Dear Members,

Your Directors have immense pleasure in presenting the Forty-First Annual Report on the business and operation of the Company together with Audited Statement of Accounts for the financial year ended 31^st March, 2023.

During the year under review, performance of your company is as under:

(in Millions)

The consolidated performance of the group as per consolidated financial statements is as under:

(in Millions)

2. Dividend

During the Year, the board had declared and distributed an interim dividend of 10% & proposed final dividend of 30%, total dividend for 2022 - 2023 is 40%.

3. Amounts transferred to Reserves

The Board of the company has not transferred any amount to its reserves.

Your company completes 40 glorious years of its existence, a long and successful journey begun by our Visionary Founder late Shri. N. K. Garg whose disciplined work culture & professional approach towards governance, principles of independence, transparency, accountability, responsibility, compliance, ethics and trust has been successfully adopted by the present management. We continue to uphold the value systems which have been the traditional hallmar k of Diffusion Engineers Limited for over four decades.

During the financial year 2022-23, the company's turnover amounted to Rs. 2440.74 million against Rs. 1957.58 million during the preceding year. The company's net profit after interest/ depreciation and tax amounted to Rs. 168.16 million against profit of Rs. 157.56 million during the preceding year. Your directors are hopeful that there will be considerable increase in turnover/profits in next financial year and there will be healthy growth. The subsidiary and associate companies have also improved their performance during the year.

5. Directors

As of March 31, 2023, your Company had 4 Directors, which includes 2 Independent Directors, 1 Non-Executive Non-Independent Director and 1 Managing Director.

In terms of the provisions of Section 152 and other applicable provisions, if any, of the Companies Act, 2013: -

Dr. Renuka Garg (DIN - 02815373) Director retires by rotation at the ensuing Annual General Meeting, and being eligible, offers herself for re - appointment.

6. Number of Board Meetings & Attendance

Five meetings were held during the Financial Year 2022 - 2023. The intervening gap between the Meetings was within tire period prescribed under the Companies Act, 2013. Dates and attendance details of meetings as follows:-

The Audit Committee's role is to assist the Board in overseeing the governance function and responsibilities in relation to the Company's financial reporting process carried out by the Management, internal control system, risk management system and internal and external audit functions. The Audit Committee functions according to its charter/ terms of reference that defines its composition, authority, responsibilities and reporting functions.

During the year under review, four (4) Meetings of the Audit Committee were held on the following date -

• 24th June, 2022

• 21st September, 2022

• 21st December, 2022

• 19th March, 2023

1. Mr. Ajay Jain [Independent Director & Chairperson of the Committee]

2. Ms Anita Vijayakar [Independent Director]

3. Mr. Prashant Garg [Managing Director]

The Corporate Social Responsibility ('CSR') Committee of the Board is constituted in accordance with the provisions of Section 135 of the Act. The CSR Committee has been entrusted with the specific responsibility of devising and implementing corporate social responsibility programs.

The CSR Committee comprised Three (3) Members out of which one (1) is an Independent Director. During the year under review, two (2) Meetings of the CSR Committee were held on the following date -

• 21^st September, 2022

• 19^th March, 2023

The members of the CSR Committee are as under -

1. Ms Anita Vijayakar [Independent Director & Chairman of Committee]

2. Dr. Renuka Garg [Director]

3. Mr. Prashant Garg [Managing Director]

9. NOMINATION & REMUNERATION COMMITTEE

The role of committee is to formulate Policy on dir ector's appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters as specified u/s 178 (3) of the Companies Act, 2013 have been followed by company.

The Nomination & Remuneration Committee consist of following directors as members -

1. Mr. Ajay Jain [Independent Director & Chairman of the Committee]

2. Ms Anita Vijayakar [Independent Director]

3. Dr. Renuka Garg [Director]

During the year under review, One (1) Meeting of the Nomination & Remuneration Committee was held on the following date -

• 21^st September, 2022

The company has been following best of the Corporate Governance practices, the management strives to protect the interest of all stakeholders in most transparent and fair manner. The Board is balanced as regards the representation of suitable number of non - executive and independent directors who are taking care of the interests and well - being of all the stakeholders. Its decision making is objective. The Board has an effective mechanism to understand the concerns of stakeholder & it effectively and regularly monitors the functioning of the management team. The Board remains in effective control of the affairs of the company at all times.

The directors state that applicable Secretarial standards have been duly followed by the company.

As on 31^st March 2023 company has 7 (seven) Subsidiary Companies (3 in India and 4 overseas) including Associates / Joint Venture.

Following are the list of Subsidiaries and Associates / Joint Venture:

i. Diffusion Super Conditioning Services Private Limited

ii. Nowelco Industries Private Limited

iii. Diffusion Hernon Adhesive And Sealant Private Limited

iv. Diffusion Engineers Singapore Pte. Ltd.

v. Diffusion Wear Solutions Inc. (Philippines)

vi. LSN Diffusion Limited (United Kingdom)

vii. Mecdiff SD BHD (Malaysia)

The Company has not given any loans or provided additional corporate guarantees during the year under review. Details of loans, guarantees and investments covered under the provisions of Section 186 of the Act are given in the notes to the financial statements. The details of investments made during the year are as per Annexure-III

14. Particulars of Contracts or Arrangements with Related Parties

All the related party transactions entered into during the financial year were on arm's length basis, in the ordinary course of business and were in compliance with the applicable provisions of the Act. There are no transactions to be reported in Form AOC- 2.

15. Deposits

Company has not accepted/ renewed/ repaid any deposits during the financial year.

16. Statutory Auditors

The members of the company at the Extraordinary General Meeting held on 29th July 2023 appointed M/S PGS & Associates, Chartered Accountants (Firm Registration Number - 122384W) as Statutory Auditors of the Company to fill casual vacancy caused by the resignation of M/s. P R Bhuta & Co., Chartered Accountants (Firm Registration No. 101471W) to hold office till the conclusion of 41st Annual General Meeting and to conduct Statutory Audit for the period ended 31st March, 2023

M/S PGS & Associates has consented to act as statutory auditor of Company till the conclusion of 46th Annual General Meeting pursuant to section 139 of the Companies Act, 2013 and rules made thereunder. The Company has received a certificate from M/S PGS & Associates, Chartered Accountants (Firm Registration Number - 122384W) that, they satisfy the criteria provided in Section 141 of the Companies Act, 2013 and relevant rules therein for being reappointed as the Auditors of the Company. The Board of Directors recommend to the members to approve their reappointment as proposed in the notice of the Annual General Meeting.

Further, the report of Statutory Auditors along with notes to Financial Statement is enclosed to this report. The observations made in the Auditors' Report are self- explanatory and therefore, in the opinion of the Directors, do not call for further comments. The Auditor's Report does not contain any qualification, reservation, adverse remark or disclaimer.

Pursuant to provision of section 204 of Companies Act, 2013 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Board of directors in its meeting held on 19th July 2023, appointed Mr. Madhav Kawde, Practicing Company Secretary (CP No. 1892) as Secretarial Auditor to conduct the secretarial audit of the company for the financial year 2022 - 2023. The secretarial audit report in Form No. MR-3 is annexed to this report. The observations made in the Secretarial Audit Report are self-explanatory and therefore, in the opinion of the Directors, do not call for further comments. The Secretarial Audit Report does not contain any qualification, reservation, adverse remark or disclaimer.

Company has maintained cost records as per section 148 (1) of Companies Act, 2013.

As per Section 148 of the Act, the Company is required to have the audit of its cost records conducted by a Cost Accountant in practice. The Board on the recommendation of the Audit Committee has appointed M/s A. B. Verma & Co., Cost Accountants, Nagpur (Firm Registration No. 102527/ Membership No. 31367), as the Cost Auditors of the Company for FY 2023 - 2024 under Section 148 and all other applicable provisions of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014.

M/s A. B. Verma & Co., have confirmed that they are free from disqualification specified under Section 141(3) and provision to Section 148(3) read with Section 141(4) of the Act and that the appointment meets the requirements of Section 141 (3) (g) of the Act.

The remuneration payable to the Cost Auditors is required to be placed before the members in a general meeting for their ratification. Accordingly, a Resolution for seeking members' ratification for the remuneration payable to M/s A. B. Verma & Co. is included in the Notice convening the AGM.

The company has been constantly assessing various risk factors and it has adequate risk review system with respect to following areas:

Plant Operations: - Various Plants of the company are running at its optimal capacity. It is paying special attention to Industrial safety and training; company has insured all its plants adequately.

Financial Risk: - The Company has been managing its financial and other resources very effectively; Credit period offered to customers is effectively monitored, with optimal utilization of internal accruals the financial cost is very minimum in comparison with other companies operating in the same field. It also pays more attention to Foreign Exchange Earning and Expenses.

Protection of IPR & Legal diligence: -Constant evaluation of Intellectual Property Rights related issues and Contractual obligations with Jurisdictional issue are diligently observed.

There are no cases reported during the year under review. Ms. Anita Vijayakar (DIN - 01190200) an Independent Director is a Chairperson of the committee along with various women staff members both from plants and office.

22. Conservation of Energy, Technology, Absorption, Foreign Exchange Earnings and Outpo

Details is as per Annexure-IV

23. Corporate Social Responsibility (CSR) Policy

Composition of CSR committee, the details about implementation of various programmes are provided as per the prescribed format under Companies (Corporate Social Responsibility Policy) Rules, 2014, is as per Annexure-V

24. Extract of Annual Return

Pursuant to Section 92(3) read with Section 134 (3) (a) of the Act and Rule 12 of the Companies (Management and Administration), Rules 2014 the Annual Return in Form MGT - 7 as on March 31, 2023 is available on the Company's website at www.diffusionengineers.com

The Board evaluated its performance as a whole and was satisfied with its performance and composition of Independent and Non-Independent Directors. The Board have adequate expertise drawn from diverse industries and business and bring specific competencies relevant to the Company's business and operations. Performance of all the Directors was quite satisfactory.

The term of reference and composition of the Committees is clearly defined. The Committee performed their duties diligently and contributed effectively to the decisions of the Board.

There have been no material changes and commitments, which affect the financial position of the company which have occurred between the end of the financial year to which the financial statements relate and the date of this Report.

27. Details of Significant and Material Orders Passed by the Regulators, Courts and Tribunals:

No significant and material order has been passed by the regulators, courts, tribunals impacting the going concern status and Company's operations in future.

28. Internal Financial Control:

The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

29. Statement on Declaration from Independent Directors:

The Company has received necessary declarations from all Independent Directors of the Company in accordance with the provisions of Section 149(7) of the Companies Act, 2013 confirming that they meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013.

No application has been made or any proceeding is pending under the IBC, 2016.

The company has never made any one-time settlement against the loans obtained from Banks and Financial Institution and hence this clause is not applicable.

32. Directors Responsibility Statement

In accordance with the provisions of Section 134 (5) of the Companies Act 2013, your directors confirm that:

a) in the preparation of the annual accounts for the financial year ended 31^st March, 2023, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31^st March, 2023 and of the profit /loss of the Company for that period;

c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

d) the directors had prepared the annual accounts on a going concern basis;

e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

33. Acknowledgment

Your Directors place on record their gratitude to government authorities, Bankers and all stakeholders for the assistance, co - operation and encouragement they extended to the Company. Your directors also wish to place on records their sincere thanks and appreciation to Employees at all levels for continuing support and unstinting efforts in ensuring an excellent all-around operational performance.

For and on behalf of the Board of Directors of Diffusion Engineers Limited