sakthi finance limitedsakthi finance limited (originally incorporated as “the pollachi credit...

DRAFT LETTER OF OFFER (Private & Confidential)

For Equity Shareholders of the Company Only

SAKTHI FINANCE LIMITED (Originally incorporated as “The Pollachi Credit Society Private Limited" on 30/03/1955 under the Indian Companies Act 1913. The Company was later converted into a public limited company and the name of the company was changed to Sakthi Finance Limited on 27/07/1967 and a fresh certificate of Incorporation was obtained)

Registered Office : 62, Dr. Nanjappa Road, Post Box No. 3745, Coimbatore 641 018. Tel: 91-0422-2231471 – 474; Fax: 91-0422-2231915 Email: [email protected]; Website: www.sakthifinance.com Contact person: S A Subramanian, Compliance Officer & Company Secretary

ISSUE OF 1,00,35,660 EQUITY SHARES OF RS. 10/- EACH AT PAR (ISSUE PRICE OF RS.10/-) AGGREGATING RS.1003.57 LACS ON RIGHTS BASIS TO THE EXISTING EQUITY SHAREHOLDERS OF THE COMPANY IN THE RATIO OF 1 (ONE) EQUITY SHARE FOR EVERY 2 (TWO) EQUITY SHARES (I.E. 1:2) HELD ON [●] (RECORD DATE).

THE ISSUE PRICE IS SAME AS THE FACE VALUE

GENERAL RISKS Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or the adequacy of this document.

The attention of investors is drawn to the statement of Risk Factors beginning on page no. viii of this Letter of Offer.

ISSUER’S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in context of the Issue, that the information contained in this Letter of Offer is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions, expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.

LISTING The existing Equity shares of the company are listed on Bombay Stock Exchange Limited (BSE), (the Designated Stock Exchange) and Madras Stock Exchange Limited (MSE). The Company has received in-principle approval from BSE vide its letter no. [●] dated [●] and MSE vide its letter no [●]dated [●] for listing of the equity share being issued in terms of this Letter of Offer.

LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

KEYNOTE CORPORATE SERVICES LIMITED 4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai - 400001 Tel : +91 022 2267 1321 / 2269 4324 Fax: + 91 022 22694323 E-mail: [email protected] Website: www.keynoteindia.net SEBI Regn. No.: INM 000003606 AMBI Regn No: AMBI/040

S.K.D.C CONSULTANTS LIMITED No.11, Seth Narayandas Layout Street No.1, West Power House Road Coimbatore - 641 012 Tel.: (0422) 6549995 Fax: (0422) 2499574 E-mail: [email protected] Website: www.skdc-consultants.com SEBI Regn. No.: INR 000000775

ISSUE PROGRAMME ISSUE OPENS ON LAST DATE FOR RECEIVING

REQUESTS FOR SPLIT FORMS ISSUE CLOSES ON

[●] [●] [●]

SAKTHI FINANCE LIMITED ___________________________________________________________________________________________________________________________________________________________________________________________

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I. TABLE OF CONTENTS

SECTION CONTENTS Page Nos. Definitions and Abbreviations iii Certain Conventions; Use of Market Data vi Forward Looking Statements vii I RISK FACTORS viii

PART I II INTRODUCTION Summary 1 General Information 6 Capital Structure 10 Objects of the Issue 17 Basis for Issue Price 19 Statement of Tax Benefits 21

III ABOUT THE COMPANY Industry Overview 28 Business Overview 35 Regulations and Policies 43 History 49 Management 53 Promoters 66 Promoter Group Companies 68

PART II IV FINANCIAL INFORMATION

Auditors’ Report 76 Management’s Discussion and Analysis of Financial Condition and

Result of Operations 96

V LEGAL AND OTHER INFORMATION Outstanding Litigations and Defaults 101 Material Developments 134 Government Approvals 135

VI REGULATORY AND STATUTORY DISCLOSURES Authority for the Issue 136 Prohibition by SEBI 136 Disclaimer Clause 136 Filing 139 Stock Market Data 143

VII OFFERING INFORMATION 146 VIII MAIN PROVISIONS OF ARTICLES OF ASSOCIATION 163 IX OTHER INFORMATION

Material Contracts and Documents for Inspections 173

Declarations 175

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DEFINITIONS/ABBREVIATIONS CONVENTIONAL / GENERAL TERMS Term Description Act The Companies Act, 1956 and subsequent amendments thereto Depositories Act The Depositories Act, 1996 as amended from time to time Depository A Depository registered with SEBI under the SEBI (Depositories &

Participant) Regulations, 1996 as amended from time to time FY/ Financial year or Fiscal Year The twelve months ended March 31st of a particular year Security Certificate Equity Share Certificate Security(ies) Equity Share(s) SE/ Stock Exchange(s) BSE and MSE ISSUE RELATED TERMS Term Description Articles Articles of Association of Sakthi Finance Ltd. Board Board of Directors, of Sakthi Finance Ltd. BSE/Designated Stock Exchange Bombay Stock Exchange Limited CAF Composite Application Form Directors Directors on the Board of Sakthi Finance Ltd. Equity Shareholders Equity Shareholders of the Company whose name appear as:

Beneficial Owners as per the list furnished by the depositories in respect of Equity Shares held in electronic form and

On the Register of Members of the Company in respect of the Equity Shares held in Physical form

Equity Shares Equity Shares of the Company of Rs.10/- each Lead Manager/ LM Lead Manager to the Issue i.e. Keynote Corporate Services Ltd. Issue/ Rights Issue The issue of 1,00,35,660 Equity Shares of Rs.10/- each for cash at

par (Issue Price Rs.10/-) per Equity Share on rights basis to existing Equity Shareholders of the Company in the ratio of 1 (One) Equity Share for every 2 (Two) Equity Shares held on [●] (Record Date) aggregating Rs.1003.57 lacs as per this Letter of Offer.

Issue Price The price at which the equity shares will be issued by the Company under this Letter of Offer.

Issuer/ Company/ SFL Sakthi Finance Ltd. Letter of Offer/ LOO/ Offer Document

This Letter of Offer dated [●] circulated to the Equity Shareholders and filed with the Stock Exchanges containing inter alia the Issue price and the number of equity shares to be issued and other incidental information.

MSE Madras Stock Exchange Limited ABBREVIATIONS Abbreviations Full Form AGM Annual General Meeting CDSL Central Depository Services (India) Limited CLB Company Law Board DCA Department of Company Affairs DP Depository Participant EOGM Extraordinary General Meeting EPS Earnings Per Share


iv

Abbreviations Full Form FCNR Account Foreign Currency Non Resident Account FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999 read with rules and

regulations thereunder and amendments thereto FI Financial Institution FII (s) Foreign Institutional Investors registered with SEBI under applicable

laws. GIR Number General Index Registry Number GOI Government of India NA Not Applicable NAV Net Asset Value NPA Non Performing Assets NR Non Resident NRE Account Non Resident External Account NRI(s) Non Resident Indians NRO Account Non Resident Ordinary Account NSDL National Securities Depository Limited MOU Memorandum of Understanding PAN Permanent Account Number PAT Profit After Tax PBDT Profit Before Depreciation and Tax PBIDT Profit Before Interest Depreciation and Tax PBT Profit Before Tax PAT Profit After Tax P/E Ratio Price/Earnings Ratio ROC Registrar of Companies ROI Return on Investment RBI The Reserve Bank of India SCRR Securities Contracts (Regulations) Rules, 1957 as amended from

time to time. SEBI Securities and Exchange Board of India COMPANY/INDUSTRY RELATED TERMS Term Description AIFIs All-India Financial Institutions CAMP Customer Asset Management Process CAGR Compounded Annual Growth Rate CAP Customer Appraisal Process CARE Customer Acquisition and Retention CRAR Capital to Risk-weighted Assets Ratio CST Central Sales Tax CV Commercial Vehicle FIE Fellow of Institute of Engineers GOI Government of India HCV Heavy Commercial Vehicle HRD Human Resource Development ICRA ICRA Limited KYC Know Your Customer LCV Light Commercial Vehicle NBFC Non Banking Financial Company

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Term Description NBFI Non Banking Financial Institution NHAI National Highways Authority of India SCB Scheduled Commercial Banks SOHO Small Office and Home Office TERI The Energy and Resources Institute USD U S Dollar NOF Net Owned Funds FIPB Foreign Investment Promotion Board MICR Magnetic Ink Character Reader RTGS Real Time Gross Settlement SICA Sick Industrial Companies Act


vi

CERTAIN CONVENTIONS; USE OF MARKET DATA In this Letter of Offer, unless the context otherwise requires, all references to one gender also refers to another gender and the word "Lakh" or "Lac" means "one hundred thousand" and the word "million" means "ten lac" and the word "Crore" means "ten million" and the word “One hundred crore” means “Billion”. In this Letter of Offer, any discrepancies in any table between total and the sum of the amounts listed are due to rounding-off. Throughout this Letter of Offer, all figures have been expressed in Lacs unless otherwise stated. All references to “India” contained in this Letter of Offer are to the Republic of India. For additional definitions used in this Letter of Offer, see the section “Definitions and Abbreviations” on page iii of this Letter of Offer. Industry data used throughout this Letter of Offer has been obtained from industry publications and other authenticated published data. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although the Company believes that the industry data used in this Letter of Offer is reliable, it has not been independently verified. Similarly, internal Company reports, while believed by the Company to be reliable, have not been verified by any independent sources.

CURRENCY OF PRESENTATION In this Letter of Offer, all references to “Rupees” and “Rs.” are to the legal currency of India,

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FORWARD-LOOKING STATEMENTS This Letter of Offer contains certain “forward-looking statements”. These forward looking statements can generally be identified by words or phrases such as “aim”, “anticipate”, “believe”, “expect”, “estimate”, “intend”, “objective”, “plan”, “project”, “shall”, “will”, “will continue”, “will pursue” or other words or phrases of similar import. Similarly, statements that describe the objectives, plans or goals also are forward-looking statements. All forward looking statements are subject to risks, uncertainties and assumptions about the company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from the expectations include, among others: General economic and business conditions in India; The ability to successfully implement the strategy, growth and expansion plans and technological

changes; Changes in the value of Rupee and other currency changes; Changes in the Indian and international interest rates; Allocations of funds by the Government; Changes in laws and regulations that apply to the customers of the Company; Increasing competition in and the conditions of the customers of the Company and Changes in political conditions in India. For further discussion of factors that could cause actual results to differ, please see the section titled “Risk Factors” beginning on page no. viii of this Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither the Company, the Directors, any member of the Lead Manager team nor any of their respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, the Company and the Lead Manager will ensure that investors in India are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges.


viii

SECTION I - RISK FACTORS

An investment in equity shares involves a high degree of risk. The investors shall carefully consider all of the information in this Letter of Offer, in evaluating the Company and its business, including the risks and uncertainties described below, before making any investment decision. If any of the following risks actually occur, the business, financial condition and results of operations could suffer, the trading price of the Equity Shares could decline, and the investors may lose all or part of their investment. Unless specified or quantified in the relevant risk factors below, the financial or other implications of any of the risks described in this section cannot be quantified:

INTERNAL RISK FACTORS

INTERNAL RISK FACTORS AND RISKS RELATING TO COMPANY’S BUSINESS

1. Outstanding Litigations/disputes/cases pending against the Company/ Promoter / Directors and

Group companies : I. Litigations against the Company

The Company is involved in certain legal proceedings, incidental to its business and operations, which if determined against the Company, could have an adverse impact on the results of its operations and financial condition. The Summary of the litigations is as follows:

Sr. No

Particulars No. of cases/disputes

Approx.amount involved where quantifiable

(Rs. in lacs) 1 Civil Proceedings 3 4.06 2 Consumer Case 1 2.75 3 Statutory Disputes

- Interest Tax - Income Tax

3 4

174.09 379.31

4 Labour Law 1 - For more information please refer to “Legal and other Information” commencing on page no. 101 of this Letter of Offer.

II. Litigations pending against Group Companies

There are some litigations pending against listed companies and top five unlisted companies within the group. For more information please refer to “Legal and other Information commencing on page no. 101 of this Letter of Offer.

2. Contingent liabilities

As on 31/12/2006 the audited accounts, SFL has contingent liabilities not provided for in respect of items detailed below:

(Rs. in lacs) Particulars 9 months

ended 31/12/2006Guarantees and collaterals given to banks/ Financial Institutions 62.28 Future dues on sell down receivables excluding cash collateral

3,117.83

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Particulars 9 months ended 31/12/2006

Guarantee for collection of managed business and future dues payable thereon

828.47

Total 4,008.58 In the event such contingent liabilities materialize it may have an adverse effect on the company’s financial condition and future financial performance.

3. Restrictive Covenants

There are restrictive covenants in the agreement for borrowings from a Bank which among other things require the Company to obtain prior permission from Bank for change in Management, declaring dividend and undertaking of new project which may limit Company’s discretion in these matters.

4. Promise Versus Performance

The Company had come out with its previous Rights Issue during the year 1995. The Company had made certain projections on the operating and financial performances based on the then prevailing situation. However, due to various reasons, the projections could not be achieved. The detail of the variations in the promises vs. performance is detailed hereinunder:

(Rs. In lacs) As on 31.3.1996 As on 31.3.1997 As on 31.3.1998

Particulars

Promises as given in the

offer document

Actual performance


offer document

Actual performance


offer document

Actual performance

Finance Charges 4810 4299 6450 4631 8108 4468 Lease Rentals 857 893 1172 1218 1560 1219 Other Income 624 591 551 687 601 825 Total Income 6291 5783 8173 6536 10269 6512 Profit before interest & depreciation

5581

4972

7418

5511

9459

5465

Profit before tax 701 536 1134 439 1491 110 Profit after tax 701 536 1034 383 1291 97 Equity capital 988 992 988 992 988 992

Preference capital 500 0 500 0 500 0 Free Reserves 2950 2753 3675 2794 4656 2504 EPS (Rs.) 6.38 5.40 9.75 3.86 12.35 0.98 Book Value per share (Rs.)

39.85

37.24

47.20

37.71

57.13

34.85

5. Shortfall in the Promises vis-à-vis performances during the previous issues made by the Group

Companies.

Some of the group companies made certain projections in their previous issues. However, due to various reasons, the projections could not be achieved. For further details, please refer to page 141 of this Letter of Offer.

6. If the level of NPA in SFL’s portfolio were to increase, SFL’s business may suffer


x

As of 31st March, 2006 and December 31, 2006 the percentages of Net NPA to Average Net Total Assets are 0.43% and 0.44% respectively and the percentages of net NPA to Total Credit are 0.51% and 0.47% respectively. SFL belives that its provisions for NPAs are adequate to cover known losses which may arise in its asset portfolio. SFL expects the size of its loan Assets to continue to increase in the future as it expands its branch network in India and offer new products and going forward, the Company may have additional NPAs. If SFL suffers from increases in the level of final credit losses its future financial performance level could be adversely affected.

7. Attracting and Retaining Key personnel

The success of any company depends upon its management team and key personnel and the Company’s ability to attract and retain such persons. The resignation or loss of key management personnel may have an adverse impact on its business, future financial performance and the price of its Equity Shares

8. Losses made by Subsidiary Companies

Sakthi Properties (Coimbatore) Ltd. – subsidiary of SFL has reported losses of Rs. 14.52 lacs, Rs. 6.07 lacs and Rs. 5.14 lacs during the financial years 2003-04, 2004-05 and 2005-06 respectively.

9. Loss Making Group Companies

The company is a part of the “Sakthi Group” of companies. Out of the three listed and top five unlisted companies the following companies have made losses during one or more of the last three financial years (as per the latest available audited results). (Rs. in Lacs) Particulars 2006 2005 2004 Sakthi Sugars Limited (For the year ended 30th June)

9528.04 2701.92 (2535.32)

Sri Chamundeswari Sugars Limited (For the year ended 31st March)

1726.25 (98.35) (42.14)

Sri Bhagavathi Textiles Limited (For the year ended 31/03/2006, 30/06/2005 & 31/03/2004)

(431.68) (391.84) (30.67)

Sakthi Financial Services Limited (For the year ended 31st March)

19.70 18.67 (24.73)

EXTERNAL RISK FACTORS 1. Lack of independent and credible source, tends to affect the quality of information about

customers A nation wide credit bureau has only recently been established in India. Non availability of such credible source may affect the quality of information available to the Company about the credit history of its new borrowers who are mainly individual and small business people. Therefore as a result, the decision to extend credit is based on information, including financial information furnished by or on behalf of customers and dealers. SFL may also rely on certain representation as to the accuracy and completeness of that information.

2. Material changes in the regulation

NBFCs in India are subject to detailed supervision and regulation by RBI. In addition the Company is subject to changes in Indian corporate Laws as well as to the changes in the government regulations and policies and accounting principles. Any changes in the regulatory frame work affecting NBFCs

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including the provisioning for NPAs or capital adequacy requirements would adversely affect the profitability of the Company’s business, its future financial performance and the price of its equity shares.

3. Volatility in interest rates in India could cause SFL’s gross spreads to decline and adversely

affect its profitability.

SFL’s business is dependent on interest income from its operations. In the fiscal 2006, 88.6% of SFL’s fiscal income was interest income. The Company is exposed to interest rate risk as a result of lending to customers at fixed interest rate and in amounts and for periods which may differ from its funding sources (bank borrowings and debt offerings). SFL seeks to match its interest rate positions to minimize interest rate risk. Despite these efforts there can be no assurance that significant interest rate movements will not have an effect on its results of operations.

4. Factors affecting Indian economy in general

SFL’s financial results are influenced by the macro economic factors determining the growth of the Indian economy in general and continued growth of the automobile industry.The growth prospects of the Company’s business including the quality of its asset and its ability to grow the assets portfolio and implement strategy are influenced by the growth rate of the road transport Industry. The level of loans made, recovery of loans and demand for vehicles and infrastructure equipment are all affected by these factors. Any slow down in the Indian economy the growth of vehicle and infrastructure equipment salescoupled with inflationary pressures or any changes in government policy could adversely impact its future financial performance.

5. Competition particularly from the banking sector

SFL plays an important role in providing credit to the unorganized sector and small consumers at the local level. However, several Indian banks have over the last few years entered into retail lending in a focused manner, increasing the competition in this segment. As the banks have access to lower cost funds, wider network and greater resources than SFL, SFL`s performance would be dependent on its ability to maintain low cost of funds and to provide effective and quick service to its customers. Growing competition may result in a decline in the market share of SFL, which may reduce its revenues and margins.

6. Reduction in the value of collateral/delay in enforcing the collateral

All the loans to the customers of SFL are secured by the assets financed. Although SFL seeks to maintain a collateral value to loan of more than 100% for its secured loans it may not be able to realize the full value of its collateral as a result of declining price of secondhand vehicle and infrastructure equipment. Further any delay in enforcing collateral (due to delay in an enforcement proceedings before Indian courts or otherwise) could expose us to potential losses. Any such losses and or delays could adversely affect future financial performance and the price of the Equity Shares of the Company.

7. The growth of the Company will depend on its continued ability to access funds at competitive rates.

With the growth of its business the Company is increasingly reliant on funding from the debt capital markets and commercial borrowings. The market for such funds are competitive, hence the ability of SFL to obtain funds at competitive rates will depend on various factors including its ability to


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maintain its credit rating. Borrowing costs have been competitive in the past due to its ability to structure innovative debt products, credit rating and the quality of its asset portfolios. If the Company is unable to access funds at an effective cost that is comparable to or lower than its competitors, the Company may not be able to offer competitive interest rates for its loans. This may adversely impact SFL’s business, its future financial performance and the price of its Equity shares.

8. Sensitivity to the economy and extraneous factors

The Company’s performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Company.

9. Operational risks associated with the industry

The industry is exposed to many types of operational risk, including the risk of fraud or misconduct by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or record keeping errors or errors resulting from faulty system.

NOTES TO RISK FACTORS 1.

Pre issue Networth as on 31/12/2006 : Rs. 5465.73 lacs Pre-issue Net Asset value per share (as on 31/12/2006)

:

Rs. 27.23

Issue Size : Rights Issue of 10035660 Equity Shares of Rs. 10/- each at par (i. e. Issue Price of Rs. 10/-) per Equity Share aggregating Rs.1003.57 lacs.

Cost per share to the promoter : Rs. 16.45 2. There is no interest of promoters/directors/foreign collaborators/key management personnel other

than reimbursement of expenses incurred or normal remuneration or benefits. 3. For details on Related party disclosures refer page no.89 of this Letter of Offer 4. For details on loans and advances made by the Company refer page no. 88 of this Letter of Offer 5. Investors are free to contact the LM for any complaints/ information/ clarification pertaining to this

Issue. For contact details of the LM, please refer to the cover page of this Offer Document. 6. All information shall be made available by the LM and the Company to the public and investors at

large and no selective or additional information would be available only to a section of the investors in any manner whatsoever.

7. Investors are advised to refer to the paragraph on “Basis for Issue Price” on page 19 of this Offer

Document before making an investment in this Issue. 8. The Lead Manager and the Company shall update this Letter of Offer and keep the

shareholders/public informed of any material changes till the listing and trading commencement.

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PART I

SECTION II - INTRODUCTION The Industry information presented in this section has been extracted from publicly available documents from various sources, including officially prepared materials and has not been prepared or independently verified by the Issuer or the Lead Manager. INDUSTRY SUMMARY The Non-Banking Financial Companies (NBFCs) are a heterogeneous group of finance companies unlike the commercial and co-operative banks. NBFCs are defined under Section 45-I(f) read with Sections 45-I© and 45-I(e) of RBI Act, 1934, and can carry on business in one or more of these areas: Asset Finance Company Insurance Company Loan Company Investment Company Mutual Benefit Finance Company Miscellaneous Non-Banking Company Housing Finance Company Residuary Non-Banking Company The funding to small-scale industry is mainly for plant and machinery, industrial equipment, computer system etc. 70 % of the activities of NBFCs are in Leasing Equipment and Hire Purchase. There is some exposure in Bill Discounting and Factoring. The main strength of NBFCs is that they can devise innovative financing schemes and tailor-made schemes according to the specific requirement of the client. (Source: TERI) The NBFI sector in India comprises various types of financial institutions with each one of them having its roots at a particular stage of development of the financial sector. All-India Financial Institutions (AIFIs), largely an offshoot of development planning in India, were created for long-term financing with some of them having sectoral/regional focus. Non-banking financial companies (NBFCs), on the other hand, are mostly private sector units, which have carved their niche in the Indian financial system. As of December 2005, there were 573 NBFCs servicing the segments as mentioned above. Of these, 316 NBFCs or 55.1% of the NBFCs serviced the hire purchase segment, with 59 investment focused NBFCs, 38 equipment leasing NBFCs, 3 Residuary Non-Banking Financial Companies (“RNBC”) and 157 others. [Source: ICRA] NBFCs are an integral part of the country’s financial system because of their complimentary as well as competitive role. They act as a critical link in the overall financial system catering to a large market of niche customers. As a result of consolidation and restructuring in the financial sector and liberalisation and globalisation of markets only a few strong NBFCs now remain in business. However, competition continues to be intense, as the Indian and foreign banks have entered the retail lending business in a big way, thereby exerting pressure on margins. On the regulatory front, NBFCs are regulated by the RBI almost at par with banks. All the prudential norms for asset classification, income recognition, provisioning requirements etc., are applicable to NBFCs.


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COMPANY SUMMARY SFL is a RBI registered NBFC engaged in financing of commercial vehicles, infrastructure equipments and personal finance products for over 50 years. SFL was promoted in 1955 by Dr. N. Mahalingam, promoter of the Coimbatore based Sakthi Group. SFL was formed with an objective of providing hire-purchase assistance to truck operators where it derives certain advantages from the group’s delearship business as well as its experience in the transport sector. Currently, SFL is an independent multi –line finance company which focuses mainly on two product lines in finance segment viz. –Commercial Vehicles and Infrastructure equipment. SFL at present has 25 branches concentrated mainly in Southern India. The client base of SFL predominantly consists of small vehicle operators. Customers are usually provided 75% to 80 % of the market value of the asset.The loans are secured by hypothecation of the assets financed. Issue Details Issue of 1,00,35,660 Equity Shares of Rs. 10/- each at par (Issue Price of Rs.10/-) aggregating Rs.1003.57 lacs on rights basis to the existing Equity Shareholders of the Company in the ratio of 1 (One) Equity Share for every 2 (Two) Equity Shares held on [●] (Record Date). The face value of the Equity Shares is Rs. 10/- per share and the Issue Price is same as the face value.

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SUMMARY OF FINANCIAL DATA Please read the following data in conjunction with the detailed Auditors’ Report commencing on page no. 76 under the heading ‘FINANCIAL INFORMATION’ STATEMENT OF ASSETS AND LIABILITIES, AS RESTATED

Annexure I (Rs. in lacs)

As at March 31, Particulars

As at 31-Dec-06 2006 2005 2004 2003 2002

Fixed Assets Gross Block 1940.29 1911.33 2430.98 2425.39 2576.62 3054.76 Less: Accumulated Depreciation 1062.16 1014.65 1465.10 1431.97 1507.06 1925.88 Net Block 878.13 896.68 965.88 993.42 1069.56 1128.88 Investments 1586.43 1760.48 1862.88 1918.43 1844.70 2127.26 Deferred Tax assets 262.76 262.76 340.61 177.50 199.24 194.67 Current Assets, Loans and Advances Stock on hire 18059.59 17321.14 15639.22 14930.58 14424.12 13217.70 Cash and Bank Balances 1612.45 773.09 897.04 481.82 217.31 226.45 Other current assets 27.38 48.34 52.79 55.88 247.04 262.10 Loans and Advances 2442.61 2343.09 2558.51 3061.42 3441.64 4625.54 Total Current Assets, Loans and Advances 22142.03 20485.66 19147.56 18529.69 18330.10 18331.79 Total 24869.35 23405.58 22316.93 21619.04 21443.60 21782.61 Liabilities and Provisions Secured Loans 8506.78 7955.05 6459.19 5465.42 5463.96 6062.39 Unsecured Loans 8813.76 8170.56 9453.23 10308.72 10725.54 10546.70 Current Liabilities and provisions 2083.08 2091.25 1441.77 1240.52 1389.98 1655.31 Total 19403.62 18216.86 17354.19 17014.66 17579.48 18264.41 Net worth 5465.73 5188.72 4962.74 4604.38 3864.12 3518.20 Represented by: Equity share capital 2007.13 2007.13 2007.13 2007.13 1757.13 1757.13 Share application money (pending allotment) 1146.15 1146.15 1161.15 1161.15 705.10 0.00 Reserves and Surplus: Reserves 2312.45 2035.44 1794.47 1567.47 1554.27 1773.01 Less: Miscellaneous expenses and losses 0.00 0.00 0.00 131.37 152.40 11.95 Net worth 5465.73 5188.72 4962.74 4604.38 3864.12 3518.20 Details of Reserves and Surplus Capital Reserve Share Premium Account 52.61 52.61 52.61 52.61 52.61 52.61 General Reserve 1366.60 1366.60 1366.60 1366.60 1366.60 1366.60 As per last balance sheet 0.00 0.00 0.00 0.00 191.90 191.90 Less: Transfer to Profit and Loss Account 0.00 0.00 0.00 0.00 -191.90 0.00 Statutory Reserve 251.08 187.31 148.26 135.06 128.31 122.16 Add: Transfer during the period 0.00 63.77 39.05 13.20 6.75 6.15 Surplus in Profit & Loss Account 642.14 365.15 187.95 0.00 0.00 33.59 Total 2312.45 2035.44 1794.47 1567.47 1554.27 1773.01


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STATEMENT OF ADJUSTED PROFITS AND LOSSES AS RESTATED

Annexure II (Rs. in lacs) Years ended March 31, Particulars 9 months

ended 31-Dec-06

2006

2005

2004

2003

2002

INCOME INCOME FROM FINANCING OPERATION Income from Hire purchase operations 1740.46 2107.42 2190.86 1988.68 1605.29 2213.75 Income from leasing operations 0.00 0.00 0.00 12.35 35.64 214.52 Interest on loans and Other receipts 47.25 98.66 229.41 205.81 333.76 223.57 Income from Investments 98.64 140.43 159.70 170.73 187.97 231.01 OTHER INCOME AND RECEIPTS Profit on Sale of Investments/ Assets 3.71 17.16 43.13 0.80 13.15 598.05 Income from Windmill 73.73 86.31 108.33 119.10 99.52 114.39 Miscellaneous Receipts 52.38 41.77 18.63 17.09 23.27 44.46 Bad debts written off – recovered 29.63 27.73 4.73 14.43 306.84 64.39 Income from Sell down Receivable 232.83 233.69 156.38 143.94 0.00 0.00 Total Income 2278.63 2753.17 2911.15 2672.93 2605.44 3704.16 EXPENDITURE Financial Expenses 1204.17 1606.24 1861.80 2062.03 2027.68 2289.79 Personnel Expenses 293.08 279.27 251.41 214.15 209.22 212.78 Operating Expenses 375.43 392.86 355.11 329.76 299.04 346.06 Provisions and written offs 51.65 75.36 163.83 -61.92 -66.48 595.91 Depreciation 53.19 70.92 66.78 72.91 84.21 226.46 Total Expenditure 1977.52 2424.64 2698.95 2616.92 2553.68 3671.00 PROFIT BEFORE TAX AND EXTRAORDINARY ITEMS 301.11 328.53 212.21 56.00 51.76 33.16 Less: Taxes Current Tax 18.88 0.30 16.96 5.45 2.82 2.60 Fringe benefit tax 5.24 9.40 0.00 0.00 0.00 0.00 Deferred Tax 0.00 77.86 -163.12 21.74 -4.57 -254.19 PROFIT BEFORE EXTRAORDINARY ITEMS 276.99 240.98 358.37 28.82 53.51 284.75 Less: Extraordinary Items – Unrealizable receivables w.off 0.00 0.00 0.00 0.00 419.24 0.00 PROFIT AFTER TAX AND EXTRAORDINARY ITEMS 276.99 240.98 358.37 28.82 -365.73 284.75 Appropriations Transferred to Statutory Reserve - 63.77 39.05 13.20 6.75 6.15 Balance Carried forward to Balance Sheet 276.99 177.21 319.32 15.62 -372.48 278.60

___________________________________________________________________________________________________________________________________________________________________________________________

5

THE ISSUE

Type of Issue Type of Instrument

No. of equity shares

Face Value (Rs.)

Issue Price (Rs.)

Consideration

Rights Issue Equity Shares 1,00,35,660 10/- 10/- Cash

ISSUE BREAK-UP

Particulars

No. of Equity Shares

Equity Shares offered (Issue Size) 1,00,35,660 Equity Shares Entitlement Ratio The Equity Shares are being offered on rights basis to

the existing Equity Shareholders of the Company in the ratio of 1 (One) Equity Share for every 2 (Two) Equity Shares held as on the Record Date.

Market Lot

The market lot for the Equity Shares in dematerialised mode is one. In case of physical certificates, the Company would issue one certificate for the Equity Shares allotted to one folio (“Consolidated Certificate”).

Equity shares outstanding prior to the Issue 2,00,71,321 Equity Shares Equity shares outstanding after the issue 3,01,06,981 Equity Shares

Use of proceeds:

Please see section titled “Objects of the Issue” on page 17 of this Offer Document

ISSUE SCHEDULE

ISSUE OPENS ON LAST DATE FOR RECEIVING REQUESTS FOR SPLIT FORMS

ISSUE CLOSES ON


6

GENERAL INFORMATION Dear shareholder(s), The Board of Directors at their meeting held on 14/08/2004 had decided to make the offer to the existing shareholders of the Company on Rights basis. Accordingly a resolution in respect of this rights issue was passed by the shareholders of the Company at the Annual General Meeting of the Company held on 24/09/2004 and authorized the Board of Directors to decide on terms of the issue and also to take steps to give effect to the said resolution. The Board of Directors at their meeting held on 23/04/2007 have decided to make the following offer to the existing shareholders of the company: Issue of 1,00,35,660 Equity Shares of Rs. 10/- each at par (Issue Price of Rs.10/-) aggregating Rs.1003.57 lacs on rights basis to the existing Equity Shareholders of the Company in the ratio of 1 (One) Equity Share for every 2 (Two) Equity Shares held on [●] (Record Date). The face value of the Equity Shares is Rs. 10/- per share and the Issue Price is 1 time the face value. Name of the Company : Sakthi Finance Limited

Registered Office : No.62, Dr. Nanjappa Road, Post Box No. 3745, Coimbatore - 641 018. Tel: 91-0422-2231471 – 474; Fax: 91-0422-2231915 Email: [email protected]

Registration No. : L65910TZ1955PLC000145 Contact person: : S A Subramanian, Compliance Officer & Company Secretary Registrar of Companies : “Stock Exchange Building”, Trichy Road, Coimbatore – 641 005 IMPORTANT

1. This Issue is applicable to such Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the depositories in respect of the Equity Shares held in the electronic form and on the Register of Members of the Company at the close of business hours on [●] (Record Date)

2. Your attention is drawn to the section on risk factors starting from page no. viii of this Letter of Offer.

3. Please ensure that you have received the CAF with this Letter of Offer.

4. Please read the Letter of Offer and the instructions contained herein and in the CAF carefully before filling in the CAFs. The instructions contained in the CAF are an integral part of this Letter of Offer and must be carefully followed. An application is liable to be rejected for any non compliance of the Letter of Offer or the CAF.

5. All enquiries in connection with this Letter of Offer or CAFs should be addressed to the Registrar to the Issue, quoting the Registered Folio number/ DP and Client ID number and the CAF numbers as mentioned in the CAFs.

6. The Lead Manager and the Company shall make all information available to the Equity Shareholders and no selective or additional information would be available for a section of the Equity Shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of the Letter of Offer with SEBI.

7. All the legal requirements as applicable till the filing of the Letter of Offer with the Designated Stock Exchange have been complied with.

___________________________________________________________________________________________________________________________________________________________________________________________

7

BOARD OF DIRECTORS The Board of Directors of the Company comprises of: Name of the Director Designation Status Dr N Mahalingam Chairman Non - Executive and Non-Independent Sri M Manickam Vice Chairman Non - Executive and Non-Independent Sri M Balasubramaniam Managing Director Executive and Non - Independent Sri M Srinivaasan Director Non Executive and Non - Independent Sri A Shanmugasundram Director Non Executive and Non Independent Sri S A Murali Prasad Director Non Executive and Independent Dr A Selvakumar Director Non Executive and Independent Sri P S Gopalakrishnan Director Non Executive and Independent

For further details of the Board of Directors of SFL, please refer to the chapter titled “Management” on page. 53 of this Letter of Offer ISSUE MANAGEMENT TEAM

Compliance Officer & Company Secretary Legal Advisors to the Issue S A Subramanian Company Secretary Sakthi Finance Limited Regd. Office: 62, Dr Nanjappa Road Coimbatore – 641 018 Tel: 0422 - 2231471 – 4 Fax: 0422-2231915 E-Mail: [email protected]

M/s Ramani & Shankar Advocates 152, Kalidass Road, Ramnagar, Coimbatore – 641 009 Tel: 0422 - 2231955, 2232179 Fax No: 0422-2233175

Bankers to the Company Vijaya Bank Dr Nanjappa Road Coimbatore - 641 018 Tel: (0422) 223 2899 Fax: (0422) 223 8531

Canara Bank 7/100, Cross Cut Road, Gandhipuram, Coimbatore - 641 012 Tel: (0422) 223 6107 Fax : (0422) 2230174

The Lakshmi Vilas Bank Limited No.1, Head Quarters Road First Floor, Uppilipalayam Coimbatore - 641 018 Tel: (0422) 230 0830 Fax: (0422) 230 0843

The South Indian Bank Limited Cross Cut Road Gandhipuram Coimbatore - 641 012 Tel: (0422) 248 2830 / 248 2831 Fax: (0422) 248 2830

Central Bank of India Addisons Buildings Branch Mount Road Chennai - 600 001 Tel: (044) 2852 0518 / 2852 1517 Fax: (044) 2858 8848

State Bank of Travancore Pappanaickenpalayam Branch Avanashi Road Coimbatore - 641 018 Tel: (0422) 221 6058 / 221 3257 Fax: (0422) 221 1302


8

Bank of India Bhagayalakshmi Complex First Floor 108/109, NSR Road Saibaba Colony Coimbatore - 641 011 Tel: (0422) 244 1045 / 244 0028 Fax:(0422) 243 4788

The Catholic Syrian Bank Limited Industrial Finance Branch 826, Tarapore Towers Mount Road Chennai - 600 001 Tel: (044) 2852 6397 Fax: (044) 2841 1809

The Karnataka Bank Limited 839, Mount Road Chennai - 600 001 Tel: (044) 2858 6484 / 2841 4838 Fax: (044) 2841 4838

Lead Manager to the Issue

Registrar to the Issue

KEYNOTE CORPORATE SERVICES LIMITED 4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai – 400 001 SEBI Regn No: INM 000003606 Tel : +91 022 2267 1321 / 2269 4324 Fax: + 91 022 22694323 Website: www.keynoteindia.net E-mail: [email protected] Contact Person: Mr. Janardhan Wagle

S.K.D.C CONSULTANTS LIMITED No.11, Seth Narayandas Layout Street No.1, West Power House Road Coimbatore - 641 012 SEBI Regn. No.: 000000775 Tel.: (0422) 6549995 Fax: (0422) 2499574 E-mail:[email protected] Website: www.skdc-consultants.com Contact Person: Ms. Vijayalakshmi Narendra

Bankers to the Issue Auditors to the Company To be appointed M/s P N Raghavendra Rao & Co

Chartered Accountants 33, Desabandhu Street Ramnagar, Coimbatore – 641 009 Tel: 0422 -2232440, 2236997 E-Mail:[email protected]

INTER SE ALLOCATION OF RESPONSIBILITIES Not Applicable CREDIT RATING/DEBENTURE TRUSTEE This being Rights Issue of equity shares, no Credit Rating or appointment of Debenture Trustee is required. MONITORING AGENCY Not Applicable

___________________________________________________________________________________________________________________________________________________________________________________________

9

APPRAISING ENTITY Not Applicable MINIMUM SUBSCRIPTION

i. If the Company does not receive minimum subscription of 90% of the issue, the entire subscription shall be refunded to the applicants within forty two days from the date of closure of the issue.

ii. If there is delay in the refund of subscription by more than 8 days after the company becomes

liable to pay the subscription amount (i.e., forty two days after closure of the issue), the company will pay interest for the delayed period, at prescribed rates in sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956.

IMPERSONATION Attention of the applicants is specifically drawn to the provisions of Sub-Section (1) of Section 68A of the Companies Act, 1956 which is reproduced below: "Any person who- (a) makes in a fictitious name an application to a Company for acquiring, or subscribing for, any

shares therein, or (b) otherwise induces a Company to allot or register any transfer of shares therein to him, or any

other person in a fictitious name,shall be punishable with imprisonment for a term which may extend to five years."

UNDERWRITING/ STANDBY SUPPORT This issue of equity shares is not being underwritten and/or no standby support is being sought for the said issue.


10

CAPITAL STRUCTURE OF THE COMPANY

Details as on the date of Letter of Offer

Aggregate Nominal Value

(Rs.) A. Authorised Capital

4,00,00,000 Equity Shares of Rs. 10/- each

5,00,000 Redeemable Cumulative Preference Shares of Rs. 100/- each

40,00,00,000

5,00,00,000

B. Issued, Subscribed & Paid-up Capital

2,00,71,321 Equity Shares of Rs. 10/- each, fully paid – up

20,07,13,210

C. Present Rights Issue

1,00,35,660 Equity shares of Rs. 10/- each for cash at par

10,03,56,600

D. Post Issue Capital

3,01,06,981 Equity shares of Rs. 10/- each

30,10,69,810

E. Share Premium Account

Before the offer

After the offer

13,66,60,020

13,66,60,020

Notes to Capital Structure:

1. Changes in the Authorised Capital of the Company: Sr. No.

Details of increase in authorised share capital Date

1 Incorporation Rs. 5.00 lacs divided into 500 equity shares of Rs. 1000 each 30/03/1955 2 Rs. 25.00 lacs divided into 25,000 equity shares of Rs. 100 each 17/01/1967 3 Rs. 2.00 Crores divided into 20,00,000 equity shares of Rs. 10 each. 21/01/1984 4 Rs. 5.00 Crores divided into 40,00,000 equity shares of Rs. 10 each &

Rs.1.00 crore divided into 1,00,000 convertible cumulative preference shares of Rs. 100 each

02/11/1985

5 Rs. 10.00 Crores divided into 75,00,000 equity share of Rs. 10 each & 2,50,000 redeemable cumulative preference shares of Rs. 100 each

19/08/1991

6 Rs. 17.50 Crores divided into 75,00,000 equity shares of Rs. 10 each & 10,00,000 redeemable cumulative preference shares of Rs. 100 each

25/03/1994

7 Rs. 25.00 Crores divided into 1,50,00,000 equity shares of Rs. 10 each & 10,00,000 redeemable cumulative preference shares of Rs. 100 each.

30/03/1995

8 Rs. 30.00 Crores divided into 2,50,00,000 equity shares of Rs. 10 each & 5,00,000 redeemable cumulative preference shares of Rs. 100 each

09/03/2000

9 Rs. 45.00 Crores divided into 4,00,00,000 equity shares of Rs. 10 each & 5,00,000 redeemable cumulative preference shares of Rs. 100 each

30/09/2003

___________________________________________________________________________________________________________________________________________________________________________________________

11

2. Details of increase in the paid-up Equity Share capital are as follows:

Date of Allotment

Face Value (Rs.)

Issue Price (Rs.)

No. of Shares

Cumulative No. of shares

Nature of allotment Conside-ration

% to Post Issue

Capital (%)

30/03/1955 1000 1000 15 15 Subscription to Memorandum of Association upon

Incorporation.

Cash 0.00

16/06/1958 1000 1000 212 227 Private placement Cash 0.00 04/08/1958 1000 1000 90 317 Private placement Cash 0.00 23/03/1959 1000 1000 78 395 Private placement Cash 0.00 15/04/1959 1000 1000 100 495 Private placement Cash 0.00 24/02/1960 1000 1000 5 500 Private placement Cash 0.00 By virtue of a resolution passed at the Extra Ordinary General Meeting held on 17.01.1967, the face value of the shares of the Company were reduced from Rs. 1000/- each to Rs. 100/- each. 24/11/1974 100 100 5,000 10,000 Private placement Cash 0.02 16/08/1980 100 100 1,500 11,500 Private placement Cash 0.00 11/02/1983 100 100 5,000 16,500 Private placement Cash 0.02 15/11/1983 100 100 8,500 25,000 Private placement Cash 0.03 By virtue of a resolution passed at the Extra Ordinary General Meeting held on 21.01.1984, the face value of the shares of the Company were reduced from Rs. 100/- each to Rs. 10/- each. 02/11/1984 10 10 7,50,000 10,00,000 Public issue Cash 2.49 14/07/1986 10 10 5,25,000 15,25,000 Rights - Equity issue Cash 1.74 24/02/1988 10 10 10,38,320 25,63,320 Rights - Equity issue Cash 3.45 15/07/1989 10 10 5,25,000 30,88,320 Rights - Equity issue

(Conversion of preference shares into

equity)

Cash

1.74 04/06/1993 10 30 30,88,320 61,76,640 Rights - Equity issue Cash 10.26 09/12/1995 10 30 37,44,681 99,21,321 Rights - Equity issue Cash 12.44 31/10/2001 10 10 76,50,000 1,75,71,321 Preferential allotment

* Cash

25.41 05/12/2003 10 10 25,00,000 2,00,71,321 Preferential allotment

** Cash

8.30 TOTAL 2,00,71,321

Note: * M/s VKS Aiyer and Co., Chartered Accountants and Statutory Auditors of the Company have vide their

certificate dated 08/08/2001 in respect of preferential allotment made to Promoter and Promoter Group certified that the calculation of preferential issue price for the allotment is in accordance with the SEBI guidelines.

**M/s P.N.Raghavendra Rao & Co., Chartered Accountants and Statutory Auditors of the Company have

vide their certificate dated 22/09/2003 in respect of preferential allotment made to Bridgewater Investment Corporation Limited certified that the calculation of preferential issue price for the allotment is in accordance with the SEBI guidelines.


12

3. Promoters’ Contribution and Lock-in The present issue being a rights issue, provisions of promoters’ contribution and lock-in are not applicable.

4. Present Rights Issue :

Type of Instrument

Ratio Face Value (Rs.)

No. of shares Issue Price (Rs.)

Consideration

Equity Shares 1:2 10/- 1,00,35,660 10/- Cash Pre & Post issue shareholding pattern of the Company assuming full subscription in the rights issue is given below :-

Pre-issue (As on 31/03/2007)

Post-issue Category of Shareholder

Number of Shares

% Number of Shares

%

(A) Shareholding of Promoter and Promoter Group

1 Indian (a) Individuals/ Hindu Undivided Family 7,61,027 3.79 11,41,540 3.79 (b) Central Government/ State

Government(s)/Government company

--

--

--

-- (c) Bodies Corporate 117,88,370 58.73 1,76,82,555 58.73 (d) Financial Institutions/ banks -- -- -- -- (e) Any Other (specify) -- -- -- -- Sub- Total (A)(1) 1,25,49,397 62.52 1,88,24,095 62.52 2 Foreign (a) Individuals (Non-Resident Individuals/ Foreign

non Individuals) -- -- -- --

(b) Bodies Corporate -- -- -- -- (c) Institutions -- -- -- -- (d) Any other (specify) -- -- -- -- Sub-Total (A)(2) -- -- -- -- Total Shareholding of Promoter and Promoter

Group (A)= (A)(1)+(A)(2) 1,25,49,397 62.52 1,88,24,095 62.52

(B) Public shareholding 1 Institutions (a) Mutual Funds/ UTI -- -- -- -- (b) Financial Institutions/ Banks 2,200 0.01 3,300 0.01 (c) Central Government/ State Government(s) -- -- -- -- (d) Venture Capital Funds -- -- -- -- (e) Insurance Companies -- -- -- -- (f) Foreign Institutional Investors -- -- -- -- (g) Foreign Venture Capital Investors -- -- -- -- (h) Any Other (specify)

( Foreign National) -- -- -- --

Sub-Total (B)(1) 2,200 0.01 3,300 0.01 2 Non-institutions

___________________________________________________________________________________________________________________________________________________________________________________________

13

Pre-issue (As on 31/03/2007)

Post-issue Category of Shareholder

Number of Shares

% Number of Shares

%

(a) Bodies Corporate 8,08,702 4.03 12,13,053 4.03 Individuals- (b) i. Individual shareholders holding nominal share capital up to Rs. 1 lakh.

31,59,670

15.74

47,39,505

15.74 ii. Individual shareholders holding nominal share

capital in excess of Rs. 1 lakh.

10,41,002

5.19

15,61,503

5.19 (c) Individuals (Non-Resident Individuals/ Foreign

non Individuals)

10,350

0.05

15,525

0.05 (d) Overseas Corporate Bodies 25,00,000 12.46 37,50,000 12.46 Sub-Total (B)(2) 75,19,724 37.47 1,12,79,586 37.47 Total public shareholding (B)= (B)(1)+(B)(2) 75,21,924 37.48 1,12,82,886 37.48 TOTAL (A)+(B) 2,00,71,321 100.00 3,01,06,981 100.00 (C) Shares held by Custodians and against which

Depository Receipts have been issued

--

--

--

-- GRAND TOTAL (A)+(B)+(C) 2,00,71,321 100.00 3,01,06,981 100.00 The total number of shareholders as on 31/03/2007 in the company is 15273.

5. The shareholding pattern of the promoter group is as detailed below

Present Post Rights

Particulars No. of equity shares of Rs.

10/- each

% of present capital

No. of equity shares of Rs.

10/- each

% of post issue

capital a) Promoters

Dr. N Mahalingam Mr. M Manickam Mr. M Balasubramaniam

2,06,023 61,875

1,28,000

1.02 0.31 0.64

3,09,034 92,813

1,92,000

1.02 0.31 0.64

SUB – TOTAL 3,95,898 1.97 5,93,847 1.97 b) Immediate relatives of promoters

(Spouse, Parent, Child, Brother, Sister):

Mr. M Srinivaasan Smt. M Mariammal Smt. Karunambal Vanavaraayar Smt. Vinodhini Balasubramaniam Mr. A Shanmugasundaram

2,21,355 36,000

7,500 95,024

5,250

1.10 0.18 0.04 0.47 0.03

3,32,032 54,000 11,250

1,42,536 7,875

1.10 0.18 0.04 0.47 0.03

SUB – TOTAL 3,65,129 1.82 5,47,693 1.82 c) Company in which 10% or more of the

share capital is held by the promoter/his immediate relative, firm or HUF in which the promoter or his immediate relative is a member.

1. ABT Ltd 2. Sakthi Financial Services (Cochin)

Private Ltd

87,27,400

10,40,537

43.48

5.18

1,30,91,100

15,60,806

43.48

5.18


14

Present Post Rights

Particulars No. of equity shares of Rs.

10/- each

% of present capital

No. of equity shares of Rs.

10/- each

% of post issue

capital 3. Sri Chamundeswari Sugars Ltd. 4. ABT Finance Limited 5. Sakthi Financial Services Ltd. 6. Sakthi Logistic Services Ltd. 7. Sri Sakthi Textiles Ltd.

8.The Gounder & Company Auto Ltd.

16,000 24,877

6,430 5700

7,000 500

0.08 0.12 0.03 0.03 0.03 0.00

24,000 37,315 9,645 8,550

10,500 750

0.08 0.12 0.03 0.03 0.03 0.00

SUB – TOTAL 98,28,444 48.97 1,47,42,666 48.97 d) Company in which the Company

mentioned in © above holds 10% or more of the share capital

1. Sakthi Sugars Limited 2. ABT Industries Limited

10,40,000 9,19,926

5.18 4.58

15,60,000 13,79,889

5.18 4.58

SUB – TOTAL 19,59,926 9.76 29,39,889 9.76 e) HUF in which aggregate share of the

promoter and his immediate relatives is equal or more than 10% of the total.

N.A.

N.A.

N.A.

N.A.

Persons Acting in Concert - - - - GRAND TOTAL 1,25,49,397 62.52 1,88,24,095 62.52

The promoters/ promoter group collectively intend to subscribe to their rights entitlement as well as the entire undersubscribed portion from public shareholders, if any, in this rights issue in full. The promoters/ pomoter group have already brought in an amount of Rs. 1146.15 lacs towards share application money which will be adjursted towards their entitlement and subscription to un-subscribed portion if any by the public shareholders.

Presuming no subscription is received from other shareholders and the promoters/promoter group subscribing to the entire unsubscribed portion, their shareholding shall increase to 75.02 % of the post rights issue equity capital of the Company. As a result of this subscription and consequent allotment, the promoters/promoter group may acquire shares over and above their entitlement in the issue which may result in their shareholding in the company being above their current holding This subscription and acquisition of additional equity shares by the Promoter/promoter group, if any, will not result in change of control of the management of the Company and shall be exempt in terms of provision to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The promoters/promoter group have confirmed that in case the Rights Issue of the Company is completed with their subscribing to equity shares over and above their entitlement and as a result, if the public shareholding in the Company after the Issue falls below the permissible minimum level as specified in the listing condition or listing agreement, they will make an offer for sale of their holdings so that the public shareholding is raised to the minimum level specified in the listing agreement or in the listing conditions within a period of 3 months, as per the requirements of sub-clause 17.2 of SEBI (Delisting of Securities) Guidelines, 2003 or as per any amendment thereto

___________________________________________________________________________________________________________________________________________________________________________________________

15

6. The Company has not issued any warrant, option, convertible loan, debenture or any other securities convertible at a later date into equity, which would entitle the holders to acquire further equity shares of the Company.

7. Equity shares of the Company are being traded in compulsory dematerialized mode. The market lot of

the equity shares is 1 (one). 8. There are no transactions in the securities of the Company during preceding 6 months which were

financed/undertaken directly or indirectly by the promoters, their relatives, their group companies or associates or by the above entities directly or indirectly through other persons except as follows:

Name of the Transferee

Name of the Transferor

Nature of transaction

Date Rate per share (Rs.)

No. of shares

Consideration

Sakthi Logistic Services Limited

Mahalingam – Mariammal

Trust

Transfer 05/11/2006 15/- 5,000 Cash

9. a) The ten largest shareholders two years prior to the date of filing of this Letter of Offer with Stock Exchanges are as follows:

Serial No. Name of the Shareholders No. of Equity

Shares 1. ABT Ltd 87,27,400 2. Bridgewater Investment Corporation Ltd 25,00,000 3. Sakthi Financial Services (Cochin) P Ltd 10,40,537 4. Sakthi Sugars Ltd 10,40,000 5. ABT Industries Ltd 9,19,926 6. Grahasakthi Properties (P) Ltd 4,99,700 7. Mr.M.Ramanathan 3,38,951 8. Mr.M.Srinivaasan 2,21,355 9. Dr.N.Mahalingam 2,06,023 10. Mr M Balasubramaniam 1,28,000

9. b) The ten largest shareholders 10 days prior to the date of filing of the Letter of Offer with Stock Exchanges are as follows:


Shares 1 ABT Ltd 87,27,400 2 Bridgewater Investment Corporation Ltd 25,00,000 3 Sakthi Financial Services (Cochin) P Ltd 10,40,537 4 Sakthi Sugars Ltd 10,40,000 5 ABT Industries Ltd 9,19,926 6 Grahasakthi Properties (P) Ltd 4,99,700 7 Mr.M.Ramanathan 3,38,951 8 Mr.M.Srinivaasan 2,21,355 9 Dr.N.Mahalingam 2,06,023 10 Mr M Balasubramaniam 1,28,000


16

9. c) The ten largest shareholders as on the date of filing of the Letter of Offer with Stock Exchanges are as follows:


Shares 1 ABT Ltd 87,27,400 2 Bridgewater Investment Corporation Ltd 25,00,000 3 Sakthi Financial Services (Cochin) P Ltd 10,40,537 4 Sakthi Sugars Ltd 10,40,000 5 ABT Industries Ltd 9,19,926 6 Grahasakthi Properties (P) Ltd 4,99,700 7 Mr.M.Ramanathan 3,38,951 8 Mr.M.Srinivaasan 2,21,355 9 Dr.N.Mahalingam 2,06,023 10 Mr M Balasubramaniam 1,28,000

10. The Company/Promoters/Directors/Lead Managers have not entered into buy back or similar

arrangements for purchase of securities issued by the Company. 11. The entire issue price is to be paid on application hence there will be no partly paid up shares arising

out of this issue. 12. The equity shares of the company are of face value of Rs.10/- and marketable lot is 1 (one). At any

given time there shall be only one denomination for the shares of the Company and the disclosures and accounting norms specified by SEBI from time to time will be complied with.

13. The Company shall not make any further issue of capital whether by way of issue of bonus shares,

preferential allotment, rights issue or public issue or in any other manner during the period commencing from the submission of the Letter of Offer to SEBI for the Rights Issue till the securities referred in the Letter of Offer have been listed or application money refunded on account of failure of the issue.

14. Further, presently the Company does not have any proposal, intention, negotiation or consideration to

alter the capital structure by way of split/ consolidation of the denomination of the shares/ issue of shares on a preferential basis or issue of bonus or rights or public issue of Equity Shares or any other securities within a period of six months from the date of opening of the present Issue. However, if business needs of the Company so require, the Company may alter the capital structure by way of split/ consolidation of the denomination of the shares/ issue of shares on a preferential basis or issue of bonus or rights or public issue of shares or any other securities whether in India or abroad during the period of six months from the date of listing of the Equity Shares issued under this LOO or from the date the application moneys are refunded on account of failure of the Issue, after seeking and obtaining all the approvals which may be required for such alteration.

15. The total numbers of shareholders in the company as on 31/03/2007 is 15273.

___________________________________________________________________________________________________________________________________________________________________________________________

17

OBJECTS OF THE ISSUE The object of the issue is to augment the capital base to meet the requirement of funds on an ongoing basis from time to time by way of equity, arising out of growth of operations of the company and for meeting the expenses of the issue. The main object clause of the Memorandum and Articles of Association of the Company enables the Company to undertake the existing activities and the activities for which the funds are being raised through the present issue. Cost of project (Rs. In Lacs) Augment the capital base to meet fund requirements 953.57 Issue expenses 50.00

Total 1003.57 Means of Finance (Rs. In Lacs) Proceeds of the Rights Issue 1003.57

Total 1003.57 WORKING CAPITAL REQUIREMENT SFL is engaged in financing of commercial vehicles and infrastructure equipments. The proceeds from this Rights Issue will be mainly used to augment the capital base of the company to meet the future capital requirements arising out of growth in the business. The detailed calculation of the working capital requirement which is partly to be funded through the proceeds of the issue is as under:

Particulars Estimates as on 31/03/2008 (Rs. in Lacs)

(A) Current Assets 1. Cash & Bank Balance 360.00 2. Investments (other than investments in

Subsidiaries/associate concerns and those of long term nature)

31.00

3. Stock on Hire Purchase Agreements (net of finance charges unmatured)

22,814.00

4. Other Current Assets 4,280.00 Total Current Assets (A) 27,485.00 (B) Current Liabilities

1. Deposits maturing within one year 4,049.00 2. Sundry Creditors for expenses 1,727.00 3. Instalments of term loans/deferred

payment credits,debentures/preference shares due within one year

587.00

4. Others 195.00 Total Current Liabilities (B) 6558.00


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Particulars Estimates as on 31/03/2008 (Rs. in Lacs)

Working Capital Gap (A) – (B) 20,927.00 Financed by:

Contribution from Long term Sources 16,311.43 Bank Borrowings 3,662.00 Balance to be funded by Proceeds of the current Issue

953.57

YEAR WISE BREAK UP OF FUNDS Since the entire funds would be utilized to meet the working capital requirement for the Financial Year ending 31/03/2008, the year wise break up of expenditure to be incurred is not given. INTERIM USE OF FUNDS Pending deployment the funds raised through the rights issue would be deployed by the company judiciously in the fixed deposits of the Banks and other short term investment opportunities. BASIC TERMS OF THE ISSUE The Equity shares being offered are subject to the provisions of the Companies Act, 1956, the Memorandum and Articles of Association of the Company, the terms of this Letter of offer and other terms and conditions as may be incorporated in the Allotment advice and other documents /certificates that may be executed in respect of the issue. The Equity shares shall also be subjected to laws as applicable, guidelines, notifications and regulations relating to the issue of capital and listing and trading of securities issued from time to time by SEBI, GOI, RBI, ROC and /or other authorities as in force on the date of issue and to the extent applicable

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BASIS FOR ISSUE PRICE QUALITATIVE FACTOR Part of the Coimbatore based Sakthi group of companies, which has presence in Sugar, Distillery, Soya processing, Financial Services, Auto Components, Bus Transport, Parcel Services, Wind Mills and Sales and Services of Tata Motors and Maruti Vehicles. Company is in the business of refinance over the past 50 years Belongs to “Sakthi Group” Differentiated Business Model Support from the Group Companies QUANTITATIVE FACTORS (a) Earnings Per Share (EPS)

Year Ended

EPS (Rs)

Weights

31/03/2004 0.16 1 31/03/2005 1.79 2 31/03/2006 1.20 3 Weighted Average EPS 1.22

(b) Price Earning Ratio (PE)

Offer Price of

Rs.10/- per share P/E(based on EPS on 31/03/2006) 8.33 P/E(based weighted average EPS) 8.20

(c) Return on Networth (RONW)

Year Ended

RONW (%)

Weights

31/03/2004 1 1 31/03/2005 7 2 31/03/2006 5 3 Weighted Average RONW 5.0

(d) Minimum RONW required to maintain pre-issue weighted average EPS of Rs. 1.22 is 5.93% (e) Net Asset Value (NAV)

Pre issue as on March 31, 2006 (Rs.) 25.85 Post Issue (Rs.) 20.57

Note: Net Asset Value Per Share = Equity Share Capital plus Reserves & Surplus less Miscellaneous Expenditure to the extent not written off /No. of Equity Shares


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(f) Industry P/E Ratio

Highest 155.10 Lowest 0.60 Average 18.70 Source: Capital Market Issue April 09- 22,2007; Segment- Finance and Investments

Comparison of key ratios with the companies in the same industry group

Company Name

Equity

(Rs. in Cr.)

Book Value

31/03/2006 (Rs.)

Income for the year ended 31/03/2006 (Rs in Cr.)

EPS (Rs.)

P/E Ratio at the

market price as on

20/04/2007 Sakthi Finance Limited 20.07 25.85 27.53 1.20 11.00 Bajaj Auto Finance Limited 33.59 265.6 242.7 10.9 38.9 Cholamandalam DBS Ltd. 37.95 83.2 221.6 8.2 12.85 G E Capital Transportation Finance Services Ltd.

20.26 16.9 105.8 2.2 0.02

Sundaram Finance Ltd. 27.78 291.9 634.3 59.7 6.61 M& M Fin. Services Ltd. 86.00 79.7 596.4 11.7 19.68 Shriram Trans. Fin. Co. Ltd. 156.31 52.3 908.7 8.3 14.78 Source: Capital Market Issue April 09- 22,2007; Segment- Finance and Investments

The Companies in the above list have been selected on the basis that they are listed Companies engaged in providing Non-Banking Financial Services. However, their performance may not be directly comparable with that of our business as they cater to different segments of the market and therefore their business portfolio will vary.

The Issue Price of Rs. 10/- per share is the same as the Face Value of Rs.10/- per share of the Equity Shares being issued. The market price of the shares of the Company as on 14/05/2007 is Rs. 11.30 at BSE. Considering the above qualitative and quantitative factors, the issue price of Rs.10/- per equity share (i.e; at par) is justified.

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To Board of Directors, Sakthi Finance Limited, 62, Dr.Nanjappa Road, Coimbatore – 641 018.

Statement of Tax Benefits available to the Company and its Shareholders. We hereby report that the enclosed annexure states the tax benefits available to Sakthi Finance Limited (the “Company”) and its shareholders under the tax laws presently in force in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon them fulfilling such conditions, which based on business imperatives the Company faces in the future, the Company may or may not choose to fulfill. The benefits discussed in the statement are not exhaustive. This statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising from their participation in the issue. We do not express any opinion or provide any assurance as to whether:

(i) the Company or its shareholders will continue to obtain these benefits in future; or (ii) the conditions prescribed for availing the benefits have been / or would be met with.

The contents of this Annexure are based on information, explanations and representations obtained from the Company and on the basis of our understanding of the business activities and operations of the Company. PLACE: Coimbatore For P.N.Raghavendra Rao & Co., DATE: 23/04/2007 Chartered Accountants Sd/- P.R.Vittel Partner

Membership No. 18111


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STATEMENT OF TAX BENEFITS

M/s P N Raghavendra Rao & Co, Chartered Accountants, by their letter dated 23/04/2007 have advised that under the current tax laws, the following tax benefits will be available to the existing and prospective shareholders and company under the direct tax laws. Under the Income-Tax Act, 1961 (“the Act”): I. Benefits available to the Company

1. Depreciation on fixed assets

As per the provisions of Section 32 of the Act, the company is eligible to claim depreciation on tangible and specified intangible assets as explained in the said section and the relevant IT rules thereunder.

2. As per section 10(34) of the Act, any income by way of dividends referred to in Section 115-O

(i.e. dividends declared, distributed or paid on or after 1 April 2003 by domestic companies) received on the shares of any company is exempt from tax.

3. As per section 10(35) of the Act, the following income shall be exempt in the hands of the

Company. Income received in respect of the units of a Mutual Fund specified under clause (23D) of section 10; or Income received in respect of units from the Administrator of the specified undertaking; or Income received in respect of units from the specified company, this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified Company or of a mutual fund, as the case may be.

For this purpose (i) “Administrator” means the Administrator as referred to in section 2(a) of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 and (ii) “Specified Company” means a company as referred to in section 2(h) of the said Act.

4. As per section 10(38) of the Act, long term capital gains arising to the Company from the transfer

of a long term capital asset being an equity share in a company or a unit of an equity oriented fund where such transaction is chargeable to securities transaction tax would not be liable to tax in the hands of the Company. For this purpose, “Equity Oriented Fund” means a fund – (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty five percent of the total proceeds of such funds; and (ii) which has been set up under a scheme of a Mutual Fund specified under section 10(23D) of the act. However as per section 115JB, the Company will not be able to reduce the income to which the provisions of section 10(38) of the Act apply while calculating “book profits” under the provisions of section 115JB of the Act and will be required to pay Minimum Alternate Tax @ 10% (plus applicable surcharge and education cess) of the book profits determined.

5. As per section 112 of the Act, taxable long-term capital gains, if any, on sale of listed securities

or units or zero coupon bonds (in cases not covered under section 10(38) of the Act) would be charged to tax at the rate of 20% (plus applicable surcharge and education cess) after considering indexation benefits in accordance with and subject to the provisions of section 48 of the Act or at 10% (plus applicable surcharge and education cess) without indexation benefits, at the option of the Company. Under section 48 of the Act, the long term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/improvement.

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6. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from capital gains tax if the capital gains are invested in a “long term specified asset” within a period of 6 months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money.

A “long term specified asset” means any bond, redeemable after three years and issued on or after the 1st day of April 2006: (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section.

7. As per section 111A of the Act, short term capital gains arising to the Company from the sale of

equity share or a unit of an equity oriented fund transacted through a recognised stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess).

II. Benefits to the Resident Shareholders of the Company under the Income-Tax Act, 1961:

1. As per section 10(34) of the Act, any income by way of dividends referred to in Section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003) received on the shares of the Company is exempt from tax.

2. As per section 10(38) of the Act, long term capital gains arising to the shareholder from the

transfer of a long term capital asset being an equity share in the Company, where such transaction is chargeable to securities transaction tax would not be liable to tax in the hands of the shareholder.

3. As per section 88E of the Act, the securities transaction tax paid by the shareholder in respect of

taxable securities transactions entered into in the course of the business would be eligible for deduction from the amount of income tax on the income chargeable under the head “Profits and Gains of Business or Profession” arising from taxable securities transactions, subject to certain limits specified in the section. No deduction will be allowed in computing the income chargeable to tax as “Capital Gains” or under the head “Profits and Gains of Business or Profession” for such amount paid on account of securities transaction tax.

4. As per section 112 of the Act, if the shares of the Company are listed on a recognised stock

exchange, taxable long term capital gains, if any, on sale of the shares of the Company (in cases not covered under section 10(38) of the Act) would be charged to tax at the rate of 20% (plus applicable surcharge and education cess) after considering indexation benefits or at 10% (plus applicable surcharge and education cess) without indexation benefits, whichever is less.

5. As per section 54EC of the Act and subject to the conditions and to the extent specified therein,

long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from capital gains tax if the capital gains are invested in a “long term specified asset” within a period of 6 months after the date of such


24

transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money.


6. As per section 54F of the Act, long-term capital gains (in cases not covered under section 10(38)

of the Act) arising to an individual or Hindu Undivided Family (HUF) on transfer of shares of the Company will be exempt from capital gains tax subject to certain conditions, if the net consideration from such shares is used for purchase of a residential house property within a period of one year before or two year after the date on which the transfer took place or for construction of a residential house property within a period of three years after the date of transfer.

7. As per section 111A of the Act, short term capital gains arising to the shareholder from the sale of

equity shares of the Company transacted through a recognised stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 10% (plus applicable surcharge and education cess).

III. Non-Resident Indians/Non Resident Shareholders (Other than FIIs and Foreign Venture Capital Investors)

1. As per section 10(34) of the Act, any income by way of dividends referred to in Section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003) received on the shares of the Company is exempt from tax.

2. As per section 10(38) of the Act, long term capital gains arising to the shareholder from the

transfer of a long term capital asset being an equity share in the Company, where such transaction is chargeable to securities transaction tax would not be liable to tax in the hands of the shareholder.

3. As per section 88E of the Act, the securities transaction tax paid by the shareholder in respect of

taxable securities transactions entered into in the course of the business would be eligible for deduction from the amount of income tax on the income chargeable under the head “Profits and Gains of Business or Profession” arising from taxable securities transactions, subject to certain limits specified in the section. No deduction will be allowed in computing the income chargeable to tax as “capital gains” or under the head “Profit and gains of Business or Profession” for such amount paid on account of securities transaction tax.


long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from capital gains tax if the capital gains are invested in a “long term specified asset” within a period of 6 months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of their acquisition, the amount of capital gains

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25

exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money. A “long term specified asset” means any bond, redeemable after three years and issued on or after the 1st day of April 2006: (i) by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, and notified by the Central Government in the Official Gazette for the purposes of this section; or (ii) by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956, and notified by the Central Government in the Official Gazette for the purposes of this section.

5. As per section 54F of the Act, long-term capital gains (in cases not covered under section 10(38)

of the Act) arising to an individual or Hindu Undivided Family (HUF) on transfer of shares of the Company will be exempt from capital gains tax subject to certain conditions, if the net consideration from such shares is used for purchase of a residential house property within a period of one year before or two years after the date on which the transfer took place or for construction of residential house property within a period of three years after the date of transfer.

6. Under section 115-I of the Act, the Non-Resident Indian shareholder has an option to be governed

by the provisions of Chapter XIIA of the Act viz. “Special Provisions Relating to Certain Incomes of Non-Residents” which are as follows: (i) As per 115E of the Act, where shares in the Company are acquired or subscribed to in convertible foreign exchange by a Non-Resident Indian, capital gains arising to the non-resident on transfer of shares held for a period exceeding 12 months, shall (in cases not covered under section 10(38) of the Act) be concessionally taxed at the flat rate of 10% (plus applicable surcharge and education cess) (without indexation benefit but with protection against foreign exchange fluctuation).

(ii) As per section 115F of the Act, long-term capital gains (in cases not covered under section 10(38) of the Act) arising to a Non-Resident Indian from the transfer of shares of the company subscribed to in convertible foreign exchange shall be exempt from income tax, if the net consideration is reinvested in specified assets within six months of the date of transfer. If only part of the net consideration is so reinvested, the exemption shall be proportionately reduced. The amount so exempted shall be chargeable to tax subsequently, if the specified assets are transferred or converted into money within three years from the date of their acquisition.

(iii) As per section 115G of the Act, Non-Resident Indians are not obliged to file a return of income under section 139(1) of the Act, if their only source of income is income from specified investments or long term capital gains earned on transfer of such investments or both, provided tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the Act.

(iv) As per section 115H of the Act, where the Non-Resident Indian becomes assessable as a resident in India, he may furnish a declaration in writing to the Assessing Officer, along with his return of income, for the assessment year in which he is first assessable as a Resident, under section 139 of the Act to the effect that the provisions of the Chapter XII-A shall continue to apply to him in relation to such investment income derived from the specified assets for that year and subsequent assessment years until such assets are converted into money.

The tax rates and consequent taxation mentioned above shall be further subject to any benefits available under the Tax Treaty, if any, between India and the country in which the non-resident has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act


26

would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the non-resident.

IV. Foreign Institutional Investors (FIIs)

1. As per section 10(34) of the Act, any income by way of dividends referred to in section 115-O (i.e. dividends declared, distributed or paid on or after 1 April 2003) received on the shares of the Company is exempt from tax.

2. As per section 10(38) of the Act, long term capital gains arising to the FIIs from the transfer of a

long term capital asset being an equity share in the Company where such transaction is chargeable to securities transaction tax would not be liable to tax in the hands of the FIIs.

3. As per section 115AD of the Act, FIIs will be taxed on the capital gains that are not exempt under

the section 10(38) of the Act at the following rates:

Nature of income Rate of tax (%) Long term capital gains 10 % Short term capital gains (other than referred to section 111A) 30 %

The above tax rates have to be increased by the applicable surcharge and education cess.

4. In case of long term capital gains, (in cases not covered under section 10(38) of the Act), the tax

is levied on the capital gains computed without considering the cost indexation and without considering foreign exchange fluctuation.


long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from capital gains tax if the capital gains are invested in a “long term specified asset” within a period of 6 months after the date of such transfer. However, if the assessee transfers or converts the long term specified asset into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long-term capital gains in the year in which the long term specified asset is transferred or converted into money.


The tax rates and consequent taxation mentioned above shall be further subject to any benefits available under the Tax Treaty, if any, between India and the country in which the FII has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the FII.

V. Venture Capital Companies/Funds

1. As per section 10(23FB) of the Act, all venture capital companies/funds registered with the Securities and Exchange Board of India, subject to the conditions specified, are eligible for

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27

exemption from income tax on all their income, including income from sale of shares of the Company. However income received by a person out of investment made in a venture capital company or in a venture capital fund shall be chargeable to tax in the hands of such person.

VI. Mutual Funds

1. As per section 10(23D) of the Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sector banks or public financial institutions and Mutual Funds authorised by the Reserve Bank of India would be exempt from income tax, subject to such conditions as the Central Government may by notification in the Official Gazette specify in this behalf.

Benefits to shareholders of the Company under the Wealth Tax Act, 1957

1. Shares of the Company held by the shareholder will not be treated as an asset within the meaning of section 2(ea) of Wealth Tax Act, 1957. Hence the shares are not liable to Wealth Tax.

Benefits to shareholders of the Company under the Gift Tax Act, 1958

1. Gift made after 1st October 1998 is not liable for gift tax, and hence, gift of shares of the Company would not be liable for gift tax.

The above Statement of Possible Direct Tax Benefits sets out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of shares. Notes: (i) All the above benefits are as per the current tax laws. (ii) In view of the individual nature of tax consequences, each investor is advised to consult his/her own tax advisor with respect to specific tax consequences of his/her investments in the shares of the company. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes. We shall not be liable to Sakthi Finance Limited for any claims, liabilities or expenses relating to this assignment except to the extent of fees relating to this assignment, as finally judicially determined to have resulted primarily from bad faith or intentional misconduct. We will not be liable to any other person in respect of this statement.


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SECTION III - ABOUT COMPANY TheIndustry information presented in this section has been extracted from publicly available documents, which have not been prepared or independently verified by the Company, the Lead Manager or any of their respective affiliates or advisors or the sources referred to herein.

In this Section, we have relied on and referred to information regarding the industry and competitors from market research reports, and other publicly available sources. Although we believe that this information is reliable, we have not independently `verified the accuracy and completeness of the information.

INDUSTRY OVERVIEW Road and Road Transport Over the last three decades, roads have emerged as the principal mover of people and goods - almost 70 per cent of India’s freight movement and 85 per cent of India’s passenger movement (Source: NHAI). With a total length of approximately 3.3 million kilometers, India has the second largest road network in the world. Roads have played a vital role in transportation and also enhancing trade. The government has taken initiatives to improve and strengthen the network of National Highways, State Highways and roads in major districts and rural areas. The Indian road network is divided into three main categories: National Highways (interstate) covering over 58,000 kilometers State Highways covering approximately 2,00,000 kilometers Rural and urban roads covering nearly 3 million kilometers The National Highways cater to about 45% of the road transport demand in the country. The government has embarked upon an integrated National Highways Development Programme (NHDP). A major part of NHDP is the Golden Quadrilateral project. It entails upgrading and widening of 6,000 km of highways connecting the four major metropolitan cities of Delhi, Mumbai, Chennai and Kolkatta. The government is also undertaking the North-South and East-West Corridor projects. These projects comprise about 7,000 kms of highways connecting Srinagar (North) with Kanyakumari (South) and Silchar (East) with Porbandar (West). (Source: Ministry of External affairs [http://meaindia.nic.in]) An outlay of Rs. 59,490 crore (Gross Budgetary Support – Rs. 34,790 crore) has been provided for the development of roads in the Tenth Five Year Plan. The bulk of this outlay is meant for the development of National Highways and related programmes. An expenditure of Rs. 20,505 crore is likely to be incurred in the first three years of the Plan Period. The road transport sector in India has expanded manifold in fifty years after independence, both in terms of spread and capacity. The growth in the importance of road transport within the transport sector is borne out by its growing share in GDP. The share of road transport in GDP is presently 3.69% that accounts for a major share of all transport modes, which contribute 5.5% to GDP. The composition of road traffic has grown from 12 per cent freight and 31.6 per cent passenger traffic in 1950-51 to an estimated 65 per cent freight and 87 per cent passenger traffic during the Tenth Five Year Plan period. Traffic on the roads is growing at the rate of 7-10 per cent per annum while the growth in vehicles has been to the tune of 12 per cent per annum for the past few years.

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Commercial Vehicle Industry The fortunes of India’s automobile industry are directly linked to the growth of its road transport sector. The Indian commercial vehicles (CV) industry has grown attractively over the last few years, driven by structural changes and economic growth. With a continuous investment in road infrastructure, there has been a spurt in the sale of commercial vehicles. The commercial vehicle segment clocked a growth rate of 22%. Medium and Heavy Commercial Vehicles (M&HCV) segment has grown by 23% whereas Light Commercial Vehicles (LCV) grew by over 21% in FY’05. (Source: Credit Analysis & Research Limited). Commercial vehicles have gone one step ahead, aided by the infrastructure developments and a slew of road projects. CV sales were 391,300 units per annum in 2005-06, however, the cycle is likely to be turning slower. Expectations of rising interest rates, higher freight rates and high crude oil prices will have its impact felt in the near to medium term, but yet to be felt. Sales & comparative Growth of Indian Commercial Vehicle:

(in ‘000s) Capacity of Vehicle 2002-03 2003-04 2004-05 2005-06 16 Tonnes and above 109 150 180 183 % Growth 25% 38% 20% 2% 6-15 Tonnes 30 36 48 57 % Growth 25% 20% 33% 19% 5 Tonnes and below 64 91 120 151 % Growth 31% 42% 32% 26% Total 203 277 348 391 % Growth 27% 37% 26% 12%

(Source: Eicher Motors Limited) Growth Potential of the Commercial Vehicle Industry Key positive drivers: Improvement of road network and other infrastructure and further investments planned. Growth in GDP & Industrial production. Enforcement of overloading restrictions and recent spurt in freight rates. Enforcement of safety and emission regulations. Concerns: High oil prices and adverse impact on freight rates. Increased productivity in transportation through Railways. Recent increase in interest rates. Overall growth likely to be more than 10% per annum in medium to long term Retail Finance Industry Retail finance industry consists of Banks, Subsidiaries of multi-national Banks, Captive finance companies and independent finance companies. As the Banks have realized the potential in retail financing segment, most of the banks have entered into retail segment. They originate high volumes of hire purchase business directly or through their channel partners mainly against new commercial vehicle, cars and other retail assets. The captive finance companies are the divisions or subsidiaries of vehicle / equipment manufacturers. The bulk of the businesses originated by these institutions are sourced through


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manufacturers dealer network. The primary business purpose of these companies is to promote and support the sales of their parent manufacturing company’s activity. The independent finance companies can be classified into two types viz. mono-line finance companies which are specialising in a single product financing and multi-line finance companies which have diversified asset portfolilo. The Non-Banking Finance Institutions (Source: RBI) Core financial services provided by financial intermediaries include payments and liquidity, maturity transformation, store of value, information processing and pooling of risks. Banks have traditionally provided most of these services and are increasingly diversifying into other areas. However, banks typically have an edge in providing payment and liquidity related services and they usually select a portfolio mix with an overriding objective of providing a certain return. NBFIs, on the other hand, tend to offer enhanced equity and risk-based products. NBFIs play a crucial role in broadening access to financial services, enhancing competition and diversification of the financial sector. They are increasingly being recognised as complementary to the banking system capable of absorbing shocks and spreading risks at times of financial distress. Mobilisation of financial resources outside the traditional banking system has witnessed tremendous growth all over the world in recent years. The boundaries separating commercial banks and NBFIs are also getting increasingly blurred. Rapid financial diversification has thus posed new challenges for regulators, especially in the area of devising appropriate regulatory safeguards for the highly complex NBFI sector. Owing to their diversified nature, NBFIs may require specific regulatory prescriptions particular to their nature of business, in addition to the general guidelines applicable for the financial sector. The NBFI sector in India comprises various types of financial institutions with each one of them having its roots at a particular stage of development of the financial sector. All-India financial institutions (AIFIs), largely an offshoot of development planning in India, were created for long-term financing with some of them having sectoral/regional focus. NBFCs, on the other hand, are mostly private sector institutions, which have carved their niche in the Indian financial system. The focus of regulatory initiatives in respect of FIs during 2004-05 was to strengthen the prudential guidelines relating to asset classification, provisioning, exposure to a single/group borrower and governance norms. Business operations of FIs expanded during 2004-05. Their financial performance also improved, resulting from an increase in net interest income. Significant improvement was also observed in the asset quality of FIs, in general. The capital adequacy ratio of FIs continued to remain at a high level, notwithstanding some decline during the year. Regulatory initiatives in respect of NBFCs during the financial year 2004-05 related to issuance of guidelines on credit/debit cards, reporting arrangements for large sized NBFCs not accepting/holding public deposits, norms for premature withdrawal of deposits, cover for public deposits and KYC guidelines. Business operations of NBFCs, which contracted sharply during 2003-04, reflecting mainly the impact of decline in resource mobilisation, expanded marginally during 2004-05. Profitability of NBFCs improved in 2003-04 and 2004-05 mainly on account of containment of expenditure. While gross NPAs of NBFCs, as a group, declined during 2003-04 and 2004-05, net NPAs after declining marginally during 2003-04, increased significantly during 2004-05. Although capital adequacy of NBFCs continued to be comfortable, on the whole, there was increase in the number of NBFCs with CRAR less than 12 per cent and decline in NBFCs with CRAR above 30 per cent. The business of large NBFCs not accepting public deposits, but with asset size of Rs.500 crore and above, continued to expand. These NBFCs earned substantial profits and improved their asset quality during the year.

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Industry Structure The Non-Banking Financial Companies (NBFCs) are a heterogeneous group of finance companies unlike the commercial and co-operative banks. NBFCs are defined under Section 45-1 (f) read with sections 45-I (c) and 45-I (e) of RBI Act, 1934, and can carry on business in one or more of these areas: • Asset Finance Company • Insurance Company • Loan Company • Investment Company • Mutual Benefit Finance Company • Miscellaneous Non-Banking Company • Housing Finance Company • Residuary Non-Banking Company The funding to small-scale industry is mainly for plant and machinery, industrial equipment, computer system etc. 70 % of the activities of NBFCs are in Leasing Equipment and Hire Purchase. There is some exposure in Bill Discounting and Factoring. The main strength of NBFCs is that they can devise innovative financing schemes and tailor-made schemes according to the specific requirement of the client. (Source: TERI) Regulatory policies and its implication on the industry: The registered NBFCs are regulated by the Reserve Bank of India, principally through the following guidelines: Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998 Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions 1998 Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions 1998 Reserve Bank of India (Non-Banking Financial Companies) Returns Specification 1997 These Directions provide for the limit up to which a company can accept deposits and enables healthier build-up of the assets. As a result of these regulations, the registered NBFCs have started focusing on building healthier asset portfolio. The RBI regulates NBFCs engaged in asset finance, loan and investment, RNBCs and the deposit taking activity of miscellaneous non-banking companies (chit funds). The Reserve Bank of India (“RBI”) Act, 1934 as amended in 1997 defines the principal activity of a NBFC as that of receiving deposits or that of a financial institution, such as, lending, investment in securities, hire purchase finance or equipment leasing. Some of the norms issued by RBI governing NBFCs are as under: 1. No NBFC having a net owned fund of twenty five lakh of rupees and above shall accept public

deposit unless it has obtained a minimum investment grade or other specified credit rating for fixed deposits from any one of the approved credit rating agencies at least once in a year and a copy of the rating is sent to the RBI along with the return on prudential norms.

2. RBI stipulates ceiling on quantum of deposits mobilised by a NBFC being categorised as asset finance Company as under:


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An Asset Finance Company may accept or renew public deposits, together with the amounts remaining outstanding in the books of the company as on the date of the acceptance or renewal of such deposit not exceeding four times of its NOF.

RBI has imposed the following restrictions on concentration of credit / investments

Lending To a single borrower Not exceeding 15% of owned fund To a single group of borrowers Not exceeding 25% of the owned funds Investment In the shares of another company Not exceeding 15% of the owned funds In the shares of single group of

companies Not exceeding 25% of the owned funds

Lending and Investment

Single party Not exceeding 25% of the owned funds

Single group of parties Not exceeding 40% of the owned funds As of December 2005, there were 573 NBFCs servicing the segments as mentioned in the table above. Of these, 316 NBFCs or 55.1% of the NBFCs serviced the hire purchase segment, with 59 investment focused NBFCs, 38 equipment leasing NBFCs, 3 Residuary Non-Banking Finance Companies (“RNBC”) and 157 others. [Source: ICRA] Non-Banking Financial Companies (NBFCs) are an integral part of the country’s financial system because of their complementary as well as competitive role. They act as a critical link in the overall financial system catering to a large market of niche customers. As a result of consolidation and restructuring in the financial sector and liberalisation and globalisation of markets only a few strong NBFCs now remain in business. However, competition continues to be intense, as the Indian and foreign banks have entered the retail lending business in a big way, thereby exerting pressure on margins. On the regulatory front, NBFCs are regulated by the Reserve Bank of India (RBI) almost at par with banks. All the prudential norms for asset classification, income recognition, provisioning etc., are applicable to NBFCs. In terms of the forms of disbursements by NBFCs, the largest share as of March 2005 was allotted to hire purchase financing, which amounted to 42% of total assets. This was followed by intercorporate loans and deposits which accounted for 33.9%, investments at 10.3%, equipment leasing at 5.8% and bills which accounted for a minimal 1.4%. Other disbursements amounted to 7.1% of total assets. NBFCs fund their disbursements through public deposits and as on March 2005, public deposits held by 573 NBFCs (excluding 3, RNBC) amounted to Rs 202 Billion, which aggregates to 1.1% of aggregate deposits of the Scheduled Commercial Banks (“SCB”). [Source: ICRA] NBFCs and SCBs have traditionally been extending credit across various parts of the country through their geographical presence, with NBFCs being a supplier of credit to segments such as equipment leasing, hire purchase, housing finance and consumer finance. These are areas which warrant infusion of financing due to the existing demand-supply gap. NBFCs have been a more flexible source of financing and have been able to disburse funds to a gamut of clientele, from the local common man to a variety of corporate clientele. NBFCs are also able to accelerate the pace of decision making to disburse funds, customise and tailor their products according to the client needs and take on excess risks on their portfolio. The added risk augments the higher interest rates charged by NBFCs compared to SCBs

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Competition from Scheduled Commercial Banks Scheduled Commercial Banks (SCBs) and NBFCs compete with each other for public deposits and avenues to source their funds, if they compete in the same sections of the credit markets. SCBs offer lower interest rates on their deposits but the deposits have increased at rates higher than those recorded by NBFCs. According to extant regulations, SCBs are not required to pay interest on demand deposits, with interest on savings deposit capped at 3.5%. Term deposit interest rates range between 2%-7%. The interest rates paid by NBFCs are substantially higher. [Source: ICRA] Indicators of Competition between SCBs and NBFCs

At March 3l 1999 2000 2001 2002 2003 2004 2005 Assets — Rs. Billion SCBs 95,037 11,100 12,952 15,364 16,991 19,740 23,560 NBFCs 470 513 539 583 581 507 529 NBFCs as % of assets of SCBs

5 4.6 4.2 3.8 3.4 2.6 2.2

Deposits — Rs. Billion SCBs 7708 9003 10552 12,059 13,557 15,785 18,370 NBFCs 204 193 181 188 201 196 202 NBFCs as % of deposits of SCBs

2.7 2.1 1.7 1.6 1.5 1.2 1.1

Source: ICRA There exist differences on the public deposits accepted for tenure of less than 1 year and the cost of funds for NBFCs and SCBs. As on March 2005, 40.2% of total deposits of SCBs belonged to a maturity of less than 1 year. For NBFCs the corresponding number was 31.4%. Cost of funds for SCBs declined, with interest expense as a percentage of average assets declining from 5.79% in 2003 to 4.77% in 2004. During 2005, NBFCs witnessed finance expenditure to average assets ratio of 5.3%. [Source: ICRA]

Percent of deposits

At end-March 2000 2001 2002 2003 2004 2005 Upto 10% 0.3 1.8 6 23.3 43.9 71.4 10-12% 7.1 21.7 34.6 41.7 36.7 19.9 12-14% 44.4 42.7 39.2 23 12 5 14-16% 34.6 23.7 14 9.4 5.9 3 More than 16% 13.7 10 6.1 2.9 1.8 1.2 Total 100 100 100 100 100 100

The RBI is encouraging NBFCs to decrease focus on public deposits to source their funds. Internationally, deposits are sourced from institutions and capital markets and the RBI is pushing for increased dependence on these fund sources. The Indian consumer has also witnessed a change in attitude towards consumer credit for the purpose of retail financing. Over the years, consumers have become more accepting towards borrowing and there is no social stigma attached to funding purchases by means of credit. The retail finance market includes disbursements towards a gamut of segments, such as housing, commercial vehicles and two wheelers amongst others.


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Opportunities: India has a very long road network which carries 80% of the total freight traffic. Hence road sector assumes significant importance in on-going development process. The economic development in India is happening in all parts of the country and goods will have to move throughout the length and breadth of the country. The agricultural commodity movement is also a major factor contributing to the development of commercial vehicles industry. The new commercial vehicles sales will lead to more demand for finance for used vehicles as the vehicles sold now will enter into refinance market in 3 to 5 years tenure. Threats: The entry of new players especially NBFCs owned by multinational finance companies into refinance segment can be perceived as a threat to existing players like Sakthi Finance Limited. But compared to the huge market potential and the share enjoyed by Sakthi Finance Limited, the threat of entry of new players may not affect the business plans of the company.

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BUSINESS OVERVIEW Sakthi Finance Limited is a Non–Banking Financial Company registered with RBI, Department of Non-Banking Supervision, Chennai vide their certificate dated 08/05/1998 and having its registration number 07.00252. The registered office of the company is situated at 62, Dr. Nanjappa Road, Post Box No. 3745, Coimbatore - 641 018. SFL is an independent multi-line finance company which focuses mainly on two product lines in refinance segment viz. commercial vehicles and infrastructure equipments. SFL has been in this line of business for the past 50 years. SFL has positioned itself between the organised banking sector and local money lenders, offering the customers competitive, flexible and speedy lending services. The client base of SFL predominantly consists of small vehicle operators. Customers usually provided 75% to 80% of the market value of the asset. The loans are secured by hypothecation of the assets financed. Few organized players have entered into commercial vehicle refinance business wherein the age of the truck is more than 5 to 6 years. This segment requires good understanding of customer and market in which one operates. As of December 31, 2006, SFL has a presence in the states of Tamil Nadu, Kerala, Andhra Pradesh and Karnataka with a network of 25 branch offices and Customer Service Points. For the year ended 31st March, 2006, the company disbursed Rs. 89 crores in hire purchase finance business as against Rs 79 crores in the previous financial year. For the financial year ended March 31, 2006, the net NPA of the Company constituted 0.51 % of the total assets of the company. SFL from time to time to ensure growth of its activities enters into deed of assignment with some of the established finance companies. This enables the company to have more liquidity and leverage its business activities. In the process of assignment of debt, the company enters into deed of assignment in terms of which the loan documents of various borrowers who have agreed to pay the assignor interest, installments of principal and other charges etc on the respective due dates and the assets hypothecated by the borrowers are assigned in favour of the assignee. By virtue of the said agreement the assignor agrees to sell to the assignee, the loan assets together with the underlying securities thereof and all the rights and obligations of the assignor under the loan documentations executed by the designated borrower in favour of the assignee for a consideration. SFL has entered into such deeds of assignment with GE Capital Services India Limited and L&T Finance Ltd since 2003 and latest ones are entered into on 19/02/2007 with GE Capital Services India Limited and on 05/04/2007 with L&T Finance Limited. Power Generation: The company is also selling power generated from its windmills to the Tamilnadu Electricity Board. It has presently 11 windmills out of which 4 windmills are located in Tirunelveli District and another 7 windmills are located in Kanyakumari district each with a capacity of 250 KW. PRODUCTS SFL is engaged in providing finance for commercial vehicles and equipments.


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Commercial Vehicle Finance: Providing finance for the Commercial Vehicles forms the core business of SFL. SFL provides finance for new as well as used commercial vehicles. The strategy of the company is to engage in niche segment of commercial vehicle refinance business. Very few organized players have entered into commercial vehicle refinance business wherein the age of the truck is more than 5 to 6 years. The average loan size for commercial vehicles varies from Rs. 2.00 Lakhs to Rs. 4.00 Lakhs and the tenure is from 24 Months to 36 Months. Infrastructure Equipment Finance: SFL has also entered in the financing of Infrastructure equipment and earth moving machines in order to diversify its portfolio. Government has proposed incentives for industries engaged in the infrastructure development. These incentives may give SFL an opportunity to improve in this line of business on account of the potential in equipment financing, as there is scope for growth in this business. The details of the business done in this segment by the company is as follows :

Particulars For the Financial Year ended

2005-06

for 11 months period ended

February 2007 Number of Accounts 145 132 Advance Amount (Rs. in Lacs) 829.15 961.20 Average ticket size (Rs. in Lacs) 5.72 7.28

OPERATIONS The Basic Process of the Business is explained below: Lending and Collections The processes involved in lending activity are enumerated below:-

1. Customer Acquisition and Retention (CARE): Marketing Officers located in potential centres identify good customers who intend to borrow and collect their profiles. If the profile of the intended borrower matches with the policy of the company, the executive makes a recommendation as to whether the loan to the applicant should be extended or not.

2. Customer Appraisal Process (CAP): This process team takes care of appraising the profiles

of all intended borrowers and select the right borrowers who have the capacity and intention to repay the loan. The Appraisal process is centralized and handled at Head Office. All the branches are linked through internet and hence the appraisal process is carried out faster. The funds are advanced after the process of evaluation is completed and the necessary documentations have been completed.

3. Customer and Asset Management Process (CAMP): The critical success factor of an NBFC

is its ability to manage the advance portfolio and recover the money lent on due dates. There is a team at Head Office which is continuously monitoring the recovery and offers support to branches on exceptional accounts which pose collection problems.

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Disbursals During the financial year 2005-06, SFLs total disbursals were to the tune of Rs. 8960.60 lacs as against Rs. 7906.09 lakhs during the previous year thereby achieving a growth of 8.34 %. The break up of SFLs disbursals across its business operations are as given hereinunder:

2005-06 2004-05 2003-04 Disbursals Rs. In lacs % of total

disbursals Rs. In lacs % of total

disbursals Rs. In lacs % of total

disbursals Commercial Vehicle Finance

6242.57 69.67% 6453.87 81.63% 5712.34 78.20%

Equipment finance 2718.03 30.33% 1452.22 18.37% 1592.43 21.80% Total Disbursals 8960.60 100.00% 7906.09 100.00% 7304.77 100.00% Asset Classification Set out below are the RBI Guidelines for asset classification:

Asset classification The RBI Guidelines Standard Asset

Sub-standard Asset

Doubtful Asset

Loss Asset

An asset in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business An asset has been an NPA for a period not exceeding 18 months or where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled terms An asset which remains a sub-standard asset for a period exceeding 18 months An asset which has been identified as loss asset by the NBFC or its internal or external auditor or by the RBI during the inspection of the NBFC, to the extent that it is not written off by the NBFC; and (b) an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower


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The following table sets forth data regarding the classification of the credit exposure (net of write-offs and unpaid interest on NPAs) of SFL.

As at March 31, 2004



Pariculars

Rupees in lacs

% Rupees in lacs

% Rupees in lacs

%

Standard Non-Performing assets Of which: Sub-standard Doubtful assets Loss assets

16951.28 943.59

358.50 535.86 49.23

94.73 5.27

37.99 56.79

5.22

17161.13 511.14

40.67

229.81 240.66

97.11 2.89

7.96 44.96 47.08

18531.40 309.46

94.97 51.41 43.56

98.36 1.64

22.86 24.69

52.45

Total 943.59 100.00 511.14 100.00 309.45 100.00 Provisioning and Write-offs

For loans, advances and other credit facilities including bills purchased and discounted, the RBIs provisioning norms are attracted once the arrears are for 6 months or more. The provisioning requirements in respect of loans, advances and other credit facilities including bills purchased and discounted are as follows:

Asset Classification Provisioning Standard Asset Nil Sub standard asset A general provision of 10% of the total outstandings is required to

be made a. 100% provision to the extent, which the advance is not

covered by the realizable value of the security to which the NBFC has a valid recourse, shall be made. The realizable value is to be estimated on a realistic basis.

b. In addition to item (a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 20% to 50% of the secured portion (i. e. estimated realizable value of the outstanding) shall be made on the following basis:

Period for which the asset is considered doubtful

Percentage of provision

Up to one year 20% From one to three years 30%

Doubtful asset

For more than three years 50%

Loss Asset The entire asset shall be written off. If the assets are permitted to remain in the books for any reason, 100% of the outstanding should be provided for.

For hire purchase assets, the total dues (overdue and future installments taken together) as reduced by,

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the finance charges not credited to the profit and loss account and carried forward as un-matured finance charges and; the depreciated value of the underlying asset are to be provided for.

Explanation: For the purpose of the above, the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of 20% p.a. on a straight line method, in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset. The RBI provisioning norms that are applicable to SFL as an asset finance company are as follows:

Asset Classification Provisioning Standard Asset Nil Sub standard asset 10% of the net book value Doubtful asset

40% of the net book value where any amounts of hire charges or lease rentals are overdue for more than 24 months but up to 36 months 70% of the net book value where any amounts of hire charges or lease are overdue for more than 36 months but up to 48 months

Loss Asset 100% of the net book value Since SFL is classified as an asset finance company, it is required to recognize NPA, where any amount of hire charges are overdue for more than 12 months. Statutory provisions are required to be made in respect of sub-standard, doubtful and loss assets as per RBI directives. Based on SFLs policy its provisions as of March 31, 2006 stood at Rs. 213. 39 lacs as compared to the RBI required provision of Rs. 210. 87 lacs.

Resources The operations of the Company have been funded through a combination of equity, deposits and debt depending upon the prevailing cost of the debt and its forecast of future movement. SFL’s debt currently comprises of various instruments like deposits, non-convertible debentures, term loans, working capital demand loan for varying periods. The overall cost of debt for the previous three years amounted to 9.60 %, 11.57 %, and 12.92 % respectively. Debt The total funds deployed and combination of the debt, deposit and equity for the last four years are as follows:

(Rs. in lacs) Years Shareholders’

funds Deposits Debt Total Debt

funds Debt Equity

Ratio 2002-03 3379.09 10329.43 5436.03 15765.46 4.66 2003-04 3775.98 10015.69 5449.13 15464.82 4.10 2004-05 3946.58 9453.23 6446.80 15900.03 4.03 2005-06 4042.58 8170.56 7955.05 16125.61 3.99


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Deposits The composition of Deposits for the last four years are as follows: (Rs. in lacs)

Equity The composition of shareholders’ funds for the last four years are as follows:

(Rs. in lacs) Years Equity Free Reserves Total Share holders’

Funds 2002-03 1757.13 1621.96 3379.09 2003-04 2007.13 1768.86 3775.98 2004-05 2007.13 1939.45 3946.58 2005-06 2007.13 2035.45 4042.58

Competition SFL’s primary competitors are public sector banks, private banks (including foreign banks), co-operative banks, regional rural banks and other non-banking financial companies. Competition in the Financing Industry is expected to continue. For more details on this sector please refer to section titled “Industry Overview” at page 28 of this Offer Document. Human Resources Break-up of the present manpower in the Company:

Category No of Employees Executives

Top Management 6 Senior Management 11 Middle Management 39 Executives 125

Non-Executives Skilled/ Staff 38 Non Skilled 17 Total 236

Human Resource Department

Sakthi Finance Limited currently has total manpower of 236 persons. HR Process is one of the seven core processes in the company. HR department is strengthened with qualified HR Professional and the department consists of 7 members. HR functions at Sakthi Finance Limited takes care of:

Years Deposits Total Number of Depositors

2002-03 10329.43 46614 2003-04 10015.69 41891 2004-05 9453.23 36262 2005-06 8170.56 29738

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S – Selection and Recruitment of right candidates. T – Training and Development for existing employees and new entrants. A – Appraisal and Retirement through compensation, career growth and separation R – Retention and retirement through compensation, career growth and separation. Apart from this, HR department takes care of establishment functions such as, statutory welfare functions, wages andd salary and administrative functions. The company has a performance based appraisal and remuneration system to compensate and reward the employees. Regular performance feedback is given to employees on their performance based on a half-yearly / yearly appraisal process. The company has taken necessary steps to assist the employees of the Company in planning the employee’s individual growth within the Company. The Company provides good opportunities for employees who have a track record of high performance and potential to progress within the company. The employee net attrition rate for the last three years is NIL Insurance SFL maintains an insurance coverage on all its assets located at its head office and branch premises against fire, earthquake and related perils. The Company also maintains insurance against burglaries at SFL’s head office and its branch offices. Further the Company maintains insurance against loss by virtue of riots, strikes or terrorist activities, any money that is in transit and money that is in safes.

MARKETING STRATEGY For Retail Resource Mobilisation SFL has outsourced this process of retail resource mobilizations to its associate company called Sakthi Financial Services Limited. Sakthi Financial Services Limited has employed around 30 field staff in Tamil Nadu to market the Fixed Deposit and Non-Convertible Debentures scheme of Sakthi Finance Limited. Potential customers are contacted and explained about the schemes and deposit is mobilised. For lending The marketing activity for lending is directly handled by Sakthi Finance Limited. The company has 25 branches in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Pondicherry and Delhi. Each branch is under the charge of a Branch Manager. Depending upon the potential in the territory, 4 to 6 marketing officers are attached to each branch, At present there are 75 marketing officers in the rolls of the company. These officers are located in rural centres, wherein truck population is higher. Each of these officers typically covers 50 km area from his location. They are responsible for lending money in that area and also for collecting the installments. These officers are given required marketing support, by holding Special Customer Meets, Campaigns etc. SWOT ANALYSIS OF THE COMPANY: Strengths Company belongs to reputed “Sakthi Group” of companies. Company is in this line of business for about five decades. Hence the knowledge of the market and

customers is excellent. Company has well established systems required for this line of business.


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Company has loyal and dedicated man power to handle the business at all levels. Weaknesses The credit rating of the company is MA-, which means adequate safety. With this rating, the

company is unable to tap more resources from Banks. Opportunities With the higher level of economic development, the demand for commercial vehicle and

consequently the demand for commercial vehicle finance will increase Threats Entry of more organized players into refinancing segment will intensify the competition. DETAILS OF COMPETITORS The company has opted to play in niche segment of refinancing of commercial vehicles. Almost 80% of the trucks are owned and run by independent operators. Unorganized players cater to the bulk of demand for used truck financing. Though organized players like banks and NBFCs backed by Banks are entering this refinance business, they have largely restricted their operations to financing trucks aged below 6 to 7 years. Even though more NBFCs and Banks are entering into this segment, only NBFCs with good network of field staff, effective relationship management and customer evaluation tools can succeed in this business. Other players in the market who are close competitors of SFL are: Sundaram Finance Ltd Cholamandalam DBS Finance Ltd. Shriram Transport Finance Company Ltd Bajaj Auto Finance Ltd Mahindra & Mahindra Financial Services Ltd LIST OF MATERIAL LAWS AFFECTING THE OPERATIONS OF THE COMPANY 1. Reserve Bank of India Act 1934:

- Non-banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998

- Non-banking Financial Companies Prudential Norms (Reserve Bank) Directions 1998 - Non-banking Financial Companies Auditors’ Report (Reserve Bank) Directions 1998 - Reserve Bank of India (Non-banking Financial Companies) Returns Specifications 1997

2. Companies Act 1956 3. Tamil Nadu General Sales Tax Act and Sales Tax laws of other States 4. Central Sales Tax Act 5. Service Tax under Finance Act 1994 6. Income Tax Act 1961 7. Indian Contract Act 8. Arbitration and Reconciliation Act 9. Securities Contracts (Regulations) Rules 1957, as amended from time to time

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REGULATIONS AND POLICIES SFL being an NBFC is sub-classified by RBI as an asset finance Company, which accepts deposits. SFLs business activities are governed by the RBI regulations applicable to deposit accepting NBFCs Following are the significant regulations that affect SFLs operations: Regulations issued by the RBI Capital Adequacy requirements On and from March 31, 1999, every NBFC is required to maintain a minimum capital ratio, consisting of Tier I and Tier II capital, of twelve per cent, of its aggregate risk weighted assets and of risk adjusted value of off-balance sheet items. Further the total of Tier II capital, at any point of time, shall not exceed one hundred per cent of Tier I capital Tier – I Capital means, owned fund as reduced by investment in shares of other NBFCs and in

shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund.

Owned Funds means, Paid up equity capital, preference shares which are compulsorily convertible

into equity, free reserves, balance in share premium account; capital reserve representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of assets; as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any.

Tier – II Capital to include the following a) preference shares other than those which are

compulsorily convertible into equity; b) revaluation reserves at discounted rate of fifty five per cent; c) general provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one-and-one-fourth per cent of risk weighted assets; d) hybrid debt capital instruments; d) subordinated debt, to the extent the aggregate does not exceed Tier-I capital and e) Subordinated debt to the extent the agrregate do not exceed Tier – I capital

Hybrid debt means, capital instrument, which possesses certain characteristics of equity as well as

of debt. Subordinated debt means a fully paid up capital instrument, which is unsecured and

is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of NBFC. The book value of such instrument subjected to discounting as prescribed.

Prudential Norms for Asset Classification The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 (“Prudential Norms Directions”) specify that every NBFC shall, after taking into account the degree of well defined credit weaknesses and extent of dependence on collateral security for realization, classify its lease/ hire purchase assets, loans and advances and any other forms of credit into the following classes, namely:


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Standard asset, i.e., the asset in respect of which no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;

Sub-standard asset, i.e., (a) an asset, which has been classified as non-performing asset for a period

not exceeding 18 months; b) an asset where the terms of the agreement regarding interest and / or principal have been renegotiated or rescheduled or restructured after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or restructured terms;

Doubtful asset, i.e., (a) a term loan, or (b) a lease asset, or (c) a hire purchase asset, or (d) any other

asset which remain as a sub-standard asset for a period exceeding 18 months; Loss asset, i.e., (a) an asset which has been identified as loss asset by the NBFC or its internal or

external auditor or by the RBI during the inspection of the NBFC, to the extent it is not written off by the NBFC; and (b) an asset which are adversely affected by a potential threat of non- recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower.

An asset is classified as a non performing asset when: (a) an asset, in respect of which, interest has remained overdue for a period of six months or

more;

(b) a term loan inclusive of unpaid interest, when the installment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more;

(c) a demand or call loan, which remained overdue for a period of six months or more form the date of

demand or call or on which interest amount remained overdue for a period of six months or more;

(d) a bill which remains overdue for a period of six months or more;

(e) the interest in respect of a debt or the income on receivables, under the head ‘other current assets’ in

the nature of short term loans/ advances, which facility remained over due for a period of six months or more;

(f) any dues on account of sale of assets or services rendered or reimbursement of expenses

incurred, which remained overdue for a period of six months or more;

(g) the lease rental and hire purchase instalment, which has become overdue for a period of twelve months or more;

(h) in respect of loan, advances and other credit facilities (including bills purchased and

discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/ beneficiary when any of the above credit facilities become non performing asset;

In the case of lease and hire purchase transaction, an NBFC may classify each such account on the basis of its record of recovery. The Prudential Norms Directions also require every NBFC to make provisions against sub-standard assets, doubtful assets and loss assets, after taking into account the time lag between an

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account becoming non-performing, its recognition as such, the realization of the security and the erosion over time in the value of security charged. Such provisions are required to be made as provided below: Loans advances and other credit facilities including bills purchased and discounted The provisioning requirement in respect of loans advances and other credit facilities including bills purchased and discounted is as under: Loss asset: The entire asset is required to be written off if the assets are permitted to remain in the

books for any reason, 100 per cent of the outstandings should be provided for; Doubtful asset: (a) 100 per cent provision to the extent to which the advance is not covered by the

realizable value of the security to which the NBFC has a valid recourse is required to be made. The realisable value is to be made estimated on a realistic basis; (b) In addition, to item a) above, depending on the period for which the asset has remained doubtful, provision to the extent of 20 per cent to 50 per cent of the secured portion (i.e., estimated realisable value of the outstanding) is required to be made as follows. Accordingly, if the asset has been considered doubtful for upto one year, provision to the extent of 20 per cent of the secured portion is required to be made; if the asset has been considered doubtful for one to three years, provision to the extent of 30 per cent of the secured portion is required to be made; and if the asset has been considered doubtful for more than three years, provision to the extent of 50 per cent of the secured portion is required to be made.

Sub-standard asset: A general provision of 10 per cent of the total outstanding is required to be

made. Lease and hire purchase assets In respect of hire purchase assets, the total dues (overdues and future installments taken together) as reduced by, (a) the finance charges not credited to the profit and loss account and carried forward as unmatured finance charges; and (b) the depreciated value of the underlying asset, is required to be provided for. For the purpose of the above, i) the depreciated values of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of 20% per annum on a straight line method and ii) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of the second hand asset. In addition, in respect of leased and hire purchase asset, following provisions are required to be made;

(a) where the amount of hire charges or lease rentals are overdue for up to 12 months, no provision is required to be made;

(b) sub-standard assets: where any amounts of hire charge or lease rental are over due for more than

12 months but up to 24 months, 10 per cent of the net book value; (c) doubtful assets: where any amounts of hire charge or lease rental are overdue for more than 24

months but up to 36 months, 40 per cent of the net book value; and (d) where such amounts of hire charge or lease rental are overdue for more than 36 months but up to

48 months, 70 per cent of the net book value; (e) loss assets: where any amounts of hire charge or lease rental are overdue for more than 48 months,

100 per cent of the net book value.


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On expiry of a period of 12 months after the due date of the last installment of hire purchase/ leased asset, the entire net book value is required to be fully provided for. Asset Liability Management The RBI has prescribed the Guidelines for Asset – Liability Management (“ALM”) System in NBFCs (“ALM Guidelines”) that are applicable to all NBFCs meeting the criteria of asset base of Rs. 1 billion or more or holding public deposits of Rs. 200 million or more. The ALM system rests on the functioning of ALM information systems within the NBFC, ALM organization including Asset Liability Committee (“ALCO”) and ALM support groups, and the ALM process including liquidity risk management, management of marketing risk, funding and capital planning, profit planning and growth projection, and forecasting/ preparation of contingency plans. It is provided that the management committee of the Board of Directors or any other specific committee should oversee the implementation of the system and review its functioning periodically. In case of structural liquidity, the negative gap (i.e. where outflows exceed inflows) in the 1 to 30/ 31 days time-bucket should not exceed the prudential limit of 15% of outflows of each time-bucket and the cumulative gap up to one year period should not exceed 15% of the cumulative cash outflows up to one year period. In case these limits are exceeded, the measures proposed for bringing the gaps within the limit, should be shown by a footnote in the relevant statement. Maintenance of liquid assets The RBI has prescribed guidelines directing every NBFC to invest and continue to invest in unencumbered approved securities valued at the price not exceeding the current market price of such securities an amount which shall, at the close of business on any day be not less than ten percent in approved securities and the remaining in unencumbered term deposits in any scheduled commercial bank, and the aggregate of which shall not be less than fifteen per cent of the public deposit outstanding at the last working day of the second preceding quarter. Acceptance of deposits The RBI has prescribed the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 (“Public Deposit Directions”) which regulate the acceptance of deposits by NBFCs. The Public Deposit Directions make provisions, inter alia, in respect of the credit ratings, period, quantum and rate of interest for such public deposits. According to the Public Deposit Directions, an asset finance company (i) having Net Owned Fund (“NOF”) of Rs. 2.5 million or more, and (ii) complying with all the prudential norms with capital adequacy ratio of not less than 15 per cent as per the last audited balance sheet, may accept, or renew public deposit, together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposit, not exceeding one and a half times of its NOF or public deposit up to Rs. 100 million, whichever is lower. Similarly, an asset finance company (i) having NOF of Rs. 2.5 million or more, (ii) complying with all the prudential norms, and (iii) having minimum investment grade credit rating, may accept or renew public deposit, together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposits, not exceeding four times of its NOF. The acceptance of deposit by an NBFC, in relation to its tenure and the rate of interest thereon is also regulated. The deposit accepted or renewed cannot be repayable on demand nor the tenure of deposit be less than 12 months nor more than 60 months. Further on and from March 2003, the rate of interest cannot exceed 11% for deposits up to three years.

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Payment of brokerage by NBFC to its agents is regulated. A NBFC cannot pay to its broker on public deposit collected by or through him, brokerage, commission, incentive or any other benefit by what ever name called, in excess of 2% of the deposit so collected and expenses by way of reimbursement on the basis of relative bills produced by him in excess of 0.5% of the deposit so collected. Supervision by the RBI Under the provisions of the Reserve Bank of India (Non Banking Financial Companies) Returns Specifications 1997, every NBFC is required to submit certain returns containing specific information to the RBI on a quarterly, half yearly and on an annual basis, in the format prescribed by the RBI. Further under section 45N of the Reserve Bank of India Act, 1934, the RBI may cause an inspection to be made of any NBFC if it considers it necessary or expedient. KYC obligations The RBI has extended the Know Your Customer (“KYC”) guidelines to NBFCs and advised all NBFCs to adopt the same with suitable modifications depending upon the activity undertaken by them and ensure that a proper policy framework on KYC and Anti-Money Laundering measures are put in place. The KYC policies are required to have the following key elements, namely, Customer acceptance policy, customer identification policy, ceiling and monitoring of cash transactions, guidelines and monitoring procedures, internal control systems, internal audit for inspection, record keeping and training of staff and management, adherence of KYC guidelines by the persons authorized by NBFCs including brokers/ agents, due diligence of persons authorized by NBFCs including brokers/ agents, customer service in terms of identifiable contact with persons authorized by NBFCs including brokers/ agents. Applicable Foreign Direct Investment Regime Under the guidelines prescribed by the Ministry of Finance, Government of India, foreign direct investment in the non banking finance companies (as defined therein) such as ours, is under the automatic route subject to compliance by the NBFC with applicable RBI guidelines. The minimum capitalization norms have been prescribed as follows: If foreign direct investment is less than 51 per cent, USD 0.5 million to be brought in upfront; If foreign direct investment is more than 51 per cent and up to 75 per cent, USD 5 million to be

brought in upfront; and If foreign direct investment is more than 75 per cent and up to 100 per cent, USD 50 million, of

which US$ 7.5 million to be brought in upfront and the balance in 24 months. Foreign investors can set up 100 per cent operating subsidiaries without the condition to disinvest a minimum of 25 per cent of Indian entities, subject to bringing in USD 50 million. Employment Related Regulations The Company is governed by the provisions of the Employees’ State Insurance Act, 1948 and is required to make periodic contributions under the same. Fiscal regulations In accordance with the Income Tax Act, 1961 any income earned by way of profits by a company incorporated in India is subject to tax levied on it in accordance with the tax rate as declared as part of the annual Finance Act.


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The Company, like other companies, avails of certain benefits available under the Income Tax Act, 1961. For details of the tax benefits, please refer to the “Statement of Tax Benefits” on page 21 of this Letter of Offer. Other regulations In addition to the above, the Company is required to comply with the provisions of the Companies Act, 1956, the Foreign Exchange Management Act, 1999, various tax related legislations and other applicable statutes.

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HISTORY The Company was promoted by Dr. N. Mahalingam during the year 1955 in the name of “The Pollachi Credit Society Private Limited”. The Company was later converted into a Public Limited Company as “Sakthi Finance Limited” on 27 July 1967. SFL is engaged in the retail finance business. The Company came out with its first public issue of equity shares in 1984 and mobilised Rs.75 lakhs. In the year 1994 SFL obtained credit rating for Fixed Deposit Programe through ICRA and was rated ‘MA’. Later in the Year 1995 the rating was upgraded from ‘MA’ to ‘MA+’. The grading of the company for Fixed Deposits Programme is ‘MA-’. Company’s business currently involves Acceptance of deposits, Non-Convertible Debentures, Hire Purchase Financing of commercial vehicles, Machinery etc., Mortgage Financing, and other finance related activities with its main focus on the Financing of commercial vehicles. The total deposits mobilised by the company crossed Rs.100 crore mark in the year 1991. The company is principally engaged in hire purchase and leasing business. The stock on hire has grown steadily over the years from Rs.203.60 lakhs in 1984 to Rs. 17321.14 lacs in the F.Y. 2006. In compliance of the regulations, the company reduced the deposit base to less than Rs.100 crores and the deposit as on 31st March 2006 stood at Rs. 8171 lacs. As a result of the reduction in fund base, the stock on hire also dropped to Rs.11941.68 lakhs in 2001, but gradually increased to Rs.15,491 lakhs in 2005. At present the Company has 25 branches in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Pondicherry and Delhi. Changes in Registered Office of the Company

Address Changed Date of change from to

01/06/1961 4&4A, Goods Shed Road, Pollachi – 642 001.

28, Nachimuthu Gounder Street, Pollachi – 642 001

09/09/1967 28, Nachimuthu Gounder Street, Pollachi – 642 001

225, (New No. 62), Dr. Nanjappa Road, Coimbatore – 641 018

MAIN OBJECTS OF THE COMPANY The main objects of the company are as follows:

(As set out in the Memorandum and Articles of Association of the Company)

1. To lend and / or to advance money or grant loans on any terms that may be thought fit with or without security to persons, firms, individuals, companies, local bodies or Government and particularly to customers and other persons having dealings with the Company.

2. To promote, assist in promoting, finance, aid, procure aids, manage, takeover or create any undertaking whether existing or new.

3. To act as Secretaries and financiers to enterprises. 4. To act as an issue house, Registrars and Share Transfer Agents, Financial Advisers, Technical

Consultants, System Analysts and Data Processors. 5. To purchase, sell, exchange, deal in or invest in shares, debentures, bonds, Stocks of Joint Stock

Companies, firms, local bodies or of Government. 6. To carry on the business of Underwriters, Sub-underwriters, Brokers, Managers, Advisors,

Consultants to issue of shares, debentures, bonds, fixed deposits and other securities and of syndication of loans, project finance, working capital facilities and deferred payment facilities.


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SUBSIDIARIES OF THE COMPANY SFL has a 100% Subsidiary Company, Sakthi Properties (Coimbatore) Limited. SHAREHOLDERS’ AGREEMENTS There is no subsisting shareholders’ agreement. OTHER AGREEMENTS SFL has not entered into any Strategic or Financial agreement CHANGES IN MEMORANDUM Dates on which some of the main clauses of the Memorandum of Association of the Company have been altered citing the details of Amendment as under:

Date of Approval

Clause Amendment

05/04/1959 7-A To carry on the busines of manufacturing, assembling, fitting, buying, selling, exchanging, altering, hiring, letting on hire, importing, exporting and dealing in all kinds of cars, trucks, buses, chassis, lorries, motor cycles, tractors, scooters and other conveyances of every description and in all spares and component parts required thereto for civil, commercial, military or agricultural purposes or otherwise and in all kinds of materials, engines, machinery, tools, implements, accessories and appratuses for use in connection with whether for cash or for credit or hire purchase on instalment system or in any other mode as they may thought fit.

02/06/1984

7-B

The following clause was inserted in the Memorandum To acquire, install and rent safe deposit vaults / lockers to the business constituents of the company and other and to carry on the business of owning and operating vaults, lockers and other equipments for storage and safe custody of valuables and articles of all descriptions.

07/06/1986

3-A

4-A

5-A

7-B

The following clauses were inserted in the Memorandum To act as an Issue House, Registrars and Share Transfer Agents, Financial Advisors, Technical Consultants, System Analysts, Data Processors or in any other capacity To carry on the business of underwriters, sub-underwriters, Brokers, Managers, Advisors, Consultants to issue of shares, debentures, bonds, fixed deposits and other securities and of syndication of loans, Project finance, working capital facilities and deferred payment facilities To aid, transact and carry on all kinds of agencies, contracts and business. To carry on the business of general financiers including leasing of and dealers in land, buildings, plant & machinery, construction

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Date of Approval

Clause Amendment

8-A

8-B

8-C

8-D

9-A

13-A

equipments, drilling rigs, fixtures and all kinds of office equipments. To guarantee the payment of money unsecured or secured by or payable under or in respect of promissory notes, bonds, debentures, instruments and securities of any company or any authority, municipal, local or otherwise, of or of any person whomsoever, whether incorporated or not and generally to guarantee or become sureties for the performance of any contracts or obligations. To render assistance to buy sell, import, export, lease or otherwise deal in all kinds of machinery, equipments, computers, computer software and computer hardware To undertake rural development work with a view to inculcate the habit of savings in rural population and for this purpose, formulate plans, conduct propaganda, seminars, conferences and training courses. To publish books, magazines and periodicals connected with the subjects relevant to the Company’s activities To avail or arrange for foreign currency loans and lines of credit for import of machinery, equipments, capital goods and for payment of royalties, technical services and other payments and to act as advisers in foreign exchange transactions of all kinds. To be interested in, promote and undertake the formation and establishment of institutions, business, companies, (industrial, agricultural, trading. Manufacturing or otherwise) as may be considered to be conducive to the profit and interest of the Company.

07/09/1987

7-C

8-D

12-A

The following Clause was inserted: To acquire immovable or movable property which the company may think fit desirable to acquire by way of investment, or with a view to provide commercial and housing scheme to the depositors of the Company. To guarantee the payment of money, unsecured or secured, by or payable under or in respect of promissory notes, bonds, debentures, instruments and securities of any company or any authority, Municipal, local or otherwise or any person whomsoever, whether incorporate or not and generally to guarantee or become sureties for the performance of any contract or obligations, for the business of the Company. To subsidise, assist and guarantee the payment of money or the performance of any contract, engagement or obligation by any person, persons, firms or companies and in particular customers of the


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Date of Approval

Clause Amendment

16-A

18-A

20-A

company or any persons or companies for the business of the Company. To carry on any scientific research or other research which may be of benefit to the company to establish, conduct and carry on any educational or other institution and research or other activities To insure with any person or company against losses, damages, risks and liabilities or any kind which may affect the company either wholly or partially and if thought fit to effect any such insurance by joining or becoming members of any mutual insurance by joining or becoming members of any insurance protections or indemnity association, federation or society and to accept and such insurance or any part thereof for the account of the company. The Company will not, however do any insurance business under the Insurance Act, 1938. To amalgamate with any other company or companies having objects altogether or in part similar to those of this company.

25/08/1993 7-D To carry on the business of manufacturing of and be engaged in all processes involved in the manufacture of all kinds of fibres, yarn, cloth, fabrics (including canvas, denims, hosiery and terry towels) and apparels and as dealers, merchants, exporters, importers, agents and distributors in any of them or in any textile goods and in all kinds of plant, machinery, tools, appliances, ancillaries, components and chemicals used in textile industry.

15/09/1995

8-E To generate, harness, develop and accumulate Electric power by utilising Wind, Solar, Tidal and other non-conventional sources of energy to generate power by setting up power plants including Wind Electric, Hydro Power, Thermal Power, Diesel Power, multi fuel power and micro-hydel power plants for captive consumption and for supply and distribution to consumers of electric power.

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MANAGEMENT

The details of the board of directors of the company are given below:

Name, Age, Designation, Son of,

Address and Occupation

Date of Appointment

(Term period)

Qualification No of shares held

Remu-neration

Other Directorships

Dr.N.Mahalingam (84 Years) Chairman, S/o. Mr. Nachimuthu Gounder, Sakthi Nilayam, Nachimuthu Gounder Street, Pollachi- 642001 Occupation: Industrialist

02/12/1990

B.Sc., FIE 2,06,023 Nil ABT Industries Ltd; Sakthi Sugars Ltd; Sri Bhagavathi Textiles Ltd; Sri Chamundeswari Sugars Ltd; Sakthi Synthetic Gems Ltd; ABT Ltd ; Nachimuthu Industrial Association; The Anamallais Retreading

Corporation (Partner).

Mr.M.Manickam (51 Years) Vice Chairman, S/o. Dr. N. Mahalingam No.25, Rukmani Nagar, Ramanathapuram, Coimbatore-641045 Occupation: Industrialist

12/12/1991 (Retire by rotation)

M.Sc., MBA

61,875 Nil Sakthi Sugars Ltd; Sakthi Auto Component Ltd; Sri Sakthi Textiles Ltd; ABT Ltd; ABT Industries Ltd; ABT Infosystem (P) Ltd; Sakthi Management Services

(Coimbatore) Ltd; Sakthi Properties (Coimbatore) Ltd; Sri Bhagavathi Textiles Ltd; Sri Chamundeswari Sugars Ltd; ABT (Madras) Private Limted; ABT (Madurai) Private Limted; ABT (Trichy) Private Limted; ABT Two Wheelers Private Limted; ABT Foods Retailing (India) Ltd; ABT Transports Private Limted; Kovai Medical Center and Hospital

Ltd; Nachimuthu Industrial Association; The Gounder and Company Auto Ltd; Turbotech Precision Engineering (P)

Ltd. Mr.M.Balasubramaniam (49 Years Managing Director), S/o. Dr. N. Mahalingam, No.27 & 28, Rukmani Nagar, Ramanathapuram,

21/08/1995 (5 years)

M.Com., MBA

1,28,000 Rs. 10.37 Lacs per annum

Sri Bhagavathi Textiles Ltd; ABT Ltd; ABT industries Ltd; ABT Finance Ltd; ABT Foods Retailing (India) Ltd; Sakthi Logistic Services Ltd; Sakthi Management Services

(Coimbatore) Ltd;


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Date of Appointment

(Term period)


Remu-neration

Other Directorships

Coimbatore-641045 Occupation: Industrialist

Sakthi Sugars Ltd; Sri Sakthi Textiles Ltd; Sakthi Auto Component Ltd; Sri Chamundeswari Sugars Ltd; Sakthi Properties (Coimbatore) Ltd; The Gounder and Company Auto Ltd; Union Bus Service (P) Ltd; Sakthi Automobiles, Kozhikode

(Partner). Mr.M.Srinivaasan (40 Years) Director, S/o. Dr. N. Mahalingam, Nachimuthu Gounder street, Pollachi- 642001 Occupation: Industrialist


B.E., MBA

2,21,355 Nil Sri Chamundeswari Sugars Ltd; ABT Ltd; ABT Industries Ltd; Chamundeswari Enterprise (P) Ltd; Sakthi Management Services

(Coimbatore) Ltd; Sakthi Sugars Ltd; Sakthi Synthetic Gems Ltd; Sri Bhagavathi Textiles Ltd; Graynium Information Technologies

Private Ltd; The Gounder and Company Auto Ltd; Sri Sakthi Textiles Ltd; Sakthi Auto Component Ltd; Sakthi Automobiles,

Kozhikode(Partener); Anamallais Engineering ,

Pollachi(partner); The Gounder and Company,

Coimbatore(Partner); N Mahalingam & Co, Coimbatore

(Partner). Mr.S.A.Muraliprasad (66 Years) Director, S/o. Mr. S. A. Venkatramaiyer, No. 4, Brindavan St, Mylapore, Chennai-600 004. Occupation: Management Consultant


M.Com, ACA, AICWA

Nil Nil Kovai Medical Center and Hospital Ltd;

Rane Brake Linings Ltd; Sam Consultancy Services Pvt. Ltd.

Mr.A.Shanmugasundaram (71 Years) Director S/o. Mr. Alagappa


Intermediate

5,250 Nil Anamallais Engineering Pvt Ltd; Sakthi Coffee Estates Private Ltd; ARC Retreading Company Pvt Ltd; Anamallais Bus Transport Pvt. Ltd; ABT Energy Pvt Ltd;

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Date of Appointment

(Term period)


Remu-neration

Other Directorships

Gounder, 226, Tea Estate Compound Race Course Road, Coimbatore-641018 Occupation: Business

Nachimuthu Industrial Association; N Mahalingam & Co , Coimbatore

(Managing Partner); The Gounder and Company

(Managing Partner) Sri.Sakthi Textiles Ltd; Anamallais Farm Fresh

(Sole Proprietor) Anamallais Engineering Sakthi Automobiles-Transport

Division (Authorised Signatory)

Dr.A.Selvakumar (52 Years) Director S/o. Mr. K. Arumugam, A-109 Raheja Enclave 236, Race Course Road, Coimbatore-641018 Occupation: Educationist


ME, Phd

Nil Nil S.A. International Ltd, Smartwares (Partner) Sri.Chamundeswari Sugars Ltd; Sri.Sakthi Textiles Ltd;

Mr.P.S.Gopalakrishanan (71 Years) Director, S/o Mr. P. R. Subramania Aiyer, B-202,”Keshav Dugar” No.1, East Avenue Kesavaperumal Puram, Chennai-600028 Occupation: Financial Consultant


B.Com, LLB, AIB (London)

Nil Nil Dharani Sugars and Chemicals Ltd; Kothari Sugars and Chemicals Ltd;

Dr N Mahalingam, Chairman Dr N Mahalingam (84 Years), Chairman is the founder of Sakthi Group of Companies. He is the promoter of SFL. He is a graduate in Engineering and Fellow of the Institute of Engineers. He has been the founder of many Companies in diverse fields such as Transport, Sugar, Automobiles, Consumer Durables, Agriculture, Textiles, Synthetic Gems etc. He also has been a founder of many educational institutes in Engineering, Arts and Science etc. He started his business career by joining his family business in the year 1943. He has a total experience of about six decades in various fields. Being Chairman of the Company he has been the


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guiding factor to the management. He has been awarded ‘Padmabhushan’ by the Government of India in the month of January 2007 for his contribution towards the society in various fields.In recognition to his contribution in various fields of development, he was awarded the Degree of ‘Doctor of Laws’ by Bharathiyar University, Coimbatore and has also been honoured with ‘Doctor of Science’ by Anna University and Degree of ‘Doctor of Law’ by Madurai Kamaraj University – Madurai..He was an MLA (Pollachi Constituency – 1952 to 1967) and also a member of the State Planning Commission, Tamil Nadu during 1971-74 & 1981-82. He was the President of Indian Sugars Mills Association and a member of Temple Administration Council (Hindu Religious and Charitable Endowments – Coimbatore District). Dr N Mahalingam was also a Honorary Consul of the Government of Mauritius. He has been the President/ Chairman of many Industrial and Sports Associations. He has authored 40 books in English and Tamil. Sri M Manickam, Vice Chairman Sri M Manickam (51 Years), Vice Chairman of the Company holds a Masters Degree in Statistics from Madras University and a Masters Degree in Business Administration from Michigan State University, USA. He has experience of about 25 years in the field of Business and industries. He plays an advisory role in SFL He is Vice Chairman and Managing Director of Sakthi Sugars Limited. He is also a Chairman and Managing Director of Sakthi Auto Component Limited. He was the President of Indian Sugar Mills Association (1996-97). He is also a member of Temple Administration Council (Hindu Religious and Charitable Endowments – Coimbatore District). Sri M Balasubramaniam, Managing Director Sri M Balasubramaniam (49 Years), Managing Director of the Company, holds Masters degree in Commerce and a Masters Degree in Business Administration from Notre Dame University, USA. He joined SFL as a Director in the year 1985 and has been associated with SFL, since then. He is presently the Managing Director of Sakthi Finance Limited. He was the Chairman of Coimbatore Zone of Confederation of Indian Industry and was also a member of the Management Committee of Coimbatore Management Association. Sri M Srinivaasan Sri M Srinivaasan (40 Years), Director of the Company holds a Bachelor’s Degree in Engineering from Karnataka University and a Masters Degree in Business Administration from USA. He has been the Managing Director of Sri Chamundeswari Sugars Limited since 1996. He has experience of about 10 years in the field of Sugar Industy. He was the President of South India Sugar Mills Association, Karnataka between 1997 and 1999. Sri S A Murali Prasad Sri S A Murali Prasad (66 Years), Director of the Company holds a Masters Degree in Commerce from Madras University, an Associate Member of The Institute of Chartered Accountants of India and The Institute of Cost & Works Accountants of India. Earlier he held senior positions in Chemplast Sanmar Ltd formerly known as Chemicals and Plastics (India) Ltd. He has been practising as a Management Consultant for nearly 3 decades and is a consultant to many reputed companies in the areas of Finance, Accounting, Information Technology etc. Sri A Shanumgasundaram Sri A Shanumgasundaram (71 Years), Director of the Company is an Intermediate. He has got vast experience in many industries such as Automobiles, Tyre-retreading, Consumer Durables, Agriculture etc. He is the Managing Director of Anamallais Retreading Company Private Limited and Managing Partner of N Mahalingam & Co.

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Dr A Selvakumar Dr A Selvakumar (52 Years), Director of the Company holds a Masters Degree in Engineering from Guindy Engineering College, Chennai and a Doctorate in Engineering from Canada. He was working as a Project In-charge at Naval Engineering Test Establishment in Canada. At present he is the Joint Correspondent of Kumaraguru College of Technology, Coimbatore Sri P S Gopalakrishnan Sri P S Gopalakrishnan (71 Years), Director of the Company holds a Graduate degree in Commerce and Law. He is also an Associate member of the Institute of Bankers, London. He was the former Chairman of IFCI Limited, Indian Overseas Bank and Oriental Bank of Commerce. He has got rich experience in heading banks and financial institutions. RELATIONSHIP AMONG DIRECTORS Dr. N Mahalingam is the father of Mr. M Manickam, Mr. M Balasubramaniam and Mr. M Srinivaasan. Mr. A Shanmugasundaram is the brother-in-law of Dr.N Mahalingam. Besides this none of the directors are related. CHANGE IN BOARD OF DIRECTORS DURING THE LAST THREE YEARS The changes in the Board of Directors of the Company in the last three year are as under: Sr. No Name of the Director Date of change Reason

1 V Muthuswami 20/11/2004 Resignation 2 P S Gopalakrishnan 20/11/2004 Co-opted

DETAILS OF BORROWING POWER Pursuant to a resolution passed by the members in accordance with the Companies Act, the Board is authorised to borrow sums of money for the purpose of business of the company upon such terms and conditions and with or without security as the Board of directors may think fit, provided that the money or monies to be borrowed by the company (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) shall not exceed, at any time, a sum of Rs 500 crores. INTEREST OF DIRECTORS All the Directors of the company may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings of the Board and reimbursement of expenses. All the directors may also be deemed to be interested to the extent of equity shares, if any, already held by them and /or by their friends /relatives in the Company that may be subscribed for or allotted to them in the present offer and also to the extent of any dividend payable to them and other distributions in respect of the said equity shares. All the directors may also be deemed to be interested to the extent of normal transactions, if any, with the company. The Directors may also be regarded as interested in the equity shares, if any, held or that may be allotted to the companies, firms and trust in which they are interested as directors, members, partners and or trustees. Sri M. Balasubramaniam, Managing Director, may be deemed to be interested to the extent of remuneration paid/payable to him


58

CORPORATE GOVERNANCE (Pursuant to Clause 49 of the Listing Agreement) 1. Company’s Philosophy on Corporate Governance

The company’s philosophy on corporate governance continues to aim at high levels of transparency, accountability and equity in all areas of its operations and its dealing with members, employees, customers, lenders, regulatory and government agencies.

2. Board of Directors

a. Composition and size of the Board

The Board of Directors consists of eight members, out of which one is a Managing Director and seven are Non-Executive Directors who bring in a wide range of skills and experience to the Board. The Board has a Non-Executive Chairman and the number of independent directors is one-third of the total number of directors. The composition of the Board is in conformity with Clause 49 of the Listing Agreement. The Board of Directors and its Committees meet at periodic intervals. Policy formulation, setting up of goals and evaluation of performance and control function vest with the Board. The Board has constituted four committees, namely, Audit Committee, Remuneration Committee, Shareholders’/ Investors’ Grievance Committee and Asset Liability Management Committee.

None of the Directors on the Company’s Board is a member of more than ten committees and Chairman of more than five committees across all companies in which he is a Director.

b. Code of conduct

The Board of Directors, at their meeting held on 29th October 2005 adopted a Code of Conduct and Ethics (“the Code”) to help ensure compliance with the legal requirements and standards of business conduct. The purpose of the Code is to deter wrong doing and promote ethical conduct.

The Code applies to all Directors and members of Senior Management Team of the company. All Board Members and personnel of the Senior Management Team of the company have affirmed compliance with the Code. The Code has been hosted on the website of the company.

3. Committees of the Board A. Audit Committee

The brief terms of reference of the Audit Committee are: Reviewing the accounting systems and policies periodically and suggest any improvements to the

Board as and when required Reviewing the financial statements before they are submitted to the board of directors Reviewing the internal control systems Any other matters that are relevant

The committee consists of 3 non-executive directors, of which 2 are independent directors.

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59

The composition of the Audit Committee are given below:

Chairman Sri S A Murali Prasad

Members Dr A Selvakumar

Sri A Shanmugasundaram

The minutes of the Audit Committee are being placed before the Board of Directors at their meetings.

B. Remuneration Committee

The Remuneration Committee determines and recommends to the Board the remuneration including commission, perquisites and allowances payable to the Managing Director. During the year, the committee held a meeting on 30th June 2005 to consider the reappointment and remuneration of Managing Director. The company has complied with the non-mandatory requirement of Clause 49 regarding remuneration committee.

The committee consists of 3 non-executive, independent directors. The composition of the Remuneration Committee is given below:

Chairman Sri S A Murali Prasad

Members Dr A Selvakumar

Sri P S Gopalakrishnan

Remuneration policy of the company is given below:

For Managing Director

The total remuneration, subject to members’ approval, consists of a fixed component, consisting of salary, perquisites and allowances as per company’s Rules and a variable component, linked to the performance of the company, consisting of commission within the limits approved by the members.

For Non-Executive Directors

Sitting fees as permitted under the Companies Act 1956 plus reimbursement of actual travelling and out-of-pocket expenses incurred for attending such meetings. Non-executive directors are not being paid any commission.

The details of remuneration / fees paid to the executive / non-executive directors for the year 2005-06 and the shares held by them are given below.

(Rs in lacs) Name of the Director Salary Commission Perquisites Sitting

Fees Total No of equity

shares held Dr N Mahalingam -- -- -- 0.10 0.10 2,06,023 Sri M Manickam -- -- -- 0.04 0.04 61,875 Sri M Balasubramaniam 5.40 - 4.97 -- 10.37 1,28,000


60

Name of the Director Salary Commission Perquisites Sitting Fees

Total No of equity shares held

Sri M Srinivaasan -- -- -- 0.08 0.08 2,21,355 Sri A Shanmugasundaram -- -- -- 0.08 0.08 5,250 Sri S A Murali Prasad -- -- -- 0.08 0.08 Nil Dr A Selvakumar -- -- -- 0.10 0.10 Nil Sri P S Gopalakrishnan -- -- -- 0.10 0.10 Nil

Notes:

1. The appointment of Managing Director is governed by the Articles of Association of the company and the resolutions passed by the board of directors and members of the company. These cover the terms and conditions of such appointment. Sri M Balasubramaniam was reappointed as Managing Director of the company for a period of 5 years with effect from 29th September 2005. He will hold office up to 28th September 2010. The Company does not have any service contract with the Managing Director.

2. No severance fee is payable to the Directors on termination of employment.

3. In terms of the Articles of Association, the resignation of a director becomes effective upon its

acceptance by the Board.

4. The company does not have a scheme for stock option either to its directors or employees. 5. None of the non-executive directors have any pecuniary relationship or transactions with the

company. C. Shareholders’ / Investors’ Grievance Committee

The functions of the committee are to redress the grievances of shareholders / investors and to create and review the systems for improving the services.

Composition

The composition of the Shareholders’ and Investors’ Grievance Committee is given below:

Chairman Dr N Mahalingam

Members Sri M Balasubramaniam

Dr A Selvakumar

Mr. S A Subramanian, Company Secretary, is the Compliance Officer.

D. Asset Liability Management Committee

The Asset Liability Management Committee reviews the company’s fiscal and risk management policies and practices adopted by the company.

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61

The committee consists of the following Director / executives.

Chairman Sri M Balasubramaniam, Managing Director

Members Sri N Srinivasan, Vice President

Dr S Veluswamy, General Manager (Operations)

4. Subsidiary Companies

The Company does not have a material non-listed Indian subsidiary company and hence, it is not required to have an independent director of the company on the Board of such subsidiary company. The Audit Committee reviews the financials of the subsidiary company. The minutes of subsidiary is being placed before the Board of Directors of the company.

Auditors’ certificate on Corporate Governance

As stipulated in Clause 49 of the Listing Agreement, the Auditors’ certificate on compliance of conditions of corporate governance is annexed to the Directors’ Report.

Compliance with Non-mandatory Requirements

The company has adopted all mandatory requirements of Clause 49 of the Listing Agreement and the status of compliance in respect of non-mandatory requirements stipulated by the said clause is as under:

No separate office is maintained for non-executive Chairman at the company’s expense.

The tenure of independent directors is not being restricted to a period of nine years in the aggregate since the Board of Directors is unanimously of the opinion that the length of the tenure on the Board would not have any material negative impact on the performance of independent directors and discharge of their duties towards the company.

The Company has voluntarily constituted a Remuneration Committee as required under the Listing

Agreement.

The half-yearly financial results are published in leading newspapers of the Country. Therefore, the results are not being separately circulated to the shareholders.

The company takes concrete and conscious steps in ensuring that the Auditors do not have any

qualifications on the financial statements. Queries and suggestions on financial statements, if any, are addressed by the company officials to the satisfaction of auditors.

The directors are kept informed of the latest developments in laws, rules and regulations, as also

the various risks to which the company is exposed and the manner in which these risks are mitigated / minimised. Therefore, the need for formal training on these issues is not felt necessary at present.

No separate mechanism has been formulated to evaluate the non-executive Board members. At present the Company does not have a documented Whistle Blower Policy in place.


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COMPENSATION OF MANAGING DIRECTOR The details of the remuneration of Mr. M. Balasubramaniam, Managing Director of SFL is as given below: Salary Rs 50,000 per month Perquisites Not exceeding the annual salary as may be decided by the Board of

Directors from time to time Commission 1% on the net profits of the company, subject to a maximum ceiling

specified in Section I of Part II of Schedule XIII to the Companies Act 1956

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ORGANISATION STRUCTURE BOARD OF DIRECTORS

MANAGING DIRECTOR

OPERATIONS SHARED SERVICES

GENERAL MANAGER

RESOURCES

CAP ASSISTANT GENERAL MANAGER

& DEPUTY MANAGER

VICE PRESIDENT &

ASSISTANT GENERAL MANAGER

CARE DEPUTY GENERAL

MANAGER &

DEPUTY MANAGER

CAMP & LEGAL DEPUTY MANAGER (3)

& MANAGER-LEGAL

ADVANCES F&A

HRD

COMPANY SECRETARY

FINANCE & ACCOUNTING MANAGER

& DEPUTY MANAGER

VICE PRESIDENT

ASSISTANT GENERAL MANAGER

EDP

EDP DEVELOPMENT MANAGER

& MAINTENANCE

EXECUTIVE

CORPORATE STRATERGY

CHIEF MANAGER

DEPUTY MANAGER

SECRETARIAL


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DETAILS OF KEY MANAGERIAL PERSONNEL The Company is managed by its Board of Directors, assisted by qualified professionals, with vast experience in the field of production/engineering/distribution/marketing/finance and corporate laws. Following are the key functionaries in different functions of the Company excluding the promoters/directors of the Company: -

Sl.No.

Name & Designation Age (Years)

Date of

appointment

Qualifications Number of shares

held

Experience in the

Company

Previous Company and

Total Experience 1. Mr. N Srinivaasan

Vice President 57 01/04/1994 B.Sc., ACA Nil 12 years &

10 months Sri Bhagavathi Tea Estates Ltd. (28 years)

2. Mr. P. A. Murlidharan Vice President (CS & HR)

54 09/09/2004 B. Sc., MBA Nil 2 years & 5 months

Centurian Bank (33 years)

3.

Dr. S. Veluswamy General Manager(O)

47 01/04/1994 M.Com., ACS Nil 12 years & 10 months

Sakthi Sugars Ltd. (25 years)

4. Mr. K. Natesan Assistant General Manager(HRD)

47 03/04/1992 M.A., LLB., MBA

200 14 years & 10 months

Tamilnadu Telecommunications Ltd. (23 years)

5. Mr. K. Guruprasad Assistant General Manager (CAP)

55 03/05/1996 B.Com. Nil 10 years & 9 months

State Bank of India (33 years)

6. Mr.V.Ramanathan Dy General Manager – CARE

46 01/06/2006 B.Com. Nil 8 months CITI Corp Finance (24 Years)

7 Mr. S.A.Subramanian Company Secretary

66 31/08/2006 B.A., FICWA, FCS

Nil 5 months Elgitread (India) Ltd., (40 years)

8 Mr. M.Purushothaman Chief Manager

47 01/02/2004 MBA, PGDC, Nil 3 Years B.K. Group of Companies, Kolkata (25 years)

All the above mentioned key managerial personnel are permanent employees of the Company. The remuneration of each of key managerial personnel includes salary, bonus, Company’s contribution to Provident Fund, Leave Travel Allowance/Concession, Medical Expenses and value of other facilities inclusive of accommodation as may be applicable in each case. The Company has not offered any profit sharing plan to its Key Managerial Personnel. CHANGES IN KEY MANAGERIAL PERSONNEL IN THE LAST THREE YEARS

Name Date of Appointement

Date of resignation

Mr. P.A.Muralidharan 09/09/2004 - Mr. G.Muniasamy - 26/03/2005 Mr. T.Sivashankaran - 31/07/2005 Mr S A Subramanian 31/08/2006 Mr. S.Anand - 10/02/2007

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65

EMPLOYEE STOCK OPTION SCHEMES Till date, the Company has not introduced any Employees Stock Option Scheme/Employee Stock Purchase Scheme.

PAYMENT OR BENEFIT (NON-SALARY RELATED) TO OFFICERS OF THE COMPANY Except as stated in this Letter of Offer, no amount or benefit has been paid or given or is intended to be paid or given during the preceding two years to any of its officers except for the normal remuneration paid to Directors, officers or employees since the incorporation of the Company.


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PROMOTERS

Dr.N Mahalingam, Chairman Dr N Mahalingam (84 Years), Chairman is the founder of Sakthi Group of Companies. He is the promoter of SFL. He is a graduate in Engineering and Fellow of the Institute of Engineers. He has been the founder of many Companies in diverse fields such as Transport, Sugar, Automobiles, Consumer Durables, Agriculture, Textiles, Synthetic Gems etc. He also has been a founder of many educational institutes in Engineering, Arts and Science etc. He started his business career by joining his family business in the year 1943. He has a total experience of about six decades in various fields. Being Chairman of the Company he has been the guiding factor to the management. He has been awarded ‘Padmabhushan’ by the Government of India in the month of January 2007 for his contribution towards the society in various fields.In recognition to his contribution in various fields of development, he was awarded the ‘Degree of Doctor Of Laws’ by Bharathiyar University, Coimbatore and has also been honoured with ‘Doctor of Science’ by Anna University and Degree of ‘Doctor of Laws’ by Madurai Kamaraj University, Madurai. He was an MLA (Pollachi Constituency – 1952 to 1967) and was also a member of the State Planning Commission, Tamil Nadu during 1971-74 & 1981-82. He was the President of Indian Sugar Mills Association and a member of Temple Administration Council (Hindu Religious And Charitable Endowments – Coimbatore District). Dr N Mahalingam was also a Honorary Consul of the Government of Mauritius. He has been the President/ Chairman of many Industrial and Sports Associations. He has authored 40 books in English and Tamil. Driving Licence No. : Not Applicable Voter ID No. : LTM1325661

Sri. M Manickam, Vice Chairman Sri M Manickam (51 Years), Vice Chairman of the Company holds a Masters Degree in Statistics from Madras University and a Masters Degree in Business Administration from Michigan State University, USA, He has experience of about 25 years in the field of Business and industries. He plays an advisory role in SFL. He is Vice Chairman and Managing Director of Sakthi Sugars Limited. He is also Chairman and Managing Director of Sakthi Auto Component Limited. He was the President of Indian Sugar Mills Association (1996-97). He is also a member of Temple Administration Council (Hindu Religious and Charitable Endowments – Coimbatore District. Driving Licence No. D/TN/038/030503/2004 Voter ID No. : Not Available

Sri. M Balasubramaniam, Managing Director Sri M Balasubramaniam (49 Years), Managing Director of the Company, holds Masters Degree in Commerce and a Masters Degree in Business Administration from Notre Dame University, USA. He joined SFL as a Director in the year 1985 and has been associated with SFL, since then. He is presently the Managing Director of Sakthi Finance Limited. He was the Chairman of Coimbatore Zone of Confederation of Indian Industry and was also a member of the Management Committee of Coimbatore Management Association. Driving Licence No. R/TN/038/011454/1998 Voter ID No. : Not Available

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67

We confirm that the Permanent Account Number, Bank Account Numbers, Passport Number have been submitted to the Stock Exchanges at the time of filing of the Draft Letter of Offer. Further, the Promoters have not been detained as wilful defaulters by the Reserve Bank of India or any other Government authority and there are no violations of securities laws committed by the Promoters in the past or any such proceedings are pending against the Promoters. COMMON PURSUITS The Associate Companies are carrying on separate businesses and there is no conflict of interest situation except certain related party transaction mentioned on page no. 89. INTEREST OF DIRECTORS All the Promoters may be deemed to be interested to the extent of Remuneration and reimbursement of expenses, if any, payable to them. The Directors may also be deemed to be interested to the extent of the shares, if any, held by them or by the relatives or by firms or companies of which any of them is a partner and a Director/ Member respectively and the shares if any, out of the present Offer that may be subscribed for and allotted to them or their relatives or any Company in which they are Directors / members or firms in which they are partners.


68

PROMOTER GROUP COMPANIES GROUP COMPANIES DETAILS OF LISTED COMPANIES WITHIN THE PROMOTER GROUP COMPANIES. 1. Sakthi Sugars Limited (SSL)

Sakthi Sugars Limited was incorporated on 12/05/1961 with Registrar of Companies, Madras. Registration No. of the company is 4482 of 1961 (CIN NO. L15421TZ1961PLC000396). SSL is engaged in the manufacturing of sugar, production of Industrial alcohol, Ethanol, Soya beans and Power Generation. SSL’s registered office is situated at Sakthi Nagar – 638 315, Erode District, Tamil Nadu. Board of Directors Dr. N. Mahalingam (Chairman), Sri M. Manickam (Vice Chairman &

Managing Director), Sri V K Swaminathan (Executive Director), Sri M Balasubramaniam, Sri P K Chandran, Sri G G Gurumurthy, Sri S S Muthuvelappan, Sri M Srinivaasan, Sri N K Vijayan, Sri K Davidson, Sri S Doreswamy, Sri B Ramakrishnan, Sri C Rangamani, Sri K V Ramaswamy

The Shareholding pattern of SSL (as on 31/12/2006) is as follows:

Sr. No

Category No. of shares held of Rs. 10/- each

% of total strength

1 Promoters’ holding 1,20,16,337 38.30 2 Mutual Funds and UTI 13,68,148 4.36 3 Banks, Financial Institutions, Insurance Companies 84,850 0.27 4 Central Government/ State Government(s) 9,19,099 2.94 5 Insurance Companies 1,65,593 0.53 6 Foreign Institutional Investors (FIIs) 35,65,272 11.36 7 Private Corporate Bodies 30,41,077 9.69 8 Individuals 96,93,362 30.90 9 Clearing Members 1,95,269 0.62 10 Market Maker 89,288 0.28 11 Foreign nationals 400 0.00 12 Non Resident Indians 2,24,571 0.72 13 Overseas Corporate Bodies 9,800 0.03 Grand Total 3,13,73,066 100.00

Financials (Rs. in Lacs)

Particulars (As at 30th June) 2003-2004 2004-2005 2005-2006 Equity Share Capital 2,773.21 3,137.31 3,137.31 Reserves and Surplus (free reserves)* 6,994.80 11,153.12 16,944.75 Total Income 30,991.84 62,474.85 88,204.47 Profit After Tax (2,535.32) 2,701.92 9,528.04 Earning per share (EPS) ( Rs.) (9.14) 8.63 28.19 Book Value (Face value of Rs. 10/- per share)(Rs.)

35.22 45.55 64.01

(* net of revaluation reserves and miscellaneous expenses not written off) SSL is listed on the Coimbatore Stock Exchange Limited Bombay Stock Exchange Ltd (BSE), National Stock Exchange of India Ltd (NSE) and Madras Stock Exchange Limited. The company has

___________________________________________________________________________________________________________________________________________________________________________________________

69

also issued Foreign Currency Convertible Bonds (FCCB’s) which are listed on the Singapore Stock Exchange Limited. Quotations for last six months at BSE and NSE are as follows:

BSE NSE Month High (Rs) Low (Rs) High (Rs) Low (Rs) Sept 2006 143.50 119.55 144.70 120.30 Oct 2006 139 .70 128.00 141.70 128.20 Nov 2006 135.70 101.00 135.30 100.50 Dec 2006 121.70 95.25 122.00 90.60 Jan 2007 110.00 74.50 108.90 73.10 Feb 2007 80.60 65.00 79.90 63.00 March 2007 105.80 61.30 93.10 62.00

Stock Market Data High/ Low price in the last 6 months (Rs) BSE: Rs.143.50/61.30

NSE: Rs. 144.70/62.00 Market price as on 11/05/2007 (Rs) BSE: Rs. 93.05

NSE: Rs. 92.75 SSL has not made any rights / public issue during last three years. SSL is not a Sick Industrial Company within the meaning of the SICA.

2. Sri Chamundeswari Sugars Limited (SCSL)

Sri Chamundeswari Sugars Limited was incorporated on 14/12/1970 with Registrar of Companies, Bangalore. Registration No. of the company is 1974. SCSL is engaged in the manufacturing of sugar. SCSL’s registered office is situated at 76, Ulsoor Road, Bangalore – 560 042. Board of Directors Dr. N Mahalingam (Chairman), Sri M Srinivaasan (Managing Director),

Sri M Manickam, Sri M Balasubramaniam, Sri K N V Ramani, Sri V K Swaminathan, Dr. A Selvakumar, Sri K Prakash, Sri K Kalyana Sundaram (Nominee of IFCI) and Sri A Arjunaraj, Sri S Srinivasan

The Shareholding pattern of SCSL (as on 31/12/2006) is as follows:

Sr. No


% of total strength

1 Promoters holding 68,59,508 87.44 2 Mutual Funds and UTI 1,00,150 1.28 3 Banks, Financial Institutions, Insurance

Companies 150 0.0019

4 NRI 700 0.09 5 Private Corporate Bodies 2,16,252 2.75 6 Individuals 6,68,613 8.52 Grand Total 78,45,373 100.00


70


Particulars (As at 31st March) 2003-2004 2004-2005 2005-2006 Equity Share Capital 784.54 784.54 784.54 Reserves and Surplus 1,391.24 1,297.51 3,022.04 Total Income 15,545.41 7,934.86 11,689.68 Profit After Tax (42.14) (98.35) 1,726.25 Earning per share (EPS) ( Rs.) (0.54) (1.25) 21.82 Book Value (Face value of Rs. 10/- per share)(Rs.)

27.73 26.54 48.52

(* net of revaluation reserves and miscellaneous expenses not written off) The shares are listed on Bangalore Stock Exchange Ltd. and Madras Stock Exchange Ltd. and are not actively traded. SCSL has not made any capital issue during last three years. SCSL is not a Sick Industrial Company within the meaning of the SICA.

3. Sri Bhagavathi Textiles Limited (SBTL) Shri Bhagavathi Textiles Limited was incorporated on 28/12/1963 with Registrar of Companies, Kerala State , Registration No. of the company is 09-2011. SBTL is engaged in Manufacturing of Yarn. SBTL’s registered office is situated at Mill Premises, Chittur – Vannamadai Road, Chittur, Palakkad District, Kerala – 678 101.

Board of Directors Dr. N. Mahalingam (Chairman), Sri M Balasubramaniam (Executive Vice

Chairman), Sri B.K.Krishnaraj Vanavarayar, Sri M. Manickam, Sri M Srinivaasan, Sri T.Rajkumar, Dr.S Murugaiyan, Sri B.Kanagasabapathy, Sri M.S.Shanmugasundaram, Sri P.Natarajan, Sri P.Sarguna Sabapathy

The Shareholding pattern of SBTL (as on 31/12/2006) is as follows:

Sr. No


% of total strength

1 Promoters’ holding 19,969 38.40% 2 Mutual Funds and UTI Nil - 3 Banks, Financial Institutions, Insurance Companies 7,462 14.35% 4 NRI Nil - 5 Private Corporate Bodies 260 0.50% 6 Individuals 24,309 46.75%

Grand Total 52,000 100.00% Financials (Rs. in Lacs)

Particulars Year Ended 31/03/2004

Year Ended 30/06/2005


Equity Share Capital 52.00 52.00 52.00 Reserves and Surplus * 32.18 (359.65) (791.33) Total Income 793.44 218.10 96.46 Profit After Tax (30.67) (391.84) (431.68) Earning per share (EPS) ( Rs.) (58.98) (753.54) (830.15)

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71

Particulars Year Ended 31/03/2004



Book Value (Face value of Rs. 100/- per share)(Rs.)

161.88 (591.63) (1421.79)

(* net of revaluation reserves and miscellaneous expenses not written off) The shares are listed on Madras Stock Exchange Limited. The shares of the company were not traded on MSE during last 6 months. SBTL has not made any capital issue during last three years. SBTL is not a Sick Industrial Company within the meaning of the SICA.

DETAILS OF THE FIVE LARGEST UNLISTED COMPANIES WITHIN THE PROMOTER GROUP COMPANIES (CHOSEN ON THE BASIS OF INCOME FROM OPERATIONS AS ON 31/03/2006) 1. ABT Industries Limited (ABTIL)

ABTIL was incorporated on 05/04/1950 with Registrar of Companies, Tamilnadu. Registration No. of the company is 18-790. ABT Industries Limited is engaged in the manufacturing and marketing of dairy products such as ghee, sterilized flavoured milk under the brand name ‘SAKTHI” and wind mill operations. The Auto Division of the company focusses on sales of commercial vehicle, spares and workshop income Board of Directors Dr. N Mahalingam (Chairman), Sri M Manickam, Sri M Balasubramaniam,

Sri M Srinivaasan, Sri M Chenniappan, Sri V L Govindarajan. The Shareholding pattern of ABTIL (as on 31/12/2006) is as follows:

Sr. No


% of total strength

1 Directors 93,045 7.22 2 Relatives of the Directors 69,330 5.38 3 Corporate Bodies/ Firms 8,29,910 64.38 4 Other individuals 2,96,795 23.02 Grand Total 12,89,080 100.00


Particulars 1.10.2002 -31.3.2004

2004-2005 31.3.2005

2005-2006 31.3.2006

Equity Share Capital 128.91 128.91 128.91 Reserves and Surplus* 957.01 978.02 1,051.86 Total Income 36,770.95 29,782.78 41,505.99 Profit After Tax 48.35 21.01 73.84 Earning per share (EPS) ( Rs.) 3.75 1.62 5.72 Book Value (Face value of Rs. 10/- per share)(Rs.)

84.24 85.87 91.60

(* net of revaluation reserves and miscellaneous expenses not written off) ABTIL has not made any capital issue during last three years. ABTIL is not a Sick Industrial Company within the meaning of the SICA.


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2. ABT Limited (ABTL)

ABT Limited was incorporated on 28/08/1931 with Registrar of Companies, Tamilnadu Registration No. of the company is 181-6. ABT Limited is engaged in Passenger Service, Parcel Service, Express Courier, Maruti Dealership & Service, Omni Bus Service and Wind mill operations. Board of Directors Dr. N Mahalingam (Chairman), Smt M Mariammal (Vice Chairman) , Sri

M Manickam, Sri M Balasubramaniam, Sri M Srinivaasan, Sri C Sanjeevi, Dr. S Murugaian, Sri M Chenniappan.

The Shareholding pattern of ABTL (as on 31/12/2006) is as follows:

Sr. No

Category No. of shares held of Rs100/- each

% of total strength

1 Promoters’ holding 1,39,726 93.10 2 Private Corporate Bodies 10 0.00 3 Individuals 10,264 6.90

Grand Total 1,50,000 100.00


Particulars (As on 31st March) 2003-2004 2004-2005 2005-2006 Equity Share Capital 150.00 150.00 150.00 Reserves and Surplus 10,700.70 10,970.21 11,654.74 Total Income 16,014.33 14,251.36 15,111.90 Profit After Tax 1,238.87 345.42 940.75 Earning per share (EPS) ( Rs.) 825.91 230.28 627.17 Book Value (Face value of Rs. 100/- per share)(Rs.)

7,233.80 7,413.47 7,869.83

ABTL has not made any capital issue during the last three years. ABTL is not a Sick Industrial Company within the meaning of the SICA.

3. Sakthi Financial Services Limited (SFSL)

SFS Limited was incorporated on 10/03/1988 with Registrar of Companies, Coimbatore Tamil Nadu, Registration No. of the company is 18-15460. SFSL is engaged in business of letting out safety lockers Board of Directors Mr. M. Balasubramaniam, Mr. K. Shankar Vanavarayar, Mr. N.

Srinivasan, Mr. N. V. Ravi, Mr. V. P. Mohankumar The Shareholding pattern of SFSL (as on 31/12/2006) is as follows

Sr. No


% of total strength

1 Directors 50 0.10 2 Relatives of the Directors 46,153 92.31 3 Other individuals 3,797 7.59 Grand Total 50,000 100.00

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73


Particulars 2003-2004 2004-2005 2005-2006

Equity Share Capital 5.00 5.00 5.00 Reserves and Surplus* (133.36) (113.70) (94.18) Total Income 95.75 117.56 191.69 Profit After Tax (24.73) 18.69 19.70 Earning per share (EPS) ( Rs.) (49.46) 37.38 39.40 Book Value (Face value of Rs. 10/- per share)(Rs.)

(256.72)

(217.40)

(178.34)

(* net of revaluation reserves and miscellaneous expenses not written off)

SFSL has not made any capital issue during last three years. SFSL is not a Sick Industrial Company within the meaning of the SICA.

4. Sri Sakthi Textiles Limited (STL)

Sri Sakthi Textiles Limited was incorporated on 07/07/1955 with Registrar of Companies, Tamilnadu Registration No. of the company is 000199. STL is engaged in the manufacturing of yarn. Board of Directors Dr. B. K. Krishanaraj Vanavarayar, Sri M. Manickam, Sri. M.

Balasubramaniam, Sri. M. Srinivaasan, Sri T. Kanahavel, Sri. T. Rajkumar, Sri. B. Velusamy, A. Shanmuga Sundaram, Dr. A. Selvakumar.

The Shareholding pattern of STL (as on 31/12/2006) is as follows:

Sr. No

Category No. of shares held of Rs10/- each

% of total strength

1 Directors 1,56,811 25.10 2 Relatives to Directors 96,784 15.40 3 Bodies Corporate 2,24,000 35.85 4 Others 1,47,205 23.56 Grand Total 6,24,800 100.00


Particulars For the Year ended 30/09/2004

01/10/2004 to 31/03/2005

2005-2006

Equity Share Capital 62.48 62.48 62.48 Reserves and Surplus* 491.33 495.57 511.46 Total Income 3,131.77 1,571.07 3,043.21 Profit After Tax 8.88 4.23 486.50 Earning per share (EPS) ( Rs.) 1.43 0.68 77.86 Book Value (Face value of Rs. 10/- per share)(Rs.)

88.60 89.32 91.86

(* net of revaluation reserves and miscellaneous expenses not written off) STL has not made any capital issue during last three years. STL is not a Sick Industrial Company within the meaning of the SICA.


74

5. Anamallais Engineering Private Limited (AEPL) AEPL was incorporated on 12/09/1991 with Registrar of Companies, Coimbatore. Registration number of the company is 181-3444. The Company is involved in the automobile body building for various automobile companies. Board of Directors Mr. A. Shanmugasundaram, Mrs. M. Mariammal, Mr. S.Chandrasekhar

The Shareholding pattern of AEPL (as on 31/12/2006) is as follows:

No. of shares held Sr.

No Category

Equity Shares (F.V. 10/-)

% of Total Equity share capital

1 Directors 47,500 15.83 2 Relatives of the Directors 1,92,500 64.17 3 Others 60,000 20.00 Grand Total 3,00,000 100.00


Particulars 2003-2004 2004-2005 2005-2006 Equity Share Capital (fully paid up) 27.25 27.25 27.25 Reserves and Surplus (11.56) (11.47) (2.69) Total Income 185.18 234.71 469.12 Profit After Tax 17.71 0.09 8.78 Earning per share (EPS) ( Rs.) 5.44 0.00 2.15 Book Value (Face value of Rs. 10/- per equity share) (Rs.)

5.23

5.26 8.19

AEPL has not made any capital issue during last three years. AEPL is not a Sick Industrial Company within the meaning of the SICA.

Litigation

For details on outstanding litigations against Group Companies please refer page no. 68 of the Letter of Offer

COMPANY/FIRM FROM WHICH THE PROMOTERS HAVE DISASSOCIATED THEMSELVES DURING PRECEDING THREE YEARS The promoters have not disassociated themselves from any of the Companies during three preceding years.

RELATED PARTY TRANSACTIONS For details of Related Party Transaction please refer to details given under the section titled “Related Party Transactions” on page 89 of this Letter of Offer.

___________________________________________________________________________________________________________________________________________________________________________________________

75

DIVIDEND POLICY

The declaration and payment of Dividends will be recommended by the Board of Directors and shall be approved by the shareholders at their discretion and will depend on a number of factors including but not limited to profits, capital requirement and overall financial condition. The Board may also from time to time declare and pay interim dividends. As regards past record of Dividend policy the Company has had an unbroken track record of paying more than 25% of the profit before tax as dividend on equity capital during the period from 1984-85 to 1996-97. Subsequently, with a view to conserve its resources and build up a sizable net worth so as to meet the business exigencies, the company has been adopting a prudent policy during the lean period when profits were lower than the expectations. So, from the financial year 1997-98 onwards, the company has refrained from declaring any dividend. However, the company has been taking steps to improve its performance so that it could return to dividend list soon After the last date of Balance Sheet i.e; 31/12/2006, the Board of Directors of the Company, at its meeting held on 19/02/2007 declared a special interim dividend of 5% (Re. 0.50 per share) on the equity share capital of the Company for the Year ended March 31, 2007.


76

PART II SECTION IV - FINANCIAL INFORMATION

AUDITORS’ REPORT

Auditors’ Report as required by Part II of Schedule II of the Companies Act, 1956 _____________________________________________________________________________________ Board of Directors, Sakthi Finance Limited, 62, Dr.Nanjappa Road, Coimbatore – 641 018. Dear Sirs, We have examined the financial information of Sakthi Finance Limited annexed to this report which has been prepared in accordance with the requirements of: i) paragraph B (1) of Part II of Schedule II of the Companies Act, 1956 (the Act), and the

amendments thereof; ii) the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000

(the Guidelines) issued by the Securities and Exchange Board of India (SEBI) and amendments made thereto from time to time in pursuance of section 11 of the Securities and Exchange Board of India Act, 1992; and

iii) the instruction received from the company requesting us to examine the financial information referred to above and proposed to be included in the Letter of Offer of the company in connection with its proposed Rights Offer.

Financial Information of the Company 1. We have examined the attached statement of restated Summary Statement of Assets and Liabilities

of the company as at 31st March 2002, 2003, 2004, 2005, 2006 and as at 31st December 2006 (Annexure - I) and accompanying statement of restated summary statement of Profit and Loss of the company for the financial year(s) / period ended 31st March 2002, 2003, 2004, 2005, 2006 and 31st December 2006 (Annexure – II) as prepared by the company and approved by the Board of Directors. These statements reflect the assets and liabilities and Profit and Losses for each of the relevant years as extracted from the balance sheet and profit and loss account for those years audited by us. These statements have been made after making such adjustments, regroupings as in our opinion are appropriate and more fully described in the Notes appearing in Annexure III to this report.

2. Based on our examination of these summary statements, we confirm that: The impact of extra-ordinary items has been separately disclosed in the attached summary

statement. The impact arising on account of changes in significant accounting policies, if any, (as disclosed in

Annexure IV to this report) adopted by the company has been adjusted with retrospective effect in the attached summary statements.

There are no qualifications in the auditors’ reports, which require any adjustments to the summary statements.

3. We confirm that the company has not declared any interim or final dividend on equity shares in

respect of the financial years ended March 31, 2002, 2003, 2004, 2005, 2006 and the company has

___________________________________________________________________________________________________________________________________________________________________________________________

77

declared an interim dividend of 5% on equity shares in respect of the year ended March 31 2007. We confirm that the Company has no other class of issued and paid-up shares during those years.

4. Other Financial Information

We have examined the following financial information relating to the company prepared by the Company and approved by the Board of Directors for the purpose of inclusion in the Offer document:

i. Accounting Ratios as appearing in Annexure V to this report. ii. Details of other Income as appearing in Annexure VI to this report.

iii. Capitalization Statement as appearing in Annexure VII to this report. iv. Statement of Tax Shelters as appearing in Annexure VIII to this report. v. Statement of Secured Loans as appearing in Annexure IX to this report.

vi. Statement of Unsecured Loans as appearing in Annexure X to this report. vii. Details of Investments as appearing in Annexure XI to this report.

viii. Details of Loans & Advances as appearing in Annexure XII to this report. ix. Details of Contingent Liabilities as appearing in Annexure XIII to this report. x. Details of Related Party and Transactions with related parties as appearing in Annexure

XIV to this report. xi. Cash Flow Statement as restated as appearing in Annexure XV to this report.

5. We have examined the attached restated consolidated summary statements of Assets and Liabilities

of the Company and its Subsidiary as at 31st March 2002, 2003, 2004, 2005, 2006 and as at 31st December 2006 (Annexure XVI) and accompanying Consolidated summary statements of restated Profit and loss of ‘the Company’ and its Subsidiary for the year(s) / period ended 31st March 2002, 2003, 2004, 2005, 2006 and 31st December 2006 (Annexure XVII) as prepared by Company. These statements have been made after making such adjustment and regroupings as in our opinion are appropriate and more fully described in the Notes appearing in Annexure XVIII to this report.

In our opinion the above financial information of the company, read with Significant Accounting Policies and notes on accounts attached in Annexure IV to this report, after making adjustments and regrouping as considered appropriate, has been prepared in accordance with Part II of the Schedule II of the Act and the SEBI Guidelines.

This report should not in any way be construed as a reissuance or redating of any of the previous audit reports issued by us nor should this report be construed as a new opinion on any of the financial statements referred therein. This report is intended solely for your information and for inclusion in the Offer document in connection with the proposed Rights Offer of Equity shares of the Company and is not be used, referred to or distributed for any other purpose without our prior written consent.

For P.N.Raghavendra Rao & Co., Chartered Accountants S/d P.R.Vittel Partner Membership No. 18111 Place: Coimbatore Date: 23/04/2007


78

Annexure I Summary of Statement of Assets and Liabilities, as restated (Rs. in lacs)

As at March 31, Particulars

As at 31-Dec-06 2006 2005 2004 2003 2002

Fixed Assets Gross Block 1940.29 1911.33 2430.98 2425.39 2576.62 3054.76 Less: Accumulated Depreciation 1062.16 1014.65 1465.10 1431.97 1507.06 1925.88 Net Block 878.13 896.68 965.88 993.42 1069.56 1128.88 Investments 1586.43 1760.48 1862.88 1918.43 1844.70 2127.26 Deferred Tax assets 262.76 262.76 340.61 177.50 199.24 194.67 Current Assets, Loans and Advances Stock on hire 18059.59 17321.14 15639.22 14930.58 14424.12 13217.70 Cash and Bank Balances 1612.45 773.09 897.04 481.82 217.31 226.45 Other current assets 27.38 48.34 52.79 55.88 247.04 262.10 Loans and Advances 2442.61 2343.09 2558.51 3061.42 3441.64 4625.54 Total Current Assets, Loans and Advances 22142.03 20485.66 19147.56 18529.69 18330.10 18331.79 Total 24869.35 23405.58 22316.93 21619.04 21443.60 21782.61 Liabilities and Provisions Secured Loans 8506.78 7955.05 6459.19 5465.42 5463.96 6062.39 Unsecured Loans 8813.76 8170.56 9453.23 10308.72 10725.54 10546.70 Current Liabilities and provisions 2083.08 2091.25 1441.77 1240.52 1389.98 1655.31 Total 19403.62 18216.86 17354.19 17014.66 17579.48 18264.41 Net worth 5465.73 5188.72 4962.74 4604.38 3864.12 3518.20 Represented by: Equity share capital 2007.13 2007.13 2007.13 2007.13 1757.13 1757.13 Share application money (pending allotment) 1146.15 1146.15 1161.15 1161.15 705.10 0.00 Reserves and Surplus: Reserves 2312.45 2035.44 1794.47 1567.47 1554.27 1773.01 Less: Miscellaneous expenses and losses 0.00 0.00 0.00 131.37 152.40 11.95

Net worth 5465.73 5188.72 4962.74 4604.38 3864.12 3518.20 Details of Reserves and Surplus Capital Reserve Share Premium Account 52.61 52.61 52.61 52.61 52.61 52.61 General Reserve 1366.60 1366.60 1366.60 1366.60 1366.60 1366.60 As per last balance sheet 0.00 0.00 0.00 0.00 191.90 191.90 Less: Transfer to Profit and Loss Account 0.00 0.00 0.00 0.00 -191.90 0.00 Statutory Reserve 251.08 187.31 148.26 135.06 128.31 122.16 Add: Transfer during the period 0.00 63.77 39.05 13.20 6.75 6.15 Surplus in Profit & Loss Account 642.14 365.15 187.95 0.00 0.00 33.59 Total 2312.45 2035.44 1794.47 1567.47 1554.27 1773.01

___________________________________________________________________________________________________________________________________________________________________________________________

79

Annexure II Summary Statement of Profit and Losses, as restated (Rs. in lacs)

Years ended March 31, Particulars 9 months ended

31-Dec-06

2006

2005

2004

2003

2002 INCOME INCOME FROM FINANCING OPERATION Income from Hire purchase operations 1740.46 2107.42 2190.86 1988.68 1605.29 2213.75 Income from leasing operations 0.00 0.00 0.00 12.35 35.64 214.52 Interest on loans and Other receipts 47.25 98.66 229.41 205.81 333.76 223.57 Income from Investments 98.64 140.43 159.70 170.73 187.97 231.01 OTHER INCOME AND RECEIPTS Profit on Sale of Investments/ Assets 3.71 17.16 43.13 0.80 13.15 598.05 Income from Windmill 73.73 86.31 108.33 119.10 99.52 114.39 Miscellaneous Receipts 52.38 41.77 18.63 17.09 23.27 44.46 Bad debts written off – recovered 29.63 27.73 4.73 14.43 306.84 64.39 Income from Sell down Receivable 232.83 233.69 156.38 143.94 0.00 0.00 Total Income 2278.63 2753.17 2911.15 2672.93 2605.44 3704.16 EXPENDITURE Financial Expenses 1204.17 1606.24 1861.80 2062.03 2027.68 2289.79 Personnel Expenses 293.08 279.27 251.41 214.15 209.22 212.78 Operating Expenses 375.43 392.86 355.11 329.76 299.04 346.06 Provisions and written offs 51.65 75.36 163.83 -61.92 -66.48 595.91 Depreciation 53.19 70.92 66.78 72.91 84.21 226.46 Total Expenditure 1977.52 2424.64 2698.95 2616.92 2553.68 3671.00 PROFIT BEFORE TAX AND EXTRAORDINARY ITEMS 301.11 328.53 212.21 56.00 51.76 33.16 Less: Taxes Current Tax 18.88 0.30 16.96 5.45 2.82 2.60 Fringe benefit tax 5.24 9.40 0.00 0.00 0.00 0.00 Deferred Tax 0.00 77.86 -163.12 21.74 -4.57 -254.19 PROFIT BEFORE EXTRAORDINARY ITEMS 276.99 240.98 358.37 28.82 53.51 284.75 Less: Extraordinary Items – Unrealizable receivables w.off 0.00 0.00 0.00 0.00 419.24 0.00 PROFIT AFTER TAX AND EXTRAORDINARY ITEMS 276.99 240.98 358.37 28.82 -365.73 284.75 Appropriations Transferred to Statutory Reserve - 63.77 39.05 13.20 6.75 6.15 Balance Carried forward to Balance Sheet 276.99 177.21 319.32 15.62 -372.48 278.60


80

Annexure III NOTES TO ADJUSTMENTS CARRIED OUT IN RESTATED FINANCIAL STATEMENTS Following adjustments have been given effect in restated financial statements: a) In the financial year 2004, an amount of Rs.15.33 Lacs had been credited to the Profit and Loss

account as withdrawal of excess depreciation provided in financial year 2003. In the restated financials, the above adjustment has been given effect in the relevant financial year 2003.

b) In the financial year 2005 and 2006, Rs.367.28 Lacs and Rs.144.97 Lacs respectively had been

debited to the Profit and Loss account as Provision for Income Tax – Earlier years, which are pertaining to the financial years prior to the financial year 2002. In the restated financials, the above adjustments have been given effect in the opening balance of the Profit and Loss account of financial year 2002.

c) In the financial year 2005, Rs.179.51 Lakhs had been credited to the Profit and Loss Account as

Provision for Deferred Tax Asset, which is calculated on Provision for non-performing assets and deferment of income on non-performing assets pertaining to earlier years. In the restated financials, the adjustments for the above have been given effect in the each respective year and also in the opening balance of the Profit and Loss account of financial year 2002.

(Rs. in lacs) Reconciliation on adjustments made on Profit & Loss A/c Balance as at 01.04.2001 for restatement Balance in Profit and Loss Account as at 01.04.2001 as per audited financial statements 118.27

Increase / (Decrease) in accumulated profits as at 01.04.2001 as a result of adjustments for Income tax expenses relating to earlier years (512.27) Deferred Tax Assets relating to earlier year 149.00 Balance in Profit and Loss Account as at 01.04.2001 as per restated financial statements

(245.00)

Adjustments made in the Profit and Loss account for restatement during the FY 2002 to FY 2006

(Rs. in lacs) Years ended March 31, Details

2006 2005 2004 2003 2002 Net Profit after tax and Extra-ordinary items as per audited financials

96.00

170.59

141.48

(339.40)

115.23

Excess Depreciation claimed - - (15.33) 15.33 - Earlier year income tax expenses reversed

144.97

367.28

-

-

-

Earlier year Deferred Tax Reversed

-

(179.51)

(97.35)

(41.66)

169.52

Net Profit after tax and Extra-ordinary items as per restated financials

240.98

358.37

28.82

(365.73)

284.75

___________________________________________________________________________________________________________________________________________________________________________________________

81

Annexure IV SIGNIFICANT ACCOUNTING POLICIES 1. INCOME RECOGNITION The prudential norms for income recognition and provisioning of Non-performing assets as prescribed by the Reserve Bank of India for Non Banking Finance companies have been followed. Accordingly, revenue recognition has been considered in the accounts on accrual basis only on those assets classified as standard asset as stated below: a) Income from hire purchase operations is accounted for by adopting Internal Rate of Return method b) Interest on advances by way of loans are accounted for, to the extent accrued during the year c) Income from Investments by way of dividend is accounted on receipt basis. Income by way of interest

on Government securities is accounted for, by adopting the contracted rate. d) In respect of sell-down receivables, the difference between the book value of the assets and the sale

consideration after netting of incidental expenses incurred is recognized as revenue. e) Income from lease operations are accounted for, to the extent accrued during the FY 2002 to 2004. 2. FIXED ASSETS Fixed assets are stated at historical cost less accumulated depreciation. 3. DEPRECIATION a) The Company provides Depreciation on assets leased by spreading the cost over the primary period of

lease. Lease equalization is created for excess/shortfall in capital recovery using the Internal Rate of Return in the lease and adjusted in lease rental. There are no leased assets as on or after 31.03.2004.

b) Depreciation on assets on own use had been provided for, on straight line method by adopting the rates as prescribed under Schedule XIV to the Companies Act 1956 for the full one year irrespective of the period of use.

c) For assets under own use acquired during the current year costing Rs. 5,000 each or below, full depreciation has been provided for, irrespective of the period of use.

4. VALUATION OF INVESTMENTS Long term investments are carried at cost; provision for diminution in value other than temporary, has been made wherever necessary. Current investments are valued at lower of cost or market value. 5. STOCK ON HIRE Stock on hire under Hire purchase agreements are stated at agreement value less installments received. 6. RETIREMENT BENEFITS TO EMPLOYEES a) In respect of gratuity, contributions by way of premium are paid to Life Insurance Corporation of

India through an independent Trust. b) Leave Encashment entitlement has been provided in accordance with the policies of the company. 7. PROVISION AS PER RBI NORMS Provision for non-performing assets, doubtful debts, loans and advances have been made as per the Non-Banking Financial Companies Prudential Norms (Reserve Bank of India) Directions, 1998. 8. SEGMENT REPORTING The company is principally engaged in hire purchase financing of commercial vehicles. Accordingly, there is no reportable segment as per Accounting Standard 17 issued by the Institute of Chartered Accountants of India on Segment Reporting.


82

NOTES ON ACCOUNTS 1. INCOME TAX ASSESSMENTS The income tax assessments for the assessment years 1996-97 to 2002-03, IT department’s appeals are pending for disposal before ITAT. For the assessment years 1987-88 to 1990-91 and 1993-94, IT department’s appeals are pending before the High Court of Madras. Company’s and IT department’s appeals for the assessment years 1999-2000 and 2000-2001 are pending for disposal before ITAT. 2. INTEREST TAX ASSESSMENTS Assessments for the assessment years 1992-93 to 1998-99 are remanded to the assessing officer by the ITAT and for the assessment years 1999-2000 and 2000-2001 IT department’s appeals are pending before ITAT. 3. SERVICE TAX The levy of service tax on hire purchase transactions introduced with effect from 16.07.2001 has been challenged by Trade Associations (in which the company is a member) before the Madras High Court and a stay has been obtained and is pending for disposal. Annexure V ACCOUNTING RATIOS (RESTATED)

Year Ended 31st March DETAILS

Year Ended

31.12.2006 2006 2005 2004 2003 2002 (i)Basic EPS (After Restated) (Rs.) 1.38 1.20 1.79 0.16 0.30 2.14 On Net Profit after taxes and before extraordinary items (ii)Basic EPS (After Restated) (Rs.) 1.38 1.20 1.79 0.16 (2.08) 2.14 On Net Profit after taxes and extraordinary items (iii) Diluted EPS (After Restated) (Rs.) 0.88 0.76 1.13 0.10 0.22 2.14 On Net Profit after taxes and before extraordinary items (iv) Diluted EPS (After Restated) (Rs.) 0.88 0.76 1.13 0.10 (1.49) 2.14 On Net Profit after taxes and extraordinary items (v) Net Asset Value per share (Rs.) 27.23 25.85 24.73 22.94 21.99 20.02 (vi) Return on Net Worth (%) 5% 5% 7% 1% 1% 8% No. of outstanding Equity Shares

As at 31st March DETAILS

As at 31.12.06 2006 2005 2004 2003 2002

Effect of dilutive potential of equity share equivalents

11461467 11461467 11611467 11611467 7051000

N.A.

Weighted average No. of equity shares outstanding during the year / period (Inclusive of diluted equity shares)

31532788 31532788 31682788 29988798 24622321

13108821

No. of equity shares outstanding at the year end

20071321 20071321 20071321 20071321 17571321

13108821

___________________________________________________________________________________________________________________________________________________________________________________________

83

Formulae: Net profit, as restated, as appearing in the summary statement of profit and losses has been considered for the purpose of computing the above ratios. Net worth is computed after including share application money. Earnings per share (Rs.) Net profit after tax –Restated Weighted average No. of equity shares outstanding

during the year / period Earnings per share (Rs.) (Diluted) Net profit after tax –Restated Weighted average No. of equity shares outstanding

during the year / period including the dilutive potential equity shares

Net Asset Value per share Net worth at the end of the fiscal year No. of equity shares at the end of the fiscal year Return on net worth is arrived at by dividing Profit after tax by net worth at the end of the fiscal year. Annexure – VI Details of other income (Rs. in Lacs)

Year ended March, 31st Particulars

9 months ended 31-Dec-06 2006 2005 2004 2003 2002

OTHER INCOME AND RECEIPTS Profit on Sale of Investments 3.03 - 6.34 - - 3.87 Profit on Sale of Assets 0.68 17.16 36.79 0.80 13.15 594.18 Income from Windmill 73.73 86.31 108.33 119.10 99.52 114.39 Commission Receipts 39.28 22.90 Rent Receipts 11.93 17.88 17.81 16.93 18.70 15.98

Other sundry incomes 0.20 0.99 0.30 0.17 4.57 26.38 Insurance claims / others 0.98 - 0.52 - - 2.10 Bad debts written off - recovered 29.63 27.73 4.73 14.43 306.84 64.39 Income from Sell down receivables 232.83 233.69 156.38 143.94 - - Total 392.29 406.66 331.19 295.36 442.78 821.30

Details of recurring or non-recurring nature of other income and related to business OTHER INCOME AND RECEIPTS

Whether Recurring or non-recurring

Whether related to business

Profit on Sale of Investments Recurring Related Profit on Sale of Assets Recurring Related Income from Windmill Recurring Related Commission Receipts Recurring Related Rent Receipts Recurring Not Related Other sundry incomes Recurring Related Insurance claims / others Non-Recurring Related Bad debts written off - recovered Non-Recurring Related Income from Sell down receivables Recurring Related


84

Annexure - VII Capitalization Statement (Rs in Lacs) Details

Pre-issue as at 31.12.2006

Post Issue

Borrowings: Short-Term Debt 7,706.52 7,706.52 (Refer Note 1 below) Long-Term Debt (A) 9,614.02 9,614.02 Total Debt 17,320.54 17,320.54 Shareholders' Funds: Share Capital 2007.13 3010.70 Reserves 2312.45 2312.45 Less: Miscellaneous Expenses not written off 0 0 Total Shareholders' Funds (B) 4319.58 5323.15 Total Capitalization 21640.12 22643.69 Long Term Debt / Equity Ratio (A) / (B) 2.23 1.81

Notes 1. Short Term Debts are debts repayable within one year from the date of the above statement Annexure - VIII Statement of Tax shelters (Rs. in Lacs)

Year ended 31st March Details

2002 2003 2004 2005 2006

9 Months Ended 31.12.06

Profit before Current and Deferred tax 33.16 51.76 56.00 212.21 328.53 301.11 Applicable Income Tax rate % 35.70% 36.75% 35.88% 36.59% 33.66% 33.66% Tax at Normal Income Tax Rates 11.84 19.02 20.09 77.65 110.58 101.35 Adjustments: Timing difference Difference between tax depreciation and book depreciation 111.31 (8.21) 3.20 18.09 42.11

38.02

Expenses disallowed in one assessment year & allowed in subsequent or earlier assessment years (16.75) 1.84 4.99 (2.05) - - Provision for NPA net of withdrawn 477.22 (498.02) (240.33) (2.87) (309.83) (112.20) Provision for investments not considered as expenses (5.50) (0.56) (4.62) - (5.80) - Total A 566.28 (504.95) (236.76) 13.17 (273.52) (74.18) Permanent differences Exempted Income net of expenses (3.40) (0.45) (0.45) (0.11) (0.43) (8.99) Profit / Loss on sale of assets / investment (586.67) (7.71) 12.29 (37.57) (3.86) 4.24 Donation - - - 0.38 0.43 0.36

___________________________________________________________________________________________________________________________________________________________________________________________

85

Year ended 31st March Details

2002 2003 2004 2005 2006

9 Months Ended 31.12.06

Expenses not deductible under Income tax and others (3.60) 2.23 2.21 - 0.10 - Total B (593.67) (5.93) 14.05 (37.30) (3.76) (4.39) Net Adjustments A-B (27.39) (510.88) (222.71) (24.13) (277.28) (78.57) Tax savings on above (9.78) (187.75) (79.91) (8.83) (93.33) (26.45) Total adjusted income 5.77 (459.12) (166.71) 188.08 51.25 222.54 Less Carried over loss - - - 188.08 51.25 210.27 Gross taxable income 5.77 (459.12) (166.71) - 0.00 12.27 C - Tax liability after considering above 2.06 NA NA NA NA 4.13 Taxable income (Book profit) as per MAT* 33.16 51.76 56.00 212.21 328.53 301.11 Tax rate under 115JB 7.65% 7.88% 7.69% 7.84% 8.42% 8.42% Notional Tax liability as per MAT Less: Exempted Income net of expenses (3.40) (0.45) (0.45) (0.11) (0.43) (8.99) Fringe benefit tax - - - - (9.40) (4.13) Provision for NPA net of withdrawn - (419.24) - (2.87) (315.63) (112.20) Total adjustments (3.40) (419.69) 0.45 2.98 325.46 125.32 Taxable income (Book profit) as per MAT* 29.76 (367.93) 55.55 209.23 3.07 175.79 Notional Tax liability as per MAT 2.28 - 4.27 16.40 0.26 14.80 D - Total Tax liability as per MAT 2.28 - 4.27 16.40 0.26 14.80 E - Tax liability being higher of C or D 2.28 - 4.27 16.40 0.26 14.80 Total tax expenses as per profit and loss account 2.60 2.82 5.45 16.96 0.30 18.88 Excess / (Short) Provision of Income Tax 0.32 2.82 1.18 0.56 0.04 4.08

Annexure - IX DETAILS OF SECURED LOAN (Rs. in Lacs)

Details As on 31.12.2006

As on 31.03.2006

Rate of Interest Security offered

From Banks - Cash Credits Canara Bank 393.29 396.26 14.50% Vijaya Bank 29.65 15.40 14.00% State Bank of Travancore 286.46 292.00 14.00% Bank of India 119.84 89.43 14.75% The Karnataka Bank Ltd. 404.06 410.40 14.00% Central Bank of India 148.30 143.53 14.50% The Catholic Syrian Bank Ltd. 200.32 182.17 13.00% The South Indian Bank Ltd. 150.36 142.88 14.50% The Lakshmi Vilas Bank Ltd. - 19.62 14.00% Interest accrued and due on above 12.11 10.99

Refer Note 1 below

From Financial Institutions Small Industries Development 358.98 9.50% Refer Note 2 below


86

Details As on 31.12.2006

As on 31.03.2006

Rate of Interest Security offered

Bank of India - Term Loan 474.36 Non-Convertible Debentures 6,403.41 5,778.00 7.50% to 10% Refer Note 3 below Total 8,506.78 7,955.04

Note 1. Secured by hypothecation of specified hire purchase assets, the related book debts and by personal guarantee of directors. Note 2. Term Loan from Small Industries Development Bank of India is secured by hypothecation of specified hire purchase assets and by collateral security of a building and further guaranteed by two directors of the company. Note 3. 354 Secured Redeemable Non-Convertible Debentures of the face value of Rs.1000 each and 57,74,46,465 Secured Redeemable Non-Convertible Debentures of the value of Re.1 each issued and redeemable at par are secured by specified hire purchase receivables and immovable properties; the earliest date of redemption is reckoned at 12 to 36 months from the date of first allotment of each series.

Annexure X DETAILS OF UNSECURED LOAN

As on 31st March DETAILS

As on 31.12.2006 2006 2005 2004 2003 2002

Fixed Deposits from Public

8,813.76 8,170.56 9,453.23 10,308.72 10,725.54 10,546.70 Total 8,813.76 8,170.56 9,453.23 10,308.72 10,725.54 10,546.70 Rate of Interest, per annum, varies from 7% to 12.50% Repayment term range from 12 months to 60 months. However option for pre-closure is available as per RBI - NBFC Regulations.

Annexure XI Details of Investments (Rs. in Lacs)

As at INVESTMENTS (At Cost) 31/12/2006 31/03/2006 31/03/2005 31/3/2004

31/03/2003 31/03/2002

Government Securities – Quoted Central Government Stock and State Government Loans 1295.68 1449.72 1539.13 1579.00 1505.27 1787.82 Equity Shares-Fully Paid – Quoted Bannari Amman Sugars Ltd. 7.60 7.60 7.60 7.60 7.60 7.60 Baroda Power Transmission Ltd. 0.03 0.03 0.03 0.03 0.03 0.03 Bharth movers ltd 0.00 0.00 0.00 1.73 1.73 1.73 Chokhani International Ltd. 0.02 0.02 0.02 0.02 0.02 0.02 DCM Daewoo Motors Ltd. 0.02 0.02 0.02 0.02 0.02 0.02 Dynamatic Forgings (India) Ltd. 0.00 20.00 20.00 20.00 20.00 20.00 Gujarath Ambuja Cements ltd 0.00 0.00 0.00 1.33 1.33 1.33 Industrial Development Bank of India Ltd. 0.00 0.00 0.00 11.57 11.57 11.57 J.K Corp ltd 0.00 0.00 0.00 0.01 0.01 0.01 Kongarar Textiles Ltd. 0.27 0.27 0.27 0.27 0.27 0.27 Kothari Petro Chemicals Ltd 0.00 0.00 12.80 12.80 12.80 12.80

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87

As at INVESTMENTS (At Cost) 31/12/2006 31/03/2006 31/03/2005 31/3/2004

31/03/2003 31/03/2002

Kovai Medical and Hospital Ltd 0.00 0.00 0.00 0.01 0.01 0.01 K.R.Steel Union Ltd. 0.01 0.01 0.01 0.01 0.01 0.01 Ambuja Cement Eastern Ltd 0.00 0.00 0.00 0.09 0.09 0.09 NCL Industries Limited 0.00 0.00 0.00 0.02 0.02 0.02 Punjab Communications Ltd 0.00 0.00 0.00 0.25 0.25 0.25 Sakthi Sugars Ltd. 226.10 226.10 226.10 226.10 226.10 226.10 Sri Bhagavathi Textiles Ltd. 0.04 0.04 0.04 0.04 0.04 0.04 Sri Chamundeswari Sugars Ltd. 7.83 7.83 7.83 7.83 7.83 7.83 Stiles India Ltd. 0.02 0.02 0.02 0.02 0.02 0.02 Surya Roshini Ltd 0.00 0.00 0.00 0.04 0.04 0.04 The Andhra Cements Ltd. 0.00 0.00 0.20 0.20 0.20 0.20 The Associated Cement Company Ltd 0.00 0.00 0.00 0.18 0.18 0.18 The India Cements Ltd 0.00 0.00 0.00 0.15 0.15 0.15 Tata Motors Ltd. 0.00 0.00 0.00 0.32 0.32 0.32 Debentures fully paid up – Quoted Surya Roshni Ltd. 0.00 0.00 0.00 0.00 0.00 0.00 Elgi Equipment Ltd. 0.00 0.00 0.00 0.00 0.00 0.01 Aggregate Cost of Quoted Investments 1537.61 1711.66 1814.06 1869.63 1795.90 2078.46 Government Securities – Unquoted National Savings Certificates 0.07 0.07 0.07 0.04 0.04 0.04 Equity Shares fully paid- Unquoted ABT Co-operative Stores Ltd. 0.05 0.05 0.05 0.05 0.05 0.05 ABT Industries Ltd. 15.00 15.00 15.00 15.00 15.00 15.00 PSTS Heavy Equipments Ltd. 3.00 3.00 3.00 3.00 3.00 3.00 Sakthi Beverages Ltd. 12.50 12.50 12.50 12.50 12.50 12.50 Sakthi Soft Drinks Ltd. 3.00 3.00 3.00 3.00 3.00 3.00 Tamil Nadu Industries Captive Power Co. Ltd. 10.20 10.20 10.20 10.20 10.20 10.20 Investment in Subsidiary Company Sakthi Properties (Coimbatore) Ltd. 5.00 5.00 5.00 5.00 5.00 5.00 Aggregate Cost of Unquoted Investments 48.82 48.82 48.82 48.79 48.79 48.79 Total investments 1586.43 1760.47 1862.88 1918.41 1844.69 2127.25


88

Annexure - XII DETAILS OF LOANS AND ADVANCES (Rs. in Lacs)


As at 31.12.2006 2006 2005 2004 2003 2002

Loans and Advances in the nature of loans 686.75

858.13

930.88 1,141.46 1,694.89 1,658.83

Other advances and Deposits recoverable in cash or kind

1,586.46

1,317.94

1,481.91

1,836.68

1,666.49

2,914.32

Advance payment (net) - Income tax, Wealth tax, Fringe benefit tax and Interest tax.

169.40

167.02

145.72

83.28

80.26

52.40

Total 2,442.61 2,343.09 2,558.51 3,061.42 3,441.64 4,625.54 Out of the above Loans considered good, fully secured 199.05 234.63 273.71 156.31 354.85 115.73 Loans considered good, unsecured but personally guaranteed

456.27

511.11

518.40

536.97

1,055.52

918.14

Loans considered bad and doubtful 31.44 112.39 138.77 448.18 284.52 624.95 Total 686.76 858.13 930.88 1,141.46 1,694.89 1,658.82 Amount due from wholly owned subsidiary

200.59

199.63

232.46

223.38

505.80 1,054.37

Annexure - XIII DETAILS OF CONTINGENT LIABILITIES (Rs. in Lacs)


As at 31.12.2006 2006 2005 2004 2003 2002

Guarantees and collaterals given to banks / financial institutions

62.28

62.28

62.28

502.28

502.28 502.28

Future dues on sell down receivables excluding cash collateral

3,117.83

1,997.78

1,482.58

1,073.90

- -

Guarantee for collection of managed business and future payable thereon

828.47

299.52

-

-

- -

Total 4,008.58 2,359.58 1,544.86 1,576.18 502.28 502.28 Annexure – XIV DETAILS OF RELATED PARTIES AND RELATIONSHIPS RELATIONSHIP NAME OF THE RELATED PARTY Subsidiary Company Sakthi Properties (Coimbatore) Ltd. Key Management Personnel Mr. M.Balasubramaniam

Dr.N.Mahalingam Mrs.M.Mariammal Mr.M.Manickam Mr.M.Srinivaasan

Relatives of Key Management Personnel Mrs.Vinodhini Balasubramaniam

___________________________________________________________________________________________________________________________________________________________________________________________

89

Ms.Samyukta Ms.Subhasree Mr.Amrit Vishnu

Mrs.Karunambal Vanvarayar

ABT Limited ABT Finance Limited ABT Industries Limited Sakthi Beverages Limited Sakthi Financial Services Limited Sakthi Logistic Services Limited Sakthi Refinery and Protein Limited Sakthi Sugars Limited Sri Bhagavathi Textiles Limited Sri Chamundeswari Sugars Limited Sri Sakthi Textiles Limited The Gounder and Company Auto Limited

Other related parties N.Mahalingam & Co.,

Disclosures of transactions with related parties: (Rs. in Lacs)

Period

Particulars Subsidiary

Key Management Personnel & Relatives

Other Related Parties

Total

Rendering of services 1.44 1.44 Purchase of fuel 5.08 5.08 Repairing of vehicles 0.58 0.58 Rent Received 11.65 11.65 Rent Paid 0.48 0.48 Finance charges & interest 68.68 68.68 Collaterals given (Balance at the end of the period) 62.28 62.28 Managerial Remuneration 7.10 7.10

Transactions for the period ended December 2006

Sitting fees 0.38 0.38 Outstanding Balance as on 31.12.2006 200.59

Rendering of services 1.92 1.92 Purchase of fuel 12.06 12.06 Repairing of vehicles 1.77 1.77 Rent Received 14.07 14.07 Rent Paid 0.64 0.64 Finance charges & interest 98.75 98.75 Collaterals given (Balance at the end of the year) 62.28 62.28 Managerial Remuneration 10.37 10.37

Transactions for the year ended March 2006

Commission - -


90

Period




Total

Sitting fees 0.22 0.22 Outstanding Balance as on 31.03.2006 199.63

Rendering of services 1.92 1.92 Purchase of fuel 8.96 8.96 Repairing of vehicles 2.42 2.42 Rent Received 15.90 15.90 Rent Paid 0.60 0.60

Transactions for the year ended March 2005 Finance charges & interest 157.02 157.02

Collaterals given (Balance at the end of the year) 62.28 62.28

Managerial Remuneration 7.78 7.78 Commission 1.78 1.78 Sitting fees 0.12 0.12 Outstanding Balance as on 31.03.2005 232.46

Rendering of services 1.92 1.92 Purchase of fuel 9.99 9.99 Repairing of vehicles 2.59 2.59 Rent Received 13.44 13.44 Rent Paid 1.08 1.08 Finance charges & interest 148.23 148.23 Guarantees / Collaterals given (Balance at the end of the year) 502.28 502.28 Managerial Remuneration 7.42 7.42 Commission - -

Transactions for the year ended March 2004 Sitting fees 0.24 0.24 Outstanding Balance as on 31.03.2004 223.38

Rendering of services 1.92 1.92 Purchase of fuel 6.02 6.02 Repairing of vehicles 2.31 2.31 Rent Received 13.43 13.43 Rent Paid 1.08 1.08 Finance charges & interest 202.77 202.77 Guarantees / Collaterals given (Balance at the end of the year) 502.28 502.28 Managerial Remuneration 7.42 7.42 Sitting fees 0.18 0.18 Interest paid 1.18 1.18

Transactions for the year ended March 2003 Deposits/NCD repaid 39.78 39.78 Outstanding Balance as on 31.03.2003 505.80

Rendering of services 1.44 1.44 Purchase of fuel 5.63 5.63 Repairing of vehicles 2.90 2.90 Rent Received 12.63 12.63

Transactions for the year ended March 2002

Rent Paid 1.08 1.08

___________________________________________________________________________________________________________________________________________________________________________________________

91

Period




Total

Finance charges & interest 138.54 138.54 Guarantees / Collaterals given (Balance at the end of the year) 502.28 502.28 Managerial Remuneration 7.42 7.42 Sitting fees 0.18 0.18 Interest paid 1.18 1.18

Deposits/NCD repaid 39.78 39.78 Outstanding Balance as on 31.03.2002 1,054.37

Annexure XV Summary Statement of Cash flows, as restated (Rs. in Lacs)

Year ended March 31,

Details

Nine months ended

31-Dec-06 2006 2005 2004 2003 2002

I Cash flows from operating activities

Net Profit as restated 301.11 328.53 211.21 56.00 51.76 33.16 Adjustments for: Depreciation 53.19 70.92 66.78 72.91 84.21 226.46 Interest/ Dividend Income -145.89 -239.09 -389.11 -376.54 -521.73 -231.01 Interest Expenses 1204.17 1606.24 1861.80 2062.03 2027.68 2289.79 Provision for NPA / investments -103.52 -229.98 -2.87 -244.95 -79.34 471.72 Provision for Income Tax -24.12 -9.69 -16.96 -5.45 -2.82 -2.60

Deferred Taxes/ Share issue expenses - - - 5.41 6.54 6.54

Extraordinary Items - Unrecoverable w.off - - - - -419.24 -

Profit/ loss on assets & Investments 4.24 -3.86 -37.56 13.29 -18.87 -586.67

Operating Profit before working capital changes 988.07 1194.53 1482.08 1526.70 1076.43 2174.23

Movement in working capital: 1289.18 1523.06 1693.29 1582.70 1128.19 2207.39

Decrease / ( Increase ) in Stock on Hire -738.45 -1681.92 -708.64 -506.46 -1206.42 -1989.35

Decrease / ( Increase ) in sundry debtors -225.42 164.43 378.25 28.03 1241.39 -48.94

Decrease / ( Increase ) in loans and advances 77.01 123.03 208.22 549.47 -80.88 451.54

Increase / ( decrease ) in current liabilities 79.24 885.72 193.60 92.87 -186.21 -195.58

Interest Expenses -1204.17 -1606.24 -1861.80 -2062.03 -2027.68 -2289.79

Direct taxes paid ( net of refunds) -8.39 -22.58 -69.46 -2.82 -2.60 -16.45


92

Year ended March 31,

Details

Nine months ended

31-Dec-06 2006 2005 2004 2003 2002

Net cash from Operating activities - (A) -731.00 -614.50 -166.54 -318.25 -1134.20 -1881.17

II Cash flows from Investing activities

Purchase of Fixed Assets -35.20 -18.47 -117.15 -1.13 -36.06 -1.93 Sale of Fixed Assets 0.85 32.58 111.41 1.07 30.74 715.24 Purchase of Investments 0.00 -151.95 -32.06 -335.56 -135.22 -252.82 Sale of Investments 169.53 242.38 91.66 250.00 415.02 200.31 Interest received 136.89 238.64 388.75 375.84 521.04 227.36 Dividend received 8.99 0.45 0.36 0.70 0.69 3.65

Net cash from/(used in) investing activities - (B) 281.06 343.63 442.99 290.92 796.21 891.82

III Cash flows from financing activities

Proceeds from share application money 0.00 -15.00 0.00 706.05 705.10 22.50

Increase (Decrease) in bank borrowings -105.69 482.62 -202.60 -152.40 -540.26 350.03

Increase in Secured Non convertible debentures 625.40 1013.24 1196.37 153.86 -58.17 1267.81

Increase (Decrease) in Fixed deposits 643.20

-1282.67 -855.49 -416.83 178.84 -992.10

Net cash from/(used in ) financing activities - (C) 1162.91 198.19 138.29 290.68 285.51 648.24

Net increase / (decrease) in cash and cash equivalents (A+B+C) 712.97 -72.68 414.73 263.35 -52.48 -341.11

Cash and cash equivalents at the beginning of the period / year 738.92 812.59 396.86 132.51 184.99 526.10

Cash and cash equivalents at the end of the period / year 1451.90 738.92 812.59 396.86 132.51 184.99

Components of Cash and cash equivalents

Cash on hand 134.20 78.39 74.84 40.24 38.10 52.64 With scheduled banks On current accounts 1317.70 660.52 737.76 356.62 94.41 132.35 1451.90 738.92 812.59 396.86 132.51 184.99

Annexure XVI Summary Statement of Consolidated Assets and Liabilities, as restated (Rs. in Lacs)

As at March 31, Details

As at 31-Dec-06 2006 2005 2004 2003 2002

Fixed Assets Gross Block 3274.31 3245.36 3655.50 3587.31 3680.40 4158.54 Less: Accumulated 1083.21 1022.81 1465.10 1431.97 1507.06 1925.88

___________________________________________________________________________________________________________________________________________________________________________________________

93

As at March 31, Details

As at 31-Dec-06 2006 2005 2004 2003 2002

Depreciation Net Block 2191.10 2222.55 2190.40 2155.34 2173.34 2232.66 Investments 1581.43 1755.48 1857.88 1913.43 1839.70 2122.26 Deferred Tax assets 262.76 262.76 340.61 177.50 199.24 194.67 Current Assets, Loans and Advances Stock on hire 18059.59 17321.14 15639.22 14930.58 14424.12 13217.70 Cash and Bank Balances 1615.35 777.72 942.96 497.11 222.68 232.06 Other current assets 185.41 201.98 108.38 130.21 289.19 268.39 Loans and Advances 2242.02 2143.46 2326.05 2838.04 2935.84 3571.17 Total Current Assets, Loans and Advances 22102.37 20444.31 19016.60 18395.94 17871.83 17289.32 Total 26137.66 24685.09 23405.50 22642.21 22084.11 21838.92 Liabilities and Provisions Secured Loans 9465.64 9069.57 7301.31 6053.52 5896.00 6105.89 Unsecured Loans 8813.76 8170.56 9453.23 10308.72 10725.54 10546.70 Current Liabilities and provisions 2515.31 2285.57 1703.09 1684.46 1602.24 1655.67 Total 20794.71 19525.70 18457.63 18046.69 18223.79 18308.26 Net worth 5342.95 5159.39 4947.86 4595.52 3860.32 3530.65 Represented by: Equity share capital 2007.13 2007.13 2007.13 2007.13 1757.13 1757.13 Share application money pending allotment 1146.15 1146.15 1161.15 1161.15 705.10 0.00 Reserves and Surplus: Reserves 2189.65 2006.10 1779.59 1716.47 1703.27 1888.42 Less: Miscellaneous expenses and losses 0.00 0.00 0.00 289.23 305.17 114.89 Net worth 5342.95 5159.39 4947.86 4595.52 3860.32 3530.65 Details of Reserves and Surplus Capital Reserve 52.61 52.61 52.61 52.61 52.61 52.61 Share Premium Account 1366.60 1366.60 1366.60 1366.60 1366.60 1366.60 General Reserve As per last balance sheet 149.00 149.00 149.00 149.00 340.90 340.90 Less: Transfer to Profit and Loss Account 0.00 0.00 0.00 -191.90 0.00 Add: Deferred Tax Assets Statutory Reserve 251.08 187.31 148.26 135.06 128.31 122.16 Add: Transfer during the year 0.00 63.77 39.05 13.20 6.75 6.15 Surplus in Profit & Loss Account 370.36 186.81 24.07 0.00 0.00 0.00 Total 2189.65 2006.10 1779.59 1716.47 1703.27 1888.42


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Annexure XVII Summary Statement of Consolidated Profit and Losses, as restated (Rs. in Lacs)

Year ended March 31st Details

9 months ended 31.12.06 2006 2005 2004 2003 2002

INCOME INCOME FROM FINANCING OPERATION Income from Hire purchase operations

1740.46

2107.42

2190.86

1988.68

1605.29

2213.75

Income from leasing operations 0.00 0.00 0.00 12.35 35.64 214.52 Interest on loans and Other receipts 47.25 98.66 230.29 205.81 333.76 223.57 Income from Investments 98.64 140.43 159.70 170.73 187.97 231.01 OTHER INCOME AND RECEIPTS

Profit on Sale of Investments/ Assets

3.71

17.16

43.13

0.80

13.15

598.05

Income from Windmill 73.73 86.31 108.33 119.10 99.52 114.39 Miscellaneous Receipts 77.40 71.04 47.91 46.58 53.13 65.90 Bad debts written off – recovered 29.63 27.73 4.73 14.43 306.84 64.39 Income from Sell down Receivable 232.83 233.69 156.38 143.94 0.00 0.00 Total Income 2303.65 2782.44 2941.32 2702.41 2635.30 3725.59 EXPENDITURE Financial Expenses 1290.68 1612.97 1874.62 2077.38 2054.06 2290.13 Personnel Expenses 294.59 280.71 252.85 214.59 210.66 214.22 Operating Expenses 392.99 420.25 377.03 348.52 317.34 352.94 Provisions and written offs 51.65 75.42 163.90 -62.86 -66.41 595.98 Depreciation 66.08 79.08 66.78 72.91 84.21 226.46 Total Expenditure 2095.99 2468.43 2735.19 2650.54 2599.85 3679.72 Profit before Tax 207.66 314.01 206.13 51.87 35.45 45.88 Current Tax 18.88 0.30 16.96 5.45 2.82 2.60 Fringe benefit tax 5.24 9.40 0.00 0.00 0.00 0.00 Deferred Tax 0.00 77.86 -163.12 21.74 -4.57 -254.19 Net Profit before Extraordinary Items 183.54 226.46 352.29 24.68 37.20 297.47 Less: Extraordinary Items - Unrealisable receivables w.off 0.00 0.00 0.00 0.00 419.24 0.00 PROFIT AFTER TAX & EXTRAORDINARY ITEMS 183.54 226.46 352.29 24.68 -382.04 297.47 Appropriations Transferred from General Reserve - - - - 191.90 - Transferred to Statutory Reserve 0.00 63.77 39.05 13.20 6.75 6.15 Balance Carried forward to Balance Sheet 183.54 162.69 313.24 11.48 -196.89 291.32

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Annexure XVIII NOTES TO ADJUSTMENTS CARRIED OUT IN RESTATED CONSOLIDATED FINANCIAL STATEMENTS OF PARENT COMPANY Following adjustments have been given effect in restated financial statements: a) In the financial year 2004, an amount of Rs.15.33 Lakhs had been credited to the Profit and Loss

account as withdrawal of excess depreciation provided in financial year 2003. In the restated financials, the above adjustment has been given effect in the relevant financial year 2003.

b) In the financial year 2005 and 2006, Rs.367.28 Lacs and Rs.144.97 Lacs respectively had been debited to the Profit and Loss account as Provision for Income Tax – Earlier years, which are pertaining to the financial years prior to the financial year 2002. In the restated financials, the above adjustments have been given effect in the opening balance of the Profit and Loss account of financial year 2002.

c) In the financial year 2005, Rs.179.51 Lakhs had been credited to the Profit and Loss Account as Provision for Deferred Tax Asset, which is calculated on Provision for non-performing assets and deferment of income on non-performing assets pertaining to earlier years. In the restated financials, the adjustments for the above have been given effect in the each respective year and also in the opening balance of the Profit and Loss account of financial year 2002.

Basis of Presentation of consolidated financials The Accounting policies of the company used in the preparation of consolidated financial statements are in conformity with the generally accepted accounting principles in India and Accounting Standard 21 on Consolidated Financial Statements issued by The Institute of Chartered Accountants of India. Basis of Consolidation of consolidated financials The consolidated financial statements include the financial statements of Sakthi Finance Limited and its subsidiary Company, namely, Sakthi Properties (Coimbatore) Limited. The Consolidated financial statements have been prepared on the following basis: The financial statements of the Parent Company and its Subsidiary Companies have been consolidated on a line by line basis by adding together the book value of like items of assets, liabilities, income and expenses after fully eliminating intra – group balance and intra-group transactions resulting in unrealized profit or losses. The consolidated financial statements are prepared by adopting uniform accounting policies.


96

MANAGEMENT’S DISCUSSION AND ANALYSIS Management’s Discussion and Analysis of Financial Position and Results of operations of Sakthi Finance Ltd in accordance with unconsolidated Indian GAAP Introduction You should read the following discussion of the financial position and results of operations together with the audited/examined unconsolidated restated financial statements under Indian GAAP including the schedules, annexures and notes thereto and the reports thereon which appears on page 76 of this letter of offer. You should also read the section titled “Risk Factors” beginning on page viii of this letter of offer, which discusses a number of factors and contingencies that could impact the financial position, results of operations and cash flows of the Company. The following discussion relates to Sakthi Finance Ltd on a stand alone basis. SFL’s financial statements have been prepared in accordance with Indian GAAP the accounting standards referred to in Section 211 (3C) of the Companies Act, and other applicable provisions of the Companies Act. The following discussion is also based on internally prepared statistical information and publicly available information. Unless otherwise stated, the financial information used in this section is derived from the audited unconsolidated financial statements under Indian GAAP as restated. SFL’s fiscal ends on March 31 of each year so all references to a particular fiscal year are to the 12 months period ended March 31 of that year. SFL was incorporated in the year 1955 as “The Pollachi Credit Society Private Ltd” under the Indian companies Act 1913 which was later converted into a Public Limited Company and the name was changed to Sakthi Finance Ltd in the year 1967. The Company is registered with RBI, Department of Non Banking Supervision, Chennai and engaged in the Hire Purchase and Leasing Business as an independent multiline finance company focusing mainly on two product lines in refinance segment viz – Commercial Vehicles and infrastructure equipment. The key strengths of SFL are – (1) being a leading player in this line of business for over five decades and (2) belonging to the reputed “Sakthi Group” of companies in Coimbatore. Industry Structure and Development Industry comprises of subsidiaries of banks, subsidiaries of financial institutions, subsidiaries of foreign banks, associates of commercial vehicle/equipment manufacturers and stand-alone NBFCs. They extend their service mainly in retail finance segment which comprises of truck finance, infrastructure equipment finance, auto loans, two wheeler loans, tractor finance and personal loans. The truck finance segment can be classified into New vehicle finance segment and used vehicle finance segment. New vehicle finance segment is dominated by larger players floated by manufacturers and banks. The used vehicle finance segment is dominated by numerous small local financiers and few organized players. With the sharp fall in yields in New vehicle financing, the larger players are also increasing their focus now on the Used vehicle finance. Sakthi Finance Ltd. is focusing on used commercial vehicle financing. Opportunities With the overall development of the economy, and with thrust for the infrastructure developments like laying roads, the requirements for commercial vehicles will increase. Due to the major road projects like Golden Quadrilateral, the Hub and Spoke system of transportation is emerging. Therefore, the demand for multi axle vehicles and smaller commercial vehicles will increase. Hence the requirements for finance for new trucks as well as used trucks is expected to grow further. NBFCs with strong origination and collection skills will be able to play a major role in used truck finance segment.

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97

Threats With the entry of banks and NBFCs floated by Banks and MNCs into retail finance segment and in particular into commercial vehicle refinance business, the competition is likely to increase further. The fuel price hike and upward trend in interest rates may affect the growth rate in commercial vehicle sales. Business Outlook With the economy remaining buoyant, the demand for financial assistance will be at higher level. Therefore, the business outlook for NBFCs which have established systems and strong presence is good. Risks and Concerns The Company is susceptible to normal industry risks like interest rate risk, credit risk and market risk. These risks are mitigated by having a very conservative finance profile and by following prudent business and risk management policies. The risk management policies are also periodically reviewed by the Audit Committee to modify them to suit the company’s needs. FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS Unusual or infrequent events or transactions There are no events that may be described as unusual or infrequent events and transactions. Significant economic changes There are no significant economic / regulatory changes that materially affect or are likely to affect the income from continuing operations. Known trends and uncertainties There are no known trends or uncertainties that may have material adverse impact on the income, costs and profits of the company from continuing operations. Future changes in relationship between costs and revenues There are no known factors which will have a material adverse impact on the operation and finances of the Company. Dependence of revenue on sales volume Increase in revenues are largely linked to increase in volume of business activity carried out by the company. Total revenue from various segments in which the Company operates The company is engaged primarily in the business of financing and accordingly there are no separate reportable segments as per Accounting Standard-17 dealing with Segment Reporting. New product or business segment There are no new business segments or material new products planned by the company.


98

Seasonality of the business The business of the Company is not seasonal. Dependence on single or few suppliers / customers The company’s revenue is not dependent on single or few customers. Competitive conditions SFL faces competition in all its principal areas of business from Indian banks and finance companies. For more information please refer “Business Overview - Competition” on page 40. Discussions on Results of operations: You should read the following discussion of our financial condition and results of operation together with our financial statements, as restated, for each of the fiscal years ended March 31, 2004, 2005 and 2006 including the notes thereto and the reports, schedules and annexures thereon, which appear in the Auditors’ Report included elsewhere in the Offer Document. These financial statements are prepared in accordance with Indian GAAP and the Companies Act and are restated in accordance with SEBI Guidelines. (Rs. in Lacs) Particulars 31/03/2003 31/03/2004 31/03/2005 31/03/2006 Net Income 2162.66 2521.51 2736.35 2580.20 Other Income 442.78 151.42 174.81 172.97 Gross Income 2605.44 2672.93 2911.15 2753.17 Total Expenditure 2553.68 2616.92 2698.95 2424.64 Depreciation 84.21 72.91 66.78 70.92 Depreciation as % of Net Income 3.89 2.89 2.44 2.75 Finance Cost 2027.68 2062.03 1861.80 1606.24 Finance Cost as % of Net Income 93.76 81.77 68.04 62.25 Profit / (loss) before Tax 51.76 56 212.21 328.53 Profit / (loss) before Tax as % of Net Income 2.39 2.22 7.76 12.73 Provision for Taxation 2.82 5.45 16.96 9.69 Deferred Tax -4.57 21.74 -163.12 77.86 Profit Before Extra Ordinary Items 53.51 28.82 358.37 240.98 Less:Extraordinary Items – Unrealizable receivables w.off

419.24 0 0 0

Profit / (loss) After Tax -365.73 28.82 358.37 240.98 Note: Figures have been regrouped wherever necessary to make the data comparable Comparison of Financial Results of 31.03.2003 and 31.03.2004 Revenue Gross Income increased by about 2.5% from Rs. 2605.44 lacs to Rs. 2672.93 lacs in 2003-04. There was an increase in business by about 13% and the collection efficiency was also good.

___________________________________________________________________________________________________________________________________________________________________________________________

99

Other Expenses/Provisions, write offs Total expenses incurred during the year ended 31.03.2003 was Rs.2553.68 lacs in comparison to Rs.2616.92 lacs during the year ended 31.03.2004 resulting in marginal increase of 2.5%. Owing to measures taken to contain costs and source funds at better rates, it was possible to report lower total expenses despite increase in staff costs. Profits The profit before tax was Rs. 51.76 lacs for the year ended 31.03.2003 and for the year ended 31.03.2004 it was Rs.56 lacs – an increase of about 8.2%. Profit after tax in the year 2003-04 was Rs. 28.82 lacs as against 53.51 lacs in the year 2002-03, due to provision of deferred tax to the tune of Rs. 21.74 lacs. In the year, a provision made on account of unrealizable receivables of Rs. 419.24 lacs resulted in loss of Rs. 65.73 lacs whereas there was no such extraordinary items during the year 2003-04 and hence the profit after tax remained at Rs. 28.82 lacs for the year. Comparison of Financial Results of 31.03.2004 and 31.03.2005 Revenue The income of SFL from the financial operations and others increased by 8.61% from Rs. 2672.93 lacs in 31/03/2004 to Rs. 2911.15 lacs for the financial year ended 31/03/2005. The general growth in income from loans was due to certain factors including positive growth of Automobile Industry and also due to the marketing efforts put in by the Company with additional manpower. Other expenses/provisions, write offs Total expenses incurred during year ended 31/03/2005 was Rs. 2698.95 lacs in comparison to Rs. 2616.92 lacs during the year ended 31/03/2004 resulting in a marginal increase of 3.13% which was due to increase in staff costs and others. This was despite the decrease in financial costs by Rs. 200.23 lacs. Profits The profit before tax was Rs. 212.21 lacs for the financial year ended 31/03/2005 as against Rs. 56.00 lacs in the financial year ended 31/03/2004, which represents an increase of almost 279%. Also the Profit after Tax showed an steep increase to Rs. 358.37 lacs for the year ended 31/03/2005 from Rs. 28.82 lacs, on account of Deferred Tax to the tune of Rs. 163.12 lacs being added back to the profit for the year. Comparison of Financial Results of 31/03/2005 and 31/03/2006 Revenue The income of the Company from the financial operations and others during 31.03.2005 was Rs. 2911.15 lacs and that of 31/03/2006 was Rs. 2753.17 lacs, a marginal drop of about 5.43%. This is on account of a decline in lending rates due to competitive pressures. Total Expenses Total expenses incurred during year ended 31/03/2006 was Rs. 2424.64 lacs in comparison to Rs. 2698.95 lacs during the year ended 31/03/2005 resulting in a decrease of 10.16% which was mainly due to lower


100

provision and write offs. The drop was despite the increase in personnel costs owing to increase in the number of employees and other operating expenses by 11.1% and 10.6% respectively. Profit Profit before tax for the year ended 31/03/2006 was Rs. 328.5 lacs as against Rs. 212.2 lacs for the year ended 31/03/2005, representing a steep increase of 54.8%. The Profit after Tax for the year ended 31/03/2006 showed a decrease of Rs. 117.39 lacs, from Rs. 358.37 lacs to Rs. 240.98 lacs, on account of provision for deferred tax liability.

___________________________________________________________________________________________________________________________________________________________________________________________

101

SECTION V - LEGAL AND OTHER INFORMATION

OUTSTANDING LITIGATIONS AND DEFAULTS Save as stated hereunder, the Company has not defaulted in meeting any of its statutory or institutional dues and have made all payments/refunds on fixed deposits or no proceedings have been initiated against the Company, for any of the offences specified in paragraph 1 of Part I of Schedule XIII of the Companies Act, 1956. Further, there are no disputes/litigations towards tax liabilities or criminal prosecutions against the Company and its Directors for any offence, economic or otherwise civil litigations against the Company and its Directors, there are no material disputes/legal actions other than those disclosed below. There are no pending proceedings initiated for economic offences against the Company. No disciplinary action/ investigation have been taken by the SEBI against the Company, its group companies. The promoters, their relatives, Sakthi Finance Ltd., group companies, associate companies are not detained as wilful defaulters by RBI/Government authorities and there are no violations of securities laws committed by them in part or pending against them. CONTINGENT LIABILITIES OF THE COMPANY

As on 31/12/2006, the company has contingent liabilities not provided for in respect of items detailed below:

(Rs. in Lacs) Particulars 9 months

ended 31/12/2006Guarantees and collaterals given to banks/ Financial Institutions 62.28 Future dues on sell down receivables excluding cash collateral

3,117.83

Guarantee for collection of managed business and future dues payable thereon

828.47

Total 4,008.58 PENDING LITIGATIONS AGAINST THE COMPANY Outstanding litigation and material developments Cases filed against the Company Save and except as stated below, there are no outstanding litigations, disputes, penalties against company, including tax liabilities, economic offences, criminal or civil prosecutions launched against the company, for any offence irrespective of whether or not specified in Paragraph 1 of Part I of Schedule XIII of the Companies Act, 1956.

1. Litigation involving criminal cases

No criminal case is pending against the company.


102

2. Litigation involving civil cases

Sl No

Parties Court Reasons Case No.

Current status Amount involved

(Rs. In lacs) 1 Mr.Kaly

anamurugan

District Munsiff Court

(DMC) Attur

Suit filed by the party against the

repossession of vehicles. The vehicles were

repossessed and sold.

O.S.No.189/98

Case is Pending 4.06

2 Mr.Velayudhan

Supreme Court

For repossession of vehicle by SFL

Civil Appeal No. O.S.No.590

5/2004

The party had made an appeal in the

High Court which held that Financier

had no right to repossess the vehicle and

directed SFL to return the vehicle. SFL have returned

the vehicle and preferred SLP to Supreme Court.

Supreme Court has admitted SFL’s

SLP and is pending.

NIL

3 Mr.K.L.Lukose

District Munsiff Court

Ernakulam

Repossession of vehicle, suit for declaration and

injunction

O.S.No.585/2001

. Matter is pending NIL

3. Litigations involving Consumer Case:

Sl No

Parties Court Reasons Case No. Current status Amount involved

(Rs. In lacs) 1 M/s

Prem Laxmi & Co.

Consumer

Dispute Redress

al Forum, Dadar,

Mumbai

Case filed for non-issuance of HP

termination paper

Original Case No. 569/1997

Matter is pending before State Forum.

2.75

___________________________________________________________________________________________________________________________________________________________________________________________

103

4. Litigations involving Suits or Writs:-

No Civil Suit is pending against the company. 5. Litigation involving Statutory Disputes

Details of pending Income Tax cases

Sl No

Assessment year

Nature of Disputes Tax Amount involved

(Rs. In lacs)

Latest position

Interest Tax 1. 1992-93 to

1998-99 The Assessing Officer added the following as

Income; Interest on loan on deposit, Refinance

charges, Written off accounts and additional

hire charges

23.63 Pending with Commissioner of Income Tax

2 1999-2000 to 2000-2001

Commissioner of Income Tax confirmed the addition of interest on loan on deposit. The company filed an appeal in Income Tax Appellate Tribunal. The case has been remanded back to Assessing Officer by

Income Tax Appellate Tribunal

1.66 The Income Tax Appellate Tribunal has Remanded back to Assessing Officer

3. 1992-93 to 1998-99

The Company has filed a waiver petition before

Chief Commissioner of Income Tax for waiver of interest under section

12A and 12B

66.98 Matter is pending with Chief Commissioner of Income Tax

4. 1992-93 to 1998-99

The Company has filed a waiver petition before


220(2)


Income Tax 1 2002 - 2003 Commissioner of

Income Tax (appeals) confirmed the

disallowance of the provisions made towards NPA – appeal preferred

before Income Tax Appellate Tribunal

143.16 Pending with Income Tax Appellate Tribunal


104

Sl No

Assessment year

Nature of Disputes Tax Amount involved

(Rs. In lacs)

Latest position

2 1996-97 to 2002-03

Commissioner of Income Tax (Appeals) has allowed the interest accrued on NPA assets

against which the department preferred an appeal with Income Tax

Appellate Tribunal


3 2000-01 Commissioner of Income Tax (Appeals)

confirmed the disallowance of the

provisions made towards NPA – appeal preferred

before Income Tax Appellate Tribunal


4 1987-88 to 1993-94

Contingent deposits: The Assessing Officer

has disallowed the contingent deposit received from the

lessees. over and above the lease rents. The

amounts were collected to meet the sales tax. In

the appeal the Commissioner of

Income Tax upheld the disallowance. Further appeal to Income Tax

Appellate Tribunal and reference application has

been made by Income Tax Appellate Tribunal

in the High Court, which is pending

103.32 Pending with High Court

5 2001-2002 Assessing Officer added lease equalization

charges and provision for NPA, Appeal preferred before Commissioner of

Income Tax (appeals)

15.48 Pending before Commissioner of Income Tax (Appeals)

6 1987-88 The Company has filed a waiver petition before


220(2)


___________________________________________________________________________________________________________________________________________________________________________________________

105

6. Litigations involving Labour Laws An ex-employee has filed a case before Labour Court Madurai against retrenchment. Matter is pending.

7. Defaults The company has not defaulted in the payment of interest and repayment of principal to other Companies, Financial Institutions, deposit holders etc. The company has not defaulted in meeting statutory dues, institutional dues and dues towards instrument holders like debentures, fixed deposits, and other arrears. Other than the above there are no disputes /litigation towards tax liabilities or any criminal or civil prosecutions against the company for any offence, economic or otherwise. Cases filed by SFL

1. Litigation involving criminal cases

Sl No

Parties Court Reasons Case No.

Current status Amount involved (Rs. In lacs)

1 Rana Projects

International

Limited

Metropolitan

Magistrate, (MM) Court,

New Delhi

Breach of Trust CC 445/200

0

Matter is under investigation

NIL

2 Mr.Dhanaraj and Mr.Ganesa Devar

Rameswaram

Transferring possession of the vehicle without

knowledge and consent of the Company.

MP No. 4151/ 2004

Matter is under investigation of

Police, Rameswaram

NIL

3 Mr.Fiyaz Babulal Inamdar

Judicial Magistrate,

Pune

Availing HP arrangement on the basis of fabricated

RC

- Complaint filed yet to be

numbered

NIL

4 Various parties

(6 numbers)

Various Courts

Cheque dishonour cases filed under Section 138 of

N.I. Act for the recovery of defaulted Hire Purchase

instalments

- Matter is pending

-

2. Litigations involving civil cases

Sl No

Parties Reasons Current status Amount involved (Rupees)

1 Various Parties

739 (Numbe

rs)

Recovery suits filed by SFL for recovery of dues in

respect of HP/Lease transactions

Cases are pending 22.27 Crores

2 K.P.Viswanath

Writ Petition before High Court of Karnataka,

Case pending 6.25 Lacs


106

Sl No

Parties Reasons Current status Amount involved (Rupees)

Bangalore against levy of road tax in respect of

repossessed and sold vehicle 3 Express

Malayalam

Pvt.Ltd.,

Writ Petition before High Court of Kerala seeking

permission to sue against the party which is under

liquidation

Case pending 14.98 Lacs

Against the Directors/Promoters There are no outstanding litigations towards tax liabilities or any criminal/ civil prosecution for any offences (irrespective of whether they are specified under paragraph (i) of Part 1 of Schedule XIII of the Companies Act, 1956), disputes, defaults, non-payment of statutory dues, proceedings initiated for economic offences or securities related or other offences against the Directors/Promoters of the Company. OUTSTANDING LITIGATIONS AGAINST GROUP COMPANIES

1. Outstanding litigations/ disputes against listed group companies SAKTHI SUGARS LIMITED A) Cases/Suits (including consumer disputes) filed against the Company: Sl.No

Name of the Plaintiff/ Petitioner & Case

number

Forum Value of the Suit

(Rs. in Lakhs)

Brief Note and Status

Status

1 A. Somasundaram No.56/2006

District Magistrate Court, Gobichettipalayam

0.08 Claiming interest for belated cane payment

Case Pending

2 Bomma Naicker, Rama Naicker Mara Naicker & Ramakkal (O.S.No.28 of 1999) O.S.398/2004 Court – II, ADM)

Court of Subordinate Judge, Bhavani

- Petition filed against carrying on bio-earth Processing by the Company in Punnam Village

Case Pending

3 M R Palanisamy I D 562/2000

Labour Court Salem

- Petition filed for reinstatement of Employment

Case Pending

4 M Vimal Raj Majeed Road Sivagangai (O.S.No.158 / 2002)

District Magistrate Court, Sivagangai

2.5 Appeal against the decree of declaration of title and recovery of possession

Counter statement to be filed

5 V.Murugan Village Assistant (Mathur)

R D O Court, Sivagangai

0.13 Petition filed by the legal heirs for claiming

Written argument to be filed

___________________________________________________________________________________________________________________________________________________________________________________________

107

Sl.No


number


(Rs. in Lakhs)


Status

P.Velankulam (No.4149/2003)

ownership of the property even after its transfer to the Company

6 S.Krishnan (MACOP No.257/2005)

Motor Accident Claim Tribunal Court, Sivagangai

5.17 Petition filed for claiming compensation due to road accident

Argument stage

7 Indian Bank, Okkur (S.C.No.6/2005

District Munsif Court, Sivagangai

0.10 Suit for recovery of crop loan granted to the cane grower on the undertaking given by the Company


8 V.Muthurakku W/o Late Veerasingam V.Irulayee, V.Anjalai and Minor Nagaraj

Dy. Commissioner of Labour, Madurai

4.00 Petition filed by the legal heirs of the contract labour claiming compensation on the death of the labour due to snake bite


9 Laxmidhar Sahoo State CDR Commission, Cuttack

0.63 Appeal against the Order of the District Forum Claiming compensation for loss on account of supply of defective seeds by the Company

Hearing pending

10 Maheswar Das CDA Case No. 355/99

State CDR Commission, Cuttack

1.05 Appeal against the Order of the District Forum for not awarding any compensation and the cost

Hearing pending

11 Girija Prasad Patnaik CDA Case No. 356/98



Hearing pending

12 Gyanaranjan Nanda CD Case No. 34/99


7.00 Appeal for Compensation for loss including the cost of sugar cane and rent for the

Hearing pending


108

Sl.No


number


(Rs. in Lakhs)


Status

land 13 Bhagaban Nanda

CD Case No.39/99 State CDR Commission, Cuttack

6.00 Appeal for Compensation for loss including the cost of sugar cane and rent for the land

Hearing pending

14 Krushna Ch. Pradhan CD Case No.167/2000

Dist.CDRF, Kendrapara

0.73 Appeal for compensation by way of deduction from the sale proceeds of sugar cane sold

Hearing pending

15 Iswar Ch. Apart CD Case No.96/2002


5.56 Appeal for compensation for loss including the cost of sugar cane and rent for the land

Written Statements to be filed

16 Bibeknanda Singh DC 251/1998-99

ARCS, Kendrapara

0.42 Appeal for recovery of loan granted to the cane grower on the recommendation given by the Company


17 Pratap Kishore Das Tribunal Appeal 58/04

Co-op. Tribunal Bhubaneswar

0.51 Appeal against the Order of Arbitrator for not awarding any compensation and the cost

Hearing Pending

18 Ranjeet Ku. Mohanty Tribunal Appeal 9/04

Co-op. Tribunal Bhubaneswar

0.07 Appeal for recovery of loan granted to the cane grower on the recommendation given by the Company

Hearing Pending

19 Makbul Khan C.S.No.37/2006

Civil Judge (Sr. Division) Second Court, Cuttack


Written statement to be filed

20 Gayadhar Barik M.S.No.7/2000

Civil Judge (Sr. Division) Second Court, Cuttack

0.55 Petition for compensation for loss including the cost of sugar cane

Hearing Pending

___________________________________________________________________________________________________________________________________________________________________________________________

109

Sl.No


number


(Rs. in Lakhs)


Status

21

Smt H Prusty & other T.S.No.27/94

ACJSD, Dhenkanal

0.45

Petition filed by the legal heirs for claiming ownership of the property even after its transfer to the Company

To produce evidence

22 Himanshu Ku. Pradhan C.S.No184/2004

CJSD,Dhenkanal

0.31 Petition for compensation by way of deduction from the sale proceeds of sugar cane sold

Hearing pending

23 H H Nayak C.S.13/2005

CJSD, Deogarh 3.90 Appeal for compensation in respect of loss to the sugarcane crop

Hearing pending

24 B B Mangaraj ICC 43/99

JMFC(Rural), Cuttack

- Petition filed against the harassment by the officials of the Company

Order awaited

25 B B Mangaraj GR-941/98

JMFC, Cuttack - Application for bail on the order of the Hon’ble High Court

Hearing pending

26 Bhakta Batsal Managaraj ID 67/2000

Labour Court, BBSR

- Petition filed for reinstatement of employment

-

27 Girish Ch.Sahoo I D 8/2002

Labour Court, BBSR


28 Prafukka Ku. Khatua I D 22/2003

Labour Court, BBSR


Document to be filed by workman

29 GMR Industries EP.111/2005 And GMR Industries OS No.3/2004

CJSD, Dhenkanal And Sr.Civil Judge, Rajam, A.P.

8.67 Suit for the recovery towards compensation for non-lifting of the contracted quantity of molasses

Suit Decreed against the Company. The High Court of Judicature of Andhra Pradesh, Hyderabad has granted stay of the proceedings pendings before


110

Sl.No


number


(Rs. in Lakhs)


Status

the The Dhenkanal & Rajam Courts.

30 Yudhistir Prusty OJC 2039/2001

High Court of Orissa

0.32 Appeal against the Order of the Asst.Registrar, Co-op.Societies, Dhenkanal against repayment of loan availed from a Co-op.Bank

Written statement to be filed

31 Zulfikar Ali CS.No.15/2003

CJSD,Jagatsingpur

1.18 Petition filed for non-payment of dues against the cane supply made to the Company

Written statements to be filed

Writ petitions (Appeal) 32 State of Tamil Nadu

(SLP No.8743 – 8752 of 2004

Supreme Court of India

515.89 The High Court of Madras quashed the Order of the Govt.of Tamil Nadu and the Govt. has preferred an appeal before the Supreme Court of India. The Supreme Court vide its Order dated 4.5.2004 clarified that the State Govt. shall charge the fee at the rate of 0.50 paise only per litre from 6.5.2004.

The appeal is pending before the Supreme Court.

B) Litigations involving Income Tax

Sl. No.

Name of the Plaintiff/Petitioner

Forum Value of the Suit (Rs..in lakhs)

Brief Note & Status

Status

1 Commissioner of Income Tax, Coimbatore

Supreme Court

5.29

Claiming of deduction in respect of molasses storage reserve in computing total income for the

Pending

___________________________________________________________________________________________________________________________________________________________________________________________

111

Sl. No.



Brief Note & Status

Status

Asst.year 1981-82 2 Commissioner of

Income Tax, Coimbatore

Supreme Court

3.34 Claiming of deduction in respect of molasses storage reserve in computing total income for the Asst.year 1982-83

Pending


High Court 4.04 Brought forward claim U/s 80J- Unabsorbed investment allowances for earlier year

Re-opening of assessment-Pending

4 Deputy Commissioner of Income Tax, Coimbatore

Income Tax Appellate Tribunal

11.44 Computation of book profit U/s 115JA- Prior Year expenses – appeal against the order of DC(IT) U/s

Pending


High Court 42.33 Appeal against the order of CIT for claiming depreciation for New Sivaganga Sugar Unit for the Asst.year 1989-90

Pending


Supreme Court

132.88 Appeal against the order of the High Court of Madras with regard to incentive sugar sales from Sivganga sugar unit, closing stock valuation in respect of sugar stock for Unit-II for the A.Y. 1990-91

Pending


High Court 533.01 Appeal against the order of DC of I.T with regard to allowances under Rule 6B on presentation of articles, incentive

Pending


112

Sl. No.



Brief Note & Status

Status

sugar sales from Sivaganga Sugar Unit, Closing stock valuation in respect of sugar stock for Unit-II and expenses incurred in setting up new sugar factories at Dhenkanal, Baramba Units for the Asst.year 1992-93


High Court 572.15 Appeal against the order of DC of I.T with regard to incentive sugar sales from Sivaganga Sugar Unit, Closing stock valuation in respect of sugar stock for Unit-II and expenses incurred on setting up new sugar factory at Dhenkanal for the Asst.year 1993-94

Pending

C) Litigations involving Sales Tax Sl.No


Forum Value of the Suit (Rs.in lakhs)

Brief Note & Status Status

1 Deputy Commissioner – CT (Appeals), Cbe Asst.year 1975-76)

Tamil Nadu Taxation Spl. Tribunal, Chennai

7.12 Assessing to tax as turnover, the freight charges on purchase of sugar cane for Asst.year 1975-76

Pending


Tamil Nadu Taxation Spl. Tribunal, Chennai

6.03 Assessing to tax as turnover, the freight charges on purchase of sugar cane for Asst.year 1976-77

Pending

3 Deputy Commissioner – Sales Tax 1.04 Export of soya products Pending

___________________________________________________________________________________________________________________________________________________________________________________________

113

Sl.No


Forum Value of the Suit (Rs.in lakhs)

Brief Note & Status Status

CT (Appeals), Cbe Asst.year 1991-92)

Appellate Tribunal, Cbe.

against Form H


Sales Tax Appellate Tribunal, Cbe.

2.05 Rough casting treated as machined components

Pending




Pending




Pending




Pending




Pending




Pending



69.11 Claiming exemption towards charges received for the erection of effluent treatment plant

Pending



168.53 Claiming exemption towards transport charges for purchase of cane

Pending



3.93 Non-filing of statutory forms upto 31.3.96

Pending

D) Arbitration Proceedings initiated against the Company:

Sl.No Claimant Nature of the claim Claim amount

Counter claim by the Claimant,

Status


114

(Rs. in lacs) If any 1 Baramba

Co-op. Sugar Industry, Baramba, Orissa

Minimum rent, royalty, value of stores and raw materials

3017.40 2388.63 Pending

Cases/Suits filed by the Company Sr. No

Particulars No. of cases/ Disputes

Amounts involved (where

Quantifiable) (Rs. In lacs)

1 Civil Cases & Consumer Disputes 6 5.6 2 Writ petition 3 453.04 3 Income Tax 2 125.18 4 Sales Tax 2 895.99 5 Central Excise 5 519.57 6 Arbitration Proceedings 1 2388.63 Cases/Suits filed against Sakthi Auto Component Limited (subsidiary of Sakthi Sugars Limited) Sr. No




1 Income Tax 1 9.70 2 Sales Tax 2 539.26 3 Central Excise 2 72.09 SRI CHAMUNDESWARI SUGARS LIMITED Cases filed against the company

Sl. No

Case Reference

Filed by (Petitioner)

Brief subject matter Status at present as on March 15th 2007

1. WP No.32943/ 1999(L)

B. Raju The Company terminated the services of B.Raju on 28.4.1990 since he had made wrongful gains. The employee filed a writ petition at the High Court for reinstatement.

The writ Petition filed by Shri.B.Raju has been dismissed.

2. WP No.32173/2000(L)

SCS Ltd., Staff and Workers Association

SCS Ltd., Staff and Workers Association by its letter dated 24.4.2000 requested the Management to consider 6 employees as Protected Workmen which was refused. Aggrieved by this the Association approached the ALC Mysore to consider 6 employees as Protected Workmen. After hearing both the parties the ALC by his order dated 4.9.2000 refused the give the status of Protected Workmen to certain employees.

The Case has been dismissed.

___________________________________________________________________________________________________________________________________________________________________________________________

115

Sl. No

Case Reference



3. WP NO.13529/2001 GM PIL

N.L. Neelakantaiah M.C. Siddegowda

During March 2001 NL Neelakantaiah and another filed a Public Interest Litigation before the High Court of Karnataka praying to issue a mandamus to 1st and 2nd respondents (DC, KSPCB) for compliance of the environmental laws to prevent the 3rd respondent (SCS Limited) from causing the environmental pollution and also to see that the 3rd respondent installs necessary safeguard devices to take care of air, water and environmental pollution.

KSPCB has not filed its objections so far. The Case is Pending.

4. WP No.26834/2001

G.Krishnamurthy Mr. G.Krishnamurthy was dismissed from the service of the company on certain charges which was upheld by the labour court.He had preferred an appeal before the Honorable High Court of Karnataka. The High Court has disposed off the petition directing, reinstatement with 50% back wages & recovery of Rs. 20,000 and two instalments shall be stopped with cumulative effect for the negligence.

The Company has filed an appeal before the divisional bench in the High Court of Karnataka. Pending disposal.

5. SLP(Civil)No. 3455/2006 before the Supreme Court

M/s Capchem Industries Ltd.,

The Company has filed a original suit against M/s Capchem Industries Ltd., for recovery of deposit of Rs.1crore paid by the Company towards lease of Distillery before the second Additional Civil Judge,Mysore in OS No266/96 and obtained award for Rs.76 lacs with 18% interest against Capchem.They have filed an appeal before the Honorable High Court of Karnataka which has directed M/s Capchem Industries Ltd., to deposit Rs.70 Lakhs.Against this order they have approached Honorable Supereme court in SLP(Civil)No3455/2006.

The Supreme Court has disposed of the SLP directing M/s Capchem Industries Ltd., to deposit Rs. 61 lacs with the High Court of Karnataka.This amount has been deposited as per the directions of the Supreme Court .Now the High Court has to take up hearing of the appeal.

6. OS.9478/2005 Smt. Nagamma & Smt. Muniyamma

Sri. Yellappa Reddy and Brothers have sold property in Survey No.48/2 Tuberhally village. The petitioners are the sisters of the above sellers, they have filed Civil suit against the sellers seeking a share in the property and the Company has been impleded as party.

The Company has filed objections and the matter is being defended. Case is in progress.

7. C Misc – 602 – 609 606-610/2005 C Misc – 18/2006 C Misc – 46/2006

State Government by Commissioner of Commercial taxes.

Commercial Tax Department have filed cases for recovery of arrears of deferred Purchase Tax of Rs.8,45,79,219/-.

Cases are in progress


116

Sl. No

Case Reference



C Misc – 48/2006

8. Ref. 135/01 A.T.Krishna & 7 others

A.T. Krishna and other 7 daily wagers who were working from the year 1991 to 1996 intermittently under different contractors, when their names were not figured in the list of casuals under the head Annexure – I, II & III which was prepared and signed under 12(3) of I.D. Act before the Conciliation Officer, Mandya District, Mandya, dt.5.2.96, got annoyed and raised dispute before the Asst. Labour Commissioner / Conciliation Officer, Mysore Division and several sittings were taken place and finally a failure report was forwarded to the Department of Labour, Karnataka Govt., Bangalore. The Department of Labour after perusing the remarks of the conciliation officer, referred the matter to the Industrial Tribunal at Mysore.

The matter has been posted for cross examination of the applicants and second party on 28.03.2007.

9. Ref.134/01 Thimmaiah, Puttegowda & Swamy

The above said daily wagers service was engaged by a contractor who was given a work to carryout during overhauling season. When the contract work was over automatically the contractor left the place with his all men and material. But, the said workers raised dispute before the Conciliation Officer, Mandya district, Mandya taking untenable stand that they have put in continuous service of more than 240 days. The management through its advocate contended that they were no more on the rolls of the company and they could not be considered as the employees of the organization.

Arguments are over and reserved for judgments.

10. Ref.182/01 Shankariah, Gopalan & Revanna

The petitioners were the President, Vice President & Secretary of the erstwhile union respectively. They were indulging in unfair labour practice and the embarrassing situation was surfaced to the management on number of occasions. Since the relationship of the matter and servant was ceased, he had no right to stay in the company quarters, instead he continued stay in the quarters despite the actions initiated by the management. Ultimately, the management without any alternative, filed a case against the terminated employee in the file aforesaid. The case has been dismissed.

Revision Appeal has been filed and same is pending.

11. WCA/101/96 R. Thammanna R.Thammanna met with an accident when The advocate for the

___________________________________________________________________________________________________________________________________________________________________________________________

117

Sl. No

Case Reference



he was working in the Boiler station as Attendant Boiler and suffered multiple injuries and became disabled to carryout the normal work in his original workspot. Therefore, a light work by posting to security department has been given and he is attending the work at present. In the process, claiming Rs. 7.5 lakhs compensation, he has filed an application before the aforesaid authority. The II party filed an objection.

petitioner has filed an application to appoint a Court Commissioner since the petitioner is bed ridden. This is pending.

12. Ref.104/97 Kempaiah Kempaiah was charged with accepting bribe for siphoning of unregistered cane through registered cane cutting order and enquiry was held appointing an outside agency. The enquiry officer out of two charges had given benefit of doubt in respect of the bribe and found him guilty with regard to other charge of siphoning unregistered cane for which, the management demoted him as Attender.

Arguments have been completed and final order is awaited.

13. IID 20/2001 H.K. Shivanna H.K.Shivanna, Clerk, Cane yard was charged with fictitious recording of cane weighment, for which domestic enquiry was held and against the proven misconduct he was terminated from the services of the company.

Challenging the action of the management he has raised an Industrial Dispute and the matter has been posted for argument on the validity of the domestic enquiry and posted for hearing during the last week of March’2007.

14. WCA 195/2003

Smt. Sakamma The petitioner suffered injuries while on duty and has claimed compensation of Rs.5 lakhs and raised a dispute impleding the company as III Respondent before the Asst. Commissioner for Compensation and Labour officer, Mandya.

The party is deceased and the case has been dismissed on the ground of non tracing of her legal heirs.

15. Ref.44/2000 R. Kempegowda R. Kempegowda was removed from services on charges of misconduct. He has filed a case against the Company.

The case is adjourned for hearing of the memo during the 1st week of April’2007.

16. 53,54,55/2001 Channappa, Murugan, Kempaiah

The above petitioners had been charged of misconduct in the year 1999 and their services were terminated. They have raised a dispute challenging the action of management.

The matter has been posted for evidence and cross examination on 19.4.2007.

17. IID 87/2004 Thimmappaji The said petitioner was terminated from the services of the company for certain acts of misconduct. The said person challenging the action of the management raised a dispute in the file mentioned above. The company

Posted for arguments on domestic enquiry on 11.4.2007.


118

Sl. No

Case Reference



has filed an objection in this regard. 18. Ref. 3/2006 Doddegowda Sri. Doddegowda, terminated employee

filed a fresh application under section 33C(2) of the ID Act for the settlement of his claims.

Case has been posted for applicant’s evidence on 28.03.2007.

19. AS No.34/2004

Apple Credit Corporation

The company had entered into lease agreement with M/s. Apple Credit Corporation for leasing boilers to the factory. M/s. Apple Credit Corporation have filed arbitration petition against the Company for recovery of the lease instalments. The arbitrator has passed an award for Rs.1,81,33,473/- with over due interest at 36% from 1/9/2002. The award has been challenged by the company before the Principal City Civil Judge and the case is pending for disposal.

The matter has been referred to Mediation Counsel consisting of leading advocates and posted for hearing on 28.03.2006.

20. Cases filed against cane growers towards crop loan

- Total amount covered Rs. 24.78 lacs

Cases/Suits filed by the Company Sr. No




1 Labour Court 3 - 2 Recovery Cases 3 38.59 3 Civil Cases 3 - 4 Special Leave Petition 1 - SRI BHAGAVATHI TEXTILES LTD. Cases filed by the Company: Sr. No

Year Against whom the case filed

Name of the Forum

Nature Of Case Amount Present Position

1 1998-1999 Sales Tax Officer, Chittur, Palakkad.

The Sales Tax Appellate Tribunal,

Palakkad

Disputed Turnover (CST)

2.11 Lakhs Pending

2 2000-2001 Sales Tax Officer, Chittur, Palakkad.

The Appellate Assistant Commisioner

Disallowance of C Forms (CST)

1.03 Lakhs Pending

___________________________________________________________________________________________________________________________________________________________________________________________

119

Sr. No


Name of the Forum


, Palakkad 3 2004-2005 Sales Tax

Officer, Chittur, Palakkad.

The Appellate Assistant Commissioner, Palakkad

Disallowance of sales return (CST)

0.80 Lakhs Pending

Income Tax Cases Sr. No


Name of the Forum


1 AY – 2000-01 Dy.Commissioner of Income Tax, Palakkad.

The Deputy Commissioner (Appeals), Kochi.

Disallowance of expenses u/s 43B

25.72 Lakhs

Pending

2 AY – 2001-02 Dy.Commissioner of Income Tax, Palakkad.

The Deputy Commissioner (Appeals), Kochi.

Disallowance of expenses u/s 43B

36.80 Lakhs

Pending

2. Outstanding litigations/ disputes against top five unlisted group companies (chosen on the

basis of income from operations as on 31/03/2006) ABT INDUSTRIES LIMITED Particulars Amount

(Rs. In lacs) Claims against the company in respect of the disputed interest and damages not acknowledged as debts for which the Company has defending cases/appeals or has filed appeals before the various appeal authorities

51.04

A demand was raised by Kerela sales tax department for assessment year 1997-98, 1998-99 and 1999-2000 towards sales tax and interest amounting to Rs. 615.98 lacs. The demand was contested before the appellate authorities and the Hon’ble High Court of Kerela confirming the levy of sales tax and directed the company to approach the sales tax department for waiver of interest. Subsequently, the sales tax department waived the entire interest amounting to Rs. 324.66 lacs. The company has filed a Special Leave Petition before the Hon’ble Supreme Court of Court of India in respect of the Tax portion of Rs. 291.32 lacs. Supreme Court has stayed the recovery proceedings

291.32


120

ABT LIMITED Details of Legal Cases pending against ABT Ltd.

Sl No.

Court/ Forum & Case

Number

Parties Case Summary Status

1 M.A.C.T.V Court

Chennai O.P.No.3164/20

04

Jagadeesh VS ABT Ltd. & National

Insurance Co. Ltd.

Motor accident claim for Rs,300,000/-

Closed and waiting for

Order

2 M.A.C.T –III Court

Chennai O.P.No.4398/20

04

Mr.A.Anand VS

ABT Ltd. & The New India Assurance Co.

Motor Accident claim for Rs. 19,00,000/-

Posted to 04.04.2007

3 Madras High Court

W.P.MP.776 /2005

W.P.No.700/2005

(ULTA No.4/93)

ABT Ltd. VS

Secretary Revenue Dept. &

Commissioner Land Reforms & other

Writ petition filed against the order of Special Commissioner,

Land Reforms in connection with Urban Land Tax payment

for ABT Madras Pvt. Ltd Guindy Land in the Name of

ABT Ltd.

Petition filed on 28.12.2004 interim order got. Advocate reapproached

High Court for clarification in

25% Tax Amount Payable.

4

Urban Land Tax Tribunal, Chepauk

ULTA No.43/95

ABT Ltd. VS

Assistant Commissioner (ULT) Mylapore

Appeal filed in ULT Tribunal was allowed and set aside the orders of Asst. Commissioner. and order in accordance with law in the name of ABT Ltd.

Represented before A.C. for further

process

5 Urban Land Tax

Reduction of Urban Land Tax for Guindy land from the year

1991.

Stay obtained from High Court and 25% tax

amount paid to Urban Land Tax Dept.

from the year 1991

6 Metro Water -

Metro water tax arrears from II- 1998/1999 to I-2005/2006 as per

revised Corporation Annual Value

Notice received from Metro Water

on 16.01.2006. To pay tax

arrears along with

surcharge. 7 Urban Land - Exemption to get from Secretary Exemption to

___________________________________________________________________________________________________________________________________________________________________________________________

121

Sl No.

Court/ Forum & Case

Number


Ceiling dept. to Govt-Urban Land Tax Dept. for the next 10 years from

11.02.2008.

apply

8 Corporation of Chennai

-

Property tax arrears from II- 1998/1999 to

I-2005/2006 as per revised Corporation Annual Value

To pay the arrears tax

amount immediately

9 Deputy Chief Inspector of

Factories

-

Revised factory plan approval

has to be got from Factory Inspectorate

Drawing to be put. Apply

with revised plan has to be

submitted 10 RTO, West - Re-registration of company

vehicles from Pondichery to Tamil Nadu

Under process. Miscellaneous expenses and tax amount

paid 11 Pollution

Control Board

-

ETP plan erected Objection raised by neighbours. Pollution Control Board not cleared and

consent order to get

Approached AE, TNPCB on several times for clearance

12 Pollution Control Board

-

ETP plant to erect. Application has to submit

in TNPCB 13 Pollution

Control Board

-

ETP plant erected .Objection raised by neighbours. Pollution

Control Board not cleared and to get consent order.

Approached AE, TNPCB on several Times for clearance

14

Pollution Control Board

To erect ETP plant.

Application

has to be submitted in

TNPCB ABT Parcel Division

15 Dist. Munsif Court, Coimbatore O.S.517/2003

- Recovery of dues and refusal to hand over Company properties against Ex-Agent, Kollengode

Case won by the Company. Judgement copy received directing the defendant to pay Rs. 5,600 + Rs. 1,227 being the cost of the suit. Regarding handing over


122

Sl No.

Court/ Forum & Case

Number


movable properties like weighing scale etc. no orders. Hence fresh petition in this regard is filed to include the above in the Judgement orders awaited.

16 Civil Court, Thane RCS 642

- Proof of delivery demanded by Party.

Posted to 17/03/2007. Next date not yet received

17 Civil Court Vasai 177/2006

- Case filed by Ex-agent Vasai (BWDV) claiming settlement of Rs. 12,968

Posted to 05/03/2007

DETAILS OF LEGAL CASES PENDING FOR ABT MARUTI Sl.no. Case no. Parties Case summary Status

1

1480-2005 Dt:30.12.2005

ABT Maruti customer Mr.Karthikeyan

Works carried out one Vehicle no.TN 55G 6, payment Pending - total bill Rs.73741/- paid Rs.20,000/- cheque Bounced for Rs.60,000/-

Case under Process

2

O.S.No.2414/2001

ABT Maruti vs Repco Bank & Manoharan

Non-collection of Accident vehicles Since 12.07.97

Case ordered in Company’s favour on 12.02.07

3

O.P.No.26/2005

Mrs.Girija - vs - ABT Maruti

Motor Accident Claim amount.Rs.30,000/-

Case posted to 04.04.07

4

M.A.C.T. no.1180/1998 In E.P. no.68/2004

Meyyappan - vs - ABT Ltd & the United India Ins. Co. Ltd.

Motor accident claim for Rs.1,09,230/-

Posted to 14.03.2007

___________________________________________________________________________________________________________________________________________________________________________________________

123

Cases/Suits filed by ABT Parcel Division Sr. No


Amount involved (where


1 Criminal 3 1.47 2 Civil Cases 4 6.36 Cases/Suits filed against subsidiaries of ABT Limited : ABT (Madras) Private Ltd. Sr. No




1 Criminal case 1 0.38 2 Consumer Court cases 5 1.83 3 Urban land Tribunal 1 - ABT (Madurai) Private Limited Sr. No


Amounts involved (where Quantifiable)

(Rs. In lacs) 1 Consumer Court 5 - ABT (Trichy) Private Limited Sr. No



(Rs. In lacs) There are no cases pending against the Company

ABT Textiles Private Limited Sr. No



(Rs. In lacs) There are no cases pending against the Company

SAKTHI FINANCIAL SERVICES LIMITED There are no pending litigations against the Company


124

SRI SAKTHI TEXTILES LIMITED Cases filed by the Company Sr. No



(Rs. In lacs) 1 Criminal case 8 107.34 2 Civil case 1 74.27 ANAMALLAIS ENGINEERING (P) LTD., POLLACHI. (AEPL) The company has filed appeals in connection with the sales tax matters which are pending before AAC Pollachi / High Court. Cases pending before High Court, Chennai Sl. No.

Case No. Gist of the case Filed by

Against Whom

Pending before

Present Status

1 WP 19271/1998

WP 19272/1998

Exemption Claimed under

Rule 5(3) of CST Act. Sales

Tax assessment for the years 1995-96

and 1996-97

AEPL CTO/AAC

High Court,

Chennai

Posted for final hearing

2 1 2

INCOME TAX

ITA No.2723/Mds 1996 (Asst.yr

1993-94)

Bonus provision of Rs.3,61,365/- made and paid within the

due date A.O. opinion – settlement

dt.6.11.93 – Expenditure could not have occurred

on 31-3-93. Disallowance was

improper.

Shortage in accounting of

purchases during Acct.yr 95-96

(Asst.yr 96-97) to the tune of Rs.

42,08,824/-

APEL

I T dept

Coimbatore

ITA Tribunal Chennai

APEL

Assessing Officer, Coimbat

ore

ITA Tribunal Chennai

Appellate Tribunal set aside the order of the

CIT(A) and restore the matter

to the A.O. to examine the case.

Pending

___________________________________________________________________________________________________________________________________________________________________________________________

125

Cases pending before the Appellate Assistant Commissioner, Pollachi

Case No Gist of the case Filed by

Against Pending before

Present Status

SALES TAX CST 23/2003 CST 22/2003 CST 21/2003 CST 14/2004 CST 14/2005 CST 15/2005 CST 65/2002 CST 71/2003 CST/24/2004 CST 34/2004 CST 3/2005

Exemption claimed under Rule 5 (3) of CST Act. Sales Tax assessment for the

years 1990-91,1992-93 to

1994-95, 1999-2000 to 2003-04

AE Firm

CTO, Poy

AAC, Poy

Appeared on 27/02/2007. Pending

SALES TAX -Pending before High Court, Chennai

Sl No

Case No Gist of the case Filed by

Against Pending Present Status

1 WP 11467/2000 WP 10019/2002 WP 19475/2003 WP 19476/2003

Exemption Claimed under

Rule 5 (3) of CST Act.

Sales Tax assessment for

The year 1988-89

AE firm

CTO CTO

TN Govt TC Govt

High Court,

Chennai

The department took time to file their case. In the meantime TVS Sundram Industries also made a party and issued notice by the department. Pending in High Court.

2 TCMP 488/06 IN

TCSR No.9537/06

Lease rent on Machineries –

Asst.Yr 94-95 – collected 3%

Instead of 8%. Difference tax paid subsequently, but

dept levied penalty of Rs.43,988/-

St dept AE Firm High Court,

Chennai

Vakalath filed.

CENTRAL EXCISE

Sl.No

Case No.

Gist of the case Filed by

Against whom

Pending before

Present Status

1 Appeal No.

E/540/04

(473/3)

The bodies built on 407/31 TATA chassis as Ambulance, classified as “fuel efficient light commericial motor vehicle and that cleared duly

Central Excise dept.

AE Appeal filed before

the CESTAT, Chennai.

Pending before CESTAT Chennai.


126

Sl.No

Case No.

Gist of the case Filed by

Against whom

Pending before

Present Status

paying 15% duty. Based on fuel efficiency certificate, TELCO paid only 10%. Hence refund claim of Rs.27,233/- made with the C/E dept.

2 Appeal No.

E/541/04

Central Excise department demanded Rs.2,47,787/- as duty for the Ambulance vehicles cleared duly paying 10% duty instead of 15% duty.

AE Asst. Comm

Pollachi.

Appeal filed before

the CESTAT, Chennai.

The Company’s

appeal dismissed on 10-8-05.file sent back to

Commissioner Coimbatore for

further disposal.

3. Outstanding litigations/ disputes against promoter group companies, other than those

mentioned above ABT TWO WHEELER PRIVATE LIMIED Sl. No.

Court/ Forum & Case Number


1 O.S. No. 3648/2005

Mohankrishnan Injunction expected for use of passage in front of showroom

Case to be numbered

ANAMALLAIS BUS TRANSPORT PRIVATE LIMITED The Company has confirmed that 1. They do not have any pending litigations with any Financial Institutions / Banks. 2. They have not defaulted any payments to any Financial Institutions / Banks. 3. There is no pending proceedings initiated against them for economic offences and non- payment of statutory dues. 4. Following are the details of pending litigations filed by them and against them. Sl.No.



1 O.S.No. 2645/2004

Dhanraj N Kochar – Vs – Hotel Tristar Asia & 4 others (ABT Maruti, Egmore)

Egmore showroom to pay rent amount to Mr. Dhanraj N. Kochar towards settlement claim for deficiency in services

Posted to 29/09/2006 for trial Pending

___________________________________________________________________________________________________________________________________________________________________________________________

127

2 O.P. No. 312/05

A. Ravichandran – Vs – ABT Automobiles

Seeking claim for defeciency in service for undue delay in delivery of new vehicle, claim amount Rs. 2,13,000 (Vehicle allotd to customer and Bank loan rejected)

Notice from customer forum received on 18/07/2005, case posted to 18/08/2006 for written arguments of both the parties.

THE ANAMALLAIS RETRADING CORPORATION SL.NO.

COURT/ FORUM & Case number

PARTIES CASE SUMMARY STATUS

1 Urban Land Tax Tribunal, Chepauk ULTA.No.5/93

A.R.C VS A.C.(ULT) T.N.Nagar

Appeal filed before ULT Tribunal and the appeal was dismissed on 03.01.2002, and to pay the ULT amount

Further appeal before Spl. Commissioner Land Reforms was filed.

SAKTHI AUTO COMPONENT LIMITED, COIMBATORE Sl.No.

Name of the Defendant Forum Value of the Suit (Rs.in lakhs)

Status

Income Tax 1 Union of India, Ministry

of Law, Justice and Company Affairs

High court of Madras

9.70 The levy of fringe benefit tax under the income tax has been challenged by a writ petition before the Hon’ble High Court of Madras through the Indian Chamber of Commerce and Industry, Coimbatore. The Hon’ ble High Court has admited the wit petition and the same is pending before the said court for disposal.

Sales Tax Disputes 1 Assistant Commissioner

(CT)Zone I, Coimbatore (W.P.No.6859 of 2004)

High Court of Madras

454.14 Petition against the Order of the Asst. Commissioner regarding the cancellation of deferral benefits availed Pending

2 Deputy Commercial Tax Officer, Coimbatore

Appellate Assistant Commissio

85.12 Appeal against the order of the DCTO assessing the turnover both under


128

Sl.No.

Name of the Defendant Forum Value of the Suit (Rs.in lakhs)

Status

ner, Cbe TNGST & CST @ 12% instead of @4% and also not allowing the claim for deduction from the turnover in respect of cash discount Pending

Central Excise Disputes 1 Assistant Commissioner

of Central Excise, Erode 7.25 Dispute with regard

service tax payable on the Goods Transport Agency Services – (Foundry Unit)Pending Adjudication

2 Assistant Commissioner of Central Excise, Erode

2.66 Dispute with regard to payment of Service tax on the Royalty and Consultancy charges paid to overseas Collaborators Pending Adjudication

A R C RETREADING COMPANY PRIVATE LIMITED.

Sl.No.



Coimbatore Branch 1 High Court

Chennai CA 130/03

N. Raju, Ex-Agent, Ooty

Dismissed in JM – II CBE, Appeal in High Court, Chennai. Suit Value – Rs.160719.07

Pending

2 Civil Suit O.S.1523/03

N.Raju Ex-Agent, Ooty

Civil suit-filed against agent after the dismisal of the Company’s criminal case JM – II – CBE. Suit Value – Rs.233478.57

Defendant witness evidence closed Arguments to be continued.

3 IIIrd Additional Subordinate CBE Civil Suit O.S.1263/04 As E.P.96 O.S.2295/04 As E.P.97

N.Nagarajan V.Nataraj Kannapiran Tpts., Tiruppur.

Tyre Retreading Charges O.S.1263/04 – Rs.32,748.50 O.S.2295/04 – Rs.32,014.55

The Party has requested for settlement for Principal amount only. So the Management decided to continue the case.

4 Ist Additional Munsif Court,

Premier Tea Industry,

Suit Value – Rs.6,906.78

File counter statement.

___________________________________________________________________________________________________________________________________________________________________________________________

129

Sl.No.



CBE. O.S.1716/1999

Kotagir. Type Retreading Charges

5 Dist. Munsif Court, CBE. O.S.1143/98 E.P.146/2001

Mohammedsinan, Transit Bus Service. Kannur, Kerala.

Principal Value – Rs.11,567.81 EP Filed Rs.28,463.31

Decreed amount Rs.19,409.81 Filed petition to attach the bus owned by J D

6 II,ASJ,CBE. EP Filed at Munsif Kannur. O.S.822/98 EP.147/2001

Mohammedsinan, Transpeed Bus Service, Kannur, Kerala.

Principal – Rs.24,401.93 EP Filed Rs.69,867.65

Decreed amount Rs.40,816.00 The court released the bus on executing bond for Rs.One lakh

7 Dist.Munsif Court. CBE O.S.2183/96 EP.141/2000

R.Balasubramaniam, Karur

Principal Rs.28,949.03 EP Rs.69,363.63

Decreed amount Rs.66,690.63 Payment received Rs.2,975.00 by cheque.

8 Dist.Munsif Court. CBE O.S.1453/96 EP.50/1999

R.T.Raphel Coonoor

Principal Rs.3,036.00 EP Rs.12,011.27

Amount remitted by J D, so far Rs.2050/-

9 IIIrd Subordinate Court. (Civil) O.S.450/04

G.Subash Ex. Sales Rep., Tirunelvei

Suit Value Rs.268152.16

Arguments to be continued.

10 Labour Court Kollam I D 9 /2004

G.Subash Ex Sales Rep., Tirunelvei,

Petition Filed Pending

11 I st ADM Court, CBE. O.S.712/06

R.Nagarajan, Ex. Agent,Erode

Principal Rs.75,277.11

Case filed and number ed in 1st Additional District Munsif Court, CBE and next hearing on 26-07-2006

12 J M No-II, CBE

N.Rajan, Principal Rs.21,404.00 Criminal Suit

Filed vakalath and complaint petition and waiting for the return

13 Subordinate Judge, CBE O.S.607/05

T.Bharanidharan Ex Sales Rep., CBE

Principal Rs.1,60,737.00

Got a decree on 24.02.06.

Tirunelveli Branch (Recovery Cases) 14 584/98 M.Ganesan

M/S.Annai Chellam Tpt., Sankarankovil

Principal Amount: 9,641.05 Suit Amount: 9,641.05

Execution Petition (E.P.) Filed on 22.03.2001/ Party absconded


130

Sl.No.



Decree Amount: 11,484.96

Last hearing held on 24/04/2001

15 849/1990 P.Rathinasamy S/O.Ponnumani Nadar,

Principal Amount: 3,835.59 Suit Amount: 6,367.35 Decree Amount: 8,059.13

Processing

16 178/2003 M.Balashunmugam

Principal Amount: 5,39,801.42 Suit Amount: 5,39,801.42 Decree Amount: 7,04,879.17

Party Expired Processing Last hearing held on 04.07.2006

17 450/2004 G.subash Principal Amount: 2,04,205.10 Suit Amount: 2,04,205.10 Decree Amount: 3,11,848.80 29.12.2004

Processing

18 268/2006 O. Subramaniam Principal Amount: 36,375.00 Suit Amount: 36,375.00 Decree Amount: Nil

Processing

19 269/2006 K.Ramachandran Principal Amount: 56,026.75 Suit Amount: 56,026.75

Processing

20 267/2006 Mr, Udhayakumar


Processing

21 266/2006 M.Rengasamy M/S. Selvakumar


Processing

N.MAHALINGAM AND COMPANY, COIMBATORE. Cases Filed Against N.Mahalingam And Company Sr. No

Case No./Year & Court

Party Name Nature of Case

Amount (Rs.) Present Position

1 Ernakulam High Court stay

Sales Tax appeal

Tax difference in sale of

2347046 Case went in favour of Sales Tax Department.

___________________________________________________________________________________________________________________________________________________________________________________________

131

Sr. No

Case No./Year & Court

Party Name Nature of Case

Amount (Rs.) Present Position

Petition S.T Rev. No.

203, 215, 16/2003

N.M&Co, Trivandrum

engine 1994-95

,1995-96 & 1996-97

An appeal woll be filed at supreme court, New Delhi

2 Op.no.21/2003 Mr. Muneswara Moorthy,

Muniswara illam

Manthandikunnu, wayanad

consumer case 16629 Pending

3 Labour Court C.P. 33/06

W.P. 22563/06

Mr.Santhoshkumar.

Termination of

employment

251865 Judgement against management. appealed at High court, Kerala.

4 I.D.23/04 Mr. Udyakumar

Terminal benefits

Back wages & Compensation

Pending

5 C.D.R.C.613/2000

Kerala state consumer Disputes Redressal

Commission

Mr. Sidharthan

consumer case 20,202 Appeal is pending

6 C.D.R.C.1275/2000

Kerala state consumer Disputes Redressal

Commission

Mr. Chandrababu

consumer case 55000 Appeal is pending

7 O.P.183/04 Consumer Disputes

Redressal Forum, Pathanamthitta

Mr.T.V.Sakariah

consumer case for Excise

Duty Rebate.

43000 Judgement Pending

8 C.A. 133/2006 Case filed by the

Management against K.N.R

Fuel supplied from Petro

Bank (Cheque Dishonoured)

37688 Judgement in favour of the Company. Party filed appeal against the judgement

SALES TAX CASES Sr. No

Case No./Year Party Name Nature Of Case Amount (Rs.)

Present Position

1 TNGST NO: 304639/93-94

M/s. Commercial Tax Officer, Ramnagar

Interest Levied for the period from

20/09/93 to 31/03/95

733257 Pending


132

Sr. No

Case No./Year Party Name Nature Of Case Amount (Rs.)

Present Position

Circle, Combatore

2 TNGST NO:304639/93-

94


Circle, Combatore

Rs.98570 ( Credit balance has been adjusted twice) hence excess

balance adjusted to be payable (98570-

34461 = 64109)

64109 Pending

3 TNGST NO:1980024/02/

03


Circle, Combatore

Dispute Turnover of Form 37-A

STDS Certificate Relief not given

34714 Under Process

There are 7 civil cases filed by the management of N. Mahalingam & company pending before various courts wherein the amount involved wherever ascertainable is Rs. 9.29 lacs. 1 case for cheque dishonour has been filed for an amount of Rs. 2,80,000. Judgement in favour of the party. Appeal against Judgement. A B T FINANCE LIMITED

There are no pending litigations against the Company THE GOUNDER AND COMPANY AUTO LTD There are no pending litigations against the Company SAKTHI BEVERAGES LTD There are no pending litigations against the Company SAKTHI AUTOMOBILES There are no pending litigations against the Company ABT ENERGY PRIVATE LIMITED There are no pending litigations against the Company ABT INFOSYSTEMS PRIVATE LIMITED There are no pending litigations against the Company ABT TRANSPORTS LIMITED There are no pending litigations against the Company

___________________________________________________________________________________________________________________________________________________________________________________________

133

CHAMUNDESWARI ENTERPRISES PRIVATE LIMITED There are no pending litigations against the Company NACHIMUTHU INDUSTRIAL ASSOCIATION There are no pending litigations against the Company SAKTHI COFFEE ESTATES P. LIMITED There are no pending litigations against the Company SAKTHI LOGISTIC SERVICES LIMITED There are no pending litigations against the Company SAKTHI MANAGEMENT SERVICES LTD There are no pending litigations against the Company SAKTHI SOFT DRINKS LIMITED There are no pending litigations against the Company SAKTHI SYNTHETIC GEMS LTD. Cases filed by the Company: Sr. no

Initiated by Forum Amount (Rs. in lacs)

Status

1 Chennai Port Trust Asst. City Civil Court, Chennai

3.02 Matter Pending

2 Indian Drugs & Pharmaceuticals Limited

Arbitration 172.30 Yet to be referred to Arbitration as per Supreme Court of India

Cases filed by the Company: Sr. no

Against Forum Amount (Rs. in lacs)

Status

1 Smt. Hemalatha, Proprietrix, Hema Cutting Works, Trichy

Judicial Magistrate Court,

Mettupalayam

3.00 Matter pending

SAKTHI REFINERY AND PROTEIN LIMITED There are no pending litigations against the Company


134

MATERIAL DEVELOPMENTS AFTER THE DATE OF THE LAST BALANCE SHEET After the last date of Balance Sheet i.e; 31/12/2006, the Board of Directors of the Company, at its meeting held on 19/02/2007 has recommended/ declared a special interim dividend of 5% (Re. 0.50 per share) on the equity share capital of the Company for the Year ended March 31, 2007. There are no material developments after the date of the latest balance sheet, that are likely to materially affect the performance and the prospects of the company. The company has not discontinued any of its existing business nor commenced any new business during past year. ADVERSE EVENTS There are no adverse events affecting the operations of the Company occurring within one year prior to the date of filing of the Letter of Offer with the Stock Exchanges.

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GOVERNMENT APPROVALS (i) Investment approvals

No approval of the FIPB / RBI is required for the rights issue. However, the company will be taking the approval of RBI for allotment of shares to Non-resident Indian shareholders.

(ii) Government Approvals No consent of the government of India is required for the present issue. The company has all the necessary approvals from the Government authorities / RBI as required to carry on the present business. The company has complied with all the applicable guidelines / directions issued by RBI from time to time. The company does not propose to enter new activities through this rights issue of equity shares for which any further approvals are required to be obtained.

No letter of intent / industrial license is required to carry on the business by the company. The Company has been registered with RBI as a non-banking financial company and its registration number is 07.00252. The company is categorized as a Asset Finance company as per the current RBI norms.

(iii) Technical approval: No technical approval is required for the present issue. (iv) Declaration of the RBI about non-responsibility for the financial soundness or correctness of

statements

The Company is having a valid certificate of Registration No.07.00252 dated 8th May 1998 issued by Reserve Bank of India under Section 45-1A of Reserve Bank of India Act 1934. However, the Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the Company or for the correctness of any of the statements or representations made or opinions expressed by the Company and for repayment of deposits / discharge of liabilities by the Company.


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SECTION VI - REGULATORY AND STATUTORY DISCLOSURES

AUTHORITY FOR THE PRESENT ISSUE The Board of Directors at their meeting held on 14/08/2004 have approved the rights issue of equity shares of the Company of Rs 10/- each to the existing holders of equity shares in the ratio of One equity share for every Two equity shares held by them on a date to be announced by the Board (Record Date) for a total amount of Rs. 1003.57 lacs. The Special resolution was passed at the Annual General Meeting of the shareholders of the Company held on 24/09/2004 authorising the Board of the Company to raise capital up to Rs 1003.57 lacs. The Board of Directors at their meeting held on 23/04/2007 have decided to make the following offer to the existing shareholders of the company: Issue of 1,00,35,660 Equity Shares of Rs. 10/- each at par (Issue Price of Rs.10/-) aggregating Rs.1003.57 lacs on rights basis to the existing Equity Shareholders of the Company in the ratio of 1 (One) Equity Share for every 2 (Two) Equity Shares held on [●] (Record Date). The face value of the Equity Share is Rs. 10/- per share and the Issue Price is 1 time the face value. The Board of Directors of the Company has approved the draft Letter of Offer in the board meeting held on 23/04/2007. PROHIBITION BY SEBI The Company, its Promoters, Directors or any of the Company’s associates or group companies with which the Directors of the Company are associated as Directors or Promoters have not been prohibited from accessing the capital market under any order or direction passed by SEBI. ELIGIBILITY FOR THE ISSUE Sakthi Finance Limited is an existing listed Company. It is eligible to offer this Rights Issue in terms of Clause 2.4.1(iv) of the SEBI (DIP) Guidelines, 2000. The promoters, their relatives, SFL, group companies are not detained as wilful defaulters by RBI/Government authorities and there are no violations of securities laws committed by them in the past or pending against them. DISCLAIMER CLAUSE AS REQUIRED A COPY OF THIS OFFER DOCUMENT HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THIS OFFER DOCUMENT TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED OR CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE OFFER DOCUMENT. LEAD MANAGER M/S. KEYNOTE CORPORATE SERVICES LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE OFFER DOCUMENT ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLOSURES AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE OFFER DOCUMENT, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT

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THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD MANAGER, M/S. KEYNOTE CORPORATE SERVICES LIMITED HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED 14/05/2007 IN ACCORDANCE WITH SEBI (MERCHANT BANKERS) REGULATIONS 1992 WHICH READS AS FOLLOWS: (i) WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO

LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS ETC. AND OTHER MATERIALS IN CONNECTION WITH THE FINALISATION OF THE OFFER DOCUMENT PERTAINING TO THE SAID RIGHTS ISSUE.

(ii) ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE

COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY.

WE CONFIRM THAT:

(a) THE OFFER DOCUMENT FORWARDED TO SEBI IS IN CONFORMITY WITH

THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; (b) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE, AS

ALSO THE GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY SEBI, THE GOVERNMENT AND ANOTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND

(c) THE DISCLOSURES MADE IN THE OFFER DOCUMENT ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE.

(D) BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE OFFER DOCUMENT ARE REGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID, EXCEPT REGISTRATION OF S.K.D.C CONSULTANTS (REGISRAR TO THE ISSUE) WHO HAS APPLIED FOR RENEWAL IN TERMS OF REGULATIONS AND RENEWAL IS AWAITED.

THE FILING OF THE OFFER DOCUMENT DOES NOT, HOWEVER ABSOLVE THE COMPANY FROM ANY LIABILITIES UNDER SECTION 63 OR SECTION 68 OF THE COMPANIES ACT, 1956, OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED PUBLIC ISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP AT ANY POINT OF TIME, WITH THE LEAD MANAGER FOR ANY IRREGULARITIES OR LAPSES IN THE OFFER DOCUMENT. CAUTION STATEMENT / DISCLAIMER CLAUSE OF THE ISSUER AND THE LEAD MANAGER The Issuer Company and the Lead Manager accept no responsibility for statements made otherwise than in this Offer Document or in the advertisement or in any other material issued by or at the instance of the Company and the Lead Manager and any one placing reliance on any other source of information would be doing so at his/her/their own risks.


138

DISCLAIMER IN RESPECT OF JURISDICTION This offer is being made in India to persons resident in India (including Indian nationals resident in India who are majors, Hindu Undivided Families, companies, corporate bodies and societies registered under the applicable laws in India and authorised to invest in shares, Indian mutual funds registered with SEBI, Indian financial institutions, commercial banks, regional rural banks, co-operative banks (subject to RBI permission), Trusts registered under the Societies Registration Act, 1860, or any other Trust law and who are authorised under their constitution to hold and invest in shares), Foreign Collaborators and to NRIs, OCBs and FIIs as defined under the Indian laws. This Offer Document does not, however, constitute an offer to sell or an invitation to subscribe to securities issued hereby in any jurisdiction other than India. Any person into whose possession this Offer Document comes is required to inform himself about and to observe any such restrictions. Any dispute arising out of this Offer will be subject to the jurisdiction of appropriate court(s) in Coimbatore, State of Tamilnadu, India only. No action has been or will be taken to permit a public offering in any jurisdiction where action would be required for that purpose, except that this Offer Document has been submitted to the SEBI. Accordingly, the equity shares represented thereby may not be offered or sold, directly or indirectly, and this Offer Document may not be distributed, in any jurisdiction, except in accordance with the legal requirements applicable in such jurisdiction. Neither the delivery of Offer Document nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Sakthi Finance Ltd. since the date hereof or that the information contained herein is correct as of any time subsequent to this date. LISTING Presently the Equity shares of SFL are listed on Bombay Stock Exchange Limited (BSE) (Designated Stock Exchange) and Madras Stock Exchange of India Ltd. (MSE) The Company has received in-principle approval from BSE vide its letter no. [●] dated [●] and MSE vide its letter no. [●] dated [●] for listing of the equity share being issued in terms of this Letter of Offer. If the permissions to deal in and for an official quotation of the equity shares are not granted by the stock exchange, the Company shall forthwith repay, without interest, all monies received from the applicants. In case of delay interest shall be paid in accordance with the provisions of Section 73 of the Act. DISCLAIMER CLAUSE OF THE BOMBAY STOCK EXCHANGE LIMITED (BSE), THE DESIGNATED STOCK EXCHANGE Bombay Stock Exchange Limited (the Exchange) has given vide its letter dated [●], permission to this Company to use the Exchange’s name in this Letter of Offer as one of the Stock Exchanges on which this Company’s securities are proposed to be listed. The Exchange has scrutinized this letter of offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Company. The Exchange does not in any manner: (i) Warrant, certify or endorse the correctness or completeness of any of the contents of this letter of

offer; or (ii) Warrant that this Company’s securities will be listed or will continue to be listed on the Exchange; or (iii) Take any responsibility for the financial or other soundness of this Company, its promoters, its

management or any scheme or project of this Company; And it should not for any reason be deemed or construed that this letter of offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of

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this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein for any other reason whatsoever. DISCLAIMER CLAUSE OF THE MADRAS STOCK EXCHANGE LTD. (MSE) Madras Stock Exchange Limited (MSE), has, vide their letter dated [●] given permission to the Issuer to use the name of the Exchange in this Letter of Offer as one of the Stock Exchanges on which this Issuer’s securities are proposed to be listed. MSE has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Issuer. MSE does not in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer; or warrant that this Issuer’s securities will be listed or will continue to be listed on the Exchange; or take any responsibility for the financial or other soundness of this Issuer, its Promoters, its Management or any scheme or project of this Issuer; and it should not for any reason be deemed or construed that this Letter of Offer has been cleared or approved by MSE. Every person who desires to apply for or otherwise acquires any securities of this Issuer may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against MSE, whatsoever, by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated in the Letter of Offer or any other reason whatsoever. FILING A copy of this Letter of Offer has been filed with SEBI, 3rd Floor, D'Monte Building, 32 D'Monte Colony, TTK Road, Alwarpet, Chennai - 600 018, Bombay Stock Exchange Ltd., (BSE) (Designated Stock Exchange) Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai (BSE) and with Madras Stock Exchange Ltd. 11 Second Line Beach, Post Box No. 183, Chennai - 600 001 IMPERSONATION Attention of the applicants is specifically drawn to the provisions of Sub-Section (1) of Section 68A of the Companies Act, 1956 which is reproduced below: "Any person who- (a) makes in a fictitious name an application to a Company for acquiring, or subscribing for, any

shares therein, or (b) otherwise induces a Company to allot or register any transfer of shares therein to him, or any

other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years."

CONSENTS Consents in writing of: (a) the Directors, the Company Secretary and Compliance Officer, the Auditors, Bankers to the Company and Bankers to this Issue; and (b) Lead Manager to this Issue, Registrar to this Issue and legal advisors to the Issue to act in their respective capacities have been obtained and filed with Stock Exchanges at the time of filing this Letter of Offer and such consents have not been withdrawn up to the time of delivery of the Letter of Offer for registration with the stock exchanges. The Auditors of the Company have given their written consent for the inclusion of their Report in the form and content as appearing in this Offer Document and also the tax benefits accruing to the Company


140

and its members and such consents and reports have not been withdrawn up to the time of delivery of the Letter of Offer for registration with the Stock Exchanges. EXPERT OPINION Except as stated elsewhere in this Offer Document, the Company has not obtained any expert opinions. EXPENSES OF THE ISSUE The total expenses of the issue are estimated to be around Rs. 50.00 Lacs. All expenses with respect to the issue would be met out of the proceeds of the issue. The split of issue expenses is as under: -

(Rs. in Lacs) Activity Estimated Expense Fees to the intermediaries 30.00 Printing & Stationery and Postage expenses 10.00 Advertisement 5.00 Miscellaneous Expenses 5.00 Total estimated Issue expenses 50.00

Fees payable to Lead Manager The total fees payable to the Lead Manager will be as per the Memorandum of Understanding signed amongst the company and the Lead Manager, a copy of which is available for inspection at the Registered office of SFL. Fees payable to Registrar to the Issue The total fees payable to the Registrar to the issue will be as per the Memorandum of Understanding signed amongst the company and the Registrar to the issue, a copy of which is available for inspection at the registered office of SFL. UNDERWRITING COMMISSION, BROKERAGE AND SELLING COMMISSION No Underwriting, Brokerage and selling Commission will be payable for this issue. PREVIOUS ISSUE DETAILS The company has not made any public/rights issue of its equity shares during the last five years. ISSUES OTHERWISE THAN FOR CASH The Company has not made any issue otherwise than for cash. COMMISSION AND BROKERAGE ON PREVIOUS ISSUES The Company has not made any Public / Rights Issue during last five years, hence any commission or brokerage has been paid.

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PROMISE VIS-À-VIS PERFORMANCE

a) Of the Company :

Rights Issue - 1995

The Company came out with a Issue of 37,05,984 equity shares of Rs.10/- each on rights basis to the existing equity share holders of SFL for cash at a premium of Rs. 20/-per share in the ratio of three shares for every five shares held aggregating to Rs. 11,11,79,520 through the Letter of Offer dated 15/09/1995. The Issue was made with the object to part finance the increased requirement of funds due to increased volume of business. The promise-vs-performance in respect of the rights issue is as under:

(Rs. in Lacs) Projection as indicated in the

Letter of Offer Dated 15/9/1995 Actual performance During

Particulars 1995-96 1996-97 1997-98 1995-96 1996-97 1997-98

Finance Charges 4810 6450 8108 4299.21 4631.20 4467.52 Lease Rentals 857 1172 1560 892.93 1217.56 1219.20 Other Income 624 551 601 590.60 686.87 824.93 Total income 6291 8173 10269 5783 6535.63 6512 Profit before tax 701 1134 1491 536 439 110 Profit after tax 701 1034 1291 536 382 97 Equity capital 988 988 988 992 992 992 Preference Capital 500 500 500 0 0 0 Free Reserves 2950 3675 4656 2702 2749 2466 EPS (Rs.) 6.38 9.75 12.35 4.90 3.85 0.98 Book Value per share (Rs)

39.85

47.20

57.13

37.24

37.71

34.85

Reasons for shortfall: There was a slow down of economic activity owing to tight money market conditions and the attendant resource crunch. Consequently there was steep increase in cost of funds. Further the recessionary conditions prevailing in some major industries affected the transport industry leading to poor off take of trucks and transport vehicles thereby affecting the Company’s business which had an impact on the profitability of the Company. Further, the write-off of Non-Performing assets also contributed to the reduction in profits. These conditions prevailed over the period 1995-98 and hence, Company could not achieve the projected financial performance.

Rights Issue - 1993 The Company came out with a Rights Issue of 32,10,520 equity shares of Rs.10/- each for cash at a premium of Rs. 20/-per share aggregating to Rs. 9,63,15,600 through the Letter of Offer dated 19/03/1993 as detailed hereunder: 30,88,320 equity shares of Rs, 10/- each for cash at a Premium of Rs 20/- per share to the

shareholders of the company on rights Basis aggregating Rs. 9,26,49,600 1,22,200 equity shares of Rs, 10/- each for cash at a Premium of Rs 20/- per share to the

employees of the company (including Indian working Directors/Workers) on an Equitable basis under the Employees Stock Option Scheme aggregating Rs. 36,66,000

The main object of the issue was to augment the Company’s funds for deployment in hire- purchase and leasing activities.


142

The promise-vs-performance in respect of the rights issue was as under: (Rs. in Lacs)

Projection as indicated in the Letter of Offer dated 19/03/1993

Actual performance During Particulars

1993 1994 1995 1993 1994 1995 Finance Charges 1945.92 2252.84 2705.61 2215.24 2273.62 2968.44 Lease Rentals 475.47 976.21 1603.94 304.43 600.98 1017.54 Other income 773.47 857.21 940.20 494.72 848.37 965.55 Total income 3194.86 4086.26 5249.75 3014.39 3722.97 4951.53 Gross Profit before interest and depreciation

2716.26 3518.97 4573.91 2552.43 3050.97 4072.89

Profit before tax 328.90 564.50 889.77 301.37 400.06 507.94 Profit after tax 313.43 534.44 572.89 301.37 400.06 507.94 EPS (RS) 10.15 8.49 9.10 9.75 6.48 6.54 Equity capital 308.83 629.88 629.88 308.83 617.66 617.66 Free Reserves 1638.19 2672.45 3093.40 1558.23 1571.32 1824.68 Book Value per share (Rs)

63.01 52.43 59.11 60.46 35.44 39.54

Networth 1945.77 3302.30 3723.28 1867.06 2190.23 3343.59 Reasons for shortfall: Even though the estimates for the three year were not off the mark as far as top line is concerned profits were affected during the three year period 1992-1995. The main reason being the economy had suffered a drag from an extended contraction on account of lower demand and rising costs such as interest, wages and other operational expenses. Owing to the competitive pressure such increase on cost could not be transferred to customers by way of increase in price. The reduction in profit was also due to writing off of non-performing assets. Rights Issue –1988 The company came out with a Rights Issue of 10,38,320 equity shares for cash at par during 1988

b) Listed Ventures of Promoters :

Sakthi Sugars Ltd, Rights Issue - 1992

The Company came out with a Issue of 44,95,025 equity shares of Rs.10/- each on rights basis to the existing equity share holders of Sakthi Sugar for cash at a premium of Rs. 35/-per share aggregating to Rs. 20,22,76,125 through the Letter of Offer dated 30/09/1992. The main object of the issue was to part finance the cost of project of the Company’s new sugar unit at Orissa.

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The promise-vs-performance in respect of the rights issue is as under: (Rs. in lacs)

Reasons for shortfall: 1. Total Income:

In the Financial Year ended 31/03/2006 the actual income amounted to Rs. 11713 lacs as against the promised total income of Rs. 13,850 lacs made in the Rights issue offer document. It was mentioned in the Offer Document that the trial run of the new project in Orissa would be completed in December 1992 and commercial production of the same shall commence by the end of January 1993. But due to some unforeseen circumstances, there was some delay in conducting trial run and thereby the commencement of commercial production that took place only in the early part of 1993-94. Hence, as a result of lower production as compared to the expected, there was a shortfall in the income, consequently the profit was also lower.

Outstanding Debentures or Bonds As on the date of filing of this Letter of Offer, SFL does not have any Bond Issue. However the company has secured loans in the form of Non-Convertible Debentures to the extent of Rs. 6,403.41 lacs as on 31/12/2006. Outstanding Preference Shares As on the date of filing of this Letter of Offer, the Company does not have any outstanding preference shares. STOCK MARKET DATA FOR SHARES OF THE COMPANY The equity shares of the company are listed on The Bombay Stock Exchange Ltd. (BSE) and Madras Stock Exchange Ltd.(MSE). The equity shares of SFL have not been traded on Madras Stock Exchange Ltd. (MSE) for past six months. The stock market data for the equity shares on the BSE are as follows:

As on 31.3.1993 As on 31.3.1994 As on 31.3.1995 Particulars

Promises as given in the offer

document

Actual performa

nce


offer document

Actual performance


offer document

Actual performance

Total Income 13850 11713 14617 18299 15777 22882 Gross Profit before interest and Depreciation

2900 2088 3310 3525 3783 4791

Net Profit 938 615 868 1032 1036 1077 Equity capital 1061 1049 1061 1213 1061 1213

Book Value per share (Rs.) 46.24 49.92 62.28 50.39 70.19 58.72 EPS (Rs.) Networth

8.66 5901

5.86 5283

8.00 6608

8.22 7322

9.58 7447

8.23 7609


144

High Low

Particulars High (Rs)

Date Volume on date of

high (no of

shares)

Low (Rs)

Date Volume on date of Low (no of

shares)

Average Price (Rs.)

Total Volume (no. of shares)

2004 8.85 15/12/2004 5,050 2.61 28/06/2004 100 4.49 367044 2005 13.8 20/07/2005 25432 6.5 05/01/2005 2700 9.77 1161463 2006 21.03 24/01/2006 36677 9.3 07/05/2006 200 12.45 268542

Nov 2006 12.99 20/11/2006 201 10.86 13/11/2006 5751 11.67 47,189 Dec 2006 13.55 18/12/2006 2330 11.50 05/12/2006 1850 13.68 34,718 Jan 2007 14.55 17/01/2007 1850 12.56 04/01/2007 1900 13.70 79564 Feb 2007 17.03 19/02/2007 106427 12.01 12/02/2007 2374 13.79 197982

March 2007 13.00 07/03/2007 1550 10.63 16/03/2007 6060 11.89 36422 April 2007 14.05 09/04/2007 8157 11.65 30/04/2007 600 12.83 43206 Week end price of equity Shares of SFL on the BSE.

Week ended Price (Rs) 11/05/2007 11.54 04/05/2007 12.07 27/04/2007 12.00 20/04/2007 13.20

The market price of the equity shares of the company as on 23/04/2007 the date on which the Board of Directors approved the draft Letter of Offer was Rs.12.58 (BSE). The equity shares of the company were in no delivery period from to [●] to [●] The cum-rights closing price of the shares of the company as on [●] was Rs. [●] on BSE. The ex-rights closing price of the shares of the company as on [●] was Rs. [●] on BSE. INVESTOR GRIEVANCE REDRESSAL SYSTEM Sakthi Finance Limited The investor grievances against the Company will be handled by the Registrars and Transfer Agent in consultation with the secretarial department of the Company. To handle the grievances received, the Company has appointed Mr. S A Subramanian, as the Compliance Officer. He will supervise redressal of complaints received from the investors at the office of the Company as well as the Registrars to the Rights Issue and ensure timely settlement. All grievances related to the offer may be addressed to the Registrar to the Rights Issue quoting the application No. (Including prefix), Number of equity shares applied for, amount paid on application, date, Bank and branch/ Collection center where application was submitted.

The normal time taken by SFL for redressal of investor grievance is given below:-

S.No Type of Request Normal Time Taken (No of Days)

1 Issue of Duplicate Share Certificate 10 2 Transfer of shares 7 3 Transmission of shares 7 4 Demat/remat of shares 4

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145

S.No Type of Request Normal Time Taken (No of Days)

5 Non receipt of dividend 3 6 Non receipt of Annual Report 3 7 Change of residential address/ Bank mandate 3 8 Consolidation/split of share certificates 4

For Group Companies

The normal time taken by Sakthi Sugars Limited (SSL), Sri Chamundeswari Sugars Limited (SCSL) & Sri Bhagavathi Textiles Limited (SBTL) for redressal of investor grievance is given below:-

S.No Type of Request Normal Time Taken (No of

Days) (SSL)

Normal Time Taken (No of

Days) (SCSL)

Normal Time Taken (No of

Days) (SBTL)

1 Issue of Duplicate Share Certificate 30 15

35

2 Transfer of shares 15 15 20 3 Transmission of shares 15 15 20 4 Demat/remat of shares 7 -10 days 7 N.A. 5 Non receipt of dividend 7 days 7 10 Days 6 Non receipt of Annual Report 7 days 5 15 Days

7 Change of residential address/ Bank mandate 7 days 5

10 Days

8 Consolidation/split of share certificates 15 days 15

20 Days

CHANGE IN AUDITORS There has been no change in the Auditors of the company during the past three years. CAPITALISATION OF RESERVES OR PROFITS The company has not capitalized its reserves or profit during the last five years. REVALUATION OF ASSETS The company has not revalued its asset during the last five years.


146

SECTION VII - OFFERING INFORMATION

A. TERMS OF THE ISSUE The Equity Shares now being offered are subject to the provisions of the Act and the terms and conditions of this Letter of Offer, the CAF, the Memorandum and Articles of Association of the Company, the approvals from the Government of India, FIPB and RBI, if applicable, the provisions of the Act, guidelines issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory authorities and bodies from time to time, Listing Agreements entered into by the Company with Stock Exchanges, terms and conditions as stipulated in the allotment advice or letter of allotment or Security Certificate and rules as may be applicable and introduced from time to time, the FEMA and the Letters of Allotment/Equity Shares to be issued. Over and above such terms and conditions, the Equity Shares shall also be subject to applicable laws, guidelines, notifications and regulations relating to issue of capital and listing of securities issued from time to time by SEBI, the Government of India, RBI and or other authorities. Ranking of equity shares The new Equity Shares proposed to be issued shall rank in all respects pari-passu with existing fully paid up Equity Shares. Mode of payment of dividend The dividend is paid to all the eligible shareholders as per the provisions of Companies Act. Face value & issue price The Face Value of Equity Shares of the company is Rs.10/-. The Equity Shares of Rs. 10/- each are being issued at par i.e. at a price of Rs. 10/- per share in the present rights issue. Rights of equity shareholders The Shareholders are entitled to receive dividend, as and when declared and bonus and rights shares, as and when issued. Further, the rights of the above and other holders of shares are subject to the provisions of the Companies Act, 1956, the Memorandum and the Articles of Association of the Company, the terms of this Letter of Offer and other laws as applicable from time to time. Market lot The market lot for the Equity Shares held in the demat mode is one share. In case of physical certificate, the Company would issue one certificate for the Equity Shares allotted to one person (“Consolidated Certificate”). In respect of consolidated certificate, the Company will, only upon request from the equity shareholder, split & return such consolidated certificate into smaller denomination within 7 days time in conformity with the clause 3 of the Listing Agreement. No fee would be charged by the Company for splitting the consolidated certificate. Nomination In terms of Section 109A of the Act, nomination facility is available in case of Equity Shares. The applicant can nominate any person by filling the relevant details in the CAF in the space provided for this purpose.

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The sole Equity Shareholder or first Equity Shareholder, along with other joint Equity Shareholders (being individual(s) may nominate any person(s) who, in the event of the death of the sole holder or all the joint-holders, as the case may be, shall become entitled to the Equity Shares. Person(s), being a nominee, becoming entitled to the Equity Shares by reason of the death of the original Equity Shareholder(s), shall be entitled to the same rights to which he would be entitled if he/she were the registered holder of the Equity Shares. Where the nominee is a minor, the Equity Shareholder(s) may also make a nomination to appoint, in the prescribed manner, any person to become entitled to the Equity Share(s), in the event of death of the said holder, during the minority of the nominee. A nomination shall stand rescinded upon the sale/disposal of the Equity Share by the person nominating. A buyer will be entitled to make a fresh nomination in the manner prescribed. When two or more persons hold the Equity Share(s), the nominee shall become entitled to receive the shares only on the demise of all the holders. Fresh nominations can be made only in the prescribed form available on request at the office of the Company located at Sakthi Finance Limited New No.62, Dr. Nanjappa Road, Post Box No. 3745, Coimbatore - 641 018 or such other place at such addresses as may be notified by the Company. The applicant can make the nomination by filling in the relevant portion in the CAF. Only one nomination would be applicable for one folio. Hence, in case the shareholder(s) has (have) already registered the nomination with the Company, no further nomination need to be made for Equity Shares to be allotted in this Issue under the same folio. In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective Depository Participant of the applicant would prevail. If the applicant requires to change the nomination, they are requested to inform their respective Depository Participant. Minimum subscription i) If the Company does not receive the minimum subscription of 90% of the issue, the entire

subscription shall berefunded to the applicants within forty two days from the date of closure of the Issue.

ii) If there is a delay in the refund of subscription by more than 8 days after the Company becomes liable to pay the subscription amount (i.e. forty two days after closure of the issue), the Company shall pay interest for the delayed period at rates prescribed under sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956.

Disposal of odd lots The Company has not made any arrangements for the disposal of odd lot Equity Shares arising out of this Issue. The Company will issue certificates of denomination equal to the number of Equity Shares being allotted to the Equity Shareholder.

Restrictions on transfer and transmission of shares and on their consolidation/ splitting

There are no restrictions on transfer and transmission and on their consolidation/splitting of shares issued pursuant to this issue.


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B. ISSUE PROCEDURE

BASIS OF THE OFFER The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the depositories in respect of the Equity Shares held in the electronic form and on the Register of Members of the Company in respect of Equity Shares held in the physical form at the close of business hours on the Record Date. The Company has in consultation with the Designated Stock Exchange fixed the Record Date for determining the shareholders who are entitled to receive this offer for Equity Shares on a rights basis. The Equity Shares are being offered for subscription in the ratio of One Equity Shares for every Two Equity Shares held by the Equity Shareholders. The shareholders whose names appear as beneficial owners as per the list furnished by the depositories in respect of the Equity Shares held in electronic form and on the register of members of the Company in respect of the shares held in physical form on [●] at the close of business hours shall be entitled to the Equity Shares on the Rights basis in the ratio of One equity shares for every Two Equity Shares held by them. OPTION TO SUBSCRIBE Applicants to the Equity Shares of the Company issued through this Rights Issue shall be allotted the securities in dematerialized (electronic) form at the option of the applicant. The Company has signed a tripartite agreement with National Securities Depository Limited (NSDL) and S.K.D.C Consultant Ltd. on 13/10/2001 and with Central Depository Services (India) Limited (CDSL) and S.K.D.C Consultant Ltd. on 26/09/2001, which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates. RIGHTS ENTITLEMENT As your name appears as beneficial owner in respect of the shares held in the electronic form or appears in the register of members as an equity shareholder of the Company on the Record Date, you are entitled to this Rights Offer. The number of Equity Shares to which you are entitled is shown in Block I of Part A of the enclosed CAF and as shown in part A of the enclosed CAF. FRACTIONAL ENTITLEMENT On applying the rights ratio the rights entitlement may lead to fractional entitlement to some of the shareholders. In such an event the fractional entitlement will be rounded off to the next higher integer. The additional entitlement shall be made available out of the entitlement of one of the promoters. The adjustment will be made in the composite application form so as to ensure the allocation is made within the issue size. JOINT-HOLDERS Where two or more persons are registered as the holders of any Equity Shares, they shall be deemed (so far as the company is concerned) to hold the same as joint-holders with benefits of survivorship subject to provisions contained in the Articles. OFFER TO NON-RESIDENT EQUITY SHAREHOLDERS/ APPLICANTS Presently 25,14,200 Equity Shares aggregating to 12.53 % of the present issued capital are held by NRIs/FIIs on repatriation basis. Applications received from NRIs and other NR shareholders for allotment of Equity Shares shall be, inter alia, subject to the conditions imposed from time to time by the RBI under the FEMA in the matter of refund of application moneys, allotment of Equity Shares, issue of Letter of

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Allotment / share certificates, payment of interest, dividends, etc. General permission has been granted to any person resident outside India to apply shares offered on rights basis by an Indian Company in terms of FEMA and the rules and regulations thereunder. Vide notification dated June 18, 2003, bearing number FEMA 94/2003, RBI has granted general permission to Indian companies to issue rights/bonus shares to existing non-resident shareholders. The existing non-resident shareholders may apply for issue of additional shares and the Company may allot the same subject to the condition that the overall issue of shares to non-residents in the total paid up capital does not exceed the sectoral cap. In other words, non-residents may subscribe for additional shares over and above shares offered on rights basis by the company and renounce the shares offered in full or part thereof in favour of a person named by them. Residents may subscribe for additional shares over and above the shares offered on rights basis by the Company and also renounce the shares offered either in full or part thereof in favour of a person named by them. The Equity Shares issued under the Rights Issue and purchased by NR shall be subject to the same conditions including restrictions in regard to the repatriability as are applicable to the previously held Equity Shares against which Equity Shares under the Rights Issue are issued. However, as per the provisions of AP DIR circular No. 14 dated September 16, 2003 (issued by the RBI), such shareholders who have been allotted the Equity Shares as OCBs would not be permitted to participate in the Rights Issue. Accordingly, shareholders/ applicants who are OCBs and wishing to participate in the Rights Issue would be required to submit approvals in relation thereto from the FIPB and the RBI. The Board of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while approving the allotment of Equity Shares, payment of dividend etc. to the Equity Shareholders who are NR. NOTICES All notices to the Equity Shareholder(s) required to be given by the Company shall be published in one English national daily with wide circulation, one Hindi national daily with wide circulation and/or, will be sent by ordinary post to the registered holders of the Equity Share(s) from time to time. ISSUE OF DUPLICATE EQUITY SHARE CERTIFICATE If any Equity Share Certificate(s) is/are mutilated or defaced or the pages for recording transfers of Equity Shares are fully utilized, the Company against the surrender of such Certificate(s) may replace the same, provided that the same will be replaced as aforesaid only if the Certificate numbers and the Distinctive numbers are legible. If any Equity Share Certificate(s) is/are destroyed, stolen, lost or misplaced, then upon production of proof thereof to the satisfaction of the Company and upon furnishing such indemnity/ surety and/or such other documents as the Company may deem adequate, duplicate Equity Share Certificate(s) shall be issued. OPTIONS AVAILABLE TO THE EQUITY SHAREHOLDERS The Equity Shareholders will be having the following five options: Apply for his entitlement in part Apply for his entitlement in part and renounce the other part Renounce his entire entitlement Apply for his entitlement in full Apply for his entitlement in full and apply for additional Equity Shares


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HOW TO APPLY For Resident Indian Shareholders Application should be made only on the enclosed CAF provided by the Company. The enclosed CAF should be completed in all respects, as explained in the instructions indicated in the CAF. Applications will not be accepted by the Lead Managers or by the Registrar to the Issue or by the Company at any offices except in the case of postal applications as per instructions given in the draft Letter of Offer. Payment should be made in cash (not more than Rs.20,000/-) or by cheque/bank draft/ drawn on any bank (including a co-operative bank) which is situated at and is a member or a sub-member of the bankers clearing house located at the centre where the CAF is submitted and which is participating in the clearing at the time of submission of the application. Outstation cheques/money orders/postal orders will not be accepted and CAFs accompanied by such cheques/money orders/postal orders are liable to be rejected. For Non-Resident Shareholders Applications received from the Non-Resident Equity Shareholders for the allotment of Equity Shares shall, inter alia, be subject to the conditions as may be imposed from time to time by the RBI, in the matter of refund of application moneys, allotment of Equity Shares, issue of letters of allotment/certificates/ payment of dividends etc. Letter of Offer and CAF shall be dispatched to non-resident Equity Shareholders in India only. For applicants residing at places other than designated Bank collecting branches. Applicants residing at places other than the cities where the Bank collection centres have been opened should send their completed CAF by registered post/speed post to the Registrars to the Issue, S.K.D.C Consultants Ltd. alongwith demand drafts, net of demand draft and postal charges, payable at Coimbatore in favour of “SFL - Rights Issue” crossed “A/c Payee only” so that the same are received on or before closure of the Issue i.e [●]. The Company will not be liable for any postal delays and applications received through mail after the closure of the Issue are liable to be rejected and returned to the applicants. Applications by mail should not be sent in any other manner except as mentioned below. All application forms duly completed together with cash/cheque/demand draft for the application money must be submitted before the close of the subscription list to the Bankers to the Issue named herein or to any of its branches mentioned on the reverse of the CAF. The CAF alongwith application money must not be sent to the Company or the Lead Manager to the Issue or the Registrar to the Issue except as mentioned above. The applications are required to strictly adhere to these instructions. Failure to do so could result in the application being liable to be rejected by the Company, the Lead Manager and the Registrar not having any liabilities to such applicants. The CAF consists of four parts: Part A: Form for accepting the Equity Shares offered and for applying for additional Equity Shares Part B: Form for renunciation Part C: Form for application for renouncees Part D: Form for request for split application forms You may exercise any one of the following options with regard to the Equity Shares offered to you, using the enclosed CAF:

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Sr. No

Options available Action Required

1. Accept whole or part of the Equity Shares offered to you without renouncing the balance

Fill in and sign Part A indicating in Block III of Part A the number of Equity Shares accepted. If you accept all the equity share offered in Block II of Part A you may apply for additional Equity Shares. Indicate in Block IV the additional Equity Shares applied for.

2. Renounce all the Equity Shares offered to you to one person (joint renouncees are deemed as one person) without your applying for any of the Equity Shares offered to you.

Fill in and sign Part B indicating the number of Equity Shares renounced in Block VII and handover the ENTIRE FORM to the renouncee. The renouncee/ joint renouncee(s) must fill in and sign Part C of CAF.

3. Accept a part of your entitlement and renounce the balance or part of it to one or more Renouncee(s).

Fill in and sign Part D for the Split Form and send the ENTIRE CAF to the Registrar to the Issue.

OR On receipt of Split Forms : 4. Renounce your entitlement or part of it

to one or more persons (joint renouncees are deemed as one person).

a b

For the Equity Shares you are accepting, fill in and sign Part A. For the Equity Shares you are renouncing fill in and sign Part B indicating the number of Equity Shares renounced in Block VII. Each of the renouncees should fill in and sign Part C.

Note: If application is made jointly with any other person(s) who is/are not already joint holders or change in the sequence of names of joint holders, it will amount to renunciation and the procedure mentioned in (2) above will have to be followed. Acceptance of Offer You may accept the Offer and apply for the Equity Shares offered, either in full or in part by filling Block III of Part A of the enclosed CAF and submit the same along with the application money payable to the bankers to the Issue or any of the branches as mentioned on the reverse of the CAF before the close of the banking hours on or before the Issue Closing Date or such extended time as may be specified by the Board thereof in this regard. Applicants at centers not covered by the branches of collecting banks can send their CAF together with the demand draft, net of demand draft and postal charges, payable at Coimbatore to the Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to be rejected. You may apply for the Equity Shares offered wholly or in part by filling in the enclosed CAF and submitting the same along with the application money to the Bankers to the Issue or its designated branches on or before the closure of the subscription list. The CAF should be complete in all respects, as explained in the INSTRUCTIONS indicated in the CAF. The CAF should not be detached under any circumstances, otherwise the application(s) will be rejected forthwith. Application for additional Equity Shares You are also eligible to apply for additional Equity Shares over and above the number of Equity Shares offered to you provided you have applied for all the shares offered to you without renouncing them in full or in part. However, the additional Equity Shares cannot be renounced in full or in part, in favour of any other person(s).


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If you desire to apply for additional Equity Shares, you may fill in the number of additional Equity Shares in Part A of the CAF. The allotment of additional Equity Shares will be at the sole discretion of the Board on an equitable basis with reference to the number of Equity Shares held by you on the Record Date in consultation with The Designated Stock Exchange. In the case of requests for additional Equity Shares by Non Residents, the allotment will be subject to the approval of Reserve Bank of India. The Board may reject any application for additional Equity Shares without assigning any reasons thereof. The renounces can also make an application for additional shares. Renunciation You may renounce all or any of the Equity Shares, you are entitled to in favour of any individual, limited companies, or statutory corporations / institutions. However renunciation in favour of more than three persons as joint holders, trust or society (unless the same is registered under the Societies Registration Act, 1860 or any other applicable trust laws and is authorised under its constitution to hold shares in a company), OCBs, minors (unless acting through natural or legal guardians), Partnership Firms, or their nominees, or any of them will not be accepted. Any renunciation from Resident(s) to Non- Resident(s) is subject to the renouncer(s)/ renouncee(s) obtaining requisite approval(s) of the Reserve Bank of India (RBI) and the said permission must be attached to the CAF. Procedure for renunciation (i) To Renounce in WHOLE If you wish to renounce this offer in whole, please complete PART 'B' of the CAF enclosed with the Letter of Offer for the number of Equity Shares renounced and deliver the CAF duly signed to the person(s) in whose favour the Equity Shares are so renounced. All joint holders must sign as per specimen signatures recorded with the Company at the place provided for the purpose and in the same order. The person(s), in whose favour the offer has been renounced (renouncees) should complete and sign PART C of the CAF. In case of joint renouncees, all joint renouncees must sign. (ii) To Renounce in PART If you wish to either accept this offer in part and renounce the balance of this offer the CAF must first be split into the requisite number of forms, by applying to the Registrar to the Issue. Please indicate your requirement of split forms in the space provided for this purpose in PART D of the CAF and return the entire CAF to the Registrar to the Issue so as to reach them latest by the close of business hours on or before the last date for receiving requests for split forms i.e. [●]. If you wish to apply for Equity Shares jointly with any person(s) who is/are not already joint holder(s) with you, then it would amount to renunciation and the procedure of renunciation as mentioned above shall have to be followed. Even a change in the sequence of the name of joint holders shall amount to renunciation and the procedure as stated above shall have to be followed. Further, this right of renunciation is subject to the express condition that the Board shall be entitled in its absolute and unqualified discretion to reject any such request for allotment of Equity Shares from renouncee(s) without assigning any reason thereof save where the Equity Shares have been renounced in favour of a person who is already a member of the Company. Please note that:

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a) Part A of the CAF must not be used by any person(s) other than those in whose favour this offer

has been made. If used, this will render the application invalid. b) Only the person to whom this Letter of Offer has been addressed and NOT the renouncees shall

be entitled to split forms. Forms once split cannot be resplit.

Request for spilt forms: Request for Split Forms should be addressed to the Registrar to the Issue so as to reach them on or

before the last date for receiving of request for split forms by filling in PART D of the CAF. Requests for Split Forms will be entertained only once. Availability of duplicate CAF In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/ DP and Client ID number and his/ her full name and address to the Registrar to the Issue. Please note that the request for duplicate CAF should reach the Registrar to the Issue within 15 days from the Issue Opening Date. Please note that those who are making the application in the duplicate form should not utilize the original CAF for any purpose including renunciation, even if it is received/ found subsequently. If the applicant violates any of these requirements, he / she shall face the risk of rejection of both the applications as well as forfeiture of amounts remitted along with the applications. Application on Plain Paper An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to the Rights Issue on plain paper, along with a Demand Draft payable at Coimbatore which should be drawn in favour of ”SFL- Rights Issue” crossed A/c Payee Only and send the same by registered post directly to the Registrar to the Issue. The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Company, must reach the office of the Registrar to the Issue before the Issue Closing Date (i.e [●]) and should contain the following particulars: Name of Issuer, being Sakthi Finance Limited. Name and address of the Equity Shareholder including joint holders Registered Folio Number/ DP and Client ID no. Number of shares held as on [●] (Record Date). Certificate numbers and distinctive numbers, if held in physical form Number of Rights Equity Shares entitled Number of Rights Equity Shares applied for out of entitlement Number of additional Equity Shares applied for, if any Total number of Equity Shares applied for Total amount paid at the rate of Rs. 10/-per Equity Share Particulars of cheque/draft Savings/Current Account Number and name and address of the Bank where the Equity

Shareholder will be depositing the refund order Applications for a total value of Rs, 50,000 or more, i.e. where the total number of securities

applied for multiplied by the Issue price, is Rs. 50,000 or more the applicant or in the case of application in joint names, each of the applicants, should mention his/her PAN number allotted under the Income-Tax Act, 1961 and also submit a photocopy of the PAN card(s) or a


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communication from the Income Tax authority indicating allotment of PAN (“PAN Communication”) along with the application for the purpose of verification of the number. Applicants who do not have PAN are required to provide a declaration in Form 60/ Form 61 prescribed under the I.T.Act along with the application. Applications without this photocopy/ PAN Communication/declaration will be considered incomplete and are liable to be rejected.

In case of Non-Resident shareholders, NRE/FCNR/NRO Account No., name and address of the bank and branch.

Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of the Company

Payment in such cases, should be through a demand draft, net of demand draft and postal charges, payable at Coimbatore be drawn in favour of “SFL - Rights Issue” crossed “A/c Payee only”.

Please note that those who are making the application on plain paper shall not be entitled to renounce their rights and should not utilize the original CAF for any purpose including renunciation even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications as well as forfeiture of amounts remitted along with the applications. The Company shall refund such application amount to the applicant without any interest thereon. Quoting of PAN/GIR no. in the application forms Where an application is for allotment of securities in response to a rights issue, for a total value of Rs. 50,000/- or more i.e. the total number of securities applied for multiplied by the issue price, is Rs. 50,000/- or more the applicant or in the case of applications in joint names, each of the applicants, should mention his/her permanent account number (PAN) allotted under the Income-Tax Act, 1961 or where the same has not been allotted, the GIR number and the Income-Tax Circle/Ward/District. In case neither the permanent account number nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the application forms. Application forms without this information will be considered incomplete and are liable to be rejected. Last date for submission of CAF The last date for receipt of CAF by the Bankers to the Issue together with the amount payable on application is [●]. If the relevant CAF together with amount payable thereunder is not received by the Bankers/Registrar to the Issue on or before the close of banking hours on the aforesaid last date the offer contained in this Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose of the Equity Shares hereby offered as provided under "Basis of Allotment". Incomplete application CAFs which are not complete or are not accompanied with the application money amount payable are liable to be rejected. TERMS OF PAYMENT The entire amount of Rs. 10/- per share is payable on application by all shareholders/applicants. MODE OF PAYMENT For Resident Shareholders/Applicants Payment(s) must be made by cheque/demand draft and drawn on any bank (including a co-operative bank) which is situated at and is a member or a sub-member of the Bankers' Clearing House located at the centre where the CAF is submitted. A separate cheque/draft must accompany each CAF. Only one mode

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of payment should be used. Money orders, postal orders and outstation cheques will not be accepted and applications accompanied by any such instruments will be rejected. Shareholders/Applicants residing at places other than those mentioned in the CAF and applicants who wish to send their applications but not having collection centres should send their application by Registered Post, ONLY to the Registrar to the Issue enclosing a demand draft drawn on a clearing Bank and payable at Coimbatore ONLY net of bank charges and postal charges, before the closure of the issue. Such cheque/drafts should be payable to "SFL - RIGHTS ISSUE". All cheques/ drafts must be crossed 'A/c Payee only’. No receipt will be issued for the application money received. However, the Collection Centre receiving the application will acknowledge receipt of the application by stamping and returning the acknowledgement slip at the bottom of each CAF. The Company is not responsible for any postal delay/ loss in transit on this account. For Non-Resident Shareholders/Applicants As regards the application by non-resident equity shareholders, the following further conditions shall apply: Application with repatriation benefits Payment by NRIs/ FIIs/ foreign investors must be made by demand draft/cheque payable at Coimbatore or funds remitted from abroad in any of the following ways: By Indian Rupee drafts purchased from abroad and payable at Coimbatore or funds remitted from

abroad (submitted along with Foreign Inward Remittance Certificate); or By cheque / draft on a Non-Resident External Account (NRE) or FCNR Account maintained in

Coimbatore; or By Rupee draft purchased by debit to NRE/ FCNR Account maintained elsewhere in India and

payable in Coimbatore; or FIIs registered with SEBI must remit funds from special non-resident rupee deposit account. All cheques/drafts submitted by non-residents applying on repatriable basis should be drawn in favour of "SFL - RIGHTS ISSUE - NR" payable at Coimbatore and crossed ‘A/c Payee only’ for the amount payable. A separate cheque or bank draft must accompany each application form. Applicants may note that where payment is made by drafts purchased from NRE/FCNR accounts as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/FCNR account should be enclosed with the CAF. In the absence of the above the application shall be considered incomplete and is liable to be rejected. In the case of NRIs who remit their application money from funds held in FCNR/NRE Accounts, refunds and other disbursements, if any shall be credited to such account details of which should be furnished in the appropriate columns in the CAF. In the case of NRIs who remit their application money through Indian Rupee Drafts from abroad, refunds and other disbursements, if any will be made in US Dollars at the rate of exchange prevailing at such time subject to the permission of RBI. The Company will not be liable for any loss on account of exchange rate fluctuation for converting the Rupee amount into US Dollars or for collection charges charged by the applicant’s Bankers.


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Application without repatriation benefits As far as non-residents holding shares on non-repatriation basis is concerned, in addition to the modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account maintained in Coimbatore or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Coimbatore. In such cases, the allotment of Equity Shares will be on non-repatriation basis. All cheques/drafts submitted by non-residents applying on non-repatriation basis should be drawn in favour of "SFL - RIGHTS ISSUE” payable at Coimbatore and must be crossed ‘A/c Payee only’ for the amount payable. The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF. If the payment is made by a draft purchased from an NRO account, an Account Debit Certificate from the bank issuing the draft, confirming that the draft has been issued by debiting the NRO account, should be enclosed with the CAF. In the absence of the above, the application shall be considered incomplete and is liable to be rejected. New demat account shall be opened for holders who have had a change in status from resident Indian to NRI. Note: In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the

investment in Equity Shares can be remitted outside India, subject to tax, as applicable according to Income Tax Act, 1961.

In case Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity Shares cannot be remitted outside India.

The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

In case of an application received from non-residents, allotment, refunds and other distribution, if any, will be made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making such allotment, remittance and subject to necessary approvals.

Application will not be accepted by the Lead Manager or by the Company. Note on cash payment (section 269 SS) Having regard to the provisions of Section 269 SS of the Income Tax Act, 1961, subscriptions against applications for securities should not be effected in cash and must be effected only by ‘Account Payee’ cheques or ‘Account Payee’ bank drafts, if the amount payable is Rs. 20,000/- or more. In case payment is effected in contravention of this provision, the application is liable to be rejected. FORFEITURE The allotment shall be made only on receipt of full application money as mentioned in “Terms of Payment”. As such there will be no partly paid-up shares emerging from this issue and hence no requirement of any forfeiture.

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APPLICATION UNDER POWER OF ATTORNEY In case of applications under Power of Attorney or by Limited Companies or Bodies Corporate or Societies registered under the applicable laws, a certified copy of the Power of Attorney or the relevant authority, as the case may be, along with the certified copy of the Memorandum and Articles of Association or Bye-laws, as the case may be, must be lodged separately by registered post at the office of the Registrar to the Issue simultaneously with the submission of the CAF, indicating the serial number of the CAF and the name of the bank and the branch office where the application is submitted within 10 days of closure of the offer, failing which the application is liable to be rejected. In case the Power of Attorney is already registered with the Company, then the same need not be furnished again. However, the serial number of the Registration under which the Power of Attorney has been registered with the Company must be mentioned below the signature of the Applicant. BANK DETAILS OF THE APPLICANT The applicant must fill in the relevant column in the CAF giving particulars of Savings Bank/Current Account Number and the name of the Bank with whom such accounts is held, to enable the Registrar to the Issue to print the said details in the Refund Orders, if any, after the name of the payees. Please note that provision of Bank Account details has now been made mandatory and applications not containing such details are liable to be rejected. APPLICATION NUMBER ON THE CHEQUE/DEMAND DRAFT To avoid any misuse of instruments, the applicants are advised to write the application number and name of the first applicant on the reverse of the cheque / demand draft. GROUNDS FOR TECHNICAL REJECTIONS Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following: Amount paid does not tally with the amount payable for; In case of physical shareholders, bank account details (for refund) are not given; Age of first applicant not given in case of renouncee(s); PAN photocopy/ PAN Communication/ Form 60 / Form 61 declaration not given if Application is for

Rs. 50,000 or more; Cash applications for an amount exceeding Rs.20,000/-; In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant

documents are not submitted; If the signature of the existing shareholder does not match with the one given on the Application

Form and for renouncees if the signature does not match with the records available with their depositories;

If the Applicant desires to have shares in electronic form, but the CAF does not have the Applicant’s depository account details;

CAFs are not submitted by the Applicants within the time prescribed as per the CAF and the Draft Letter of Offer;

Applications not duly signed by the sole/joint Applicants; Applications by OCBs unless accompanied by specific approval from the RBI permitting the OCBs to

invest in the Issue; In case no corresponding record is available with the Depositories that matches three parameters,

namely, names of the Applicants (including the order of names of joint holders), the Depositary Participant’s identity (DP ID) and the beneficiary’s identity;


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Applications by ineligible Non-residents (including on account of restriction or prohibition under applicable local laws) and where last available address in India has not been provided;

Multiple applications. GENERAL (a) All applications should be made on the printed CAF provided by the Company and should be

complete in all respects. Applications which are not complete in all respects or are made otherwise than as herein provided or not accompanied by proper application money in respect thereof will be refunded without interest.

(b) Please read the instructions in the enclosed CAF carefully. (c) ALL COMMUNICATIONS IN CONNECTION WITH YOUR APPLICATION FOR THE EQUITY

SHARES INCLUDING ANY CHANGE IN YOUR REGISTERED ADDRESS SHOULD BE ADDRESSED TO THE REGISTRAR TO THE ISSUE.

(d) Application Forms must be filled in ENGLISH in BLOCK LETTERS. (e) Signatures should be either in English or Hindi or the languages specified in the Eighth Schedule to

the Constitution of India. Signatures other than in the aforementioned languages or thumb impressions must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal.

(f) In case of Joint Holders, all joint holders must sign the relevant parts of the Application Form in the same order and as per the specimen signatures recorded with the Company.

(g) In case of joint applicants, refunds and all payments will be made to the person whose name appears first on the application form and all communications will be addressed to him/her. To prevent any fraudulent encashment of refund orders by third parties, the Sole/First Applicant must indicate Saving / Current Account number and the name of the bank and its branch with whom such account is held in the space provided in the CAF for the purpose so that Refund Orders are printed with these details after the name. Applications without this information are liable to be rejected.

(h) The Application Form should be presented to the Bank in its entirety. If any of the Part(s) A,B,C and D of the Application Form(s) is /are detached or separated, such application will forthwith be rejected.

(i) All shareholders must submit the CAF along with remittance only to the Bankers to the Issue mentioned elsewhere in this Letter of Offer and not to the Company, the Registrar or the Lead Manager.

(j) Any dispute or suit action or proceedings arising out of or in relation to this Letter of Offer or in respect of any matter or thing herein contained and claimed by either party against the other shall be instituted or adjudicated upon or decided solely by the appropriate Court where Registered Office of the Company is situated.

(k) The last date for receipt of CAF alongwith the amount payable is [●]. However, the Board will have the right to extend the same for such period as it may determine from time to time, but not exceeding 60 days from the date of opening of the subscription list. If the CAF together with the amount payable thereunder is not received by the bankers to the issue on or before the closure of the banking hours on the aforesaid date, or such date as may be extended by the Board, the offer contained in this Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose the Rights hereby offered.

For further instructions please read CAF carefully. DEMATERIALISATION As per the provisions of the Depositories Act, 1996, the shares of a body corporate may be held in dematerialized form i.e. not in the form of physical certificates but be fungible and be represented by the statement issued through electronic mode. The equity shares of SFL are traded in the demat segment The Company has entered into a tripartite agreement dated 13/09/2001 with the National Securities Depository Ltd. (NSDL) and S.K.D.C Consultants Ltd for dematerialisation of the equity shares of the

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Company. The Company has also entered into a tripartite agreement dated 26/09/2001 with the Central Depository Services Limited (CDSL) and S.K.D.C Consultants Ltd for dematerialisation of the equity shares of the Company. The ISIN No. granted to the equity shares of the Company is INE302E01014. An applicant has the option to seek allotment in physical or demat mode. An applicant who seeks allotment in demat mode must have atleast one Beneficiary Account with any of the Depository Participants (DP) of NSDL or CDSL registered with SEBI, prior to the application. Such applicants must necessarily fill in the details (including the Beneficiary Account Number and Depository Participant’s ID Number) appearing under the head “Request for shares in electronic form” in the CAF. Applicant must indicate in the CAF, the number of shares they wish to receive in electronic form out of the total number of equity shares applied for. In case of partial allotment, shares will first be allotted in electronic form and the balance, if any, will be allotted in physical form. Names in the CAF should be identical to those appearing in the account details in the Depository. In case of joint holders, the name should necessarily be in the same sequence as they appear in the account details in the Depository. No separate application for demat and physical shares is to be made. If such applications are made the application for physical shares will be treated as multiple applications and rejected accordingly. It may be noted that electronic shares can be traded only on the stock exchanges having electronic connectivity with NSDL and CDSL. Non-transferable allotment letters/ refund orders will be directly sent to the applicant by the Registrar to the Issue The applicant is responsible for the correctness of the applicants demographic details given in the share application form vis-à-vis those with his/her DP. Equity shares allotted in demat mode will be credited directly to the respective Beneficiary Account. DISPOSAL OF APPLICATION AND APPLICATION MONEY The Board reserves the right to reject applications in case the application concerned is not made in terms of this Letter of Offer. In case an application is rejected in full the whole of the application money received will be refunded to the first named applicant and where an application is rejected in part, the excess application money will be refunded to the first named applicant within 6 weeks from the date of closure of the subscription list in accordance with Section 73 of the Act. If there is delay of refund of application money by more than 8 days after the Company becomes liable to pay (i.e. forty-two days after the closure of Issue), the Company will pay interest for the delayed period at the rate prescribed under sub-Section (2) and (2A) of Section 73 of the Act. The subscription monies received in respect of this Issue will be kept in a separate bank account and the Company will not have access to nor appropriate the funds until it has satisfied the Stock Exchange with suitable documentary evidence that minimum subscription of 90% of the application money for the Issue has been received. No acknowledgment will be issued for the application monies received by the Company. However, the Bankers to the Issue at its collection branches to the Issue receiving the CAF as applicable as per the terms of this Letter of Offer, will acknowledge its receipt by stamping and returning the acknowledgment slip at the bottom of each CAF. Except for the reasons stated under “Grounds for Technical Rejections” on page 157 of this Letter of Offer and subject to valid application, acknowledgement of receipt of application money given by the collection agent shall be valid and binding on issuer and other persons connected with the Issue.


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BASIS OF ALLOTMENT In the event of the issue being oversubscribed, the basis of allotment will be made only within the overall size of the Rights Issue, as stated in the Letter of Offer and the Board will proceed to allot the Equity Shares in consultation with the designated stock exchange in the following order of priority: 1. Full allotment to the Shareholders who have applied for their Rights entitlement, either in full or in

part and also the renouncee(s) who have applied for Equity Shares renounced in their favour either in full or in part (subject to the other provisions contained under the paragraph titled “Renunciation”).

2. Allotment to the shareholders who have applied for additional Equity Shares provided that they have

applied for all the Equity Shares offered to them, provided there is a surplus after making full allotment under (1) above. The allotment of such additional Equity Shares will be made as far as possible on the basis of the Equity Shares held as on the Record Date.

3. Allotment to the renouncees who have applied for all the Equity Shares renounced in their favour and

have applied for additional Equity Shares, as the Board may in its absolute discretion deem fit, provided there is a surplus after making full allotment (1) and (2) above.

4. Allotment to any other person as the Board may in their absolute discretion deem fit, provided there is

a surplus after making full allotment under (1), (2), (3) above. The issue will become undersubscribed after considering the number of shares applied as per the entitlement plus additional shares. The undersubscribed portion can be applied for only after the close of the Issue. The promoters/directors/associates/promoter group intend to subscribe to their rights entitlement as well as the entire undersubscribed portion from public and/or foreign collaborator, if any, in this rights issue in full. Presuming no subscription is received from other shareholders and the promoters/directors/associates/promoter group subscribing to the entire unsubscribed portion, their shareholding shall increase to 75.02 % of the post rights issue equity capital of the Company. As a result of this subscription and consequent allotment, the promoters/ directors/ associates may acquire shares over and above their entitlement in the issue which may result in their shareholding in the company being above their current holding This subscription and acquisition of additional equity shares by the Promoter/Directors/Associates, if any, will not result in change of control of the management of the Company and shall be exempt in terms of provision to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The Promoter/Directors/Associates have confirmed that in case the Rights Issue of the Company is completed with their subscribing to equity shares over and above their entitlement and as a result, if the public shareholding in the Company after the Issue falls below the permissible minimum level as specified in the listing condition or listing agreement, they will make an offer for sale of their holdings so that the public shareholding is raised to the minimum level specified in the listing agreement or in the listing conditions within a period of 3 months, as per the requirements of sub-clause 17.2 of SEBI (Delisting of Securities) Guidelines, 2003 or as per any amendment thereto LETTERS OF ALLOTMENT OR REFUND ORDERS Company shall ensure despatch of refund orders, if any, by under the Certificate of Posting or registered post or speed post or through modes as mentioned in section, Terms of the Issue clause “Mode of Payment” as stated below, as applicable, only at the sole or First Applicant’s sole risk within 42 days of

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closure of the Rights Issue, and adequate funds for making refunds to unsuccessful applicants as per the mode(s) disclosed shall be made available to the Registrar to the Issue by the issuer. In case of those shareholders who have opted to receive their Right Entitlement Shares in dematerialized form by electronic credit under the depository system, an advice regarding the credit of the Equity Shares shall be given separately. Allotment of Equity Shares to non-residents and the issue of letters of allotment/share certificates to nonresidents shall be subject to the approval received from RBI. For Non-Resident Applicants, refunds, if any, will be made as under: Where applications are accompanied by Indian Rupee Drafts purchased abroad and payable at

Coimbatore, India, refunds will be made in convertible foreign exchange equivalent to Indian Rupees to be refunded. Indian Rupees will be converted into foreign exchange at the rate of exchange, which is prevailing on the date of refund. The exchange rate risk on such refunds shall be borne by the concerned applicant and the Company shall not bear any part of the risk.

Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited

to NRE/FCNR/NRO accounts respectively, on which such cheques are drawn and details of which are provided in the CAF.

MODE OF PAYMENT OF REFUND Applicants should note that on the basis of name of the applicants, Depository Participant’s name, Depository Participant-Identification number and Beneficiary Account Number provided by them in the Composite Application Form, the Registrar to the Issue will obtain from the Depositories, the applicant’s bank account details including nine digit MICR code. Hence, applicants are advised to immediately update their bank account details as appearing on the records of the depository participant. Please note that failure to do so could result in delays in credit of refunds to applicants at the applicant’s sole risk and neither the Lead Manager nor the Company shall have any responsibility and undertake any liability for the same. The payment of refund, if any, would be done through various modes in the following order of preference: I. Direct Credit – For investors having their Bank Account with the Collecting Bankers, the refund

amount would be credited directly to their Bank Account with the Collecting Bankers. II. RTGS – Investors desirous of taking direct credit of refund through RTGS, will have to provide the

IFSC code in the Composite Application Form III. ECS - Payment of refund would be done through ECS for applicants residing at one of the 15 centres,

namely Ahmedabad, Bangalore, Bhuvaneshwar, Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram, where clearing houses for ECS are managed by Reserve Bank of India. This would be subject to availability of complete Bank Account details including MICR code from the depositories.

For all the other applicants except for whom payment of refund is possible through I, II and III, the refund orders would be despatched under the Certificate of Posting for refund orders less than Rs. 1,500/- and through Registered Post or Speed Post for refund orders exceeding Rs. 1,500/-. These refund orders will be drawn on the Collection Bank(s) and payable at par at the places where applications are accepted. Bank charges, if any, for encashing such cheques or pay orders will be borne by the Applicants.


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INTEREST IN CASE OF DELAY IN ALLOTMENT / DESPATCH

The Company will issue and dispatch letters of allotment/ share certificates and/ or letters of regret along with refund order or credit the allotted securities to the respective beneficiary accounts, if any within a period of six weeks from the date of closure of the Issue. If such money is not repaid within 8 days from the day the Company becomes liable to pay it, the Company shall pay that money with interest at the rate of 15% per annum as stipulated under Section 73 of the Act. UNDERTAKING The Company undertakes that:

i) that the complaints received in respect of the Issue shall be attended to by the issuer company expeditiously and satisfactorily.

ii) that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within seven working days of finalization of basis of allotment.

iii) that funds required for making refunds to unsuccessful applicants as per the mode(s) disclosed shall be made available to the Registrar to the issue by the issuer.

iv) that where refunds are made through electronic transfer of funds, a suitable communication shall be sent to the applicant within 42 days of closure of the issue, as the case may be, giving details of the bank where refunds shall be credited along with amount and expected date of electronic credit of refund.

v) that the certificates of the securities/ refund orders to the non-resident Indians shall be despatched within specified time.

vi) that no further issue of securities shall be made till the securities offered through this Letter of Offer are listed or till the application moneys are refunded on account of non-listing, undersubscription, etc.

The Issuer and Lead Manager shall update the Letter of Offer and keep the investors informed of any material changes till the listing and trading commences. UTILISATION OF ISSUE PROCEEDS The Board of Directors declares that:

i. The funds received against this Issue will be transferred to a separate Bank Account other than the Bank Account referred to sub-section (3) of Section 73 of the Act.

ii. Details of all moneys utilised out of the Issue shall be disclosed under an appropriate separate head in the Balance Sheet of the Company indicating the purpose for which such moneys has been utilised.

iii. Details of all such unutilised moneys out of the Issue, if any, shall be disclosed under an appropriate separate head in the Balance Sheet of the Company indicating the form in which such unutilised moneys have been invested.

The funds received against this Issue will be kept in a separate Bank Account and the Company will not have any access to such funds unless it satisfies the Designated Stock Exchange with suitable documentary evidence that the minimum subscription of 90% of the Issue has been received by the Company.

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SECTION VIII - MAIN PROVISIONS OF ARTICLES OF ASSOCIATION

SHARES 3. The Share Capital of the Company is Rs 45,00,00,00 (Rupees Forty Five Crores only) divided

into 4,00,00,000 Equity Shares of Rs 10 each and 5,00,000 Redeemable Cumulative Preference Shares of Rs 100 each subject to be increased, decreased, consolidated, sub-divided or otherwise dealt with in accordance with the provisions of the Companies Act 1956 and the statutory regulations for the time being in force in this regard.

4. The Shares of the Company shall be under the control and discretion of the Board who may allot or

otherwise dispose of the same or any of them to such person or persons (whether a Member of the Company or not) for the consideration, in such proportion and on such terms and conditions and at such time or times as the Board may, in their absolute discretion think fit and such shares may be issued either at a premium or at par or at discount as per the provisions of the Companies Act 1956, in particular, the Board may issue and allot shares towards payment or adjustment made.

i) For the properties or goods or machinery bought by the Company; or ii) For the discharge of loans or other liabilities of the Company; or iii) For the service rendered to the Company; or iv) For the amounts spent for the purpose of the Company or for the conduct of the business of the

company. Any such shares may be issued and allotted as fully paid up shares, as the case may be, provided the option or right to call of shares shall not be given to any person or persons without the sanction of the Company in General Meeting.

5. The Company shall have power to issue Preference Shares, including Convertible Cumulative Preference Shares, liable to be redeemed in any manner permissible under the Companies Act 1956 and the Directors may subject to the provisions of the Act, exercise such power in any manner they think fit and provide for the redemption of such shares on such terms, including the right to redeem at a premium or otherwise, as they think fit.

6. The Board, may, subject to the provisions of the Act, at any time, pay a commission to any person

in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in or debentures of the Company or his procuring or agreeing to procure subscriptions, whether absolute or conditional for any shares in or debentures of the Company. The Company may also on any issue of shares or debentures pay such brokerage as may be lawful and reasonable.

7. Any application signed by any applicant or by any other person on his behalf for shares in the

Company or where the power of attorney or other authority under which such application is signed, a notarially certified copy of that power of attorney or authority is deposited at the Registered Office of the Company. Any application signed on behalf of such person, followed by an allotment of any share therein, shall be acceptable of shares within the meaning of these Articles and every person who thus or otherwise accepts any shares or whose name is in the Register shall, for the purpose of these Articles, be a Member of the Company.

8. Shares may be registered in the name of person, Company, Registered Society or other Body

Corporate. Not more than four persons shall be registered as jointholders of any shares. 9. Where two or more persons are registered as jointholders of any share, they shall be deemed to hold

the same as joint tenants with benefits of survivorship, subject to the following conditions.


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a. The person whose name stands first in the Register in respect of such shares, shall alone be

entitled to delivery of the certificate thereof as also dividend on such shares; b. The jointholders shall, severally as well as jointly, be liable for the payment of all instalments

and calls due in respect of such shares; c. In case of death of any one or more such jointholders, the survivor(s) shall be the only

person(s) recognised by the Company as having any title or interest in such share, but the Directors may require such evidence of death as they may deem fit and nothing herein contained shall be taken to release the estate of deceased jointholder from any liability on the shares held by him jointly with any other person;

d. All notices directed to be given to the members shall be given to whichever of such person is

named first in the register and notice so given shall be sufficient notice for all the jointholder of such shares.

10. Every shareholder or his executor, administrator or legal representative, having in his control or at

his disposal assets of the deceased shareholder, shall pay to the Company the proportion of the capital which may for the time being remain unpaid thereon at such time and in such manner as the Board shall think fit.

11. Every person whose name is entered as a member in the Register of Members shall be entitled to

receive within three months after allotment (or within such other period as the conditions of issue shall provide) or one month after the application for the registration of transfer, a certificate under the Common Seal of the Company specifying the share or shares held by him and the amount paid up thereon, provided that in respect of share or shares held jointly by several persons, the Company shall not be bound to issue more than one share certificate and delivery of a certificate for a share to such person whose name stand first in the Register of Members, shall be sufficient delivery to all such holders. Share certificates shall be issued in market lots without payment of any fees. Where share certificates are issued for either more or less than marketable lots, sub-division/ consolidation into market lots shall be done free of cost.

12. If any certificate be worn out or defaced, then upon production thereof to the Company, the

Company, in cancellation of the old certificate, shall issue a new certificate in lieu thereof. If any member requires the certificate pertaining to more than one share to be split into two or more certificates pertaining to one or more shares, the Company may cancel the old certificates and issue new certificate. If any certificate be lost or destroyed, then, upon proof thereof to the satisfaction of the Directors and on such indemnity as the Directors deem adequate being given and on the payment of out of pocket expenses incurred by the Company in investigating evidence a new certificate in lieu thereof shall be given to the registered holder of the shares to which such lost or destroyed certificate shall relate.

13. For every certificate issued under the last preceding clause, there shall be paid to the Company the

sum of Rupees two or such smaller sums as the Directors may determine, provided that no fee shall be charged for issue of new certificates in replacement of which are old, decrepit or worn out or cut or where the cages on the reverse for recording transfers have been fully utilised.

14. Every endorsement on the certificate incorporating transfer of shares mentioned therein shall bear

the signature of a Directors or such other person as shall from to time be authorised by the Directors for the purpose.

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15. The Board may, from time to time, subject to the terms on which any shares may have been issued and subject to the provisions of Section 91 of the Act, make such calls as the Board thinks fit upon the members in respect of all moneys unpaid on the shares held by them respectively and each member shall pay the amount of every call so made on him at the time and place appointed by the Board. A call may be made payable by instalments shall be deemed to have been made when the resolution of the Board authorising such call was passed.

16. The Board, may from time to time, by resolution passed at a meeting of the Board and not by

circular resolution, make such calls as they think fit, upon the members in respect of all moneys unpaid on the shares held by them respectively (whether on account of nominal value of shares or by way of premium) and not by the conditions of allotment thereof, made payable at fixed times and each member shall pay the amount of every call so made on him to the Company, at the time or times and place or places so specified, the amount called on his shares. A call be revoked or postponed at the discretion of the Board.

17. If the sum payable in respect of any call or instalment is not paid on or before the day appointed

for payment thereof, the holder for the time being in respect of the share for which the call shall have been made or the instalment shall be due shall pay interest for the same at such rate as may, from to time, be fixed by the Board from the day appointed for the payment thereof to the time of the actual payment. The Board shall be at liberty to waive payment of any such interest either wholly or in part.

18. If by the terms of issue any share or otherwise, any amount is made payable upon allotment or at

any fixed time or by instalments at fixed times, whether on account of the amount of the share or by way of premium, every such amount or instalment shall be payable as if it were a call duly made by the Board and of which due notice had been given and all the provisions herein contained in respect of calls shall relate to such amount or instalment accordingly.

19. The Board may, if it thinks fit, receive from any member willing to advance the same, all or any

part of the amount remaining unpaid on any shares held by him and upon the money so paid in advance or so much thereof as exceeds the amount of the calls then made upon the share in respect of which such advance has been made, the Company may pay interest at such rate as may be fixed by the Board. Money so paid in excess of the amount of calls shall not rank for dividends or confer a right to participate in profits or for the purpose of voting. The Board may at any time repay the amount so advanced upon giving to such member not less than fifteen days’ notice in writing.

20. On the trial or hearing of any action or suit brought by the Company against any member or his

representatives for the recovery of any money claimed to be due to the Company in respect of his shares, it shall be sufficient to prove that the name of the member in respect of whose shares the money is sought to be recovered is or was when the claim arose, on the Register of Members of the Company as the holder of one or more shares at or subsequent to the date on which the money sought to be recovered is alleged to have become due; that the resolution making the call is duly recorded in the Minutes Book of the Board and the notice of such call was duly given to the member or his representatives in pursuance of these Articles.

21. The money, if any, which the Board shall, on allotment of any shares being made by it require or

direct to be paid by way of deposit, premium, call or otherwise in respect of any shares allotted by it shall immediately on the inscription of the name of the allottee in the Register of Members become a debt due to and recoverable by the Company from the allottee thereof and shall be paid by him accordingly.


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22. Save as herein otherwise expressly provided, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound, except as ordered by a Court of competent jurisdiction or as by statute required, to recognise any trusts whatsoever or any mortgage or charge thereon or any contingent, equitable future, partial or any other claim to or interest in such share on the part of any person other than the registered holder, his executor or administrators or other legal representatives and other than such rights upon transmission as hereinafter provided.

23. If any member fails to pay any call or instalment of a call on or before the day appointed for the

payment of the same, the Board may, at any time thereafter during such time as the call or instalment remains unpaid, serve a notice on such member requiring him to pay the same, together with any interest that may have accrued and all expenses that may have been incurred by the Company by reason for such non-payment.

24. The notice shall name a day (not being less that fourteen days from the date of the notice) and a

place or places on and at which such call or instalment and such interest and expenses as aforesaid are to be paid. the notice shall also state that in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call was made or instalment is payable will be liable to be forfeited.

25. If the requirements of any such notice as aforesaid be not complied with any shares in respect of

which such notice has been given may, at any time thereafter, before payment of all calls or instalments, interest and expenses due in respect thereof, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture.

26. When any share shall have been so forfeited, notice of the resolution shall be given to the member

in whose name it stood immediately prior to the forfeiture, and an entry of the forfeiture with the date thereof shall forthwith be made in the Register, but no forfeiture shall be in any manner invalidated by any omission to give such notice or to make such entry as aforesaid.

27. Any share so forfeited shall be deemed to be the property of the Company, and the Board may sell,

reallot or otherwise dispose of the same upon such terms and in such manner as the Board shall think fit.

28. The Board may, at any time before any share so forfeited shall have been sold, reallotted or

otherwise disposed of, annul the forfeiture thereof upon such conditions as it thinks fit or they may assign a smaller number of shares in respect of the paid up value of forfeited shares.

29. A person whose share has been forfeited shall cease to be a member in respect of that share, but

shall, notwithstanding remain liable to pay and shall forthwith pay to the Company, all calls or instalments, interest and expenses, owing upon or in respect of such share, at the time of the forfeiture together with interest thereon, from the time of forfeiture until payment at such rate as may be fixed by the Board and the Board may enforce the payment thereof or any part thereof without any deduction or allowance for the value of the shares at the time of forfeiture, but shall not be under any obligation to do so. However, the liability of such a person shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares.

30. The forfeiture of a share shall involve the extinction of all interest in and all claims and demands

against the Company in respect of the share and all other rights incidental to the share, except only such of those rights as by these Articles are expressly saved.

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31. Upon any sale after forfeiture or surrender or for enforcing a lien purported to have been exercised by virtue of the powers given, the Board may cause the purchaser’s name to be entered in the Register of Members in respect of the shares sold. A duly verified declaration in writing that the declarant is a Director, Secretary or Manager of the Company, and that certain shares in the Company have been duly forfeited on a date stated in the declaration shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the shares and such declaration and the receipt of the Company for the consideration, if any, given for the shares on the sale or disposition thereof shall constitute a good title to such shares and the person to whom any such share is sold shall be registered as the holder of such share and shall not be bound to see to the application of the purchase money, nor shall his title to such share be affected by any irregularity or invalidity in the proceedings in reference to such forfeiture, sale or disposition.

32. The provisions of these Articles as to the forfeiture shall apply in the case of non-payment of any

sum which by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of a share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

33. The Company shall have a first and paramount lien upon all the shares (other than fully paid-up

share) registered in the name of each member (whether solely or jointly with others) for all moneys called or payable at a fixed time in respect of such shares. Any such lien shall extend to all dividends and bonus from time to time declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of shares shall operate as a waiver of the Company’s lien, if any, on such shares. The Directors may at any time declare any shares to be wholly or in part to be exempt from the provisions of this Article.

34. For the purpose of enforcing such lien, the Board of Directors may sell the shares subject thereto in

such manner as it thinks fit but no sale shall be made unless a sum in respect of which the lien exists is presently payable and until notice in writing of the intention to sell shall have been served on such member, his executors or administrators or other legal representatives as the case may be and default shall have been made by him or them in the payment of the sum payable as aforesaid for seven days after the date of such notice.

35. To give effect to any such sale, the Board may authorise some person to transfer the shares sold to

be purchaser thereof and the purchaser shall be registered as the holder of the shares comprised in any such transfer. Upon any such sale as aforesaid, the certificate in respect of shares sold shall stand cancelled and become null and void and of no effect, and the Directors shall be entitled to issue a new certificate or certificates in lieu thereof to the purchaser or purchasers concerned.

36. The net proceeds of the sale shall be received by the Company and after payment of the cost of such

sale shall be applied in or towards payment of such part of the amount in respect of which the lien exists as is presently payable and the residue, if any, shall be paid to such member, his executors, or administrators or assigns or other legal representatives as the case may be.

TRANSFER AND TRANSMISSION OF SHARES

37. Shares in the Company shall be transferred in accordance with the relevant provisions of the Act.

The instrument of transfer shall be in writing and in such form as shall from time to time be prescribed under the relevant provisions of the Act.

38. Save as provided in Section 108 of the Act, the Company shall not register a transfer of shares

unless proper instrument of transfer duly stamped and executed by or on behalf of the transferor or all the transferors in the case of joint holders, as well as the transferee has been delivered to the


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Company, along with the certificate relating to the shares. Each signature to such transfer shall be duly attested by one witness who shall add his address.

39. The Directors in their absolute and uncontrolled discretion may, subject to the right of appeal

conferred by the Act, refuse to register any proposed transfer of shares whether the proposed transferee is a member of the Company or not, and shall not be bound to give any reason for such refusal. However, the registration of transfer shall not be refused on the grounds of the transferor being either alone or jointly with any other person(s) indebted to the Company on any account whatsoever.

40.1) An application for the registration of transfer of the shares in the Company may be made either

by the transferor or the transferee. 2) Where the application is made by the transferor and relates to partly paid shares, the transfer shall

not be registered unless the Company gives notice of the application to the transferee and the transferee makes `no objection’ to the transfer within two weeks from the receipt of the notice.

3) For the purpose of sub-clause (2) above, notice to the transferee shall be deemed to have been

duly given if it is despatched by pre-paid registered post to the transferee at the address given in the instrument of transfer and shall be deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.

41. No transfer shall be made to an insolvent or a person of unsound mind or a partnership in the name

of the firm and provided in the case of partly paid shares no transfer shall be made in the name of a minor.

42. Every instrument of transfer shall be signed by or on behalf of both the transferor and the transferee

and the transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the Register of Members in respect thereof.

43. Every instrument of transfer shall be left at the office for registration accompanied by the Certificate

of the shares to be transferred, and such other evidence as the Directors may require to prove the title of the transferor of his right to transfer the shares, the transferee shall (subject to the Board’s right to decline to Register as herein before mentioned) be registered as a member in respect of such shares. The Directors may waive the production of any certificate upon evidence satisfactory to them of its loss or destruction and on executing an indemnity bond to that effect by the transferor.

44. In no case, shall the Board be bound to inquire into the validity, legal effect or genuineness of any

instrument of transfer produced by a person claiming transfer of any share in accordance with these Articles and whether they abstain from so inquiring, or do so inquire, or are misled, the transferor shall have no claim whatsoever upon the Company in respect of the share except for the dividends previously declared in respect thereof and not paid, but his claim, if any, shall be against the transferee only.

45. All instruments of transfer which shall be registered shall be retained by the Company, but any

instrument of transfer which the directors may decline to register shall be returned to the person depositing the same.

46. No fees shall be charged for registration of transfers or for effecting transmission or for registering

any letters of probate, letters of administration and similar other documents. When a shareholder changes his name or who being a female, marries, may give notice to the Company of the change of name or of the marriage so that the same may be registered with the Company.

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47A.The executors or administrators of a deceased member, (not being a joint holder) shall be the only

persons recognised by the Company as having any title of the shares registered in the name of such member and the Company shall not be bound to recognise such executors or administrators, unless they have first obtained probate or letter of administration as the case may be, from a competent court in India, provided that in any case where the Directors, in their absolute discretion think fit, they may dispense with the production of probate or letters of administration.

47B.The Company shall incur no liability or responsibility whatever in consequence of its registering

or giving effect to any transfer of shares made or purporting to be made by any apparent legal owner thereof (as shown or appearing in the Register of Members) to the prejudice of persons having or claiming any equitable right, title of interest in the same shares notwithstanding that the Company may have had notice of such equitable right, title or interest or notice prohibiting registration of such transfer and may have entered such notice referred thereto in any book of the Company and the Company shall not be bound or required to regard or attend or give effect to any notice which may be given to it in this behalf or be under any liability whatsoever for refusing or neglecting to do so though it may have been entered or referred to in some book of the Company, but the Company shall nevertheless be at liberty to regard and attend to any such notice and give effect thereto.

47C.1) If the person becoming entitled to any share consequent to the death or lunacy or insolvency of

a member elects to be registered as holder of the share himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects.

2) If the person aforesaid shall elect to transfer the share, he shall testify his election by executing

an instrument of transfer of the share. 3) All the limitations, restrictions and provisions of these Articles relating to the right to transfer

and the registration of instruments of transfer of a share shall be applicable to any such notice of transfer as aforesaid as if the death, lunacy or insolvency of the member had not occurred and the notice of transfer were a transfer signed by that member.

4) A person so becoming entitled on transmission to a share by reason of the death, lunacy or

insolvency of the holder shall subject to the provisions of these Articles and of Section 206 of the Act, be entitled to the same dividends and other advantages as he would be entitled to if he were the registered holder of the share.

48. All the provisions herein contained as to the transfer and transmission of shares shall apply mutatis

mutandis to the transfer and transmission of the debentures of the Company. 48A. Notwithstanding anything contained in these Articles, as and when the Company gets its shares or

other securities admitted as an eligible Security in the Depository system in accordance with the provisions of the Depositories Act, 1996, the prevailing Rules, Regulations and Bye Laws of the Depository and other applicable laws, if any, the said shares and securities of the Company may be held in dematerialised fungible form and it shall be governed by the provisions of Depositories Act, 1996 as amended from time to time or any rule framed thereunder.

SEAL 102. The Board shall provide for the safe custody of the Common Seal and the Seal shall never be used

except by the authority previously given by the Board or a Committee of the Board in that behalf; any two Directors as the Board may appoint shall sign every instrument to which the Seal is


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affixed. Provided nevertheless that any instrument bearing the Seal of the Company and issued for valuable consideration shall be binding on the Company notwithstanding any irregularity touching the authority of the Board to issue the same.

DIVIDENDS

103. The Board may, from time to time, pay to the members such interim dividends as appear to the

Board to be justified by the profits of the Company.

104. The Board may deduct from any dividend payable to any member all sums of money, if any, presently payable by him to the Company on account of calls or otherwise in relation to the shares of the Company.

105. On the declaration of dividend by the General Meetings it shall be paid to the shareholders in

proportion to the amount paid up or credited as paid up on each share.

106. A transfer of shares shall not pass the rights to any dividend thereon before the registration of the transfer by the Company.

107.a) Unless otherwise directed any dividend may be paid by cheque or warrant or by a pay slip of

receipt having the force of cheque or warrant sent through the post to the registered address of the member or person entitled or in case of joint holders to that one of them first named in the Register in respect of joint – holding. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. The Company shall not be responsible for the loss of any cheque, dividend warrant or postal money order sent by post in respect of dividends the registered address at or addresses communicated to the Office beforehand by the member, or for any dividend lost to the member or person entitled thereto by the forged endorsement of any cheque or warrant or fraudulent encashment thereof by any other means.

b) No unclaimed dividend shall be forfeited by the Board and the Company shall comply with the

provisions of Section 205A of the Companies Act, 1956.

CAPITALISATION OF PROFITS AND RESERVES 108. 1) The Company in General Meeting may, upon the recommendation of the Board, resolve:

a) that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts or to the credit of any of the Profit and Loss Account, or otherwise available for distribution; and

b) that such sum be accordingly set free for distribution in the manner specified in clause

(2) amongst the members, who would have been entitled thereto, if distributed by way of dividend and in the same proportion.

2) The sum aforesaid shall not be paid in cash, but shall be applied subject to the provisions

contained in clause (3), either in or towards:

a) paying up any amounts for the time being unpaid on any shares held by such members respectively;

b) paying up in full, unissued shares of the Company to be allotted and distributed, credited

as fully paid up, to and amongst such members in the proportion aforesaid; or partly in the way specified in sub – clause (a) and partly in that specified in sub – clause (b).

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3) For the purpose of this Article, a Share Premium Account and a Capital Redemption Reserve

fund may be applied only in paying up unissued shares to be issued to the members of the Company as fully paid bonus shares.

4) The Board shall give effect to the resolution passed by the Company in pursuance of this

Article. A) 1) Whenever such a resolution as aforesaid shall have been passed, the Board shall, a) make all appropriations and applications of the undivided profits resolved to be

capitalized thereby, and all allotments and issues of fully paid shares and generally do all acts and things required to give effect thereto.

2) The Board shall have full power: a) to make such provision by the issue of fractional certificates or by payment in

cash by realising such fractional certificates or otherwise as it thinks fit, in the case of shares becoming distributable in fractions and also

b) to authorise any person to enter, on behalf of all members entitled thereto, into an

agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares to which they may be entitled upon such capitalisation or (as the case may require) for the payment by the Company on their behalf, by the application thereto respective proportions of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares.

3) Any agreement made under such authority shall be effective and binding on all such members. B) If the Company shall have redeemed any redeemable preference shares, all or any part of

any Capital Redemption Fund arising from the redemption of such shares may, by resolution of the Company, be applied in paying up in full or in part any new shares or any shares then remaining unissued, to be issued to such members of the Company or other persons as the Directors may resolve up to an amount equal to the nominal amount of the shares so issued.

109. Every Balance Sheet and Profit and Loss Account of the Company when admitted and adopted by

the Company in General Meetings shall be conclusive. If any error is discovered therein after the adoption thereof, such error shall be corrected in the accounts of the Company for the subsequent years.

SECRECY

112. Every Director, Secretary, Manager, Auditor, Trustee for the Company, its members or

debentureholders, member of Committee, Officer, Servant, Agent, Accountant or other person employed in or about the business of the Company shall, if so required by the Board, before entering upon his duties, sign a declaration pledging himself to observe a strict secrecy respecting all transactions of the Company with its customers and the state of accounts with individuals and in matters relating thereto, and shall by such declaration pledge himself not to reveal any of the matters which may come to his knowledge in the discharge of his duties except when required so to do by the Board or by any General Meeting or by a Court of law and except so far as may be necessary in order to comply with any of the provisions contained in these Articles.


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113. No shareholder or other person, not being a Director, shall be entitled to enter into or upon the

premises or the property of the company, or to inspect the Company’s premises or properties or the books or the accounts of the Company except to the extent allowed by the Act and subject to such reasonable restrictions as the Company in General Meeting or the Board may impose in this behalf from time to time without the permission of the Board or of the Executive Chairman/Managing Director for the time being, or require the discovery of or any information respecting any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret, mystery of trade or secret process or of any matter whatsoever which may relate to the conduct of the business of the Company, and which, in the opinion of the Board / Chairman / Executive Chairman or of the Managing Director will be inexpedient, in the interest of the members of the Company, to communicate.

WINDING UP

114. If the Company shall be wound up and the assets available for distribution among the members as

such shall be insufficient to repay the whole of the paid up capital such assets shall be distributed so that as nearly as may be the losses shall be borne by the members in proportion to the Capital paid up or which ought to have been paid up at the commencement of the winding up on the shares held by them respectively and if in a winding up the assets available for distribution among the members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up the excess shall be distributed amongst the members in proportion to the capital paid up or which ought to have been paid up on the shares held by them respectively at the commencement of the winding up.

115. If the Company shall be wound up, whether voluntarily or otherwise the liquidator may, with the

sanction of a special resolution, divide among the contributories, in specie or kind, any part of the assets of the Company and may, with the like sanction, vest any part of the assets of the Company in trustees for the benefit of the contributories, or any of them, as the liquidator, with the like sanction, shall think fit.

INDEMNITY

116. Every Director, Secretary or Officer of the Company or any person (whether an Officer of the

Company or not) employed by the Company and any person appointed as Auditor shall be indemnified out of the funds of the Company against all liability incurred by him as such Director, Secretary, Officer, employee or Auditor in defending any proceedings, whether civil or criminal in which judgement is given in his favour or in which he is acquitted, or in connection with any application under Section 633 of the Act, in which relief is granted to him by the Court (nothing herein contained shall apply to a constituted attorney of the company, unless such attorney is, or is deemed be, to an officer of the Company).

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SECTION IX - OTHER INFORMATION

MATERIAL CONTRACTS AND DOCUMENTS

The Contracts referred to in para (A) below (not being contracts entered into in the ordinary course of the business carried on by the Company or entered into more than two years before the date of this Letter of Offer) which are or may be deemed material, have been entered into by the Company. The contracts together with the documents referred to in paragraph (B) below, copies of all of which have been attached to the copy of this Letter of Offer may be inspected at the Registered Office of the Company between 11.00 a.m. - 4.00 p.m. on any working day from the date of this Letter of Offer until the closing of the subscription list. A. MATERIAL CONTRACTS 1. Copy of Memorandum of Understanding dated 29/03/2007 between SFL and Keynote Corporate

Services Limited, Lead Manager to the Issue. 2. Copy of Memorandum of Understanding dated 28/08/2006 between SFL and S.K.D.C Consultants

Ltd., Registrar to the Issue. 3. Copy of tripartite agreement dated 13/10/2001 between SFL, National Securities Depository Limited

(NSDL) and S.K.D.C Consultants Ltd. 4. Copy of tripartite agreement dated 26/09/2001 between SFL, Central Depository Services (India)

Limited (CDSL) and S.K.D.C Consultants Ltd. B. DOCUMENTS FOR INSPECTION 1. Copy of Memorandum of Articles and Articles of Association of SFL.

2. Copy of Certificate of Registration dated 08/05/1998 issued by the Reserve Bank of India,

Department of Non-Banking Supervision, Regional Office – Chennai.

3. Copy of Certificate of Registration dated 17.04.2007 issued by Reserve Bank of India, Department of Non-Banking Supervision, Regional Office, Chennai in lieu of earlier Certificate of Registration dated 08/05/1998 issued by the Reserve Bank of India, Department of Non-Banking Supervision, Regional Office – Chennai.

4. Copies of Annual report of SFL for the year ended, 31/03/2002, 31/03/2003, 31/03/2004, 31/03/2005

and 31/03/2006. 5. Memorandum and Articles of Association and copies of Annual Report for the year ended,

31/03/2004, 31/03/2005 and 31/03/2006 of the following Group companies: o Sri Chamundeswari Sugars Limited (SCSL) o Sri Bhagavathi Textiles Limited o ABT Limited (ABTL) o ABT Industries Ltd (ABTIL) o Sakthi Financial Services Limited (SFSL) o Sri Sakthi Textiles Limited (STL) o Anamallais Engineering Private Limited (AEPL)


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6. Memorandum and Articles of Association and copies of Annual Report for the year ended 30.06.2004, 30.06.2005 and 30.06.2006 of Sakthi Sugars Limited (SSL) which is a Group Company.

7. Copy of Special Resolution under section 81, and other relevant provisions of Companies Act, 1956

dated 24/09/2004 passed at the Annual General Meeting of the company authorizing present issue of equity shares & Copy of the Board resolution dated 23/04/2007 recommending the rights issue of the company.

8. Copy of certificate dated 23/04/2007 issued by M/s. P. N Raghavendra Rao & Co. Chartered

Accountants & Statutory Auditors of the Company reporting financials of the company in terms of Part II Schedule II of the Companies Act, 1956 and including capitalization statement, taxation statement, accounting ratios.

9. Copy of letter dated 23/04/2007 received from M/s. P. N Raghavendra Rao & Co., Chartered

Accountant, regarding tax benefits accruing to the company and its shareholders. 10. Copy of Letter of Offer dated 19/03/1993 & 15/09/1995 in respect of the Rights Issues made by SFL 11. Copies of undertakings from SFL.

12. Copies of Consents from the Directors of the Company, Auditors of the Company, Registrar to the

Issue, Lead Mangers to the Issue, Banker to the Company and Bankers to the Issue 13. Copies of in-principle approval received from BSE vide letter no. [●] dated[●] and MSE vide letter

no [●] dated [●].

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PART III

DECLARATION No statement made in this Letter of Offer shall contravene any of the provisions of the Companies Act, 1956 and the rules made there under. All the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, Government and any other competent authority in this behalf have been duly complied with. We further certify that all the disclosures made in the Letter of Offer are true and correct. Yours Faithfully By the order of Board of Directors Sakthi Finance Limited

* Through his Constituted Attorney Mr.M.Balasubramaniam Place: Coimbatore Date: 23/04/2007