Cals Refineries Ltd Management Discussions.

FORWARD-LOOKING STATEMENTS

The report contains forward-looking statements, identified by words like plans, expects, will, anticipates, believes, intends, projects, estimates, envisages/ envisaged and so on. All statements that address expectations or projections about the future, but not limited to the Companys strategy for expenditures, and financial results, are forward-looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realized. The Companys actual results, performance or achievements could thus differ from any forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events.

INDUSTRY STRUCTURE AND DEVELOPEMENTS

The oil and gas sector is among the six core industries in India and plays a major role in influencing decision making for all the other important sections of the economy.

Indias economic growth is closely related to energy demand; therefore the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment.

The Government of India has adopted several policies to fulfil the increasing demand. The government has allowed 100 per cent Foreign Direct Investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment.

GLOBAL

With dramatically falling oil prices, reductions in headcount and uncertainty regarding the industrys future, the global oil and gas industry is currently facing challenging times. Due to a decline in global crude oil prices, imports declined by 7.4 per cent in 2016-17 in value (till January, 2017). The Current Account Deficit (CAD) of India narrowed to 0.3 per cent of GDP during April-September 2016. The trend of negative export growth reversed a bit with exports registering a growth of 0.7 per cent during 2016-17 (till January, 2017).

Petroleum, Oil and Lubricants (POL) imports declined by 10.8 per cent in 2016-17 (till January, 2017) whereas non-POL imports declined by 2 per cent.

In the near future, the recent oil price gains, which are due to a rebalancing of supply and demand fundamentals, partly accelerated by OPECs recent decision to cut production, are expected to remain in place. A great deal of the activity in the oil and gas sector is focused on OPEC countries and the U.S., but other regions may also play a key role in the coming years.

DOMESTIC

Indias oil demand is expected to grow at a CAGR of 3.6 per cent to 458 Million Tonnes of Oil Equivalent (MTOE) by 2040, while demand for energy will be more than double by 2040 as economy will grow to more than five times its current size, as stated by The Ministry of Petroleum and Natural Gas.

Also, the countrys gas production will likely touch 90 Billion Cubic Metres (BCM) by 2040, subject to adjustment to the current formula that determines the price paid to domestic producers, while demand for natural gas will grow at a CAGR of 4.6 per cent to touch 149 MTOE.

India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. Total oil imports declined by 10 per cent year-on-year in February 2017. Fuel consumption in India increased by 10.7 per cent to a 16-year high of 196.48 million tonnes (MT) in 2016. India is the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea and China, and accounts for 5.8 per cent of the total global trade. Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 MMSCMD by 2021 from 64 MMSCMD in 2015.

RISKS AND CONCERNS

Price volatility and decreases in oil or natural gas prices leading to worsened operating results and future prospects.The modelled risks w.r.t the Oil and Gas industry are, Oil and Gas Price Movement, Regulatory and legislative changes and increased cost of compliance, Inability to expand reserves or find replacement, Operational hazards including blowouts, spills and personal injury, Natural disasters, General industry competition whether globally or domestically etc.

Though the Company is not in operation mode and it had not commenced business activities, the Risk Mechanism is limited to financial and regulatory compliances. The Audit committee of the Company is entrusted with the responsibility to look after towards the proper implementation of Risk Management Mechanism for mitigation of Risk so occurred during the course of the business. Also, your Company has formulated the policies to efficiently handle the Risk Management process, which are adequately taken care of.

FINANCIAL PERFORMANCE AND REVIEW

We have been reporting since so long, and in this report also, that the Company is still standing in the same position as earlier, with non-inclusion of operational income and profit and also due to non-availability of financial sources in due course of time, the implementation of project could not take place.

At earlier stage, the funds raised through GDRs in the year 2007, were invested in the pre-operative set-up expenses, when the company was supposed to process its implementation schedule, SEBI started investigation in to modalities of GDRs in the year 2011, with a restrictive orders on the Company from entering into the capital market and issuing any securities and altering its capital structure, SEBI finally vide order dated 23rd October, 2013, prohibited the company for approx. 8 years from the date of the order to access the capital market, or issuance of any kind of securities and alteration in capital structure of the Company.

However, the company has filed an appeal before Honble SAT against the restrictive orders of the SEBI, which is still in motion and the management is hoping to receive a favourable order from the SAT proceedings, soon. The order of the SAT will have considerable impact on the future of the Company.

Further, non-availability of surplus funds and equity, which was a major source of initial funding, prohibition on issue/allotment of received share application money from foreign investors had material adverse effect. The company defaulted in its obligations to vendors and the vendors cancelled their agreements. The SEBIs adverse order, resulted into many other unnecessary and unwarranted connected investigations from ED, SFIO & Income Tax Department etc. Thus at present the company has no business operations and the likely hood of starting the proposed project is found unfeasible in the year of reporting. During the year turnover of the Company has remained Nil, the Company did not have any operational profit, therefore the net worth of the Company has further eroded to (224.80) million from (206.40) million in the previous year and the Net Loss for the year was 18.40 Million as compared to 12.64 million of the previous year. The increase in the loss and negative balance in the Reserve and Surplus has caused the net worth erosion in the Company.

In furtherance of above, during the period under review M/s Nyra Holdings Private a Company belonging to the promoter Group, which was extending loan to the Company has assigned the Loan arrangements with our Company to its parent cum holding Company M/s Spice Energy Private Limited (an another promoter group Company). A tri-partite agreement was executed between our Company (as borrower), Nyra Holdings Pvt. Ltd. (as assignor) and Spice Energy Pvt. Ltd. (as assignee) to effect the aforesaid transaction, i.e., assignment of loan from Nyra Holdings to Spice Energy Pvt. Ltd. and also that the Spice Energy Private Limited to carry with the loan arrangements with us in future as per the assignment agreement. The Audit Committee and Board of Directors have considered and approved/ Ratified the aforesaid matter in their respective meeting held on 26th May, 2017.

The Board has further proposed the aforsaid agreement/ arrangement to the Shareholders of the Company for their ratification/ approval in the ensuing Annual General Meeting. The factual points in relation to above, have been included and explained in detail in the Notice of Annual General Meeting and explanatory statement annexed with it.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequately adopted the procedures, criteria and mechanism to ensure the proper internal control, suitable policies and guidelines as required under various provisions of the Companies Act, 2013 and the Listing Agreement are in place. The following policies adopted by the Company, which focuses on comprehensive management, control and compliance with different rules and regulations as prescribed under various laws applicable to the Companies.

1. Vigil Mechanism Policies/Whistle Blower Policies,

2. Risk Management Policy

The said policies ensures reduction of possible threats of fraud, the orderly and efficient conduct of the business of the Company. These policies and guidelines are adequately monitored by the designated Committees of the Board.

The Company in addition to the above, has also in place a proper system of internal audit that is adequate in respect to the size and operations of the Company. M/s AmarJeet Singh & Associates, Chartered accountants had been appointed as the Internal Auditor of the Company for the financial year 2016-17. They had adequately conducted the Quarterly Internal Audit exercise with in the terms of regulatory requirements.During the Audit Process, no material discrepancies have been reported by them. The Company prepare the financial information/reporting as per the requisite requirements of the Companies Act, 2013 and the Listing Agreement, and place it to the Audit Committee and Board for the approval, once approved the said financial results are submitted to the stock exchange and also placed on the website of the Company. The Internal Auditors are empowered with the facility to directly report to the Audit Committee of the Board of Directors of the Company.

HUMAN RESOURCE DEVELOPMENT

Despite challenges and adverse circumstance the human resource of the Company stand along with it to deal with any critical situation. The Company is having no operations and comprises of limited staff. During the financial year under review the relation with the human resources have been dispute free and cordial. The company has an adequate remuneration policy relating to the Whole time Director/ Executive/Managing Director, Key Managerial Personnel (KMP) and Senior Management Personnel, as required under the Companies, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The same has been regularly reviewed and adopted by the board.