Haryana Leather Chemicals Ltd Directors Report.

Dear Shareholders,

The Directors of Haryana Leather Chemicals Ltd. are pleased to present the 34th Annual Report and Audited Statement of the Companys accounts for the year ended on 31st March, 2019.

FINANCIAL RESULTS

A summary of the financial results for the year 2018-2019 is given below:

2018 - 19 2017 - 18
(Rs. in Lacs) (Rs. in Lacs)
Sales Turnover (Net of Excise) 3686.84 3639.43
Gross Profit 289.74 312.84
Deductions:
Depreciation 70.54 87.19
Interest 5.19 4.74
Profit before tax 214.01 220.91
Less: Provision for Income Tax for the year 46.97 48.63
Add: Provision for Income Tax written back 4.69 1.57
Less: Previous years adjustment - -
Less/(Add): Deferred tax liability (8.45) 2.08
Profit after tax and available for appropriation 153.89 172.79
Less: Provision for dividend 39.27 39.27
Less: Provision for dividend tax 7.99 7.99
Less: Transfer to general reserve 0.00 26.00
Profit Carried to Balance Sheet 106.63 99.53

OPERATIONS

During the year, the Company achieved a slight increase in sales turnover of Rs. 3686 lakhs against Rs. 3639 lakhs of the previous year. There is significant increase in domestic sales that helped offset the drop in export, particularly to EU countries. The decline in export is attributed to the exorbitant cost of REACH registration procedure. The company hopes to consolidate the gains made in domestic sales and explore growth opportunities in countries outside the EU territory. The reduction in net profit is also mainly due to fire accident.

DIVIDEND

The Company, as a policy, endeavours to distribute a part of its consolidated annual profits after tax as dividend in one or more tranches. Following the said policy, the Board of Directors have recommended dividend of Rs. 0.80/- per equity share having face value of Rs. 10/- on 49,08,470 equity shares (PY Rs. 0.80/- per equity share having face value of Rs. 10/- on 49,08,470 equity shares), amounting to Rs. 39.26 Lakhs (PY Rs. 39.26 Lakhs).

DIRECTORS

The composition of the Board of Directors of the Company is furnished in the Corporate Governance Report annexed to this report. Pursuant to the provisions of the Articles of Association of the Company, the Directors - Dr. K.S.V. Menon (DIN: 00920088), Dr. Massimi Medini (DIN: 00926147), Mr. Pradeep Behl (DIN: 00703855), Mr. Marco Medini (DIN: 03709885) and Mr. Kanishk Gupta (DIN: 02243899) are the Directors who are Non-Executive and Independent and are to be appointed for a next consecutive period of five years and are not eligible for retire by rotation. Mr. Vijay Kumar Garg (DIN: 00236460) retire by rotation at the forthcoming Annual General Meeting to be held on 25th September, 2019 and being eligible they offer themselves for re-appointment.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from the Independent Directors confirming that they meet the criteria of independence as prescribed under the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015. Independent Directors are in compliance with the Code of Conduct prescribed under Schedule IV of the Companies Act, 2013.

STATUTORY AUDITORS

The members had at the 32nd AGM of the Company appointed AKR & Associates, Chartered Accountants, (Firm Registration No. 021179N) Panchkula as Statutory Auditors of the Company to hold the office from the close of the 32nd AGM till the conclusion of the 35th AGM, subject to their appointment being ratified by the members in every AGM. The members of the Company approved deletion of the requirement of seeking ratification of appointment of Statutory Auditors at every AGM pursuant to amendment brought by the Companies Amendment Act, 2017.

The Auditors Report for FY 19 forms part of this Annual Report and does not contain any qualification, reservation or adverse remark.

Auditors report does not need any comments from the Directors.

MEETINGS OF THE BOARD, COMMITTEES & COMPLIANCE TO SECRETARIAL STANDARDS

The Board meets at regular intervals, with gap between two meetings not exceeding 120 days. During the year under review, the Board met four times.

The Board has three Committees namely Audit Committee (AC), Nomination and Remuneration Committee (NRC) and Stakeholders Relationship Committee (SRC). A detailed note on the composition of the Board and its Committees (AC, NRC and SRC) is provided in the Corporate Governance Report included in this Annual Report.

The minutes of the meetings are reviewed at every Board meeting.

During the year under the review, the Company has complied with the provisions of Secretarial Standard 1 (relating to meeting of the Board of Directors) and Secretarial Standard 2 (relating to General meeting).

PARTICULARS OF EMPLOYEES u/s 134(3) of the Companies Act, 2013

The information required pursuant to Section 134 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of Directors, Key Managerial Personnel (KMP) and Employees of the Company are provided as follows:

The Company did not employ any person drawing a remuneration of Rs.5,00,000.00 or above for one month or part of the month or Rs. 60,00,000.00 or above for one year, whose particulars are required to be mentioned u/s 197 of the Companies Act, 2013.

SECRETARIAL AUDITORS

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 has appointed M/s. Kumar Rishi & Associates, a firm of Company Secretaries in Practice (CP No. 14063 to undertake the Secretarial Audit of the Company for the financial year ended 2019-20. The report on the Secretarial Audit carried out for the year 2018-19 is annexed herewith as ‘Annexure-B. The Secretarial Audit Report does not contain any qualification, reservation, adverse remark or disclaimer.

COST AUDITORS COMPLIANCE

The Central Government has directed that a cost audit of the Companyshould be conducted in the manner specified in MCA order 52/26/CAB-2010 Dt. 24-01-2012, or any amendment thereof, by a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959 as amended thereof.

However, as per Companies (cost records and audit) Rules, 2014 notified by Ministry of Corporate Affairs, cost audit is not applicable to the Company by virtue of its turnover being less than the prescribed limits. Therefore, the Board did not proceed with the appointment of cost auditor and cost audit for the year 2018-19.

The Company is properly maintaining its cost Record internally.

CORPORATE SOCIAL RESPONSIBILITY

With the enactment of the Companies Act, 2013, India has become the forerunner to mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision.

The new CSR provisions put formal and greater responsibility on companies in India to set out clear framework and processes to ensure strict compliance. However, what the Companies Act does is bring more companies into the fold and increase the total CSR spend.

Section 135(1) of Company Act 2013 mandates the CSR expenditure / CSR Applicability for the following companies – Every company having

a) Net worth of Rs. 500 crore,

b) Turnover of Rs. 1000 crore

c) or net profit of Rs. 5.00 crore where net profit excludes income from overseas branch & divided distributed by company on which this section apply.

As the Company, Haryana Leather Chemicals Limited doesnt fall under any of the categories as mentioned above, the Company was not required to constitute any CSR policy or to make any expenditure towards CSR funds.

WOMAN DIRECTOR

In terms of Section 149 of the Act 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors, Rules, 2014 and SEBI Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company is required to have a woman Director on its Board. Mrs. Sippy Jain is already appointed as the Director of the Company.

PROTECTION OF WOMEN AGAINST SEXUAL HARASSMENT AT WORK PLACE

The Company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 [14 of 2013].

TRANSFER OF FUNDS TO INVESTOR EDUCATION AND PROTECTION FUND

The Company is distributing dividend to its shareholders since 2006 on recommendation of the shareholders of the Company. And pursuant to the provisions of sections 124 and 125 of the Companies Act, 2013 and Investor Education and Protection Fund (Accounting, Audit, Transfer and Refund) Rules, 2016 as amended from time to time, for the unclaimed dividend for the year 2010-2011 amounting Rs. 2,71,144.80, the Board has taken necessary steps to transfer the unpaid / unclaimed dividend of Equity Shareholders for the year 2010-11 to the Investor Education and Protection Fund (IEPF) of the Central Government established under section 124 and 125 of the Companies Act, 2013.

NOMINATION AND REMUNERATION POLICY

The Nomination and Remuneration Committee of Directors (NRC) reviews the composition of the Board of Directors of the Company, to ensure that there is an appropriate mix of abilities, qualifications, experience and diversity to serve the interests of all shareholders and the Company.

During the year, in accordance with the requirements under Section 178 of the Act 2013 and relevant clause of Listing Agreement, the NRC formulated a Nomination and Remuneration Policy to govern the terms of nomination / appointment and remuneration of

(i) Directors,

(ii) Key Managerial Personnel (KMPs) and

(iii) Senior Management Personnel (SMPs) of the Company.

(iv) The same was approved The NRC also reviews succession planning of both SMPs and Board. The Companys approach in recent years is to have a greater component of performance linked remuneration for SMPs.

The process of appointing a Director / KMPs / SMPs is, that when a vacancy arises, or is expected, the NRC will identify, ascertain the integrity, qualification, appropriate expertise and experience, having regard to the skills that the candidate will bring to the Board / Company, and the balance of skills added to that of which the existing members hold.

The NRC will review the profile of persons and the most suitable person is either recommended for appointment by the Board or is recommended to shareholders for their election. The NRC has discretion to decide whether qualification, expertise and experience possessed by a person are sufficient / satisfactory for the concerned position.

NRC will ensure that any person(s) who is/are appointed or continues in the employment of the Company as its executive chairman, managing Director, whole-time Director shall comply with the conditions as laid out under Schedule V to the Act 2013.

NRC will ensure that any appointment of a person as an independent Director of the Company will be made in accordance with the provisions of Section 149 read with Schedule IV of the Act 2013 along with any other applicable provisions and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

While every employees contract of employment stipulates that he will not disclose confidential information about the employers affairs, in order to bring about accountability and transparency, there should be a mechanism to enable employees to voice their concerns where they discover information which they believe shows serious malpractice, impropriety, abuse or wrong doing within the organization. The employees should be encouraged and assisted to raise concerns without any fear of victimization, subsequent discrimination or disadvantage. If the employee has acted in good faith it does not matter if one is mistaken and the Companyshall ensure protection from any harassment or victimization of/against the disclosing employee.

The Company has adopted a Whistle Blower Policy which applies to all permanent employees of the Company including those who are on probation and comes into effect from April 1, 2014, to provide a formal mechanism to the Directors and employees to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Companys Code of Conduct or ethics policy. The Policy provides for adequate safeguards against victimization of employees who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee. It is affirmed that no personnel of the Company has been denied access to the Audit Committee.

1. Policy and Procedure for disclosure, enquiry and disciplinary action

1.1 Concerns which may be raised-illustrative list

A whole variety of issues could fall under malpractice, impropriety, abuse and wrong doing, some of which are listed below:

• Breach of any Policy or Manual or Code adopted by the Company.

• Fraud and corruption (e.g. receiving bribes).

• Health and safety risks, including risks to the public as well as other employees e.g. faulty electrical equipment).

• Any sort of financial malpractice.

• Abuse of power (e.g. Bullying/harassment).

• Any unlawful act, including failure to comply with legal or statutory obligation for and on behalf of the Company. Any other unethical or improper conduct.

1.2 Concerns - how to raise/whom to disclose

The concern should be disclosed through letter, e-mail, telephone, fax or any other method to any of the following persons, who shall comprise the Corporate Compliance Committee, headed by the Managing Director & Chairman reporting directly to the Audit Committee of the Board.

The Corporate Compliance Committee comprises the Managing Director & Chairman, the Executive Director & Companysecretary, the CEO and the HR.

All relevant information regarding the concern should be disclosed not later than 1 year from the date on which the employee came to know of the concern. Upon receipt of the disclosure, the member of the Compliance Committee receiving the same shall furnish a copy to the Managing Director & Chairman who shall decide which member shall be responsible for the investigation.

1.3 Procedure for investigation

Obtain full details and clarifications of the complaint.

Consider the involvement of the Companys Auditors or any other external investigation agency or person.

Fully investigate into the allegation with the assistance where appropriate of other individuals/bodies.

Prepare a detailed written report and submit the same to the Compliance Committee not later than 30 days from the date of disclosure of the concern.

Based on the findings in the written report and after conduct of such further investigation as it may deem fit, the Compliance Committee shall take a decision in the matter not later than 30 days from the date of the written report. If the complaint is shown to be justified then they shall invoke disciplinary or other appropriate action against the defaulting employee.

A copy of all decisions of the Compliance Committee shall be placed before the Audit Committee at the meeting held immediately after such final decision.

The employee making the disclosure as well as all other persons involved in the investigation and the members of the Compliance Committee shall not make public the Concern disclosed except with the prior written permission of the Audit Committee, except where the employee is called upon to disclose this by any judicial process.

FIXED DEPOSIT

The Company has not accepted/renewed any fixed deposits during the period under review.

CORPORATE GOVERNANCE

The Company has taken the requisite steps to comply with the recommendations concerning Corporate Governance. A separate statement on Corporate Governance together with a certificate on the compliance of conditions of corporate governance as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been obtained from the Statutory Auditors of the Company and the same has been given below as Annexure.

DIRECTORS RESPONSIBILITY STATEMENT AS PER SECTION 134(5) OF THE COMPANIES ACT, 2013.

The Board of Directors acknowledge the responsibility for ensuring compliances with the provisions of section 134(3)(c) read with section 134(5) of the Companies Act, 2013 in the preparation of Annual Accounts for the financial year ended on 31st March, 2019.

The Board of Directors of the Company confirms that:

a. During the preparing of the annual accounts, the applicable accounting standards have been followed and no material departure has taken place.

b. The selected accounting policies were applied consistently and the Directors made judgments and estimates that are reasonable and prudent so as to give an accurate view of the state of affairs of the Company as on March 31, 2019 and of the profit of the Company for the year ended on that date.

c. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company, and for preventing and detecting fraud and other irregularities.

d. Annual accounts have been prepared on an ongoing concern basis.

e. The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during the financial year were on an arms length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Related Parties which may have a potential conflict with the interest of the Company at large. All Related Party Transactions are placed before the Audit Committee as also the Board for approval.

INTERNAL FINANCIAL CONTROLS

The Company has in place adequate internal financial controls with reference to Financial Statements. During the year under review, such controls were tested by the Auditors and no reportable material weakness was observed.

EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith in the Annual Report.

QUALITY CONTROL

The Companys quality control set up continues to consolidate its customer cantered approach and QC systems have ensured systematic redressal of quality and feedback from the customer base. ISO 9001:2008 and ISO 14001:2004 systems undergo regular internal and external audits and have ensured very tight quality control. Quality variances to the customer are minimized. The addition of new tests on various sensitive inputs has significantly reduced any chance of quality errors from batch to batch.

The Company continues to update guidelines on Restricted Substances (RS) applicable to leather industry from time to time. Companys "Green -Trek" safety and environmental ethos have been widely recognized by the customers. Under the "Green -Trek Firewall" concept, internal screening, calibrated with external testing has eliminated any possible inclusion of banned substances listed under REACH (Registration, Evaluation and Authorization of Chemicals).

EXPORT OPERATIONS

Companys export has declined mainly due to loss of business from Europe. REACH registration procedure that the EU importers have to undertake are not being preferred by the EU buyers and they have started diverting orders to European suppliers. The cost of REACH registration is very prohibitive and many disputes have been raised by importers and exporters relating to cost of preparing the registration dossier.

Even the export to China, which was companys main market, is suffering recessions due to international trade disputes. The Company has however ensured maintenance of dealer and customer base, but the volumes have remained static due to most tanneries running at lower capacities. Business from Russia, Turkey, Central Asia and Africa has been stable and new growth opportunities have been identified in these regions through personal interactions with local dealers. The digital marketing set up has been completed and a "region specific" campaign design is under initial stage of implementation. The companysuccessfully maintains ‘Star Export Status granted by the DGFT, Ministry of Commerce & Industry, Govt. of India vide Certificate No. A/1877, as per Foreign Trade Policy, 2015-2020.

TECHNOLOGY DEVELOPMENT

The company undertook several activities towards technology development, particularly in the field of (1) Pigment dispersions and milling, (2) Ultra soft Acrylics binders resistant to cold cracks. For Pigment milling the company evaluated three available technologies: Ultrasonic, High shear rotor-stator and Horizontal bead mills. After many trials, a new design of bead mill was shortlisted that could achieve sub- micron grinding. A techno – commercial team also visited various equipment suppliers in China. The company has completed nearly 70% replacement work, old machines have been phased out, and new machines are operational with very satisfactory results.

The development work on "Ultra Soft" acrylic binders focussed on achieving properties suitable for garment and upholstery leather. So far companys products lacked very high cold crack resistance (upto -30 deg. C). After much iteration, companys R & D team was able to successfully complete the prototyping of new range that can now be targeted for improving market share in countries like Russia and Turkey. Trial production runs have also been undertaken with satisfactory results.

DIVIDEND

Though there was drop in net profit as compared to last year, but considering the sales growth and future trends, the Directors are pleased to recommend dividend @ 8% this year also.

PERSONNEL & INDUSTRIAL RELATION

The year saw some extraordinary event that brought to fore exemplary collaboration between managers and workers of the Company. After the fire accident in June that destroyed two important warehouses, workers and managers demonstrated unprecedented capability in coordinating revival of production activity within 48 hours to meet various production targets. This was possible due to the new organizational structure that allowed more freedom, transparency and decentralization of authority. There was complete cordiality and trust between the management and its workforce during the crises.

The practice of yearly appraisal and rewarding performance bonus has been maintained. All managers and workers of the Companystand firmly committed to companys management in adapting various process and system improvements; safety and environment goals. There was no incidence of industrial dispute. Legal proceeding initiated in previous year against a senior manager Mr. Ramesh Goyal for data theft and destruction remains sub-judice.

ENVIRONMENT & POLLUTION CONTROL MEASURES

The companys environment and pollution control measures rely on companys legacy of innovation, leadership and action in sustainability. The company remains committed not only to excelling on its products and solutions, but also to its sustainability goals that go beyond statutory regulations by setting a higher bar for social and environmental progress. Company is also implementing CEMS (Continuous Emission/Effluent Monitoring System) to provide continuous information to HSPCB.

The company encourages candid conversations about product safety, safety at workplace, and transparency in operations with its employees, partners, customers and the public in general. Companys environment control strategies revolve around latest trends on Zero Liquid Discharge (ZLD), waste water minimization, highest standard in clean and safe manufacturing practices.

ACKNOWLEDGEMENT

The Directors extend their most sincere thanks to all employees for their support to help mitigate the effects of fire accident and adoption of new technologies and environmental policy. Companys suppliers, dealers, service providers, and technical consultants have continued their whole hearted support and the Directors deeply appreciate their role. The Directors are thankful to the esteemed shareholders for their continued support and the confidence reposed in the Company and its management.

For and on behalf of the Board of Directors of Haryana Leather Chemicals Limited
Place : Gurugram NARENDRA KUMAR JAIN PANKAJ JAIN
Date : 9th August, 2019 Chairman Managing Director-cum-Vice Chairman