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Directors Report of Karnavati Finance Ltd.

Mar 31, 2015

Dear Members,

The Directors have the pleasure of presenting the Thirty First Annual Report of your Company together with the audited accounts for the year ended 31st March, 2015.

(Rs. In Lakh)

Particulars 2014-15 2013-14

Income from Finance Charge 47.58 37.43

Other Income - -

Total Revenue 47.58 37.43

Less: Total Expenses (80.81) (26.84)

Operating Profits (PBDT) (33.23) 10.59

Less: Depreciation 1.57 1.46

Profit Before Tax & Exceptional Items (34.80) 9.12

Less: Current Tax 2.72 4.65

Profit after Tax (37.52) 4.47

REVIEW OF BUSINESS OPERATION

During the year under review, your company has earned income of Rs. 47.58 Lakh from Finance Charges in financial year 2014-15 compared to the income of Rs. 37.43 Lakh of previous year which shows about 27% growth over the previous year. The overall increase in cost is due to higher amount of loan losses written off, provision for NPA and public issue related expenses written off during the financial year 2014-15. The Loss before Tax for the financial year 2014-15 stood at Rs. 34.80 Lakh as compared to Profit before Tax of Rs. 9.12 Lakh of previous year making total Net Loss of Rs. 37.52 Lakh for the financial year 2014-15 as compared to Net Profit of Rs. 4.47 Lakh of previous year.

DIVIDEND

In view of loss during the year, your Directors regret to declare dividend for the financial year 2014-15 (Previous year - NIL).

NET PROFIT TRANSFER TO RESERVE

In view of loss during the year, your Directors have not transferred any amount to any reserve for the financial year 2014-15 (Previous year - NIL).

INFORMATION ON BOARD OF DIRECTOR, KEY MANAGERIAL PERSONNEL AND ITS MEETINGS:

Composition:

The Board consist of four (4) members as on March 31, 2015, two (2) of whom are Promoters and Executive Directors (one is Managing Director and one is Whole-Time Director) and remaining two (2) are Independent Directors. Vide SEBI circular no. CIR/CFD/POLICY CELL/7/2014 dated September 15, 2014; the Company is not required to appoint Woman Director on the Board of the Company. The Composition of Board fulfills the requirements of Companies Act, 2013 and Clause 52 of Listing Agreement entered by the Company with BSE Limited (SME Segment).

Board Meeting:

Regular meetings of the Board are held at least once in a quarter. Additional Board meetings are convened to discuss and decide on various business policies, strategies and other businesses.

During the year under review, Board of Directors of the Company met 17 times. The details of Board meeting are provided in the Corporate Governance Report.

The gap between two consecutive meetings was not more than one hundred and twenty days as provided in section 173 of the Act.

Further, your Company has formed following Committees of the Board in accordance with Companies Act, 2013 and the Listing Agreement:

* Audit Committee

* Stakeholders' Grievances and Relationship Committee

The details of number of meetings of Committees, its composition, powers, terms of reference is provided under the corporate governance report section in this Annual Report.

Appointment, Re-appointment and Resignation of Directors:

During the year, the Board of Directors of the Company has appointed Mr. Jay Morzaria as a Managing Director of the Company and Mr. Raman Morzaria as a Whole Time Director of the Company w.e.f. July 1, 2014 for the period of five years i.e. up to June 30, 2019 in their Meeting held on June 10, 2014. Members have approved their appointment in their Extra Ordinary General meeting held on July 5, 2014.

Mr. Vineshkumar Makadia and Mr. Rajesh Lodaya have resigned from the Board w.e.f. July 3, 2014. Further, Mrs. Daxaben Morzaria has resigned from the Board w.e.f. July 15, 2014. The Board places on record their appreciation for the services rendered by them during their tenure with the Company.

The Board of Directors has, in their meeting held on July 24, 2014, appointed Mr. Jay Somaiya as an additional Director of the Company. Further, Mr. Kaushal Ruparel has been appointed as an Additional Director of the Company w.e.f. August 2, 2014. The Members, in their Last Annual General Meeting, have regularised them and appointed as Independent Directors of the Company to hold office for a period of five years w.e.f. September 6, 2014.

In accordance with the provisions of the Articles of Association and Section 152 of the Companies Act 2013, Mr. Raman Morzaria, Whole-Time Director of the Company, retire by rotation at the ensuring Annual General Meeting and being eligible, offer himself for re-appointment. The Board of Directors recommends his re-appointment on the Board of the Company.

Mr. Jay Morzaria, Managing Director and Mr. Raman Morzaria, Whole-Time Director are appointed as the Key Managerial Personnel of the Company as per the provisions of the Companies Act, 2013.

None of the Directors of the Company is disqualified for being appointed as Director as specified in Section 164 (2) of the Companies Act, 2013.

Declaration by Independent Directors:

The Company has received necessary declaration from each Independent Director under Section 149(7) of the Companies Act, 2013, to the effect that they meet the criteria of independence laid down in Section 149(6) of the Companies Act, 2013 and Clause 52 of the Listing Agreement. The terms and conditions of the Independent Directors are incorporated on the website of the Company.

SHIFTING OF REGISTERED OFFICE

The Board of Directors had decided to shift the Registered office of the Company from B-25, Mistry Building, Room No. 8, Bhat Bazar Keshavji Naik Road, Masjid Bandar, Mumbai - 400 009, Maharashtra to Unit No 2, Sagar Deep Darshan Co- Operative Housing Society Limited, S.V. Road, Borivali (W) Mumbai - 400 092, Maharshtra. Accordingly, the registered office of the Company has been changed to new address, within the city, w.e.f. July 23, 2014 by the Board of Directors.

CHANGE IN CAPITAL

During the year, the Authorized Share Capital of the Company has been increased from Rs. 5.00. 00.000/- divided into 50,00,000 Equity Shares of Rs. 10/- each to Rs. 10,00,00,000/- divided into 1,00,00,000 Equity Shares of Rs. 10/- each.

The Company has issued 20,00,000 Equity Shares of Rs. 10/- each amounting to total Rs. 2.00. 00.000/- to existing members and person other than existing members on September 27, 2014 on private placement basis. Further, during the year, Company has come up with Initial Public Issue of 25,80,000 Equity Shares of Rs. 10/- each amounting to total Rs. 2,58,00,000/-. The issue was open during Monday, January 19, 2015 to Wednesday, January 21, 2015. The issue was successfully subscribed by the public and the final allotment of the said 25,80,000 Equity Shares was made on January 31, 2015.

The Company has complied with all the requirement prescribed by the Companies Act, 2013 and SEBI regulation for increase in the authorized capital as well as issue of Shares. As at the end of Financial Year 2014-15, the total Paid - Up Equity Share Capital of the Company stood at 83,60,000 Equity Shares of Rs. 10/- each amounting to total Rs. 8,36,00,000/-.

LISTING OF SECURITIES

The company had made the application to BSE for Listing of its security on the BSE SME portal on February 02, 2015, pursuant to Initial Public issue of 25,80,000 Equity Shares of Rs. 10/- each. The BSE vide its letter dated February 04, 2015 has given final approval for listing and trading of 83,60,000 Equity Shares of Rs. 10/- each on BSE SME platform from Thursday, February 05, 2015 onwards.

PUBLIC DEPOSIT

The company has not accepted any deposits from the public. Hence, the directives issued by the Reserve Bank of India & the Provision of Section 73 to 76 of the Company Act, 2013 or any other relevant provisions of the Act and the Rules there under are not applicable.

PARTICULARS OF LOANS, GUARANTEES, INVESTMENTS & SECURITY

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

CORPORATE SOCIAL RESPONSIBILITY [CSR]

The Provisions of the CSR expenditure and Composition of Committee, as provided in the Section 135 of the Companies Act, 2013, are not applicable to the company. So Report on Annual performance of CSR activities is not applicable to the Company.

CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

All transactions to be entered by the Company with related parties will be in the ordinary course of business and on an arm's length basis. However, the Company has not entered into any related party transaction, as provided in Section 188 of the Companies Act, 2013, with the related party. Hence, Disclosure as required under Section 188 of the Companies Act, 2013 is not applicable to the Company.

EXTRACT OF ANNUAL RETURN

Pursuant to sub-section 3(a) of Section 134 and sub-section (3) of Section 92 of the Companies Act, 2013 read with Rule 12 of Companies (Management and Administration) Rules, 2014 the extract of the Annual Return as at March 31, 2015 in Form MGT-9, forms part of this Annual Report as Annexure - A.

PARTICULAR OF EMPLOYEES

The ratio of remuneration of each Director to the median employee's remuneration and other details in terms of sub-section 12 of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are forming part of this Annual Report as Annexure - B.

The details as required under section 197(12) of the Companies Act, 2013, read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel), 2014 is not applicable as there is no employee in the Company employed throughout the financial year with salary above Rs. 60 Lakh p.a. or employed part of the financial year with average salary above Rs. 5 Lakh per month.

Further, there is no employee employed throughout Financial year or part thereof, was in receipt of remuneration of in aggregate is in excess of that drawn by the Managing Director or Whole time Director or Manager and holds by himself or along with his spouse and dependent children, not less than Two percent (2%) of the Equity Shares of the Company.

ENERGY CONSERVATION, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The details of conservation of energy, technology absorption etc. as required to be given under section 134[3][m] of the Companies Act 2013 read with the Companies [Accounts] Rules, 2014, are not applicable to our Company, as our Company has not carried out in the manufacturing activities.

Further, there was no foreign exchange earnings and outgo during the financial year 2014-15 (previous year - Nil).

MATERIAL CHANGES AND COMMITMENT AFFECTING FINANCIAL POSITION OF THE COMPANY

There are no material changes and commitments, affecting the financial position of the Company which has occurred between the end of financial year of the Company i.e. March 31, 2015 and the date of Director's Report i.e. August 24, 2015.

SEXUAL HARASSMENT OF WOMEN AT WORKPLACE

There were no incidences of sexual harassment reported during the year under review, in terms of the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

HUMAN RESOURCES

During the year under review the employee attrition was minimal. The management continues its efforts in imparting professional training to Executives and Staff members at various levels with the view to upgrade their competence and managerial abilities. The Industrial relations in the company continued to be cordial in the year 2014-15.

BUSINESS RISK MANAGEMENT

The Company believes that it has internal controls and risk management systems to assess and monitor risks. The company has its management team which monitors and manages risks by monitoring trends that may have an effect on the economic environment and actively assesses on a routine basis the market value of the Company's loan book. The Company seeks to monitor and control its risk exposure through a variety of separate but complementary financial and operational reporting systems. The Company believes it has effective procedures for evaluating and managing the market, operational and other risks to which it is exposed. During the year, The Company has made Provision for NPA of Rs. 5.90 Lakh and written off Rs. 25.12 Lakh for Loan Losses.

CORPORATE GOVERNANCE

Your Company strives to incorporate the appropriate standards for corporate governance. Pursuant to Clause-52 of listing agreement to the Stock Exchange Corporate Governance Report and Practicing Company Secretaries' on its compliance is annexed and forms part of this report.

MANAGEMENT DISCUSSION AND ANALYSIS [MDA]

MDA, for the year under review, as stipulated under clause 52 of the Listing Agreement, is presented in a separate section forming part of this Annual Report.

AUDITORS

Statutory Auditor & their report:

The Company's Auditor, M/s. Maharishi & Co., Chartered Accountants, Jamnagar, [FRN: 124872W], who retires at the ensuing Annual General Meeting of the Company, are eligible for re-appointment. They have confirmed their eligibility under Section 141 of the Companies Act, 2013 and Rules made thereunder for reappointment as Auditors of the Company.

The Board of Directors, based on recommendation made by the Audit Committee, has recommended the appointment of M/s. Maharishi & Co., Chartered Accountants, Jamnagar, [FRN: 124872W] as the Statutory Auditors of the Company to hold the office from the ensuing AGM till the conclusion of the 36th AGM of the Company (subject to ratification of appointment at each subsequent Annual General meeting) on such remuneration as may be determined by the Board in consultation with the auditors.

The Auditors' Report on the accounts of the Company for the accounting year ended March 31, 2015 is self-explanatory and do not call for further explanations or comments that may be treated as adequate compliance of Section 134 of the Companies Act, 2013.

Secretarial Auditor & their report:

Pursuant to the provisions of section 204 of the Act and The Companies [Appointment and Remuneration of Managerial Personnel] Rules, 2014, the Company has appointed Mr. Anand S. Lavingia - Practicing Company Secretary to carry out the Secretarial Audit for the financial year ended on March 31, 2015. Secretarial Audit Report is attached to this report as Annexure - C.

The Secretarial Auditors' Report for the financial year ended on March 31, 2015 is self- explanatory and do not call for further explanations or comments that may be treated as adequate compliances of various act, rules, regulations, guidelines etc. as applicable to the Company.

DIRECTORS' RESPONSIBILITY STATEMENT

In terms of section 134[3][c] of the Act, your Directors state that:

I. in the preparation of the annual financial statements for the year ended on March 31, 2015, applicable accounting standards read with requirements set out under schedule III of the Act, have been followed along with proper explanation relating to material departures, if any,

II. such accounting policies have been selected and applied consistently and judgments and estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at March 31, 2015 and of the profit of the company for the year ended on that date,

III. proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for prevention and detection of fraud and other irregularities,

IV. the annual financial statements are prepared on a going concern basis,

V. proper internal financial controls are in place and that the financial controls are adequate and are operating effectively and

VI. the systems to ensure compliance with the provisions of all applicable laws are in place and are adequate and operating effectively.

GENERAL DISCLOSURE

Your Directors state that the Company has made disclosures in this report for the items prescribed in section 134[3] of the Act and Rule 8 of The Companies [Accounts] Rules, 2014 to the extent the transactions took place on those items during the year.

Your Directors further state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review:

1. Details relating to deposits covered under Chapter V of the Act.

2. Issue of Equity Shares with differential rights as to dividend, voting or otherwise.

3. Issue of shares (including sweat equity shares) to employees of the Company under any scheme save and ESOS.

4. Details of Subsidiary, Associates and Joint Venture Company

5. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future.

ACKNOWLEDGEM ENT

Your Directors wish to place on record their sincere appreciation for significant contributions made by the employees at all levels through their dedication, hard work and commitment, enabling the Company to achieve good performance during the year under review.

Your Directors also take this opportunity to place on record the valuable co-operation and support extended by the banks, government, business associates and the shareholders for their continued confidence reposed in the Company and look forward to having the same support in all future endeavors.

Registered Office By Order of the Board Unit No 2, Sagar Deep Darshan Co operative For, KARNAVATI FINANCE LIMITED Housing Society Limited, S.V. Road, Borivali (W), Mumbai, Maharashtra - 400 092 Jay Morzaria Raman Morzaria Place: Jamnagar Managing Director Whole-Time Director Date : August 24, 2015 DIN: 02338864 DIN: 00203310

 
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