DIRECTORS' REPORT Your Directors are pleased to present their 32nd Report on the business operations along with the Audited Financial Statements of your Company for the Financial Year ended March 31, 2015. CHANGE IN FINANCIAL YEAR The Company has obtained an approval of the Registrar of Companies, Maharashtra, under section 2 (41) of the Companies Act, 2013, vide their order dated November 17, 2014, to extend the Financial Year of the Company by a period of six months so as to end on March 31, 2015. Accordingly, the financial statements for the current period are for eighteen months. BUSINESS REVIEW & PROSPECTS The period under review saw new political dispensation at the centre and that, together with determined leadership at the Reserve Bank of India, saw renewed initiatives to deal with the NPAs in the banking sector through stricter controls and recapitalization. The new leadership at the Ministry of Finance also initiated measures to bring investors back to the capital market. Nonetheless, this period was tumultuous for the corporate sector with slowing growth and squeeze on liquidity due to banking sector problems inherited from the past. Fears of withdrawal of global liquidity through roll back of quantitative easing by western central banks helped create a feeling of uncertainty in the minds of domestic corporate leadership. Your company was also affected by these factors playing out in the economy and the larger corporate finance area, as plans to raise long term capital through the Private Equity route were largely kept on the back burner. However, there was also an opportunity for your company's advisory team in handling stressed assets and consequent sell down of distressed portfolios. There has been some turn around in corporate plans and as a consequence, your company sees significant rise in deal flow in the recent quarters. However, successful closure may take some time. As a consequence of this unwarranted action by the NSE, Prime Broking has filed a suit for damages in the Bombay High Court, along with the Appeal in the Hon'ble Supreme Court (in which SEBI, too, has been made one of the respondents). The corporate finance and advisory business has seen improvement in activities in this period, especially in the advisory part of handling of stressed assets and sell down of distressed portfolios. While there are numerous deals in the pipeline, closures of such deals could take time. Pursuant to clause 49 of the listing agreements with the stock exchanges, management discussion and analysis report giving a detailed account of the state of affairs of the Company is given as an annexure to this report. DIVIDEND The board of directors has not recommended any dividend on equity shares for the year under review. DIRECTORS In accordance with the provisions of section 161 of the Companies Act, 2013 read with the rules made there under, as amended from time to time, and article 94 of the articles of association, Ms. Alpana Parida was appointed as an additional director of the Company, for a term of five years with effect from March 27, 2015 to March 26, 2020, not liable to retired by rotation. Pursuant to the provisions of section 149 the Companies Act, 2013 read with the rules made there under, as amended from time to time, and clause 49 of the listing agreement with the stock exchanges, Mr. Pradip Dubhashi, Mr. Anil Dharker and Mr. S. R. Sharma, existing independent directors, were appointed independent directors of the Company, for a fresh term of five years w.e.f. March 27, 2015 to March 26, 2020 and shall not be liable to retire by rotation. Mr. N. Jayakumar, Managing Director, retires by rotation and being eligible, offers himself for re-appointment. Appropriate resolution for appointment / re-appointment is being placed before you for your approval at the ensuing annual general meeting. The information on the particulars of director seeking appointment / re-appointment, as required under clause 49 of the listing agreement, has been given as an annexure to the notice of annual general meeting in this annual report. The Company has received declaration form all the independent directors of the Company confirming that they meet the criteria of independence as prescribed under section 149 (6) of the Companies Act, 2013 and clause 49 of the listing agreement. NUMBER OF BOARD MEETINGS CONDUCTED DURING THE YEAR During the year under review, seven board meetings were conducted. BOARD EVALUATION Annual performance evaluation of board of directors, its committees and all the directors individually have been done in accordance with the performance evaluation framework adopted by the Company. The performance evaluation framework sets out the performance parameters as well as the process of the performance evaluation. Pursuant to the provisions of the Companies Act, 2013, a separate meeting of independent directors was held during the year to review the performance of (i) non-independent directors and the board of directors as a whole (ii) board committees (iii) the chairperson of the Company, taking into account the views of executive directors and non-executive directors (iv) assess the quality, quantity and timeliness of flow of information between the management and the board of directors that is necessary for the board of directors to effectively and reasonably perform its duties. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956, your Directors confirm that: 1. in the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures; 2. they have selected such accounting policies in consultation with the statutory auditors and applied them consistently and made judgements 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 on March 31, 2015 and of the profit / (loss) of the Company for the year ended on that date; 3. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding of the assets of the Company and for preventing and detecting fraud and other irregularities; 4. they have prepared the annual accounts on a going concern basis. CONSOLIDATED FINANCIAL STATEMENT The audited consolidated financial statement has been prepared by your Company in accordance with the generally accepted accounting principles in India (Indian GAAP) to comply with the accounting standards notified under section 211(3C) of the Companies Act, 1956 (which are deemed to be applicable as per section 133 of the Companies Act, 2013, read with rule 7 of the Companies (Accounts) Rules, 2014) and the relevant provisions of the Companies Act, 1956 or the Companies Act, 2013, as applicable and shows the financial information of the Company and its subsidiaries as a single entity, after elimination of minority interest, if any. As required under provisions of the Companies Act, 1956 or the Companies Act, 2013, as applicable and the listing agreement, the audited consolidated financial statement of the Company and all its subsidiaries together with auditor's report thereon forms part of this annual report. During the period, the consolidated revenues were Rs. (248.29) lacs as compared to Rs. (3,563.81) lacs in the previous period, which comprises merchant banking and advisory fees of Rs. 269.14 lacs, gain / (loss) on sale of investments, derivatives and other transactions of Rs. (1,263.51) lacs, Amounts written-back / provisions made and earlier no longer required / written-back of Rs. 677.42 lacs and income from dividend, interest & other income of Rs. 68.66 lacs. Extraordinary items of Rs. 591.92 lacs represent income from sale of PMS business of a subsidiary Company. The consolidated net loss after tax & extraordinary items for the period under review was Rs. 1,521.41 lacs as compared to Rs. 8,670.24 lacs in the previous period. SUBSIDIARY COMPANIES / JOINT VENTURES A statement containing the salient features of the audited financial statement of the subsidiaries for the year ended March 31, 2015 has been given as an annexure to the consolidated financial statements of the Company and forms part of this annual report. The policy for determining material subsidiaries has been placed on the website of the Company (www.primesec.com). Separate audited financial statements of each of the subsidiaries are available on the website of the Company (www.primesec.com ) and will also be kept open for inspection by any shareholder of the Company at the registered office of the Company and the same will also be made available to the shareholders seeking such information at any point of time. The summary of the performance of the subsidiaries is given below: Prime Broking Company (India) Limited Prime Broking Company (India) Limited ("PBCIL"), a wholly owned subsidiary of your Company, was at the receiving end of a series of moves by the National Stock Exchange of India Limited ("NSE") in the previous year, where changes in collateral rules were implemented on an arbitrary, retrospective basis by the NSE (to begin with) and subsequently, the unwillingness to sell collateral held by them resulted in a sharp decline in the value of the collateral pledged by PBCIL (on behalf of its clients) to the NSE - the latter declared PBCIL a defaulter and expelled PBCIL as a member of the exchange, an action followed by the Bombay Stock Exchange Limited ('BSE") in terms of the cross default clause of SEBI. The above actions of the exchanges had been challenged by PBCIL in the Securities Appellate Tribunal ("SAT"), which was dismissed by SAT in the month of June/July 2015. PBCIL has preferred an appeal in the Hon'ble Supreme Court against the order of SAT dismissing the appeals. As a consequence of this unwarranted action by the NSE, PBCIL has also filed a suit for damages in the Hon'ble High Court, which is pending hearing. The National Securities Clearing Corporation Limited ("NSCCL"), a subsidiary Company of NSE, has subsequently filed a petition in the Hon'ble Bombay High Court for winding up of PBCIL, which has been challenged by the Company. In view of the above eventualities, during the year, PBCIL has not been able to carry on any activities. Since the matter is sub-judice, it suffices to say that the company is taking all possible steps to arrive at a solution, while looking at other options to compensate for the loss in revenues. Further, to protect the interest of the portfolio management services ("PMS") clients, PBCIL sold its PMS business during the year to Religare Portfolio Managers & Advisor Private Limited and transferred all extant clients with the business. During the year, total revenues of PBCIL were Rs. (8.48) lacs as compared to Rs. 2,056.70 lacs in the previous year, which comprises of gain / (loss) on sale of investments of Rs. (12.03) lacs and income from securities, dividend & other income of Rs. 3.55 lacs. Extraordinary items of Rs. 591.92 lacs represent income from sale of PMS business. The net loss after tax & extraordinary items for the period under review was Rs. 591.38 lacs as compared to net loss after tax and extraordinary items of Rs. 371.97 lacs in the previous period. Primesec Investments Limited Primesec Investments Limited ("PIL") was incorporated in November 2007 to carry on investment activities. During the period under review, PIL earned revenues of Rs. (250.71) lacs as compared to Rs. (3,975.90) lacs in the previous period. This includes gain / (loss) on sale of investments and interest & dividend income. During the period, PIL incurred net loss after tax of Rs. 489.66 lacs vis-a-vis a net loss after tax of Rs. 4,479.09 lacs in the previous period. Prime Research & Advisory Limited Prime Research & Advisory Limited ("PRAL") has during the period under review earned revenues of Rs. Nil as compared to Rs. (341.83) lacs in the previous period. PRAL did not undertake any activities during the period under review. During the period, PRAL incurred net loss after tax of Rs. 3.31 lacs vis-a-vis a net loss after tax of Rs. 371.66 lacs in the previous period. Prime Commodities Broking (India) Limited Prime Commodities Broking (India) Limited ("PCBIL") was incorporated in 2006 to carry on broking and other related activities in the commodities markets. PCBIL did not undertake any activities during the period under review. During the period under review, PCBIL earned revenues of Rs. 41.65 lacs as compared to Rs. 0.53 lacs in the previous period. During the period, PCBIL earned a net profit after tax of Rs. 3.84 lacs vis-a-vis a net profit after tax of Rs. 0.03 lacs in the previous period. The Company has not entered into any Joint Ventures. CORPORATE GOVERNANCE AND CODE OF CONDUCT Pursuant to clause 49 of the listing agreements with the stock exchanges, report on corporate governance and a certificate from the statutory auditors, confirming compliance by the Company of the conditions of corporate governance as provided in clause 49 of the listing agreement, are given as an annexure to this report and form part of this annual report. Pursuant to the provisions of clause 49(II)(E) of the listing agreement, your Company has also laid down a code of conduct for its board members and senior management personnel. All the directors and the senior management personnel have affirmed compliance with the said code of conduct. A declaration by the managing director regarding compliance by board members and senior management personnel with the code of conduct for the period ended March 31, 2015 is annexed to this report. RELATED PARTY CONTRACTS & ARRANGEMENTS In accordance with the provisions of the Companies Act, 2013 and the listing agreement with the stock exchanges, the Company has formulated a policy on related party transactions and a copy of the same is available on the website of the Company (www.primesec.com). The policy intends to ensure that proper reporting, approval and disclosure processes are in place for all transactions with related parties and also deals with material related party transactions. All related party transactions are placed before the audit committee for necessary review and approval. Prior omnibus approval of the audit committee is obtained for transactions with related parties, which are repetitive in nature and/or are entered into in the ordinary course of business and are on an arm's length basis. All transactions entered into by the Company with related parties during the financial year were in ordinary course of business and are on an arm's length basis. Disclosure pursuant to accounting standards on related party transaction has been made in the notes to the audited financial statement. No material related party transaction were entered into during the year by the Company and accordingly, the disclosure of contracts or arrangements with related parties in accordance with the provisions of section 134(3)(h) of the Companies Act, 2013 in Form AOC-2 is not applicable. VIGIL MECHANISM The Company has established a vigil mechanism (whistle blower policy) for directors and employees to report genuine concerns, which provides for adequate safeguards against victimization of persons who avail of such a mechanism. A copy of the whistle blower policy is available on the website of the Company (www.primesec.com). EMPLOYEE STOCK OPTION SCHEMES The Company presently has three employee stock option schemes viz. Employee Stock Option Scheme 2007 (ESOS 2007), Employee Stock Option Scheme 2008 (ESOS 2008) and Employee Stock Option Scheme 2009 (ESOS 2009). The compensation committee of the board of directors has granted, to eligible employees / directors of the Company and subsidiary companies 999,000, 1,197,750 and 1,485,000 options pursuant to ESOS 2007, ESOS 2008 and ESOS 2009 respectively. The disclosures in accordance with the provisions of the Section 62(1)(b) of Companies Act, 2013 read with the Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014 (as amended from time to time), the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, are set out as an annexure to this report. The shares arising out of exercise of employee stock options are allotted in the name of the respective employees and accordingly, the provisions relating to disclosure of voting rights not exercised directly by the employees are not applicable. AUDITORS AND AUDITORS' REPORT M/s. Gandhi & Associates, Chartered Accountants, retire as statutory auditors at the ensuing annual general meeting and being eligible, offer themselves for re-appointment. The board of directors of the Company, based on the recommendation of audit committee, recommends the appointment of M/s. Gandhi & Associates, Chartered Accountants (Firm Registration No: 102965W) as statutory auditors of the Company, for a term of four years, commencing from the financial year 2015-16, subject to ratification by members at every annual general meeting. A certificate from them has been received, to the effect that their appointment as statutory auditors of the Company, if made, would be in accordance with the applicable provisions of section 139 and 141 of the Companies Act, 2013 and rules framed thereunder, as amended from time to time. Report given by the auditors on the audited financial statements of the Company is part of the annual report. Observations made in the auditors' report are self-explanatory and therefore, do not call for any further explanation. MATERIAL CHANGES AND COMMITMENT, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR TO WHICH THIS FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT No material changes and commitments affecting the financial position of the Company occurred between the end of the financial year to which this financial statements relate and the date of this report. EMPLOYEES The particulars of employees required to be furnished under section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended, forms part of this report. However, as per the provisions of section 219(1) (b)(iv) of the Companies Act, 1956, the reports and accounts are being sent to all the shareholders of the Company excluding the statement of particulars of employees. Any member interested in obtaining a copy may write to the Company at the registered office of the Company. PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Since the Company is not engaged in any manufacturing activity, the disclosures as required under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 pertaining to conservation of energy, etc. are not applicable. During the period, there were no earnings and expenditure in foreign exchange. LISTING & LISTING FEES The equity shares of the Company are listed on the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited and the listing fees for the year 2015-16 have been duly paid. ACKNOWLEDGEMENTS The board of directors wishes to place on record its sincere appreciation of the efforts put in by the Company's employees in this difficult environment. The board of directors also wishes to thank the Company's members, bankers and all other business associates for their unstinted support during the period. For and on behalf of the Board of Directors Pradip Dubhashi Chairman N. Jayakumar Managing Director Place : Mumbai Date : August 14, 2015 |