Modern Dairies Ltd Directors Report.

Dear Members,

Your Directors hereby present their 27th Annual Report together with the Audited Accounts of Modern Dairies Limited for the year ended 31st March, 2019.

FINANCIALS

Rs. in Lacs
Year Ended 31.03.2019 Year Ended 31.03.2018
Net Sales and other Income 5,60,69 4,67,29
Operating Profit/Loss 11,53 (13,12)
Finance Cost 20 31
Cash Profit/Loss 11,33 (13,43)
Depreciation & Amortisation 5,27 5,14
Profit/Loss for the year 6,06 (18,57)

PERFORMANCE

During the year under review, the Company achieved Net Sales and Other Income of Rs. 5,60,69 lacs as against Rs. 4,67,29 lacs in the previous year and resulting into net profit of Rs. 6,06 lacs against the net loss of Rs. 18,57 lacs in the previous year.

As reported last year, the companys operations team has focused on sale of Fresh Dairy Products like Milk in Sachets, Fermented Dairy Products i.e. Dahi and Chach, Cheese and Fresh Paneer in Modern Dairies brand. Apart from this, our focus has been on increasing the private label business of Fresh Dairy Products with the leading institutions. The companys efforts have started showing positive results. It is a matter of satisfaction to report that the companys operations have shown visible improvement in the current operational year. The Company products are well accepted and operational team is making best efforts to increase its presence in the market. The sales growth is encouraging and the company hopes to improve its performance with these efforts in the time to come.

The company is still facing the uneconomical situation for manufacture of export dependent product i.e. Casein, which was non-operational most of the time this year, being unviable due to low international prices of Casein.

CURRENT OPERATIONS

As explained above, the operating team of the company is working hard to increase its presence in the market in the sale of Fresh Dairy Products.

Further, the company has focused to increase volume of private label work being done with leading institutions. This is also resulting into increase in the sales volume and margins.

This year the company has witnessed good monsoon which augers well for the dairy industry. The availability of milk is expected to be good in the coming flush season.

MILK CESS

As the members are aware that the Company has filed a Special Leave Petition with the Honble Supreme Court of India against the judgment of Honble Punjab & Haryana High Court challenging imposition of Milk Cess by the Govt. of Haryana. The Honble Supreme Court on 7th September, 2012, directed an interim stay of the High Court judgment and order subject to the Companys depositing 50% of the cess levied and demanded by the Government of Haryana which has been deposited by the Company with the Department within the stipulated time. In spite of that the Company continues to receive demand notice from Semen Bank officer. Demand notice at year end stands at Rs. 174.61 Crores. The matter is pending before the Honble Supreme Court.

PLEDGE OF PROMOTER SHAREHOLDING

The entire shareholding of promoter and promoter group aggregating to 10654779 shares, being 45.69 % of the entire share capital of the Company are pledged in favour of Punjab National Bank and other consortium members.

STATUS OF COMPANYS ACCOUNTS WITH LENDERS

The Company Account with Lenders became NPA on March, 2016. The State Bank of India has already assigned its portion of debt to a leading ARC M/s. Edelweiss Asset Reconstruction Company Limited. The Punjab National Bank vide its letter dated 26.02.2019 has sanctioned an One Time Settlement to the company for an amount of Rs. 45.84 Crores for Fund Based and Rs.15.76 lakhs for Non fund based. Against this, an amount of Rs. 2 crore was already paid by the company and the balance amount was to be paid by the company by 31st March, 2019. The Company has taken up the matter with PNB for grant of extension for repayment period in terms of the policy of Punjab National Bank on OTS. The operating team is in regular touch with the bank and the matter is in process.

Further the company has also taken up the issue with Canara Bank to find out a solution in the account. The Company is following up with the lenders for debt resolution.

QUALITY, FOOD SAFETY & ENVIRONMENT STANDARDS

From the very beginning the Companys focus has been to follow up best of the processing and management systems in the plant to comply with Good Management Practices (GMP) and Good Hygienic Practices (GHP).

Our Quality Management Systems, Food Safety Systems and Environment Management Systems have been certified by DNVGL Netherlands. The Companys Management Systems are ISO 9001:2015, ISO 14001:2015, Food Safety systems certification i.e. FSSC22000 V4.1 certified, besides the Companys operations have been approved by the best multinationals operating in the country.

SHARE CAPITAL

The paid up equity capital as on March 31, 2019 is Rs. 23,35,89,000/-.

DIVIDEND

In view of requirements of regular funds for operations, your directors are unable to recommend any dividend for the Financial Year ended on March 31,2019.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

In terms of the recently notified Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, for continuation of a Non-Executive Director beyond the age of seventy five years it is required to take consent of members by way of Special Resolution. Mr. Bhupendra Nath Mathur, Non-Executive Independent Director of the Company has attained the age of 75 years and has intimated his inability to continue as an Independent Director of the Company for his next tenure due to his other interests and commitments. The board placed on record his appreciation for the valuable contribution and the services rendered by him during his tenure as an Independent Director.

In pursuance of Section 152 of the Companies Act, 2013, at-least two-thirds of the Directors (excluding Independent Directors) shall be subject to retirement by rotation. One-third of such Directors must retire from office at each AGM and a retiring director is eligible for re-appointment. Accordingly, Mr. Krishan Kumar Goyal, Chairman and Managing Director (DIN: 00482035), is liable to retire by rotation at this Annual General Meeting and being eligible, offers himself to be re-appointed at this AGM.

Mr. Satish Kumar Kapoor (holding DIN 00009122), a non-executive Independent Director of the Company, to be re-appointed for another term of three consecutive years w.e.f. 24th September, 2019.

Mr. Avtar Krishan Vashisht (holding DIN 03323142), a non-executive Independent Director of the Company, to be re-appointed for another term of three consecutive years w.e.f. 24th September, 2019.

The following are the Key Managerial Personnel of the Company:

1. Mr. Krishan Kumar Goyal (Chairman and Managing Director)

2. Mr. Ashwani Kumar Aggarwal (Whole time Director)

3. Mr. Mukesh Sehgal (Chief Financial Officer)

4. Ms. Heena Garg (Compliance Officer & Company Secretary)

During the year Ms. Heena Garg, Compliance Officer & Company Secretary of the company has resigned from her post due to her pre-occupancies on 26th February, 2019.

All the intimations pertaining to the appointments and resignations made during the year has been given to Stock Exchange (s) where the shares of the Company are listed and also the relevant records are duly updated with the Registrar of Companies wherever required.

BOARD MEETINGS

During the year under review, four meetings of the Board of Directors were held. The details of the meetings of the Board are furnished in the Corporate Governance Report which is attached to this Report.

ANNUAL EVALUATION OF THE BOARD, ITS COMMITTEES AND INDIVIDUAL DIRECTORS

In pursuance of Section 134 (3) (p) of the Companies Act, 2013 read with rules made thereunder, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors carried out the performance evaluation of the Board as a whole, and of its Committees and individual directors. The evaluation was carried out using individual questionnaires covering composition of Board, conduct as per Company values & beliefs, contribution towards development of strategy & business plan, risk management, receipt of regular inputs and information, codes & policies for strengthening governance, functioning, performance & structure of Board Committees, skill set, knowledge & expertise of Directors, preparation & contribution at Board meetings, leadership etc.

As part of the evaluation process, the performance of Non Independent Directors, the Chairman and the Board was conducted by the Independent Directors. The performance evaluation of the respective Committees and that of Independent and Non Independent Directors was done by the Board excluding the Director being evaluated.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received the necessary declaration from each Independent Director in accordance with Section 149(7) of the Companies Act, 2013 read with the rules made thereunder and Regulation 25 (8) of the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, that they meet the criteria of independence as laid out in Subsection (6) of Section 149 of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

BOARD DIVERSITY AND REMUNERATION POLICY

The Company has a policy for formation of the Board to have Executive Directors and Independent Directors of diverse background to maintain the independence of the Board. As on 31st March, 2019, the Board consists of six members out of which two are Executive Directors and four are independent directors.

The Board periodically evaluates the need for change in its composition and size.

We affirm that the remuneration paid to the Directors is as per the terms approved by the Nomination and Remuneration Committee of the Company.

With reference to the provisions of Section 136(1) of the Companies Act, 2013, information required under Section 197(2) read with rule 5(1) not forms part of this report, however, no employees were employed throughout the Financial Year or part thereof drawing remuneration pursuant to the provision of 197(2) read with rule 5(2).

AUDIT COMMITTEE

In pursuance of Section 177 of the Companies Act, 2013 read with the rules made thereunder and Regulation 18 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has duly constituted the Audit Committee consisting of 4 Non-Executive and Executive Directors with the majority being Independent Directors including the Chairman of the Committee.

The terms of reference of Audit Committee are as mentioned in Section 177 of the Companies Act, 2013 and part C of Schedule II ofthe SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The relevant details of Audit Committee have been given in the Corporate Governance Report forming part of this Annual Report.

The Audit Committee of your Company comprises of the following Directors:

1. Prof. Satish Kapoor-Chairman

2. Dr. B.N. Mathur-Member

3. Mr. A.K. Vashisht-Member

4. Mr. A.K. Aggarwal-Member

Further, in terms of Section 177 (8) of the Act, it is stated that there were no such instances where the Board of Directors have not accepted the recommendations of the Audit Committee during the year 2018-19.

AUDITORS Statutory Auditors

Pursuant to Section 139 and 142 and other applicable provisions of Companies Act, 2013, if any and the rules framed thereunder, M/s. Aaryaa & Associates, Chartered Accountants, (Registration No. 0015935N), who were appointed as Statutory Auditors of the Company till the conclusion of this Annual General Meeting has been re-appointed as the Auditors of the Company from the conclusion of this Meeting to hold such office for a period of three years till the conclusion of the 30th Annual General Meeting, at a remuneration recommended by the Audit Committee and mutually agreed between the Board of Directors of the Company and the Statutory Auditors.

Cost Auditors

The Board of Directors have approved the appointment and remuneration of M/s. Aggarwal Vimal & Associates as Cost Auditors of the Company to conduct the cost audit for the year 2019-20 on the recommendations of the Audit Committee subject to the ratification of the remuneration by the Shareholders.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with rules made thereunder, the Board of Directors had appointed M/s. B.K. Gupta & Associates, Company Secretaries as Secretarial Auditor of the Company for the financial year 2018-19 for conducting the Secretarial Audit as required under the provisions of Companies Act, 2013.

The Secretarial Audit Report issued by M/s. B.K. Gupta & Associates, Company Secretaries in Form MR-3 for the Financial Year ended 31st March, 2019 is annexed herewith as Annexure ‘A to this report.

AUDITORS REPORT

The Statutory Auditors of the Company, M/s. Aaryaa & Associates, Chartered Accountants, have submitted the Auditors Report which has observation on Standalone Financial Statements for the period ended March 31,2019.

Auditors Qualifications/ Observations

Directors remuneration is not admissible as prescribed in Sec-197 of Companies Act, 2013 except in accordance with the provision of Schedule V and if it is not able to comply with such provisions, the prior approval of lenders is required.

The Company is not eligible to pay director remuneration for non-compliance of conditions prescribed in Schedule V of the Companies Act, 2013. During the year, the company has given the director remuneration to Mr. Krishan Kumar Goyal (Chairman & Managing Director) amounting to Rs. 30,00,000 and Mr. Ashwani Kumar Goyal (Executive Director) amounting to Rs. 26,62,358.

Apart from the managerial remuneration for year ended 31st March, 2019, as mentioned above, the company has paid director remuneration of Rs. 55,48,884 till 31st March, 2018 without complying the provisions of Schedule V of the Companies Act, 2013.

Managements Reply:

The company has paid Managerial Remuneration amounting to Rs. 56,62,358 to directors for which the company is yet to receive approval from the competent authority/agency. Management undertakes that in case the approval is not received from the competent authority/agency, they shall refund the remuneration paid to them by the company. Profitability of the company shall effect to the same extent.

RISK MANAGEMENT

The Company recognises that risk is an internal and unavoidable component of business and is committed to managing the risk in a proactive and efficient manner. The Company has formulated Risk Management Policy to identify and then manage threats / risks that could have impact on the goals and objectives of the Company.

VIGIL MECHANISM/ WHISTLE BLOWER POLICY

Your Company is committed to highest standards of ethical, moral and legal business conduct. Accordingly, the Board of Directors have formulated Vigil Mechanism/Whistle Blower Policy which provides a robust framework for dealing with genuine concerns and grievances. Your Company has an ethics hotline which can be used by employees, Directors, suppliers, dealers etc. to report any violations to the Code of Conduct. Specifically, employees can raise concerns regarding any discrimination, harassment, victimization, any other unfair practice being adopted against them or any instances of fraud by or against your Company. During financial year 2018-19, no complaints were received.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

MDL (Modern Dairies Limited) has aligned its current system of internal financial control with the requirement of Companies Act, 2013.

MDLs internal controls commensurate with its size and nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statues, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance of corporate policies.

The management assessed the effectiveness of the Companys internal control over financial reporting (as defined in Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015) as of 31st March, 2019. The assessment involved selfreview and external audit.

M/s. Aaryaa & Associates, Chartered Accountants, the Statutory Auditors of MDL has audited the financial statements included in this annual report and has issued an attestation report on our internal control over financial reporting (as defined in Section 143). The Audit Committee reviews reports submitted by the management and audit reports submitted by internal auditors and Statutory Auditors. Suggestions for improvement are considered and the Audit Committee follows up on corrective action. Based on its evaluations (as defined in Section 177 of Companies Act, 2013 and Regulation 18 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015), the Audit Committee has concluded that, as of 31sl March, 2019, the internal financial controls were adequate and operating effectively.

MATERIAL CHANGES AND COMMITMENTS, IF ANY AFFECTING FINANCIAL POSITION OF THE COMPANY

There are no adverse material changes or commitments occurring after 31st March, 2019, which may affect the financial position of the Company.

DEPOSITS

The Company has neither accepted nor invited any deposit from the public and hence directives issued by Reserve Bank of India and the provisions of Chapter V (Acceptance of deposits by Companies) of the Companies Act, 2013 and rules framed there under are not applicable for the year.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Loans, guarantees and investments, if any covered under the provisions of Section 186 of the Companies Act, 2013 form part of the notes to the financial statements.

RELATED PARTY TRANSACTIONS

All contracts or arrangements entered into by the Company with Related Parties have been done at an arms length and are in the ordinary course of business. Related Party disclosures as per AS-18 have been provided in the Notes to the Financial Statements. During financial year 2018-19, your company has not entered into any contract/arrangement/ transaction with related parties which could be considered ‘material in accordance with its Policy on Materiality of Related Party Transactions. Thus, there are no transactions required to be reported in Form AOC-2.

CORPORATE GOVERNANCE & MANAGEMENT DISCUSSION & ANALYSIS

A separate report on Corporate Governance & Management Discussion & Analysis is attached to this report.

EXTRACT OF ANNUAL RETURN

In compliance with Section 92(3), Section 134 (3)

(a) and Rule 12 of the Companies (Management and Administration) Rules, 2014 the extract of the annual return in Form No. MGT-9 which is annexed as ANNEXURE B with this report and shall form part of the Boards report.

COMPLIANCE WITH SECRETARIAL STANDARDS

The Company is compliant with the applicable Secretarial Standards (SS) viz. SS-1 & SS-2 on Meetings of the Board of Directors and General Meetings respectively.

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

The information on conservation of energy, technology absorption, foreign exchange earnings and outgo as per Section 134(3)(m) of the Companies Act, 2013, read with Rule 8 of the Companies (Accounts) Rules 2014, is given in the ANNEXURE C and forms part of this report.

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

Your Company has in place a policy on Prevention of Sexual Harassment at workplace. This policy is in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. All employees whether permanent, contractual, temporary and trainees are covered under this Policy.

As per the said Policy, an Internal Complaints Committee is also in place to redress complaints received regarding sexual harassment. No complaints were received during financial year 2018-19.

DIRECTORS RESPONSIBILITY STATEMENT

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

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed;

(b) they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2019 and of the profit of the Company for the year;

(c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) the annual accounts are prepared on a going concern basis;

(e) they had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

(f) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

APPRECIATION

Your Directors wish to place on record their sincere appreciation for the continued support from its business associates and stakeholders of the Company.

By order of the Board of Directors
For Modern Dairies Limited
Krishan Kumar Goyal
Place: Chandigarh Chairman & Managing Director
Dated: 13th August, 2019 DIN: 00482035