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Auditor Report of Panacea Biotec Ltd.

Mar 31, 2015

Report on the Standalone Financial Statements

1. We have audited the accompanying standalone financial statements of Panacea Biotec Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended and a summary of the significant accounting policies and other explanatory information.

Management's Responsibility for the Standalone Financial Statements

2. 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 financial statements, that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended). This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act; safeguarding the assets of the Company; 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 financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

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

4. 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.

5. We conducted our audit 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 financial statements are free from material misstatement.

6. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. 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 financial statements.

7. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the standalone financial statements.

Basis for Qualified Opinion

8. As stated in note 53 to the standalone financial statements, during the year ended March 31, 2015, the Company had received advance research fees from a customer amounting to Rs.197.2 million which has been accounted for as income from research and development. In our opinion, the recognition of such advances as income is not consistent with the revenue recognition principles prescribed under the Accounting Standard – 9 (AS-9) 'Revenue Recognition'. Had the Company followed the principles of AS-9 with respect to these amounts, the revenue for the year ended March 31, 2015 would have been lower by Rs.197.2 million and the loss for the year ended March 31, 2015 would have been higher by Rs.197.2 million. Further, the reserves and surplus as at that date would have been lower by Rs.197.2 million and current liabilities as at that date would have been higher by Rs.197.2 million.

Qualified Opinion

9. In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the aforesaid standalone 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 March 31, 2015, its loss and its cash flows for the year ended on that date.

Emphasis of Matters

10. We draw attention to Note 44 to the standalone financial statements regarding payment of managerial remuneration of Rs.37.5 million and Rs.37.2 million for the financial years ended March 31, 2014 and 2013 respectively, which is in excess of the limits specified by the relevant provisions of the Companies Act, 1956, by Rs.13.5 million and Rs.13.2 million respectively. The Company has fled necessary application to the Central Government which is pending approval as on date. Pending the ultimate outcome of the aforesaid matter which is presently unascertainable, no adjustments have been recorded in the statement. Our report is not qualified in respect of this matter.

11. We draw attention to note 45 to the standalone financial statements which indicates that the Company has incurred a net loss of Rs.652.3 million for the year ended March 31, 2015. Further as of that date, the Company's current liabilities exceeded its current assets by Rs.3,835.3 million. These conditions along with other matters as set forth in aforesaid note indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Our report is not qualified in respect of this matter.

Other matter

12. The audit of the standalone financial statements for the previous year ended March 31, 2014, included in the standalone financial statements was carried out and reported by S.R. Batliboi & Co. LLP vide their unqualified audit report dated May 30, 2014, whose audit report has been furnished to us and which have been relied upon by us for the purpose of our audit of the standalone financial statements. Our audit report is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

13. As required by the Companies (Auditor's Report) Order, 2015 ("the Order") issued by the Central Government of India in terms of Section 143(11) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order.

14. As required by Section 143(3) of the Act, we report that:

a. we have sought and, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b. except for the effects of the matter described in the Basis for Qualified Opinion paragraph, 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 standalone financial statements dealt with by this report are in agreement with the books of account;

d. except for the effects of the matter described in the Basis for Qualified Opinion paragraph, in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended);

e. the matter described in paragraph 11 under the Emphasis of Matters above, in our opinion, may have an adverse effect on the functioning of the Company;

f. on the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2015 from being appointed as a director in terms of Section 164 (2) of the Act; and

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, in our opinion and to the best of our information and according to the explanations given to us:

i. as detailed in Note 28 to the standalone financial statements, the Company has disclosed the impact of pending litigations on its standalone financial position;

ii. the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and

iii. there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company.

Annexure To the Auditors' Report

Based on the audit procedures performed for the purpose of reporting a true and fair view on the financial statements of the Company and taking into consideration the information and explanations given to us and the books of account and other records examined by us in the normal course of audit, we report that:

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

(b) The Company has a regular program of physical verification of its fixed assets under which fixed assets are verified 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. No material discrepancies were noticed on such verification.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.

(b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory and no material discrepancies between physical inventory and book records were noticed on physical verification.

(iii) The Company has not granted any loan, secured or unsecured to companies, firms or other parties covered in the register maintained under Section 189 of the Act. Accordingly, the provisions of clauses 3(iii)(a) and 3(iii)(b) of the Order are not applicable.

(iv) In our opinion, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas.

(v) In our opinion, the Company has complied with the directives issued by the Reserve Bank of India, the provisions of Sections 73 to 76 and other relevant provisions of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended) as applicable, with regard to the deposits accepted. According to the information and explanations given to us, no order has been passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal, in this regard.

(vi) 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 sub-section (1) of Section 148 of the Act in respect of Company's products and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. However, we have not made a detailed examination of the cost records.

(vii) (a) Undisputed statutory dues including provident fund, employees' state insurance, income-tax, sales-tax, wealth tax, service tax, duty of customs, duty of excise, value added tax, cess and other material statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, though there has been a slight delay in a one case. Further, no undisputed amounts payable in respect thereof were outstanding at the year-end for a period of more than six months from the date they became payable.

(b) The dues outstanding in respect of income-tax, sales- tax, wealth tax, service tax, customs duty, excise duty, value added tax and cess on account of any dispute, are as follows:

Amount Paid Amount Name of the statute Nature of dues Under Protest (Rs. in million) (Rs. in million)

Income Tax Act, 1961 Disallowance in respect of certain 162.2 96.6 purchases and expense items

Income Tax Act, 1961 Disallowance in respect of certain 3,294.9 - purchases and expense items

The Finance Act, 1994 Demand raised for service tax by 72.6 Nil Assessing Offer

Customs Act, 1962 Duty levied on exempted goods 4.0 4.0

Name of the Statute Period to which the Forum where dispute amount relates is pending

Income Tax Act, 1961 Assessment Year CIT(Appeals) 2005-06

Income Tax Act, 1961 Assessment Year CIT(Appeals) 2006-07 to 2012-13

The Finance Act, 1994 Financial Year 2003-04 Custom Excise & Service to 2011-12 Tax Appellate Tribunal

Customs Act, 1962 Financial Year 2001-02 Hon'ble Supreme Court

(c) The Company has transferred the amount required to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder within the specified time.

(viii) In our opinion, the Company's accumulated losses at the end of the financial year are more than fifty percent of its net worth. The Company has incurred cash losses in the current and the immediately preceding financial year.

(ix) As explained in Note 47 to the financial statements, after receiving the approvals for rescheduling its loans from the banks, the Company has not defaulted in repayment of its dues to any bank during the year. The Company has no dues payable to any financial institution or debenture- holders during the year.

(x) The Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, the provisions of clause 3(x) of the Order are not applicable.

(xi) In our opinion, the Company has applied the term loans for the purpose for which these loans were obtained.

(xii) No fraud on or by the Company has been noticed or reported during the period covered by our audit.

For Walker Chandiok & Co LLP

(Formerly Walker, Chandiok & Co) Chartered Accountants

Firm's Registration No.: 001076N/N500013

per Anupam Kumar

Place : New Delhi Partner

Date : May 30, 2015 Membership No.: 501531


Mar 31, 2014

We have audited the accompanying financial statements of Panacea Biotec Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2014, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with accounting principles generally accepted in India, including the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956, read with General Circular 8/2014 dated 4 April 2014 issued by the Ministry of Corporate Afairs. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the 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 financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the efectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the 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:

a) in the case of the Balance Sheet, of the state of afairs of the Company as at March 31, 2014;

b) in the case of the Statement of Profit and Loss, of the loss for the year ended on that date; and

c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

Emphasis of Matter We draw attention to:

a) Without qualifying our opinion, we draw attention to Note 45 to the financial statements regarding the managerial remuneration of Rs.37.5 million and Rs.37.2 million for the financial year ending March 31, 2014 and March 31, 2013, which is in excess of the limits specified by the relevant provisions of the Companies Act, 1956, by Rs.13.5 million and by Rs.13.2 million on account of losses incurred during the current year and previous year respectively.

b) Without qualifying our opinion, we draw attention to Note 47 in the financial statements which indicates that the Company during the year has incurred losses of Rs.4.2 million (Previous year Rs.2,301.3 million) (including exceptional income of Rs.2,970.2 million (Previous year Rs.173.1 million)) and as of that date, the Company has net current liabilities of Rs.5,410.1 million (Previous year Rs.1,810.9 million). These conditions, along with other matters as set forth in Note 47 indicate the existence of a material uncertainty that may cast significant doubt about the Company''s ability to continue as a going concern.

Report on other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order") issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 purpose 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, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards notifed under the Companies Act, 1956, read with General Circular 8/2014 dated 4 April 2014 issued by the Ministry of Corporate Afairs;

e) On the basis of written representations received from the directors as on March 31, 2014, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2014, from being appointed as a director in terms of clause (g) of sub- section (1) of section 274 of the Companies Act, 1956.

Annexure referred to in paragraph 1 under the heading "Report on other legal and regulatory requirements" of our report of even date

Re: Panacea Biotec Limited (the Company)

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

b) All fixed assets have not been physically verifed by the management during the year but there is a regular programme of verifcation which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verifcation.

c) There was no disposal of a substantial part of fixed assets during the year.

ii. a) The management has conducted physical verifcation of inventory at reasonable intervals during the year.

b) The procedures of physical verifcation of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verifcation.

iii. a) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii)(a) to (d) of the Order are not applicable to the Company and hence not commented upon.

e) The Company has taken loans from 10 parties covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.864.6 million and the year-end balance of loans taken from such parties was Rs.760.8 million.

f) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

g) In respect of loans taken, repayment of the principal amount is as stipulated, however payment of interest has been delayed in certain cases which are as follows:

i. Cases where interests have been paid with delays during the year

Loan Amount of Interest Period for which interest was due Period in which interest was paid (Rs. in million)

Loans from directors 10.9 June 2013 - September 2013 July 2013 - December 2013

Fixed Deposits from directors'' relative 4.1 June 2013 - September 2013 July 2013 - December 2013

Loans from Trinidhi Finance Pvt. Ltd. 0.1 June 2013 - September 2013 December 2013

Loans from Radhika Heights Ltd. 9.3 June 2013 - September 2013 July 2013 – March 2014

II. Cases where interests remains in arrears as on March 31, 2014

Loan Amount of Interest Period for which interest was due Subsequent status (Rs. in million)



Loan from Directors 10.4 December 2013 – March 2014 Paid subsequently during April, 2014

Fixed Deposit from Directors'' Relatives 4.3 December 2013 – March 2014 Paid subsequ -ently during April, 2014

Loan from Radhika Heights Ltd. 11.6 September 2013 – March 2014 Rs.4.5 million Paid subsequently during May'' 2014

Loan from Trinidhi Finance Pvt. Ltd. 0.1 September 2013 – March 2014 Not yet paid

iv. In our opinion and according to the information and explanations given to us, and having regard to the explanation that some of the fixed assets & raw materials purchased are unique and specialized nature and alternate sources do not exist for obtaining comparative quotations thereof, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness or continuing failure to correct any major weakness in the internal control system of the company in respect of these areas.

v. a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under section 301 have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

vi. In respect of deposits accepted, in our opinion and according to the information and explanations given to us, directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed there under, to the extent applicable, have been complied with. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vii) In our opinion, the Company has an internal audit system commensurate with the size of the Company 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, related to the manufacture of pharmaceuticals goods, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.

ix. a) Undisputed statutory dues including provident fund, investor education and protection fund, employees'' state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities though there has been a slight delay in a few cases of TDS, service tax and wealth tax. In respect of custom duty, dues have not been deposited with the appropriate authorities. Refer para (ix) (b) below for the details.

b) According to the information and explanations given to us, undisputed amounts payable in respect of provident fund, investor education and protection fund, employees'' state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable are as follows:

Name of the Nature of dues Amount Period to which the Due date Date of statute (Rs. in million) amount relates Payment

Customs Act, Custom Duty including interest (relating to expired 20.7 Financial Year July 25, 2013 and Not yet paid 1962 advance licenses) 2013-14 October 10, 2013

c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty and cess on account of any dispute, are as follows:

Name of the Nature of dues Amount Period to which statute (Rs. in million) the amount relates

Income Tax Demand raised by Assessing Officer 0.9 Assessment Year Act, 1961 2007-08 & 2008-09

Income Tax Demand raised by Assessing Officer 3.9 Assessment Year Act, 1961 2009-10

The Finance Service Tax Demand raised by Assessing Officer 9.9 Financial Year Act, 1994 2003-04 to 2011-12

The Finance Service Tax Demand raised by Assessing Officer 62.7 Financial Year Act, 1994 2009-10 & 2010-11



Name o the statute Forum where dispute is pending

Income Tax Act, 1961 Appeal pending with AO

Income Tax Act, 1961 Appeal pending with CIT(Appeals)

The Finance Act, 1994 Pending with CESTAT and Assessing Officer

The Finance Act, 1994 Pending with Commissioner, Service Tax

x. The Company''s accumulated losses at the end of the financial year are more than fifty per cent of its net worth. The Company has incurred cash losses in the current and immediately preceding financial year.

xi) Based on our audit procedures and as per the information and explanations given by the management, the Company has defaulted in repayment of loan installments, interests on borrowings and has also overdrawn cash credit facilities availed from various banks during the year. The details of amount and period of defaults are as follows:

I. Cases where repayments of loan installments have been delayed or defaulted during the year

Loan Installment amount Due date of Installment Status (Rs. in million)

Indian Overseas Bank - Term loan 125.0 March 31, 2014 Not yet paid

II. Cases where interests on long term and short term borrowings have been paid with delays during the year

Loan Amount of Interest Period for which interest was due Period in which interest was paid (Rs. in million)

State Bank of India - Term Loan I 63.4 June''2013 - August''2013 July''2013 - November''2013

State Bank of India - Term Loan II 30.8 June''2013 - August''2013 July''2013 - October''2013

State Bank of India - Term Loan III 12.4 June''2013 - September''2013 July''2013 - January''2014

State Bank of Travancore - Term Loan 65.8 June''2013 - September''2013 July''2013 - January''2014

Indian Overseas Bank - Term loan 39.7 June''2013 - September''2013 July''2013 - March''2014

Bank Of India - Term Loan 41.6 April''2013 - September''2013 December''2013 - March''2014

Axis Bank - Cash Credit 0.3 November''2013 December ''2013

State Bank of Travancore - Cash Credit 3.5 November''2013 - December''2013 January''2014

III. Cases where interests on long term and short term borrowings have not been deposited during the year and remains in arrears as on March 31, 2014

Loan Amount of interest Period for which interest was due Subsequent Status (Rs. in million)

State Bank of India - Term Loan I 154.7 September''2013 - March''2014 Rs. 13.0 million has been

State Bank of India - Term Loan II 73.6 September''2013 - March''2014 subsequently paid during April''2014

State Bank of India - Term Loan III 19.4 September''2013 - March''2014 to May''2014

State Bank of Travancore - Term Loan 101.9 October''2013 - March''2014 Not yet paid

Indian Overseas Bank - Term loan 61.1 October''2013 - March''2014 Rs. 41.0 million has been subsequently paid during April'' 2014

Bank Of India - Term Loan 39.6 October''2013 - March''2014 Not yet paid

State Bank of Travancore - Cash Credit 4.2 February''2014 - March''2014 Not yet paid

State Bank of Mysore - Cash Credit 11.7 November''2013 - March''2014 Not yet paid

State Bank of India - Cash Credit 51.2 December''2013 - March''2014 Not yet paid

IV. Cases where cash credit facilities availed from banks have been overdrawn during the year

Name of the bank Sanctioned limit of Maximum amount No. of days for Status as on March 31, 2014* Drawing Power overdrawn which the account (Rs. in million) (Rs. in million) was overdrawn

State Bank of India 627.6 - 797.1 283.0 263 Overdrawn by Rs.270.5 million

Indian Overseas Bank 196.1 – 250.0 51.9 331 Overdrawn by Rs.19.6 million

IDBI Bank 78.5 – 100.0 34.3 130 Account within the sanctioned limits

Union Bank of India 196.1 – 250.0 53.4 335 Account within the sanctioned limits

State Bank of Travancore 117.7 – 150.0 48.1 328 Overdrawn by Rs.31.9 million

Bank Of India 258.9 – 330.0 71.7 334 Overdrawn by Rs.33.8 million

State Bank of Mysore 145.1 – 185.0 39.4 315 Overdrawn by Rs.0.9 million

Canara Bank 156.9 – 200.0 42.7 283 Account within the sanctioned limits * Status as on March 31, 2014 has been arrived on the basis of the drawing power for the month of November, 2013.

The Company did not have any outstanding dues in respect of a financial institution or debentures during the year.

xii) According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

xvi) Based on the information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.

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 funds amounting to Rs.3,851 million raised on short term basis in the form of short term borrowings and increase in the current liabilities have been used for long-term investment representing acquisition of fixed assets, funding of losses and investment in subsidiary companies.

xviii) The Company has not made any preferential allotment of shares to parties or 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) During the year under review, the Company has not raised any money through public issue, hence clause 4(xx) of the Companies (Auditor''s Report) Order, 2003 (as amended) is not applicable to the Company.

xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year.

For S.R. Batliboi & Co. LLP Firm registration number: 301003E Chartered Accountants

per Rajiv Goyal Place : New Delhi Partner Dated: May 30, 2014 Membership No. 94549


Mar 31, 2013

Report on the Financial Statements

We have audited the accompanying fnancial statements of Panacea Biotec Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2013, and the Statement of Proft and Loss and Cash Flow Statement for the year then ended, and a summary of signifcant accounting policies and other explanatory information.

Management''s Responsibility for the Financial Statements

Management is responsible for the preparation of these fnancial statements that give a true and fair view of the fnancial position, fnancial performance and cash fows of the Company in accordance with accounting principles generally accepted in India, including the Accounting Standards referred to in sub- section (3C) of section 211 of the Companies Act, 1956 ("the Act"). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the fnancial 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 fnancial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fnancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fnancial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the fnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company''s preparation and fair presentation of the fnancial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the fnancial statements. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the fnancial 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:

a) in the case of the Balance Sheet, of the state of afairs of the Company as at March 31,2013;

b) in the case of the Statement of Proft and Loss, of the loss for the year ended on that date; and

c) in the case of the Cash Flow Statement, of the cash fows for the year ended on that date.

Emphasis of Matter

We draw attention to:

a) Note 46 to the fnancial statements regarding the managerial remuneration of Rs.37.2 million for the fnancial year ending March 31, 2013, which is in excess of the limits specifed by the relevant provisions of the Companies Act, 1956, by Rs.13.2 million on account of losses incurred during the current year. The Company has initiated steps to obtain approval from Central Government in respect to excess remuneration paid. Pending outcome of the steps taken, no adjustments have been made to the accompanying fnancial statements. Our opinion is not qualifed in respect of this matter.

b) Note 47 to the fnancial statements regarding delisting of Company''s DTP-based combination and monovalent hepatitis B vaccines by World Health Organization (WHO) from its list of pre-qualifed vaccines. Company has stock of raw & packing material and fnished goods of Rs.324.6 million and Rs.394.2 million respectively as at March 31, 2013 of these vaccines which is considered saleable by the management. Further impact if any, of the delisting above products on fxed assets cannot be separately quantifed. As mentioned in the said note, the Company has been taking steps in order to get these products re-listed in the list of prequalifed vaccines of WHO. Pending outcome of the above measures, no adjustments have been made to the accompanying fnancial statements. Our opinion is not qualifed in respect of this matter.

Report on other Legal and Regulatory Requirements

1. As required by the Companies (Auditor''s Report) Order, 2003 ("the Order”) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specifed in paragraphs 4 and 5 of the Order.

2. As required by section 227(3) of the Act, 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 purpose 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, statement of proft and loss and cash fow statement dealt with by this report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Statement of Proft and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956;

e) on the basis of the written representations received from the directors, as on March 31, 2013, and taken on record by the Board of Directors, we report that none of the directors is disqualifed as on March 31, 2013 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

Annexure referred to in paragraph 1 under the heading "Report on other legal and regulatory requirements” of our report of even date

Re: Panacea Biotec Limited (the Company)

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

b) All fxed assets have not been physically verifed by the management during the year but there is a regular programme of verifcation which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verifcation.

c) There was no disposal of a substantial part of fxed assets during the year.

ii. a) The management has conducted physical verifcation of inventory at reasonable intervals during the year.

b) The procedures of physical verifcation of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verifcation.

iii. a) According to the information and explanations given to us, the Company has not granted any loans, secured or unsecured to companies, frms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Accordingly, the provisions of clause 4(iii)(a) to (d) of the Order are not applicable to the Company and hence not commented upon.

e) The Company has taken loan from one partnership frm covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.337.6 million and the year-end balance of loans taken from such parties was Rs.337.6 million.

f) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

g) In respect of loans taken, repayment of the principal amount is as stipulated and payment of interest has been regular.

iv. In our opinion and according to the information and explanations given to us, and having regard to the explanation that most of the fxed assets purchased are unique and specialized nature and alternate sources do not exist for obtaining comparative quotations thereof, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fxed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness or continuing failure to correct any major weakness in the internal control system of the company in respect of these areas.

v. a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under section 301 have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees fve lakhs have been entered into during the fnancial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

vi. In respect of deposits accepted, in our opinion and according to the information and explanations given to us, directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed there under, to the extent applicable, have been complied with. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vii. In our opinion, the Company has an internal audit system commensurate with the size of the Company 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, related to the manufacture of pharmaceuticals goods, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.

ix. a) Undisputed statutory dues including provident fund, investor education and protection fund, employees'' state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities though there has been a slight delay in a few cases.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education and protection fund, employees'' state insurance, income-tax, wealth- tax, service tax, sales-tax, customs duty, excise duty cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty and cess on account of any dispute, are as follows:

Name of the Nature of dues Amount statute (Rs. in million)

Income Tax Act, Demand raised by 0.9 1961 Assessing Ofcer

Income Tax Act, Demand raised by 166.1 1961 Assessing Ofcer

The Finance Act, Service Tax Demand 9.9 1994 raised by Assessing Ofcer

Name Period to which the Forum where amount relates dispute is pending

Income Tax Act, Assessment Year Appeal pending 2007-08 & 2008-09 with AO

Income Tax Act, Assessment Year Appeal pending 2005 - 06 & 2009-10 with CIT(Appeals)

Income Tax Act, Financial Year Pending with 2003-04 to CESTAT and 2011-12 Assessing ofcer

x. The Company''s accumulated losses at the end of the fnancial year are less than ffty per cent of its net worth. The Company has incurred cash losses in the current and immediately preceding fnancial year.

xi. Based on our audit procedures and as per the information and explanations given by the management, the Company, while in the process of getting loans rescheduled, has defaulted in repayment of dues to banks amounting to Rs. 994 million during the year. However, subsequently these loans have been rescheduled by the banks and the moratorium period of 1 year and 9 months has been granted by banks. The Company did not have any outstanding dues in respect of a fnancial institution or debentures during the year.

xii. According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii. In our opinion, the Company is not a chit fund or a nidhi / mutual beneft fund / society. Therefore, the provisions

of clause 4(xiii) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

xiv. In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor''s Report) Order, 2003 (as amended) are not applicable to the Company.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or fnancial institutions.

xvi. Based on the information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.

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 no funds raised on short-term basis have been used for long-term investment

xviii. The Company has not made any preferential allotment of shares to parties or 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. During the year under review, the Company has not raised any money through public issue, hence clause 4(xx) of the Companies (Auditor''s Report) Order, 2003 (as amended) is not applicable to the Company.

xxi. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the fnancial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year.

For S.R. Batliboi & Co. LLP

Firm registration number: 301003E

Chartered Accountants

per Rajiv Goyal

Place : Gurgaon Partner

Dated: May 30, 2013 Membership No. 94549


Mar 31, 2012

1. We have audited the attached Balance Sheet of Panacea Biotec Limited ('the Company') as at March 31, 2012 and also the Statement of profit and loss and the cash flow statement for the year ended on that date 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 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 (Auditor's Report) Order, 2003 (as amended) 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. Without qualifying our opinion, we draw attention to:

a) Note 44 to the financial statements regarding expenditure on Pre-clinical development studies which are under progress amounting to Rs. 68.9 million for year ended March 31, 2012 and Rs. 186.5 million as at March 31, 2012. The ultimate approval of such products, which has been considered as highly likely by the management, is not within direct control of the Company. Pending such final approval, no adjustments have been made to the accompanying financial statements.

b) Note 45 to the financial statements regarding the managerial remuneration of Rs. 66.0 million for the financial year ending March 31, 2012, which is in excess of the limits specified by the relevant provisions of the Companies Act, 1956, by Rs. 42.0 million on account of losses incurred during the current year. The Company has initiated steps to obtain approval from Central Government in respect to excess remuneration paid. Pending outcome of the steps taken, no adjustments have been made to the accompanying financial statements.

c) Note 46 to the financial statements regarding delisting of Company's DTP-based combination vaccines and oral polio vaccines by World Health Organization (WHO) from its list of pre-qualified vaccines. Company has stock of raw material and finished goods inventory of Rs.1,526.7 million and Rs.363.0 million respectively as at March 31, 2012 of the above said vaccines. Impact, if any, on fixed assets relating to the delisting of above products cannot be separately quantified. The Company has initiated steps in order to get these products re-listed in the list of prequalified vaccines of WHO. Pending outcome of the above measures, no adjustments have been made to the accompanying financial statements.

5. Further to our comments in the annexure referred to in para 3 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 audit;

ii. 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;

iii. the Balance Sheet, statement of profit and loss and cash flow statement dealt with by this report are in agreement with the books of account;

iv. in our opinion, the balance sheet, statement of profit and loss and 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;

v. on the basis of the written representations received from the directors, as on March 31, 2012, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

vi. 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 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 March 31, 2012;

b) in the case of the statement of profit and loss, of the loss for the year ended on that date; and

c) in the case of cash flow statement, of the cash flows for the year ended on that date.

Annexure referred to in paragraph (3) of our report of even date, Re: Panacea Biotec Limited (the Company')

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

b) All fixed assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification.

c) There was no disposal of a substantial part of fixed assets during the year.

ii. a) The management has conducted physical verification of inventory at reasonable intervals during the year.

b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification.

iii. a) The Company has granted loan to one company covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 654.3 million and the year- end balance of loans (including interest accrued) granted to the party was Rs. 654.3 million.

b) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

c) In respect of loans granted, repayment of the principal amount is as stipulated and payment of interest has been regular.

d) There is no overdue amount of loans granted to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.

e) The Company has taken loan from one partnership firm covered in the register maintained under Section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 472.0 million and the year-end balance of loans taken from such parties was Rs. 277.0 million.

f) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

g) In respect of loans taken, repayment of the principal amount is as stipulated and payment of interest has been regular.

iv. In our opinion and according to the information and explanations given to us, and having regard to the explanation that most of the fixed assets purchased are unique and specialized nature and alternate sources do not exist for obtaining comparative quotations thereof, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, we have not observed any major weakness or continuing failure to correct any major weakness in the internal control system of the company in respect of these areas.

v. a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under section 301 have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements and exceeding the value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

vi. In respect of deposits accepted, in our opinion and according to the information and explanations given to us, directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956, and the rules framed there under, to the extent applicable, have been complied with. We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal.

vii. In our opinion, the Company has an internal audit system commensurate with the size of the Company 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, related to the manufacture of pharmaceuticals goods, and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.

ix. a) Undisputed statutory dues including provident fund, employees' state insurance, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues have generally been regularly deposited with the appropriate authorities.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education and protection fund, employees' state insurance, income-tax, wealth- tax, service tax, sales-tax, customs duty, excise duty cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty and cess on account of any dispute, are as follows:

Name of the Nature of dues Amount Period to which the Forum where statute (Rs. in million) amount relates dispute is pending

Income Tax Act, Income tax Demand 38.4 Assessment Year Appeal pending 1961 raised by Assessing from 2003-04 to with High Court Officer 2008-09

Income Tax Act, Demand raised by 0.8 Assessment Year Appeal pending 1961 Assessing Officer 2007-08 with AO

Income Tax Act, Demand raised by 11.8 Assessment Year Appeal pending 1961 Assessing Officer 2009-10 with CIT (Appeals)

The Finance Act, Service Tax Demand 50.0 Financial Year Pending with 1994 raised by Assessing 2003-04 to CESTAT Officer 2007-09

The Finance Act, Service tax Demand 2.1 Financial Year Pending with 1994 raised by Assessing 2009-10 Assessing Officer Officer

x. The Company has no accumulated losses at the end of the financial year. The Company has incurred cash losses during the year. In the immediately preceding financial year, the Company had not incurred cash loss.

xi. Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to a financial institution or bank.

xii. According to the information and explanations given to us and based on the documents and records produced before us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

xiv. In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

xvi. Based on the information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.

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 no funds raised on short-term basis have been used for long-term investment

xviii.The Company has not made any preferential allotment of shares to parties or 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. During the year under review, the Company has not raised any money through public issue, hence clause 4(xx) of the Companies (Auditor's Report) Order, 2003 (as amended) is not applicable to the Company.

xxi. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the year.

For S.R.Batliboi & Co.

Firm registration number: 301003E

Chartered Accountants

per Rajiv Goyal

Place: New Delhi Partner

Date: May 18, 2012 Membership No. 94549


Mar 31, 2011

1. We have audited the attached Balance Sheet of Panacea Biotec Limited ('the Company') as at March 31, 2011 and also the Profit and Loss account and the cash flow statement for the year ended on that date 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 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 (Auditor's Report) Order,2003 (as amended) 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. Without qualifying our opinion, we draw attention to:

a) Note 17 of Schedule XX-C to the financial statements regarding capitalization of expenditure on clinical trials amounting to Rs. 67.2 million for year ended March 31, 2011 and Rs. 596.4 million as of March 31, 2011. The ultimate approval of such products, which has been considered as highly likely by the management, is not within direct control of the Company. Pending such final approval, no adjustments have been made to the accompanying financial statements.

b) Note 5 (b) of Schedule XX-C to the financial statements regarding the managerial remuneration of Rs.63 million for the financial year ending 31 st March 2009, which is in excess of the limits specified by the relevant provisions of the Companies Act, 1956, by Rs. 38.2 million. The Company had already obtained approval from Central Government vide its letters dated December 23, 2009, February 15, 2011 and February 18, 2011 in respect to excess remuneration paid amounting to Rs. 29.1 million and for the balance excess remuneration of Rs. 9.1 million, requisite approval is awaited. Pending such final approval, no adjustments have been made to the accompanying financial statements.

5. Further to our comments in the annexure referred to in para 3 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 audit;

ii. 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;

iii. the Balance Sheet,Profit and Loss Account and cash flow statement dealt with by this report are in agreement with the books of account;

iv. in our opinion, the balance sheet, profit and loss account and 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.

v. on the basis of the written representations received from the directors, as on March 31,2011, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31,2011 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

vi. 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 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 March 31,2011;

b) in the case of the profit and loss account, of the profit for the year ended on that date; and

c) in the case of cash flow statement, of the cash flows for the year ended on that date.

Annexure referred to in paragraph [3] of our report of even date. Re: Panacea Biotec Limited

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

b) All fixed assets have not been physically verified by the management during the year but there is a regular program of verification, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed in respect of the fixed assets physically verified during the year.

c) There was no substantial disposal of fixed assets during the year.

ii. a) The management has conducted physical verification of inventory at reasonable intervals during the year.

b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification carried out at the end of the year.

iii. a) The Company has granted loan to one company covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 771.1 million and the year- end balance of loans (including interest accrued) granted to the party was Rs. 490.4 million.

b) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

c) The loans granted are re-payable on demand. As informed, the company has not demanded repayment of any such loan during the year,thus, there has been no default on the part of the party to whom the money has been lent. The payment of interest for loans has been regular.

d) There is no overdue amount of loans granted to company, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.

e) The Company has taken loan from one partnership firm covered in the register maintained under Section 301 of the Companies Act, 1956.The maximum amount involved during the year was Rs. 362 million and the year-end balance of loans taken from such parties was Rs. 360 million.

f) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

g) In respect of loans taken, repayment of the principal amount is as stipulated and payment of interest has been regular.

iv. In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system of the company.

v. a) Accordingtotheinformationandexplanationsprovided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act that need to be entered into the register maintained under section 301 have been so entered.

b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs have been entered into during the financial year at prices which are reasonable having regard to the prevailing market prices at the relevant time.

vi. In respect of deposits accepted, in our opinion and according to the information and explanations given to us, directives issued by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the rules framed there under,to the extent applicable, have been complied with.We are informed by the management that no order has been passed by the Company Law Board, National Company Law Tribunal or Reserve Bank of India or any Court or any otherTribunal.

vii. In our opinion, the Company has an internal audit system commensurate with the size of the Company and the 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.

ix. a) Undisputed statutory dues including provident fund, employees' state insurance, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to it have generally been regularly deposited with the appropriate authorities except for slight delay in few cases in Income tax where amount involved is not significant.

Further, since the Central Government has till date not prescribed the amount of cess payable under section 441 A of the Companies Act, 1956, we are not in a position to comment upon the regularity or otherwise of the company in depositing the same.

b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, employees' state insurance, investor education and protection fund, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and other material undisputed statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable.

c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty and cess on account of any dispute,are as follows:

Nameofthe Nature of dues Amount Period to which the Forumwhere statute (Rs in million) amount relates dispute is pending

Income Tax Act, Income tax Demand 27.5 Assessment Year Appeal pending 1961 raised by Assessing 2003-04 with High Court Officer

Income Tax Act, Demand raised by 0.9 Assessment Year Appeal pending 1961 Assessing Officer 2005-06 with ITAT

Income Tax Act, Demand raised by 2.2 Assessment Year Appeal pending 1961 Assessing Officer 2006-07 with ITAT

Income Tax Act, Demand raised by 4.8 Assessment Year Appeal pending 1961 Assessing Officer 2007-08 with ITAT

Income Tax Act, Demand raised by 4.9 Assessment Year Appeal pending 1961 Assessing Officer 2008-09 with CIT(Appeals)

The Finance Act, Service Tax Demand 50.0 Financial Year Pending with 1994 raised by Assessing 2003-04to CESTAT Officer 2007-09

The Finance Act, Service tax Demand 2.1 Financial Year Pending with 1994 raised by Assessing 2009-10 Assessing Officer Officer

Central Excise Act, Excise Duty Demand 1.7 Financial Year Pending with 1944 raised by Assessing 2000-01 to Assessing Officer Officer 2001-02

x. The Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in the current and immediately preceding financial year.

xi. Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to a financial institution or bank.

xii. According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

xiii. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditor's Report) Order,2003 (as amended) are not applicable to the Company.

xiv. In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly,the provisions of clause 4(xiv) of the Companies (Auditor's Report) Order, 2003 (as amended) are not applicable to the Company.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

xvi. Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.

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 no funds raised on short-term basis have been used for long-term investment.

xviii.The Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the Companies Act, 1956.

xix. The Company had unsecured 'Zero Coupon Convertible Bonds due 2011'outstanding which have been redeemed during the year.

xx. During the year under review, the Company has not raised any money through public issue, hence clause 4(xx) of the Companies (Auditor's Report) Order, 2003 (as amended) is not applicable to the Company.

xxi. Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

For S.R.Batliboi& Co.

Firm registration number: 301003E

Chartered Accountants

per Rajiv Goyal

New Delhi Partner

May 13,2011 Membership No.: 94549

 
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