The Company had constituted an Audit Committee in the year 1986. The scope of the activities of the Audit Committee is as set out in Clause 49 of the Listing Agreements with the Stock Exchanges read with Section 292A of the Companies Act, 1956. The terms of reference of the Audit Committee broadly are as under;

1. To hold periodic discussions with the Statutory Auditors and Internal Auditors of the Company concerning the accounts of the Company, internal control systems, scope of audit and observations of the auditors/Internal Auditors.

2. To review compliance with internal control systems.

3. To review the quarterly, half-yearly and annual financial results of the Company before submission to the Board.

4. To make recommendations to the Board on any matter relating to the financial management of the Company, including the Audit Report.

5. Recommending the appointment of statutory auditors and branch auditors and fixation of their remuneration.

Mr. P K Kaul, Chairman of the Audit Committee was present at the Annual General Meeting held on 23rd July 2003.

The composition of the Audit Committee and the details of meetings attended by the Directors are given below;

Audit Committee meetings are attended by the Vice President (Finance), Chief (Corporate Audit), Chief Financial Controller (Corporate) and Representatives of the Statutory Auditors. The Company Secretary acts as the Secretary of the Audit Committee. Six Audit Committee Meetings were held during 2003-04. The dates on which the said meetings were held were as follows;

28th May 2003, 25th June 2003, 22nd July 2003, 29th October 2003, 25th November 2003 and 21st January 2004. The necessary quorum was present at the meetings.

The Company had constituted a Remuneration Committee in the year 1993. The broad terms of reference of the Remuneration Committee are: to recommend to the Board, salary (including annual increments), perquisites and commission to be paid to the Company’s managing/whole-time directors (MD/WTDs), to finalise the perquisites package within the overall ceiling fixed by the Board, to recommend to the Board retirement benefits to be paid to the MD and WTDs under the Retirement Benefit Guidelines adopted by the Board. The Remuneration Committee also functions as the Compensation Committee as per the SEBI Guidelines on Employees’ Stock Option Scheme. The Company, however, has not yet introduced Employees’ Stock Option Scheme. The composition of the Remuneration Committee and the details of meetings attended by the Directors are given below:

One meeting of the Remuneration Committee was held during 2003-04 on 29th May 2003. The Chairman of the Remuneration Committee, Mr. Keshub Mahindra was present at the Annual General Meeting held on 23rd July 2003. The Company has complied with the non-mandatory requirement of Clause 49 regarding the Remuneration Committee.

The Company while deciding the remuneration package of the senior management members takes into consideration the following items;

• Employment scenario
• Remuneration package of the industry and
• Remuneration package of the managerial talent of other industries

For the last few years, effort has also been made to link the annual variable pay of senior managers with the performance of the Company in general and their individual performance for the relevant year measured against specific Key Result Areas, which are aligned, to the Company’s objectives.

The NEDs are paid remuneration by way of Commission and Sitting Fees. In terms of the shareholders’ approval obtained at the AGM held on 19th July 2001, the Commission is payable at a rate not exceeding 1% per annum of the profits of the Company (computed in accordance with Section 309(5) of the Companies Act, 1956). The distribution of Commission amongst the NEDs is placed before the Board. The Commission is distributed on the basis of their attendance and contribution at the Board and certain Committee Meetings as well as time spent on operational matters other than at the meetings.

At the Board Meeting held on 28th August 2003, the sitting fees payable to the NEDs were partially revised. Accordingly, the Company pays sitting fees of Rs.10,000 per meeting to the NEDs for attending the meetings of the Board, Committee of the Board and Audit Committee. For other meetings, the Company continues to pay to the NEDs sitting fees of Rs.5,000 per meeting.

The Company pays remuneration by way of salary, perquisites and allowances (fixed component) and commission (variable component) to MD and WTDs. Salary is paid within the range approved by the Shareholders. Annual increments effective 1st April each year, as recommended by the Remuneration Committee, are approved by the Board. The ceiling on perquisites and allowances as a percentage of salary, is fixed by the Board. Within the prescribed ceiling, the perquisites package is approved by the Remuneration Committee. Commission is calculated with reference to net profits of the Company in a particular financial year and is determined by the Board of Directors at the end of the financial year based on the recommendations of the Remuneration Committee, subject to overall ceilings stipulated in Sections 198 and 309 of the Companies Act. Specific amount payable to such directors is based on the performance criteria laid down by the Board, which broadly takes into account the profits earned by the Company for the year.