Enchante Jewellery Ltd Directors Report

ENCHANTE JEWELLERY LIMITED ANNUAL REPORT 2004-2005 DIRECTORS REPORT To the Members, Your Directors are pleased to present the Nineteenth Annual Report together with the Audited Accounts for the year ended 31st March 2005. FINANCIAL RESULTS (Rs. in Lacs) Year ended Year ended 31.03.2005 31.03.2004 Net Sales (including labour charges) 92.82 58.83 Gross Profit 19.01 13.85 Depreciation 63.01 65.16 Interest 0.20 0.64 Net Profit/(Loss) before prior period adjustments - (97.45) Net Profit/(Loss) before Impairment loss (89.65) - Impairment loss (476.57) - Net Profit/(Loss) (566.22) (97.45) Net Deficit Carried to Balance Sheet 1226.34 666.12 As a result of loss during the year under review, your Directors are not recommending any dividend. OPERATIONS: During the year under review, the Company achieved a turnover of Rs. 92.82 Lacs as compared to Rs. 58.83 Lacs during the previous year. The Companys sales are hampered due to the following factors: 1. Paucity of working capital. The companys operations were severely constrained by the State Bank of Indias failure to disburse the sanctioned working capital during the crucial stage of project implementation in 1995-96. The companys working capital requirements were duly appraised and assessed by SBICAPS. The State Bank of India subsequently conducted an independent appraisal of the project and assessed the working capital requirements of the project. The State Bank of India sanctioned a working capital loan of Rs.525 lacs. The State Bank of India disbursed only Rs.200 lacs of the sanctioned working capital loan. In the absence of adequate working capital, the company struggled to ramp up operations and its plans received a severe setback. The Company has exhausted its working capital and this has had an adverse impact on sales. 2. State Bank of India. The Company has tried its best to resolve the matter with the State Bank of India in order to salvage the project. The Bank led the Company to believe that it would resolve the matter if the Company were to demonstrate its resolve to enter into a settlement by making payments to the Bank. The Company deposited an amount in excess of over Rs.200 lacs with the bank, by depleting its working capital, which was to no avail as the bank did not live upto its representations. After exhausting its resources, in the year 2001-02, the Company roped in a strategic investor for the purposes of settling the matter with the SBI. The SBI negotiated the terms of the settlement with the investor and the Company, and arrived at an agreement on the amount and modalities of the agreed settlement. Thereafter the SBI spent approximately two years processing the paperwork and after acting on the settlement, backed out of the agreed settlement at the last moment. The Companys operations during the two years that the bank took in processing the paperwork were in limbo. The execution of the agreed settlement would have brought in fresh investment, cleaned up the Companys balance sheet, altered the ownership pattern, affected the management structure, had an impact on the companys future plans, etc. During the period that the Companys operations were in limbo, the Companys working capital continued to bleed to sustain its work force and infrastructure. By the time the SBI reneged on the agreed settlement, the Companys operations had shrunk considerably and the Company did not have the requisite working capital to ramp up operations. Owing to such malafides and glaring acts of commissions, omissions and arbitrariness attributable to SBI, the Company has sustained huge losses. The matter has been referred to legal counsel for advice / opinion as to a suitable course / remedy by the Company. FUTURE OUTLOOK: The SBI invited the company in 2004 to negeoiate a fresh one time settlement with the Bank. The Company entered into discussion with the Bank without prejudice to its principled stand that a settlement had been entered into in FY 2002/03, the said settlement was acted upon by all parties and the bank is estopped from going back on the agreed settlement and that the company reserves the right to hold the Bank accountable for the consequences of reneging on the agreed settlement. The Company has pointed out the benefits to the different stakeholders if a fresh one time settlement is completed: 1. Benefits to the Bank. Due to the pending issue with the DGFT and the Haryana Sales Tax Department, as brought out in the Techno Economic Viability Study, carried out by an agency appointed by the Bank, the chances of the Bank recovering any amount through litigation appear bleak. The Banks on going litigation with the Company is currently mired in BIFR and will in probability multiply with the company resorting to litigation over every outstanding issue including failure of the Bank to disburse sanctioned working capital, failure to complete an agreed settlement, breach of trust etc. Entering into a fresh one time settlement will bring an end to all litigation 2. Benefits to the Company. The Companys operations are at a standstill. A fresh one time settlement with the bank would enable the company to raise the much needed working capital and take steps to revive the company. The Company touched a turnover in excess of Rs. 80 Crores and employed over a hundred people in financial year 1997-98. The Company has the potential to reach such heights once again if it is able to resolve the issue of Working Capital 3. Benefits to the Country. The revival of the company will add impetus to the economy. The Indian economy is on a growth trajectory and India has the potential to emerge as the manufacturing centre for the global economy. The revival of the company will have a positive spin off on employment, the local economy, exports, etc. 4. Benefits to the minority shareholders. Thousands of small retail investors invested their hard earned earnings in the Companys public issue. The failure of the Bank to disburse the sanctioned working capital is singularly responsible for the companys sickness. The Companys sickness has wiped out the small investor. The Companys revival will enable the small investor to recover his capital as well as earn a return on his investment. The Banks failure to disburse the sanctioned working capital is responsible for the companys sickness. This failure to disburse sanctioned working capital has been noted, documented and commented upon by independent tribunals as well as an agency appointed by BIFR, a quasi- judicial body, in accordance with the due process of law. The absence of a lenders liability law, the deliberate contempt shown by the Bank to the principles of justice and fair play, the refusal by officials of the bank to work in accordance with the letter and sprite of the laws that led to the founding of Public Sector Banks and the Banks refusal to work in accordance with the letter and spirit of laws that were enacted to help revive sick companies leaves the company with very little options vis-a-vis the continuing defaults of the Bank. The company will continue to pursue the Bank to amicably resolve all outstanding matters and will leave no stone unturned in its endeavor to secure the future of the Company. APPOINTMENT OF AUDITORS: M/s Anuj Kumar Gupta & Co., Chartered Accountants, Auditors of the company retire at the conclusion of the ensuing Annual General Meeting and being eligible, offer themselves for reappointment. DIRECTORS: Mr. Shanti Swarup Bhatia and Mr. Uttam Kejriwal, Directors of the Company retire by rotation at the forthcoming Annual General Meeting and being eligible offer themselves for reappointment. Mr. Paramjit Singh, Director of the company has expired. The Board places on record its appreciation of the valuable services rendered by him. PUBLIC DEPOSIT: The Company has not accepted any Fixed Deposits from public during the year under review. PARTICULARS OF EMPLOYEES: During the year under review, none of the Companys employee was in receipt of remuneration as prescribed under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. AUDITORS REPORT: The observations of the Auditors as referred in the Auditors Report are suitably explained in notes to the accounts. With regard to para (vii) of the Auditors Report, your Directors have to state that they have explained the Companys stand vis-a-vis the statement in the section titled FUTURE OUTLOOK. Further, regarding para 9(a) of the annexure to the Auditors Report, on account of financial constraints the company has not been regular depositing its dues. The directors are working to complete the settlement with the bank, which will enable the company to raise resources. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AN OUTGO: A. Conservation of Energy: The energy conservation is anon going activity in the Company and wherever necessary energy conservation measures have been implemented. The efforts to conserve and optimise the use of energy through improved operational methods and other means will continue. B. Technology absorption: (a) Research & Development (R&D) : During the year under review, no R & D activities have been carried out by the Company. (b) Technology Absorption, Adaptation and Innovation: The Company has not entered into any technical foreign collaboration agreement. The technical know-how received alongwith the imported machinery in 1995 has been fully absorbed. C. Foreign exchange earnings and outgo: Foreign exchange earnings (FOB basis) - Nil Foreign exchange outgo - Nil DIRECTORS RESPONSIBILITY STATEMENT: Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibilities Statement, it is hereby confirmed: i. that in the preparation of the annual accounts for the financial year ended 31st March, 2005, the applicable accounting standards had been followed along with proper explanation relating to material departures; ii. that the directors had selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review; iii. that the directors had taken proper and sufficient care for the maintenance of adequate Accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. that the directors had prepared the accounts for the financial year ended 31st March, 2005 on a going concern basis. CORPORATE GOVERNANCE: Pursuant to clause 49 to the Listing Agreement the Report on Corporate Governance is given in the annexure to the Directors Report. ACKNOWLEDGEMENT: Your Directors wish to place on record their appreciation of the services rendered by the employees of the Company. The Board also gratefully acknowledges the continued support extended by customers and the shareholders of the company. By order of the Board C.L. Mehra Chairman Place : Gurgaon Date : 23rd August, 2005 MANAGEMENT DISCUSSION AND ANALYSIS Overview: The Company is engaged in the manufacturing and selling of gold and diamond Jewellery. The Company has established its brand and has built up considerable goodwill in the market for its branded Jewellery. Economy and Business Outlook: The Jewellery business in India is a Rs. 50,000 Crore business on account of the role Jewellery plays in our culture, heritage, traditions etc. As the size of our economy grows and the purchasing power of the Indian people increases, the potential of the Jewellery business will continue to increase. Risk and Concern: The principle difficulty faced by the company has been the paucity of working capital on account of the default of the State Bank of India in releasing the sanctioned and fully tied up working capital. The Company has explained in detail the situation pertaining to the settlement with the bank in the section FUTURE OUTLOOK in the Director report. Internal Control Systems and its Adequacy: The company has put in place necessary internal audit system commensurate with its operations. Periodical checks are conducted and necessary remedial measures are adopted. Human Resources/Industrial Relations: The industrial relations in the manufacturing units of the Company continued to be cordial. The Companys workforce is being encouraged to adapt to the fast changing environment and acquire necessary skills and update their knowledge. Pollution and Environment Control: The Company has always paid highest importance to ensure that the environment remains relatively pollution free. The work force is continuously trained and coached in safety and are provided appropriate safety equipment. Adequate pollution control facilities are installed at the plants as per guidelines of pollution control authority and are run as per set norms. Cautionary Statement: Statements in the Management Discussion and Analysis describing the Companys objectives, projection, estimates, expectations maybe forward- looking statements within the meaning of applicable securities law and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations, include, among others, economic conditions affection demand/supply and price conditions in the domestic market in which Company operates mainly, changes in Government regulation, tax law and other statutes and incidental factors.