capsugel healthcare ltd Auditors report

CAPSUGEL HEALTHCARE LIMITED ANNUAL REPORT 2009-2010 AUDITORS REPORT To The Members of Capsugel Healthcare Limited 1) We have audited the attached Balance Sheet of Capsugel Healthcare Limited (the Company) as at 31 March 2010, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date (or financial statements), annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2) We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3) 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 Section 227 of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4) Further to our comments in the Annexure referred to above, 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 Profit and Loss Account 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 Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (e) on the basis of written representations received from the directors, as on 31 March 2010, and taken on record by the Board of Directors, we report that none of the directors of the Company is disqualified as on 31 March 2010 from being appointed as a director in terms of clause (g) of sub- section (1) of Section 274 of the Companies Act, 1956; (f) attention is invited to note 13 on schedule 17 explaining that no impairment adjustment is required to the carrying value of the fixed assets as at 31 March 2010. In our view, due to recurring losses incurred by the Company, significant and recurring write off of its fixed assets, extensive delay in completion of the refurbishment project and the resultant uncertainity in the achievement of projections made by the Company, we are unable to comment on the provisions, if any, required in respect of impairment of carrying value of the fixed assets (including capital work in progress), other than land, and its consequential impact, if any, on the loss for the year, accumulated balance in the Profit and Loss Account and the carrying value of the fixed assets as at 31 March 2010. This was a subject matter of qualification in the previous year also. (g) attention is invited to note 3 of schedule 17 to the financial statements, wherein the Company has paid managerial remuneration amounting to Rs. 3,572 thousands to its directors in excess of the limit prescribed under the provisions of Section 198, Section 269 and Section 310 read with Schedule XIII to the Companies Act, 1956 without obtaining the prior approval of the Central Government. The Company is now in the process of applying to the Central Government for approval of excess remuneration paid to managerial person, pending disposal of such application, we are unable to comment on the impact, if any, of the above on these financial statements. In the previous year ended 31 March 2009, the Company has paid managerial remuneration amounting to Rs.232 thousands to a director in excess of the limit prescribed under the provisions of Section 198, Section 269 and Section 310 read with Schedule XIII to the Companies Act, 1956 without obtaining the prior approval of the Central Government. The Company has in the current year applied for the approval of the Central Government with respect to the excess amount paid for the year ended 2009, which is currently pending. As explained to us, pending response from the Central Government, the final outcome of the matter cannot presently be determined. This was a subject matter of qualification in the previous year also. During the year ended 31 March 2008, the Company has paid managerial remuneration amounting to Rs.655 thousands to two of its directors in excess of the limit prescribed under the provisions of Section 198, Section 269 and Section 310 read with Schedule XIII to the Companies Act, 1956 without obtaining the prior approval of the Central Government. The Company has in the previous year applied for the approval of the Central Government with respect to the excess amount paid for the year ended 2008, which is currently pending. As explained to us, pending response from the Central Government, the final outcome of the matter cannot presently be determined. This was a subject matter of qualification in the previous years also. 5) in our opinion and to the best of our information and according to the explanations given to us, subject to matters referred to in para 4(f) and para 4(g) above, the effect of which is not ascertainable, the said accounts give the information required by the Companies Act, 1956, 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 the Balance Sheet, of the state of affairs of the Company as at 31 March 2010; (ii) in the case of the Profit and Loss Account, of the loss for the year ended on that date; and (iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. For B S R & Associates Chartered Accountants Firm Registration No. 116231W Vikram Aggarwal Partner Place : Gurgaon Membership No.: 089826 Dated : 30 September 2009 ANNEXURE TO THE AUDITORS REPORT (REFERRED TO IN OUR REPORT OF EVEN DATE) (i) (a) The Company has maintained proper records of fixed assets showing full particulars, including quantitative details and situation of fixed assets. (b) As informed to us, the Company has a policy of physically verifying all of its fixed assets at-least once in three years. Accordingly, the Company had carried out physical verification of its fixed assets during the year ended 31 March 2008. Further, subsequent to the year end, the Company had carried out physical verification of its fixed assets. In our opinion, this periodicity of physical verification 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 verification. (c) The fixed assets disposed off during the year were not substantial, and therefore, do not affect the going concern assumption. (ii) (a) The inventories, except stock-in transit, have been physically verified by management during the year. In our opinion, the frequency of physical verification is reasonable. (b) In our opinion and according to the information and explanations given to us, the procedures for physical verification of inventories, followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) On the basis of our examination of the records of inventories, we are of the opinion that the Company is maintaining proper records for inventories. The discrepancies noticed on verification between the physical stocks and the book records were not material. (iii) The Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956. (iv) In our opinion and according to the information and explanations given to us, and having regard to the explanation that significant part of fixed assets purchased are for the Companys specialised requirements 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 purchases of inventories, fixed assets and with regard to the sale of goods. The Company is not engaged in the business of rendering services. Further, on the basis of our examination and according to the information and explanations given to us, we have neither come across nor have been informed of any instances of major weaknesses in the aforesaid internal control system. (v)(a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts and arrangements referred to in (a) above does not exceed the value of Rs 5 lakh with any party during the year. (vi) The Company has not accepted any deposits from the public during the year. (vii) In our opinion and according to the information and explanation given to us, the Company has an internal audit system commensurate with the size and nature of its business. (viii) According to the information and explanations given to us, the Central Government has not prescribed the maintenance of cost records by the Company under section 209(1)(d) of the Companies Act, 1956 for any of the products manufactured by the Company. (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 or accrued in the books of account in respect of undisputed statutory dues including provident fund, employees state insurance, income tax, sales tax, customs duty, excise duty, service tax, cess and any other material statutory dues have generally been regularly deposited with the appropriate authorities. As explained to us, the Company did not have any dues on account of investor education and protection fund and wealth tax. There were no dues on account of cess payable under section 441A of the Companies Act, 1956, since the date from which the aforesaid section comes into force has not yet been notified by the Central Government. According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees state insurance, income tax, sales tax, customs duty, excise duty, service tax, cess and any other material statutory dues were in arrears as at 31 March 2010 for a period of more than six months from the date they became payable. (b) According to the information and explanations given to us, the Company did not have any dues on account of sales tax, customs duty, wealth tax, service tax, and cess 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 Income-tax and excise duty have not been deposited by the Company on account of disputes: Nature of Nature of Amount Period Forum where dispute the Statue dues (Rs. in to which is pending/Remarks Thousand) amount relates* Income-tax Income Tax 2,640* 2003-04 Commissioner of income Act, 1961 tax, Appeals, CIT(A) Income-tax Income Tax 1,983* 2004-05 Income tax, Appeals, Act, 1961 tribunal, ITAT Central Excise duty 1,006*#@ 2008-09 Custom excise Excise service tax appellate Act, 1944 tribunal, CESTAT Central Excise duty 1,451*@ 2003-08 Commissioner appeals, Excise Central Excise Act, 1944 Haryana Local Writ filed - ## 2001-02 The Supreme Court of Area with Supreme till India (the Supreme Development Court 2006-07 Court) Tax Act, 2000 challenging the constitutional validity of the levy of LADT and claiming refund of LADT paid under the Act. * Excludes the amount of interest, which is not quantifiable in certain cases. @ Excluding disputed amount of Rs. 1,793 thousand in respect of certain excise and service tax matters for which only show cause notices have been received. # Net of Rs. 1,146 thousand paid under protest for cases pending under the Central Excise Act, 1944. ## Excluding local area development tax deposited under protest amounting to Rs. 7,297 thousand. (x) The accumulated losses of the Company exceed fifty percent of its net worth at the end of the financial year. It has incurred cash losses in the financial year and in the immediately preceding financial year. (xi) In our opinion and according to the information and explanations given to us, the Company did not have any outstanding dues to its bankers or any financial institution or debenture holders during the year. (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 or a mutual benefit fund or society. (xiv) According to the information and explanations given to us, the Company is not dealing in or trading in shares, securities, debentures and other investments. (xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. (xvi) The Company did not have any term loans outstanding during the year. (xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that the Company has used funds raised on short-term basis for longterm investment. The Company has applied short term funds amounting to Rs. 461,195 thousand for long-term investment purposes. (xviii) According to the information and explanations given to us, the Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956. (xix) The Company did not have any outstanding debentures during the year. (xx) The Company has not raised any money by public issues during the year. (xxi) 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 & Associates Chartered Accountants Firm Registration No. 116231W Vikram Aggarwal Place : Gurgaon Partner Dated : 30 September 2010 Membership No.: 089826