Kwality Pharmaceuticals Ltd Directors Report.

To

The Members

KWALITY PHARMACEUTICALS LIMITED.

Your Directors have pleasure in presenting the 36th Annual Report of KWALITY PHARMACEUTICALS LIMITED along with the Audited Financial Statements for the year ended 31st March 2019.

FINANCIAL HIGHLIGHTS

Our Company’s financial performance for the year under review has been encouraging and is summarized below:

(Rupees In Lacs)

STANDALONE CONSOLIDATED
Particulars 2018-19 2017-18 2018-19 2017-18
Total Income 16607.85 13792.82 16689.94 13829.65
Less: Expenditure & Depreciation 15518.21 13037.81 15598.91 13100.08
Profit before Tax (PBT) 1089.64 755.01 1091.03 729.57
Less: Tax (including deferred tax) 334.92 287.42 335.34 287.42
Profit After Tax (PAT) 754.72 467.59 755.69 442.15

PERFORMANCE REVIEW

During the year under review, on standalone basis, revenue of the company was Rs.16607.85 Lakhs as compared to Rs. 13792.82 Lakhs in the corresponding previous year. The Company earned a profit after tax of Rs.754.72 Lakhs as compared to Rs. 467.59 Lakhs in the previous year.

On consolidated basis, revenue of the company was Rs.16689.94 Lakhs as compared to Rs. 13829.65 Lakhs in the corresponding previous year. The Company earned a profit after tax of Rs. 755.69 Lakhs as compared to Rs. 442.15 Lakhs in the previous year.

CHANGES IN NATURE OF BUSINESS

There was no change in the nature of the business during the year.

DIVIDEND

In order to conserve the resources, the Board of Directors does not recommend any dividend for the financial year 2018-19.

RESERVES

During the financial year under review, your Company has not transferred any amount to the general reserve.

STATEMENT PURSUANT TO LISTING AGREEMENT

The Company’s equity shares are listed at Bombay Stock Exchange Limited (SME Segment). The Annual Listing Fee for the year 2019-20 has been paid.

EXTRACT OF THE ANNUAL RETURN

The extract of the annual return in Form No. MGT 9 is attached in ‘Annexure A’.

PARTICULARS OF EMPLOYEES REMUNERATION

The information pertaining to Section 197(12) read with Rule 5 (1) of the Companies (Appointment and

Remuneration of Managerial Personnel) Rules, 2014 is annexed herewith as ‘Annexure B’. There is no employee drawing a salary exceeding the limit prescribed under Section 197(12) read with Rule 5 (2) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

NON APPLICABILITY OF THE INDIAN ACCOUNTING STANDARDS (IND-AS)

As per proviso to regulation Rule 4(1) of the Companies (Indian Accounting Standards) Rules, 2015 notified vide Notification No. G.S.R.111 (E) on 16th Feb., 2015, Companies whose shares are listed on SME exchange as referred to in Chapter XB of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, are exempted from the compulsory requirement of adoption of IND-AS w.e.f. 1stApril, 2017. As your Company is also listed on SME Platform of BSE Limited, is covered under the exempted category and is not required to comply with IND-AS for preparation of financial statements beginning with period on or after 1st April 2017.

CHANGES IN DIRECTORS AND KEY MANAGERIAL PERSONNEL

There was no change in the Directors and KMP’s during the Year.

RETIREMENT BY ROTATION

In accordance with the provisions of section 152 of the Companies Act, 2013 and the Articles of Association of the Company, Mr. Ramesh Arora & Mrs. Anju Arora, directors retire by rotation at the ensuing Annual General Meeting and offer themselves for reappointment.

NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS

During the Financial Year 2018-19, 9 meetings of the Board of Directors of the company were held and the details of which are given in the Corporate Governance Report which is enclosed with director’s report as "Annexure E". The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

COMMITTEES OF THE BOARD

The Board has constituted various committees to support the Board in discharging its responsibilities. The following three committees are constituted by the Board:

AUDIT COMMITTEE

The Audit Committee comprises of Sh. Pankaj Takkar as Chairman and Sh. Kiran Kumar Verma and Sh. Aditya Arora as members. The details of term of reference of the Audit Committee members, dates of meetings held and attendance of the Directors are given separately in the Corporate Governance Report.

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee comprises of Sh. Kiran Kumar Verma as Chairman and Sh. Pankaj Takkar and Sh. Ravi Shanker Singh as members. The details of term of reference of the Committee members, dates of meetings held and attendance of the Directors are given in the Corporate Governance Report.

STAKEHOLDERS RELATIONSHIP COMMITTEE

The Stakeholders Relationship Committee comprises of Sh. Ravi Shanker Singh as Chairman and Smt. Geeta Arora and Smt. Anju Arora as members. The details of term of reference of the Committee members, dates of meetings held and attendance of the Directors are given separately in the Corporate Governance Report.

CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

The Corporate Social Responsibility Committee is duly constituted in terms of the requirement of Companies Act, 2013. During the financial year 2018-19, one Meeting was held on 30-05-2018. The composition of Committee and attendance of members is as follows:

Name Category Meeting held during 2018-19 No. of Meeting Attended
Geeta Arora Chairperson 1 1
Aditya Arora Member 1 1
Pankaj Takkar Member 1 1

DETAILS OF POLICY DEVELOPED AND IMPLEMENTED BY THE COMPANY ON ITS CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

In view of the profits and turnover of the Company, your Company was required to undertake CSR projects during the year 2018-19 under the provisions of section 135 of the Companies Act, 2013 and the rules made thereunder. As part of its initiatives under Corporate Social Responsibility (CSR)", the Company has undertaken various activities, which are in accordance with CSR Policy of the Company and Schedule VII of the Companies Act, 2013.The Board has approved a CSR policy on the recommendations of the CSR Committee. The Report on CSR activities as required under Companies (Corporate Social Responsibility) Rules, 2014, including a brief outline of the Company’s CSR Policy, total amount to be spent under CSR for the financial year, amount unspent if any and the reason for the unspent amount, is set out at Annexure-D forming part of this Report.

MEETINGS OF INDEPENDENT DIRECTORS:

The Company’s Independent Directors meet at least once in every financial year without the presence of

Executive Directors or management personnel. Such meetings are conducted informally to enable Independent Directors to discuss matters pertaining to (i) review the performance of Non Independent Directors and the Board as a whole, (ii) review the performance of the Chairperson of the Company, taking into account the views of Executive Directors and Non-Executive Directors; and (iii) to assess the quality, quantity and timeliness of flow of information between the Company Management and the Board.

One meeting of the Independent Directors was held during the Financial Year on 28/03/2019.

DETAILS OF SUBSIDIARY/JOINT VENTURES/ASSOCIATE COMPANIES

The Company has one subsidiary company ‘Kwality Pharmaceuticals Africa, Limitada’ at Maputo Province, Mozambique which is mainly engaged in the Pharmaceuticals business. The Board reviewed the affairs of the Company’s subsidiary during the year at regular intervals. In accordance with section

129(3) of the Companies Act, 2013, the Company has prepared Consolidated Financial Statements of the Company and its subsidiary, which forms part of this Annual Report. Further a statement containing Salient features of the Financial Statements of its subsidiary in Form AOC-1 as given in the annual report forms part of the Financial Statements.

MECHANISM FOR EVALUATING BOARD MEMBERS:

Pursuant to the section 134 (p) of Companies Act, 2013 read with Rule 8 (4) of Companies Accounts Rules, 2014 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has carried out an annual performance evaluation of its own performance, the Directors individually, as well as the Board Committees. The performance of the Board was evaluated by the Board after seeking inputs from all the directors on the basis of the criteria such as the Board composition and structure, effectiveness of board processes, information and functioning, etc.

The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, frequency of committee meetings, their functioning etc.

The evaluation of the Directors were based on their attendance and participation, acting in good faith and in the interests of the company as a whole, exercising duties with due diligence and reasonable care, complying with legislations and regulations in letter and spirit and such other factors.

In addition, the Chairman was also evaluated on the key aspects of his role. In a separate meeting of independent Directors, performance of non independent directors, performance of the board as a whole and performance of the Chairman was evaluated, taking into account the views of executive directors and non-executive directors.

FAMILIARISATION PROGRAMMES FOR BOARD MEMBERS:

The Board members are provided with necessary documents/brochures, reports and internal policies to enable them to familiarize with the Company’s procedures and practices. The Chairman & Managing Director had one to one discussions with newly appointed Directors to familiarize them with the Company’s operations. Periodic presentations are made at the Board and Board Committee Meetings, on business and performance updates of the Company, global business environment, business strategy and risks involved. Quarterly updates on relevant statutory and regulatory changes are circulated to the Directors. Site visits to various plant locations are organized for the Directors to enable them to understand the operations of the Company.

STATEMENT ON DECLARATION BY INDEPENDENT DIRECTORS

Pursuant to the provisions of Section 149 of the Act, the Independent Directors have submitted declarations that each of them meet the criteria of independence as provided in section 149(6) of the Act along with rules framed thereunder and Regulation 16(1)(b) of the Securities and Exchange Board of

India (Listing Obligations and Disclosure Requirements) Regulations,2015 ("SEBI Listing Requirements").There has been no change in the circumstances affecting their status as Independent Directors of the Company.

REMUNERATION POLICY

The Board has, on the recommendation of the Nomination & Remuneration Committee framed a policy for selection and appointment of the Directors, the senior management and their remuneration. The remuneration policy is stated in the Corporate Governance Report.

WHISTLE BLOWER POLICY

Pursuant to the Section 177(9) and (10) of the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has formulated Whistle Blower Policy for vigil mechanism for Directors and Employees to report the management about the unethical behavior, fraud, improper practice or violation of the Company’s Code of Conduct or complaints regarding accounting, auditing, internal controls or disclosure practices of the Company. It gives a platform to the whistle blower to report any unethical or improper practice (not necessarily violation of law) and to define processes for receiving and investigating complaints. The mechanism provides adequate safeguards against victimization of employees and directors who use such mechanism and makes provision for direct access to the Chairman of the Audit Committee in exceptional cases.

VIGIL MECHANISM

In pursuant to the provisions of section 177(9) & (10) of the Companies Act, 2013, a Vigil Mechanism for directors and employees to report genuine concerns has been established and Chairman of the Audit Committee is responsible for issue pertaining to same.

RISK MANAGEMENT POLICY

The Management has devised a Risk Management Policy considering the nature of industry and associated risks pertaining to the industry. The Management is overseeing the implementation of the Policy on regular basis. Though the various risks associated with the business cannot be eliminated completely, all efforts are made to minimize the impact of such risks on the operations of the Company.

STATUTORY AUDITORS

As per section 139 of the Companies Act, 2013 read with The Companies (Audit and Auditors) Rules, 2014, the tenure of M/s Vijay Mehra & Co., Chartered Accountants (ICAI Firm Regn. No. FRN 001051N), present Statutory Auditors of the Company, expires at the conclusion of the 36th Annual General Meeting.

Upon recommendation of Audit Committee, the Board of Directors of the Company at its meeting held on 10.08.2019 subject to the approval of shareholders of the Company in the Ensuing Annual General Meeting, approved the appointment of M/s ARORA AGGARWAL & CO, Chartered Accountants, Amritsar (FRN:021086N), as the Statutory Auditor of the Company for a term of five consecutive years, to hold office from the conclusion of 36th Annual General Meeting till the conclusion of 41st Annual General Meeting (AGM) of the Company to be held in the year 2024 at an annual remuneration/ fees of Rs. 4,00,000/- (Rupees Four Lakh Only) plus outlays and taxes as applicable from time to time, for the purpose of audit of the Company’s accounts, with the power to the Board/Audit Committee to alter and vary the terms and conditions of appointment, revision including upward revision in the remuneration during the tenure of appointment, in such manner and to such extent as may be mutually agreed with the Statutory Auditors.

M/s ARORA AGGARWAL & CO, Chartered Accountants have given their consent and confirmed their eligibility to the effect that their appointment, if made, would be within the prescribed limits under the Act and that they are not disqualified for appointment.

AUDITORS REPORT

M/s Vijay Mehra & Co., Chartered Accountants, have submitted their Report on the Financial Statements of the Company for the F.Y 2018-2019, which forms part of the Annual Report. The observations made in the Auditors Report read together with relevant notes thereon are self explanatory and hence, do not call for any further comments under Section 134 of the Companies Act, 2013.

COST AUDITOR

Pursuant to Section 148(3) of the Companies Act, 2013, M/s Verma Khushwinder & Co., Cost Accountants, Jalandhar, were appointed as the Cost Auditors of the Company for the financial year 2018-19 by the Board of Directors and their remuneration was ratified by members at the 35th Annual General Meeting of the Company.

Further, the Board of Directors has appointed M/s Verma Khushwinder & Co. as the Cost Auditors of the Company for the financial year 2019-20 and has also fixed their remuneration. The Board has recommended the remuneration approved in its meeting, for ratification by the shareholders in the ensuing AGM of the Company.

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 board of directors have appointed M/s Rishi Mittal & Associates, Company Secretaries, Amritsar as the Secretarial Auditors of the Company.

The Secretarial Audit Report for Financial Year 2018-19 forms part of the Annual report as "Annexure C" to the Boards report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

REPORT ON CORPORATE GOVERNANCE:

Corporate Governance Report of the Company regarding Compliance of the Conditions of Corporate Governance pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed herewith as "Annexure E".

MANAGEMENT DISCUSSION AND ANALYSIS:

A detailed review of the operations and performance of the Company is set out in the Management Discussion and Analysis Report pursuant to Regulation 34 Part-B of Schedule V of the (Listing Obligations and Disclosure Requirements)Regulations,2015 which forms part of the Annual Report for the year under review as "Annexure F".

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS UNDER SECTION 186

Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

All Related Party Transactions that were entered into during the financial year were on an arm’s length basis, in the ordinary course of business and were in compliance with the applicable provisions of the

Companies Act, 2013 (‘the Act’) and SEBI (Listing Obligations and Disclosures Requirements) Regulations 2015 and do not attract the provisions of Section 188 of the Companies Act, 2013. There were no related party transactions made by the Company with the Promoters, Directors and Key Managerial Personnel which may have a potential conflict with the interest of the Company at large. The transactions with the related parties have been disclosed in the financial statements. Thus disclosure in Form AOC-2 is not required.

SECRETARIAL STANDARDS

The Company has devised proper systems to ensure compliance with the provisions of applicable Secretarial Standards issued by the Institute of Company secretaries of India and that such systems are adequate and effecting.

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

There were no material changes and commitments 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 this report.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The details pursuant to Section 134(3) of the Companies Act, 2013 read with Rule 8, sub-rule (3) of Companies (Accounts) Rules, 2014 relating to Conservation of Energy, Technology absorption, Foreign Exchange earnings and outgo is provided as under :

A) Conservation of energy:

Energy conservation continues to be the key focus area of your Company. The use of energy is being optimized through improved operational methods. Continuous efforts are being made to optimize and conserve energy by improvement in production process. Your company is striving continuously to conserve every form of energy by adopting innovative measures to reduce wastage and optimize consumption. Notable measures for energy conservation taken by company were :- Unwanted lighting kept off Replaced high voltage motors with low voltage motors Power consumption by using Temperature Controller. Further the Company is using electricity as the main source of energy and is currently not exploring any alternate source of energy.

(B) Technology absorption:

The company always remains aggressive for improvement of quality of product, efficient manufacturing process, search of new products or modification in the existing products, introducing new products by continuously studying the market. Company takes help of outside agencies, whenever required, to improve manufacturing process or method which ultimately benefit to the quality and cost of product.

(C) Foreign exchange earnings and Outgo:(in Rupees Lacs)

Particulars Year ended 31st March 2019 Year Ended 31st March 2018
( Rs. In Lakhs) ( Rs. In Lakhs)
Earnings
Export Sales 8356.79 5616.81
Outgo
Capital Goods 85.65 18.58
Raw Materials 759.49 449.09

DEPOSITS

Your Company has not accepted any deposits from the public during the year under review, within the meaning of Section 73 of the Companies Act,2013 (‘the Act) read with the Companies (Acceptance of

Deposits) Rules, 2014, and no amount of principle or interest on deposits from the public is outstanding as on the date of Balance Sheet.

SHARE CAPITAL

During the year under review, there was no change in the paid-up equity share capital of the Company which is as on 31st March, 2019, was Rs. 1037.62 Lakhs.

PROVISION OF MONEY BY COMPANY FOR PURCHASE OF ITS OWN SHARES BY EMPLOYEES OR BY TRUSTEES FOR THE BENEFIT OF EMPLOYEES

The company has not made any provision of money for purchase of its own shares by employees or by trustees for the benefit of employees as per Rule 16(4) of Companies (share capital and debentures) Rules, 2014.

ISSUE OF SWEAT EQUITY SHARES

The Company has not issued any sweat equity share during the financial year in accordance with the provisions of Section 54 of Companies Act, 2013 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014.

ISSUE OF EQUITY SHARES WITH DIFFERENTIAL RIGHTS

The Company has not issued any equity shares with differential voting rights during the financial year as per Rule 4(4) of Companies (Share capital and debentures) Rules, 2014.

ISSUE OF EMPLOYEE STOCK OPTION

The company has not issued any employee stock option during the financial year as per Rule 12 of Companies (share capital and debentures) Rules, 2014.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has comprehensive and adequate internal financial controls system for all major processes including financial statements to ensure reliability of reporting. The system also helps management to have timely data/feedback on various operational parameters for effective review. It also ensures proper safeguarding of assets across the Company and its economical use. The internal financial controls system of the Company is commensurate with the size, scale and complexity of its operations. The systems and controls are periodically reviewed and modified based on the requirement.

The Company has an internal audit function which is empowered to examine the adequacy and compliance with policies, plans and statutory requirements. It is also responsible for assessing and improving the effectiveness of risk management, control and governance process. The scope of Internal Audit is well defined and documented and the audit committee reviews the observations of the Internal Audit critically. The composition and working of the audit committee forms part of the Corporate Governance Report.

COMPANY SECRETARY AND COMPLIANCE OFFICER

Due to personal reasons, Mr. Gaurav Bajaj (M. No. 49505) Company Secretary, KMP and compliance officer of the company has resigned from the company with effect from Tuesday, 18th June, 2019.

Ms. GURPREET KAUR (Membership No. A52091) appointed as Company Secretary, KMP and compliance officer of the company with effect from 23rd July 2019.

DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The Company has in place a policy on Prevention, Prohibition and Redressal of Sexual Harassment at workplace in line with the requirements of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The policy has set guidelines on the redressal and enquiry process that is to be followed by complainants, whilst dealing with issues related to sexual harassment at the work place. All women employees (permanent, temporary, contractual and trainees) are covered under this policy. An Internal Complaints Committee has been set up to redress the complaints received regarding sexual harassment. Your Company did not receive any complaints during the period under review.

PROHIBITION OF INSIDER TRADING

With a view to regulate trading in securities by the directors and designated persons, the Company has adopted a Code of Conduct for Prohibition of Insider Trading.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134 (5) of the Companies Act, 2013 Your Directors’ confirm that:

i. In preparation of annual accounts for the financial year ended 31 March, 2019 the applicable Accounting Standards have been followed along with proper explanation relating to material departures;

ii. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give true and fair view of the state of affairs of the Company at the end of the financial year ended 31 March, 2019 and of the profit and loss of the Company for the year;

iii The Directors have taken proper and sufficient care for their maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. The Directors had prepared the annual accounts on a ‘going concern’ basis;

v. The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

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

INDUSTRIAL RELATIONS

During the year under review, your Company enjoyed cordial relationship with workers and employees at all levels.

ACKNOWLEDGMENTS:

Your directors place on record their appreciation for the committed services by every member of the company globally whose contribution was significant to the growth and success of the Company. We would like to thank all our clients, partners, vendors, investors, bankers and other business associates for their continued support and encouragement during the year.

For and on Behalf of the Board
Sd/- Sd/-
(RAMESH ARORA) (AJAY KUMAR ARORA)
Place: Amritsar Managing Director Whole Time Director
Date: 10th August, 2019 DIN: 00462656 DIN: 00462664