TO THE MEMBERS OF SOVEREIGN DIAMONDS LIMITED
The Directors take pleasure in presenting the Forty Third Annual Report togetherwith the Audited Financial Statements for the year ended 31st March 2017. TheManagement Discussion and Analysis has also been incorporated into this report.
1. FINANCIAL RESULTS
Key highlights of financial results for Sovereign Diamonds Limited for the financial2016 17 are tabulated below:
(Rs. in Lakhs)
|Particulars ||Year Ended 31st March 2017 ||Year Ended 31st March 2016 |
|Income from Operations ||4519.78 ||5321.16 |
|Other Income ||0.62 ||2.29 |
|Total Income ||4520.40 ||5323.45 |
|Expenditure ||4133.16 ||4897.94 |
|Interest ||185.63 ||195.88 |
|Depreciation ||48.47 ||45.19 |
|Total Expenditure ||4367.26 ||5139.01 |
|Net Profit Before Tax ||153.14 ||184.44 |
|Provision for Taxation ||65.00 ||63.00 |
|(Add) / Less : Deferred Tax ||(3.71) ||0.25 |
|Short / (Excess) Provision of earlier Years ||(12.92) || |
|Net ProfitAfter Tax ||104.77 ||121.18 |
|Balance brought forward from last year ||560.34 ||459.15 |
|Transfer to General Reserve ||(20.00) ||(20.00) |
|Balance carried forward to the Balance Sheet ||645.12 ||560.34 |
2. HIGHLIGHTS OF PERFORMANCE
Total net sales for the year were Rs. 4519.78 Lakhs as compared to Rs. 5321.16 Lakhsin 2016.
Total profit before tax for the year was Rs. 153.14 Lakhs as compared to Rs. 184.44Lakhs in 2016.
3. BUSINESS OPERATIONS
During the last 12 months many changes have taken place in our Industry.
The year began with Excise of 1% being introduced from 28th February 2016.This move was not welcomed by our Industry and Senior Members of GJEPC kept giving manypeople hope that this move would be abolished. Most retailers refused to do businessduring April and May and this adversely affected our sales as well. However from Junethings started becoming normal and sales of diamond jewellery started picking up.
In November came demonetization. This too affected sales very much as people felt shyto buy jewellery and invest in diamonds till things calmed down slightly. Seeing thesituation and market conditions we reduced 15 workers and designers to cut down expensesin this difficult period. The Company controlled the output per worker and has almost cutany overtime expenses which otherwise puts unnecessary load on the Company. Now thatmarket conditions are better. These are being replaced now slowly as and when required ona need basis only.
The Company has worked in depth to cut its gold losses and has been very successful inbringing this loss down by another 0.50% using better suction machines complete vacuumcleaning pf all carpets twice in a day in gold dust areas and increasing hand washing tocollect the gold dust in central seeing tanks.
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 alsooutsourced which used to result in leakage of designs.
The Company has concentrated mainly on the domestic market and increased our salesconsiderably working with safe clients. The Company has increased its business marginallyin the Middle East and some African countries after exercising due caution by providing ontime deliveries and receiving payments.
The Company's cautious and hands on approach combined with its high quality productshas helped us to grow well during this year and the Company is hopeful to continue thistrend in the years to come.
GST Rate Structure:
|Sr. No. ||Particulars ||Current Structure ||Proposed Structure under GST |
|1. ||Import Duty on Gold ||10% ||10% |
|2. ||Value Added Tax ||1.20% || |
|3. ||Excise Duty ||1% ||3% |
|4. ||Cess ||0.50% || |
|5. ||GST Rate ||Nil || |
|6. ||Import Duty on Diamonds ||Nil ||0.25% |
|7. ||Set off of sum paid to workers by jewelers ||Nil ||Full Amount |
The GST rate Structure is acceptable to the industry and more or less same as the tradeand industry pays the same amount of tax.
There was no change in nature of business of the Company during the year under review.
Your Directors do not recommend any dividend for the year as the profits earned need tobe ploughed back into the operations of the company and will be used for workingrequirements of the Company.
5. TRANSFER TO RESERVES
The Company proposes to transfer an amount of Rs. 20 Lakhs to the General Reserves.
6. CAPITAL EXPENDITURE
Capital Expenditure during the year towards Tangible & Intangible Assets amountedto Rs. 46.77 Lakhs a major part of which was spent on Plant & Machinery and Vehicles.
7. SHARE CAPITAL
The paid up Equity Share Capital as on 31st March 2017 was Rs. 578.80Lakhs. During the year under review the Company has not issued shares with differentialvoting rights nor granted stock options nor sweat equity. There was no change in theCompany's share capital during the year under review.
The Company has not accepted deposit from the public and shareholders falling withinthe ambit of Section 73 of the Companies Act 2013 and the Companies (Acceptance ofDeposits) Rules 2014. Hence the requirement for furnishing details of deposits which arenot in compliance with the Chapter V of the Act is not applicable.
9. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 are given in the Notes to the Financial Statements.
10. SUBSIDIARY COMPANIES
The Company has no Subsidiary Company.
11.1 Retirement by Rotation
Pursuant to Section 152(6) of the Companies Act 2013 and in terms of the Articles ofAssociation of the Company Mr. Ramesh Gehani Executive Chairman retires by rotation atthe forthcoming Annual General Meeting. Being eligible he offers himself forre-appointment.
11.2 Re-appointment of Managing Director
The Nomination and Remuneration Committee has recommended the re-appointment of Mr.Ajay Gehani as Managing Director of the Company. Accordingly the Board of Directors attheir meeting held on 11th February 2017 has considered the re-appointment ofMr. Ajay Gehani as Managing Director of the Company for the period of 5 years w.e.f. 1stApril 2017. The re-appointment of Mr. Ajay Gehani as Managing Director is subject to theapproval of members of the Company at the forthcoming 43rd Annual GeneralMeeting. The necessary item of resolution has been proposed at Item No. 4 of the Notice of43rd Annual General Meeting.
11.3 Declaration by Independent Directors
The Company has received declarations from the Independent Directors of the Companyconfirming that they meet with the criteria of independence as prescribed both underSection 149(6) of the Companies Act 2013 and under Regulation 17 of the SEBI (LODR)Regulations 2015.
11.4 Familiarisation Programme for Independent Directors
The Program intends to provide insights into the Company so that the IndependentDirectors can understand the Company's business in depth and the roles rightsresponsibility that they are expected to perform / enjoy in the Company to keep themupdated on the operations and business of the Company thereby facilitating their activeparticipation in managing the affairs of the Company. In addition to the above Directorsare periodically advised about the changes effected in the Corporate Law SEBI (LODR)Regulations 2015 with regards to their roles rights and responsibilities as Directors ofthe Company.
11.5 Annual Board Evaluation
According to Regulation of 25(3) of the SEBI (LODR) Regulations 2015 and Circular No.SEBI/HO/CFD/CMD/CIR/P/2017/004 dated 5th January 2017 issued by SEBI onGuidance Note on Board Evaluation a meeting of the Independent Directors was held on 11thFebruary 2017 to inter alia evaluate the performance of the Non-Independent Directorsincluding the Chairman. The Board thereafter in its meeting held on the same day evaluatedthe performance of the Independent Directors.
11.6 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 Whole Time Director CFO
None of the Key Managerial Personnel have resigned during the year under review.
11.7 Remuneration Policy
The Board has in accordance with the provisions of Section 178(3) of the Companies
Act 2013 formulated the policy setting out the criteria for determiningqualifications positive attributes independence of a Director and policy relating toremuneration for Directors Key Managerial Personnel and Senior Management Employees. Thedetail of the same has been disclosed in the Corporate Governance Report.
11.8 Board 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 27thMay 2016; 11th August 2016; 12th November 2016 and 11thFebruary 2017. The maximum interval between any two meetings did not exceed 120 days.
12. DIRECTORS' RESPONSIBILITY STATEMENT
To the best of their knowledge and belief and according to the information andexplanations obtained by them your Directors make the following statements in terms ofSection 134(3)(c) of the Companies Act 2013:
a) that in the preparation of the annual financial statements for the year ended 31stMarch 2017 the applicable accounting standards have been followed along with properexplanation relating to material departures if any;
b) that such accounting policies as mentioned in Note 1 of the Notes to theFinancial Statements have been selected and applied consistently and judgement andestimates have been made that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at 31st March 2017 and of theprofit of the Company for the year ended on that date;
c) that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
d) that the annual financial statements have been prepared on a going concernbasis;
e) that proper internal financial controls were in place and that the financialcontrols were adequate and were operating effectively;
f) that systems to ensure compliance with the provisions of all applicable lawswere in place and were adequate and operating effectively.
13. PLEDGE OF SHARES
None of the equity shares of the Directors of the Company are pledged with any banks orfinancial institutions.
14. RELATED PARTY TRANSACTIONS
A Related Party Policy has been adopted by the Board of Directors at its meeting heldon 13th August 2014 for determining the materiality of transactions withrelated parties and dealings with them. The Audit Committee reviews all related partytransactions quarterly.
Further the members may note that the Company has not entered into the following kindsof related party transactions:
Contracts / arrangement / transactions which are not at arms' length basis
Any Material contracts / arrangement / transactions [as per Regulation 23 of theSEBI (LODR) Regulations 2015]
15. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS
There are no significant material orders passed by the Regulators / Courts which wouldimpact the going concern status of the Company and its future operations.
16. DISCLOSURES UNDER SECTION 134 (3) (l) OF THE COMPANIES ACT 2013
No material changes and commitments which could affect the Company's financial positionhave occurred between the end of the financial year of the Company and date of thisreport.
17. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTIONPROHIBITION AND REDRESSAL) ACT 2013
As per the requirement of the Sexual Harassment of Women at Workplace (PreventionProhibition & Redressal) Act 2013 and Rules made thereunder your Company has inplace a Policy for Prevention of Sexual Harassment of Women at Workplace and constitutedan Internal Complaints Committees (ICC). No complaint has been raised during the yearended 31st March 2017.
18. COMPANIES WHICH HAVE BECOME OR CEASED TO BE ITS SUBSIDIARIES JOINT VENTURES ORASSOCIATE COMPANIES
There are no companies which have become or ceased to be its Subsidiaries JointVenture or Associate Companies during the financial year 2016 17.
19. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
The criteria prescribed for the applicability of Corporate Social Responsibility underSection 135 of the Companies Act 2013 is not applicable to the Company.
20. DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY
The nature of business is manufacturing of Jewellery. The inheritant risks to thebusiness 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 outof this three Gold and diamonds consist of 90% of the price of Jewellery. The Company hasno control on the price of Gold and Diamonds and the same is available through ExchangesMarket 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 underRegulation 21 of the SEBI (LODR) Regulations 2015.
21. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. The scope and authority of the Internal Audit (IA) functionis defined in the Internal Audit Charter. To maintain its objectivity and independencethe Internal Audit function reports to the Chairman of the Audit Committee of the Board.
The Company monitors and evaluates the efficacy and system in the Company itscompliance with operating systems accounting procedures and policies at all locations ofthe Company. Based on the report of internal audit function process owners undertakecorrective action in their respective areas and thereby strengthen the controls.
22. INFORMATION SYSTEM
In a business where information is critical Information Technology plays a vital rolefacilitating informed decision making to grow the business. Over the years the Companyhas invested extensively in infrastructure people and processes with the objective tocapture protect and transmit information with speed and accuracy.
23. VIGIL MECHANISM / WHISTLE BLOWER POLICY
The Company has a vigil mechanism to deal with instance of fraud and mismanagement ifany. The details of the Whistle Blower Policy are explained in the Corporate GovernanceReport.
24. AUDITORS 24.1 Statutory Auditors
M/s. J. D. Zatakia & Co. Chartered Accountants the outgoing auditors hascompleted his term as auditor pursuant to Section 139(2) of the Act at the end ofconclusion of the 43rd Annual General Meeting.
It is proposed to appoint M/s. Pulindra Patel & Co. Chartered Accountant asStatutory
Auditor of the company to hold office from the conclusion of the 43rd AnnualGeneral Meeting of the Company till the conclusion of the 48th Annual GeneralMeeting to be held in 2021 22 subject to ratification of their appointment by the Membersat every intervening Annual General Meeting held after this Annual General Meeting inplace of M/s. J. D. Zatakia & Co. Chartered Accountants. The Company has received aletter from M/s. Pulindra Patel & Co. Chartered Accountant to the effect that theirappointment if made would be maintain be within the prescribed limit under Section141(1)(g) of the Companies Act 2013 and that they are willing to act as StatutoryAuditors of the company. As required under Regulation 33 of the SEBI (LODR) Regulations2015 the auditors have also confirmed that they hold a valid certificate issued by thePeer Review Board of the Institute of Chartered Accountants of India.
24.2 Statutory Auditors' Observations
The notes on financial statements referred to in the Auditor's Report areself-explanatory and do not call for any further comments. The Auditor's Report is anUn-modified report and does not contain any qualification reservation adverse remark or.
24.3 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 hasappointed M/s. P. P. Shah & Co. Practicing Company Secretary to undertake theSecretarial Audit of the Company. The Report of the Secretarial Audit Report is annexedherewith as "Annexure A".
24.4 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 AuditedFinancial Statements are not signed by Company Secretary. In this regard themanagement of the Company has provided the following reply:
(i) The Company has appointed Mr. Ajay Gehani Managing Director as ComplianceOfficer of the Company who looks after the compliance of the Companies Act 2013 and SEBIAct and rules made thereunder;
(ii) The Company has availed the services of Practicing Company Secretary foradvising on compliance of the Companies Act 2013 and SEBI Act and rules made thereunder;
(iii) The Volume and Scope of work for the Company Secretary is less and it is nota full time work and the job of Company Secretary is not attractive commensurate with thescope of work and salary.
B. Website Posting:
As per the various Sections of the Companies Act 2013 SEBI (LODR) Regulations 2015and Secretarial Standard 2 the Company is required 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 Companyhas provided the following reply:
(i) The Company has availed exemption under Regulation 15(2) in respect of websiteposting as per Regulation 46 of the SEBI (LODR) Regulation 2015.
However the Company is filing regularly all the information with BSE and all theinformation is available on the website of BSE.
C. Composition of Board of Directors:
The Company has 3 Executive Directors and 2 Non-Executive Independent Directors. Thecomposition of the Board of Directors is in compliance with Section 149(4) of theCompanies Act 2013 but not in compliance with Regulation 17(2) of the SEBI (LODR)Regulations 2015. In this regard the management of the Company has provided the followingreply:
(i) The Company has availed exemption under Regulation 15(2) of the SEBI (LODR)Regulations 2015 in respect of composition of Board of Directors as per Regulation 17(2)the SEBI (LODR) Regulations 2015.
(ii) The Company has decided not to opt for appointment of one more IndependentDirector due to the size of its business.
D. Composition of Nomination and Remuneration Committee:
In respect of the composition of the Nomination and Remuneration Committee we observeas follows: As per Section 178 of the Companies Act 2013 the composition of Nominationand Remuneration Committee shall be as follows: 178 (1): "The Board of the Directorsof every listed company and such other class or classes of companies as may be prescribedshall constitute the Nomination and Remuneration Committee consisting of 3 or morenon-executive directors out of which not less than one half shall be independentdirectors:
Provided that the chairperson of the company (whether executive or non-executive)may be appointed as a member of the Nomination and Remuneration Committee but shall notchair such Committee." The Nomination and Remuneration Committee of the Companycomprises of 2 Independent Directors and 1 Executive Director. In this regard theManagement has given the following reply: "The Company has 5 Directors out of them 3are Executive and 2 are Independent Directors. Accordingly the composition of the Boardis such that the Nomination and Remuneration Committee cannot comprise of 3 Non-ExecutiveDirectors.
Mr. Ajay Gehani Executive Director is 1 of the members of the Committee. However withthe present composition of Nomination and Remuneration Committee it has been ensured thatmajority remains with Independent Directors and accordingly the spirit of CorporateGovernance is achieved."
25. CORPORATE GOVERNANCE
Your Company attaches considerable significance to good Corporate Governance as animportant step towards building investor confidence improving investors' protection andmaximizing long-term shareholders value. The certificate from M/s. P. P. Shah & Co.Practicing Company Secretaries confirmingcompliance of conditions of Corporate Governanceas stipulated under Schedule V (E) of the SEBI (LODR) Regulations 2015 of the StockExchanges is annexed.
26. MANAGEMENT DISCUSSION AND ANALYSIS
As required under the Schedule V (B) of the SEBI (LODR) Regulations 2015 report on"Management Discussion and Analysis" is attached and forms part of this AnnualReport.
27. ENERGY CONSERVATION TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
The information on conservation of energy technology absorption and foreign exchangeearnings and outgo stipulated under Section 134(3)(m) of the Companies Act 2013 read withRule 8 of the Companies (Accounts) Rules 2014 is annexed herewith as "AnnexureB".
28. LISTING WITH STOCK EXCHANGES
Your Company is listed with BSE Limited and the Company has duly paid the listing feesto the Exchange.
29. EXTRACT OF ANNUAL RETURN
The details forming part of the extract of the Annual Return in Form MGT-9 is annexedherewith as "Annexure C".
30. PARTICULARS OF EMPLOYEES
During the year there was no employee in receipt of remuneration in excess of limit asprescribed in the Rule 5(2) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014. The prescribed Particulars of Employees as required under Section197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is attached as "Annexure D" and form part ofthis Report.
However in accordance with the provisions contained in the proviso to Section 136(1)of the Companies Act 2013 the Annual Report and accounts excluding the aforesaidinformation are being sent to the shareholders of the Company. Any member interested inobtaining such particulars may write to the Compliance Officer at the Registered Office ofthe Company for the same.
31. 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 inthe business which maximize the effectiveness of the Organization. Human resources buildthe Enterprise and the sense of belonging would inculcate the spirit of dedication andloyalty amongst them towards strengthening the Company's Polices and Systems. The Companymaintains healthy cordial and harmonious relations with all personnel and therebyenhancing the contributory value of the Human Resources.
32. ENVIRONMENT AND SAFETY
The Company is conscious of the importance of environmentally clean and safeoperations. The Company's policy requires conduct of operations in such a manner so as toensure safety of all concerned compliances of environmental regulations and preservationof natural resources.
33. 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 highlevels of operating performance and cost competitiveness consolidating and building forgrowth enhancing the productive asset and resource base and nurturing overall corporatereputation. Your Company is also committed to creating value for its other stakeholders byensuring that its corporate actions positively impact the socio-economic and environmentaldimensions and contribute to sustainable growth and development.
34. GREEN INITIATIVES
Electronic copies of the Annual Report 2016 17 and Notice of the 43rdAnnual General Meeting are sent to all members whose email addresses are registered withthe Company / Depository Participant(s). For members who have not registered their emailaddresses physical copies of the Annual Report 2016 17 and Notice of the 43rdAnnual General Meeting under Section 101 of the Companies Act 2013 are sent in thepermitted 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 theirvotes electronically on all resolutions set forth in the Notice. This is pursuant to theSection 108 of the Companies Act 2013 and Rule 20 of the Companies (Management andAdministration) Amendment Rules 2015.
Your Directors thank the various Central and State Government DepartmentsOrganizations and Agencies for the continued help and co-operation extended by them. TheDirectors also gratefully acknowledge all stakeholders of the Company viz. customersmembers dealers vendors banks and other business partners for the excellent supportreceived from them during the year. The Directors place on record their sincereappreciation to all employees of the Company for their unstinted commitment and continuedcontribution to the Company.
36. CAUTIONARY STATEMENT
Statements in the Board's Report and the Management Discussion & Analysisdescribing the Company's objectives expectations or forecasts may be forward-lookingwithin the meaning of applicable securities laws and regulations. Actual results maydiffer materially from those expressed in the statement. Important factors that couldinfluence the Company's operations include global and domestic demand and supplyconditions affecting selling prices of finished goods input availability and priceschanges in government regulations tax laws economic developments within the country andother factors such as litigation and industrial relations.
| ||For and on behalf of the Board of Directors |
| ||Sd/- ||Sd/- |
|Place: Mumbai ||Ramesh Gehani ||Ajay Gehani |
|Date: 27th May 2017 ||Executive Chairman ||Managing Director |