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DIRECTOR'S REPORT

Velan Hotels Ltd.

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Market Cap. (₹) 11.09 Cr. P/BV 0.59 Book Value (₹) 5.87
52 Week High/Low (₹) 7/2 FV/ML 10/1 P/E(X) 0.00
Bookclosure 27/09/2019 EPS (₹) 0.00 Div Yield (%) 0.00
Year End :2015-03 
DEAR MEMBERS,

The Directors have pleasure in presenting their 25th Annual Report together with the Audited Accounts of the Company for the year ended 31st March, 2015.

FINANCIAL HIGHLIGHTS                                   (Rs. in lakhs)

PARTICULARS                                          2014-15    2013-14
Profit before Interest and Depreciation and Tax 238.09 403.72

Less: Interest                                       1438.70     224.70

Profit/Loss Before Depreciation & Tax              (1200.61)     179.02

Less : Depreciation                                   220.75     118.47

Add : Exceptional Item                                  6.74       6.99

Profit/Loss Before Tax [PBT]                       (1414.62)      67.55
Less : Tax Expenses

      a.  Current Tax                                     --      12.75

      b.  Mat Entitlement                                 --    (12.75)

      c.  Deferred Tax                                 23.33       3.69

Profit / Loss After Tax                            (1391.30)      63.86

Balance b/f from previous years                       374.98     311.12
Balance to be carried over to Balance sheet (1016.32) 374.98

OPERATIONAL REVIEW:

During the year under review, your Company's hotels operations and finances were severely affected. The primary drivers of loss are borrowing cost for various components of the stalled projects and no income generated from them. Gross revenues decreased to Rs.1493.31 Lacs against Rs. 1575.43 Lacs in the previous year. Profit Before Interest, Depreciation and Taxation was Rs. 238.09 lacs against Rs. 403.72 Lacs in the previous year. After providing for Interest, Depreciation and Taxation of Rs.1438.70 Lacs & Rs. 220.75 Lacs respectively, the Net Loss of the Company for the year under review was placed at Rs.1391.30 Lacs as against Net Profit of Rs.63.86 Lacs in the previous year.

According to Accounting Standard 16, a Company should suspend capitalization of borrowing costs during extended periods in which it suspends active development of a qualifying asset i.e. project assets and such costs are costs of holding partially completed assets and do not qualify for capitalization. In view of the above, the entire borrowing cost incurred for all the components of the projects, which are stalled owing to paucity of funds, has been treated as expense and debited in the profit and loss account.

During the year under review, the pending receivables such as lease rentals, electricity charges, air conditioning charges and other operation charges from the tenants of the Shopping Mall have now been written-off.

STATE OF THE COMPANY'S AFFAIRS

The members are aware that the Company is implementing diversification cum expansions projects in a phased manner namely Shopping Mall, Multiplex Theater, 2.7 MW Bio-mass based co-gen power generation plant, Biomass Plantation, Convention Center and additions & renovation of existing hotels properties for which the Company was initially sanctioned credit facilities by both Allahabad Bank, Tirupur and Andhra Bank, Coimbatore. The Company subsequently was not extended timely support by the Banks, both in terms of additional debt funding required as well as alteration in the terms of the existing loans.

The original project cost for the entire development was Rs.124.42 crore for the above components. During the course of construction and subsequent discussions with the technical consulting agencies, it was realized that the project required substantial up-gradation thereby increasing the scope of overall project accordingly. This has necessitated significant and substantial addition of buildings and equipments for the project. All these have resulted in a thorough revision of the components of the project (including component of Bio Mass cultivation) resulting in a total project cost of Rs. 204.15 Crore (Rs.162.06 Crore in July 2012) in place of Rs.124.42 Crore as originally envisaged. Hence, the company was in need of further funding in respect of revision in the components of the project and slowed in the construction of the Projects due to change in scope of work primarily for the Renewable Energy Power Plant and the Hyper-mart and Multiplex.

* The shopping mall was formally launched in December, 2013. The most of occupants at the Mall either downed their shutters temporarily or withdrawn from their agreements entirely due to delays in the completion of the Multiplex and the Food Court. As a result, the occupants of the Mall declined to make payments their rentals, electricity charges and other operational charges.

* The construction of the Renewable Energy Power Plant has been completed. All the major equipments including the Gasifiers and Gensets have been installed. The balance works include the plant integration and automation. Due to the use of superior technology, this Renewable Energy Power Plant will have an effective output of 4.1 MW in Co-Gen.

* The Hyper-mart / Multiplex has been partially constructed. There have been significant changes in scope of work for this building. These changes are required to achieve a better construction quality and durability.

Owing to some changes in scope of work for the Renewable Energy Power Plant and the Hyper-mart and Multiplex primarily due to technical up-gradation, the Company approached the existing bankers for an additional financial assistance. Even though, the company was sanctioned the additional loan facility, there has been unexplained delay in the disbursement of loan and hence the cost of project escalated further. Moreover, apart from the delay, the major portion of amount of additional term loan was said to have been adjusted towards the dues of the Company. This has resulted in the deferring of completion and commissioning of these projects further.

The Company has provided a letter to the existing bankers during March, 2014 summarizing the situation and requesting to restructure its accounts as per certain guidelines issued by Reserve Bank of India for formation of Joint Lender Forum (JLF) for considering Corporate Debt Restructuring (CDR). The Company has made representation to the existing bankers on this aspect to invoke the said provision and undertake the restructuring of the debts to enable the interests of the banks and of the company for the project to be safeguarded. Despite, the restructure plan being very reasonable, there was no proper response but, however, there was an attempt to recall the entire loan in lump sum by treating the Company's account as one which became NPA (Non Performing Asset) and to recall the entire account from the existing banks invoking the Securitization Act under Section 13(2).

Your Company had received Notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI ACT") issued jointly by Allahabad Bank and Andhra Bank calling upon your Company to discharge the alleged outstanding liability together with interest and all other incidental expenses, to the Lender Banks within 60 (Sixty) days from the date of the Notice, failing which the Banks would exercise its rights under Section 13(4) of the SARFAESI Act with respect to the secured assets of the Company. The Guarantors for the above terms loans were also served the same notice. The Company's immovable properties are subject to matter of Notice of Possession issued by Banks then. Your Company has challenged the legality and validity of these notices and filed the stay petition before the Debt Recovery Tribunal ("DRT") at Coimbatore. The Company is in consultation with its legal advisers to take other steps as may be advised by the legal advisors to protect your Company's interests in these proceedings.

DIVIDEND:

In view of operating losses incurred during the year, your Directors do not recommend payment of any dividend. SHARE CAPITAL:

The paid up equity capital as on March 31, 2015 was Rs.3196.41 Lakhs. During the year under review, the company has not issued shares with differential voting rights nor granted stock options nor sweat equity.

TRANSFER OF AMOUNT TO RESERVE

As the company reported Loss after tax, the company does not propose to transfer any amount to reserves.

FIXED DEPOSITS

Your Company has not accepted any deposits within the meaning of Section 73 of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

The Company has not given any loans or guarantees covered under the provisions of Section 186 of the Companies Act, 2013. During the year under review, the Company has not made any investments as well.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The scope and authority of the Internal Audit function is defined in the Internal Audit Manual. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board & to the Managing Director.

The Internal Auditor monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, corrective action is taken in their respective areas and thereby strengthen the controls. Significant audit observations and recommendations along with corrective actions thereon are presented to the Audit Committee of the Board.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Since the Company does not come under "Corporate Social Responsibility" (CSR), applicability of the Annual Report on CSR activities is not annexed.

CONSERVATION OF ENERGY

a) The operations of the Company are not energy intensive. However, the Company ensures that all the operations are conducted in the manner whereby optimum utilisation and maximum possible savings of energy is achieved.

b) No specific investment has been made in reduction in energy consumption.

c) As the impact of measures taken for conservation and optimum utilisation of energy are not quantitative, its impact on cost cannot be stated accurately.

d) Since the Company does not fall under the list of industries, which should furnish this information in Form A annexed to the aforesaid Rules, the question of furnishing the same does not arise.

TECHNOLOGY ABSORPTION

The Company has no technical collaboration arrangement with any organization. The Company continues to absorb and upgrade modern technologies and advanced hotel management techniques in various guest contact areas, which includes wireless internet connectivity in the hotel.

FOREIGN EXCHANGE EARNINGS AND OUT-GO (Rs jn |akhs)

Foreign Exchange Earnings And Outgo       Current Year          Year

                                           2014-15              2013-14

1.    Earnings                              373.01              328.53

2.    Expenditure in Foreign Currency         Nil                 Nil
INDUSTRIAL RELATIONS

During the year under review, your Company enjoys cordial relationship with workers and employees at all levels. DIRECTORS AND KEY MANAGERIAL PERSONNEL

Whole-Time Directors Sri. M. R. Gautham and Sri. B. A. Madhusudhan retire by rotation and, being eligible, offer themselves for re appointment. The Directors recommend Sri. M. R. Gautham and Sri. B. A. Madhusudhan for re-appointment. If they are re-appointed as a director, immediately on retirement by rotation, they shall continue to hold office of Whole-time Directors and such re-appointment as director shall not be deemed to constitute break in their appointment as a Whole-time Director.

During the year under review, Smt. R. Lalitha, AGM - Finance & Accounts was promoted / appointed as Chief Financial Officer of the Company. In addition, Sri. E. V. Muthukumara Ramalingam, Managing Director, Sri. M. R. Gautham, Executive Director, Sri. B. A. Madhusudhan, Whole-time Director and Sri. M. Srinivasan, Company Secretary, are other KMPs as per the provisions of the Act and were already in office before the commencement of the Act. None of the KMPs resigned during the year.

All independent directors have given declarations that they meet the criteria of independence as laid down under section 149(6) of the Companies Act, 2013 and clause 49 of the Listing Agreement.

CHANGE IN THE NATURE OF BUSINESS

There is no change in the nature of business of the Company.

BOARD EVALUATION

Pursuant to the provisions of the Act and Clause 49 of the Listing Agreement, evaluation of every Director's performance was done by Nomination and Remuneration Committee. The performance evaluation of Non-Independent Directors and the Board as a whole, Committees thereof and Managing Director of the Company was carried out by the Independent Directors. Evaluation of Independent Directors was carried out by the entire Board of Directors excluding the Director being evaluated. A structured questionnaire was prepared after circulating the draft forms, covering various aspects of the evaluation such as adequacy of the size and composition of the Board and Committee thereof with regard to skill, experience, independence, diversity; attendance and adequacy of time given by the Directors to discharge their duties; Corporate Governance practices etc. The Directors expressed their satisfaction with the evaluation process.

The Policy on appointment of Directors and Senior Management, Policy on Remuneration of Directors and Policy on Remuneration of Key Managerial Personnel and Employees is stated in the Corporate Governance Report.

MEETINGS

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

During the year 6 Board Meetings and 4 Audit Committee Meetings were convened and held. The details of which are given in the Corporate Governance Report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013.

DIRECTOR'S RESPONSIBILITY STATEMENT:

In terms of Section 134 (3) ( c ) read with 134 (5) of the Companies Act, 2013, the Directors would like to state that:

i) In the preparation of the annual accounts, all the applicable Accounting Standards have been followed.

ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for the year under review.

iii) The Directors 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.

iv) The Directors have 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.

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

RELATED PARTY TRANSACTIONS:

During the year, the Company did not enter into any material transaction with related parties, under Section 188 of the Companies Act, 2013. All related party transactions that were entered into during the financial year were on arm's length basis and were in the ordinary course of the business. There are no materially significant related party transactions made by the Company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the Company at large.

All the related party transactions entered into by the Company in the ordinary course of business and were on an arm's length basis. The requirement of disclosure in the prescribed Form AOC-2 is reported in the Annexure-C1. Further, the Company's policy on Related Party Transactions is attached as part of this report vide Annexure C2, as required under the clause of the listing agreement as revised.

A resolution for a proposal for related party transaction with related party is placed before this Annual General Meeting for approval of members of the Company. The details of same are reported in the explanatory statement annexed to the notice of AGM.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE COMPANY WHICH HAVE OCCURRED BETWEEN MARCH 31,2015 AND MAY 28, 2015 (DATE OF THE REPORT)

There were no significant material changes and commitments affecting the financial position of the Company between the end of financial year and the date of the Report (May 28, 2015)

SUBSIDIARY COMPANIES

The Company does not have any subsidiary.

CODE OF CONDUCT

The Board of Directors has approved a Code of Conduct which is applicable to the Members of the Board and all employees in the course of day to day business operations of the Company. The Company believes in "Zero Tolerance" against bribery, corruption and unethical dealings / behaviours of any form and the Board has laid down the directives to counter such acts.

The Code lays down the standard procedure of business conduct which is expected to be followed by all the Directors and the designated employees in their business dealings and in particular on matters relating to integrity in the work place, in business practices and in dealing with stakeholders.

All the Board Members and the Senior Management personnel have confirmed compliance with the Code. All Management Staff have been given appropriate training in this regard.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

The Company has a vigil mechanism named Fraud and Risk Management Policy to deal with instance of fraud and mismanagement, if any.

The Company has a Fraud Risk and Management Policy to deal with instances of fraud and mismanagement, if any. The FRM Policy ensures that strict confidentiality is maintained whilst dealing with concerns and also that no discrimination will be meted out to any person for a genuinely raised concern.

A high level Committee has been constituted which looks into the complaints raised. The Committee reports to the Audit Committee and the Board.

PREVENTION OF INSIDER TRADING:

The Company has adopted a Code of Conduct for Prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated employees of the Company. The Code requires pre-clearance for dealing in the Company's shares and prohibits the purchase or sale of Company shares by the Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed. The Board is responsible for implementation of the Code.

All Board Directors and the designated employees have confirmed compliance with the Code.

AUDITOR'S REPORT/ SECRETARIAL AUDIT REPORT

The observation 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.

As required under section 204 (1) of the Companies Act, 2013 the Company has obtained a Secretarial Audit Report. Certain observation made in the report with regard to non- compliance with the requirement of Minimum Public Shareholding (MPS) under 40A of Listing agreement and SEBI Act, 1992 read with Section 12A of the Securities Contracts (Regulation) Act, 1956. The SEBI had passed an interim order during June 2013 with respect to the listed companies including our company who did not comply with requirement of the MPS. The Company made various correspondence and proper representation with SEBI to seek extension of time to comply with Clause 40A of the listing agreement and MPS norms on grounds that no revenue to be generated from the stalled projects owing to paucity of funds. The Company, in view of the said circumstances, requested SEBI to remove the sanctions imposed vide the said interim order. However, SEBI issued an ORDER dated 27th February, 2015 confirming the directions issued vide the Interim Order against the Company, its directors and promoters / promoters group. The Company / Promoters would ensure in future that all the provisions with regard to 40A of the Listing agreement and MPS norms are complied to the fullest extent.

AUDITORS

P. S. Krishnan & Co, Chartered Accountants, retire at the conclusion of the ensuing Annual General Meeting and being eligible offer themselves for re-appointment.

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

The Company has in place an Anti-Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. No complaints were received during the year 2014-15.

SECRETARIAL AUDIT

Pursuant to provisions of section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the company has appointed Sri. S. R. Baalaji, Company Secretaries in Practice to undertake the Secretarial Audit of the Company. The Secretarial Audit report is annexed herewith as "Annexure A"

EXTRACT OF ANNUAL RETURN

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

BUSINESS RISK MANAGEMENT

Pursuant to section 134 (3) (n) of the Companies Act, 2013 & Clause 49 of the listing agreement, the company has constituted a business risk management committee. The details of the committee and its terms of reference are set out in the corporate governance report forming part of the Boards report.

At present the company has not identified any element of risk which may threaten the existence of the Company, except high interest cost of borrowing.

STATEMENT UNDER COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014

The information required pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is provided in Annexure-D.

As there are no employees drawing remuneration of more than Rs.60 Lacs per annum or drawing remuneration of Rs.5 lacs per month if employed part of the year as required under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) rules 2014, no such information is reported.

CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION & ANALYSIS REPORTS

The Corporate Governance and Management Discussion & Analysis Report, which form an integral part of this Report, are set out as separate Annexures, together with the Certificate from the Auditors of the Company regarding compliance with the requirements of Corporate Governance as stipulated in Clause 49 of the Listing Agreement.

ACKNOWLEDGEMENTS

Your Company and its Directors wish to extend their sincerest thanks to the Members of the Company, Bankers, Professionals, State Government, Local Bodies, Customers, Suppliers, Executives, Staff and workers at all levels for their continuous co-operation and assistance.

                                     For and on behalf of the Board
                                       E. V. Muthukumara Ramalingam
                                                Managing Director &

Place : TIRUPUR                                       M. R. Gautham
Date : 28.05.2015                                Executive Director

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