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Elder Pharmaceuticals Ltd.

BSE: 532322 Sector: Health care
NSE: ELDERPHARM ISIN Code: INE975A01015
BSE 00:00 | 04 Mar Elder Pharmaceuticals Ltd
NSE 05:30 | 01 Jan Elder Pharmaceuticals Ltd
OPEN 115.70
PREVIOUS CLOSE 112.70
VOLUME 8920
52-Week high 115.70
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 231
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 115.70
CLOSE 112.70
VOLUME 8920
52-Week high 115.70
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 231
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Elder Pharmaceuticals Ltd. (ELDERPHARM) - Auditors Report

Company auditors report

To the Members of

Elder Pharmaceuticals Limited

Report on the Financial Statements

We have audited the accompanying financial statements of Elder PharmaceuticalsLimited ("the Company") which comprise the Balance Sheet as at 30thJune 2014 and the Statement of Profit and Loss and the Cash Flow Statement for the yearended on that date and a summary of significant accounting policies and other explanatorynotes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and presentation of financial statementsthat give a true and fair view of the financial position financial performance and cashflow of the Company in accordance with applicable Accounting Standards referred to insubsection (3C) of section 211 of the Companies Act 1956 ("the Act") read withthe General Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairsin respect of section 133 of the Companies Act 2013. This responsibility includes thedesigning implementing and maintenance of internal control relevant to the preparationand presentation of financial statements that give a true and fair view and are free frommaterial misstatement whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on ouraudit. We conducted our audit in accordance with Standards on Auditing issued by theInstitute of Chartered Accountants of India. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on theauditor’s judgment including the assessment of the risks of material misstatement ofthe financial statements whether due to fraud or error. In making those risk assessmentsthe auditor considers internal control relevant to the Company’s preparation and fairpresentation of financial statements in order to design audit procedures that areappropriate in the circumstances but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimatesmade by management as well as evaluating the overall presentation of the financialstatements.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide 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 putto 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 previousyear’s are yet to be capitalized and put to use. On such assets the company has notprovided for impairment loss.

Non provision of impairment loss is a departure from AS-28 "Impairment ofAssets" as prescribed under the Act. Management has neither provided a TechnicalEvaluation Report nor a Valuation Report in order to arrive at the fair value andconsequently quantifying the possible impairment loss on these assets could not bearrived.

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 theCompany has written off Trade Advances Rs. 17624.04 lacs and other advances Rs.85532.10 lacs made to various parties on current account either during the year or inearlier financial years. We have been informed that there were no stipulations forrepayments thereof.

The reasons for writing off details to ascertain financial capability of these partiesand confirmation/details of these accounts were not made available to us. Also we havenot been provided any information and documentary evidence in respect of actions initiatedby the company for recovery of these advances.

ii) Capital Advances Trade Advances and Other Advances:

As regards to Capital Advances Rs. 3041.00 lacs Trade Advances Rs.3625.57 lacs and Other Advances (net) paid for Brand Building Payments Rs.7850.00 lacs documentation/confirmation as also reconciliation if any were not madeavailable to us for our verification and examination.

3. Trade Receivables

Pursuant to the Resolution passed by the Board of Directors the Company has writtenoff during the year Trade Receivables aggregating to Rs. 32270.76 lacs since thesame has not been acquired by Torrent Pharmaceuticals Limited (Refer Note No. 29). Thecompany has stated that Trade Receivables pertaining to products transferred to TorrentPharmaceuticals Limited cannot be recovered.

We have neither been provided confirmation to verify the balance of such accounts noractions 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 Actsand Statutes applicable to the Company the same are being contested by the Company atvarious foras. The outcome of such suits and their impact on the affairs of the Companywere 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 thefinancial statements stating that the financial statements are being prepared on a goingconcern basis notwithstanding the fact that the Company has sold and transferred itsbranded domestic formulations business in India and Nepal to Torrent PharmaceuticalsLimited on a slump sale basis. There are major liabilities outstanding towards vendorsstatutory 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 goingconcern. The appropriateness of the said basis is interalia dependent on theCompany’s ability to streamline its operations as well as infusing requisite financeto meet its short term and long term financial obligations and other statutoryliabilities.

The Company mentions that the proceeds of such sale and transfer were used to repayfinancial obligations of banks/institutions. Further for details of exceptionalitems and working thereof refer Note No. 29.

2. We draw your attention to Note No. 29 of the Notes annexed to and forming part ofthe financial statements. With a view to reducing the debts of the Company the Board ofDirectors of the Company had approved the proposal to restructure the Company’sbusiness involving either raising of capital hiving off of assets or other strategicoptions and had appointed advisors for the purpose. The Company had offered for sale onslump sale basis its business of sale marketing and distribution of the products of TeamA-2 and Team B – Gynae through sales force or otherwise in India and Nepal(excluding exports from India and Nepal) which included amongst others intellectualproperty current assets specified liabilities employees data and records third partymanufacturing contracts C & F agreements etc. as a going concern and a definitiveBusiness Transfer Agreement was signed with Torrent Pharmaceuticals Limited Ahmedabad on13 December 2013 for a total consideration of Rs. 200400.00 lacs. The said slump saletransaction was consummated and closed on 29 June 2014.

3. Balances under Trade Receivables Inter-division balances Loans & Advances inseveral cases as also in case of a few Bank Accounts have not been reconciled / confirmedand consequently reconciliation / adjustments if any required upon such confirmation arenot ascertainable. (Refer Note No. 33)

4. The company provides gratuity benefit to its employees as per AS 15 "EmployeeBenefits". Based on actuarial valuation as at March 31 2014 the Company was havingplan assets of Rs. 965.58 lacs against the actuarial liability of Rs. 1293.94 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 explanationsgiven to us except for the effects of the matters described in the Basis for QualifiedOpinion paragraph and Emphasis of Matter paragraph the financial statements give theinformation required by the Act in the manner so required and give a true and fair view inconformity 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 30thJune 2014;

II. In the case of Statement of Profit and Loss of the Profit of the Company for theyear ended on that date; and

III. In the case of Cash Flow Statement of the cash flows of the Company for the yearended on that date.

Report on Other Legal and Regulatory Requirements

1) As required by the Companies (Auditors’ Report) Order 2003 ("theOrder") issued by the Central Government of India in terms of sub-section (4A) of thesection 227 of the Act we give in the Annexure a statement on the matters specified inparagraphs 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 ourknowledge 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 theCompany so far as appears from our examination of those books;

c) the Balance Sheet the Statement of Profit and Loss and the Cash Flow Statementreferred 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 CashFlow Statement comply with the Accounting Standards referred to in sub-section (3C) ofSection 211 of the Companies Act 1956 read with the General Circular 15/2013 dated 13September 2013 of the Ministry of Corporate Affairs in respect of section 133 of theCompanies Act 2013;

e) in absence of written representation from the Directors as on 30thJune 2014 we could not ascertain whether any of the Director is disqualified as on 30thJune 2014 from being appointed as director in terms of Clause (g) of sub- section (1) ofsection 274 of the Act.

Other Matters

1. The company has not deposited or invested a sum not less than 15% of the amount ofdebentures maturing during the year ending on the 31st day of March next following in oneor more of the methods as specified in clarification issued by Ministry of CorporateAffairs 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 theCompany has excluded inventories aggregating to Rs. 9575.92 lacs from the closing stockduring the year. The company has stated that Inventories pertaining to productstransferred which were not acquired by Torrent Pharmaceuticals Limited are to bedestroyed and cannot be carried forward in closing stock.

Our opinion is not qualified in respect of these matters.

For S.S.KHANDELWAL & CO.
Chartered Accountants
(Firm Registration No.105064W)
S.S. Khandelwal
Proprietor
Membership No. 031487
Mumbai 27 August 2014

Annexure to the Independent Auditors’ Report

(Referred to paragraph 1 under ‘Report on Other Legal and RegulatoryRequirements’ section of our report of even date)

Based on the audit procedures performed for the purpose of reporting a true and fairview on the financial statements of the Company and taking in to consideration theinformation 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 includingquantitative details and situation of fixed assets.

b) As explained to us some of the fixed assets of the Company have been physicallyverified by the management during the year in accordance with a phased program ofverification designed to cover all the fixed assets over a period of three years which inour opinion is reasonable having regard to the size of the Company and nature of itsassets. The discrepancies noticed on such physical verification were not material and havebeen properly dealt with in the books of account.

c) The fixed assets disposed off during the year were not substantial and therefore donot affect the going concern status of the Company.

II. a) As explained to us the inventories have been physically verified by themanagement at regular intervals during the year. The intervals at which the inventorieshave been verified are in our opinion reasonable in relation to the size of the Companyand nature of its business.

b) In our opinion and according to the information and explanations given to us theprocedures of physical verification of inventories followed by the management arereasonable 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 therewas no material discrepancies noticed on physical verification of inventory.

III. In respect of loans secured or unsecured granted or taken by the Company to/fromcompanies firms or parties covered in the register maintained under section 301 of theCompanies Act 1956; a) The Company has granted unsecured loans to a wholly ownedsubsidiary and a joint venture company covered in the register maintained under section301 of the Companies Act 1956. In respect of the said loans the maximum amountoutstanding at any time during the year is Rs. 21542.57 lacs and the year- end balance isRs. 21542.57 lacs.

The Company has also given interest free advance to related parties covered in theregister maintained under section 301 of the Companies Act 1956. In respect of the saidloans the maximum amount outstanding at any time during the year is Rs. 8426.87lacs and the year-end balance is Rs. 8095.47 lacs. The loans also include Rs.1123.48 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 ofsuch loan given to the subsidiary and the joint venture company covered in the registermaintained under section 301 of the Companies Act 1956 are prejudicial to the interest ofthe 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 thesaid 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 takenloans from the parties listed in the register maintained under section 301 of theCompanies Act. 1956.

IV. According to the information and explanations given to us there are adequateinternal control procedures commensurate with the size of the Company and the nature ofits business for the purchase of inventory fixed assets and for the sale of goods andservices.

V. a) In our opinion and according to the information and explanations given to us thetransactions made in pursuance of contracts or arrangements that need to be entered intothe 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 ustransactions made in pursuance to such contracts or arrangements are specialized in natureand comparable prices are not always determinable and the price is charged are prima faciereasonable.

VI. In our opinion and according to the information and explanations given to us theCompany has accepted the deposit from the public to which the directives issued by theReserve bank of India provisions of sections 58A and 58AA of the Companies Act 1956 andthe Companies [Acceptance of Deposits] Rules 1975 are applicable.

However the Company has not complied with the provisions of Section 58A of theCompanies Act 1956 and the Companies [Acceptance of Deposits] Rules 1975 in relation tothe following issues:

a. The company has defaulted in repayment of public deposits or part thereof andinterest thereupon.

b. The Company has not kept required liquid assets with scheduled bank in respect ofpublic deposit maturing on or before 30.06.2014 as per Rule 3A of Companies [Acceptance ofDeposit] Rules 1975.

c. The Company Law Board Mumbai Bench (CLB) vide its order dated March 29 2014has directed to the Company to pay principal and interest by 30.04.2014 due to 12depositors who have made an application under section 58A (9) of the Companies Act 1956and 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 payprincipal and/or interest to senior citizens by August 102014 and to other depositors bySeptember 9 2014. The CLB has directed the Company to file an affidavit by 15.09.2014 forcompliance 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 strengthenedcommensurate with the size and the nature of its business.

VIII. The Central Government has prescribed maintenance of Cost Records under Section209(1)(d) of the Companies Act 1956 in respect of certain manufacturing activities of theCompany. We have broadly reviewed the accounts and records of the Company in thisconnection and are of the opinion that prima facie the prescribed accounts and recordshave been made and maintained.

We have not however made a detailed examination of the same. The cost audit reportwas also not available for our verification.

IX. a) As per information and explanations given to us the Company has beenirregular in depositing the undisputed statutory dues including Provident Fund Incometax sales tax Service Tax and Employees State Insurance with the appropriate authoritiesand there has been serious delay in many cases.

The following undisputed statutory dues were outstanding as on 30th June2014 for a period of more than six months from the date they become payable:

Sr. No Name of the Statute Nature of the Dues Financial Year

Amount (Rs.)

Payment made up to the date of Auditor’s Report
1 Income Tax Act 1961 TDS on Salaries *2013-14

38702800/-

Not paid
TDS on Others *2013-14

11696009/-

Dividend distribution tax 2011-12

9994521/-

2 Professional Tax Act 1975 Profession Tax 2012-13

408925/-

Not paid
*2013-14

1376355/-

3 Employees’ State Insurance Act 1948 Employees’ State 2012-13

2654/-

Not paid
Insurance Fund *2013-14

383451/-

4 The Finance Act 1994 Service Tax 2012-13

1935990/-

Not paid
*2013-14

1142320/-

* 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 ofIncome tax sales tax custom duty excise duty and service tax that has not beendeposited with the appropriate authorities on account of dispute and the forum where thedisputes are pending as on 30th June 2014 are as given below:

Sr. No. Name of the statute Nature of dues Period to which the amount relates Forum where the dispute is pending Amount (Rs. in Lacs)
1 Income Tax Block assessment dues Block period 1.4.95 to 18.9.2001 High court Mumbai 216.53
2 Income Tax Assessment dues Assessment Year 2002 - 2003 High court Mumbai 23.66
3 Income Tax Assessment dues Assessment Year 2008 - 2009 Commissioner of Income Tax 28.39
4 Service tax Reversal ratio of service tax attributable for manufacture of exempted goods under rule 6(5) of CENVAT Credit Rules (CCR) September 06 to March 2012 Commissioner Service tax Belapur 461.32
5 Service tax The opening balance lying with Input Service 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. April 2012 to March 2013 Commissioner Service tax Belapur 107.07
6 Service tax Service Tax payable on reverse charge method. October 06 to March 2011 Commissioner (Appeal) 40.01
7 Service tax CENVAT availed on improper documents. 2009-102011-12 Commissioner (Appeal) 2.68
8 Service tax Rebate claim sanctioned received but reviewed by Excise Dept and disputed that one of the document is not in the name of the exporter. 2012-13 Joint secretary to Govt of India Ministry of Finance. 0.98
9 Service tax Protective demand in continuation to earlier SCN April 2013 to Sept 2013 Additional Commissioner of Central Excise Belapur 22.25
10 Service tax ISD credit April 2007 to Mar 2008 April 2010 to March 2011 Additional Commissioner of Central Excise Belapur 5.23

X. The Company has no accumulated losses and has not incurred any cash losses duringthe 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 documentsand records produced before us the Company has defaulted in repayment of principal duesto debenture holders amounting to Rs. 4042.69 lacs as at the balance sheet date.

XII. In our opinion and according to the information and explanations given to us theCompany has not granted any loans and advances on the basis of security by way of pledgeof shares debentures and other securities.

XIII. In our opinion and according to the information and explanations given to us thenature of activities of the company does not attract any special statute applicable tochit fund and nidhi/ mutual benefit fund/ society

XIV. As per information and explanation given to us the Company is not dealing ortrading in shares securities and other investments.

XV. According to the information and explanations given to us and the records examinedby us the terms and conditions of the guarantee given by the company for loans taken byothers 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 andexplanation given to us by the management the term loans availed by the Company wereprima facie applied by the Company during the year for the purpose for which the loanswere obtained.

XVII. According to the Cash Flow statement and other records examined by us and theinformation and explanations given to us on overall basis funds raised on short termbasis 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 orcompanies 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 usthe company has created charge in respect of debentures.

XX. To the best of our knowledge and belief and according to the information andexplanation given to us the company has not raised any money through a public issueduring the year.

XXI. In our opinion and according to the information and explanations given to us readwith para 2 of Basis of Qualified Opinion no fraud on or by the Company has beennoticed or reported during the year which causes the financial statements to bematerially misstated.

For S.S.KHANDELWAL & CO.
Chartered Accountants
(Firm Registration No.105064W)
S.S. Khandelwal
Proprietor
Membership No. 031487
Mumbai 27 August 2014
.