mansarovar paper industries ltd Directors report

ANNUAL REPORT 1998-99 MANSAROVAR PAPER & INDUSTRIES LIMITED DIRECTORS REPORT The Shareholders, The Directors of your company feel the pleasure in presenting their Twelth Report for the year ended 31st March, 1999. The Performance of the company during the year under review was as under: Operations You will find that the company continued to suffer loss during the year under reference. Paper Industry in general, was in fact, under a state of depression throughout the year. That was inspite of certain sops being afforded by the Honourable Finance Minister in the Union Budget of the last fiscal year. The main reasons for the continued losses are summed up as under. 1. In terms of the Sanctioned Scheme of Rehabilitation (Scheme) dated 4th February 1999, formulated by the Board for Industrial and Financial Reconstruction (BIFR), your company was to undertake manufacture of Premium Products such as High Burst Factor Kraft, White Kraft Liner etc. However, during the year under reference, prices and market for those Products had been drastically, thus rendering the manufacture of those products unviable. Hence, the contribution expected form these products was not forthcoming. 2. There was a time lag between filing of Application by your company before BIFR and actual the sanction of the Scheme by the said Authority. During the said period, your company incurred a net loss of Rs 568.88 Lacs (Loss of Rs 183.88 Lacs was attributable to erstwhile Mansarovar Bottling Company Limited, which merged with your company). That had its impact, resulting in erosion of capital, which could not have been anticipated at the time of sanction of the Scheme. 3. Besides, the company suffered further loss of Rs. 532.32 Lacs during the year under reference. That was mainly due to inadequate working capital and non release of additional working capital by companys Bankers on technical grounds. 4. Hindustan Coca Cola Bottling North West Private Limited (HCC), which had acquired the Bottling Assets of erstwhile MBCL from your company had withheld payment of Rs. 100 Lacs out of the funds payable to the company The reason was that Uttar Pradesh Financial Corporation (UPFC), which had granted loans to erstwhile MBCL did not issue the requisite No Dues Certificates and failed to release the title deeds of erstwhile MBCL, despite your company having paid their dues during February 1998 That also had an adverse impact on the working capital of the company. 5. Due to non availability of adequate working capital, the company was not able to meet its commitment in settling the dues of Uttar Pradesh States Electricity Board (UPSEB), besides other creditors That resulted in disconnection of Power Supply to the company from time to time. Now, with effect from 12th July 1999, there is no power supply to the factory of your company and hence your company also suffered heavily due to disconnection of power supply by UPSEB. Recovery Proceedings against the Company The Company had entered into an Agreement with UPSEB for repaying the past dues of Rs. 1.66 Crores in ten instalments commencing from August 1999. But due to the disconnection of power supply, with effect from 12th July 1999, and consequent to closure of plant since then, your company was not able to keep up its commitment of remitting first instalment of past dues to UPSEB by the end of August 1999. That prompted UPSEB to initiate Recovery Proceedings against your company during the first week of September 1999. However, due to intervention of High Court of the Judicature at Allahabad, the Recovery Proceedings have been stayed upto to the end of October 1999 and the company was directed to pay the first instalment by that date. It is unlikely that your company would be in a position to meet the deadline fixed by Allahabad High Court, in view of stoppage of production. Hence. an Application has been filed before the Honourable Allahabad High Court. seeking modification of its earlier Order so as to enable the company to make the first instalment of payment by April 2000. The Application for Modification is pending before the said High Court. Modification of the Scheme Due to the continued losses, your company approached BIFR with an Application for Modification of sanctioned scheme during January 1999 Based on our Application, Review Hearing was fixed by BIFR during August 1999, were both Bank of Baroda and UPFC were directed to comply with their respective part of obligation stipulated in the scheme of rehabilitation Bank of Baroda was directed to sanction additional working capital in terms of the Scheme The Honourable Members of BIFR also directed its officials to issue show cause notice to UPFC as to why they should not refund the excess payment received by them from your company and that why they should not compensate your company for the losses suffered for delaying the issue of No Dues Certificate and the Release of Title Deeds in favour of HCC. Now, it is more than two months since fresh Order has been passed by BIFR. but the desired corrective action has not been taken by these Institutions, till the date of this Report. Besides, BIFR also directed the Monitoring Agency to submit a report regarding the viability of Modified Scheme submitted by the company. The Report of the Monitoring Agency will be submitted to BIFR shortly. The Modification of the Scheme mooted by the company, inter alia, envisages the following: a) Additional capital Expenditures on balancing equipments to the tune of Rs. 170 lakh in order to improve the efficiency of the current operations and to sustain in the competitive market, and capital expenditures of Rs. 50 lakh in order to replace the worn-out machinery and equipments Said expenditures to be financed out of fresh Term of Rs. 220 lakh from the Bank, which shall be repaid over a period of seven years, including the moratorium period of one year. b) Conversion of core irregularity in working capital dues payable to bank into WCTL to be repaid over a period of seven years including the moratorium period of one year. c) Provisions of need-based working capital by the Bank. d) Additional promoters contribution of Rs.145.48 lakh towards additional margin money for working capital. e) Restructuring of the projected Balance Sheet as on 31.03.2000 and conversion of existing issued preference share capital of Rs.726.40 lakh into equity and then reduction of entire equity share capital (including preference shares converted into equity) by 75%. f) Repayment of unsecured loans received from outsiders over a period of seven years including a moratorium period of one year, without any interest thereon. g) Repayment of Non-current liabilities over a period of seven years including a moratorium period of one year. h) Sale of second hand machinery supplied by IVAX and purchased by the company for an estimated value of Rs.550 Lakh and utilisation of said sale proceeds for payment to IVAX as per the decree passed against the company (estimated liability Rs.296 Lacs) and balance amount to be utilised for repayment of unsecured loans brought in by the promoters for the purchase of said machinery. Dividend Due to the sustained loss, your Directors express their inability to declare any dividend. Public Deposit During the year under review, the company did not receive or accept any public deposit under Section 58A of the Companies Act, 1956. Settlement of Tax Liabilities The company has won the case of disputed trade tax liability amounting to Rs.1.71 crores . Accordingly the same has been removed from the Contingent Liabilities specified in the Notes to Accounts forming part of Audited Statement of Accounts. Projection Vs Performance The Scheme of Rehabilitation formulated by BIFR envisaged projections of companys performance. Given below is the statement of performance vis a vis projections together with the reasons for deviation. Particulars Projected Actual Reasons for 31st for 31st March,1999 March,1999 Net Sales 3319 1823 Production flow was hampered during the year due to paucity of power supply by UPSEB from time to time and also on account of general recession in the market. Besides, the company could not takeup manufacture of premium products due to falling prices and market for the Premium Products. The manufacture of these products had thus, become unviable. Hence the Contribution expected from these products was not forthcoming Gross Profit 628 (-) 250 Due to non availability of ade- quate working capital as also disconnection of power supply, the company could not operate at the optimum level.Hence it could not achieve the projected Operating Profits. Interest 296 134 Interest on unsecured loans were waived off by certain unsecured creditors. The aggregate amount interest waiver amounted to Rs. 73.75 Lacs. Interest Burden was also less on account of non sanction of additional working capital by the Companys Bankers Depreciation 84 89 The increase in the figures of depreciation is due to addition in Gross Block to the tune of Rs.16.69 Lacs. Operating Profit Due to non availability of ade- Loss 249 (847) quate working capital as also disconnection of power supply the company could not operate in the optimum level. Hence it could not achieve the Projected Operating Profits. Sanctioned Scheme has assumed 31st May as date of Balance Sheet but Since the Company has changed its financial year to 31st March the figures are provided for 31st March, 1999. Listing of Securities of the company Your Companys Equity and 15% Non Cumulative Redeemable Preference Shares are listed in the Stock Exchanges of Kanpur (Regional Stock Exchange) Delhi, Jaipur, Mumbai, Ahmedabad, Chennai and Calcutta Stock Exchanges. The Annual Listing Fees for the year 1999-2000 has not been paid owing to financial strain Efforts are being made to pay off these priority dues before November 1999. Unaudited Vs Audited Financial Results Pursuant to Clause 41 of the Listing Agreement, it is explained that two items of Audited Financial Results exceeded the Unaudited Financial Results by more that twenty percent. They are S.No Particulars Unaudited Audited Difference Percentage 31/3/99 31/3/99 Difference of Difference 1 Other Income 22.60 51.82 29.22 129.30 2 Interest 207.94 133.65 (74.29) (35.72) Reasons for Difference in the above figures between Unaudited and Audited Figures 1.In Respect of Other Income: The Audited Statement of Accounts include a sum of Rs.27.88 Lacs, being the Modvat Credit availed. That is only a change in disclosure method and has no impact on overall results declared. 2. In Respect of Interest Expenditure: Subsequent to publishing of the Unaudited Results, few unsecured creditors have waived off interest due to them from the company amounting to Rs.73.35 Lacs. Hence the amount of interest waived has been deducted in the Audited Statement of Accounts Interest Burden was also less on account of non sanction of additional working capital by the companys Bankers. Year 2000 Preparedness The company s systems are PC based and no date wise processing are carried out. Hence no problem with regard to Y2K is envisaged. However the company has appointed a firm of software consultants, to make necessary modification that may be required in the software. The corrective measures, If required will be taken up immediately, so that the operations are not affected in any manner. The cost of the remedial measures on account of Y2K is estimated at Rs 50,000/ only. he company does not envisage system breakdown / failure due to Y2K problem However. the appointment of firm of computer consultants to advise for matter arising out Y2K problem will take care of any eventuality, in addition to back up arrangement based on manual system Abandonment of New Project During the year under reference the company, abandoned the writing and printing project mainly due to the deteriorating market conditions as also non availability of Institutional finance. The second hand Machinery acquired by the company for the said project is proposed to be sold to any intending buyer. A statement to this effect has also been made in the Modification Scheme filed with BIFR. Statement on Companys Subsidiary Mansarovar Holdings Limited (MHL), an unlisted non banking financial company, is subsidiary of your company. A statement under Section 212 of the Companies Act, 1956 relating to the information on subsidiary has been attached to the Balance Sheet for the year under reference. DIRECTORS Shri S.C.Agarwaal and Shri Avdesh Kumar have stepped down as Whole Time Director and Joint Managing Director of the company respectively. Mrs. Asha Agarwal, wife of Mr. Dinesh Chand was appointed as an Additional Director in the meeting of Board of Directors held on 24th August 1999. In the same meeting, Mrs. Asha Agarwal was also appointed as Joint Managing Director of the company subject to the approval of shareholders at the general meeting. The Notice convening 12th AGM spells out the terms and conditions of the appointment of Mrs. Asha Agarwal. In the 12th AGM, Mrs. Asha Agarwal is proposed to be appointed as a regular Director of the company. The Company has received a notice from a member under Section 257 of the Companies Act, 1956, together with the deposit of Rs. 500/- proposing the appointment of Mrs. Asha Agarwal as Director. Mr. S.C. Agarwal and Mr R.S. Agarwal, Directors of your company retire by rotation at the ensuing AGM and being eligible offers themselves for reappointment. The Board recommends their appointment. During the year Mr. Sikanderlal Kohli and Mr. S.B. Dhungat resigned from the Board of the company. The Board wishes to place on Record their deep appreciation for the valuable service rendered by these Directors during their tenure as Directors of the company. PERSONNEL The company had on its roll 183 employees as on the date of this report. The Statement of Particulars of Employees as required under section 217 (2- A) of the Companies Act, 1956 read with The Companies (Particulars of Employees) Rules, 1975 is attached to this report as Annexure- I and forms part of this report. Though the relationship between Management and the staff remained cordial during the year under reference, there were incidents of labour unrest during the last three months owing to non payment of wages. As on date, the remuneration of workers could not be paid with effect from June 1999. The Management hopes to clear off the dues of workers by the first week of December 1999. INFORMATION PURSUANT TO SECTION 217 (1)(e) OF THE COMPANIES ACT 1956. The information pursuant to section 217(1) (e) of the Companies Act,1956 read with the companies (Disclosures of particulars in the Report of the Board of Directors), Rules 1988 is furnished in the Annexes II and III to this report and forms part of this report AUDITORS M/S V.Sankar Aiyar & Co.. Chartered Accountants, New Delhi, the Statutory Auditors of the company, hold that office upto the conclusion of the ensuing AGM and being legible offer themselves for reappointment. The Board recommends their appointment. The company has received a certificate from the Statutory Auditors that in the event of their being re-appointed as Statutory Auditors, in the ensuing AGM, the same would be within the limits specified under Section 224(1 B) of the Companies Act, 1956. As Regards the Auditors Qualification relating to non deposit of provident fund dues it is submitted that owing to acute cash constraints, stoppage of production and resultant losses, the company was not able to deposit the provident fund dues. The Management of the company intends to deposit the amount of provident fund dues on receipt of package from BIFR in the modified scheme or after receipt of excess payment of interest etc. to UPFC. For other statement in para 3 of the Auditors report it is submitted that the same is explained in the Notes to Accounts and ,hence no further explanation is considered necessary. FOREIGN EXCHANGE EARNINGS AND OUTFLOW During the year, the company did not earn any foreign exchange. However, there was an outflow of a sum of Rs.18,75,985/-, being the CIF Value of raw material imported. ACKNOWLEDGEMENT The Board wishes to place on record their deep appreciation to Banks, Central and State Governments for their whole hearted support. The relationship between the Management and employees of your company remained cordial through out the period under reference and also upto the date of this report. The Management also wishes to place on record their deep appreciation for the whole hearted devotion and support of employees at all levels, Last but not the least, the Board wishes to thank the shareholders for their valued support. FOR AND ON BEHALF OF THE BOARD OF DIRECTORS Place: Najibabad Asha Agarwal Dinesh Chand Date : 14th October 1999. JOINT MANAGING DIRECTOR MANAGING DIRECTOR ANNEXURE-II (See rule 2) Form for disclosure of particulars with respect to absorption Research and developments (R & D) 1. Specific areas in which R & D : Improvement of overall of paper board carried out by the company. to suit present market requirements. 2. Benefits derived as a result : (a)Optimisation of Raw Material of the above R & D consumption and (b) Energy conserva- tion by removal of unwanted motors and balancing equipments. 3. Future plan of action : Continuous efforts to give effect to above. 4. Expenditure on R & D : No specific expenditure was incurred on R&D. The work of R&D is carried with the existing resources. a) Capital b) Recurring c) Total d) Total R&D expenditure as a percentage of total turnover. Technology absorption, adaptation and innovation 1. Efforts, in brief, made towards :(a)Substitution of cheaper raw technology absorption, adaptation material in various layers of the and innovation. board through innovations. (b) Removal of Bottlenecks in in stock preparation by rerout- inning of pipelines. 2. Benefits derived as a result of the : (a)Maximisation of Yield above efforts, e.g., product improvement, (b) Reduction of cost cost reduction, product development import substitution, etc. 3. In case of Imported technology : The Company has imported any (Imported during the last 5 years technology and hence the question reckoned from the beginning of the of its absorption does not arise. financial year), following information may be furnished. a) Technology Imported. b) Year of import. c) Has technology been fully absorbed? d) If not fully absorbed, areas where this has not taken place, reasons therefor and future plans of action. FOR AND ON BEHALF OF THE BOARD OF DIRECTORS Place: Najibabad Asha Agarwal Dinesh Chand Date : 14th October 1999. JOINT MANAGING DIRECTOR MANAGING DIRECTOR