CORPORATE GOVERNANCE REPORT
(1) Corporate Governance - Philosophy :
The Company's philosophy of Corporate Governance is aimed at the attainment of highest level of transparency and accountability in all facets of its operations and assisting the top management of the Company in the efficient conduct of its business and in meeting its obligations towards all its stakeholders, employees and government.
(2) Board of Directors :
(A) Size and Composition of Board :
The constitution of the Board as on 31st March, 2014 is as under Until 27th March, 2014, size and composition of the Board was in align with Clause 49 of the Listing Agreement, when Mr. Chiman J. Sanghavi, Independent Director of the Company resigned from his post, effective from such date.
The composition of the Board of Directors of the Company with reference to number of Executive and Non-Executive Directors does not meet the requirement of Clause 49(1A) of the Listing Agreement as on date of signing this Report. However, the Company will comply with the Clause 49 of the Listing Agreement shortly.
(B) Board Meetings held during the Financial Year 2013-2014 :
During the Financial Year ended 2013-2014, seven Board Meetings were held on 1st April, 2013, 15th May, 2013, 23rd July, 2013, 14th August, 2013, 19th September, 2013, 14th November, 2013 and 14th February, 2014. The time gap between any two meetings was less than four months.
** Mr. Chiman J. Sanghavi, Independent Director of the Company resigned on 27th March, 2014.
( C ) Code of Conduct :
The Board of Directors of the Company have laid down Code of Conduct for all the Members and Senior Management Personnel of the Company for the year under review. All the Directors and Senior Management Personnel have confirmed their adherence to the provisions of this Conduct. A Declaration to this effect duly signed by Chairman & Managing Director is annexed hereto.
(3) Audit Committee:
Terms of reference :
The terms of reference of the Audit Committee include the matters specified under Clause 49 of the Listing Agreement entered into with the Stock Exchange as well as those in Section 177 of the Companies Act, 2013 and inter-alia includes the following
1) Overview of the Company's financial reporting process and the disclosure of its financial information to ensure that the financial statements reflect is true and fair position and that sufficient and credible information is disclosed.
2) Recommending the appointment and removal of external auditors fixation of audit fee and also approval for payment for any other services.
3) Discussion with the external auditors before the audit commences, of the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
4) Reviewing the financial statements and draft audit report, including the quarterly/half-yearly financial information.
5) Reviewing with the management the annual financial statements before submission to the Board, focusing primarily on:
a) any changes in accounting policies and practices;
b) major accounting entries based on exercise of judgment by management;
c) qualifications in draft audit report;
d) significant adjustments arising out of audit;
e) the going concern assumption;
f) compliance with accounting standards;
g) compliance with stock exchange and legal requirements concerning financial statements;
h) any related party transaction as per Accounting Standard 18.
6) Reviewing the Company's financial and risk management policies.
7) Disclosure of contingent liabilities.
8) Reviewing with the management, external and internal auditors, the adequacy of internal control systems.
9) Reviewing the adequacy of internal audit function, including the audit charter, the structure of the internal audit department, approval of the audit plan and its execution, staffing and seniority of the official heading the department, reporting structure, coverage and frequency of internal audit.
10) Discussion with internal auditors of any significant findings and follow-up thereon.
11) Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.
12) Looking into the reasons for substantial defaults in payments to the lenders and creditors.
13) Reviewing compliances as regards the Company's Whistle Blower Policy.
14) Audit Committee shall also act in accordance with the terms of reference specified in writing by the Board which shall include actions, among others, as per Section 177(4) of the Companies Act, 2013. Carrying out any other function as is mentioned in the terms of reference of Audit Committee as amended from time to time by the Listing Agreement and Companies Act, 2013.
Composition of the Audit Committee:
1) Shri Sudeep S. Roy (Independent Non-Executive Director
2) Shri Darshan L. Gandhi (Executive Director)
Mr. Chiman J. Sanghavi, the Independent Director of the Company has resigned from the Directorship of the Company w.e.f. 27th March, 2014. Hence, the composition of the Audit Committee does not meet with the requirement of Clause 49(IIA)(i) of the Listing Agreement as on the date of signing this Report. However, the Company will comply with Clause 49 of the Listing Agreement shortly.
The Audit Committee invites such of the Executives of the Company, as it considers appropriate. The Company Secretary acts as the Secretary of the Committee. The Audit Committee met on 14/5/2013, 18/7/2013, 12/8/2013, 11/11/2013 and 8/2/2014 (Total Five Meetings).
(4) Nomination and Remuneration Committee :
As on date, the Company has Remuneration Committee which is non-mandatory as per Listing Agreement. Mr. Sudeep S. Roy, an Independent Director, is the only Member of the Committee as on date after resignation of Mr. Chiman J. Sanghavi w.e.f. 27th March, 2014.
The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
The Nomination and Remuneration Committee shall, while formulating the policy ensure that —
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
Provided that such policy shall be disclosed in the Board's report.
Apart from above referred standards, the remuneration policy of the Company is based on review of achievements on periodical basis which is in consonance with prevalent industry practice. The terms of reference of Nomination and Remuneration Committee are to review and recommend the remuneration payable to the Managing Director and the Executive Director based on definite performance criteria, subject to the provisions of the Companies Act, 2013 and Schedule V of the said Act, approval of the Shareholders, and consent of the Central Government, if any.
(5) Stakeholders Relationship Committee :
As on date, the Company has Shareholders'/Investors' Grievances Committee. As per the Companies Act, 2013, Company shall rename Shareholders'/Investors' Grievances Committee as Stakeholders Relationship Committee and constitute in terms of Section 178 of the Companies Act, 2013.
The Stakeholders Relationship Committee, inter alia, approves issue of duplicate share certificates, oversees and review all matters connected with share transfer, transmission, etc. The Committee also looks into redressal of Shareholders complaints, related to share transfer/transmission, non-receipt of share certificates, non-receipt of annual reports, non-receipt of dividend, etc. The Committee oversees the performance of the Registrar & Transfer Agents and recommend measures for overall improvements in the quality of shareholders'/investors' services.
At the beginning of the year, there were no pending investor complaints. During the year, the Company has received 6 requests for change of address, issue of duplicate share certificates, non-receipt of rejected DRF, transfer / transmission of shares and other miscellaneous requests. All the requests have been dealt with appropriately.
The above statistics do not include inquiries initiated through regulatory authority. All inquiries have been properly & timely responded. However, no regulatory communication towards closure of these inquiries have been received by the Company.
(6) Management Discussion and Analysis Report :
a) Industry structure and Outlook :
With the liberalization and opening up of the economy, large number of corporate and multinational companies have entered into the housing construction activities. This has been instrumental for the housing construction industry getting more and more organized and structured and as a result, the industry has started adopting new standards in terms of quality, professionalism, timely delivery and after sales service. In the changing scenario, even the players in the un-organized sector are compelled to adopt the changes in the industry and therefore the housing industry has become not only competitive but also customer-services oriented, which has enormously benefited the end-user customer and promote long term interest of Housing Industry. Using the latest technology, methods, and providing better service to the clients is become concomitant of the real estate industry.
The change is observed in the current financial year, the shifting in the demand from high cost and large size luxury specification houses to moderate and low profile houses, the new units will be needed over the next decade to meet the demand among middle and lower middle income group and same will be concentrated in 8 to 10 tier II and tier III city in the country and such cities will emerge as growth centre.
Of late, builders and developers are offering schemes of constructing bungalows and row houses in the hinterland of nature as a second home on affordable price with luxurious amenities which is attracting the investors from Tier-I and Tier-II city.
The housing construction industry has also started adopting new design technology for better earthquake resistance. Further, due to improvement in the quality of basic materials as well as introduction of new finishing materials, the overall quality and appearance of the finished products has been improved substantially. The housing construction industry has also started adopting mechanized construction methods which help speedier completion of the projects.
To enhance quality basic comforts, endeavours are made by Builders and Developers to provide in the residential and commercial complex basic necessities such as continuous water supply, un-interrupted electricity, cooking gas, firefighters/fire-extinguishers, etc.
b) Strengths, Opportunities, Weaknesses And Threats :
i) Strengths :
• Capability to carry out large scale construction.
• Professional Management.
• In-house set up for architectural designs, project services and marketing.
• Number of options to finance housing and real estate projects such as Initial Public Offering (IPOs), Foreign Direct Investment (FDI), Venture Capital, Private Equity, Alternative Investment Market (AIM).
• Large population base, rising disposable income, rapid urbanization, nucleus families.
• Culture of nuclear family extended periphery of urban and suburban which enhance the scope of real estate activities. Rise in per capita income of such families create aspiration of quality of life.
• One of the fastest growing real estate markets in the world.
ii) Opportunities :
• Adequate demand for housing, especially in the real user-segment.
• As a parallel development, besides FDI, real estate funds are expected to pump money into the real estate sector.
• Prevalent government policies to encourage and promote housing construction Industry.
• Rapid urbanisation.
• Proposed law to reform the unregulated construction industry, enables the future deals more obvious and transparent, in turn it attracts great deal of capital, particularly from the upper and middle income categories.
• Entrance of real estate mutual funds in the capital market. Simultaneously to spur reforms in the property market.
• The shifting in the demand from big houses to small houses is an opportunity for the Company.
• Witnessing tremendous growth in Tier-I and Tier-II cities.
iii) Weaknesses :
• Housing sector is not accorded the status of an industry.
• Rent Control Act.
iv) Threats :
• Rising prices of basic and ancillary inputs.
• Increased competition due to entry of multinational and other foreign bodies through Foreign Direct Investment route.
• Proposed Bill on reform on unregulated construction and real estate industry may create legal intricacies which lead to market distortion and may discourage inflow of capital in the industry from the enthusiastic entrepreneur.
• Imposition of VAT/Service Tax on sale transaction which increase the cost of the product for the customer.
• Approvals required from multiple agencies are now highly time consuming and circuitous procedures lead to project delays and affect the marketability of the projects.
• Economic slowdown may impact the growth of real estate sector.
• Interest rates and credit squeeze reality sector may create financial bottle-necks in the long run.
• The pressure is on all the factors of cost of production which has cascading effect on the cost of construction.
The general policies either at national level or state level providing sufficient impetus to construction and real estate industry, on-going reforms may prove to be boon for constructions and real estate industry.
c) Outlook :
The experts in housing industry believe that future of the industry is having huge potential to grow. The housing industry is taking cue for the following positives :
• Increase of urban population in the years to come.
• Development of new urban areas, horizontal growth of Tier II and III cities, and effective utilization of prime land in large Tier I cities.
• Increase in number of middle class families.
• Expected increase in working population.
• Expected increase in income levels.
• Several other factors, such as rising incomes, evolving preferences. Emergence of nucleus families, tax incentives and home loan at competitive rates.
• The growth of new nuclear families out of split of joint families has extended the urban locality into extended suburbs which enhances the scope of development of real estate. Your Company is well placed to maximize the social economic trends of rapid urbanization emerging and aspiration of quality lifestyle of nuclear families due to rise in per capita income.
• Demographic and economies reform are driving India's growth. India's work force, on its way to becoming the youngest in the world, is expected to grow continuously over the next three to four decades.
• The Company is mainly focusing on construction of mass housing complexes with all basic and social infrastructural facilities with an objective to provide shelter to all segments of the society. The demand for housing in "Actual-user-Segment" is rising in Mumbai and its extended suburbs, where the Company is developing its major housing projects.
d) Risk and Concerns :
Even though, the Company has been so far successful in getting bookings for flats in its various mass housing projects in the initial launch period, after creating the basic infrastructural facilities, the changing trend in the housing sector whereby the customers prefer purchase of ready flats than booking of flats at the ground level is one of the major concern.
In the changed scenario, the Company is necessitated to either ploy its financial resources which further squeezes its liquidity position, or hive-off its on-going new projects to other developers for the timely completion of projects. This entails element of financial risk till the flats are booked. The alternative way is to embrace Joint Venture Model for project.
To contain inflationary elements in the economy, the Government of India and Reserve Bank of India has initiated fiscal and monetary measures. One of them is to increase the rate of interest which has direct impact on the loan disbursement by the Banks and Finance Companies.
VAT and Service Tax added in cost cascading effect in booking of residential and commercial properties. Further Banks and Finance Companies check minutely documents submitted for the disbursement of loans, making the process cumbersome and deter the sanctions of the loans.
e) Internal Control Systems and their adequacy :
The Company has a proper and adequate system of internal controls to ensure that all the assets are safeguarded and protected against loss from unauthorised use or disposition, and that transactions are authorised, recorded and reported correctly. A strong internal audit function and effective Audit Committee of the Board have strengthened the Internal Control within the organisation.
f) Material developments in Human Resources :
In mass housing business activities, role of employees is very vital. The Company's motto is to function economically, achieve the planned target in time and deliver quality products. Economy-Time-Quality aspects are pervasive in all activities of the Company.
As policy, the Chairman frequently conducts meetings of employees to appraise them about future plans of the Company. This provides an open forum for staff to express their views on various matters. It provides valuable feedback to assess opportunities, threats, strengths and weaknesses. The growth and development of the organization is based on growth and development of human resources though it is long, painstaking process, but it is committed goal of the organisation.
We believe that people are the most valuable assets of the Company as they contribute to the accomplishment of the business objectives. It is the Company's promises to deliver the culture that enhances employees morale. Facilitates effective performance through personal and professional development and challenges the employees potential.
All the endeavours are made at the site and office to motivate the employees to participate effectively in support of the Company's principles, values and visions to meet the enshrined goals of the organization.
The Company continued to knit in the core values namely customer focus, sustain the growth, total quality and integrity and all action and human resources practices. The business dynamics and challenges for increasing the need to focus and retaining the right talent while pruning the Company's cost effectiveness. Focusing on running the lean and efficient outfit. The idea is retaining the best talent through transfer and meritocratic evolution process. To bring the competence of the employees, the policy of investing in knowledge, training and development is continued and is being reviewed and followed regularly. Deserving employees are observed minutely and objectively for appreciation in terms of promotions and monetary rewards.
The number of persons directly employed by the Company is 102.
Cautionary Note : Certain Statements in the Management Discussion and Analysis Report may be forward-looking and are stated as required by applicable laws and regulations. Many factors and variables may affect the actual results which could be different from that the Directors envisage in terms of the future performance and outlook.
(7) Disclosures :
(a) Related party transactions :
Details of related party transactions entered into by the Company are included in the Notes to the Accounts No. 24.15. Such transactions are in the normal course of business and do not have potential conflict in the interests of the Company at large.
(b) During the year 2013-14, the Company has complied with all the provisions of the Companies Act, 2013, Listing Agreement and other applicable provisions, applicable laws, except compliance regarding composition of Directors under Clause 49 of Listing Agreement.
(c) Senior Management :
The Senior Management has made disclosures to the Board relating to all material, financial and commercial transactions stating that they did not have any personal interest that could result in a conflict with the interests of the Company at large.
(d) Accounting Standards :
The Company follows the applicable Accounting Standards issued by the Institute of Chartered Accountants of India from time to time.
(e) Risk Mitigation :
The Board periodically reviews the Company's risk profile and the Management plans to mitigate the potential risks.
The sales and project execution policy is liberally designed in such a manner so as to accommodate the new rules in execution of projects and such policy will not be a hurdle in the process of completion of the projects.
The Company has made efforts to boost sales by participating in the trade-fairs and exhibitions.
(f) Mandatory Requirements :
The Company has complied with mandatory requirements as stipulated in Clause 49 of the Listing Agreement.
(g) Adoption of non-mandatory requirements set-out in Clause 49 of the Listing Agreement is under consideration.
(h) The Company does not presently have a formal whistle-blower policy. However, no employee is denied access to the Audit Committee to register specific request / complaint under such policy.
(i) There are no instances of penalties, strictures imposed on the Company by Stock Exchange or SEBI or any other Statutory Authority, on any matter related to capital market during last three years.
(8) Secretarial Audit Report :
As stipulated by the Securities And Exchange Board of India (SEBI), Mr. Lalit K. Jain, a qualified Practicing Company Secretary carries out the Secretarial Audit to reconcile the total admitted capital with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and the total issued and listed capital. This audit is carried out every quarter and the report thereon is submitted to the Stock Exchange and is also placed before the Board of Directors. The audit, inter alia, confirms that the total listed and paid-up capital of the Company is in agreement with the aggregate of the total number of shares in dematerialized form (held with NSDL and CDSL) and total number of shares in physical form
Special Resolutions passed through the Postal Ballot procedure :
During the financial year 2013-2014, two Special Resolutions passed through Postal Ballot on 9th November, 2013 are :
a) Special Resolution U/s. 180(1)(c) of the Companies Act, 2013 to increase the borrowing upto Rs.2,500 Crores (Rupees Two Thousand Five Hundred Crores Only).
b) Special Resolution U/s. 180(1)(a) of the Companies Act, 2013 to create mortgage / charge /hypothecation on immovable and movable assets and properties of the Company in favour of lenders in respect of loans taken not exceeding Rs.2,500 Crores (Rupees Two Thousand Five Hundred Crores Only).
Details of Voting Pattern :
Shareholders gave assent of more than 99% for passing Special Resolutions in both the above matters as per report given by the Scrutinizer viz., Mr. Lalit K. Jain, a Practising Company Secretary who conducted the procedure of postal ballot.
Brief Resume of Directors :
A Brief Resume of Mr. Darshan L. Gandhi, Ms. Naina M. Shah and Mr.Sudeep S. Roy are given in the accompanying Notice convening the Annual General Meeting of the Company.
(10) Means of Communication :
During the year under review, the Quarterly Unaudited Financial Results and Annual Audited Financial Results of the Company are published in 'The Free Press Journal' and 'Navshakti' in compliance with the provisions of Clause 41 of the Listing Agreement. The Results are also posted on Company's website : www.lokhousing.com Half-yearly reports are not sent to each household of Shareholders. The proceedings of the Annual /General Meetings are submitted to the Stock Exchange shortly after the conclusion of the Meeting. No presentations were made to the institutional investors or to analysts during the year under review
(11) CEO / CFO Certification :
Pursuant to the provisions of Sub-clause V of Clause 49 of the Listing Agreement with the BSE Ltd., the Managing Director (CEO) had issued a Certificate to the Board for the financial year ended 31st March, 2014.
(12) Shareholders' General Information :
i. Annual General Meeting:
Details of Annual General Meeting
Day, Date & Time : Monday, 30th March, 2015 and 11:00 a.m.
Venue: Vishal Hall, Vishal Shopping Centre, Near HDFC Bank, Sir M.V. Road, Near Andheri Railway Station, Andheri(East), Mumbai 400 069'.
Financial Year : April to March.
Financial Calendar for 2013- 2014 (tentative)
Financial results for Financial Year 2013-2014 Publication in newspaper
• First quarter Results for Quarter ending 30th June, 2014. : 2nd week of August, 2014
• Second quarter Results for Quarter ending 30th September, 2014. : 2nd week of November, 2014
• Third quarter Results for Quarter ending 31st December, 2014. : 2nd week of February, 2015
iv. Dates of Book Closure : 26th March, 2015 to 30th March, 2015 (both days inclusive).
v. Dividend Payment Date : Not Applicable.
vi. Stock Exchanges where listed : BSE Limited.
vii. Stock Code : (500256)
Demat ISIN No. : INE367C01011.
ix. Registrar & Transfer Agents : LINK INTIME INDIA PVT. LTD. Address for correspondence : C-13, Pannalal Silk Mills Compound, L.B.S. Marg, Bhandup (W), Mumbai 400 078. Tel. Nos. : 25946970. Fax No. : 91-22-25946969. Email : firstname.lastname@example.org
x. Share Transfer System
Transfer of Shares in physical form is processed and approved as per provisions of the Companies Act, 2013 and guidelines laid down under Listing Agreement. As per SEBI guidelines, the Company has offered the transfer cum demat facility to the Shareholders so that Shareholders/Transferees can dematerialise their shares. In this regard, the Company has complied with all the rules, regulations and procedures as prescribed under the law.
Pursuant to SEBI (Depository & Participants) Regulations, 1996, Certificates have been received from Mr. Lalit K. Jain,
a Company Secretary in Practise for dematerialization of the shares and for conducting Secretarial Audit on quar basis for reconciliation of the shares/Share capital of the Company.
The Company also complied with the provisions of the Clause 47 ( C ) of the Listing Agreement.
xi. Distribution of shareholding as
xiv. Outstanding GDRs/ADRs/OFIs/FCCBs/Warrants : : Nil.
xv. Information about Subsidiary Company : : N.A.
xvi. Plant Locations : J-66, Plot No. 256, MIDC, Addl. Industrial Area, Murbad, Thane - 421 401.
xvii. Address for correspondence : Regd. Office : 4, Lok Bhavan, Ground Floor, Lok Bharati
Complex, Marol Maroshi Road, Andheri(E), Mumbai 400 059. CIN : L76210MH1985PLC037143 Tel. No. : 40494949 Fax No. : 29201727 Email : email@example.com Website : www.lokhousing.com