Bafna Pharmaceuticals Ltd Directors Report.

To

The Shareholders

Your Directors have pleasure in presenting the Twenty Second Annual Report of your Company together with Audited Accounts for the Financial Year ended 31st March, 2017.

Financial Performance

The summarized Audited Financial Results for the year ended 31st March, 2017 along with comparative figures for the previous year is as under:

(Rs. In 000)

Standalone

Consolidated

Particulars 31" March, 2017 31" March. 2016 31" March, 2017 31" March. 2016
Total Income 6,61,016.75 8,65,596.35 6,61,016.75 8,72,970.56
Total Expenditure 8,15.157.84 9,49.750.21 822,449.06 9.77,576.25
Profit before Depreciation & Taxation (1,54,141.09) 84,153.86 (1,61„432.31) 104,605.69
Less: Depreciation 38,913.03 41,121.33 42,194.98 48,586.04
Less: Exceptional Items - - - -
Profit before Tax (1,93,054.12) (1.25,275.19) (2,03.627.29) (1,53,191.73
Less: Provision for Taxation - -
Less: Provision for Deferred Tax 8,352.03 3,430.83 9,029.93 1,777.59
Minority Interest (Loss) 11,144.85
Profit after Tax for the year (1.84.702.09) (1.21.844.36) (1.90.867.84) (1.40.269.29)

Consolidated Operating Results

The consolidated sales and operating income decreased to Rs. 66.10 Cr from Rs.87.30 Cr in the previous year yielding a decline in growth of 32% due to the financial constraints. The consolidated net loss for the year 2017 was Rs. 19.08 Cr as against FY 2016 of Rs.14.02 Cr.

Standalone Operating Results

The sales and operating income decreased to Rs.66.10 Cr from Rs. 86.56 Cr in the previous year at a decline rate of 31%. The operating Loss for the year under review is Rs.9.10 Cr as against Rs.1.29 Cr in the previous year, due to decline in revenue. The loss after tax for the year under review is Rs.18.47 Cr as against Rs.12.18 Cr in the previous year. The company is in growth/expansion mode requiring further investment; your company is therefore evaluating various options to raise additional funds for which shareholders approval may be sought as and when things are finalized.

Subsidiary Company & Consolidated Financial Results

The consolidated financial results comprise of M/s. Bafna Pharmaceuticals Limited and its subsidiary M/s. Bafna Lifestyles Remedies Limited. Consolidated Financial Statements for the year ended 31st March, 2017 forms part of the Annual Report.

As required under the SEBI (Listing Obligations and Disclosure Requirement) Regulation, 2015, the consolidated financial statements of the Company and its subsidiary are attached. The consolidated financial statements have been prepared in accordance with the relevant accounting standards as prescribed under Section 133 of the Companies Act, 2013. The consolidated financial statements disclose the assets, liabilities, income, expenses and other details of the Company and its subsidiaries.

Material/significant changes in subsidiary: During the year the subsidiary company has discontinued the marketing activities.

A statement pursuant to Section 129 of the Companies Act, 2013, relating to subsidiary companies is attached and forms part of the report.

Change in Capital Structure (Rs. In 000)
Particulars 31s* March, 2017 31st March, 2016
Authorized Capital 400,000.00 400,000.00
Issued, Subscribed & Paid up Capital 186,563.35 186,563.35

Your Company, pursuant to 62 (1) (c) read with Section 42 of Companies Act, 2013 and Chapter VII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, had passed Special resolution by way of postal ballot on 02.08.2016 for issue of 40,00,000 (Forty Lakh only) Warrants carrying an option /entitlement to subscribe to Equity shares of Rs.10/- each. Subsequently, the entire preferential issue of 40,00,000 Warrants and in-principle application filed with the Stock Exchanges had been withdrawn by the Board of Directors of the Company on 04.01.2017.

Further, the Company, pursuant to 62 (1) (c) read with Section 42 of Companies Act, 2013 and Chapter VII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, had passed Special resolution by way of postal ballot on 09.02.2017 for issue of 80,00,000 (Eighty Lakh only) Warrants carrying an option /entitlement to subscribe to Equity shares of Rs.10/- each.

Fixed Deposits

The company has not accepted / invited any deposits from the public in terms of Section 73 of the Companies Act, 2013

Dividend

Due to losses, the Company has not declared any dividend for the Financial Year.

RESERVES _

The Company has not transferred any amount to the general reserves during the year.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY:

There have been no material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the report.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANYS OPERATIONS IN FUTURE;

The Honble High Court of Madras in CP.NO. 201 of 2015, filed by M/s. Wanbury Limited, against the Company under Section 443 of Companies Act, 1956, had issued an order on 11th November, 2016 approving the repayment schedule for the outstanding amount of Rs. 43,46,262/- at an interest of 9% p.a. If the order is received against the Company the same will affect the going concern of the Company.

PARTICULARS OF LITIGATIONS:

During the year,

a) Winding up petition was filed in Honble High Court of Madras against the Company by M/s. Dalas Biotech Limited, a trade creditor of the Company under Section 443 of the Companies Act, 1956, vide C.P. NO. 215 oF 2016.

b) The Honble High Court of Madras in CP.NO.201 of 2015, filed by M/s. Wanbury Limited, against the Company under Section 443 of Companies Act, 1956, had issued an order on 11th November, 2016 approving the repayment schedule for the outstanding amount of Rs. 43,46,262/- at an interest of 9% p.a.

Due to establishment of National Company Law Tribunal (NCLT) and enactment of Insolvency and Bankruptcy Code, 2016, the above mentioned petitions filed before the Honble High Court of Madras were transferred to Honble NCLT, Chennai Bench and were numbered as TCP/96/IB/CB/2017 and TCP/456/IB/2017 respectively and the same are pending before the Honble NCLT, Chennai Bench.

Further, a criminal case was filed by M/s. Dalas Biotech Limited against all the Directors of the Company under Section 138 of the Negotiable Instruments Act for dishonor of cheque.

The above cases are pending before respective court / tribunal. Your Board of Directors of the Company are taking necessary steps to resolve the pending litigations.

CHANGE IN THE NATURE OF BUSINESS

Your Company is engaged in manufacture of pharmaceutical products. There is no change in the nature of business during the year compared to previous year.

RISK MANAGEMENT POLICY:

The Company has in place a mechanism to identify, assess, monitor and mitigate various risks to key business objectives. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.

ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS:

The company has adequate internal financial controls such as defining authority to authorize financial transactions, Internal Audit and review of financial statement mechanism in vogue.

Directors

The Composition of Board and number of meetings attended by them are given in the corporate governance report.

Pursuant to Section 149, 152 and other applicable provisions of the Companies Act, 2013 read with Rules thereon, Shri V. Rajamani, Shri R. Dwarakanathan, Shri B. Kamlesh Kumar & Shri Sunil Bafna were appointed as Independent Directors for five consecutive years in the Nineteenth AGM held on 10.09.2014 upto 09.09.2019. The Independent Directors have furnished necessary declarations as required under Companies Act, 2013.

Directors Liable to Retire by Rotation

Shri. Bafna Mahaveer Chand and Shri. Paras Bafna, being non independent directors, are liable to retire by rotation in terms of Section 152 of the Companies Act, 2013 and being eligible they have offered themselves for reappointment. Upon their re-appointment as Directors Shri. Bafna Mahaveer Chand and Shri. Paras Bafna shall continue to hold office as the Chairman cum Managing Director of the Company and Whole time director respectively.

Further, the Company had appointed Shri. Bafna Mahaveer Chand and Shri. Paras Bafna as Managing Director and Whole time director, respectively, in the Board meeting held on 08.08.2017 for the period of Three years with effect from 01.10.2017. Pursuant to Section - 196 of Companies Act, 2013 they hold the office upto 30.09.2017. The Board recommends their continuation as Managing Director and Whole Time Director respectively.

The brief resume of the Directors seeking appointment / reappointment and other information have been detailed in the Notice. Your Board recommends the above appointments /reappointment of Directors in the best interest of the Company.

Details of KMP:

According to section 203 of the Companies Act, 2013, Shri. Bafna Mahaveer Chand, being a Managing Director is a key Managerial Personnel of the Company.

During the year under review, Shri. R S Gowdhaman, resigned from the post of Company Secretary and subsequently Smt. Sapna Jain was appointed as the Company Secretary on 11.11.2016. Shri. Sridhar was appointed as CFO on 27.05.2017. Smt. Sapna Jain resigned as Company Secretary with effect from 08.08.2017.

Auditors

In compliance with the mandatory rotation of Auditors as per Companies Act, 2013, the Audit Committee and the Board of Directors in their respective meetings recommended the appointment of M/s. R. Sathyanarayanan 8t Co, Chartered Accountants, Chennai (FRN: 003656S) as statutory auditors of the Company,.for a period of 5 years from the conclusion of this AGM until the conclusion of 27th Annual General Meeting, in place of the retiring Statutory Auditors M/s. Abhay Jain & Co., Chartered Accountants, Chennai.

M/s. R. Sathyanarayanan & Co, Chartered Accountants have given their consent for appointment and also confirmed that their appointment would be within the prescribed limits under Section 141 of the Companies Act, 2013. Accordingly, the appointment of M/s. R. Sathyanarayanan 8t Co, Chartered Accountants., Chartered Accountants, Chennai, as the Statutory Auditors of the Company, is being proposed as an Ordinary Resolution.

Auditors Report:

The report of Auditors and notes forming part of the Accounts are attached along with the Annual Report. Comments on Auditors Report:

Reply to the qualifications made in Auditors report:

Qualification Reply
The Company is not regular in depositing the undisputed statutory dues, including Provident fund, employees state insurance, income tax, sales tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, as applicable, with appropriate authorities. Your Management is taking necessary steps to comply with the provisions of the Act and to deposit the requisite amount to the appropriate authority.

Cost Audit

The Board of Directors of the Company appointed M/s Thanigaimani & Associates, Cost Accountants (FRN No.101899) as the Cost Auditor of the Company for audit of cost accounts relating to formulations for the year ended 31st March 2017. The Cost Audit Report & Cost Audit Compliance Report for the year ended 31st March, 2017 shall be submitted to the Central Government in due course.

As per Section 148 read with Companies (Audit and Audit) Rules, 2014 and other applicable provisions if any of the Companies Act, 2013, the Board of Directors of the Company has appointed M/s Thanigaimani & Associates, Cost Accountants as Cost Auditor of the Company for the year ended 31st March, 2018. The remuneration proposed to be paid to the Cost Auditors, subject to the ratification by the members at the ensuing Annual General Meeting, would be Rs. 45,000/- (Rupees Forty Five Thousand Only) plus applicable taxes and out of pocket expenses.

Listing ,

The Companys shares are listed at (i) Bombay Stock Exchange Limited (BSE) with Scrip Code No. 532989 and at (ii) National Stock Exchange of India Limited with Scrip symbol BAFNAPHARM; the necessary Listing Fees have been paid to the stock exchanges.

Particulars of Employees

a) Details of employees, employed throughout the financial year, was in receipt of remuneration for that financial year, in the aggregate, was not less than Rs.1.02 Crores. —Nil-

b) Details of employees, employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than Rs. Eight Lakhs and Fifty Thousand per month -Nil -

c) Details of employees, if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the company. - Nil -

The information required pursuant to Section 197 read with rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company and Rules 5(2) of

The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, with respect to the statement showing the names of the top ten employees in terms of remuneration drawn, will be provided upon request. In terms of Section 136 of the Act, the reports and accounts are being sent to the members and others entitled thereto, excluding the information on employees particulars which is available for inspection by the members at the Registered office of the company during business hours on working days of the company up to the date of ensuing Annual General Meeting. If any member is interested in inspecting the same, such member may write to the Company Secretary in advance.

Foreign Exchange Earnings and Outgo

The particulars in respect of Foreign Exchange Earnings and Outgo as required under Section 134) of the Companies Act, 2013 and Rule 8(3) of the Companies (Accounts) Rules 2014, are given as in Annexure to this report.

Human Resource, Industrial Relations, Environment, Occupational Health and Safety

The Company is continuously focusing on managing talent and increasingly systematizing the HR processes. We have excellent industrial relations across all facilities including corporate office and strongly believe that the workers will continue to work towards profitable and productive company.

The number of employees as on 31st March, 2017 was 230 as against 242 during FV 2015-16, a net decrease of 12 employees.

Conservation of Energy, Technology Absorption & Research and Development (R & D)

The company is conscious of its responsibility to conserve the energy and has taken measures in relation to conservation of energy and technology absorption. The particulars in respect to conservation of energy, Technology Absorption 8l Research and Development were given in the annexure to the Boards Report.

Insider Trading Regulations

Based on the requirements under SEBI (Prohibition of Insider Trading) Regulations, 2005, as amended from time to time, the code of conduct for prevention of insider trading and the code for corporate disclosures are in force. The Company has adopted a Code of Conduct for Prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated persons of the Company, as per SEBI (Prohibition of Insider Trading) Regulations, 2015.

Corporate Governance

Report on Corporate Governance and Certificate of the Auditors of your Company regarding compliance ofthe conditions of Corporate Governance as stipulated in Regulation 15 of SEBI ( Listing Obligations and Disclosure Requirements) Regulations, 2015, with the Stock Exchanges, are enclosed elsewhere in the Annual Report and forms part of this report.

Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Board of Directors has approved policy as per the said Act. And an Internal Complaints Committee was constituted, with following members:

(i) Smt. Hemalatha, Asst General Manager - Chairperson
(ii) Smt. Shunmugasundari, HR Executive - Member
(iii) Smt. K.Ashitha, HR Executive - Member

The committee placed certificate before the Board of Directors on the status of compliance of the Act. As per the certificate provided by the said committee no complaints were received during the year & that there are no complaints pending as on 31st March, 2017.

Particulars of Loans, Guarantee and Investment under Section 186 of Companies Act, 2013:

During the year under review, the investments made, the loans advanced, guarantees given and securities provided are within the limits prescribed under Section 186 of the Companies Act, 2013. Refer Notes to accounts for the above particulars.

Particulars of contracts or arrangements with Related parties referred to in Sub-Section (1) of Section 188:

The transactions entered into by the Company with the related parties were in the ordinary course of business and at arms length basis. The particulars of transactions are mentioned in Form AOC 2 and is annexed to this report.

Corporate Social Responsibility

Corporate Social Responsibility prescribed under the provisions of Sec 135 of the Companies Act, 2013 is not applicable to the Company. But however, Company is committed to improve the quality of life of the workforce and their families and also the community and society at large. The Company believes in undertaking business in such a way that it leads to overall development of all stake holders and society.

Secretarial Audit for the FY 2017-18

In terms of Section 204 of the Companies Act, 2013, the rules made thereunder 8t other applicable provisions, if any, the company is required to appoint Secretarial Auditor to carry out Secretarial Audit of the Company. Your Board of Directors has appointed M/s. A.K. Jain & Associates, Practicing Company Secretaries, Chennai for purpose of Secretarial Audit for the FY 2017-18 at the Board Meeting held on 28.07.2017.

As required under section 204 (1) of the Companies Act, 2013 the Company has obtained a secretarial audit report. The copy of the Secretarial Audit report in MR 3 is attached as an annexure to the Directors Report.

The qualifications made by the Secretarial Auditor and the explanation to the observations are as follows:

S.No QUALIFICATION MANAGEMENTS EXPLANATION
1. The Company had not appointed Chief Financial Officer (CFO) within a period of Six months from the date of such vacancy as required under Section 203(4) of Companies Act, 2013. The Board of directors wishes to state that the Chief Financial Officer has been appointed on 27/05/2017.
2. During the year, the Company did not disclose the material events and has not regularly updated the Stock Exchange, as required under Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Requlations, 2015 The Company has inadvertently omitted to disclose the material events. The Company is taking utmost care to regularize the Company mechanism. The Board assures that the Company will disclose all material events in future.
3. The Company had not filed e-Form MGT- 14 with the Registrar of Companies, for registering the resolutions passed in the meeting of Board of Directors for issue of 40,00,000 Share Warrants and Special Resolution passed for this same by way of postal ballot, as required under Section 117 of Companies Act, 2013 The Company has inadvertently omitted to file the Form MGT-14. The Company The Company is taking utmost care to regularize the Company mechanism. The. Board assures that the Company will disclose all material events in future.

Appointment of Shri. Mohamed Safwan & Co., Chartered Accountant, Chennai as Internal Auditors & approved their Scope, Functions, Periodicity & Methodology

In terms of Section 138 of the Companies Act, 2013 & other applicable provisions, if any, Board of Directors at the Board Meeting held on 08.08.2017 has appointed Mohamed Safwan & Co., Chartered Accountant, Chennai (FRN: 016260S) as Internal Auditors and further approved their Scope, Functions, and Periodicity 8i Methodology.

Audit Committee

In terms of Section 177 of the Companies Act, 2013 and other applicable provisions if any and as per the Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Audit committee comprises of 4 Directors out of which 3 are Non-Executive Independent Directors. The terms of reference of Audit Committee includes matters specified in section 177 of the Companies Act 2013 and Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (as revised with effect from 1.10.2014). The Board has accepted all the recommendations of the audit committee made during the year

Nomination & Remuneration Committee

In terms of Section 178 of the Companies Act, 2013 & other applicable provisions, if any, Board of Directors at the Board Meeting held on 30.05.2014 has renamed the existing "Remuneration Committee" of the Board of Directors as "Nomination 8i Remuneration Committee". There was no change in the members of the Committee. The Policy of Nomination & remuneration committee was detailed in the corporate governance report. The constitution, terms and references and other details are elaborated in the Corporate Governance report annexed with this report.

Stakeholders Relationship Committee

In terms of Section 178 of the Companies Act, 2013 & other applicable provisions, if any, Board of Directors at their meeting held on 30.05.2014 renamed the existing "Investor Grievance & Share Transfer Committee" as "Stakeholders Relationship Committee". The constitution, terms and references and other details are elaborated in the Corporate Governance report annexed with this report.