Modern Dairies Ltd Directors Report.

DIRECTORS’ REPORT

Dear Members,

Your Directors hereby present their 26th Annual Report together with the Audited Accounts of the Company for the year ended 31st March, 2018.

FINANCIALS Rs. in Lakhs
Year Ended 31.03.2018 Year Ended 31.03.2017
Net Sales and other Income 46729 45774
Operating Loss (1312) (336)
Finance Cost 31 297
Cash Loss (1343) (633)
Depreciation & Amortisation 514 507
Loss for the year (1857) (1140)

PERFORMANCE

During the year under review, the Company achieved

Net Sales and Other Income of Rs. 46729 Lakhs as against Rs. 45774 Lakhs in the previous year.

The Company is still facing the uneconomical situation for manufacture of export dependent product casein, which was non- operational most of the time due to high domestic milk prices and low international prices of casein.

Looking to the market situation, company focused on domestic products. Operational team is putting best efforts to increase its presence in the domestic market. The Company products are very well accepted in the market. The company hopes to improve its sales volumes and margins with its efforts in the time to come.

CURRENT OPERATIONS

As stated above, the company continues to focus on sale of Fresh Dairy Products like milk in sachets and fermented dairy products. The team is continuously striving to improve the operations and performance through sale of these products in the Modern Dairies Brand. In general, with the improved spending power of the consumers the domestic market particularly for fresh dairy products is growing.

Further, the company is already doing private label work for leading institutions and operating team is working to enhance its volumes with the esteemed customers.

It is important that with normal rainfall expected during this year, the production and availability of milk is expected to be good.

MILK CESS

As the members are aware that the Company has filed a Special Leave Petition with the Hon’ble Supreme Court of India against the judgment of Hon’ble Punjab & Haryana High Court challenging imposition of Milk Cess by the Govt. of Haryana. The Hon’ble Supreme Court on 7th September, 2012, directed an interim stay of the High Court judgment and order subject to the Company’s 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 notices from Semen Bank officer. Demand notice at the year end stands at Rs. 138.79 Crores. The matter is pending before the Hon’ble 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 COMPANY’S ACCOUNTS WITH LENDERS

Members will recall that the Company account status is NPA and your Company has been following up regularly with the lenders for resolution of the debts. This is to further update the members that State Bank of India has already assigned its portion of debt through ARC route. The Company is following with other lenders as well for the debt resolution.

QUALITY, FOOD SAFETY & ENVIRONMENT STANDARDS

From the very beginning, the Company’s 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 DNV Netherlands. The Company’s Management Systems are ISO 9001:2008, ISO 14001: 2004, HACCP Certification and Food Safety Systems certification i.e. ISO:22000:2005 ISO/TS22002/1 certified, besides the Company’s operations have been approved by the best multinationals operating in the country.

DIRECTORS

The nomination of Mr. Sanjeev Kumar Bajaj was withdrawn by PNB and consequently he ceased to be a Director w.e.f. 13th December, 2017. Your directors place on record their high appreciation for the contribution made by Mr. Sanjeev Kumar Bajaj during his tenure as Director of the Company. Mr. Ashwani Kumar Aggarwal (DIN:00486430) shall retire by rotation at the ensuing Annual General Meeting and being eligible has offered himself for reappointment.

KEY MANAGERIAL PERSONNEL

Mr. Krishan Kumar Goyal (Chairman and Managing Director), Mr. Ashwani Kumar Aggarwal (Whole time Director), Mr. Mukesh Sehgal (Chief Financial Officer),

Ms. Anubha Garg (Company Secretary resigned on 8th November, 2017) and Ms. Heena Garg (Company Secretary joined on 2nd April, 2018) are the KMP of your Company in accordance with the provisions of Section 2(51), 203 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

BOARD MEETINGS

During the year, five Board Meetings were convened and held, the details of which are given in the Corporate Governance Report.

ANNUAL EVALUATION OF THE BOARD, ITS COMMITTEES AND INDIVIDUAL DIRECTORS

A formal evaluation of the performance of the Board, it’s Committees, the Chairman and the individual Directors was carried out for FY 2017-18. Led by the Nomination and Remuneration Committee (‘NRC’), the evaluation was carriedoutusingindividual 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, that they meet the criteria of independence as laid out in Sub Section (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, 2018, 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 employed throughout the Financial Year or part thereof drawing remuneration pursuant to the provision of 197(2) read with rule 5(2).

AUDIT COMMITTEE

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 details of the Audit Committee and its terms of reference etc. have been furnished in Corporate Governance Report which forms part of this report. During the Financial Year 2017-18 under review, all recommendations of the Audit Committee were accepted by the Board of Directors of the Company.

AUDITORS Statutory Auditors

In the 24th Annual General Meeting held on 30th September, 2016, M/s. Aaryaa & Associates, Chartered Accountants, were appointed as Statutory

Auditors of the Company to hold office till the conclusion of 27th AGM to be held in the year 2019, subject to the ratification by the members at every

Annual General Meeting.

However, the ratification of their appointment, pursuant to Section 139 of the Companies Act, 2013, is not required, in terms of Notification No. S.O. 1833(E) dated May 7, 2018, issued by the Ministry of Corporate Affairs and accordingly, the item has not been included in the Ordinary Business of the AGM Notice.

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 2018-19 on the recommendations of the Audit Committee subject to the ratification of the remuneration by the Shareholders.

Secretarial Auditors

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, 2018 is annexed herewith as Annexure ‘A’ to this report.

AUDITOR’S REPORT

The Auditor’s Report contains the qualification as follows: Director’s remuneration is not admissible as prescribed in Sec-197 of Companies Act, 2013 if there are no profits or profits are inadequate except in accordance with the provision of Schedule V and if it is not able to comply with such provisions, the prior approval of central government 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. The company during the year has given the following directors remuneration:

S. No. Name Designation Remuneration ( Rs. )
1. Mr. Krishan Chairman & 30,00,000
Kumar Goyal Managing
Director
2. Mr. Ashwani Executive 25,48,884*
Kumar Aggarwal Director

*Remuneration is inclusive of perks and excluding provident fund.

Prior approval from Central Government for inability to comply with the said conditions has however, not been taken. An application for approval however has been made to the central government by the company on 27-06-2017 passed in the board meeting and by Nomination & Remuneration Committee on 27-05-2017. As informed by the management the decision on the said approval is awaited.

MANAGEMENT’S REPLY:

The Company has paid managerial remuneration amounting to Rs. 55,48,884/- to directors, for which the company has yet to receive approval from Central Government. The Company has already applied for the approval to Central Government, decision is awaited. Management undertakes that in case the approval is not received from the Central Government, they shall refund the remuneration paid to them by the Company. Profitability of the company shall affect 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. 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 2017-18, 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.

MDL’s 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 Company’s internal control over financial reporting (as defined in Regulation 17 of SEBI Regulations, 2015) as of 31st March, 2018. The assessment involved self review 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 Regulations, 2015), the Audit Committee has concluded that, as of

31st March, 2018, 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, 2018, which may affect the financial position of the Company.

FIXED DEPOSITS

Your Company did not invite or accept any fixed deposit pursuant to provisions of Chapter V of The Companies Act, 2013, during the year.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the Financial Statements provided in this Annual Report.

RELATED PARTY TRANSACTIONS

All contracts or arrangements entered into by the Company with Related Parties have been done at an arm’s 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 Statement.

During financial year 2017-18, 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 and Management Discussion & Analysis is attached to this report.

EXTRACT OF ANNUAL RETURN

The extract of annual return as provided under Section 92(3) is annexed herewith as Annexure ‘B’.

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 2017-18.

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, 2018 and of the loss 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
Chairman and
Place: Chandigarh Managing Director
Dated: 11th August, 2018 DIN: 00482035