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Sun Pharmaceutical Industries

BSE: 524715|NSE: SUNPHARMA|ISIN: INE044A01036|SECTOR: Pharmaceuticals
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Mar 16
Auditor's Report (Sun Pharmaceutical Industries) Year End : Mar '17

Report on the Standalone Ind AS Financial Statements

We have audited the accompanying standalone Ind AS financial statements of Sun Pharmaceutical Industries Limited (“the Company”), which comprise the Balance Sheet as at 31st March, 2017, and the Statement of Profit and Loss (including Other Comprehensive Income), the Cash Flow Statement and the Statement of Changes in Equity for the year then ended, and a summary of the significant accounting policies and other explanatory information.

Management’s Responsibility for the Standalone Ind AS Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) prescribed under section 133 of the Act.

This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone Ind AS financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these standalone Ind AS financial statements based on our audit.

In conducting our audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit of the standalone Ind AS financial statements in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the standalone Ind AS financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the standalone Ind AS financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the standalone Ind AS financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the standalone Ind AS financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the standalone Ind AS financial statements.

We believe that the audit evidence obtained by us is sufficient and appropriate to provide a basis for our audit opinion on the standalone Ind AS financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone Ind AS financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2017, and its loss, total comprehensive loss, its cash flows and the changes in equity for the year ended on that date.

Emphasis of Matter

We draw attention to Note 59(11) to the standalone Ind AS financial statements. As referred to in the said Note: Remuneration to the Managing Director and the Whole-time Director(s) of the Company for the years ended 31st March, 2015, 31st March, 2016 and 31st March, 2017 are higher by Rs.49.6 Million, Rs.29.6 Million and Rs.44.7 Million respectively than the amounts approved by the Central Government of India (Ministry of Corporate Affairs) on applications made by the Company to approve the maximum remuneration as approved by the members of the Company for the three years ended 31st March, 2017, in excess of the limits specified under Schedule V to the Act, in case of inadequacy of profits. The Management of the Company have re-represented to the office of the Ministry of Corporate Affairs for approval of remuneration within the overall limits approved by the members of the Company for the years ended 31st March, 2015 and 31st March, 2016, and for the year ended 31st March, 2017, applications for revision in the remuneration, as approved by the members of the Company, has been made to the Ministry of Corporate Affairs. The responses in respect of the foregoing re-representation / applications for revision are awaited from the Ministry of Corporate Affairs.

Our opinion is not modified in respect of this matter.

Other Matter

The transition date opening balance sheet of the Company as at 1st April, 2015 include the financial information of erstwhile Ranbaxy Laboratories Limited, consequent to its amalgamation into the Company which was effected on 24th March, 2015, with the appointed date of 1st April, 2014 [refer Note 59(4) to the standalone Ind AS financial statements]. The said financial information included in these standalone Ind AS financial statements are based on financial information previously prepared in accordance with the Companies (Accounting Standards) Rules, 2006, audited by the other auditors, and have been restated to comply with Ind AS. Adjustments made to the financial information previously prepared in accordance with the Companies (Accounting Standards) Rules, 2006 to comply with Ind AS have been audited by us.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. As required by Section 143(3) of the Act, based on our audit we report, to the extent applicable that:

a) We have sought and 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 it appears from our examination of those books.

c) The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Cash Flow Statement and Statement of Changes in Equity dealt with by this Report are in agreement with the books of account.

d) In our opinion, the aforesaid standalone Ind AS financial statements comply with the Indian Accounting Standards prescribed under Section 133 of the Act.

e) On the basis of the written representations received from the directors as on 31st March, 2017 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2017 from being appointed as a director in terms of Section 164(2) of the Act.

f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.

g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its standalone Ind AS financial statements - Refer Note 40(i) to the standalone Ind AS financial statements.

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Notes 25 and 30 to the standalone Ind AS financial statements.

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company except a sum of Rs.13.4 Million, which is held in abeyance due to pending legal cases.

iv. The Company has provided requisite disclosures in Note 56 to the standalone Ind AS financial statements as regards its holding and dealings in Specified Bank Notes as defined in the Notification S.O. 3407(E) dated 8th November, 2016 of the Ministry of Finance, during the period from 8th November, 2016 to 30th December, 2016. Based on audit procedures performed and the representations provided to us by the Management of the Company, we report that the disclosures are in accordance with the books of account maintained by the Company and as produced to us by the Management of the Company.

2. 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 in “Annexure B” a statement on the matters specified in paragraphs 3 and 4 of the Order.

ANNEXURE “B” TO THE INDEPENDENT AUDITOR’S REPORT

(Referred to in paragraph 2 under ‘Report on Other Legal and Regulatory Requirements’ section of our report of even date to the Members of Sun Pharmaceutical Industries Limited)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) The Company has a program of verification of fixed assets to cover all the items in a phased manner over a period of three years which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the program, certain fixed assets were physically verified by the Management during the year. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) According to the information and explanations given to us and the records examined by us and based on the examination of the registered sale deed / transfer deed / conveyance deed / agreement for sale along with registered power of attorney / consent terms taken on record by the Honorable Bombay City Civil Court at Bombay / share certificate / other documents evidencing title provided to us, we report that, the title deeds, comprising all the immovable properties of freehold land and buildings, are held in the name of the Company as at the balance sheet date, except the following:

Particulars of the freehold land and building

Cost or deemed cost as at 31st March, 2017 (Rs. in Million)

Carrying amount as at 31st March, 2017 (Rs. in Million)

Remarks

Freehold land located in Himachal Pradesh admeasuring 645,150 Square metres

76.3

76.3

The title deeds are in the name of Ranbaxy Laboratories Limited, erstwhile company that was merged with the Company under Sections 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of Gujarat and of Punjab and Haryana.

Freehold land located in Punjab admeasuring 370,527 Square metres

27.2

27.2

Freehold land located in Haryana admeasuring 64,161 Square metres

109.0

109.0

Freehold land located in Madhya Pradesh admeasuring 91,330 Square metres

5.8

5.8

Freehold land located in Karnataka admeasuring 30,362 Square metres

28.3

28.3

Freehold land located in Punjab admeasuring 8,364 Square metres

2.5

2.5

The title of this land is under dispute in respect of which we have been informed by the Management of the Company that they have filed a Special Leave Petition with the Honorable Supreme Court against the order passed by the Honorable High Court of Punjab and Haryana and the matter is under adjudication.

Freehold land located in Chennai admeasuring 71,747 Square metres and building thereon

11.3

10.2

The titles are in the name of Tamilnadu Dadha Pharmaceuticals Limited / Pradeep Drug Company Limited, erstwhile companies that was merged with the Company under Sections 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of Gujarat and of Tamilnadu / order of the New Delhi Bench of Board of Industrial and Financial Reconstruction respectively.

In respect of a building where the Company is entitled to the right of occupancy and use and disclosed as fixed assets in the standalone Ind AS financial statements, we report that the agreement / non-convertible preference shares / compulsorily convertible debentures entitling the right of occupancy and use of building, are in the name of the Company as at the balance sheet date.

In respect of immovable properties of land and buildings that have been taken on lease and disclosed as fixed assets in the standalone Ind AS financial statements, the lease agreements are in the name of the Company, where the Company is the lessee in the agreement, except for the following:

Particulars of the leasehold land

Cost or deemed cost as at 31st March, 2017 (Rs. in Million)

Carrying amount as at 31st March, 2017 (Rs. in Million)

Remarks

Located in Maharashtra admeasuring 20,000 Square metres.

‘represents composite consideration for land and building.

* 17.4

16.6

The lease agreements are in the name of Crosslands Research Laboratories Limited which was merged with Ranbaxy Laboratories Limited, erstwhile company that was merged with the Company under Sections 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of Gujarat and of Punjab and Haryana.

Located in Goa admeasuring 18,450 Square metres

2.7

2.6

Located in Punjab admeasuring 323,866 Square metres

213.2

208.3

The lease agreements are in the name of Ranbaxy Laboratories Limited, erstwhile company that was merged with the Company under Sections 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Courts of Gujarat and of Punjab and Haryana.

Located in Madhya Pradesh admeasuring 630,552 Square metres

222.4

217.8

Located in Gujarat admeasuring 24,000 Square metres

0.7

0.6

The lease agreement is in the name of Gujarat Lyca Limited, erstwhile company that was merged with the Company under Sections 391 to 394 of the Companies Act, 1956 in terms of the approval of the Honorable High Court of Gujarat.

(ii) As explained to us, the inventories, excluding stocks with some of the third parties, were physically verified during the year by the Management at reasonable intervals and no material discrepancies were noticed on physical verification. In respect of inventories lying with third parties, these have substantially been confirmed by them.

(iii) In respect of loans, secured or unsecured, granted by the Company to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under Section 189 of the Companies Act, 2013 (“the Act”):

(a) In our opinion and according to the information given to us, the terms and conditions of the grant of such loan is, in our opinion, prima facie, not prejudicial to the interest of the Company.

(b) In respect of loans granted to a wholly owned subsidiary, where the aggregate amount involved is Rs.4.8 Million (including interest accrued), the repayments or receipts of principal amounts and interest, where due during the year, have been regular as per stipulations and in respect of loans granted to an associate, there is no repayment or receipt of the principal amount of Rs.512.0 Million and the interest thereon of Rs.214.9 Million, which are overdue as per the stipulations.

(c) There is no overdue amount remaining outstanding as at the balance sheet date except in respect of amounts of Rs.512.0 Million and Rs.199.1 Million of principal and interest respectively, aggregating to Rs.711.1 Million, given to an associate, which has been overdue for more than 90 days, where there is no evidence of reasonable steps having been taken for the recovery of the principal outstanding or interest receivable. As represented by the Management of the Company, the Company is evaluating various options to recover its dues in respect of the principal amount and interest.

Refer Note 59(1) to the standalone Ind AS financial statements.

(iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Section 186 of the Act in respect of grant of loans, making investments and providing guarantees and securities, as applicable. During the year, the Company has not granted any loans covered under Section 185 of the Act.

(v) In our opinion and according to the information and explanations given to us, the Company has not accepted any deposit from the public in accordance with the provisions of Sections 73 to 76 or any other relevant provisions of the Act and the rules framed thereunder and hence reporting under clause (v) of paragraph 3 of the Order is not applicable.

(vi) The maintenance of cost records has been specified by the Central Government under sub-section (1) of Section 148 of the Act. We have broadly reviewed the cost records maintained by the Company pursuant to the Companies (Cost Records and Audit) Rules, 2014, as amended, prescribed by the Central Government under sub-section (1) of Section 148 of the Act, and are of the opinion that, prima facie, the prescribed cost records have been made and maintained. We have, however, not made a detailed examination of the cost records with a view to determine whether they are accurate or complete.

(vii) According to the information and explanations given to us, in respect of statutory dues:

(a) The Company has generally been regular in depositing undisputed statutory dues, including Provident Fund, Employees’ State Insurance, Income-tax, Sales Tax, Service Tax, Customs Duty, Excise Duty, Value added Tax, Cess and other material statutory dues applicable to it with the appropriate authorities, though there have been slight delays in few cases.

(b) There were no undisputed amounts payable in respect of Provident Fund, Employees’ State Insurance, Income-tax, Sales Tax, Service Tax, Customs Duty, Excise Duty, Value added Tax, Cess and other material statutory dues in arrears as at 31st March, 2017 for a period of more than six months from the date they became payable.

(c) Details of dues of Income-tax, Sales Tax, Service Tax, Customs Duty, Excise Duty and Value added Tax which have not been deposited as at 31st March, 2017 on account of disputes, are given below:

Name of Statute

Nature of Dues

Forum where dispute is pending

Period to which the amount relates

Amount involved (Rs. in Million)#

Amount paid / adjusted under protest (Rs. in Million)

Income Tax Act,

Income Tax,

Commissioner (Appeals)

2003-04, 2005-06, 2006-07, 2010-

2,617.2

3,923.6

1961

Interest and Penalty

11 and 2012-13

Income Tax Appellate

1995-96 and 2007-08 to 2011-12

27,193.9

11,828.5

Tribunal (ITAT)

Sales Tax Act/

Sales Tax, Interest

Assistant / Additional /

1999-00, 2000-01, 2003-04, 2004-

24.8

2.1

VAT (Various

and Penalty

Senior Joint Commissioner

05, 2013-14 and 2014-15

States)

Appellate Authority

1998-99, 2008-09, 2012-13 to 2014-15

7.2

3.1

Tribunal

1998-99 to 2003-04, 2008-09 and 2014-15

6.1

2.3

High Court

1999-00, 2001-02 to 2003-04 and 2005-06 to 2010-11

53.2

6.4

Entry Tax

Madhya Pradesh Commercial Tax Appellate Board

2009-10

2.5

The Central

Service Tax

Customs, Excise and

2006 to 2015

49.7

6.8

Excise Act,

Service Tax Appellate

1944

Tribunal (CESTAT), Delhi

Customs Act,

Customs Duty,

Commissioner (Appeals)

2014-15

13.8

10.8

1962

Penalty and Interest

CESTAT

2015-16

118.7

-

The Central

Excise Duty,

Settlement Commission

2000-01

4.2

-

Excise Act,

Interest and

1944

Penalty

Commissioner

2001-02 to 2015-16

50.2

5.3

(Appeals)

Tribunal

2002-03 to 2014-15

1,783.6

449.5

High Court

2002-03 to 2014-15

70.9

9.7

# Net of amount paid / adjusted under protest

(viii) In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of loans or borrowings to financial institutions, banks and government. The Company has not issued any debentures.

(ix) In our opinion and according to the information and explanations given to us, money raised by way of the term loans have been applied by the Company during the year for the purposes for which they were raised. The Company has not raised money by way of initial public offer, further public offer (including debt instruments) during the year.

(x) To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company by its officers or employees has been noticed or reported during the year.

(xi) In our opinion and according to the information and explanations given to us, the Company has paid managerial remuneration in excess of the limits and approvals prescribed under Section 197 read with Schedule V to the Act, to the following managerial personnel:

Managerial Position

Excess amount of remuneration paid (Rs. in Million)

Financial year ended

Treatment of the excess remuneration in the respective year standalone financial statements

Steps taken by the Company for securing refund

Managing Director

22.9

31st March, 2015

Charged to the Statement of

We have been informed by the Management

Profit and Loss

of the Company that they have re-represented to the office of the Ministry of Corporate

12.3

31st March, 2016

Charged to the Statement of

Affairs for approval of remuneration within

Profit and Loss

the overall limits approved by the members of

22.5

31st March, 2017

Charged to the Statement of

the Company for the years ended 31st March,

Profit and Loss

2015 and 31st March, 2016, and that for the

Whole time

26.7

31st March, 2015

Charged to the Statement of

year ended 31st March, 2017, applications

Director(s)

Profit and Loss

for revision in the remuneration, as approved

17.3

31st March, 2016

Charged to the Statement of

by the members of the Company, has been

Profit and Loss

made to the Ministry of Corporate Affairs.

22.2

31st March, 2017

Charged to the Statement of

The responses in respect of the foregoing re

Profit and Loss

representation / applications for revision are awaited from the Ministry of Corporate Affairs. Refer Note 59(11) to the standalone Ind AS financial statements.

(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of paragraph 3 of the Order is not applicable.

(xiii) In our opinion and according to the information and explanations given to us, the Company is in compliance with Sections 177 and 188 of the Act, where applicable, for all transactions with the related parties identified by the Management of the Company, and the details of related party transactions have been disclosed in the standalone Ind AS financial statements as required by the applicable accounting standards.

(xiv) During the year, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures and hence reporting under clause (xiv) of paragraph 3 of the Order is not applicable to the Company.

(xv) In our opinion and according to the information and explanations given to us, during the year, the Company has not entered into any non-cash transactions with its directors or directors of its subsidiary or associate company or persons connected with them and hence provisions of Section 192 of the Act are not applicable.

(xvi) The Company is not required to be registered under Section 45-IA of the Reserve Bank of India Act, 1934.

For DELOITTE HASKINS & SELLS LLP

Chartered Accountants

(Firm’s Registration No. 117366W/W-100018)

RAJESH K. HIRANANDANI

Place: Mumbai Partner

Date: 26th May, 2017 (Membership No. 36920)

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