Mukunda Industrial Finance Ltd. के निदेशक की रिपोर्ट

Mar 31, 2011

The Directors have pleasure in presenting the Company s 26th Annual Report together with the Audited Statement of Accounts for the year ended 31st March, 2011.

1. FINANCIAL PERFORMANCE : (Rs. in lacs)

Particulars 31-03-2011 31-03-2010

1.Gross Income 16.14 29.10

2.Staff Cost and Operative Expenses 46.97 73.54

3.Interest 2.04 61.09

4Profit (Loss) before Depreciation and Provisions (32.87) (105.53)

5.a) Depreciation 33.08 47.80

b)Deferred Revenue Expenditure 10.40 10.40

c) Deferred Tax - 19.40

d)Provisions as per RBI Norms - (97.22)

6.Profit (Loss) after tax for the year (76.35) (280.35)

7.Carried forward Loss (601.64) 525.29

The company has incurred a loss after tax of Rs. 76.35 lacs for the year as against a loss of Rs. 280.35 lacs in the previous year. No provision has been made for NPAs as against a provision of Rs. 99.22 lacs made in the previous year. There is a deferred revenue expenditure of Rs. 10.40 lacs in this year. Interest expenses for the year substantially declined to Rs. 2.04 lacs from Rs.61.09 lacs in the previous year due to non-provisioning of interest on deposits. There was a decrease in Depreciation, which was Rs. 33.08 lacs as against Rs. 47.80 lacs in the previous year. The carried forward loss now stands at Rs. 601.64 lacs.

Your Directors regret their inability to recommend any dividend in view of the accumulated losses.

2) OPERATIONAL REVIEW

This year the Company has incurred a Loss before depreciation, provisions and taxes to the extent of Rs. 32.87 lacs as against a Loss of Rs. 105.53 lacs in the previous year. NBFCs are facing basic questions about the viability of their business model. Several firms are finding it difficult to operate in an environment where money is scarce, defaults are becoming common, and asset-liability mismatches have become more the norm than the exception. At the heart of the problems being faced by NBFCs is the growing reluctance of banks to lend to such companies because the risks involved in doing so have increased. NBFCs have seen considerable business model shift over last decade because of regulatory environment and market dynamics. Majority of NBFCs were not able to face the pressure created on and were wiped out. However, over a period NBFCs have been able to expand their resource profile by diversifying the funding avenues. Further a strict control on asset quality and overheads, coupled with use of innovative borrowing tools such as securitization has resulted in improved profitability of NBFCs. As your company faces a serious liquidity crisis and of late has not been able to carry out any business activity the positive developments in the sector also will make sense only if the Company undergoes restructuring and resumes its normal business activities.

3. DEPOSITS

The total public deposits as on 31st March, 2011, were Rs. 373.95 lacs as compared to Rs. 379.09 lacs as on 31st March, 2010. The interest rates as revised with effect from 21st December, 2007 were in force throughout the financial year. The rate of interest paid on public deposits is within the ceiling rate prescribed by RBI.

As on 31st March, 2011, out of the public deposits, 627 accounts amounting to Rs. 335.16 lacs had matured for repayment and the claimed deposits could not be repaid due to the financial constraints. However, efforts are being made to repay these deposits at the earliest.

In view of the directions of RBI, the Company, as a matter of policy, has stopped accepting fresh deposits with effect from 5th March 2009.

After the Balance Sheet date (31.03.2011) the Reserve Bank of India vide its letter No. DNBS (BG) No. 1897/CMD / 01.02.166/2010-11 dated May 23, 2011, communicated to the Company that the Certificate of Registration has been cancelled under Section 45-IA(6) of the RBI Act, 1934.

4. RBI REGULATIONS

The Company has generally complied with the applicable regulations of the Reserve Bank of India. Important Circulars/Directions issued by RBI from time to time are:

a) Services to Persons with Disability:

In terms of DNBS .CC. PD. No. 191/ 03.10.01/2010-11 dated July 27,2010, NBFCs were advised that there shall be no discrimination in extending products and facilities including loan facilities to the physically/visually challenged applicants on grounds of disability and that they may also advise their branches to render all possible assistance to such persons for availing of the various business facilities. NBFCs were also directed to ensure redressed of grievances of persons with disabilities under the Grievance Redressed Mechanism already set up by them.

b) Provision of 0.25% for standard assets of NBFCs: In terms of Non- Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, and Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential

Norms (Reserve Bank) Directions, 2007, all NBFCs are required to make necessary provisions for non- performing assets. In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, RBI has decided to introduce provisioning for standard assets also.

c) Regulation of excessive interest charged by NBFCs: The directions to NBFCs were issued by Reserve Bank of India on January 2, 2009 vide Notification No. DNBS. 204/ CGM (ASR)-2009. According to the said Notification the Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium etc., and determine the rate of interest to be charged for loan and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. The rate of interest should be annualized rates so that the borrower is aware of the exact rates that would be charged to the account. The Company has a Manual of the Lending Policy as approved by the Board of Directors.

d) Reclassification of NBFCs: Earlier, the classification of NBFCs was Equipment Leasing, Hire Purchase, Investment Companies and Loan Companies. Consequent upon reclassification by RBI, companies financing real/physical assets for productive/economic activity are to be classified as Asset Finance Company and the remaining companies will continue to be classified as loan/investment companies. In the new structure the categories emerge as Asset Finance Company, Investment Company and Loan Company. According to Circular No. DNBS.PD.CC No. 128/ 03.02.059/2008-09 dated September 15, 2008 it has been decided that erstwhile EL/HP NBFCs should duly supported by Statutory Auditors Certificate as on March 31, 2008 approach the Regional Office for appropriate classification latest by December 31, 2008 after which NBFCs which have not opted for the classification would be deemed to be loan companies. Since our company has been in the business of Leasing and Hire Purchase Financing and more than 60% of the operational income comprised of income from leasing and hire purchase activities and the company s fixed assets comprised more than 60% of leased assets, the Company was classified as AFC-D and a fresh Certificate of Registration bearing No. 02.00071 dated August 28, 2007 was issued by the RBI. However, subsequently the Company has been classified as a Loan Company by the Reserve Bank of India vide its letter DNBS

(BG) No. 2774/01.02.166/2009-10 dated 8th March, 2010.

e) Monitoring of frauds in NBFCs: RBI had issued Company Circular No. 121 dated July 1, 2008, which was revised on August 14, 2008 vide Circular No. DNBS.PD.CC. No. 127/ 03.10.42/2008-09. As a result, NBFCs may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures. Updated guidelines for reporting frauds to RBI, Board and the police were issued along with the Circular.

Obligations of NBFCs under Prevention of Money Laundering Act (PMLA), 2002: NBFCs were advised by RBI vide Circular DNBS(PD).CC 68/03.10.042/ 2005- 06 dated April 5, 2006 to go through the provisions of PMLA, 2002 and the Rules notified there under and take all necessary steps to ensure compliance with Section 12 of PMLA, 2002 and report information in respect of all transactions referred to in Rule 3 to the Director, Financial Intelligence Unit-India (FIU-IND). NBFCs were also advised to ensure electronic filing of Cash Transactions Report (CTR) and Suspicious Transactions Report (STR) to FIU-IND. CTR should contain only the transactions carried out by the NBFCs on behalf of their clients/customers excluding transactions between the internal accounts of the NBFC. All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported to FIU-IND immediately in the prescribed format. These cash transactions should also include transactions where forgery of valuable security or documents has taken place and may be reported in plain text form. No transaction of suspicious nature or otherwise reportable has come to the notice of the Company.

The Prevention of Money Laundering (Amendment) Act, 2009 has come into force with effect from June 01, 2009 as notified by the RBI vide DNBS(PD). CC 164/03.10.042/ 2009- 10 dated November 13, 2009. In terms of Sub-Section 2(a) of Section 12 of The Prevention of Money Laundering (Amendment) Act, 2009, the records referred to in clause (a) of Sub-Section (1) of Section 12 shall be maintained for a period of ten years from the date of transaction between the clients and the banking company and in terms of Sub-Section 2(b) of Section 12 of the Act ibid, the records referred to in clause (c) of Sub-Section (1) of Section 12 shall be maintained for a period of ten years from the date of cessation of transaction between the clients and the banking company.

Accordingly, in modification of paragraph 4 of the Master Circular No.152/03.10. 42/2009-10 dated July 1, 2009, NBFCs were advised to maintain for at least ten years from the date of transaction between the NBFC and the client, all necessary records of transactions. However, records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills etc.) obtained while opening the account and during the course of business relationship, would continue to be preserved for at least ten years after the business relationship is ended.

f) Investments in FDs of SIDBI and NABARD: RBI amended the earlier directions issued vide Notification No. DFC.121/ED(G)-98 dated January 31, 1998 by new Notification No. DNBS (PD).205/CGM(PK)-2009 dated February 13, 2009 issued to all NBFCs accepting public deposits so as to allow investments in fixed deposits of SIDBI and NABARD for meeting the requirements of Section 45IB of Reserve Bank of India Act, 1934. However, the aggregate of the amount invested in unencumbered approved securities, term deposits and the bonds shall not be less than 15% of public deposits, as earlier.

g) NBFCs Auditor s Report :

The directions to the auditors of Non- Banking Financial Companies were issued by Reserve Bank of India on January 2, 1998 vide Notification No. DFC.117/DG (SPT)-98. The Directions have been consolidated and in supersession of the said Directions viz. the Non-Banking Financial Companies Auditor s Report (Reserve Bank) Directions, 1998 the new Directions were issued vide Notification No.

DNBS(PD)201 / DG(VL)/2008 dated

September 18, 2008. According to the new Directions, in addition to every report made by the auditor under Section 227 of the Companies Act, 1956 on the accounts, the auditor shall also make a separate report to the Board of Directors of the Company on the specified matters. Where, in the Auditor s Report, there is any unfavourable or qualified statement or in the opinion of the auditor the company has not complied with specified provisions and/ or about the non- compliance, it shall be the obligation of the auditor to make a report containing the details of such statement to the concerned Regional Office of the Department of Non- Banking Supervision of the Reserve Bank of India under whose jurisdiction the registered office of the company is located. The Auditor s Report dated 5th December, 2011 made as per the said directions does contain a few unfavourable or qualified statements, some of which are similar to the ones mentioned in the Auditor s Report to the members of the Company and replies thereto have been given in this Report elsewhere.

5. DIRECTORS

Sri Niranjan Gupta and Dr. Diliprao More resigned from the Board with effect from 14th June, 2011. The Board places on record its appreciation for their contribution and support during their tenure of office.

Pursuant to Section 260 of the Companies Act, 1956 and Article 96 of the Articles of Association of the Company the Board of Directors appointed Sri M.S. Bhanuprakash and Sri

H.M. Prashanth as Additional Directors with effect from 14th June, 2011. They are proposed to be appointed as Directors in the ensuing Annual General Meeting.

A brief profile of the Directors is given in the Explanatory Statement to the Notice convening the Annual General Meeting.

Necessary resolutions are submitted for your approval.

6. AUDITORS

The statutory auditors M/s. Venkat & Vasan, Chartered Accountants, hold office until conclusion of the ensuing Annual General Meeting and are recommended for re-appointment. A certificate from the auditors has been received to the effect that the re- appointment, if made, would be in accordance with Section 224(1B) of the Companies Act, 1956.

REPLY TO AUDITORS QUALIFICATIONS/ RESERVATIONS

The auditors have commented in point no. 1.d. of the Annexure to Auditors Report that the management has capitalized under fixed assets Accumulated Lease Equalization Net of Lease Adjustment Account to the extent of Rs. 47.01 lacs, which in their opinion should have been written off. Your Directors have to state that the capitalization was not done during the current year but has been brought over

a period of several financial years consistently in accordance with the Company s accounting policy. However, the management has decided to consider the recommendation of the auditors in the future years depending on the profitability of the Company keeping in view recognition of income as per AS-19 effective from 1.4.2001 and prior to 1.4.2001 and live and extended leases and realization on transfer.

In point no. 3.d. of the Annexure to Auditors Report the auditors have commented that there are overdue amounts in respect of loans/deposits given by the Company as specified in Notes on accounts under point 2(d). Your Directors have to state that the interest on ICDs has not been recognized in view of the fact that the amount is no longer realizable.

With regard to item 6 of the Annexure to Auditors Report your Directors have to state that all efforts are being made for repayment of deposits and interest on deposits received from small depositors under section 58AA of the Companies Act, 1956. Necessary steps will be taken to comply with the provisions of applicable laws. Similarly, the Company will comply with the directives issued by the Reserve Bank of India vide their letter No. 2774/ 01.02.166/2009-10 dated 8.3.2010.

With regard to item 7 of Annexure to Auditors Report that no internal audit or EDP audit was carried out during the financial year, your Directors have to state that in view of the fact that the Company was incurring losses it was not considered expedient to continue with the internal audit system as it was expensive. However, necessary steps will be taken to resume the internal audit in future.

The auditors have listed out and commented in point no 9(a) of annexure of their CARO report that statutory dues of PF, ESI, Profession Tax, TDS and KVAT amounting to Rs. 24.41 lacs have not been paid. Your directors have to state that the Company has since paid the KVAT dues of Rs. 5.12 lacs, however the other statutory dues could not be paid due to acute financial stringency faced by the Company and lack of working capital. The Company continues to face serious problems in respect of working capital. However, the management has issued instructions to the concerned department of the company to remit the dues on priority. The internal accruals of the Company have considerably reduced. All these factors made financial situation of the company very critical and the Company had to approach its bankers for one time settlement as a part of corporate debt restructuring to resolve the liquidity crisis. However, it will be the Endeavour of the company to make payment of above dues once the Company recovers from the current liquidity crisis.

In point no. 10 the Auditors have commented about non-provisioning of Rs. 440.63 lacs in respect of unsecured and doubtful advances and deposits, Net Investment on lease of Rs. 280.37 lacs and Rs. 16.36 lacs in respect of interest on deposits. Your Directors are of the opinion that some of these advances are still good in nature and

would be recovered in due course. However, suitable provisions will be made in the future years depending on profitability of the Company to comply with the recommendation of the Auditors.

The Auditors have commented in point no. 11 of Annexure of their report that the Bank (ING Vysya Bank Ltd) has filed a suit before the Debt Recovery Tribunal and obtained a decree against the Company. Your Directors have to state that the Company has already settled the dues to ING Vysya Bank Ltd under One Time Settlement scheme and the Bank has withdrawn the suit. The Company has also approached Karur Vysya Bank Ltd for One Time Settlement of their dues and the Bank has accepted our request.

7. PARTICULARS OF EMPLOYEES

None of the employees of the Company employed throughout the year or part of the year is in receipt of remuneration exceeding the limit prescribed under section 217(2A) of the Companies Act, 1956.

8. ADDITIONAL INFORMATION

Particulars pursuant to section 217(1) (e) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988.

A. CONSERVATION OF ENERGY AND TECHNOLOGY

The Company has no activity relating to consumption of energy or technology absorption.

B. FOREIGN EXCHANGE EARNING AND OUTGO

There was no foreign exchange earnings or outgo during the year.

9. STATUTORY DISCLOSURE

None of the Directors of the company is disqualified under the provisions of Section 274(1)(g) of the Companies Act, 1956. Your Directors have made necessary disclosures as required under various provisions of the Companies Act, 1956 and Clause 49 of the Listing Agreement.

10. DIRECTORS RESPONSIBILITY STATEMENT

The directors accept the responsibility for the integrity and objectivity of the Profit & Loss Account for the year ended March 31, 2011 and the Balance Sheet as at that date. As required under Section 217(2AA) of the Companies Act, 1956, the Directors of the Company hereby state that

1. In preparation of Annual Accounts for the year 2010-11, applicable Accounting Standards have been followed along with the proper explanation relating to material departures.

2. They have selected such Accounting Policies and applied them consistently and made judgments and estimates that are 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 that year.

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 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.

11. CORPORATE GOVERNANCE

A Report on Corporate Governance is given as Annexure-B to this report.

12. MANAGEMENT DISCUSSION AND ANALYSIS

The Report on Management s Discussion and Analysis forming part of this Annual Report is given as Annexure - A to this report.

13. ACKNOWLEDGEMENT

Your directors take this opportunity to place on record their appreciation for the support and co-operation extended by all the shareholders, depositors, hirers, lessees, other customers, bankers and look forward to their continued cooperation. Your directors also wish to place on record their appreciation for the support and co- operation extended by every member of Mukunda family at all levels and look forward to their continued support.

On behalf of the Board of Directors

B.R. Viswanath Setty

Chairman, & Managing Director

Bangalore 5th December, 2011

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Mar 31, 2010

The Directors have pleasure in presenting the Companys 25th Annual Report together with the Audited Statement of Accounts for the year ended 31st March, 2010.

1. FINANCIAL PERFORMANCE : (Rs. in lacs)

Particulars 31-03-2010 31-03-2009

1 Gross Income 29.10 102.22

2 Staff Cost and Operative Expenses , 73.54 115.10

3 Interest 61.09 90.98

4 Profit (Loss) before Depreciation and Provisions (105.53) (103.86)

5 a) Depreciation 47.80 65.38

b) Deferred Revenue Expenditure 10.40 10.40

b) Deferred Tax 19.40 119.76

c) Fringe Benefit Tax - 0.69

d) Provisions as per RBI Norms (97.22) (34.32)

6 Profit (Loss) after tax for the year (280.35) (94.89)

7 Carried forward Loss 525.29 244.94



The company has incurred a loss after tax of Rs. 280.35 lacs for the year as against a loss of Rs. 94.89 lacs in the preview year. An amount of Rs. 99.22 lacs is provided this year for NPAs as against Rs. 35.52 lacs of the previous year. There is a deferred revenue expenditure of Rs. 10.40 lacs in this year. No recovery of NPAs is registered this year as against a recovery of Rs. 1.20 lacs in the previous year. Interest expenses for the year substantially declined by 32.86 per cent to Rs. 61.08 lacs from Rs. 90.98 lacs in the previous year, and there was a substantial decrease in Depreciation, which was Rs. 47.79 lacs as against Rs. 65.38 lacs in the previous year. The carried forward loss now stands at Rs. 525.29 lacs. .

Your Directors regret their inability to recommend any dividend in view of the accumulated losses.

2) OPERATIONAL REVIEW

This year the Company has incurred a Loss before depreciation, provisions and taxes to the extent of Rs. 105.53 lacs as against a Loss of Rs. 103.86 lacs in the previous year. NBFCs are facing basic questions about the viability of their business mode). Several

firms are finding it difficult to operate in an environment where money is scarce, defaults are becoming common, and asset-liability mismatches have become more the norm than the exception. At the heart of the problems being faced by NBFCs is the growing reluctance of banks to lend to such companies because the risks involved in doing so have increased. NBFCs have seen considerable business model shift over last decade because of regulatory environment and market dynamics. Majority of NBFCs were not able to face the pressure created on and were wiped out. However, over a period NBFCs have been able to expand their resource profile by diversifying the funding avenues. Further a strict control on asset quality and overheads, coupled with use of innovative borrowing tools such as securitization has resulted in improved profitability of NBFCs. As your company faces a serious liquidity crisis and of late has not been able to.carry out any business activity the positive developments in the sector also will make sense only if the Company undergoes restructuring and resumes its normal business activities.

3. DEPOSITS

The total public deposits as on 31st March, 2010, were Rs. 379.09 lacs as compared to Rs. 445.60 lacs as on

31st March, 2009. The interest rates as revised witlv effect from 21st December, 2007 were in force throughout the financial year. The rate of interest paid on public deposits is within the ceiling rate prescribed by RBI. The Company continues to reduce its dependence on regulated deposits.

As on 31st March, 2010, out of the public deposits, 415 accounts amounting to Rs.240.67 lacs had matured for repayment and the claimed deposits could not be repaid due to the financial constraints. However, efforts are being made to repay these deposits at the earliest.

A total amount of Rs. 27.26 lacs was paid to 45 depositors during February and March 2010.

In view of the directions of RBI, the Company, as a matter of policy, has temporarily stopped accepting fresh deposits with effect from 5th March 2009.

4. RBI REGULATIONS

The Company has generally complied with the applicable regulations of the Reserve Bank of India. Important Circulars/Directions issued by RBI from time to time are:

a) Regulation of excessive interest charged by NBFCs: The directions to NBFCs were issued by Reserve Bank of India on January 2, 2009 vide Notification No. DNBS. 204/CGM (ASR)-2009. According to the said Notification the Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium etc., and determine the rate of interest to be charged for loan and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. The rate of interest should be annualized rates so that the borrower is aware of the exact rates that would be charged to the account. The Application Form of the Company and other documents contain the details as required by this Notification.The Company has a Manual of the Lending Policy as approved by the Board of Directors.

b) Reclassification of NBFCs: Earlier, the classification of NBFCs was Equipment Leasing, Hire Purchase, Investment Companies and Loan

- Companies. Consequent upon reclassification by RBI, companies financing real/physical assets for productive/economic activity are to be classified as Asset Finance Company and the remaining companies will continue to be classified as loan/ investment companies. In the new structure the categories emerge as Asset Finance Company, Investment Company and Loan Company. According to Circular No. DNBS.PD.CC No. 128/03.02.059/ 2008-09 dated September 15, 2008 it has been decided that erstwhile EL/HP NBFCs should duly supported by Statutory Auditors Certificate as on March 31, 2008 approach the Regional Office for appropriate classification latest by December 31, 2008 after which NBFCs which have not opted for the classification would be deemed to be loan companies. Since our company has been in the business of Leasing and Hire Purchase financing and more than 60% of the operational income comprised of income from leasing and hire purchase activities and the companys fixed assets comprised more than 60% of leased assets, the Company was classified as AFC-D and a fresh Certificate of Registration bearing No. 02.00071 dated August 28, 2007 was issued by the RBI. However, subsequently the Company has been classified as a Loan Company by the Reserve Bank of India vide its tetter DNBS (BG) No. 2774/ 01.02.166/2009-10 dated 8* March, 2010.

:) Monitoring of frauds in NBFCs: RB! had issued Company Circular No. 121 dated July 1,2008, which was revised on August 14, 2008 vide Circular No. DNBS.PD.CC. No. 127/03.10.42/2008-09. As a result, NBFCs may also report frauds perpetrated in their subsidiaries and affiliates/joint ventures. Updated guidelines for reporting frauds to RBI, Board and the police were issued alongwith the Circular.

Obligations of NBFCs under Prevention of Money Laundering Act (PMLA), 2002: NBFCs were advised by RBI vide Circular DNBS(PD).CC 68/ 03.10.042/2005-06 dated April 5, 2006 to go through the provisions of PMLA, 2002 and the Rules notified there under and take all necessary steps to ensure compliance with Section 12 of PMLA, 2002 and report information in respect of all transactions referred to in Rule 3 to the Director, Financial Intelligence Unit-India (FIU-IND). NBFCs were also advised to ensure electronic filing of

Cash Transactions Report (CTR) and Suspicious Transactions Report (STR) to FIU-IND. CTR should contain only the transactions carried out by the NBFCs on behalf of their clients/customers excluding transactions between the internal accounts of the NBFC. All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported to FIU- IND immediately in the prescribed format. These cash transactions should also include transactions where forgery of valuable security or documents has taken place and may be reported in plain text form. No transaction of suspicious nature or otherwise reportable has come to the notice of the Company.

The Prevention of Money Laundering (Amendment) Act, 2009 has come into force with effect from June 01, 2009 as notified by the RBI vide DNBS(PD). CC 164/03.10.042/2009-10 dated November 13, 2009. In terms of Sub-Section 2(a) of Section 12 of The Prevention of Money Laundering (Amendment) Act, 2009, the records referred to in clause (a) of Sub- Section (1) of Section 12 shall be maintained for a period of ten years from the date of transaction between the clients and the banking company and in terms of Sub-Section 2(b) of Section 12 of the Act ibid, the records referred to in clause (c) of Sub- Section (1) of Section 12 shall be maintained for a period of ten years from the date of cessation of transaction between the clients and the banking company.

Accordingly, in modification of paragraph 4 of the Master Circular No.152/03.10. 42/2009-10 dated July 1, 2009, NBFCs were advised to maintain for at least ten years from the date of transaction between the NBFC and the client, all necessary records of transactions. However, records pertaining to the identification of the customer and his address (e.g. copies of documents like passports, identity cards, driving licenses, PAN card, utility bills etc.) obtained while opening the account and during the course of business relationship, would continue to be preserved for at least ten years after the business relationship is ended.

d) Investments in FDs of SIDBI and NABARD:

RBI amended the earlier directions issued vide Notification No. DFC.121/ED(G)-98 dated January 31, 1998 by new Notification No. DNBS (PD).205/ CGM(PK)-2009 dated February 13, 2009 issued to all NBFCs accepting public deposits so as to allow investments in fixed deposits of SIDBI and NABARD for meeting the requirements of Section 45IB of Reserve Bank of India Act, 1934. However, the aggregate of the amount invested in unencumbered approved securities, term deposits and the bonds shall not be less than 15% of public deposits, as earlier.

e) NBFCs Auditors Report: The directions to the auditors of Non-Banking Financial Companies were issued.by Reserve Bank of India on January 2,1998 vide Notification No. DFC.117/DG (SPT)-98. The Directions have been consolidated and in supersession of the said Directions viz. the Non- Banking Financial Companies Auditors Report (Reserve Bank) Directions, 1998 the new Directions were issued vide Notification No. DNBS(PD)201/DG(VL)/2008 dated September 18, 2008. According to the new Directions, in addition to every report made by the auditor under Section 227 of the Companies Act, 1956 on the accounts, the auditor shall also make a separate report to the Board of Directors of the Company on the specified matters. Where, in the Auditors Report, there is any unfavourable or qualified statement or in the opinion of the auditor the company has not complied with specified provisions and/or about the non-compliance, it shall be the obligation of the auditor to make a report containing the details of such statement to the concerned Regional Office of the Department of Non-Banking Supervision of the Reserve Bank of India under whose jurisdiction the registered office of the company is located. The Auditors Report dated 14th October, 2010 made as per the said directions does contain a few unfavourable or qualified statements, some of which are similar to the ones mentioned in the Auditors Report to the members of the Company and replies thereto have been given in this Report elsewhere.

5. DIRECTORS

Sri G. Krishna Murthy and Sri Ravi M. Reddy resigned from the Board with effect from 25th January, 2010 and 12th April, 2010 respectively. The Board places on record its appreciation for their contribution and support during their tenure of office.

Board of Directors re-appointed Sri B.R. Viswanath Setty as Managing Director of the Company for a period of 5 years with effect from 1st June, 2010. This appointment is subject to the approval of the shareholders of the

Company at the ensuing AGM.

Sri Niranjan Gupta will retire by rotation at the ensuing AGM of the Company and, being eligible, offers himself for re-appointment. The Board recommends his re- appointment for consideration of the shareholders.

Profile of the retiring Director Sri Niranjan Gupta, as required by the revised Clause 49 (IV) (G) of the Listing Agreement entered into with Bombay Stock Exchange, is given in the Notice of this Meeting.

6. AUDITORS

The statutory auditors M/s. Venkat & Vasan, Chartered Accountants, hold office until conclusion of the ensuing Annual General Meeting and are recommended for re- appointment. A certificate from the auditors has been received to the effect that the re-appointment, if made, would be in accordance with Section 224(1 B) of the Companies Act, 1956

REPLY TO AUDITORS QUALIFICATION/RESERVATIONS

The auditors have commented in point no. 1 .d. of the Annexure to Auditors Report that the management has capitalised under fixed assets Accumulated Lease Equalisation Net of Lease Adjustment Account to the extent of Rs. 47.01 lacs, which in their opinion should have been written off. Your Directors have to state that the capitalisation was not done during the current year but has been brought over a period of several financial years consistently in accordance with the Companys accounting policy. However, the management has decided to consider the recommendation of the auditors in the future years depending on the profitability of the Company keeping in view recognition of income as per AS-19 effective from 1.4.2001 and prior to 1.4.2001 and live and extended leases and realisation on transfer.

With regard to item 6 of the Annexure to Auditors Report your Directors have to state that all efforts are being made for repayment of deposits and interest on deposits received from small depositors under section 58AA of the Companies Act, 1956. Necessary steps will be taken to comply with the provisions of applicable laws. Similarly, the Company will comply with the directives issued by the Reserve Bank of India vide their letter No. 2774/01.02.166/2009-10 dated 8.3.2010.

With regard to item 7 of Annexure to Auditors Report that no internal audit or EDP audit was carried out during the financial year, your Directors have to state that in view of the fact that the Company was incurring losses it was not considered expedient to continue with the internal audit system as it was expensive. However, necessary steps will be taken to resume the internal audit in future.

The auditors have listed out and commented in point no 9(a) of annexure of their CARO report that statutory dues of PF, ESI, Profession Tax, Service Tax and TDS amounting to Rs. 19.74 lacs have not been paid. Your directors have to state that the statutory dues could not be paid due to acute financial stringency faced by the Company and lack of working capital. The Company continues to face serious problems in respect of working capital. However, the management has issued instructions to the concerned department of the company to remit the dues on priority. The internal accruals of the Company have considerably reduced. All these factors made financial situation of the company very critical and the Company had to approach its bankers for one time settlement as a part of corporate debt restructuring to resolve the liquidity crisis. The non-payment of VAT amounting to Rs. 0.55 lacs is also owing to the aforesaid reason. However, it will be the ¦ endeavour of the company to make payment of above dues once the Company recovers from the current liquidity crisis.

In point no. 10 the Auditors have commented about non- provisioning of Rs. 333.66 lacs in respect of unsecured and doubtful advances and deposits, Net Investment on lease of Rs. 280.37 lacs and Rs. 29.65 lacs in respect of interest on term loan from M/s ING Vysya Bank Ltd Your Directors are of the opinion that some of these advances are still good in nature and would be recovered in due course. However, suitable provisions will be made in the future years depending on profitability of the Company to comply with the recommendation of the Auditors. Interest on term loan ¦ availed from M/s ING Vysya Bank Ltd was not provided (in view of the dispute) as the Company expects reversal of the same and also the Company is already in negotiation with the Bank for debt restructuring/one- time settlement of the dues. The impact of bank interest has been very heavy. Having regard to the losses incurred by the Company due to factors beyond its control and its inability in the existing circumstances to bear such a heavy burden of interest, the Company had approached the bankers for concessions and suitable reliefs but no positive outcome is noticed so far.

The Auditors have commented in point no. 11 of Annexure of their report that the Company had defaulted in repayment of term loan dues to their bankers. This has been adequately addressed in the report and once the-debt restructuring is finalized by the bankers this issue will be resolved. The Board of Directors is also studying alternative strategies for restructuring of the Company keeping in view the interests of its shareholders, bankers and depositors.

7. PARTICULARS OF EMPLOYEES

None of the employees of the Company employed throughout the year or part of the year is in receipt of remuneration exceeding the limit prescribed under section 217(2 A) of the Companies Act, 1956.

8. ADDITIONAL INFORMATION

Particulars pursuant to section 217(1)(e) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988.

A CONSERVATION OF ENERGY AND TECHNOLOGY, REASEARCH AND

DEVELOPMENT

The Company has no activity relating to consumption of energy or technology absorption. R and D Activity is not applicable for the company.

B. FOREIGN EXCHANGE EARNING AND OUTGO

There was no foreign exchange earning or outgo during the year.

9. STATUTORY DISCLOSURE

None of the Directors of the company is disqualified under the provisions of Section 274(1 )(g) of the Companies Act, 1956. Your Directors have made necessary disclosures as required under various provisions of the Companies Act, 1956 and Clause 49 of the Listing Agreement.

10. DIRECTORS RESPONSIBILITY STATEMENT

The directors accept the responsibility for the integrity and objectivity of the Profit & Loss Account for the year ended March 31, 2010 and the Balance Sheet as at that date. As required under Section 217(2AA) of the Companies Act, 1956, the Directors of the Company hereby state that

1. In preparation of Annual Accounts for the year 2009-10, applicable Accounting Standards have been followed along with the proper explanation relating to material departures.

2. They have selected such Accounting Policies and applied them consistently and made judgments and estimates that are 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 that year.

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 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.

11. CORPORATE GOVERNANCE

A Report on Corporate Governance is given as Annexure-B to this report.

12. MANAGEMENT DISCUSSION AND ANALYSIS

The Report on Managements Discussion and Analysis forming part of this Annual Report is given as Annexure - A to this report.

13. ACKNOWLEDGEMENT

Your directors take this opportunity to place on record their appreciation for the support and co-operation extended by all the shareholders, depositors, vehicle manufacturers, vehicle dealers, hirers, lessees, other customers, bankers and look forward to their continued cooperation. Your directors also wish to place on record their appreciation for the support and co-operation extended by every member of Mukunda family at all levels and look forward to their continued support.

On behalf of the Board of Directors

B.R. Viswanath Setty

Chairman & Managing Director

Place : Bangalore Date : 14th October,2010

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Mar 31, 2009

The Directors have pleasure in presenting the Companys 24th Annual Report together with the Audited Statements of Accounts for the year ended 31st March, 2009.



FINANCIAL PERFORMANCE : (Rs. in lacs)

Particulars 31 -03-2009 31-03-2008

1 Gross Income 102.22 274.05

2 Staff Cost and Operative Expenses 115.10 93.61

3 Interest 90.98 125.38

4 Profit (Loss) before Depreciation and Provisions (103.86) 55.06

5 a) Depreciation 65.38 67.71

b) Deferred Revenue Expenditure 10.40 -

b) Deferred Tax (119.76) 11.38

c) Fringe Benefit Tax 0.69 0.56

d) Provisions as per RBI Norms 34.32 (17.03)

6 Profit (Loss) after tax for the year (94.89) (7.56)

7 Carried forward Loss 244.94 150.05

The company has incurred a loss after tax of Rs. 94.89 lacs for the year as against a loss of Rs. 7.56 lacs in the previous year. An amount of Rs. 35.52 lacs is provided this year for NPAs as against Rs. 4.77 lacs of the previous year. There is a deferred revenue expenditure of Rs. 10.40 lacs in this year. Recovery of NPAs was Rs. 1.20 lacs as compared to Rs. 21.79 lacs in the previous year. Interest expenses for the year substantially declined 27.44 per cent to Rs. 90.98 lacs from Rs. 125.38 lacs in the previous year, and there was a nominal decrease in Depreciation, which was Rs. 65.38 lacs as against Rs. 67.71 lacs in the previous year. The carried forward loss now stands at Rs. 244.94 lacs.

Your Directors regret their inability to recommend any dividend in view of the losses incurred by the Company.

2) OPERATIONAL REVIEW

This year the Company has incurred a Loss before depreciation, provisions and taxes to the extent of Rs. 103.86 lacs whereas there was a profit before depreciation, provisions and taxes of Rs. 55.06 lacs in the

previous year. As the global financial crisis intensifies, NBFCs are facing basic questions about the viability of their business model. Several firms are finding it difficult to operate in an environment where money is scarce, defaults are becoming common, and asset-liability mismatches have become more the norm than the exception. At the heart of the problems being faced by NBFCs is the growing reluctance of banks to lend to such companies because the risks involved in doing so have increased as a few investment banks across the world have gone bankrupt and this fact has highlighted growing credit risks in the global financial system.

While competition remained stiff, the company was able to contain the losses based on its ability to provide greater value addition and deliver a consistently high level of service to its customers.

A business agreement was entered into with Shriram Transport Finance Company Limited during the financial year 2005-06. Subsequently, a Joint Venture Agreement was made on 1st August 2008 (effective from 14th July

2008) superseding the earlier agreement with a duration of one year and with an option to renew or extend the duration of the term on mutual agreement of both the parties. The Company saw a good potential for growth in this arrangement as it was a non-fund based activity but on account of certain internal constraints this business did not yield the expected results. However, the Company has registered a turnover of Rs. 305.71 lacs under this portfolio during the financial year 2008-09 and it is not expected to increase during the current year.

3. DEPOSITS

The total public deposits as on 31st March, 2009, were Rs. 445.60 lacs as compared to Rs. 536.69 lacs as on 31st March, 2008. The interest rates as revised with effect from 21st December, 2007 were in force throughout the financial year. The rate of interest paid on public deposits is within the ceiling rate prescribed by RBI. The Company continues to reduce its dependence on regulated deposits.

As on 31st March, 2009, out of the public deposits, 331 accounts amounting to Rs. 174.56 lacs had matured for payment which were yet to be claimed by the depositors, out of which 94 accounts amounting to Rs. 41.48 lacs have since been repaid/renewed and the balance of 237 accounts amounting to Rs. 133.08 lacs are yet to be claimed. Necessary steps have been taken for the payment of these accounts. In view of the directions of RBI the Company, as a matter of policy, has temporarily stopped accepting fresh deposits with effect from 5th March 2009.

4. RBI REGULATIONS

The Company has complied with all the applicable regulations of the Reserve Bank of India. Important Circulars/Directions issued by RBI during the year are:

a) Regulation of excessive interest charged by NBFCs : The directions to NBFCs were issued by Reserve Bank of India on January 2, 2009 vide Notification No. DNBS. 204/CGM (ASR)-2009. According to the said Notification the Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk

premium etc., and determine the rate of interest to be charged for loan and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rates of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter. The rate of interest should be annualized rates so that the borrower is aware of the exact rates that would be charged to the account. The Company has a Manual of the Lending Policy as approved by the Board of Directors.

b) Reclassification of NBFCs : Earlier, the classification of NBFCs was Equipment Leasing, Hire Purchase, Investment Companies and Loan Companies. Consequent upon reclassification by RBI, companies financing real/physical assets for productive/economic activity are to be classified as Asset Finance Company and the remaining companies will continue to be classified as loan/investment companies. In the new structure the categories emerge as Asset Finance Company, Investment Company and Loan Company. According to Circular No. DNBS.PD.CC No. 128/ 03.02.059/2008-09 dated September 15,2008 it has been decided that erstwhile EL/HP NBFCs should duly supported by Statutory Auditors Certificate as on March 31, 2008 approach the Regional Office for appropriate classification latest by December 31,2008 after which NBFCs which have not opted for the classification would be deemed to be loan companies, Since our company is in the business of Leasing and Hire Purchase Financing and more than 60% of the operational income comprises of income from leasing and hire purchase activities and the companys fixed assets comprise more than 60% of leased assets, the Company has been classified as AFC-D and a fresh Certificate of Registration bearing No. 02.00071 dated August 28,2007 in lieu of earlier COR dated April 20, 1998 has already been issued by the RBI.

c) Monitoring of frauds in NBFCs: RBI had issued Company Circular No. 121 dated July 1, 2008, which was revised on August 14, 2008 vide Circular No. DNBS.PD.CC. No. 127/03.10.42/2008-09. As a result, NBFCs may also report frauds perpetrated in their

subsidiaries and affiliates/joint ventures. Updated guidelines for reporting frauds to RBI, Board and the police were issued alongwith the Circular.

d) Obligations of NBFCs under Prevention of Money Laundering Act (PMLA), 2002 : NBFCs were advised by RBI vide Circular DNBS(PD).CC 68/ 03.10.042/2005-06 dated April 5,2006 to go through the provisions of PMLA, 2002 and the Rules notified there under and take all necessary steps to ensure compliance with Section 12 of PMLA, 2002 and report information in respect of all transactions referred to in Rule 3 to the Director, Financial Intelligence Unit-India (FIU-IND). NBFCs were also advised to ensure electronic filing of Cash Transactions Report (CTR) and Suspicious Transactions Report (STR) to FIU-IND. CTR should contain only the transactions carried out by the NBFCs on behalf of their clients/customers excluding transactions between the internal accounts of the NBFC. All cash transactions, where forged or counterfeit Indian currency notes have been used as genuine should be reported to FIU-IND immediately in the prescribed format. These cash transactions should also include transactions where forgery of valuable security or documents has taken place and may be reported in plain text form. These guidelines were issued vide DNBS(PD). CC 126/03.10.042/2008-09 on August 5, 2008 under Section 45K and 45L of the Reserve Bank of India Act, 1934. No transaction of suspicious nature or otherwise reportable has come to the notice of the Company.

e) Investments in FDs of SIDBI and NABARD: RBI

amended the earlier directions issued vide Notification No. DFC.121 /ED(G)-98 dated January 31,1998 by new Notification No. DNBS (PD).205/CGM(PK)-2009 dated February 13,2009 issued to all NBFCs accepting public deposits so as to allow investments in fixed deposits of SIDBI and NABARD for meeting the requirements of Section 45IB of Reserve Bank of India Act, 1934. However, the aggregate of the amount invested in unencumbered approved securities, term deposits and the bonds shall not be less than 15% of public deposits, as earlier.

f) NBFCs Auditors Report : The directions to the auditors of Non-Banking Financial Companies were issued by Reserve Bank of India on January 2, 1998 vide Notification No. DFC.117/DG (SPT)-98. The Directions have been consolidated and in supersession of the said Directions viz. the Non-Banking Financial Companies Auditors Report (Reserve Bank) Directions, 1998 the new Directions were issued vide Notification No. DNBS(PD)201/DG(VL)/2008 dated September 18, 2008. According to the new Directions, in addition to every report made by the auditor under Section 227 of the Companies Act, 1956 on the accounts, the auditor shall also make a separate report to the Board of Directors of the Company on the specified matters. Where, in the Auditors Report, there is any unfavourable or qualified statement or in the opinion of the auditor the company has not complied with specified provisions and/or about the non-compliance, it shall be the obligation of the auditor to make a report containing the details of such statement to the concerned Regional Office of the Department of Non- Banking Supervision of the Reserve Bank of India under whose jurisdiction the registered office of the company is located. The Auditors Report dated 29th September, 2009 made as per the said directions does contain a few unfavourable or qualified statements, which are similar to the ones mentioned in the Auditors Report to the members of the Company and replies thereto have been given in this Report elsewhere.

5. DIRECTORS

Sri B.S. Santhosh resigned from the Board with effect from 4th August, 2008, Sri S.N. Venkatesh resigned from the Board with effect from 20th October, 2008 and Sri K.R. Sreenivasulu resigned from the Board with effect from 31st March, 2009. The Board places on record its appreciation of their valuable services rendered by them during their tenure as Directors of the Company.

Dr. Diliprao More was appointed as an Additional Director with effect from 2nd May 2009. By virtue of the provisions of Article 96 of the Articles of Association of the Company and Section 260 of the Companies Act, 1956 Dr. More will hold office until the date of the Annual General Meeting.

Notice has been received from a member of the Company under Section 257 of the Companies Act, 1956 for the appointment of Dr. More as Director.

Mr. Ravi M. Reddy, Director, retires by rotation at the ensuing AGM of the Company and, being eligible, offers himself for re-appointment. The Board recommends his re-appointment for consideration of the shareholders.

Profiles of these Directors, as required by revised Clause 49 (IV) (G) of the Listing Agreement are given in the Notice of this Meeting.

6. AUDITORS

M/s Venkat & Vasan, Chartered Accountants, the Auditors of the Company hold office until conclusion of the ensuing Annual General Meeting and are recommended for re- appointment. A confirmation from the auditors has been received to the effect that the re-appointment, if made, would be in accordance with Section 224(1 B) of the Companies Act, 1956.

REPLY TO AUDITORS QUALIFICATIONS/RESERVATIONS

The auditors have commented in point no. 1 .d. of the Annexure to Auditors Report that the management has capitalised under fixed assets Accumulated Lease Equalisation Net of Lease Adjustment Account to the extent of Rs. 47.01 lacs, which in their opinion should have been written off. Your Directors have to state that the capitalisation was not done during the current year but has been brought over a period of several financial years consistently in accordance with the Companys accounting policy. However, the management has decided to consider the recommendation of the auditors in the future years depending on the profitability of the Company keeping in view recognition of income as per AS-19 effective from 1.4.2001 and prior to 1.4.2001 and live and extended leases and realisation on transfer.

With regard to item 6 of the Annexure to Auditors Report your Directors have to state that all efforts are being made for repayment of deposits and interest on deposits received from small depositors under section 58AA of the Companies Act, 1956. Necessary steps will be taken to comply with the provisions of applicable laws. Similarly, the Company will comply with the directives issued by the Reserve Bank of India vide their letter No. 01/02/166/ 2008-09 dated 3.3.2009.

With regard to item 7 of Annexure to Auditors Report that no internal audit was carried out during the financial year, your Directors have to state that in view of the fact that the Company was incurring losses it was not considered expedient to continue with the internal audit system as it was expensive. However, necessary steps will be taken to carry out the internal audit during the current year.

The auditors have commented in point no 9.a. of annexure of their CARO report that statutory dues of PF from June 2008 to March 2009 amounting to Rs. 6.15 lacs have not been paid. Your directors have to state that the Provident Fund could not be deposited due to acute financial stringency faced by the Company and lack of working capital. The management has issued instructions to the concerned department of the company to remit the dues on priority. The internal accruals of the Company have considerably reduced due to global recession. All these factors made financial situation of the company very critical and the Company had to approach its bankers for one time settlement as a part of corporate debt restructuring to resolve the liquidity crisis. The non- payment of VAT amounting to Rs. 0.55 lacs is also owing to the aforesaid reason. However, it will be the endeavour of the company to make payment of above dues once the Company recovers from the current liquidity crisis.

In point no. 10 the Auditors have commented about non- provisioning of Rs. 230.06 lacs in respect of unsecured and doubtful advances and Rs. 29.65 lacs in respect of interest on term loan from M/s ING Vysya Bank Ltd. Your Directors are of the opinion that some of these advances are still good in nature and would be recovered in due course. However, suitable provisions will be made in the

future years depending on profitability of the Company to comply with the recommendation of the Auditors. Interest on term loan availed from M/s ING Vysya Bank Ltd was not provided (in view of the dispute and one time settlement in progress) as the Company expects reversal of the same and also the Company is already in negotiation with the Bank for one-time settlement of the dues.

The Auditors have commented in point no 11 of annexure of their report that the Company had defaulted in repayment of term loan dues to their bankers. This has been adequately addressed in the report and once the one-time settlement/debt restructuring is finalized by the bankers this issue will be resolved.

7. PARTICULARS OF EMPLOYEES

None of the employees of the Company employed throughout the year or part of the year is in receipt of remuneration exceeding the limit prescribed under section 217(2A)ofthe Companies Act, 1956.

8. ADDITIONAL INFORMATION

Particulars pursuant to section 217(1 )(e) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988.

A. CONSERVATION OF ENERGY AND TECHNOLOGY

The Company has no activity relating to consumption of energy or technology absorption.

B. FOREIGN EXCHANGE EARNING AND OUTGO

There was no foreign exchange earning or outgo during the year.

9. STATUTORY DISCLOSURE

None of the Directors of the company is disqualified under the provisions of Section 274(1 )(g) of the Companies Act, 1956. Your Directors have made necessary disclosures as required under various provisions of the Companies Act, 1956 and Clause 49 of the Listing Agreement.

10. DIRECTORS RESPONSIBILITY STATEMENT

As required under Section 217(2AA) of the Companies Act, 1956, your Directors hereby confirm that they have

a. followed in the preparation of the Annual Accounts the applicable accounting standards with proper explanation relating to material departures, if any;

b. selected such accounting policies 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 at the end of the financial year and of the profits/losses of the Company for the year under review;

c. taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

d. prepared the accounts for the financial year on a going concern basis.

11. CORPORATE GOVERNANCE

Your company has substantially complied with the mandatory requirements and also substantial part of the Non-Mandatory requirements of Corporate Governance Code prescribed under amended Clause 49 of the Listing Agreement.

A Report on Corporate Governance along with Compliance Certificate is given as Annexure-B to this report.

12. MANAGEMENT DISCUSSION AND ANALYSIS

The Report on Managements Discussion and Analysis forming part of this Annual Report is given as Annexure - A to this report.

13. ACKNOWLEDGEMENT

Your directors take this opportunity to place on record their appreciation for the support and co-operation extended by all the shareholders, depositors, vehicle manufacturers, vehicle dealers, hirers, lessees, other customers, bankers and look forward to their continued cooperation. Your directors also wish to place on record their appreciation for the support and cooperation extended by every member of Mukunda family at all levels and look forward to their continued support.

On behalf of the Board of Directors

B.R. Viswanath Setty

Chairman & Managing Director

Place : Bangalore

Date : 29th September, 2009

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Mar 31, 2000

The Directors have pleasure in presenting the Fifteenth Annual Report together with the Audited Statement of Accounts for the year ended 31 st March 2000.

FINANCIAL RESULTS:

31-03-2000 31-03-1999

Gross Income 517.85 505.26

Profit Before Depreciation and Tax 240.63 257.30

Depreciation 151.01 174.09

Profit after Depreciation 89.62 83.21

Adjustment for Lease Termination 7.64 (0.02)

Profit Before Taxation 81.98 83.23

Provision for Taxation 30.00 30.00

Balance Brought Forward 86.22 78.86

Profit Available For Appropriation 137.83 132.09

Appropriation :

Transfer to Statutory Reserve 10.40 10.65

Proposed Dividend free of Tax 36.21 31.73

Distribution Tax 4.16 3.49

Surplus Carried Forward 87.06 86.22

DIVIDEND

Your Directors are pleased to recommend a dividend of 7% free of tax on Companies Equity Share Capital and in proportion to the amount paid up in the case of partly paid up shares for the year 1 999-2000.

REVIEW OF OPERATIONS

Economic Scenario

The much-expected.recovery of the Indian economy has started and the Indian Economy has grown by 5.9% during the year 1 999-2000. The Industrial recovery appears to be underway from the cyclical downturn of the previous two years. Gross Domestic products from manufacturing have almost doubled to 7% in 1999-2000 from 3.6 in 1 998-99. The construction and infrastructure sectors also improved markedly. The inflation rate dropped to international level of 2 to 3 percent for the first time in decades. However the financial deficit of the central pool continues unabated and finances of many states are in poor condition. The Indian Economy was able to sustain the shocks of the East Asian Crisis and post-Pokhran sanctions and still maintained low current account deficit, with sufficient capital inflow. The exchange rate also remained relatively stable.

In the automobile sector, the sales have increased during the year. Sales of medium and heavy commercial vehicles and cars have also increased.

With the return of the political stability, satisfactory growth in Agricultural production, opportunities provided by the phenomenal growth in the IT sector, improvements in Indo- US relations especially in economic front, it is expected that the Indian economy will show good improvement.

The Reserve Bank of India Regulations

There has been no major change in the NBFC regulations except :

a) NBFCs are permitted to maintain 5% of the Public Deposits in the form of unencumbered term Deposits with any scheduled commercial bank out of the present total requirement of Statutory Liquid Reserves @ 15%

b) NBFCs having less than Rs.50 crores networth can not open branches outside the state where they are registered for deposit mobilisation. The existing branches are allowed to continue.

Prudential Norms

Your company continues to comply with all the norms prescribed without exception. The total provision for the Non Performing Assets upto the end of the year is at Rs. 13.51 lakhs, which is 0.67 % of the total business assets of the company and it continues to be one of the lowest among financial institutions. There have been some recoveries against the provisions previously made.

IV. Capital Adequacy:

The capital adequacy Ratio continues to be high at 41 % as against 15% required.

V. Operations :

Your companys performance for the year has shown improvement over the previous year.

The Business volumes of the company continued the upward trend during the latter half-year under review. Your Directors are happy to inform that the business volumes of the company under leasing and hire purchase have increased to Rs. 747.24 lakhs, which is 40 % more than that of the previous years volumes. The company also had higher bills discounting business.

The current year s gross income has increased to Rs. 51 7.85 lakhs as against Rs. 505.26 lakhs of the previous year.

Your company has achieved a profit after depreciation of Rs. 89.62 lakhs as against Rs. 83.21 lakhs in the previous year.

The main income of the company continues to be from leasing and hire purchase activities. The income from leasing and hire purchase are spread over the period of the transaction, which is between 3-5 years. The company mainly due to suddenness of the NBFC regulations causing dislocation to decision making process and sluggish industrial growth had a reduction in business

volumes during 1997-98. This reduction has an impact on the current years profitability, even though there has been increase in the business volumes during the year. The increase in the business volumes particularly in transport sector will improve the profitability in the coming years.

NON-CONVERTIBLE SECURED DEBENTURES :

The non convertible secured debentures launched during the last quarter of the previous year; under the trusteeship of the Karnataka State Financial Corporation (KSFC) has been a success and the company was able to mobilise an amount of Rupees one hundred lakhs, under First Series .

The Second series of debentures launched on 1sl March 2000, also under the trusteeship of the KSFC, has since mobilised an amount of Rs. 27.49 lakhs.

BRANCH NETWORK

Your directors are happy to inform that one more Branch of the company was opened at AnantapurjAndhra Pradesh) just before the new regulations came into force. The newly opened Btanch is performing satisfactorily both in Deposit mobilisation and operational fronts.

DEPOSITS

The modified regulation issued by the Reserve Bank of India during December, 1998 under which your company could mobilise deposits up to Rs. 10 crores , gave impetus to the company to strengthen its Deposit base. The company during the year was able to mobilise additional public deposits of Rs.72.12 lakhs in addition to Rs. 101.29 lakhs under Non Convertible Debentures, which supported the companys growth during the year under review.

As the company was able to mobilise sufficient fund base for the planned business activities, a policy decision was taken to go-slow on the acceptance of public deposits with effect from 1st March 2000. However existing deposits can be renewed as per the terms and conditions of the company.

During the second half of the year under review most of the leading banks, financial Institutions and NBFCs reduced the rate of interest on the deposits. To bring the rate of interest on fixed deposits in line with other financial institutions and also to improve the profitability ,your company marginally reduced the rate of interest on fixed deposits. This reduction is expected reduce the cost of funds which facilitates reduction in lending rates of thecompany to keep in step with competition.

Your directors are happy to inform that high standard of services are rendered to the deposit holders including the timely payment of interest and repayment of the fixed deposits and no complaint is received regarding the payment of either interest or repayment the deposits or in servicing of deposits and the company has always been maintaining high level of liquidity.

Out of the Public Deposits, 60 accounts amounting to Rs. 9,24,082/- had matured for payments as on 31s March 2000, out of which 6 accounts amounting to Rs. 1,68,000/- have been since repaid/ renewed and balance of 54 accounts amounting to Rs 7,56,082/- are yet to be claimed / renewed.

Steps are being taken to ensure renewal/repayments of these deposits.

PROSPECTS:

The business operations of the company are on the rise. The disbursements have increased considerably during the latter half of the year. There has been marked growth in the economy, particularly in the automobile sector. These are bound to increase business opportunity for the company. The company has built up sufficient resource base and is geared up to meet the expanding business needs.

Your company has taken sufficient steps to control the expenditure including cost of funds to increase the profitability of the company.

Y2K COMPLIANCE:

The Company successfully addressed the Y2K problem and switched over to the year 2000 smoothly. Now all the systems used by the Company are Y2K Compliant.

DIRECTORS:

Sri K.V Murthy Yerkadithaya, Sri. Belagodu S Krishniah Setty, and Sri. Yadalam G Ramkumar retire by rotation and being eligible, offer themselves for reappointment.

AUDITORS:

M/s. B.N. Govinda Prasad, Chartered Accountants, the Auditors of the Company retire at the conclusion of the Fifteenth Annual General Meeting and are eligible for re-appointment.

The Auditors of the Company have informed, that their appointment if made, would be within the prescribed limits under Section 224 (I B) of the Companies Act, 1956.

PARTICULARS OF EMPLOYEES :

None of the employees of the Company is in receipt of remuneration exceeding the limit prescribed under Section 217 (2A) of the Companies Act, 1956.

ADDITIONAL INFORMATION :

Particulars pursuant to Section 217(1) (e ) of the Companies Act, 1956 and Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988.

A. CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION:

The Company being Non Banking Finance Company the particulars do not arise.

B. FOREIGN EXCHANGE EARNINGS AND OUTGO

There were no foreign exchange earnings and utilisation by the Company during the year.

LISTING DETAILS :

The names and addresses of the Stock Exchanges in which your Company Shares are Listed are as follows;

1. Bangalore Stock Exchange Limited, Stock Exchange Towers,

#51,1 Cross, J.C. Road, BANGALORE - 560 027.

2. Madras Stock Exchange Limited, Post Box No. 1 83,

#11, Second Line, CHENNAI-600 001.

3. The Stock Exchange,

Phiroze Jeejeebhoy Towers, Dalai Street, MUMBAI-400 023.

The Listing Fee for the year 2000-2001 has been paid to all the Stock Exchanges well within the time. Your Company is strictly observing all the covenants of the Listing Agreement with the Stock Exchanges and there are no investor complaints pending against the Company.

APPRECIATION :

The Directors take this opportunity to place on record their appreciation of the support and co-operation extended by Shareholders, Depositors, Hirers, Lessees and other Customers and Bankers and look forward to their continued support. The Directors wish to place on record their appreciation of the dedicated services of the Executives and Staff of the Company.

On behalf of the Board of Directors

Bangalore B.R. VISWANATH SETTY

27,th April, 2000 Chairman & Managing Director