1.      Background
  
 
Ranbaxy Laboratories Limited (‘the Company’) together with its subsidiaries
 and associates, operates as an integrated
 international pharmaceutical organisation with
 businesses encompassing the entire value chain in the marketing, production and
 distribution of pharmaceutical products.
  
 
The Company’s shares are listed for trading on the National Stock Exchange
 and the Bombay Stock Exchange in India. Its Global Depository Shares
 (representing equity shares of the Company) are listed on the Luxembourg Stock
 Exchange and Foreign Currency Convertible Bonds ( FCCBs)
 are listed on the Singapore Stock Exchange.
  
 
2.      Food and Drug Administration (“FDA”) and Department
 of Justice (“DOJ”) of united States of America (“uSA”)
  
 
On 16 September 2008, the Company received two warning letters and an Import
 Alert from the USA FDA, covering 30 generic drugs being manufactured at its Paonta Sahib and Dewas
 manufacturing facilities in India. The issue raised in
 the warning letters relate to “Current Good Manufacturing Practice” being
 followed at the said plants and does not in any way raises questions on
 product’s quality, safety or effectiveness.
  
 
On 25 February 2009, the Company received a letter from the USA FDA
 indicating that the Agency had invoked its Application Integrity Policy (‘AIP’)
 against the Paonta Sahib facility (the “facility”).
 The management of the Company believes that there was no falsification of data
 generated at the facility and also believes that there is no indication of a
 pattern and practice of submitting untrue statements of material facts and
 there was no other improper conduct. Accordingly, the Company, based on opinion
 from its legal council, believes that there is no
 incremental present obligation existing at the balance sheet date on account of
 these notices.
  
 
In the year 2008, the DOJ, USA had filed certain charges against the Company
 citing possible issues with the data submitted by the Company, in support of
 product filing. The Company continues to work diligently with the concerned
 authorities towards resolution of the issue.
  
 
While the Company continues to fully cooperate with the concerned
 authorities for effective resolution of these matters, due to inherent
 uncertainty of the related situation, the outcome of the above mentioned
 matters, including any financial impact, cannot be reliably ascertained at this
 stage. Accordingly, no adjustment has been made to the financial statements.
  
 
3.      On 20 October 2008, the Company had issued 23,834,333
 equity share warrants to Daiichi Sankyo Co., Ltd., Japan (Daiichi Sankyo). Each
 equity share warrant was convertible into one equity share of Rs. 5 each at a
 premium of Rs. 732 per share at any time between six months to eighteen months
 from the date of allotment of warrants (Rs. 73.70 per warrant being 10% of the
 exercise price received).
  
 
On 20 April 2010, Daiichi Sankyo opted not to convert the warrants into
 equity shares. Hence, as per the terms of the issue, the said warrants stand
 lapsed and the amount of Rs. 73.70 per warrant aggregating to Rs.1,756.59 paid by Daiichi Sankyo has been forfeited and taken
 to the Capital Reserve Account.
  
 
4.      On 1 July 2010, the Company transferred certain
 assets pertaining to its New Drug Discovery Research Centre (including fixed
 assets, intangibles, in-process developments) to Daiichi Sankyo India Pharma Private Limited alongwith
 a non-compete and non-solicitation agreement for a period of two years
 commencing from the date of the agreement, for an aggregate consideration of
 Rs. 1,449.85 millions. Pursuant to this transaction, Rs. 210 million has been recognised as other operating income for non-compete fee
 and Rs. 131.81 as other income included in profit on sale of assets.
  
 
5.      Impairment of long-term investments
  
 
During the year, the Company against a total value of Rs. 6,797.55 has
 created a combined provision of Rs. 4,078 in the value of long term investments
 held in Zenotech Laboratories Limited, Shimal Research Laboratories Limited and Ranbaxy Pharmacie Generiques SAS, France
 (a wholly owned subsidiary of the Company) as this diminution is considered to
 be other than temporary. The evaluation of provision involves usage of
 assumptions and significant judgement based on
 valuation methodologies/judgements. However, keeping
 the attendant circumstances in view, the management believes it is prudent to
 impair these investments. These will be evaluated on a going forward basis for
 any further changes.
  
 
6. Share-based compensation
  
 
The Company’s Employee Stock Option Schemes (“ESOSs”) provide for the grant
 of stock options to eligible management employees and Directors of the Company
 and its subsidiaries. The ESOSs are administered by the Compensation Committee
 (“Committee”) of the Board of Directors of the Company. Options are granted at
 the discretion of the committee to selected employees depending upon certain
 criterion. Presently, there are three ESOSs, namely, “ESOS I”, “ESOS II” and
 “ESOS 2005”.
  
 
The ESOSs limits the maximum grant of options to an employee at 25,000 for
 ESOS I and 40,000 for ESOS II and 3,00,000 for ESOS
 2005 in any given year. ESOS I and II provide that the grant price of options
 is to be determined at the average of the daily closing price of the Company’s
 equity shares on the NSE during a period of 26 weeks preceding the date of the
 grant. ESOS 2005 provides that the grant price of options will be the latest
 available closing price on the stock exchange on which the shares of the
 Company are listed, prior to the date of the meeting of the Committee in which
 the options are granted. If the shares are listed on more than one stock
 exchange, then the stock exchange where there is highest trading volume on the
 said date shall be considered. The options vests evenly over
 a period of five years from the date of grant. Options lapse if they are
 not exercised prior to the expiry date, which is ten years from the date of the
 grant.
  
 
The Shareholders’ Committee have approved issuance
 of options under the Employees Stock Options Scheme(s) as per details given
 below:
  
 

  

   

   
Date of approval
   
   

   
No. of options
   
  
  

   

   
29 June 2002
   
   

   
2,500,000
   
  
  

   

   
25 June 2003
   
   

   
4,000,000
   
  
  

   

   
30 June 2005
   
   

   
4,000,000
   
  
 
  
 
In accordance with the above approval of issuance of options, ESOPs have
 been granted from time to time.
  
 
The stock options outstanding as on 30 June 2005 are proportionately
 adjusted in view of the sub-division of equity shares of the Company from the
 face value of Rs.10 each into 2 equity shares of Rs. 5 each.
  
 
Options granted upto 3 October 2002 are entitled
 for additional bonus shares in the ratio of 3:5.
  
 
7. During the current year, exchange gain (net) on loans and net foreign
 exchange gain (other than on loans) is shown as part of other income due to
 exchange gain in both years presented. Further, inventory of Active
 Pharmaceuticals Ingredients (API) manufactured and lying at plants for captive
 consumption has been included under Work in Progress. Accordingly, the related
 previous year figures have been reclassified.
  
 
8. Commitments, Contingent Liabilities and Provisions
  
 

  

   

   
 
   
   
   

   
As at 31 December
   
  
  

   

   
 
   
   
   

   
2010
   
   

   
2009
   
  
  

   

   
i) Claims against the Company not acknowledged
   as debts, under dispute:
   
   

   
 
   
   
   

   
 
   
   
  
  

   

   
(a) DPCO *
   
   

   
1,952.90
   
   

   
1,703.30
   
  
  

   

   
(b) Letter of comfort on behalf of subsidiaries, to the extent of limits
   
   

   
2,450.84
   
   

   
4,656.88
   
  
  

   

   
(c) Octroi tax matters **
   
   

   
171.00
   
   

   
171.00
   
  
  

   

   
(d) Other matters ***
   
   

   
187.30
   
   

   
190.71
   
  
 
  
 
* The Company has received demands for payment to the credit of the Drug
 Prices Equalisation Account under Drugs (Price
 Control) Order, 1995 (DPCO) which is being contested by the Company in respect
 of its various products. Further, the Company has deposited Rs. 325.59
 (previous year Rs. 319.59) under protest.
  
 
** The Company has been contesting a case with the Municipal Corporation of Mohali (MCM) under which MCM is contesting that Octroi has to be paid by the Company at 1% as against 0.5%
 being paid by the Company. The amount above represents the difference payable.
  
 
*** These represent cases pending at various forums on account of employee /
 worker related cases, State electricity board, Punjab Land Preservation Act,
 etc.
  
 
ii) In respect of matters in (b) to (d) above, the amount represents the
 demands received under the respective demand/ show cause notices/ legal claims,
 wherever applicable.
  
 
iii) The Company, directly or indirectly through its subsidiaries, severally
 or jointly is also involved in certain patents and product liability disputes
 as at the year end. Due to the nature of these disputes and also in view of
 significant uncertainty of outcome, the Company believes that the amount of
 exposure cannot be currently determinable.
  
 

  

   

   
v) Estimated amount of contracts remaining to be executed on capital
   account and not provided for (net of advances)
   
   

   
775.67
   
   

   
    773.85 (Previous year)