| Report on the Financial Statements
We have audited the accompanying financial statements of Elder
Pharmaceuticals Limited ("the Company") which comprise the Balance
Sheet as at 30th June, 2014, and the Statement of Profit and Loss and
the Cash Flow Statement for the year ended on that date, and a summary
of significant accounting policies and other explanatory notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and presentation of
financial statements that give a true and fair view of the financial
position, financial performance and cash flow of the Company in
accordance with applicable Accounting Standards referred to in
sub-section (3C) of section 211 of the Companies Act 1956 ("the Act")
read with the General Circular 15/2013 dated 13 September 2013 of the
Ministry of Corporate Affairs in respect of section 133 of the
Companies Act, 2013. This responsibility includes the designing,
implementing and maintenance of internal control relevant to the
preparation and presentation of financial statements that give a true
and fair view and are free from material misstatement, whether due to
fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with Standards on Auditing issued by the Institute of Chartered
Accountants of India. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of financial statements in
order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our modified audit opinion.
Basis for Qualified Opinion
1. Fixed Assets
Some of the company's Plant & Machineries acquired/installed have not
been put to use and some have been operational for a small fraction of
the installed capacity. Further, Capital work-in-progress-being carried
forward as such since previous year's, are yet to be capitalized and
put to use. On such assets, the company has not provided for impairment
loss.
Non provision of impairment loss is a departure from AS-28 "Impairment
of Assets" as prescribed under the Act. Management has neither provided
a Technical Evaluation Report nor a Valuation Report in order to arrive
at the fair value and, consequently, quantifying the possible
impairment loss on these assets could not be arrived.
2. Long Term Loans & Advances
i) Writing off Trade Advances and Other Advances
Pursuant to the authorization of resolution passed by the Board of
Directors, the Company has written off Trade Advances Rs. 17,624.04
lacs and other advances Rs. 85,532.10 lacs, made to various parties on
current account either during the year or in earlier financial years.
We have been informed that there were no stipulations for repayments
thereof.
The reasons for writing off, details to ascertain financial capability
of these parties and confirmation/details of these accounts were not
made available to us. Also, we have not been provided any information
and documentary evidence in respect of actions initiated by the company
for recovery of these advances.
ii) Capital Advances, Trade Advances and Other Advances:
As regards to Capital Advances Rs. 3,041.00 lacs, Trade Advances Rs.
3,625.57 lacs and Other Advances (net) paid for Brand Building Payments
Rs. 7,850.00 lacs, documentation/confirmation as also reconciliation,
if any, were not made available to us for our verification and
examination.
3. Trade Receivables
Pursuant to the Resolution passed by the Board of Directors, the
Company has written off during the year Trade Receivables aggregating
to Rs. 32,270.76 lacs since the same has not been acquired by Torrent
Pharmaceuticals Limited (Refer Note No. 29). The company has stated
that Trade Receivables pertaining to products transferred to Torrent
Pharmaceuticals Limited cannot be recovered.
We have neither been provided confirmation to verify the balance of
such accounts nor actions initiated by the company for recovery of such
Trade Receivables.
4. Legal suits
As informed, various legal suits have been filed against the Company
under various Acts and Statutes applicable to the Company, the same are
being contested by the Company at various foras. The outcome of such
suits and their impact on the affairs of the Company were not made
available/explained to us.
Emphasis of Matter
Without qualifying our report, we draw attention to the following
points:
1. We draw attention to Note No. 40 of the Notes annexed to and forming
part of the financial statements stating that the financial statements
are being prepared on a going concern basis, notwithstanding the fact
that the Company has sold and transferred its branded domestic
formulations business in India and Nepal to Torrent Pharmaceuticals
Limited on a slump sale basis. There are major liabilities outstanding
towards vendors, statutory dues and payment to fixed deposit holders
and non-convertible debenture holders. These events cast significant
doubt on the ability of the Company to continue as a going concern. The
appropriateness of the said basis is interalia dependent on the
Company's ability to streamline its operations as well as infusing
requisite finance to meet its short term and long term financial
obligations and other statutory liabilities.
The Company mentions that the proceeds of such sale and transfer were
used to repay financial obligations of banks/institutions. Further,
for details of exceptional items and working thereof, refer Note No.
29.
2. We draw your attention to Note No. 29 of the Notes annexed to and
forming part of the financial statements. With a view to reducing the
debts of the Company, the Board of Directors of the Company had
approved the proposal to restructure the Company's business involving
either raising of capital, hiving off of assets or other strategic
options and had appointed advisors for the purpose. The Company had
offered for sale on slump sale basis its business of sale, marketing
and distribution of the products of Team A-2 and Team B - Gynae through
sales force or otherwise, in India and Nepal (excluding exports from
India and Nepal) which included amongst others, intellectual property,
current assets, specified liabilities, employees, data and records,
third party manufacturing contracts, C & F agreements, etc. as a going
concern and a definitive Business Transfer Agreement was signed with
Torrent Pharmaceuticals Limited, Ahmedabad, on 13 December 2013 for a
total consideration of Rs. 200,400.00 lacs. The said slump sale
transaction was consummated and closed on 29 June 2014.
3. Balances under Trade Receivables, Inter-division balances, Loans &
Advances in several cases as also in case of a few Bank Accounts have
not been reconciled / confirmed and consequently reconciliation /
adjustments, if any, required upon such confirmation are not
ascertainable. (Refer Note No. 33)
4. The company provides gratuity benefit to its employees as per AS 15
"Employee Benefits". Based on actuarial valuation as at March 31,2014,
the Company was having plan assets of Rs. 965.58 lacs against the
actuarial liability of Rs. 1,293.94 lacs. (Refer to Note No. 37).
Our opinion is not qualified in respect of these matters.
Opinion
In our opinion and to the best of our information and according to the
explanations given to us, except for the effects of the matters
described in the Basis for Qualified Opinion paragraph and Emphasis of
Matter paragraph, the financial statements give the information
required by the Act in the manner so required and give a true and fair
view in conformity with the accounting principles generally accepted in
India:
I. In the case of Balance Sheet, of the state of affairs of the
Company as at 30th June, 2014;
II. In the case of Statement of Profit and Loss, of the Profit of the
Company for the year ended on that date; and
III. In the case of Cash Flow Statement, of the cash flows of the
Company for the year ended on that date.
Report on Other Legal and Regulatory Requirements
1) As required by the Companies (Auditors' Report) Order, 2003 ("the
Order") issued by the Central Government of India in terms of
sub-section (4A) of the section 227 of the Act, we give in the Annexure
a statement on the matters specified in paragraphs 4 and 5 of the said
order.
2) As required by section 227 (3) of the Act, we report that:
a) we have obtained all the information and explanations, which to the
best of our knowledge and belief were necessary for the purposes of our
audit;
b) in our opinion proper books of account as required by law have been
kept by the Company so far as appears from our examination of those
books;
c) the Balance Sheet, the Statement of Profit and Loss and the Cash
Flow Statement referred to in this report are in agreement with the
books of account;
d) in our opinion, the Balance Sheet, the Statement of Profit and Loss
and the Cash Flow Statement comply with the Accounting Standards
referred to in sub-section (3C) of Section 211 of the Companies Act
1956 read with the General Circular 15/2013 dated 13 September 2013 of
the Ministry of Corporate Affairs in respect of section 133 of the
Companies Act, 2013;
e) in absence of written representation from the Directors as on 30th
June, 2014, we could not ascertain whether any of the Director is
disqualified as on 30th June, 2014 from being appointed as director in
terms of Clause (g) of sub- section (1) of section 274 of the Act.
Other Matters
1. The company has not deposited or invested a sum not less than 15%
of the amount of debentures maturing during the year ending on the 31st
day of March next following in one or more of the methods as specified
in clarification issued by Ministry of Corporate Affairs vide circular
no. 04/2013 dated 11/02/2013 regarding Debenture Redemption Reserve
2. Pursuant to the authorization of resolution passed by the Board of
Directors, the Company has excluded inventories aggregating to Rs.
9,575.92 lacs from the closing stock during the year. The company has
stated that Inventories pertaining to products transferred which were
not acquired by Torrent Pharmaceuticals Limited, are to be destroyed
and cannot be carried forward in closing stock.
Our opinion is not qualified in respect of these matters.
Annexure to the Independent Auditors' Report
(Referred to paragraph 1 under 'Report on Other Legal and Regulatory
Requirements' section of our report of even date)
Based on the audit procedures performed for the purpose of reporting a
true and fair view on the financial statements of the Company and
taking in to consideration, the information and explanations given to
us during the course of audit, we report that:
I. a) The Company has maintained proper records to show full
particulars, including quantitative details and situation of fixed
assets.
b) As explained to us, some of the fixed assets of the Company have
been physically verified by the management during the year in
accordance with a phased program of verification designed to cover all
the fixed assets over a period of three years, which in our opinion, is
reasonable having regard to the size of the Company and nature of its
assets. The discrepancies noticed on such physical verification were
not material and have been properly dealt with in the books of account.
c) The fixed assets disposed off during the year were not substantial
and therefore do not affect the going concern status of the Company.
II. a) As explained to us, the inventories have been physically
verified by the management at regular intervals during the year. The
intervals at which the inventories have been verified are, in our
opinion, reasonable in relation to the size of the Company and nature
of its business.
b) In our opinion and according to the information and explanations
given to us, the procedures of physical verification of inventories
followed by the management are reasonable and adequate in relation to
the size of the Company and nature of its business.
c) The Company has maintained proper records of inventories. As
explained to us, there was no material discrepancies noticed on
physical verification of inventory.
III. In respect of loans, secured or unsecured, granted or taken by the
Company to/from companies, firms or parties covered in the register
maintained under section 301 of the Companies Act, 1956;
a) The Company has granted unsecured loans to a wholly owned subsidiary
and a joint venture company covered in the register maintained under
section 301 of the Companies Act, 1956. In respect of the said loans
the maximum amount outstanding at any time during the year is Rs.
21,542.57 lacs and the year- end balance is Rs. 21,542.57 lacs.
The Company has also given interest free advance to related parties
covered in the register maintained under section 301 of the Companies
Act, 1956. In respect of the said loans the maximum amount outstanding
at any time during the year is Rs. 8,426.87 lacs and the year-end
balance is Rs. 8,095.47 lacs. The loans also include Rs. 1,123.48 lacs
due from a company for more than three years whose net worth is
negative.
b) As per the information and explanations given to us, the terms and
conditions of such loan given to the subsidiary and the joint venture
company covered in the register maintained under section 301 of the
Companies Act, 1956 are prejudicial to the interest of the company
since these loans do not have any provision for interest payment.
c) As per the information and explanations given to us, the principal
amounts of the said loans are repayable on demand and there is no
repayment schedule.
d) According to the information and explanations given to us the
Company has not taken loans from the parties listed in the register
maintained under section 301 of the Companies Act. 1956.
IV. According to the information and explanations given to us, there
are adequate internal control procedures commensurate with the size of
the Company and the nature of its business for the purchase of
inventory, fixed assets and for the sale of goods and services.
V. a) In our opinion and according to the information and explanations
given to us, the transactions made in pursuance of contracts or
arrangements, that need to be entered into the register maintained
under section 301 of the Companies Act, 1956 have been so entered.
b) In our opinion and according to the information and explanations
given to us, transactions made in pursuance to such contracts or
arrangements are specialized in nature and comparable prices are not
always determinable and the price is charged are prima facie
reasonable.
VI. In our opinion and according to the information and explanations
given to us, the Company has accepted the deposit from the public to
which the directives issued by the Reserve bank of India, provisions of
sections 58A and 58AA of the Companies Act, 1956 and the Companies
[Acceptance of Deposits] Rules, 1975 are applicable.
However, the Company has not complied with the provisions of Section
58A of the Companies Act, 1956 and the Companies [Acceptance of
Deposits] Rules, 1975 in relation to the following issues:
a. The company has defaulted in repayment of public deposits or part
thereof and interest thereupon.
b. The Company has not kept required liquid assets with scheduled bank
in respect of public deposit maturing on or before 30.06.2014 as per
Rule 3A of Companies [Acceptance of Deposit] Rules, 1975.
c. The Company Law Board, Mumbai Bench (CLB), vide its order dated
March 29, 2014, has directed to the Company to pay principal and
interest by 30.04.2014 due to 12 depositors who have made an
application under section 58A (9) of the Companies Act, 1956 and to
file an affidavit of compliance of the same order with the CLB by
01.05.2014.
The CLB again vide its order dated July 11, 2014, has directed to the
Company to pay principal and/or interest to senior citizens by August
10,2014 and to other depositors by September 9, 2014. The CLB has
directed the Company to file an affidavit by 15.09.2014 for compliance
of the said order.
d. The company has also borrowed short term funds from non-corporate
entities.
VII. The Company has an internal audit system which needs to be
strengthened commensurate with the size and the nature of its business.
VIII. The Central Government has prescribed maintenance of Cost
Records under Section 209(1)(d) of the Companies Act, 1956 in respect
of certain manufacturing activities of the Company. We have broadly
reviewed the accounts and records of the Company in this connection and
are of the opinion, that prima facie, the prescribed accounts and
records have been made and maintained. We have not, however, made a
detailed examination of the same. The cost audit report was also not
available for our verification.
IX. a) As per information and explanations given to us, the Company
has been irregular in depositing the undisputed statutory dues
including Provident Fund, Income tax, sales tax, Service Tax and
Employees State Insurance with the appropriate authorities and there
has been serious delay in many cases.
The following undisputed statutory dues were outstanding as on 30th
June 2014 for a period of more than six months from the date they
become payable:
Sr. Name of the Statute Nature of the Dues Financial Year
No
1 Income Tax Act, 1961 TDS on Salaries *2013-14
TDS on Others *2013-14
Dividend distribution 2011-12
tax
2 Professional Tax Act, 1975 Profession Tax 2012-13
*2013-14
3 Employees' State Insurance Employees' State 2012-13
Act, 1948 Insurance Fund *2013-14
4 The Finance Act, 1994 Service Tax 2012-13
*2013-14
Sr. Name of the Statute Amount Payment made up to the
No (Rs.) date of Auditor's
Report
1 Income Tax Act, 1961 3,87,02,800/- Not paid
1,16,96,009/-
99,94,521/-
2 Professional Tax Act, 1975 4,08,925/- Not paid
13,76,355/-
3 Employees' State Insurance 2,654/- Not paid
Act, 1948 3,83,451/-
4 The Finance Act, 1994 19,35,990/- Not paid
11,42,320/-
* Figures for financial year 2013-2014 are in respect of period upto
December 31, 2013.
b) According to the information and explanations given to us, the dues
in respect of Income tax, sales tax, custom duty, excise duty and
service tax that has not been deposited with the appropriate
authorities on account of dispute and the forum where the disputes are
pending as on 30th June, 2014 are as given below:
Sr. Name of the Nature of dues Period to which the
No. statute amount relates
1 Income Tax Block assessment dues Block period 1.4.95
to 18.9.2001
2 Income Tax Assessment dues Assessment Year
2002 - 2003
3 Income Tax Assessment dues Assessment Year
2008 - 2009
4 Service tax Reversal ratio of service September 06 to
tax attributable for March 2012
manufacture of exempted
goods under rule 6(5) of
CENVAT Credit Rules (CCR)
5 Service tax The opening balance lying April 2012 to March
with Input Service 2013
Distributor (ISD) as on
1.4.2012 is not to be
considered while
distributing the credit
by ISD to Nerul unit. The
earlier Show Cause Notice
(SCN) Sept 2006 to March
2012 is adjudicated on
eligibility of each unit
on the basis of turnover of
each unit during the year
and the credit lying with
ISD has no relevance.
6 Service tax Service Tax payable on October 06 to March
reverse charge method. 2011
7 Service tax CENVAT availed on. 2009-10,2011-12
improper documents
8 Service tax Rebate claim sanctioned, 2012-13
received but reviewed by
Excise Dept and disputed
that one of the document
is not in the name of the
exporter.
9 Service tax Protective demand in April 2013 to Sept
continuation to 2013
earlier SCN
10 Service tax ISD credit April 2007 to Mar
2008, April 2010 to
March 2011
Sr. Name of the Forum where the Amount
No. statute dispute is pending (Rs.in Lacs)
1 Income Tax High court,Mumbai 216.53
2 Income Tax High court, Mumbai 23.66
3 Income Tax Commissioner of 28.39
Income Tax
4 Service tax Commissioner Service 461.32
tax, Belapur
5 Service tax Commissioner Service 107.07
tax, Belapur
6 Service tax Commissioner 40.01
(Appeal)
7 Service tax Commissioner 2.68
(Appeal)
8 Service tax Joint secretary to Govt 0.98
of India, Ministry of
Finance.
9 Service tax Additional 22.25
Commissioner of
Central Excise Belapur
10 Service tax Additional 5.23
Commissioner of
Central Excise Belapur
X. The Company has no accumulated losses and has not incurred any cash
losses during the financial year covered by our audit or in the
immediately preceding financial year.
XI. According to information and explanations given to us and based on
the documents and records produced before us, the Company has defaulted
in repayment of principal dues to debenture holders amounting to Rs.
4,042.69 lacs as at the balance sheet date.
XII. In our opinion and according to the information and explanations
given to us, the Company has not granted any loans and advances on the
basis of security by way of pledge of shares, debentures and other
securities.
XIII. In our opinion and according to the information and explanations
given to us, the nature of activities of the company does not attract
any special statute applicable to chit fund and nidhi/ mutual benefit
fund/ society
XIV. As per information and explanation given to us, the Company is not
dealing or trading in shares, securities and other investments.
XV. According to the information and explanations given to us and the
records examined by us, the terms and conditions of the guarantee given
by the company for loans taken by others from a bank are not
prejudicial to the interest of the company.
XVI. To the best of our knowledge and belief and according to the
information and explanation given to us by the management the term
loans availed by the Company were, prima facie, applied by the Company
during the year for the purpose for which the loans were obtained.
XVII. According to the Cash Flow statement and other records examined
by us and the information and explanations given to us, on overall
basis, funds raised on short term basis, have prima facie, not been
used during the year for long term investments.
XVIII. The company has not made any preferential allotment of shares
to parties or companies covered in the register maintained under
section 301 of the companies act, 1956.
XIX. As per information and explanation given to us and based on
records examined by us the company has created charge in respect of
debentures.
XX. To the best of our knowledge and belief and according to the
information and explanation given to us, the company has not raised any
money through a public issue during the year.
XXI. In our opinion and according to the information and explanations
given to us, read with para 2 of Basis of Qualified Opinion, no fraud
on or by the Company has been noticed or reported during the year,
which causes the financial statements to be materially misstated.
For S.S.KHANDELWAL & CO.
Chartered Accountants
(Firm Registration No.105064W)
S.S. Khandelwal
Proprietor
Membership No. 031487
Mumbai, 27 August, 2014
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