Sovereign Diamonds Ltd Directors Report.

TO THE MEMBERS OF SOVEREIGN DIAMONDS LIMITED

The Directors take pleasure in presenting the Forty - Fifth Annual Report together with the Audited Financial Statements for the year ended 31st March, 2019. The Management Discussion and Analysis has also been incorporated into this report.

1. FINANCIAL RESULTS

Key highlights of financial results for Sovereign Diamonds Limited for the financial year 2018 - 19 are tabulated below:

(Rs. in Lakhs)

Particulars Year Ended 31st March, 2019 Year Ended 31st March, 2018
Income from Operations 4025.38 3,702.21
Other Income 0.11 1.44
Total Income 4025.49 3,703.66
Expenditure 3776.77 3,371.18
Interest 158.04 174.28
Depreciation 50.28 52.86
Total Expenditure 3985.09 3,598.32
Net Profit Before Tax 40.40 105.34
Provision for Taxation 14.37 29.05
(Add) / Less : Deferred Tax (1.76) (2.61)
Short / (Excess) Provision of earlier Years 0.00 0.00
Net Profit After Tax 27.79 78.90
Other Comprehensive Income (1.90) 4.76
Total Comprehensive Income 25.89 83.66
Balance brought forward from last year 721.74 638.08
Transfer to General Reserve 0.00 0.00
Balance carried forward to the Balance Sheet 747.63 721.74

2. HIGHLIGHTS OF PERFORMANCE

• Total net sales for the year were Rs. 4,025.38 Lakhs as compared to Rs. 3,702.21 Lakhs in 2017-18.

• Total profit before tax for the year was Rs. 40.40 Lakhs as compared to Rs. 105.34 Lakhs in 2017-18.

3. TRANSFER TO RESERVES

The Board of Directors has not recommended transfer of any amount to reserves.

4. DIVIDEND

Your Directors do not recommend any dividend for the year as the profits earned need to be ploughed back into the operations of your company and will be used for working requirements of your Company.

5. BUSINESS OPERATIONS

Your Company has changed its Bankers from Corporation Bank to HDFC Bank. It has reduced its limits from 14.50 Crores with Corporation Bank to just 12.00 Crores with HDFC Bank. This was done mainly due to availing Gold Loan facilities at much lower interest rates. This will bring down the finance cost considerably.

Your Company has leased out the Ground Floor of the Building for 5 years. This will also add rental income into the company and help in liquidity.

Generally world markets were very slow due to political and economic issues everywhere. Accordingly, your Company chose to reduce our exposure to these volatile markets. Most of business in the last 12 Months has been domestic sales where your Company feels to have a stronger hold over the clients and their preferences. Your Company has added some European customers to the sales. This would help your Company very much in the long run as margins are higher and credit period given to them is almost NIL.

Your Company feels that, with the high profile banking scams in Jewellery industry in the last 24 Months, banks have tightened the rules even further on our industry. Keeping this in mind, your Company has started to reduce its bank facilities. Earlier Company had credit facilities of approx Rs. 14.50 Crores. Now Company have reduced this to Rs.

12.00 Crores and Company plans to reduce these even further by March 2020, by using up existing stock and selling off what is not required immediately. Your Company are planning a lower inventory model for the next few years, thereby reducing the interest burden on your Company. This combined with lower rates of interest in Gold Loan would really work to our advantage. Its a time to cut expenses as far as possible.

There was no change in nature of business of your Company, during the year under review.

6. DISCLOSURES UNDER SECTION 134 (3) (l) OF THE COMPANIES ACT, 2013

No material changes and commitments which could affect your Companys financial position have occurred between the end of the financial year of your Company and date of this report.

7. SHARE CAPITAL

The paid up Equity Share Capital as on 31st March, 2019 was Rs. 578.80 Lakhs. During the year under review, your Company has not issued shares with differential voting rights nor granted stock options nor sweat equity. There was no change in your Companys share capital during the year under review. The Promoter and Promoter Group are holding 37,62,744 shares equivalent to 65.01% of the total Issued and Paid- up Share Capital.

8. DIRECTORS

8.1 Retirement by Rotation

Pursuant to Section 152(6) of the Companies Act, 2013 and in terms of the Articles of Association of your Company, Mr. Ajay Gehani, Executive Chairman, retires by rotation at the forthcoming Annual General Meeting. Being eligible, he offers himself for re-appointment.

8.2 Resignation of Woman Director and Chief Financial Officer

Mrs. Deepika Ajay Gehani, Woman Director and Chief Financial Officer of your Company resigned on 08th February, 2019. The Board of Directors places on records her sincere thanks and gratitude to the contribution made by her to the progress and growth of your Company.

8.3 Appointment and Re-Appointment of Director and Chief Financial Officer

Your Company has at its Board Meeting held on 08th February, 2019 appointed Mrs.ArundhatiMaliasWomanDirectorandChiefFinancialOfficerfora periodof5yearsw.e.f. 08th February, 2019 in place of Mrs. Deepika Ajay Gehani. The approval from Members has been proposed at Item No. 3 and 4 of the Notice of 45th Annual General Meeting. Your Company has at its Board Meeting held on 08th February, 2019 re-appointed Mr. Mohanram Pai and Mr. Rajesh Arora as Independent Directors for a second consecutive term of 5 years w.e.f. 01st April, 2019. The approval from Members has been proposed at Item No. 5 and 6 of the Notice of 45th Annual General Meeting.

8.4 Declaration by Independent Directors

Your Company has received declarations from the Independent Directors of your Company confirming that they meet with the criteria of independence as prescribed

both, under Section 149(6) of the Companies Act, 2013 and under Regulation 17 of the SEBI (LODR) Regulations, 2015.

8.5 Annual Board Evaluation

According to Regulation of 25(3) of the SEBI (LODR) Regulations, 2015 and Circular No. SEBI/HO/CFD/CMD/CIR/P/2017/004 dated 5th January, 2017 issued by SEBI on Guidance Note on Board Evaluation, a meeting of the Independent Directors was held on 08th February, 2019 to inter alia, evaluate the performance of the Non-Independent Directors, including the Chairman. The Board thereafter in its meeting held on the same day evaluated the performance of the Independent Directors.

8.6 Key Managerial Personnel

The following persons have been designated as Key Managerial Personnel of your Company pursuant to Section 2(51) and Section 203 of the Act, read with Rule 8(5)(iii) of the Companies (Accounts) Rules, 2014 framed thereunder:

1. Mr. Ajay Geheni, Managing Director

2. Mrs. Deepika Gehani, Whole Time Director - CFO*

3. Mrs. Arundhati Mali, Director - CFO$

*Resigned w.e.f. 08th February, 2019 $Appointed w.e.f. 08th February, 2019

None of the Key Managerial Personnel have resigned during the year under review.

8.7 Remuneration Policy

The Board has in accordance with the provisions of Section 178(3) of the Companies Act, 2013, formulated the policy setting out the criteria for determining qualifications, positive attributes, independence of a Director and policy relating to remuneration for Directors, Key Managerial Personnel and Senior Management Employees.

8.8 Board Meetings

A calendar of Meetings is prepared and circulated in advance to the Directors.

During the year your Company has held 5 (Five) Board Meetings which were held on 30th May, 2018; 14th August, 2018; 03rd November, 2018; 08th February, 2019 and 20th March, 2019. The maximum interval between any two meetings did not exceed 120 days.

9. PARTICULARS OF EMPLOYEES

During the year, there was no employee in receipt of remuneration in excess of limit as prescribed in the Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The prescribed Particulars of Employees as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is attached as "Annexure A" and form part of this Report.

10. DIRECTORS’ RESPONSIBILITY STATEMENT

To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134(3)(c) of the Companies Act, 2013:

a) that in the preparation of the Annual Financial Statements for the year ended 31st March, 2019, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b) that such accounting policies as mentioned in Note 4 of the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31st March, 2019 and of the profit of your Company for the year ended on that date;

c) that 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 your Company and for preventing and detecting fraud and other irregularities;

d) that the Annual Financial Statements have been prepared on a going concern basis;

e) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively;

f) that systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

11. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. We believe that these internal control systems provide, among other things, a reasonable assurance that transactions are executed with Management authorization and that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles and that the assets of your Company are adequately safeguarded against significant misuse or loss.

An independent Internal Audit function is an important element of your Companys internal control system. The internal control system is supplemented through an extensive internal audit programme and periodic review by Management and Audit Committee.

Your Company has in place, adequate Internal Financial Controls with reference to Financial Statements. During the year, such controls were tested and no reportable material weaknesses in the design or operation were observed.

The Audit Committee reviewed the audit program and findings of the Internal Audit department and your Company when needed takes corrective actions.

12. COMPANIES WHICH HAVE BECOME OR CEASED TO BE ITS SUBSIDIARIES, JOINT VENTURES OR ASSOCIATE COMPANIES

There are no companies which have become or ceased to be its Subsidiaries, Joint Venture or Associate Companies during the financial year 2018 - 19.

13. DEPOSITS

Your Company has not accepted deposit from the public and shareholders falling within the ambit of Section 73 of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014. Hence, the requirement for furnishing details of deposits which are not in compliance with the Chapter V of the Act is not applicable.

14. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

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.

15. RELATED PARTY TRANSACTIONS

A Related Party Policy has been adopted by the Board of Directors at its meeting held on 13th August, 2014 for determining the materiality of transactions with related parties and dealings with them. The Audit Committee reviews all related party transactions quarterly.

Further, the members may note that your Company has not entered into the following kinds of related party transactions:

- Contracts / arrangement / transactions which are not at arms length basis

- Any Material contracts / arrangement / transactions [as per Regulation 23 of the SEBI (LODR) Regulations, 2015]

16. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The criteria prescribed for the applicability of Corporate Social Responsibility under Section 135 of the Companies Act, 2013 is not applicable to your Company.

17. ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is annexed herewith as "Annexure B".

18. DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY

The nature of business is manufacturing of Jewellery. The inheritant risks to the business of your Company are as follows:

a. Foreign Exchange Risk

b. Gold Price Risk

c. Stiff Competition

d. Government Policy on import of gold

e. Risk elements in business transactions

f. Labour Risk

The prices of Jewellery consist of Gold, Diamonds & Labour, out of this three, Gold and diamonds consist of 90% of the price of Jewellery. Your Company has no control on the price of Gold and Diamonds and the same is available through Exchanges, Market and Banks. The said risk shall results in favourable / unfavourable to your Company. The nature of risk is dynamic of business and entrepreneurship.

Your Company has not formed Risk Management Committee as it is not applicable under Regulation 21 of the SEBI (LODR) Regulations, 2015.

19. VIGIL MECHANISM / WHISTLE BLOWER POLICY

Your Company has a vigil mechanism to deal with instance of fraud and mismanagement, if any. During the financial year 2017 - 18, in accordance with the Regulation 22 of the SEBI Regulations and pursuant to Section 177 (9) read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014, your Company has adopted a Whistle Blower Policy. Your Company promotes ethical behavior in all its business activities and has put in place a mechanism of reporting illegal or unethical behavior. As per the Whistle Blower Policy, the employees are free to report violations of laws, rules, regulations or un-ethical conduct to their immediate superior. The confidentiality of those reporting / violations is maintained and they are not subjected to any discriminatory practice.

20. 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 your Company and its future operations.

21. AUDITORS

21.1 Statutory Auditors

M/s. Pulindra Patel & Co., Chartered Accountants were appointed as Statutory Auditors of the Company for a period of 5 (Five) years from 2017 - 18 to 2021 - 22 at the 43rd Annual General Meeting held on 29th July, 2017. In view of the amendment to Section 139 of the Companies Act, 2013, the Company is not required to ratify the reappointment of the Statutory Auditor at every Annual General Meeting. Hence, the item of ratification of re-appointment of Statutory Auditor is not considered in this Annual General Meeting.

21.2 Statutory Auditors’ Observations

The Report given by the Auditors on the financial statements of your Company is part of the Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their Report.

21.3 Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, your Company has appointed M/s. P. P. Shah & Co., Practicing Company Secretary to undertake the Secretarial Audit of your Company. The Report of the Secretarial Audit Report is annexed herewith as "Annexure C".

21.4 Qualifications in Secretarial Audit Report

A. Appointment of Company Secretary:

As per Section 203 (1) (ii), the Company is required to appoint Company Secretary. The Company has not appointed Company Secretary, consequently the Annual Audited Financial Statements for the financial year ended 31st March, 2018 were not signed by Company Secretary. In this regard the management of the Company has provided the following reply:

(i) The Company has appointed Mr. Ajay Gehani, Managing Director as Compliance Officer of the Company who looks after the compliance of the Companies Act, 2013 and the SEBI Act and rules made thereunder.

(ii) The Company has availed the services of Practicing Company Secretary for advising on compliance of the Companies Act, 2013 and the SEBI Act and rules made thereunder.

(iii) The Volume and Scope of work for the Company Secretary is less and it is not a full time work and the job of Company Secretary is not attractive commensurate with the scope of work and salary.

B. Website Posting:

As per the various sections of the Companies Act, 2013, the SEBI (LODR) Regulations, 2015 and Secretarial Standard - 2, the Company is required to post various information / policies on the website of the Company. The Company has not posted any information / policies on the website of the Company. In this regard the management of the Company has provided the following reply:

(i) The Company has availed exemption under Regulation 15(2) in respect of website posting as per Regulation 46 of the SEBI (LODR) Regulation, 2015. However, the Company is filing regularly all the information with BSE and all the information is available on the website of BSE.

C. Composition of Nomination and Remuneration Committee:

In respect of the composition of the Nomination and Remuneration Committee, we observe as follows:

As per Section 178 of the Companies Act, 2013, the composition of Nomination and Remuneration Committee shall be as follows:

178 (1): "The Board of the Directors of every listed company and such other class or classes of companies, as may be prescribed shall constitute the Nomination and Remuneration Committee consisting of 3 or more non-executive directors out of which not less than one half shall be independent directors:

Provided that the chairperson of the company (whether executive or nonexecutive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee."

The Nomination and Remuneration Committee of the Company comprises of 2 Independent Directors and 1 Executive Director. In this regard, the Management has given the following reply:

"The Company has 4 Directors, out of them 2 are Executive and 2 are Independent Directors. Accordingly, the composition of the Board is such that the Nomination and Remuneration Committee cannot comprise of 3 Non-Executive Directors. Mr. Ajay Gehani, Executive Director is one of the member of the Committee. However, with the present composition of Nomination and Remuneration Committee, it has been ensured that majority remains with Independent Directors and accordingly, the spirit of Corporate Governance is achieved."

22. COMPLIANCE OF SECRETARIAL STANDARDS

During the year under review, your Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.

23. EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in Form MGT-9 is annexed herewith as "Annexure D".

24. HUMAN RESOURCES

The relations of the employees of your Company have been cordial during the year. Employees are considered to be team members being one of the most critical resources in the business which maximize the effectiveness of the Organization. Human resources build the Enterprise and the sense of belonging would inculcate the spirit of dedication and loyalty amongst them towards strengthening your Companys Polices and Systems. Your Company maintains healthy, cordial and harmonious relations with all personnel and thereby enhancing the contributory value of the Human Resources.

25. ENVIRONMENT AND SAFETY

Your Company is conscious of the importance of environmentally clean and safe operations. Your Companys policy requires conduct of operations in such a manner, so as to ensure safety of all concerned, compliances of environmental regulations and preservation of natural resources.

26. ENHANCING SHAREHOLDERS VALUE

Your Company believes that its Members are among its most important stakeholders. Accordingly, your Companys operations are committed to the pursuit of achieving high levels of operating performance and cost competitiveness, consolidating and building for growth, enhancing the productive asset and resource base and nurturing overall corporate reputation. Your Company is also committed to creating value for its other stakeholders by ensuring that its corporate actions positively impact the socio-economic and environmental dimensions and contribute to sustainable growth and development.

27. GREEN INITIATIVES

Electronic copies of the Annual Report 2018 - 19 and Notice of the 45th Annual General Meeting are sent to all members whose email addresses are registered with your Company / Depository Participant(s). For members who have not registered their email addresses, physical copies of the Annual Report 2018 - 19 and Notice of the 45th Annual General Meeting under Section 101 of the Companies Act, 2013 are sent in the permitted mode. Members requiring physical copies can send a request to your Company.

Your Company provides e-voting facility to all its members to enable them to cast their votes electronically on all resolutions set forth in the Notice. This is pursuant to the Section 108 of the Companies Act, 2013 and Rule 20 of the Companies (Management and Administration) Amendment Rules, 2015.

28. MANAGEMENT DISCUSSION AND ANALYSIS

As required under the Schedule V (B) of the SEBI (LODR) Regulations, 2015, report on "Management Discussion and Analysis" is attached and forms part of this Annual Report

29. CORPORATE GOVERNANCE

As per Regulation 15(2) of the SEBI (LODR) Regulations, 2015, the provisions of Corporate Governance are non-mandatory to the following class of Companies:

a. Companies having Paid-up Equity Share Capital not exceeding Rs. 10 Crore and Net worth not exceeding Rs. 25 Crore, as on the last day of the previous financial year;

Provided that where the provisions of Regulation 27 becomes applicable to a company at a later date, such company shall comply with the requirements of Regulation 27 within six months from the date on which the provisions became applicable to the company.

b. Companies whose equity share capital is listed exclusively on the SME and SME- ITP Platforms.

The Paid-up Share Capital of your Company is Rs. 5.79 Crores as on 31st March, 2019. The Reserve and Surplus is Rs. 8.44 Crores. Accordingly, the Paid-up Capital and Net Worth is below the prescribed limit for mandatory applicability of Corporate Governance clause as per Regulation 15(2)(a) of the SEBI (LODR) Regulations, 2015. Your Company has decided not to opt for compliance of Regulation 27 for the time being. The letter for the same has been filed with BSE on 28th May, 2019.

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

Your Company firmly believes in providing a safe, supportive and friendly workplace environment - a workplace where our values come to life through the supporting behaviours. Positive workplace environment and a great employee experience are integral part of our culture. Your Company believes in providing and ensuring a workplace free from discrimination and harassment based on gender.

Your Company educates its employees as to what may constitute sexual harassment and in the event of any occurrence of an incident constituting sexual harassment, your Company provides the mechanism to seek recourse and redressal to the concerned individual subjected to sexual harassment.

Your Company has a Sexual Harassment Prevention and Grievance Handling Policy in place to provide clarity around the process to raise such a grievance and how the grievance will be investigated and resolved. An Internal Complaints Committee has been constituted in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

No complaint has been raised during the year ended 31st March, 2019.

31. MD AND CFO CERTIFICATION

Certificate from Mr. Ajay Gehani, Managing Director and Mrs. Arundhati Mali, Director & CFO, pursuant to provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, for the year under review was placed before the Board of Directors of your Company at its meeting held on 28th May, 2019.

32. INDIAN ACCOUNTING STANDARDS (IND-AS)

Your Company has followed the relevant Accounting Standards notified by the Companies (Indian Accounting Standards) Rules, 2015 while preparing financial statements.

33. DISCLOSURE WITH RESPECT TO DEMAT SUSPENSE ACCOUNT/UNCLAIMED SUSPENSE ACCOUNT

As on 31st March, 2019, there are no outstanding shares lying in the demat suspense account / unclaimed suspense account.

34. CAPITAL EXPENDITURE

Capital Expenditure during the year, towards Tangible & Intangible Assets, amounted to Rs. 13.91 Lakhs which was spent on Plant & Machinery, Furniture and Fixture, Office Equipment, Vehicle and Computers.

35. SUBSIDIARY COMPANIES

Your Company has no Subsidiary Company.

36. PLEDGE OF SHARES

None of the equity shares of the Directors of your Company are pledged with any banks or financial institutions.

37. INFORMATION SYSTEM

In a business where information is critical, Information Technology plays a vital role, facilitating informed decision making to grow the business. Over the years, your Company has invested extensively in infrastructure, people and processes with the objective to capture, protect and transmit information with speed and accuracy.

38. LISTING WITH STOCK EXCHANGES

Your Company is listed with BSE Limited and your Company has duly paid the listing fees to the Exchange.

39. ACKNOWLEDGEMENTS

Your Directors thank the various Central and State Government Departments, Organizations and Agencies for the continued help and co-operation extended by them. The Directors also gratefully acknowledge all stakeholders of your Company viz. customers, members, dealers, vendors, banks and other business partners for the excellent support received from them during the year. The Directors place on record their sincere appreciation to all employees of your Company for their unstinted commitment and continued contribution to your Company.

40. CAUTIONARY STATEMENT

Statements in the Boards Report describing your Companys objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence your Companys operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors of Sovereign Diamonds Limited
Sd/- Sd/-
Place: Mumbai Ajay Gehani Arundhati Mali
Date: 28th May, 2019 Managing Director CFO