To the Members of
M/s. Orchid Pharma Limited
Report on the Standalone Financial Statements
The Hon'ble National Company Law Tribunal ("NCLT") Chennai Bench admittedthe Corporate Insolvency Resolution Process ("CIRP") application filed by anoperational creditor of Orchid Pharma Limited ("the Company") and appointed anInterim Resolution Professional ("IRP") in terms of the Insolvency andBankruptcy Code 2016 ("the Code") to manage the affairs of the Company videCP.No. CP/ 540/ (IB)/ CB/ 2017 dated August 17 2017. Subsequently Mr. RamkumarSripatham Venkatasubramanian (IP Registration No. IBBI/ IPA-001/ IP- P00015/ 2016-17/10039) has been appointed as the Resolution Professional ("RP") of the Companyby an order of NCLT with effect from October 27 2017.
In view of pendency of the CIRP and in view of suspension of the powers of board ofdirectors and as explained to us the powers of adoption of the standalone financialstatements for the year ended March 312018 vest with the RP.
We have audited the accompanying standalone financial statements of Orchid PharmaLimited ("the Company") which comprise of the Balance Sheet as at March 312018 and the Statement of Profit and Loss (including Other Comprehensive Income) theStatement of Changes in Equity and the Statement of Cash Flows for the year then ended anda summary of the significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
The RP/ Company's management is responsible for the matters stated in Section 134 (5)of the Companies Act 2013 ("the Act") with respect to the preparation of thesefinancial statements that give a true and fair view of the financial position financialperformance including other comprehensive income cash flows and changes in equity of theCompany in accordance with the Indian Accounting Standards (Ind AS) prescribed undersection 133 of the Act read with the Companies (Indian Accounting Standards) Rules 2015as amended and other accounting principles generally accepted in India.
We were informed that the standalone financial statements have been approved by the RPbased on representations clarifications and explanations provided by the ManagingDirector Chief Financial Officer and Key Management Personnel of the Company for thepreparation and presentation of the standalone financial statements.
This responsibility also includes maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting frauds and other irregularities; selection and application ofappropriate accounting policies; making judgments and estimates that are reasonable andprudent; and design implementation and maintenance of adequate internal financialcontrols that were operating effectively for ensuring the accuracy and completeness ofthe accounting records relevant to the preparation and presentation of the financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.
Our responsibility is to express an opinion on these financial statements based on ouraudit.
In conducting our audit we have taken into account the provisions of the Act theaccounting and auditing standards and matters which are required to be included in theaudit report under the provisions of the Act and the Rules made thereunder and the Orderissued under section 143 (11) of the Act.
We conducted our audit of the financial statements in accordance with the Standards onAuditing specified under Section 143 (10) of the Act. Those Standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts andthe disclosures in the financial statements. The procedures selected depend on theauditor's judgement including the assessment of the risks of material misstatement of thefinancial statements whether due to fraud or error. In making those risk assessments theauditor considers internal financial control relevant to the Company's preparation of thefinancial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating theappropriateness of the accounting policies used and the reasonableness of the accountingestimates made by the Company's directors as well as evaluating the overall presentationof the financial statements.
We believe that the audit evidence obtained by us is sufficient and appropriate toprovide a basis for our qualified audit opinion on the financial statements.
Basis of qualified opinion
We draw attention to the following matters:
(a) Note 1 to the standalone financial statements regarding application by anoperational creditor initiating the insolvency provisions under the Insolvency andBankruptcy Code 2016 (the Code') and the consequential appointment of RP under theCode and adequacy of disclosures concerning the Company's ability to meet its financialand contractual obligations including management's technical estimates in regard torealisation of value of inventories overdue receivables (net of provisions) amounting toRs.2101.42 Lakhs loans and advances given to various parties (net of provisions)amounting to Rs.69466.63 Lakhs (which includes capital advances of Rs.52193.10 and otheradvances of Rs.17273.53 Lakhs) provision for impairment if any required for propertyplant and equipment (PPE) PPE under development internally generated intangible assetscomprising of DBF/ ANDA other non-monetary assets investments unamortised financecharges claims made by/ advances given to employees financial obligations includingrepayment of various loans unpaid interest and the ability to fund various obligationspertaining to operations including unpaid/ overdue creditors for ensuring/ commencingnormal operations and further investments required towards ongoing research anddevelopment projects under progress (carrying amount of Rs.1431 Lakhs). Certain bankbalances including borrowings are yet to be confirmed by the banks and hence thepossible impact if any is not presently ascertainable
The above matters other than CIRP related have been outstanding for more than 3 yearsand have also been qualified by the predecessor auditors in their audit report for earlieryears.
(b) The net worth of the subsidiaries as on the reporting date is negative (refernote 55 to the financial statements). The possible erosion in the carrying value ofinvestments in subsidiaries (net of provisions) aggregating to Rs.12369.90 Lakhs and therecoverability loans/ advances given to the subsidiaries (net of provisions) aggregatingto Rs. 5229.36 Lakhs is not ascertainable and the possible provision required if any isnot presently determinable.
The above matters have also been qualified by the predecessor auditors in their auditreport for earlier years.
(c) Confirmation of balances are not available for majority of the receivables loansand advances given payables claims received from the employees and bank loans as atMarch 31 2018. In the absence of the confirmation of balances the possible adjustmentif any required in the financial statements is not presently determinable.
The above matters have also been qualified by the predecessor auditors in their auditreport for earlier years.
(d) We have not been provided with sufficient appropriate audit evidence in respectphysical verification of fixed assets/ related reconciliation with the books of accountdetails/ valuation working for stock of stores spares chemicals and traded stockaggregating to Rs. 2331 Lakhs purchases of raw materials aggregating to Rs.3993 Lakhsand reconciliation/ basis of restatement of foreign currency assets and liabilities.Accordingly we are unable to comment on the possible impact if any arising out of theabove matters.
Considering the aforesaid matters the internal controls over financial reporting alsoneeds to be further strengthened to make them commensurate with the size and nature ofbusiness of the Company.
(e) We have been informed by the RP that certain information including the minutes ofthe meetings of the Committee of Creditors cases filed by RP against the key managementpersonnel suppliers customers and other parties and the outcome of certain specific/routine procedures carried out as part of the IBC process are confidential in nature andcould not be shared with anyone other than the Committee of Creditors and NCLT. Furtherwe have not been provided with sufficient appropriate audit evidence in respect ofavoidance applications filed under the IBC Code by the RP due to the confidentialityinvolved.
Further we were informed that the RP has filed the resolution plan voted favourably bythe Committee of Creditors with Hon'ble NCLT. However the detailed resolution plan(including the salient features consideration agreed terms and conditions etc.) has notbeen made available for our 2. review. In the opinion of the RP the matter is highlysensitive confidential and may have adverse impact of the successful implementation ofthe resolution plan.
Accordingly we are unable to comment on the possible adjustments required in thecarrying amount of assets and liabilities possible presentation and disclosure impactsif any that may arise if we have been provided access to b) review of thoseinformation.
The Company's net worth as on the reporting date is also negative. However pendingcompletion of the successful implementation of the resolution plan as part of CIRP this 'standalone financial statements have been prepared and presented by the Company on a goingconcern basis.
The matters referred to (a) (b) and (e) above also essentially require the Company toresolve the situations specified therein within the framework specified through the CIRPIn the absence of any specific guidance or direction that can be assessed out of CIRPmaterial uncertainties exist that may cause significant doubt on the Company's ability tocontinue as a going concern. However the appropriateness of preparation of standalonefinancial statements on a going concern basis is subject to resolution of the abovematters through the CIRP or such other forum or manner as specified in note 2 to thestandalone financial statements.
In our opinion and to the best of our information and according to the explanationsgiven to us and subject to matters described in the basis of qualified opinion paragraphthe aforesaid standalone financial statements for the year ended March 31 2018 give theinformation required by the Act in the manner so required and give a true and fair view inconformity with Ind AS and other accounting principles generally accepted in India of thestate of affairs of the Company as at March 312018 and its loss total comprehensiveincome the changes in equity and its cash flows for the year ended as on that date.
Report on Other Legal and Regulatory Requirements
1. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143 (11) of the Act we give inAnnexure "A" a statement on the matters specified in paragraphs 3 and 4 of theOrder.
As required by Section 143 (3) of the Act based on our audit we report that:
we have sought and obtained all the information and explanations which to thebest of our knowledge and belief were necessary for the purposes of our audit subject tomatters given in the basis of qualified opinion paragraph;
in our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books subject to matters givenin the basis of qualified opinion paragraph;
the balance sheet the statement of profit and loss including othercomprehensive income statement of changes in equity and the statement of cash flow dealtwith by this report are in agreement with the books of account
in our opinion the aforesaid financial statements comply with the IndianAccounting Standards prescribed under section 133 of the Act;
on the basis of the written representations received from the directors of theCompany as on March 31 2018 taken on record by the board of directors none of thedirectors are disqualified as on March 312018 from being appointed as a director in termsof Section 164 (2) of the Act;
with respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate report in Annexure "B". Our report expresses a modified opinion on theadequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting; and
with respect to the other matters to be included in the auditors' report inaccordance with rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:
The Company has disclosed subject to matters given in the basis of qualified opinionparagraph the impact of pending litigations on its financial position in its financialstatements - refer note 46 to the standalone financial statements;
ii. The Company has made provisions subject to matters given in the basis of qualifiedopinion paragraph as required under the applicable law or accounting standards formaterial foreseeable losses if any on long-term contracts including derivativecontracts; and
iii. There has been no delay in transferring amounts required to be transferred tothe investor education and protection fund by the Company.
iv. The reporting of disclosures relating to specified bank notes is not applicable tothe Company for the year ended March 312018.
Without qualifying our report we draw attention to the following matters :
(a) Note 2 to the financial statements wihich states that the Company has adopted IndAS for the financial year commencing from April 12017 and accordingly the Statement hasbeen prepared by the Company''s management in compliance with Ind AS;
(b) The financial statements of the Company for the year ended March 312017 preparedin accordance with Companies (Accounting Standards) Rules 2006 were audited by anotherfirm of chartered accountants under the Companies Act 2013 who have expressed a modifiedopinion on those financial statements vide their report dated May 26 2017.
For CNGSN & Associates LLP
Firm Registration No.004915S/ S200036
Place: Chennai Date: August 21 2018
Membership No. 027501
Annexure "A" to the Independent Auditor's Report
Referred to in paragraph 1 under Report on Other Legal and RegulatoryRequirements' section of our report to the members of Orchid Pharma Limited of even date
1. In respect of the Company's fixed assets:
(a) The Company has maintained proper records showing full particulars includingquantitative details and situation of fixed assets.
(b) The Company has a program of verification to cover all the items of fixed assets ina phased manner which in our opinion is reasonable having regard to the size of theCompany and the nature of its assets. However no physical verification has been carriedon by the management during the year. Accordingly we are unable to comment on whether anymaterial discrepancies were noticed on such verification and whether they are properlydealt with in the financial statements.
(c) According to the information and explanations given to us the records examined byus we report that the title deeds comprising all the immovable properties of land andbuildings which are freehold are held in the name of the Company as at the balance sheetdate. In respect of immovable properties pledged as security for borrowings the Companyis in the process of obtaining confirmation of title deeds deposited with the lenders.Accordingly we are not unable to express our comment on those items of immovableproperties.
2. The inventory has been physically verified by the management during the year. In ouropinion the frequency of such verification is reasonable.
3. According to information and explanation given to us the company has not grantedany loan secured or unsecured to companies firms limited liability partnerships orother parties covered in the register required under section 189 of the Companies Act2013. Accordingly paragraph 3 (iii) of the order is not applicable.
4. In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 185 and 186 of the Act in respect ofgrant of loans making investments and providing guarantees and securities as applicable.
5. In our opinion and according to the information and explanations given to us thecompany has not accepted any deposits and accordingly paragraph 3 (v) of the order is notapplicable.
6. In our opinion and according to the information and explanations given to uspursuant to the rules made by the Central Government of India the Company is required tomaintain cost records as specified under Section 148(1) of the Act in respect of itsproducts. We have broadly reviewed the same and are of the opinion that prima facie theprescribed accounts and records have been made and maintained.
|Statute ||Nature of dues ||Amount (Rs. in Lakhs) ||Period to which the amount relates ||Forum where the dispute is pending |
|Excise Duty ||Duty ||338.40 ||2005-06 to 2015-16 ||CESTAT/ Commissioner of Appeals |
|Service Tax ||Tax ||85.26 ||2005-06 to 2011-12 ||CESTAT/ Commissioner of Appeals |
|Sales Tax ||Sales Tax dues ||498.89 ||2008-09 to 2012-13 ||Appellate DCCT Chennai |
to the information and explanations given to us in respect of statutory dues:
The Company has not been regular in depositing undisputed statutory dues includingProvident Fund Employees' State Insurance Income Tax Sales Tax Service Tax Goods andService Tax Value Added Tax Customs Duty Excise Duty Cess and other material statutorydues applicable to it with the appropriate authorities. There has been continuous delay inpayment of the statutory dues.
There were no undisputed amounts payable in respect of Provident Fund Employees' StateInsurance Income Tax Sales Tax Service Tax Value Added Tax Goods and Service TaxCustoms Duty Excise Duty Cess and other material statutory dues in arrears as at March312018 for a period of more than six months from the date they became payable.
Details of dues of Income Tax Sales Tax Service Tax Excise Duty Value Added Tax andGoods and Service Tax which have not been deposited as at March 312018 on account ofdispute are given below:
Orchid Pharma Ltd.
(Formerly Orchid Chemicals & Pharmaceuticals Ltd.)
According to the information and explanation given to us and records examined by usthe Company has defaulted in repayment of its dues to the banks financial institutionsand loans taken from government since December 2016. The total amount of principal andinterest unpaid aggregate to Rs.79048.24 Lakhs.
In our opinion and according to the information and explanations given to us thecompany has no outstanding dues to any debenture holders during the year.
In our opinion and according to the information and explanations given to us no termloans have been taken during the year under consideration. The Company has not raised anymoney by way of initial public offer or further public offer (including debt instruments)during the year. Accordingly reporting of the end use of funds so raised is notapplicable for the year.
We have not been provided with sufficient appropriate audit evidence in respect ofpurchases of raw materials aggregating to Rs. 3993 Lakhs during the year. We wereinformed that the RP inter alia has declared the purchases made as preferentialtransactions and filed Company Application in May 2018 before the Hon'ble National CompanyLaw Tribunal (NCLT). We were further informed that the hearings are going on in NCLT thenext hearing is posted on September 5 2018 the Orders are yet to be pronounced and thematter is subjudice.
Further we have not been provided with sufficient appropriate audit evidence inrespect of avoidance applications filed under the IBC Code by the RP due to theconfidentiality involved. The matter is also subjudice.
Since sufficient appropriate audit evidence as aforesaid is not provided to us we areunable to comment on whether any material fraud by the Company or on the Company by itsofficers or employees has been noticed or reported during the year in respect of the abovematters.
In our opinion and according to the information and explanations given to us theCompany has paid/ provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the Act.
The Company is not a Nidhi Company and hence reporting under clause 3 (xii) of theOrder is not applicable to the Company. According to the information and explanationsgiven to us and based on our examination of the records of the company transactions withthe related parties are in compliance with section 177 and 188 of the Act. Whereapplicable the details of such transactions have been disclosed in the financialstatements as required by the applicable accounting standards. According to theinformation and explanations given to us and based on our examination of the records ofthe company the company has not made any preferential allotment or private placement ofshares or fully or partly convertible debentures during the year. Accordingly paragraph3(xiv) of the order is not applicable.
According to the information and explanations given to us and based on our examinationof the records of the company the company has not entered into non-cash transactions withdirectors or persons connected with them. Accordingly paragraph 3(xv) of the order is notapplicable.
According to the information and explanations given to us and based on our examinationof the records of the company the company is not required to be registered under section45-IA of the Reserve Bank of India Act 1934.
For CNGSN & Associates LLP
Firm Registration No.004915S/ S200036
Date: August 21 2018
Membership No. 027501