| 1. Report on the Financial Statements
We have audited the accompanying fnancial statements of Ranbaxy
Laboratories Limited ("the Company"), which comprise the Balance Sheet
as at 31 March 2014, and the Statement of Proft and Loss and the Cash
Flow Statement for the ffteen months ended 31 March 2014 ("current
period"), and a summary of signifcant accounting policies and other
explanatory information.
2. Management's Responsibility for the Financial Statements
Management is responsible for the preparation of these fnancial
statements that give a true and fair view of the fnancial position,
fnancial performance and cash fows of the Company in accordance with
the 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 design, implementation and maintenance of internal control
relevant to the preparation and presentation of the fnancial statements
that give a true and fair view and are free from material misstatement,
whether due to fraud or error.
3. Auditors' Responsibility
Our responsibility is to express an opinion on these fnancial
statements based on our audit. We conducted our audit in accordance
with the 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 fnancial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the fnancial statements. The procedures
selected depend on the auditors' judgement, including the assessment of
the risks of material misstatement of the fnancial 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 the fnancial 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 Company's
internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of the accounting
estimates made by management, as well as evaluating the overall
presentation of the fnancial statements. We believe that the audit
evidence we have obtained is suffcient and appropriate to provide a
basis for our audit opinion.
4. Opinion
In our opinion and to the best of our information and according to the
explanations given to us, the fnancial 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:
(a) in the case of the Balance Sheet, of the state of affairs of the
Company as at 31 March 2014;
(b) in the case of the Statement of Proft and Loss, of the loss for the
ffteen months ended on that date; and
(c) in the case of the Cash Flow Statement, of the cash fows for the
ffteen months ended on that date.
5. Emphasis of Matter
Without qualifying our opinion, we draw attention to note 41 b) of the
fnancial statements which explains in detail the prohibition imposed by
the Food and Drug Administration of the United States of America on the
Toansa manufacturing unit of the Company, and the communications
received from/ actions taken by other regulators including the
Department of Justice of the United States of America and regulators in
European Union countries. Consequently, the Company has made
provisions, to the extent of Rs. 2,862.78 million, on the basis of best
information and estimates presently available with the Company. The
basis and assumptions used by the management in calculating these
provisions involve signifcant judgment and estimates (including those
relating to inventories, sales return, trade commitments, realisability
of tax assets, etc.). There are inherent uncertainties regarding the
future actions of the regulators, the impact of which is not
ascertainable at this stage and therefore, the actual amounts may
eventually differ.
6. Report on Other Legal and Regulatory Requirements
(i) As required by the Companies (Auditor's Report) Order, 2003 ("the
Order"), as amended, issued by the Central Government of India in terms
of sub-section (4A) of section 227 of the Act, we give in the Annexure
a statement on the matters specifed in paragraphs 4 and 5 of the Order.
(ii) As required by provisions of 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 purpose 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 Proft and Loss and the Cash
Flow Statement dealt with by this Report are in agreement with the
books of account;
d. in our opinion, the Balance Sheet, the Statement of Proft and Loss
and the Cash Flow Statement comply with the accounting standards
referred to in sub-section (3C) of section 211 of 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;
e. on the basis of written representations received from the directors
as on 31 March 2014 and taken on record by the Board of Directors, none
of the directors are disqualifed as on 31 March 2014, from being
appointed as a director in terms of clause (g) of sub-section (1) of
section 274 of the Act.
Annexure referred to in paragraph 6 of the Independent Auditors' Report
The Annexure referred to in our report to the members of Ranbaxy
Laboratories Limited ("the Company") for the ffteen months ended 31
March 2014. We report that:
(i) (a) The Company has maintained proper records showing full
particulars, including quantitative details and situation of its fxed
assets.
(b) The Company has a regular programme of physical verifcation of its
fxed assets through which all fxed assets are verifed, in a phased
manner, over a period of three years. In our opinion, this periodicity
of physical verifcation is reasonable having regard to the size of the
Company and the nature of its assets. As informed to us, no material
discrepancies were noticed on such verifcation as carried out under the
above programme during the current period.
(c) Fixed assets disposed off during the current period were not
substantial, and therefore, do not affect the going concern assumption.
(ii) (a) The inventories, except goods-in-transit, have been physically
verifed by the management during the current period. In our opinion,
the frequency of such verifcation is reasonable.
(b) Subject to our comments in clause (xxi) below, in our opinion, the
procedures of physical verifcation of inventories followed by the
management during the current period are reasonable and adequate in
relation to the size of the Company and the nature of its business.
According to further information and explanations provided to us, the
management has also carried out a physical verifcation of its inventory
as at the period-end, wherein no instances of incorrect inventory
management, as referred to in clause (xxi), below were noticed at the
period end.
(c) Subject to our comments in clause (xxi) below, the Company is
maintaining proper records of inventories and the discrepancies
observed on verifcation between the physical stocks and the book
records were not material. The fndings referred to in clause (xxi)
below have been adequately dealt with in the book records.
(iii) The Company has neither granted nor taken any loans, secured or
unsecured, to or from companies, frms or other parties covered in the
register maintained under section 301 of the Companies Act, 1956 ('the
Act').
(iv) In our opinion, and according to the information and explanations
given to us, and having regard to the explanation that purchase of
certain items of inventories and fxed assets are for the Company's
specialised requirements, and similarly, certain goods sold and
services rendered are for the specialised requirements of the buyers
and suitable alternative sources are not available to obtain comparable
quotations, there is an adequate internal control system commensurate
with the size of the Company and the nature of its business with regard
to purchase of inventories and fxed assets, and for the sale of goods
and services. In our opinion, and according to the information and
explanations given to us, we have not observed any major weakness
during the course of audit.
(v) In our opinion, and according to the information and explanations
given to us, there are no contracts and arrangements, the particulars
of which need to be entered into the register maintained under section
301 of the Act.
(vi) The Company has not accepted any deposits from the public.
(vii) In our opinion, the Company has an internal audit system
commensurate with the size and nature of its business.
(viii) We have broadly reviewed the books of account maintained by the
Company pursuant to the rules prescribed by the Central Government for
maintenance of cost records under section 209(1)(d) of the Act, in
respect of its products and are of the opinion that prima facie, the
prescribed accounts and records have been made and maintained. However,
we have not carried out a detailed examination of the records with a
view to determine whether these are accurate or complete.
(ix) (a) According to the information and explanations given to us, and
on the basis of our examination of the records of the Company, amounts
deducted / accrued in the books of account in respect of undisputed
statutory dues including Provident Fund, Investor Education and
Protection Fund, Employees' State Insurance, Income Tax, Sales Tax,
Wealth Tax, Service Tax, Customs Duty, Excise Duty and other material
statutory dues have generally been regularly deposited during the
current period by the Company with the appropriate authorities, though
there has been a slight delay in a few cases. According to the
information and explanations given to us and on the basis of our
examination of the records of the Company, no undisputed amounts
payable in respect of Provident Fund, Investor Education and Protection
Fund, Employees' State Insurance, Income Tax, Sales Tax, Wealth Tax,
Service Tax, Customs Duty, Excise Duty and other material statutory
dues were in arrears as at 31 March 2014 for a period of more than six
months from the date those became payable.
(b) According to the information and explanations given to us, there
are no dues of Income Tax, Wealth Tax and Customs Duty which have not
been deposited with the appropriate authorities on account of any
dispute. According to the information and explanations given to us, the
following dues of Excise Duty, Entry Tax, Value Added Tax, Service Tax
and Sales Tax have not been deposited by the Company on account of
disputes:
Nature of Amount
Name of the Statute the dues (Rs. in millions)
Central Excise Act,1944 Excise Duty 20.51
Central Excise Act,1944 Service Tax 4.48
Central Excise Act,1944 Excise Duty 1.95
Central Excise Act,1944 Excise Duty 3.77
Central Excise Act,1944 Excise Duty 0.34
Name of the Statute Period to which the Forum where dispute is
amount relates to pending
Central Excise Act,1944 2001-02, May 2003 to Customs, Excise and
Service
December 2007, 2004 Tax Appellate Tribunal
and 2005, 2007, 2008 (CESTAT), Delhi
and 2006 to 2010
Central Excise Act,1944 2006 to 2011 CESTAT, Delhi
Central Excise Act,1944 2004 to 2007 CESTAT, Mumbai
Central Excise Act,1944 2005 to 2009 Commissioner (Appeals),
Chandigarh
Central Excise Act,1944 2011 to 2012 Commissioner (Appeals),
Chandigarh
(x) The accumulated losses of the Company at the end of the current
period are not less than ffty percent of its net worth (without
adjusting accumulated losses). As explained to us, these are primarily
due to provision created (net of reversal) for settlement with the
Department of Justice (DOJ) of the United States of America for
resolution of civil and criminal allegations by the DOJ (refer to note
8 of the fnancial statements) in earlier years. The Company has
incurred cash losses in the current period, though it had not incurred
cash losses in the immediately preceding fnancial year.
(xi) In our opinion, and according to the information and explanations
given to us, the Company has not defaulted in repayment of dues to its
bankers, debentureholders and fnancial institutions.
(xii) 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 Company is not a chit fund or a nidhi/ mutual beneft
fund / society.
(xiv) According to the information and explanations given to us, the
Company is not dealing or trading in shares, securities, debentures and
other investments.
(xv) In our opinion and according to the information and explanations
given to us, the terms and conditions on which the Company has issued
letters of comfort and given guarantees for loans taken from banks by
subsidiaries and an associate company respectively, are not prejudicial
to the interests of the Company.
(xvi) In our opinion and according to the information and explanations
given to us, except for term loans lying unutilised as at 31 March
2014, the term loans taken by the Company have been applied for the
purpose for which these were raised.
(xvii) According to the information and explanations given to us and on
an overall examination of the Balance Sheet of the Company as at 31
March 2014, we are of the opinion that short term funds ofRs. 35,175.73
million have been used for long-term purposes primarily on account of
accumulated losses including those related to settlement with the DOJ
of the United States of America for resolution of civil and criminal
allegations by the DOJ (refer to note 8 of the fnancial statements).
(xvii) The Company has not made any preferential allotment of shares
during the current period to companies/parties covered in the register
maintained under section 301 of the Act.
(xviii) According to the information and explanations given to us, the
Company has not issued debentures during the current period.
(xix) The Company has not raised any money by public issues during the
current period.
(xxi) As explained in note 41 c) of the fnancial statements; during the
current period, the Company has written-down carrying amount of
inventory by Rs. 424 million, consequent to the fndings of an exercise
carried out by the management in response to certain internal
information received by it. The fndings primarily concluded intentional
incorrect inventory management of certain intermediate products by
certain manufacturing unit level staff resulting in yield mismanagement
and consequent incorrect higher quantity of inventories. Being a
pharmaceutical quality related technical matter, we have relied on the
management's assessment of the said adjustment. As informed to us,
appropriate actions have been taken by the Company including
strengthening of internal controls. Subject to these comments,
according to the information and explanations given to us, no fraud on
or by the Company has been noticed or reported during the course of our
audit.
For B S R & Co. LLP
Chartered Accountants
Registration No. 101248W
Akhil Bansal
Place : Gurgaon, India Partner
Dated : 9 May 2014 Membership No.: 090906 |