE

DIRECTORS' REPORT

Dear Members,

The Directors take pleasure in presenting the 18th Annual Report of your Company together with audited financial statements for the year ended March 31, 2015.

DIVIDEND:

The Board of Directors has not recommended any dividend on the equity shares of the Company for the year under review.

3. STATE OF COMPANY'S AFFAIRS:

During the year under review, your Company has recorded total revenue of Rs. 862.07 crore as compared to the total revenue of Rs. 2,319.08 crore during the previous financial year. The Company has earned operating profit i.e. Profit before Depreciation, Interest and Tax of Rs. 92.86 crore for the year as against Rs. 614.75 crore for the previous year.

MANAGEMENT AND CONTROL OF THE COMPANY

Pursuant to an Agreement dated March 4, 2015, between the Company and its existing Promoters namely SKIL Infrastructure Limited ('SIL'), SKIL Shipyard Holdings Private Limited ('SSHPL') and Grevek Investments and Finance Private Limited ('GIFPL') (SIL, SSHPL, GIFPL are collectively referred to as the 'Sellers') and Reliance Defence Systems Private Limited ('Reliance Defence') and Reliance Infrastructure Limited ('Reliance Infrastructure') (Reliance Defence and Reliance Infrastructure are hereinafter together referred to as 'the Acquirers'), the Acquirers will purchase equity shares of the Company from the Sellers, constituting 17.66 percent of its paid-up equity share capital and shall acquire the management and sole control of the Company.

In terms of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011, the Acquirers have announced an open offer to the public shareholders to acquire from them upto 26% equity shares of the Company ('SEBI Open Offer') subject to certain conditions and statutory and other approvals. In this connection, the Acquirers have filed with the SEBI a draft Letter of Offer.

Post completion of the SEBI Open Offer, if the Acquirers hold less than 25.1% equity shares of the Company, in that event, the Sellers will sell such number of equity shares to cover the shortfall of equity shares (i.e. 25.1% shares minus the number of shares held by Reliance Defence post open offer) to the Acquirers, so that as a result of the proposed acquisition, the Acquirers will hold minimum 25.1% shares in the Company.

Post completion of the SEBI Open Offer, the Acquirers will acquire management and sole control of the Company and shall appoint their representatives constituting majority on the Board of the Company. Post completion of the Transaction, the Acquirers will hold minimum 25.10% in your Company and Mr. Anil Ambani, Chairman of Reliance Group will be the Chairman of your Company. The present promoters may continue to hold minority stake and two positions in Board of Directors of the Company. The name of the Company will be changed to Reliance Defence and Engineering Limited.

The above is subject to certain conditions precedent, and statutory and other approvals.

The Competition Commission of India ('CCI') has already approved the said transaction vide its order dated 20th April 2015. The process of soliciting other necessary statutory and other approvals for completion of the said transaction is in progress.

5. CORPORATE DEBT RESTRUCTURING:

Continued downturn in global commercial shipping industry has affected the shipbuilding industry and the Company adversely. Long gestation period of large scale infrastructure created by the Company and non-availability of timely working capital etc. severely impacted the operations of the Company. In order to find a long term solution to the issues emanating from the inevitable long gestation period for the infrastructure industry; the promoters, the management of your Company and bankers of the Company decided to restructure its debts under the Corporate Debt Restructuring ('CDR') Scheme in accordance with the guidelines stipulated by the Reserve Bank of India.

The Corporate Debt Restructuring ('CDR') Cell vide letter dated March 27, 2015 has communicated its approval of the restructuring proposal of your Company. Pursuant to the aforesaid approval, the CDR Lenders ('Lenders') have extended certain reliefs and concessions to the Company. However, the Lenders have right of recompense and/ or right to reverse the waivers / sacrifice as per the applicable CDR guidelines. The Lenders also have right to convert Future Interest on Term Loan ('FITL') up to Rs. 250 crore into equity shares in the Company at a price as may be determined as per SEBI (Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009.

The Promoters of the Company were required to bring in Rs. 145 crore into the Company as a condition precedent for the CDR. Accordingly, the Promoters have infused Rs. 157.50 crore in the Company. The Company has executed 'Master Restructuring Agreement' with the Lenders and successfully implemented the CDR package.

Further, the Promoters are required to bring, in the Company, additional amount of Rs. 21 crore within one year from the date of approval of CDR and arrange for Rs. 176.48 crore towards equity margin for balance capex. The Promoters of your Company are committed to the same.

6. SUBSIDIARY COMPANIES:

Details of the subsidiaries of your Company as on March 31, 2015 are as follows:

E Complex Pvt. Ltd. ('ECPL')

ECPL, wholly-owned subsidiary of your Company, is engaged in the business of development and operation of Special Economic Zones (SEZs). ECPL has developed a sector specific SEZ for engineering goods which is spread over two villages comprised in two talukas viz. at Village Rampara II in Taluka Rajula and Village Lunsapur in Taluka Jafarabad, District Amreli, in the State of Gujarat.

Your Company has set up its SEZ unit in the SEZ developed and operated by ECPL.

During the FY 2014-15, ECPL recorded total income of Rs. 125.11 crore (Previous Year Rs. 292.31 crore) and net loss of Rs. 10.53 crore (Previous Year Rs. 5.74 crore).

PDOC Pte. Ltd.

PDOC Pte. Ltd. was incorporated in Singapore as a wholly-owned subsidiary of your Company, to explore business opportunities available for construction of offshore Hydrocarbon EPC assets. PDOC Pte. Ltd has not yet commenced its commercial operations.

During the F.Y. 2014-15, PDOC Pte. Ltd. recorded net loss of SG$ 10,198 (Previous Year SG$ 2,087).

Pipavav Marine and Offshore Limited ('PMOL')

PMOL, wholly-owned subsidiary of your Company has not yet commenced its commercial operations. During the F.Y. 2014-15 PMOL has recorded net loss of Rs. 0.90 Lacs (Previous Year Rs. 0.89 Lacs).

Pipavav Lighter Than Air Systems Private Limited ('PLTA')

PLTA is a wholly-owned subsidiary of your Company. During the F.Y. 2014-15, PLTA recorded total income of Rs. 0.35 Lacs (Previous Year NIL) and net loss of Rs. 1.18 Lacs (Previous Year Rs.0.15 Lacs). PLTA has received a prestigious prototype order on nomination basis from Defence Research and Development Organisation ('DRDO') for production of Aerostat, which will be used for strategic purposes. PLTA, after the end of F.Y. 2014-15 has delivered the said Aerostat to DRDO.

Pipavav Engineering and Defence Services Limited ('PEDSL')

During the year, your Company acquired 100% stake in PEDSL, making it a wholly-owned subsidiary of the Company.

During the F.Y. 2014-15, PEDSL recorded total income of Rs. 459.71 Lacs (Previous Year NIL) and net loss of Rs. 6.24 Lacs (Previous Year Rs. 0.11 Lacs).

Pipavav Technologies and Systems Private Limited ('Pipavav Technologies')

During the year, your Company acquired 100% stake in Pipavav Technologies and Systems Private Limited (formerly known as Pipavav Combat Management Systems Private Limited), making it a wholly-owned subsidiary of the Company. Its name was changed from 'Pipavav Combat Management Systems Private Limited' to 'Pipavav Technologies and Systems Private Limited' w. e. f. February 03, 2015. Pipavav Technologies has not yet commenced its commercial operations.

During the F.Y. 2014-15 Pipavav Technologies has recorded net loss of Rs. 0.11 Lacs (Previous Year Rs. 0.06 Lacs).

The policy to determine material subsidiary Company is available on Company's website at URL: <http://www.pipavavdoc.com/index.php/investors/listing->compliance.

7. CONSOLIDATED FINANCIAL STATEMENTS:

The Company pursuant to Clause 41 of the Listing Agreement entered into with the Stock Exchanges ('Listing Agreement'); in accordance with the Section 129 (3) of the Companies Act, 2013 ('Act') and Accounting Standard (AS) - 21 on 'Consolidated Financial Statements' read with AS-23 on 'Accounting for Investments in Associates' and other applicable Accounting Standards prepared consolidated financial statements of the Company and all its subsidiaries for the year under review, which form part of the Annual Report. Further, the report on the performance and financial position of each of the subsidiary, associate and joint venture and salient features of the financial statements in the prescribed Form AOC-1 is annexed to this report and marked as "Annexure A".

8. DIRECTORS:

At the 17th Annual General Meeting of the Company Mr. Ajai Vikram Singh, Mr. Alexander John Joseph, Ms. Comal Ramachandran Gayathri, Mr. R. M. Premkumar and Mr. Samar Ballav Mohapatra, were appointed as Independent Directors for a period of 5 years with effect from October 1, 2014.

During the year IDBI Bank nominated Mr. Ajay Sharma as a Director of the Company with effect from October 31, 2014 and Life Insurance Corporation of India ('LIC of India') nominated Ms. Padmaja Bhaskaran as a Director of the Companywith effectfrom Februarys, 2015.

Mr. Ashok Kumar Sahoo, who was nominated by LIC of India resigned from the office of the Director w.e.f. September, 10 2014. Mr. David Rasquinha, who was nominated by EXIM Bank and Mr. Lars Olov Rikard Lindren, Alternate Director resigned from the offices of the Directors w.e.f. September 12, 2014. Mr. Ashok Katra, who was nominated by IDBI Bank resigned from the office of the Director w.e.f. October 27, 2014. Mr. Nils Peter Sandehed, a Director nominated by SAAB Aktiebolag resigned from the office of the Director of the Company w.e.f. November 12, 2014.

The Board places on record appreciation of contribution made by Mr. Ashok Katra, Mr. Ashok Kumar Sahoo, Mr. David Rasquinha, Mr. Lars Olov Rikard Lindren and Mr. Nils Peter Sandehed during their tenure as Directors of the Company.

In terms of provision of Section 152 of the Act Mr. Nikhil Gandhi is liable to retire by rotation and being eligible offers himself for re-appointment at the ensuing Annual General Meeting.

9. KEY MANAGERIAL PERSONNEL:

During the Year under review Mr. Bhavesh Gandhi, Executive Vice-Chairman and Executive Director; Mr. Rajiv Shukla, Chief Executive Officer; Mr. Praveen Mohnot, Chief Financial Officer and Mr. Ajit Dabholkar, Corporate Counsel & Company Secretary were designated as Key Managerial Personnel of the Company as per the provisions of Section 203 of the Act. None of the KMP has resigned during the year under review.

10. MEETINGS OF BOARD AND AUDIT COMMITTEE:

During the year, five Meetings of the Board of Directors of the Company were convened and held. The Audit Committee of the Board of Directors of your Company comprises of Mr. R. M. Premkumar, Mr. Ajai Vikram Singh, Mr. Bhavesh Gandhi and Mr. Samar Ballav Mohpatra. Mr. Premkumar is the Chairman of the Audit Committee. Details relating to Board Meetings, Audit Committee Meetings and declarations of Independent Directors are provided in the Corporate Governance Report attached hereto, which forms part of this Annual Report.

11. EVALUATION OF DIRECTORS, BOARD AND ITS COMMITTEES:

Pursuant to the provisions of the Act and Clause 49 of the Listing Agreement, the Board has carried out an Annual performance evaluation of its own performance, of the Directors individually and of the committees of the Board. A seperate meeting of the Independent Directors was held during the year for evaluation of performance of Non-Independent Directors, performance of the Board as a whole and that of the Chairman. Further details, including the manner in which the evaluation has been carried out have been described in the Corporate Governance Report.

12. NOMINATION & REMUNERATION / BOARD DIVERSITY POLICIES:

The Board on the recommendation of the Nomination & Remuneration Committee framed a policy for appointment of Directors, Key Managerial Personnel, Senior Management Personnel and their remuneration. The Board has also on the recommendation of the Nomination & Remuneration Committee adopted Board Diversity Policy as per the provisions of Listing Agreement. Both these polices are annexed to this report and collectively marked as "Annexure B".

13. DIRECTORS' RESPONSIBILITY STATEMENT:

In accordance with provisions of Section 134(3)(c) and Section 134(5) of the Act, it is hereby confirmed that:

a. in the preparation of the annual financial statements for the ear ended March 31, 2015, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any;

b. the Directors had selected such accounting policies and applied them consistently and have 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 as at March 31, 2015 and of the loss of the Company for the year ended on that date;

c. the Directors had taken proper and sufficient care 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. the annual financial statements have been prepared on a 'going concern' basis;

e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and

f. adequate systems to ensure compliance with the provisions of all applicable laws were in place, and operating effectively.

There were no significant or material orders passed by any Regulator or Court or Tribunal which would impact the going concern status of the Company and its future operations.

14. POLICY ON RELATED PARTIES TRANSACTIONS & CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons, which may have a potential conflict with the interest of the Company at large. All related party transactions were placed before the Audit Committee for approval.

The policy on related party transactions as approved by the Board is available on the Company's website at URL: <http://www.pipavavdoc.com/index.php/investors/listing->compliance.

15. STATUTORY AUDITORS & AUDITORS' REPORT:

M/s. GPS & Associates, Chartered Accountants, Mumbai (Firm Registration No. 121344W), Statutory Auditors of the Company, hold office till the conclusion of the ensuing Annual General Meeting. M/s. GPS & Associates, Chartered Accountants have conveyed their unwillingness to get reappointed at the ensuing Annual General Meeting. The Board of Directors of your Company, on recommendation of the Audit Committee, has proposed to appoint M/s. Pathak H. D. & Associates, Chartered Accountants, Mumbai (Firm Registration No. 107783W) to hold office for a term of five years commencing from the conclusion of the ensuing Annual General Meeting till the conclusion of the 23rd Annual General Meeting of the Company. M/s. Pathak H. D. & Associates have, under Section 139(1) of the Act and the Rules framed thereunder, furnished certificate of their eligibility, Peer Review Certificate and consent for appointment. The members are requested to consider appointment of M/s. Pathak H. D. & Associates, Chartered Accountants, Mumbai as the Statutory Auditors of the Company.

The Notes to Financial Statements read with the Auditors' Report are self-explanatory and therefore, do not call for any further explanations.

16. SECRETARIAL AUDIT:

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed Ms. Sandhya Malhotra of M/s. SRM & Co., Company Secretaries to undertake the Secretarial Audit of the Company. There is no qualification or adverse remark in the Secretarial Audit Report. The Report of the Secretarial Auditor is annexed herewith as "Annexure C". "-.

17. HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION:

(a) Environment Management:

Your Company is committed to sustainable development and environment protection. Various initiatives such as greenbelt development at project sites, waste management, etc. were undertaken by your Company to promote preservation of clean environment.

(b) Safety Management:

A strong Occupational Health & Safety Management System based on OHSAS-i8ooi:2007, IS0-14001:2004 and ISO-gooi:20o8 is in place to ensure safety of employees, contractors' manpower as well as equipment and machinery at project sites.

Occupational health and safety of employees and contractors' manpower are given utmost importance in the Company. As part of periodic exercise and to keep the safety system agile and updated; extensive trainings on rescue, fire fighting, material handling, etc. were conducted for the employees and contractors' workmen. Multi-level forums such as Workers' Safety & Welfare Committee, Apex Safety Committee, Zonal Safety Council have been formed and meetings of these forums are conducted on monthly basis to ensure active participation of employees and contractors' workers. Regular drills were conducted to check the emergency preparedness. Fire tender and rescue vans are available at the project site in addition to round-the-clock fire and rescue watch performed by a squad of qualified employees to ensure foolproof safety.

(c) Health & Hygiene:

Your Company accords utmost priority to health and hygiene of its employees and contractors' workforce. Necessary trainings are imparted to enhance their awareness towards first-aid and other health related matters. National Safety Week and Fire Service Week are also observed with an objective to give emphasis to health & hygiene.

Your Company has established Occupational Health Centers ('OHCs') at the project sites. The OHCs are well-equipped to provide emergency as well preventive and curative health services to employees, their families and contractor's workmen.

(d) HSEQ Audits:

Team of trained internal auditors regularly conducts Health, Safety, Environment & Quality ('HSEQ') audits with special emphasis on health & hygiene, safety, environment and quality. External audits are carried out by reputed agencies like Det Norske Veritas ('DNV'). During the year, DNV carried out Surveillance Audit of project sites at Pipavav, without any major non-compliance.

18. CORPORATE SOCIAL RESPONSIBILITY ('CSR'):

Your Company conducts its business in a sustainable and socially responsible manner. Your Company is committed to the initiatives for providing drinking water to the villages in the vicinity of the project sites. Your Company lays special emphasis on education and vocational training of youth including females in the local community for their economic empowerment. In order to achieve this objective your Company continues to support six Industrial Training Institutes ('ITIs') in the vicinity of its project sites. During the year under review, due to liquidity constrains, the Company was constrained not to expend 2.00% of average net profits of the Company during the three immediately preceding financial years. Your Company will resume its contribution towards Corporate Social Responsibility projects once its financial position improves. The Corporate Social Responsibly Committee of the Board of Directors comprises of Mr. Bhavesh Gandhi, Executive Vice-Chairman; Mr. Ajai Vikram Singh, Independent Director and Mr. R. M. Premkumar, Independent Director. Mr. Bhavesh Gandhi is the Chairman of the CSR Committee. The CSR policy is available on the Company's website at URL: <http://www>. pipavavdoc.com/index.php/investors/listing-compliance

19. INTERNAL FINANCIAL CONTROLS:

The Company has an Internal Financial Control System interalia with reference to the financial statements, commensurate with the size, scale and complexity of its operations. The Audit Committee monitors and evaluates the efficacy and adequacy of internal control system in the Company. Based on the report of the internal auditors / recommendations of the Audit Committee, process owners undertake corrective actions in their respective areas and thereby strengthen the internal controls. Various audit observations and corrective actions thereon are presented to the Audit Committee of the Board. The Company has in place adequate internal finance controls with reference to the financial statements. During the year, no reportable material weakness was observed in the Internal Financial Control System.

20. VIGIL MECHANISM / WHISTLE BLOWER POLICY:

The Company in accordance with Section 177 of the Act has formulated a vigil mechanism to deal with alleged instances of mismanagement, if any. The Vigil Mechanism Policy / Whistle blower policy is available on the website of the Company at URL: <http://www.pipavavdoc.com/index.php/> investors/listing-compliance

21. RISK MANAGEMENT:

Pursuant to the requirement of Clause 49 of the Listing Agreement, the Company has constituted a Risk Management Committee. The details of Committee and its terms of reference are set out in the Corporate Governance Report forming part of this Report.

The Company has adequate Business Risk Management framework to identify, evaluate business risks and opportunities. The Risk management policy broadly defines the risk at various stages of business and ways to mitigate them. The detailed policy is provided on the website of the Company.

22. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO:

Your Company continues to strive to make its processes energy efficient and takes various measures for conser vation of energy. The information in terms of Section 134(3)(m) of the Act read with read with Rule 8 of the Companies (Accounts) Rules, 2014, as applicable to the Company, is set out in "Annexure D" and forms part hereof.

23. MANAGEMENT DISCUSSION AND ANALYSIS:

The Management Discussion and Analysis Report for the financial year 2014-15, as stipulated under Clause 49 of the Listing Agreements with the stock exchanges, is provided at "Annexure E" and forms part of this Directors' Report.

24. CORPORATE GOVERNANCE REPORT:

Corporate Governance Report along with the Statutory Auditors' Certificate confirming compliance with the conditions of Corporate Governance as required under Clause 49 of the Listing Agreement is attached herewith and marked as "Annexure F".

25. EXTRACT OF THE ANNUAL RETURN:

An extract of the Annual Return of the Company as of 31st March, 2015 in the prescribed Form MGT-9, pursuant to the provisions of sub-section (3) of Section 92 of the Act is attached herewith and marked as "Annexure G".

26. DEPOSITS:

Your Company has not accepted any deposits from public within the meaning of the provisions of Section 73 of the Act read with Companies (Acceptance of Deposits) Rules, 2014. As such, no amount of principal or interest on public deposits was outstanding as on March 31, 2015.

27. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS:

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Act are provided in the notes to the Financial Statements.

28. EMPLOYEES REMUNERATION:

Particulars in accordance with Section 197 of the Act read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are provided in an annexure to this report marked as "Annexure H".

In terms of first proviso to Section 136 of the Act, the Annual Report and Financial Statements are being sent to the members of the Company and others entitled thereto excluding the aforesaid information. These particulars will be made available for inspection by the Members at the Registered Office of the Company during 9.00 a.m. to 11.00 a.m. on working days of the Company up to the date of the ensuing Annual General Meeting. If any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary in this regard. Upon such request the information will be made available.

29. PREVENTION, PROHIBITION AND REDRESSAL OF SEXUAL HARASSMENT OF WOMEN AT WORKPLACE:

The Company has zero tolerance towards sexual harassment at the workplace and has adopted a policy on Prevention, Prohibition & Redressal of Sexual Harassment of Women at Workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention and Redressal) Act, 2013 and the Rules notified there under. The primary objective of the said Policy is to protect the women employees from sexual harassment at the place of work and also provides for punishment in case of false and malicious representations.

During the financial year 2014-15, no complaint was filed by any woman employee with the Company in accordance with Sexual Harassment of Women at Workplace (Prevention and Redressal) Act, 2013.

30. DEMAT SUSPENSE ACCOUNT

The voting rights in respect of the shares lying in Demat Suspense Account shall remain frozen till the rightful owners claim the shares.

Further, there are no shares issued in physical mode which remain unclaimed.

31. ACKNOWLEDGEMENTS:

Your Directors wish to place on record their sincere appreciation of the consistent support and co-operation received from the various Departments of Government of India, State Governments, business partners/ associates, financial institutions, bankers, employees, vendors and shareholders. Your Directors also wish to take on record their deep sense of appreciation for the hard work and commitment of each and every employee of the Company.

On behalf of the Board of Directors

Nikhil Gandhi  

Chairman  

Place : Mumbai

Date : August 14, 2015