1. We have audited the attached Balance Sheet of STRIDES ARCOLAB
LIMITED (the Company) as at December 31, 2011, the Profit and Loss
Account and the Cash Flow Statement of the Company for the year ended
on that date, both annexed thereto. These financial statements are the
responsibility of the Company''s Management. Our responsibility is to
express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with the 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 the disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates
made by the Management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
3. The Company has early adopted Accounting Standard (AS) 30
''Financial Instruments: Recognition and Measurement'', AS 31 ''Financial
Instruments: Presentation'' and AS 32 ''Financial Instruments:
Disclosure'', to the extent such standards do not conflict with the
standards notified under section 211(3C) of the Companies Act. Pursuant
to the above, the Foreign Currency Convertible Bonds (FCCBs or Bonds)
issued by the Company have been segregated into two components
comprising (a) option component which represents the value of the
conversion option given to the FCCB-holders to convert the bonds into
equity shares of the Company and (b) debt component which represents
the debt to be redeemed in the absence of conversion option being
exercised by FCCB-holder, net of issuance costs. The debt component has
been recognised and measured at amortised cost and the fair value of
the option component has been determined using a valuation model and a
credit of Rs 188.85 Million has been recognised in the Profit & Loss
Account for the year ended December 31, 2011, being the change in the
fair value of embedded option during the year.
4. We draw attention to Note B 5 of Schedule P regarding the
accounting for the Scheme of Arrangement (the Scheme) between the
Company, some of its subsidiaries and their respective shareholders
under section 391 to 394 and the other provisions of the Companies Act,
1956, which has been approved by the Hon''ble High Court of Bombay. In
accordance with the Scheme:
(a) Investments in a subsidiary has been fair valued in prior years and
the resultant surplus over the previously carried book values,
amounting to Rs 5,856.20 Million, has been credited to Reserve for
Business Restructure instead of such assets being recorded at
historical costs as required by Accounting Standard 13 ''Accounting for
(b) Certain expenses (net) amounting to Rs 480.79 Million has been
debited to the Reserve for Business Restructure, instead of being
charged to the Profit and Loss Account as required by Accounting
Standard 5 ''Net profit or Loss for the Period, Prior Period Items''.
5. As required by the Companies (Auditor''s Report) Order, 2003 (CARO)
issued by the Central Government in terms of Section 227(4A) of the
Companies Act, 1956, we give in the Annexure a statement on the matters
specified in paragraphs 4 and 5 of the said Order.
6. Further to our comments in the Annexure referred to in paragraph 5
above, we report that:
(i) we have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes of our
(ii) in our opinion, proper books of account as required by law have
been kept by the Company so far as it appears from our examination of
(iii) 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
(iv) subject to our comments in paragraph 4 above and read with our
comments in paragraph 3 above, in our opinion, the Balance Sheet, the
Profit and Loss Account and the Cash Flow Statement dealt with by this
report are in compliance with the Accounting Standards referred to in
Section 211(3C) of the Companies Act, 1956;
(v) in our opinion and to the best of our information and according to
the explanations given to us, the said accounts give the information
required by the Companies Act, 1956 in the manner so required and read
with our comments in paragraph 4 above, 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 December 31, 2011;
(b) in the case of the Profit and Loss Account, of the profit of the
Company for the year ended on that date; and
(c) in the case of the Cash Flow Statement, of the cash flows of the
Company for the year ended on that date.
7. On the basis of the written representations received from the
Directors as on December 31, 2011 taken on record by the Board of
Directors, we report that none of the Directors is disqualified as on
December 31, 2011 from being appointed as a director in terms of
Section 274(1)(g) of the Companies Act, 1956.
Annexure to the Auditors'' Report
(Referred to in paragraph 5 of our report of even date)
(i) Having regard to the nature of the Company''s business / activities
/result, clauses iii (b) to (d), (f) and (g), vi, xii, xiii, xiv, xix &
xx of CARO are not applicable.
(ii) In respect of its fixed assets:
(a) The Company has maintained proper records showing full particulars,
including quantitative details and situation of the fixed assets.
(b) The fixed assets were physically verified during the year by the
Management in accordance with a regular programme of verification
which, in our opinion, provides for physical verification of all the
fixed assets at reasonable intervals. According to the information and
explanation given to us, no material discrepancies were noticed on such
(c) The fixed assets disposed off during the year, in our opinion, do
not constitute a substantial part of the fixed assets of the Company
and such disposal has, in our opinion, not affected the going concern
status of the Company.
(iii) In respect of its inventory:
(a) As explained to us, the inventories were physically verified during
the year by the Management at reasonable intervals.
(b) In our opinion and according to the information and explanation
given to us, the procedures of physical verification of inventories
followed by the Management were reasonable and adequate in relation to
the size of the Company and the nature of its business.
(c) In our opinion and according to the information and explanations
given to us, the Company has maintained proper records of its
inventories and no material discrepancies were noticed on physical
(iv) The Company has neither granted nor taken any loans, secured or
unsecured, to / from companies, firms or other parties listed in the
Register maintained under Section 301 of the Companies Act, 1956.
(v) In our opinion and according to the information and explanations
given to us, having regard to the explanations that some of the items
purchased are of special nature and suitable alternative sources are
not readily available for obtaining 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
inventory and fixed assets and the sale of goods and services. During
the course of our audit, we have not observed any major weakness in
such internal control system.
(vi) In respect of contracts or arrangements entered in the Register
maintained in pursuance of Section 301 of the Companies Act, 1956, to
the best of our knowledge and belief and according to the information
and explanations given to us:
(a) The particulars of contracts or arrangements referred to Section
301 that needed to be entered in the Register maintained under the said
Section have been so entered.
(b) In our opinion and having regard to our comments in paragraph (v)
above, with regard to purchases of certain items of inventory which are
of a specialised nature for which comparative quotes are not available,
transactions made in pursuance of such contracts or arrangements, in
excess of Rs 5 Lakhs in respect of any party, have been made at prices
which are, prima facie, reasonable having regard to the prevailing
market prices at the relevant time.
(vii) In our opinion, the Company has an internal audit system which is
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 made by the Central Government for the
maintenance of cost records under Section 209(1)(d) of the Companies
Act, 1956 and are of the opinion that prima facie the prescribed
accounts and records have been made and maintained. We have, however,
not made a detailed examination of the records with a view to
determining whether they are accurate or complete.
(ix) According to the information and explanations given to us in
respect of statutory dues:
(a) The Company has generally been regular in depositing undisputed
dues, including Investor Education and Protection Fund, Income-tax,
Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and
other material statutory dues applicable to it with the appropriate
authorites except in the case of Provident Fund and Employees'' State
Insurance dues, where there have been delays.
(b) There were no undisputed amounts payable in respect of Income Tax,
Wealth Tax, Custom Duty, Excise Duty, Cess and other material statutory
dues in arrears as at December 31, 2011 for a period of more than six
months from the date they became payable except Employees State
Insurance dues amounting to Rs 189,478. These dues have been remitted in
(c) Details of dues of Income-tax, Sales Tax, Wealth Tax, Service Tax,
Custom Duty, Excise Duty and Cess which have not been deposited as on
December 31, 2011 on account of disputes are given below:
statute Nature of Amount Period to
which the Forum where dispute is
the dues (Rs In
Act, 1961 Income Tax 109.76 AY 2007-08 Income Tax Appellate
Act, 1961 Income Tax 598.70 AY 2008-09 Dispute Resolution
Added Sales Tax 1.29 FY 2006-07 Deputy Commissioner of
2003 Commercial Taxes
Act, 1944 Excise duty 3.86 August 2005 Customs and Excise
Service Tax Appellate
(x) The Company does not have accumulated losses at the end of the
financial year and has not incurred cash losses during the year and in
the immediately preceding financial year.
(xi) In our opinion and according to the information and explanations
given to us, the Company has not defaulted in the repayment of dues to
banks and financial institutions during the year.
(xii) In our opinion and according to the information and explanations
given to us, the terms and conditions of the guarantees given by the
Company for loans taken by wholly owned subsidiary companies from banks
and financial institutions, are not prima facie prejudicial to the
interests of the Company.
(xiii) In our opinion and according to the information and explanations
given to us, the term loans have been applied for the purposes for
which they were obtained, other than temporary deployment pending
(xiv) In our opinion and according to the information and explanations
given to us and on an overall examination of the Balance Sheet, we
report that funds raised on short-term basis have not been used during
the year for long-term investment.
(xv) 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.
(xvi) To the best of our knowledge and according to the information and
explanations given to us, no fraud by the Company and no fraud on the
Company has been noticed or reported during the year.
For DELOITTE HASKINS & SELLS
February 27, 2012