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Notes to Accounts of Panacea Biotec Ltd.

Mar 31, 2015

1. Corporate information

Panacea Biotec Limited ("the Company") is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on stock exchanges in India. The Company is one of the India's leading research based health management companies engaged in the business of research, development, manufacture and marketing of branded Pharmaceutical Formulations and Vaccines. The Company has products for various segments, which include pain management, diabetes management, organ transplantation, oncology and pediatric vaccines.

2. Basis of Preparation

The financial statements have been prepared on going concern basis under the historical cost basis, in accordance with the generally accepted accounting principles in India and in compliance with the applicable accounting standards ("AS") specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 (as amended). All assets and liabilities have been classified as current or non-current as per the companies operating cycle and other criteria set out in the Companies Act, 2013.

3 i) Contingent Liabilities (to the extent not provided for)

(Rs. in million)

Particulars As at As at March 31 , 2015 March 31 , 2014

Disputed demands/show-cause notices under:-

a) Income tax cases (refer note (a) below) 3,457.1 167.0

b) Customs duty cases (refer note (b) below) 4.0 4.0

c) Central excise duty cases (refer note (c) below) - 6.6

d) Service tax (refer note (d) below) 72.6 72.6

Total 3,533.7 250.2

Bank guarantee 39.6 99.8

Labour cases (in view of large number of cases, it is impracticable to disclose each case) 1.3 1.5

Notes:

a) i) Includes income tax demand of Rs.162.2 million in respect to AY 2005-06. Income tax department raised demand based on certain ground related with purchase made by the Company from an overseas party. Out of total demand of Rs.162.2 million, Rs.96.6 million has been set of by the tax authorities from the refund due to the Company from the department pertaining to various years .The matters related to Income Tax demand are still pending with CIT (Appeals). The Company believes that it has merit in these cases, hence no provision is required.

ii) A search operation was conducted by Income Tax department in the premises of the Company in January, 2012 and hence Company has fled the income tax return for the Assessment Year 2006-07 to Assessment year 2012-13.The Income Tax department has completed the Income Tax assessment and disallowed certain expenses and raised the income tax demand of Rs.3,294.9 million (including interest) has been raised on various grounds. The Company has preferred appeals before the CIT (Appeals) towards the order of Income Tax department and based on the legal opinion the Company is hopeful that the Income Tax demand shall be deleted in appeal.

b) In respect of custom duty demand, the Assessing Offer levied custom duty on certain exempted items imported by the Company. The Company has deposited the entire amount of demand under protest amounting to Rs.4.0 million and the matter is pending before Hon'ble Customs, Excise and Service Tax Appellate Tribunal. The Company believes that it has merit in its case, hence no provision is required.

c) In respect of central excise duty demand, the Assessing Offer levied excise duty on common inputs used in manufacture of exempted and taxable products. During the year, the matter has been decided in favour of the Company by the Hon'ble Customs, Excise and Service Tax Appellate Tribunal.

d) In respect of service tax demand for FY 2003-04 to FY 2011-12, the Assessing Offer levied service tax on foreign services rendered & delivered outside India by the Company & certain others services on which there was no liability to pay service tax. The Company believes that it has merit in its case, hence no provision is required.

ii) The Company had manufactured and offered supply of certain vaccines which were manufactured against the confirmed order received from the Ministry of Health and Family Welfare (MOH&FW). Some quantities of vaccines were supplied during December 2011, the balance could not be supplied in view of disputes with respect to delivery dates and in the meantime the stock of such vaccines amounting to Rs.74.1 million expired. Further, the Company had also received advance market commitment (AMC) amounting to Rs.100 million against these vaccines. The refund of the advance so received (after adjusting the amount receivable against the vaccines already supplied) has been demanded back by MOH&FW along with interest on account of non-supply of balance quantities of vaccines. In view of above disputes, the Company obtained a stay order from the Hon'ble Delhi High Court against recovery of said amount, till the disputes are finally resolved through arbitration. While the arbitral proceedings are on, the Company believes that the entire amount in respect of above supplies (after adjusting the AMC amount) including the amount of expired stock and applicable interest thereon is recoverable and no interest is payable on the said AMC amount. Based on legal opinion, no adjustment in respect of the expired stock and the interest amount has been made in the financial statements.

4. Related Party Disclosures

A. Names of related parties and related party relationships

i) Parties where control exists

Subsidiaries - Radhika Heights Limited ("RHL") (formerly Best On Health Limited) (Wholly-owned subsidiary ("WOS"))

Radicura Infra Limited (formerly Radicura & Co. Limited). ((Indirect WOS ("IWOS") through RHL), Nirmala Buildwell Private Limited (formerly Panacea Hospitality Services Private Limited). (IWOS through RHL) Cabana Construction Private Limited (formerly Panacea Educational Institute Private Limited). (IWOS through RHL) Sunanda Infra Limited (formerly Sunanda Steel Company Limited). (IWOS through RHL) Nirmala Organic Farms & Resorts Private Limited (IWOS through RHL) Cabana Structures Limited (formerly Best On Health Foods Limited). (IWOS through RHL) Rees Investments Limited ("Rees") (Guernsey): (WOS) Kelisia Holdings Limited ("KHL") (Cyprus) (IWOS through Rees)

Kelisia Investment Holding AG ("KIH") (Switzerland) (IWOS through KHL) (liquidated on October 7,2014) Panacea Biotec (International) SA ("PBS") (Switzerland) (WOS) Panacea Biotec Germany GmbH (Germany) (IWOS through PBS) Panacea Biotec GmbH (Germany) (WOS) (under liquidation) Panacea Biotec FZE, (UAE) (WOS) (liquidated on June 18,2013) NewRise Healthcare Private Limited (Formerly Umkal Medical Institute Private Limited): (Subsidiary)

ii) Other related parties with whom transactions has taken place during the year:

a) Joint Ventures - Chiron Panacea Vaccines Private Limited (Under liquidation)

- Adveta Power Private Limited,

b) Associates - PanEra Biotec Private Limited

c) Key Management - Mr. Soshil Kumar Jain - Chairman and Whole-time Director Personnel - Mr. Ravinder Jain - Managing Director

- Dr. Rajesh Jain - Joint Managing Director

- Mr. Sandeep Jain - Joint Managing Director

- Mr. SumitJain - Whole-time Director

- Mr. Vinod Goel - Group CFO and Head Legal & Company Secretary

- Mr. Partha Sarthe De - Chief Financial Offer (Upto November 30,2014)

- Mr. Devender Gupta - Chief Financial Offer & Head Information Technology (w.e.f. May 29,2015)

(d) Relatives of Key Management personnel having transactions with the Company:

Mr. Ashwani Jain, Son-in-law of Mr. Soshil Kumar Jain

Mr. Shagun Jain, Son-in-law of Mr. Ravinder Jain

Mrs. Nirmala Jain, Wife of Mr. Soshil Kumar Jain

Mrs. Sunanda Jain, Wife of Mr. Ravinder Jain

Mrs. Meena Jain, Wife of Dr. Rajesh Jain

Mrs. Radhika Jain, Daughter of Mr. Ravinder Jain

Mrs. Shilpy Jain, Wife of Mr. Sumit Jain

Mr. Ankesh Jain, Son of Dr. Rajesh Jain

Mr. Harshet Jain, Son of Dr. Rajesh Jain

(e) Enterprises over which Person(s) having control or significant influence over the Company / Key management personnel(s), along with their relatives, are able to exercise significant influence:

Neophar Alipro Limited

Lakshmi& Manager Holdings Limited ("LMH") and its subsidiaries, Trinidhi Finance Private Limited and Best General Insurance company Limited

First Lucre Partnership Co. (holding shares in the Company)

5. Segment Information

The primary segment reporting format is determined to be business segments as the company's risk and rates of return are affected predominantly by differences in the products and services produced and sold. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Business segments:

The Company is engaged in the business of research, development, manufacture and marketing of Vaccines and Branded Pharmaceutical Formulations. The Company has products for various segments, which include pediatric vaccines, pain management, diabetes management and organ transplantation.

6. Employee benefits

The Company has a defend benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs.1.0 million (except in case of Managing/ Joint Managing/ Whole time Directors). The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarises the components of net benefit expense recognised in the statement of profit and loss and the funded status and amounts recognised in the balance sheet for the respective plans.

7. During the year 2013-14, the Company had paid managerial remuneration of Rs.37.5 million. The amount paid as managerial remuneration has exceeded the limits prescribed under Section 198 and 309 read with Part II of Schedule XIII to the Companies, Act, 1956 by Rs.13.5 million due to unexpected losses during the previous year. Also, during the FY 2012-13 the Company paid managerial remuneration of Rs.37.2 million which exceeded the limits prescribed in aforesaid provisions of the Companies Act by Rs.13.2 million. During the FY 2013-14, the Company had fled applications to obtain approvals from Central Government in respect to excess remuneration paid for FY 13-14 and FY 12-13. Pending outcome of the application filled with the Central Government, no adjustments have been made in the financial statements.

8. During the year ended March 31, 2015, the company has incurred losses of Rs.652.3 million (Previous year: Rs.4.2 million after adjusting exceptional income of Rs.2,970.1 million). Further, the Company's accumulated losses have resulted in erosion of more than fifty percent of its peak net worth calculated as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The continuous losses have also adversely affected the cash flows of the Company. These conditions, read with note 46 below, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. The Company has undertaken several measures to mitigate the risk, which include supply to UNICEF/other customers of pentavalent vaccine; certain strategic alliances with foreign collaborators for supply of vaccines and pharma products including three collaboration agreements signed during the year ended March 31, 2015; Additionally, as explained in note 47 below, the management has successfully executed the MRA with the lenders of the Company. Management is confident that it will be able to comply with all key conditions and successfully implement the MRA. Based on the above measures and continuous efforts to improve the business, Management believes that it would be able to generate sustainable cash flow, recover and recoup the erosion in its net worth through profitable operations, discharge its obligations as they fall due and continue as a going concern.

9. During the year, the Company has executed a Corporate Debt Restructuring (CDR) scheme under the CDR mechanism of the Reserve Bank of India ('RBI'). In accordance with the approved CDR scheme and after attaining super-majority with all banks except one, the Company executed a Master Restructuring Agreement (MRA) with the lenders on 27 December 2014, with an effective date of 01 October 2013. The MRA, inter-alia, provides for waiver of certain existing obligations of the Company, restructuring of repayment terms for principal and interest, reduction/ adjustment in interest rates, conversion of outstanding interest amounts to loan, pledge of entire promoter shareholding as additional security to lenders, promoter undertaking for additional infusion of funds, monitoring oversight and certain restrictive covenants, as defend. The debt obligations, including interest thereon, have been measured, classified and disclosed in these financial statements in accordance with the MRA, to the extent agreed with the banks. However, MRA implementation is subject to reconciliations with certain banks and completion of other terms and conditions.

10. During the year ended March 31, 2015, no exchange difference has been capitalised as there were no long term foreign currency monetary items related to acquisition of capital assets. During the financial year 2012-13, the Company exercised the option as per the Companies (Accounting Standards) (Second Amendment) Rules, 2011 whereby, exchange differences related to long term foreign currency monetary items so far as they relate to the acquisition of depreciable capital assets are capitalised or de-capitalised from cost of assets and depreciated over the useful life of the assets. In other cases, such exchange differences are accumulated in a "Foreign currency monetary item translation difference account" and amortised over the balance period of such long term assets/ liabilities. Unamortised balance of "Foreign currency monetary item translation difference account" of Rs.202.0 million (Previous year Rs.196.8 million) as on March 31, 2015 is included under the head "Reserve and surplus".

11. As at March 31, 2015, an amount of Rs.678.8 million (previous year Rs.630.1 million) including interest of Rs.48.7 million (previous year Rs.94.6 million) is receivable from its wholly owned subsidiary viz. Rees Investment Limited (Rees) Pursuant to the accumulated losses in Rees & its other subsidiaries, the Company assessed that the loan repayment capability of Rees Investments Limited has been adversely affected. Accordingly, the amount of Rs.678.8 million (Previous year Rs.630.1 million) has been provided for as 'Provision for bad and doubtful advances'.

12. The Company had given an advance of Rs.176.8 million (USD 3.4 million) in financial year 2007-08 pursuant to the agreements for acquiring certain properties from Ilyas & Mustafa Galadari Management Investment & Development L.L.C., U.A.E. (Ilyas). As per the said agreements, the properties were expected to be handed over in financial year 2008-09. However, due to inordinate delays in completion of project, properties could not be delivered to the Company in time. After extensive discussions and negotiations, the Company has entered into new agreements with them, as per which the Company will get 1 commercial unit and 8 residential units (having combined area more than that of properties agreed earlier) for a consideration equivalent to the advance given earlier. The possession of new properties is expected in financial year 2015- 16. The Company believes that the market value of the properties is more than the advance given under the earlier agreements; therefore, no adjustment is required to be provided for in respect of the advance.

13. The Company avails CENVAT credit on input and input services used as per the provision of the relevant applicable laws. Balance with excise, custom etc. amounting to Rs.99.5 million under the head Loans & Advances, includes an amount of Rs.58.6 million which relates to accumulated amount of CENVAT Credit availed by the company on input services utilised by it. With the current level of excisable manufacturing activities, the Company utilises lesser amount of CENVAT credit as compared to the amount so accumulated every year of CENVAT credit on such input services. However, as per the provisions of service tax laws, there is no time limit on utilisation of CENVAT Credit availed. Therefore, based on future business plans, the Company is confident that it will be able to fully utilise the accumulated amount of CENVAT Credit so availed by distributing it to its manufacturing units and utilising it in subsequent years.

14. The assets of Rs.333.6 million (Previous year Rs.352.5 million) recognized by the Company as 'MAT Credit Entitlement' under the head 'Loans and advances' represents that portion of MAT liability, which can be recovered and set of in subsequent years based on provisions of Section 115JAA of the Income Tax Act, 1961. The management, based on the future profitability projections and other factors disclosed under note 45, is of the view that there would be sufficient taxable income in foreseeable future, which will enable the Company to utilize MAT credit assets as per the relevant provisions of the Income Tax Act, 1961. The management is confident that no losses are expected in this regard and accordingly no adjustment is required in the financial statements.

15. The Company has received Research & Development (R&D) fees of Rs.149.9 million and Rs.47.3 million from a customer during quarters ended June 30, 2014 and December 31, 2014, respectively and has accounted for these as income. Such R&D fees are non-refundable subject to certain pre-conditions (as defend in the agreement) being met by the Company. As the product is already available in the domestic market, the Company is reasonably certain of meeting the pre-conditions and therefore believes that the said fees should be accounted for as income.

16. 0.0 under "Rs. in million" represents amount less than Rs.50,000 and 0.0 under units represents units less than 50,000.

17. Previous year figures have been regrouped / reclassified, where necessary, to conform to this year's classification.


Mar 31, 2014

1. Corporate information

Panacea Biotec Limited ("the Company") is a public Company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on stock exchange in India. The Company is one of the India''s leading research based health management companies engaged in the business of research, development, manufacture and marketing of branded Pharmaceutical Formulations and Vaccines. The Company has products for various segments, which include pain management, diabetes management, organ transplantation, pediatric vaccines.

2. Basis of Preparation

The financial statements have been prepared to comply in accordance with generally accepted accounting in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notifed under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956 read with General Circular 8/2004 dated April 04, 2014 issued by the Ministry of Corporate Afairs. The financial statements have been prepared on a going concern basis under the historical cost convention on an accrual basis except in case of assets for which revaluation is carried out.

The accounting policies adopted in the preparation of financial statement are consistent with those of previous year except for the change in accounting policy explained below.

3 i) Contingent Liabilities (to the extent not provided for) (Rs. in million)

Particulars As at As at March 31 , 2014 March 31 , 2013

Disputed demands/ show-cause notices under:- a) Income tax cases (refer note (a) below) 167.0 167.0

b) Customs duty cases (refer note (b) below) 4.0 4.0

c) Central excise duty cases (refer note (c) below) 6.6 6.6

d) Service tax (refer note (d) below) 72.6 9.9

Total 250.2 187.5

Bank Guarantee 99.8 98.9 Labour cases (in view of large number of cases, it is impracticable to disclose each of them) 1.5 1.5

Notes:

a) Includes income tax demand of Rs.162.2 million in respect to AY 2005-06. Income tax department raised demand based on certain grounds related with purchases made by the Company from an overseas party. The demand of Rs.162.2 million has been set of by the tax authorities from the refund due to the Company from the department pertaining to various years. The matters related to income tax demand are still pending with tax/judicial authorities. Company believes that it has merit in these cases, hence no provision is required.

b) In respect of custom duty demand, the Assessing Officer levied custom duty on certain exempted items imported by the Company. Company has deposited the entire amount of demand under protest and the matter is pending before Hon''ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

c) In respect of central excise duty demand, the Assessing Officer levied excise duty on common inputs used in manufacture of exempted and taxable products. Company has deposited the entire amount of demand under protest and the matter is pending before the Hon''ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

d) In respect of service tax demand, the Assessing Officer levied service tax on foreign services rendered & delivered outside India by the Company & certain others services on which there was no liability to pay service tax. Company believes that it has merit in its case, hence no provision is required.

ii) During the financial year 2011-12, a search operation was conducted by Income tax department under section 132 of the Income Tax Act, 1961. During the search operation, certain explanations were demanded and some documents were seized by the tax authorities. Further, the Company provided details as and when required by the Income tax authorities and the Company has not received any demand order related to search operation. Also, in connection with the search operation, the Company received notices under section 153A which required the Company to fle income tax returns for six assessments years i.e. from AY 2006-07 to 2011-12. Liability if any, cannot be quantifed at this stage of the proceedings. The management believes that the transactions of the Company are fully compliant with relevant provisions of the Income Tax Act, 1961 and hence, no provision is required.

iii) The Company had manufactured and ofered supply of certain vaccines which were manufactured against the confirmed order received from the Ministry of Health and Family Welfare (MOH&FW). Some quantities of vaccines were supplied during December 2011, the balance could not be supplied in view of disputes with respect to delivery dates and in the meantime the stock of such vaccines amounting to Rs.74.1 million got expired. Further, the Company had also received advance market commitment (AMC) amounting to Rs.100 million against these vaccines. The refund of the advance so received (after adjusting the amount receivable against the vaccines already supplied) has been demanded back by MOH&FW along with interest on account of non-supply of balance quantities of vaccines. In view of above disputes, the Company obtained a stay order from the Hon''ble Delhi High Court against recovery of said amount, till the disputes are finally resolved through arbitration. While the arbitral proceedings are on, the Company believes that the entire amount in respect of above supplies (after adjusting the AMC amount) including the amount of expired stock and applicable interest thereon is recoverable and no interest is payable on the said AMC amount. Based on legal opinion, no adjustment in respect of the expired stock and the interest amount has been made in the financials.

b) Other commitments :

i) Export commitments of Rs. 2,332.2 million (Previous year Rs. 2,778.7 million) under advance licenses Schemes.

ii) The Company has received financial assistance in the form of soft loan under various projects from Government authorities. As per the terms of related agreements, Company is also required to incur expenditure in form of Company''s contribution to the relevant project. Further, the Company has to repay these loans as per terms of respective agreement. The amount of commitment is not quantifable.

iii) The Company has entered into an agreement with other shareholders of its subsidiary company, namely NewRise Healthcare Private Limited (formerly Umkal Medical Institute Private Limited) to acquire the remaining stake in the subsidiary company. The Company has already purchased part of these shares during the current year at an aggregate value of Rs.11.4 million. As per the terms of the agreement, the Company is required to pay further amount of Rs.93.6 million towards purchase of balance shares in 2014-15 and post such purchase of shares, the subsidiary company will become a wholly owned subsidiary company of the Company.

iv) For commitments relating to lease arrangements, refer note 36.

4. Related Party Disclosures

A. Names of related parties and related party relationships i) Related parties where control exists

Subsidiaries

- Radhika Heights Ltd. ("RHL") (formerly Best On Health Ltd. (Wholly-owned subsidiary (WOS))

- Radicura Infra Ltd. (formerly Radicura &Co. Ltd. (Indirect WOS (IWOS) through RHL),

- Nirmala Buildwell Pvt. Ltd. (formerly Panacea Hospitality Services Pvt. Ltd. (IWOS through RHL)

- Cabana Construction Pvt. Ltd. (formerly Panacea Educational Institute Pvt. Ltd. (IWOS through RHL)

- Sunanda Infra Ltd. (formerly Sunanda Steel Company Ltd. (IWOS through RHL)

- Nirmala Organic Farms & Resorts Pvt. Ltd. (IWOS through RHL)

- Cabana Structures Ltd. (formerly Best On Health Foods Ltd. (IWOS through RHL)

- Rees Investments Ltd. ("Rees") (Guernsey): (WOS)

- Kelisia Holdings Ltd. ("KHL") (Cyprus) (IWOS through Rees)

- Kelisia Investment Holding AG ("KIH") (Switzerland) (IWOS through KHL) (under liquidation)

- Panacea Biotec (International) SA ("PBS") (Switzerland) (WOS)

- Panacea Biotec Germany GmbH (Germany) (Indirect WOS through PBS)

- Panacea Biotec GmbH (Germany) (WOS) (under liquidation)

- Panacea Biotec FZE, (UAE) (WOS) (liquidated on June 18,2013)

- NewRise Healthcare Pvt. Ltd. (Formerly Umkal Medical Institute Pvt. Ltd.: (Subsidiary)

- Lakshmi & Manager Holdings Ltd. ("LMH") WOS*

- Trinidhi Finance Pvt. Ltd. ("Trinidhi") (IWOS through LMH)*

- Best General Insurance Company Ltd. ("Best General") (indirect subsidiary through LMH))*

*The shares held in LMH have been sold to related parties during the year and LMH and its subsidiaries (Trinidhi and Best General) cease to be Company''s subsidiary company w.e.f. 25.1.2014.

ii) Other related parties with whom transactions has taken place during the year

a) Joint Ventures

- Chiron Panacea Vaccines Pvt. Ltd. (under liquidation) (Refer note 37(e)

- Adveta Power Pvt. Ltd.,

b) Associates - PanEra Biotec Pvt. Ltd.

c) Key Management - Mr. Soshil Kumar Jain - Chairman and Whole-time Director Personnel - Mr. Ravinder Jain - Managing Director

- Dr. Rajesh Jain - Joint Managing Director

- Mr. Sandeep Jain - Joint Managing Director

- Mr. SumitJain - Whole-time Director

(d) Relatives of Key Management personnel having transactions with the Company: Mr. Ashwani Jain, Son-in-law of Mr. Soshil Kumar Jain Mr. Shagun Jain, Son-in-law of Mr. Ravinder Jain Mrs. Radhika Jain, Daughter of Mr. Ravinder Jain Mrs. Shilpy Jain, Wife of Mr. Sumit Jain Mr. Ankesh Jain, Son of Dr. Rajesh Jain

(e) Enterprises over which person(s) having control or significant infuence over the Company / Key management personnel(s), along with their relatives, are able to exercise significant infuence:

- Neophar Alipro Ltd.

- First Lucre Partnership Co.*

- LMH, Trinidhi and Best General with efect from 25.01.2014 *This enterprise is also holding shares in the Company.

5. Segment Information

The primary segment reporting format is determined to be business segments as the company''s risk and rates of return are afected predominantly by diferences in the products and services produced and sold. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that ofers diferent products and serves diferent markets.

Business Segments :

The Company is engaged in the business of research, development, manufacture and marketing of Vaccines and Branded Pharmaceutical Formulations. The Company has products for various segments, which include pediatric vaccines, pain management, diabetes management and organ transplantation.

d) Contingent liabilities (to the extent not provided for) - Nil (Previous year Nil).

e) The Company had entered into "Dissolution of Joint Venture Agreement" dated November 30, 2012 w.r.t. its Joint Venture Chiron Panacea Vaccines Pvt. Ltd. in the previous year, whereby the Joint Venture partners have desired and mutually agreed to an early termination of the Joint Venture Agreement. As per the dissolution agreement, the joint venture between both the partners has been terminated w.e.f. January 31, 2013. The liquidation proceedings of the Joint Venture Company have already commenced and are in progress as on March 31, 2014.

However, as per the agreement both Joint Venture partners will exercise equal control over the management till the final liquidation of Joint Venture. Therefore as per the provisions of Accounting Standard – 27, the Joint Venture Company has been considered as jointly controlled entity for the purpose of preparation of financial statements.

6. The Company has a Defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs.1.0 million (except in case of Managing/ Joint Managing/ Whole time Directors). The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognized in the statement of Profit and loss and the funded status and amounts recognized in the balance sheet for the respective plans.

7. The Company has paid managerial remuneration of Rs.37.5 million during the current year. The amount paid as managerial remuneration has exceeded the limits prescribed under Section 198 and 309 read with Part II of Schedule XIII to the Companies, Act, 1956 by Rs.13.5 million due to unexpected losses during the current year. Also, during the previous year the Company paid managerial remuneration of Rs.37.2 million which exceeded the limits prescribed in aforesaid provisions of the Companies Act by Rs.13.2 million. During the year, the Company has fled applications to obtain approvals from Central Government in respect to excess remuneration paid for current and previous year. Pending outcome of the application fled with the Central Government, no adjustments have been made in the financial statements.

8. During the quarter ended September 30, 2011, World Health Organization (WHO) had delisted Company''s DTP-based combination vaccines from its list of pre-qualified vaccines. The company made substantive eforts since September 2011 and has revamped the whole Quality Management System at its Lalru and Baddi sites enabling it to get pre-qualified by WHO once again. During the month of February/March, 2013, representatives from WHO and UNICEF visited the Company''s vaccine facilities at Lalru (Punjab) and Baddi (H.P.) with the objective of re-evaluation of the acceptability in principle of Pentavalent Vaccine (DTP-Hep B-Hib) produced by Panacea Biotec for purchase by United Nations Agencies. World Health Organization (WHO) has completed the evaluation process of pre-qualification (PQ) of Pentavalent Vaccine (Easyfive-TT) and has pre-qualified company''s vaccine product in the month of October in current year. The Company has also received UNICEF Award for supply of DTP-HepB-Hib (Pentavalent) Vaccine (Easyfive-TT) to UNICEF for the period 2014-2016. The supplies for the same have already commenced.

9. The Company 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)) during the year ended March 31, 2014 and as of that date, the Company has net current liabilities of Rs.5,410.1 million (Previous year Rs.1,810.9 million). Further, the Company''s accumulated losses have resulted in erosion of more than fifty percent of its peak net worth calculated as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The fact of such erosion and measures initiated to improve financial condition has been reported to the Board for Industrial and Financial Restructuring ("BIFR") within the stipulated period. Further, the continuous losses also have adversely afected the cash flows of the Company. The Company has undertaken certain measures to mitigate the risk of going concern which includes supply to UNICEF/other customers of pentavalent vaccine, certain strategic alliances with foreign collaborators for supply of vaccines and pharma products and launching its frst product Tacrolimus in USA in December 2012 and fling of ANDAs with USFDA. Further, the Company has also submitted a proposal for the comprehensive debt restructuring with Corporate Debt Restructuring (CDR) Cell which has been admitted by CDR Cell and the financial package is being finalized by the Monitoring Institution, viz. State Bank of India. The management is confdent that with the above measures and continuous eforts to improve the business, it would be able to generate sustainable cash fow, discharge its short-term and long term liabilities and recover & recoup the erosion in its net worth through Profitable operations and continue as a going concern. Accordingly, these financial statements have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern. 48. The Company has fled its proposal for Comprehensive Debt Restructuring with Corporate Debt Restructuring (CDR) Cell on 21.12.2013. The proposal has been admitted by CDR cell for further processing in its meeting held on 24.1.2014. State Bank of India (SBI) has been appointed as the Monitoring Institute (MI) to prepare a financial package under the CDR scheme. SBI is in the process of finalizing the draft package for its financial restructuring and shall submit the same with CDR cell in due course. The management is confdent that Comprehensive Debt Restructuring proposal would get approved in due course.

10. On account of continuous losses as explained in the note 47 above, the cash flows of the Company have been adversely afected which has resulted into certain delays and defaults in repayment of loan installments, interests on long term and short term borrowings and overdrawing of cash credit facilities availed from banks during the year. The following tables summarize the details of amount and period of defaults in each case.

11. During the previous year, the Company exercised the option as per the Companies (Accounting Standards) (Second Amendment) Rules, 2011. As per the option, exchange diferences related to long term foreign currency monetary items so far as they relate to the acquisition of depreciable capital assets are capitalized or de-capitalized from cost of assets and depreciated over the useful life of the assets. In other cases, such exchange diferences are accumulated in a "Foreign currency monetary item translation diference account" and amortized over the balance period of such long term assets/liabilities. Accordingly, exchange diferences of Rs.Nil (previous year Rs.312.8 million) have been capitalized during the year and unamortized balance of "Foreign currency monetary item translation diference account" of Rs.196.8 million (Previous year Rs.102.4 million) as on March 31, 2014 is included under the head "Reserve & surplus".

12. As at March 31, 2014, an amount of Rs.630.1 million (previous year Rs.694.7 million) including interest of Rs.94.6 (previous year Nil) is receivable from its wholly owned subsidiary viz. Rees Investments Ltd. Pursuant to the accumulated losses in Rees & its other subsidiaries, Company assessed that the loan repayment capability of Rees Investment Ltd. has been adversely afected. Accordingly, the amount of Rs.630.1 million (Previous year Rs.536.2 million) has been provided for as ''Provision for bad and doubtful advances''.

13. The Company received a capital subsidy of Rs.Nil (Previous year Rs.3.0 million) under the Central Investment Subsidy Scheme, 2003 based on investment in plant and machinery as it manufacturing unit at Baddi, in the state of Himachal Pradesh which is in the nature of promoters'' contribution. This has been treated as a capital reserve in book of accounts.

14. The Company had given an advance of Rs.176.8 million (3.4 million USD) in financial year 2007-08 pursuant to the agreements for acquiring certain properties from M/s Ilyas & Mustafa Galadari Management Investment & Development L.L.C., U.A.E. (Ilyas). As per the agreements entered into with them, the properties were expected to be handed over in financial year 2008-09. However, due to inordinate delays in completion of project, properties could not be delivered to the Company in time. After extensive discussions and negotiations, the Company has entered into new agreements with them, as per which the Company will get 1 commercial unit and 8 residential units (having combined area more than that of properties agreed earlier) for a consideration equivalent to the advance given earlier. The possession of new properties is expected in 2015. The Company believes that the market value of the properties is more than the advance given under the earlier agreements, therefore, no adjustment is required to be provided for in respect of the advance.

15. The Company avails CENVAT credit on input and input services used as per the provision of the relevant applicable laws. Balance with excise, custom etc. amounting to Rs.81.8 million under the head Loans & Advances, includes an amount of Rs.33.7 million which relates to accumulated amount of CENVAT Credit availed by the company on input services utilized by it. With the current level of excisable manufacturing activities, the Company utilizes lesser amount of CENVAT credit as compared to the amount so accumulated every year of CENVAT credit on such input services. However, as per the provisions of service tax laws, there is no time limit on utilization of CENVAT Credit availed. Therefore, based on future business plans, the Company is confdent that it will be able to fully utilize the accumulated amount of CENVAT Credit so availed by distributing it to its manufacturing units and utilizing it in subsequent years.

16. The assets of Rs.352.5 million (Previous year Rs.352.5 million) recognized by the Company as ''MAT Credit Entitlement'' under the head ''Loans and advances'' represents that portion of MAT liability, which can be recovered and set of in subsequent years based on provisions of Section 115JAA of the Income Tax Act, 1961. The management, based on the future Profitability projections and other factors disclosed under note 47 and 48, is of the view that there would be sufcient taxable income in foreseeable future, which will enable the Company to utilize MAT credit assets as per the relevant provisions of the Income Tax Act, 1961. The management is confdent that no losses are expected in this regard and accordingly no adjustment is required in the financial statements.

17. a) In terms of the Accounting Standard -16 "Borrowing Costs", the foreign exchange diferences arising from foreign currency borrowings to the extent regarded as an adjustment to interest cost were treated as borrowing cost in earlier years. However, in the previous year in pursuance of the clarifcation issued by Ministry of Corporate Afairs vide its circular no. 25/2012 dated August 9, 2012, the Company changed its accounting policy w.e.f. April 1, 2011 and accounted for the aforesaid foreign exchange diferences arising from foreign currency borrowings as per AS-11 - "The Efects of Changes in Foreign Exchange Rates". Consequent to the above, exchange diference of Rs.Nil (Previous year Rs.173.1 million), which was earlier recognized as borrowing cost pertaining to the financial year 2011-12, was reversed and shown as an exceptional item.

b) In earlier years, the Company had subscribed to 7,211,666 0.5% Optionally Convertible Non-Cumulative Redeemable Preference Shares of Re.1 each at a premium of Rs.299 per share in Radhika Heights Limited (formerly Best on Health Limited). During the current year, as per the terms of the agreement, the Company exercised its right of conversion of preference shares into equity shares and accordingly, 2,874,159 equity shares of Re.1 each at a premium of Rs.1,169 per share have been allotted to the Company aggregating to Rs.3,362.8 million equivalent to the redemption value of preference shares as on date of such allotment of equity shares (including redemption premium of Rs.1,199.3 million). The aforesaid premium on redemption of preference shares has been shown as exceptional item in the statement of Profit and loss. Post such allotment of equity shares in the current year, the Company holds 4,776,319 equity shares of Re.1 each in Radhika Heights Limited (formerly Best on Health Limited) as on March 31, 2014 and the value of total investment stands at Rs.3,385.6 million.

18. 0.0 under "Rs. in million" represents amount less than Rs.50,000 and 0.0 under units represents units less than 50,000.

19. Previous year figures have been regrouped / reclassified, where necessary, to conform to this year''s classification.


Mar 31, 2013

1. Corporate information

Panacea Biotec Limited ("the Company”) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on stock exchange in India. The Company is one of the India''s leading research based health management companies engaged in the business of research, development, manufacture and marketing of branded Pharmaceutical Formulations and Vaccines. The Company has products for various segments, which include pain management, diabetes management, organ transplantation, pediatric vaccines.

2. Basis of Preparation

The fnancial statements have been prepared to comply in accordance with generally accepted accounting in India (Indian GAAP). The company has prepared these fnancial statements to comply in all material respects with the accounting standards notifed under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The fnancial statements have been prepared on a going concern basis under the historical cost convention on an accrual basis except in case of assets for which revaluation is carried out (also refer note 47).

The accounting policies adopted in the preparation of fnancial statement are consistent with those of previous year.

3 i) Contingent Liabilities (to the extent not provided for)

(Rs. in million) Particulars As at As at March 31, 2013 March 31, 2012

Disputed demands/ show-cause notices under:-

a) Income tax cases (refer note (a) below) 167.0 4.8

b) Customs duty cases (refer note (b) below) 4.0 4.0

c) Central excise duty cases (refer note (c) below) 6.6 6.6

d) Service tax (refer note (d) below) 9.9 9.7

Total 187.5 25.1

Bank Guarantee 98.9 159.9 Labour cases (in view of large number of cases, it is impracticable to disclose each of them) 1.5 1.2

Notes:

a) Includes income tax demand of Rs.162.2 million in respect to AY 2005-06. Income tax department raised demand based on certain grounds related with purchases made by the Company from an overseas party. The matters related to income tax demand are pending with tax/judicial authorities. Company believes that it has merit in these cases, hence no provision is required.

b) In respect of custom duty demand, the Assessing Ofcer levied custom duty on certain exempted items imported by the Company. Company has deposited the entire amount of demand under protest and the matter is pending before Hon''ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

c) In respect of central excise duty demand, the Assessing Ofcer levied excise duty on common inputs used in manufacture of exempted and taxable products. Company has deposited the entire amount of demand under protest and the matter is pending before the Hon''ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

d) In respect of service tax demand, the Assessing Ofcer levied service tax on foreign services rendered & delivered outside India by the Company & certain others services on which there was no liability to pay service tax. Company believes that it has merit in its case, hence no provision is required.

ii) During the previous year, a search operation was conducted by Income tax department under section 132 of the Income Tax Act, 1961. During the search operation, certain explanations were demanded and few documents were seized by the tax authorities. Further, the Company provided details as and when required by the tax authorities and the Company has not received any demand order related to search operation. In connection with the search operation, subsequent to the year end, the Company received notices under section 153A which require Company to fle income tax return for six assessments years i.e. from AY 2006-07 to 2011-12. Liability if any, cannot be quantifed at this stage of the proceedings. The management believes that the transactions of the Company are fully compliant with relevant provisions of the Income Tax Act, 1961.

iii) The Company had manufactured and ofered supply of certain vaccines manufactured against confrmed order. Some quantities of vaccines were supplied during December 2011, the balance could not be supplied in view of disputes with respect to delivery dates and in the meantime the stock of such vaccines has expired. Further, the Company has also received advance market commitment (AMC) amount against these vaccines. In view of above disputes, the Company has obtained a stay order from the Hon''ble Delhi High Court against recovery of said amount, till the disputes are fnally resolved through arbitration. While the arbitral proceedings are on, the Company believes that the entire amount in respect of above supplies (after adjusting the AMC amount) and applicable interest thereon is recoverable and no interest is payable on the said AMC amount. Based on legal opinion, no adjustment in respect of the expired stock and the interest amount has been made in the fnancials. Liability if any, cannot be quantifed at this point of time.

4. Capital & other commitments

a) Estimated amount of contracts remaining to be executed on capital account, net of advances and not provided in the books are as follows:

b) Other commitments :

i) Uncalled liability of Rs.Nil (Previous year Rs.33.8 million) on partly paid shares of a subsidiary company, NewRise Healthcare Pvt. Ltd. (Formerly known as Umkal Medical Institute Pvt. Ltd.) (Refer Note : 12 Non current investments).

ii) Export commitments of Rs.2,778.7 million (Previous year Rs.2,617.9 million) under advance licenses Schemes.

iii) The Company has received fnancial assistance in the form of soft loan under various projects from Government authorities. As per the terms of related agreements, Company is also required to incur expenditure in form of Company''s contribution to the relevant project. Further, the Company has to repay these loans as per terms of respective agreement. The amount of commitment is not quantifable.

iv) For commitments relating to lease arrangements, refer note 36.

5. Related Party Disclosures

A. Names of related parties and related party relationships i) Related parties where control exists

Subsidiaries - Best On Health Ltd. ("BOH”) (Wholly-owned subsidiary (WOS))

- Radicura & Co. Ltd. (Indirect WOS through BOH)

- Panacea Hospitality Services Pvt. Ltd. (Indirect WOS through BOH)

- Panacea Educational Institute Pvt. Ltd. (Indirect WOS through BOH)

- Sunanda Steel Company Ltd. (Indirect WOS through BOH)

- Nirmala Organic Farms & Resorts Pvt. Ltd (Indirect WOS through BOH)

- Best On Health Foods Ltd. (Indirect WOS through BOH)

- Rees Investments Ltd. ("Rees”) (Guernsey): (WOS)

- Kelisia Holdings Ltd. ("KHL”) (Cyprus) (Indirect WOS through Rees)

- Kelisia Investment Holding AG ("KIH”) (Switzerland) (Indirect WOS through KHL)

- Panacea Biotec (International) SA("PBS”) (Switzerland) (WOS w.e.f. April 1,2012) (indirect WOS through KIH prior to becoming WOS)

- Panacea Biotec Germany GmbH (Germany) (Indirect WOS through PBS)

- Panacea Biotec (Europe) AG, (Switzerland) (Indirect WOS through PBS) (liquidated on December 15,2011)

- Panacea Biotec GmbH (Germany) (WOS)

- Panacea Biotec FZE, (UAE) (WOS)

- Panacea Biotec, Inc. (USA) (WOS) (liquidated on March 30,2011)

- NewRise Healthcare Pvt. Ltd. (Formerly known as Umkal Medical Institute Pvt. Ltd.: (Subsidiary)

- Lakshmi & Manager Holdings Ltd. ("LMH”) WOS w.e.f. November 24,2011* *Associate Company prior to becoming WOS.

- Trinidhi Finance Pvt. Ltd. (Indirect WOS through LMH) w.e.f. November 24,2011**

** Subsidiary of LMH w.e.f. 6th August, 2011 and became WOS of LMH on October 7, 2011

- Best General Insurance Company Ltd (indirect subsidiary through LMH) w.e.f. November 24,2011

ii) Related parties with whom transactions has taken place during the year

a) Joint Ventures - Chiron Panacea Vaccines Pvt. Ltd. (Refer note 37 e)

- Adveta Power Pvt. Ltd., w.e.f. July 4,2011

b) Associates - PanEra Biotec Pvt. Ltd.

c) Key Management - Mr. Soshil Kumar Jain - Chairman and Whole-time Director Personnel - Mr. Ravinder Jain - Managing Director

- Dr. Rajesh Jain - Joint Managing Director

- Mr. Sandeep Jain - Joint Managing Director

- Mr. SumitJain - Whole-time Director

(d) Relatives of Key Management personnel having transactions with the Company: Mr. Ashwani Jain, Son-in-law of Mr. Soshil Kumar Jain

Mr. Shagun Jain, Son-in-law of Mr. Ravinder Jain Mrs. Radhika Jain, Daughter of Mr. Ravinder Jain Mrs. Shilpy Jain, Wife of Mr. Sumit Jain Mr. Ankesh Jain, Son of Dr. Rajesh Jain

(e) Enterprises over which person(s) having control or signifcant infuence over the Company / Key management personnel(s), along with their relatives, are able to exercise signifcant infuence:

- Neophar Alipro Ltd.

- First Lucre Partnership Co.*

*Holding Shares in the Company.

6. Segment Information

The primary segment reporting format is determined to be business segments as the company''s risks and rates of return are afected predominantly by diferences in the products and services produced and sold. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that ofers diferent products and serves diferent markets.

Business Segments :

The Company is engaged in the business of research, development, manufacture and marketing of Vaccines and Branded Pharmaceutical Formulations. The Company has products for various segments, which include pediatric vaccines, pain management, diabetes management and organ transplantation.

7. The Company has a defned beneft gratuity plan. Every employee who has completed fve years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs.1.0 million (except in case of Managing/ Joint Managing/ Whole time Directors). The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarize the components of net beneft expense recognized in the statement of proft and loss and the funded status and amounts recognized in the balance sheet for the respective plans.

8. The Company has paid managerial remuneration of Rs.37.2 million during the year. The amount paid as managerial remuneration has exceeded the limits prescribed under Section 198 and 309 read with Part II of Schedule XIII to the Companies, Act, 1956 by Rs.13.2 million due to unexpected losses during the current year. The Company has initiated steps to obtain approval from Central Government for the excess remuneration paid.

9. During the year 2011-12, following a routine site audit, World Health Origination (WHO) delisted the Company''s DTP-based combination and monovalent hepatitis B vaccines from its list of pre-qualifed vaccines on account of defciencies in quality management system. However, the issue was not about the quality, safety or efcacy of the products. Since then, the Company has taken several corrective and preventive measures to ensure compliance with the WHO pre- qualifcation guidelines.

During the year, the auditors from WHO and UNICEF visited the vaccine facilities at Lalru (Punjab) and Baddi (H.P.) in Feb-Mar 2013 with the objective of re-evaluation of the acceptability in principle of combination vaccine (DTP-Hep B-Hib) produced by Panacea Biotec for purchase by United Nations Agencies. There were no critical observations and the Audit Team acknowledged the continuing improvements that have been made in this regard. No critical factors were observed during the course of the audit that would indicate that the combination vaccine produced by the Company would have an unacceptable level of potency, purity, safety and efcacy. In general, the production, quality control, quality assurance and QMS functions relevant to combination vaccine were observed to be in conformity to applicable WHO recommendations. For the above vaccine, the Company has a stock of Rs.324.6 million and Rs.394.2 million of raw & packing material and fnished goods, respectively as at March 31, 2013. Fixed assets relating to above products cannot be quantifed separately. The Company is confdent that with the post audit activities, it will be able to get re-listing of combination vaccine in the list of WHO pre-qualifed vaccines in due course and believes that these stocks would be liquidated in alternate domestic and overseas markets. Pending outcome of above measures, no adjustment has been made to the fnancial statements.

During the year, the Company has incurred net losses of Rs.2,301.3 million mainly because of delisting of its vaccine products from list of pre-qualifed vaccines. However, the Company''s cash fow projections show that credit facilities from banks and internal accruals would be sufcient to meet the working capital and other liquidity requirements associated with the existing operations.

10. During the previous year, the Company exercised the option as per the Companies (Accounting Standards) (Second Amendment) Rules, 2011. As per the option exchange diferences related to long term foreign currency monetary items so far as they relate to the acquisition of depreciable capital assets are capitalized or de- capitalized from cost of assets and depreciated over the useful life of the assets. In other cases, such exchange diferences are accumulated in a "Foreign currency monetary item translation diference account” and amortized over the balance period of such long term assets/ liabilities. Accordingly, exchange diferences of Rs.312.8 million (previous year Rs.245.3 million) have been capitalized during the year and unamortized balance of "Foreign currency monetary item translation diference account” of Rs.(102.4) million (previous year Rs.20.5 million) as on March 31, 2013 is included under the head "Reserve & surplus”. 49. Information in respect of Section 293A (4) of the Companies Act, 1956 pertaining to donations paid of political parties:

11. As at March 31, 2013, an amount of Rs.694.7 million (previous year Rs.654.3 million) including interest of Nil (previous year Rs.36.2 million) is receivable from its wholly owned subsidiary viz. Rees Investment Ltd. Pursuant to the diminution in the value of investment in US based listed company ‘PharmAthene Inc.'' by Rees through its subsidiary and losses in Rees & its other subsidiaries, Company assessed that the loan repayment capability of Rees Investment Ltd. has been adversely afected. Accordingly, amount of Rs.536.2 million (Previous year Rs.421.4 million) has been provided for as ‘Provision for bad and doubtful advances''.

12. In the current year, the Company received a capital subsidy of Rs.3.0 million under the Central Investment Subsidy Scheme, 2003 based on investment in plant and machinery as it manufacturing unit at Baddi, in the state of Himanchal Pradesh which is in nature of promoters'' contribution. This has been treated as capital reserve in book of accounts.

13. The assets of Rs.352.5 million (Previous year Rs.352.5 million) recognized by the Company as ‘MAT Credit Entitlement Account'' under ‘ Loans and advances'' represents that portion of MAT liability, which can be recovered and set of in subsequent years based on provisions of Section 115JAA of the Income Tax Act, 1961. The management, based on present trend of proftability and also the future proftability projections, is of the view that there would be sufcient taxable income in foreseeable future, which will enable the Company to utilize MAT credit assets. The management is confdent that no losses are expected in this regard.

14. 0.0 under "Rs. in million” represents amount less than Rs.50,000 and 0.0 under units represents units less than 50,000.

15. Previous year fgures have been regrouped / reclassifed, where necessary, to conform to this year''s classifcation.


Mar 31, 2012

1. Corporate information

Panacea Biotec Limited ('the Company') is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on stock exchanges in India. The Company is one of the India's leading research based health management companies engaged in the business of research, development, manufacture and marketing of branded Pharmaceutical Formulations and Vaccines. The Company has products for various segments, which include pain management, diabetes management, organ transplantation, pediatric vaccines etc.

2. Basis of Preparation

The financial statements have been prepared to comply in accordance with generally accepted accounting in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on a going concern basis under the historical cost convention on an accrual basis except in case of assets for which revaluation is carried out (also refer note 46). The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year except for the change in accounting policy. The significant accounting policies are as follows:

Notes :

a) Foreign currency term loan from State Bank of India (loan - I) carries interest @ 6 months LIBOR plus 7.5%. The loan is repayable in three installments (i.e. 20% in September 2011, 30% in September 2012 & 50% in September 2013).

b) Foreign currency term loan from State Bank of India (loan - II) carries interest @ 6 months LIBOR plus 5.75%. The loan is repayable in four equal quarterly installments of Rs.17.5 million starting from June 2013 to March 2014.

c) Foreign currency term loan from State Bank of Travancore carries interest @ 6 months LIBOR plus 7.5%. The loan is repayable in three installments (i.e. 20% in September 2011, 30% in September 2012 & 50% in September 2013).

d) Foreign currency term loan from Bank of India carries interest @ 6 months LIBOR plus 4.75%. The loan is repayable in three equal yearly installments commencing at the end of sixth year from the date of first drawdown (i.e. in financial year 2017-18).

e) Indian rupee term loan from State Bank of India carries interest @ SBAR. The loan is repayable in eight quarterly installments starting from June, 2011.

f) Above Foreign currency term loans taken from banks and Indian rupee term loan taken from State Bank of India are secured by way of first pari-passu charge by hypothecation of the Company's entire movable fixed assets, both present and future and mortgage of immovable properties of the Company being land admeasuring 96 bighas, 19 biswas & 93 bighas 12 biswas & 10 biswasi situated at village Samalheri, Tehsil Dera Bassi, District S.A.S. Nagar (Mohali), Punjab and land admeasuring 26 bighas, 3 biswas situated at Village Manpura, Tehsil Nalagarh, District Solan and land admeasuring 91 bighas, 1 biswas situated at Village Malpura, Tehsil Nalagarh, District Solan in the state of Himachal Pradesh and land admeasuring 9435.66 sq. yards situated at Indl. Plot No. E-4, PH-2, Indl. Area, S.A.S Nagar, (Mohali), Punjab. Foreign currency term loans from State Bank of India and Bank of India are also collaterally secured by personal guarantees of the promoter- directors of the Company, viz. Mr. Soshil Kumar Jain, Mr. Ravinder Jain, Dr. Rajesh Jain and Mr. Sandeep Jain.

g) Indian rupee loan from Indian Overseas Bank carries interest @ Base rate plus 1.5% . The loan is repayable in eight equal quarterly installments starting from January, 2014.

h) Term loan from Indian Overseas Bank is secured by way of first pari-passu charge by hypothecation of the company's entire movable fixed assets, both present and future and mortgage of immovable properties of the company being land admeasuring 96 bighas, 19 biswas & 93 bighas 12 biswas & 10 biswasi situated at village Samalheri, Tehsil Dera Bassi, District S.A.S. Nagar (Mohali), Punjab and land admeasuring 26 bighas, 3 biswas situated at Village Manpura, Tehsil Nalagarh, District Solan and land admeasuring 91 bighas, 1 biswas situated at Village Malpura, Tehsil Nalagarh, District Solan in the state of Himachal Pradesh and land admeasuring 9435.66 sq. yards situated at Indl Plot No. E-4, PH-2, Indl. Area, S.A.S Nagar, (Mohali), Punjab. It is also collaterally secured by personal guarantees of the promoter- directors of the Company, viz. Mr. Soshil Kumar Jain, Mr. Ravinder Jain, Dr. Rajesh Jain and Mr. Sandeep Jain.

i) Indian rupee term loans from Government of India through Department of Biotechnology are project specific loans which carry interest @ 2% p.a. These loans are repayable in ten equal half-yearly installments. The repayment of these loans would commence from one year after the completion of the respective projects.

j) Secured term loan from Government of India is secured by way of hypothecation of the company's all equipments, apparatus, machineries, spares, tools and other accessories, goods and/or other movable property present and future by way of first charge on pari-passu basis.

Note: Working capital loans, cash credits & Buyers' credits from banks are secured by way of first pari passu charge by hypothecation of all current assets and also by way of second pari-passu charge on all the movable fixed assets (including machinery and spares) of the Company and existing immovable properties of the Company being land admeasuring 96 bighas, 19 biswas & 93 bighas 12 biswas & 10 biswasi situated at village Samalheri, Tehsil Dera Bassi, District S.A.S. Nagar (Mohali), Punjab and land admeasuring 26 bighas, 3 biswas situated at Village Manpura, Tehsil Nalagarh, District Solan and land admeasuring 91 bighas, 1 biswas situated at Village Malpura, Tehsil Nalagarh, District Solan in the state of Himachal Pradesh and land admeasuring 9435.66 sq. yards situated at Indl. Plot No. E-4, PH-2, Indl. Area, S.A.S. Nagar, (Mohali ), Punjab. These are also collaterally secured by personal guarantees of the promoter- directors of the Company, viz. Mr. Soshil Kumar Jain, Mr. Ravinder Jain, Dr. Rajesh Jain and Mr. Sandeep Jain.

3 i) Contingent Liabilities (to the extent not provided for)

(Rs. in million)

S No Particulars As at As at March 31,2012 March 31,2011

I. Disputed demands/ show-cause notices under:-

a) Income Tax cases 4.8 1.8

b) Customs Duty cases 4.0 4.0

c) Central Excise Duty cases 6.6 6.6

d) Service Tax 9.7 8.3

Total 25.1 20.7

II. Bank Guarantee 159.9 117.5

III. Labour cases (in view of large number of cases, it is impracticable to disclose each of them) 1.2 1.2

Notes:

a) In respect of income tax demand, the Assessing Officer disallowed certain expenses in respect of A.Y. 2007-08, A.Y. 2008-09 and A.Y. 2009-10 which were computed in accordance with the provisions of Income Tax Act, 1961. The matters are pending with tax and judicial authorities. Company believes that it has merit in its case, hence no provision is required.

b) In respect of custom duty demand, the Assessing Officer levied custom duty on certain exempted items imported by the Company. Company has deposited the entire amount of demand under protest and the matter is pending before Hon'ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

c) In respect of central excise duty demand, the Assessing Officer levied excise duty on common inputs used in manufacture of exempted and taxable products. Company has deposited the entire amount of demand under protest and the matter is pending before the Hon'ble Customs, Excise and Service Tax Appellate Tribunal. Company believes that it has merit in its case, hence no provision is required.

d) In respect of service tax demand, the Assessing Officer levied service tax on foreign services rendered & delivered outside India by the Company & certain other services on which there was no liability to pay service tax. Company believes that it has merit in its case, hence no provision is required.

ii) During the year, a search operation was conducted by Income tax department under section 132 of the Income Tax Act, 1961. During the search operation, certain explanations were demanded and few documents were seized by the tax authorities. Further, the Company is in the process of providing details as and when required by the tax authorities and the Company has not received any demand order related to search operation. The management believes that the transactions of the Company are fully compliant with relevant provisions of the Income Tax Act, 1961. Hence, no provision is required for any tax liability.

iii) Company has received a notice during the year under section 148 of Income Tax Act, 1961 in relation to FY 2004-05. Income Tax Department has issued the notice based on certain grounds related with purchases made by the Company from an overseas party. The Company's view is that the grounds mentioned in the notice are not sustainable and are contrary to the real facts. Hence, Company has not provided any contingent liability corresponding to the notice.

iv) During the current year, the Company has received a demand notice from Department of Biotechonology [Ministry of Health]. In demand notice the department has mentioned the reason that terms of loan arrangement for a project has not been fulfilled by the Company, they have also levied additional interest @ 10% on loan amount , while as per agreement interest is payable @ 2%; the Company has contested the matter with concerned authorities. The Company believes it has complied with all terms and conditions related to this arrangement.

v) Maharashtra State Electricity Distribution Company Ltd. served a demand notice to the company on account of wrong tariff rates applied for the power consumption at research and development center, Navi Mumbai. Company is contesting the matter with electricity board. However, provision of Rs.10.0 million has been accounted for in the books of accounts in the current year on conservative basis.

b) Other commitments :

i) Uncalled liability of Rs.33.8 million (Previous year Rs.42.3 million) on partly paid shares of a subsidiary company, NewRise Healthcare Pvt. Ltd. (Formerly known as Umkal Medical Institute Pvt. Ltd.) (Refer Note : 10 Non current investments)

ii) Export commitments of Rs.2,617.9 million (Previous year Rs.2,033.0 million) under advance licenses and Duty Entitlement Pass Book Schemes.

iii) The Company has received financial assistance in the form of soft loan under various projects from Government authorities. As per the terms of related agreements, Company is also required to incur expenditure in form of company's contribution to the relevant project. Further, the Company has to repay these loans as per terms of respective agreement.

iv) For commitments relating to lease arrangements, refer note 34.

4. Foreign currency convertible bonds

"US$ 50 Million Zero Coupon Convertible Bonds due 2011" amounting to US$ 36.8 million were redeemed in previous financial year at a price equal to 142.8% of the outstanding principal amount on the maturity date (i.e. February 14, 2011). The premium on redemption of these bonds amounting to Rs.713.0 million and withholding tax thereon amounting to Rs.84.2 million were adjusted against the Securities premium account.

5. Related Party Disclosures

A. Names of Related Parties

Names of related parties where control exists irrespective of whether transactions have occurred or not

(a) Joint Ventures

- Chiron Panacea Vaccines Pvt. Ltd.,

- Cambridge Biostability Ltd. (liquidated on September 16, 2011)

- Adveta Power Pvt. Ltd., w.e.f. July 4, 2011

(b) Subsidiaries

- Best On Health Ltd. ("BOH") (Wholly-owned subsidiary (WOS))

- Radicura & Co. Ltd. (Indirect WOS through BOH),

- Panacea Hospitality Services Pvt. Ltd. (Indirect WOS through BOH)

- Panacea Educational Institute Pvt. Ltd. (Indirect WOS through BOH)

- Sunanda Steel Company Ltd. (Indirect WOS through BOH)

- Nirmala Organic Farms & Resorts Pvt. Ltd (Indirect WOS through BOH)

- Best On Health Foods Ltd. (Indirect WOS through BOH)

- Rees Investments Ltd. ("Rees") (Guernsey): (WOS)

- Kelisia Holdings Ltd. ("KHL") (Cyprus) (Indirect WOS through Rees)

- Kelisia Investment Holding AG ("KIH") (Switzerland) (Indirect WOS through KHL)

- Panacea Biotec (International) SA ("PBS") (Switzerland) (Indirect WOS through KIH)

- Panacea Biotec Germany GmbH (Germany) (Indirect WOS through PBS)

- Panacea Biotec GmbH (Germany) (WOS)

- Panacea Biotec (Europe) AG, (Switzerland) (Indirect WOS through PBS) (liquidated on December 15, 2011)

- Panacea Biotec FZE, (UAE) (WOS)

- Panacea Biotec, Inc. (USA) (WOS) (liquidated on March 30, 2011)

- NewRise Healthcare Pvt. Ltd. (Formerly known as Umkal Medical Institute Pvt. Ltd.: (Subsidiary)

- Lakshmi & Manager Holdings Ltd. ("LMH") WOS w.e.f. November 24, 2011*

-Associate Company prior to becoming WOS.

- Trinidhi Finance Pvt. Ltd. (Indirect WOS through LMH) w.e.f. November 24, 2011**

** Subsidiary of LMH w.e.f. 6th August, 2011 and became WOS of LMH on October 7, 2011

- Best General Insurance Company Ltd ( indirect subsidiary through LMH)) w.e.f. November 24, 2011

(c) Associates

- PanEra Biotec Pvt. Ltd.

(d) Key Management Personnel

- Mr. Soshil Kumar Jain - Chairman and Whole-time Director

- Mr. Ravinder Jain - Managing Director

- Dr. Rajesh Jain - Joint Managing Director

- Mr. Sandeep Jain - Joint Managing Director

- Mr. Sumit Jain - Whole-time Director

(f) Relatives of Key Management personnel having transactions with the Company:

Mr. Ashwani Jain, Son-in-law of Mr. Soshil Kumar Jain

Mr. Shagun Jain, Son-in-law of Mr. Ravinder Jain

Mrs. Radhika Jain, Daughter of Mr. Ravinder Jain

Mrs. Shilpy Jain, Wife of Mr. Sumit Jain

Mr. Ankesh Jain, Son of Dr. Rajesh Jain

(g) Enterprises over which person(s) having control or significant influence over the Company / Key management personnel(s), along with their relatives, are able to exercise significant influence:

- Neophar Alipro Ltd. - All India S.L. Jain Charitable Foundation - First Lucre Partnership Co.* - Second Lucre Partnership Co.*

- Radhika Associates - Sumit Nipun & Co. - Rattan Sons - Tahir & Co. - Soshil Kumar Jain (HUF)* - Ravinder Jain (HUF)*

- Rajesh Jain (HUF)* - Sandeep Jain (HUF)*.

6. Segment Information

The primary segment reporting format is determined to be business segments as the company's risks and rates of return are affected predominantly by differences in the products and services produced and sold. Secondary information is reported geographically. The operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.

Business Segments:

The Company is one of the India's leading research based companies engaged in the business of research, development, manufacture and marketing of Vaccines and Branded Pharmaceutical Formulations. The Company has products for various segments, which include pediatric vaccines, pain management, diabetes management and organ transplantation.

c) The Company has common fixed assets for producing goods for domestic market and overseas markets. Hence, separate figures for segment assets / additions to segment assets cannot be furnished.

ii. For assets taken on Lease

a) The Company has taken various residential, office and godown premises under operating lease agreements. These are generally not non-cancelable and are renewable by mutual consent on mutually agreed terms. There is no sublease payments expected to be received under non-cancellable subleases at the balance sheet date and no restriction is imposed by lease arrangements.

b) Lease payments for the year are Rs.73.0 million (Previous year Rs.72.4 million).

d) During the financial year 2009-10, Company's erstwhile Joint Venture Cambridge Biostability Ltd. (CBL) had initiated steps to place it into creditors' voluntary liquidation. Due to the financial position of erstwhile Joint Venture company, the Company considered its investment, loan given and other receivables as doubtful for recovery. The necessary provisions in respect of recoverable balances were already provided for in books of accounts in earlier years. During the current year, CBL was dissolved and the Company received as amount of Rs.1.0 million as final settlement against its recoverable balances. Hence balances in respect of investment value, loan given and other receivables have accordingly been adjusted against their respective provisions made in earlier years.

e) Contingent liabilities (to the extent not provided for) - Nil (Previous year Nil).

7. The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to a maximum of Rs.1.0 million (except in case of Managing/ Joint Managing/ Whole time Directors). The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognized in the statement of profit and loss and the funded status and amounts recognized in the balance sheet for the respective plans.

Statement of profit and loss

8. The Company has incurred expenditure on Pre-clinical development studies which are under progress amounting to Rs.68.9 million during the year and Rs.186.5 million as at March 31, 2012. This expenditure mainly relates to studies carried out by Clinical Research Organization (CRO) towards obtaining registration of Company's products outside and within India. The expenditure incurred has been carried in intangible assets under development. Management believes that it is in the nature of development expenditure and meets the capitalization criteria set out in Accounting Standard 26 on Intangible Assets notified by the Companies (Accounting Standards) Rules, 2006 (as amended) due to the following reasons:

- The expenditure is not towards basic research and therefore no new chemical entity comes into being. This expenditure primarily relates to the developmental work performed through external agencies (CROs). Safety profile of the basic molecule is well established in India and certain other countries. These products are being marketed successfully in such countries under different brand names.

- There is no experience to suggest that the studies conducted by CROs on behalf of the Company would lead to or make it difficult for the Company to obtain regulatory approvals in countries where the Company intends to market these products.

The management believes that these products would be commercially viable and there is no reason to believe that there is any uncertainty that may lead to not securing registration for the products from regulatory authorities of respective countries.

9. The Company has paid managerial remuneration of Rs.66.0 million during the year. The amount paid as managerial remuneration has exceeded the limits prescribed under Section 198 and 309 read with Part II of Schedule XIII to the Companies, Act, 1956 by Rs.42.0 million due to unexpected losses during the current year. The Company has initiated steps to obtain approval from Central Government for the excess remuneration paid.

10. During the year, following a routine site audit, World Health Origination (WHO) has delisted the Company's DTP-based combination and monovalent hepatitis B vaccines from its list of pre- qualified vaccines on account of deficiencies in quality management system. However, the issue is not about the quality, safety or efficiency of the products. The Company has initiated corrective and preventive measures to ensure compliance with the WHO pre- qualification guidelines and is in touch with WHO in this respect.

Further, in the light of series of changes made to the manufacturing facility at Okhla, New Delhi and WHO assessment during site audit, the Company has voluntarily withdrawn its oral polio vaccines (OPV) from WHO's list of prequalified vaccines as further corrective actions were required to be implemented. Again WHO has confirmed that OPV manufactured prior to site audit in September, 2011 and supplied through UN agencies can continue to be used as monitoring and testing of these lot confirm compliance quality specifications. As a part of continued commitment to Global Polio Eradication Initiative (GPEI), the Company is exploring various alternatives, including identification of alternate facilities and/or putting up a new facility at its existing plant at Baddi, Himachal Pradesh.

For the above products, Company has a stock of Rs.1,526.7 million and Rs.363.0 million of raw material and finished goods respectively as at March 31, 2012. Fixed assets relating to above products cannot be quantified separately. Company is confident that with these corrective & preventive measures, it will be able to get re-listing of above said vaccines in the list of WHO pre-qualified vaccines in due course and these stocks would be utilized/sold accordingly. Pending outcome of above measures, no adjustment has been made to the financial statements.

During the year, the Company has incurred net losses of Rs.2,077.9 million mainly because of delisting of its vaccine products from list of pre-qualified vaccines manufacturers. However, the Company's cash flow projections show that credit facilities from banks and internal accruals would be sufficient to meet the working capital and other liquidity requirements associated with the existing operations.

11. During the year, the Company has exercised the option as per the Companies (Accounting Standards) (Second Amendment) Rules, 2011. As per the option exchange differences related to long term foreign currency monetary items so far as they relate to the acquisition of depreciable capital assets are capitalized or de-capitalized from cost of assets and depreciated over the useful life of the assets. In other cases, such exchange differences can be accumulated in a "Foreign currency monetary item translation difference account" and amortized over the balance period of such long term assets/ liabilities. Accordingly, exchange differences of Rs.245.3 million have been capitalized during the year and unamortized balance of "Foreign currency monetary item translation difference account" is Rs.20.5 million as on March 31, 2012.

12. The Company has appointed independent consultants for conducting a Transfer pricing study to determine whether the transactions with associated enterprises were undertaken at "Arm's length basis" The Transfer Pricing Study under the Income Tax Act, 1961 in respect of transactions with the group companies for the current year is not yet complete and would be completed before the filing of tax return for the relevant assessment year. Adjustments, if any, arising out of the aforesaid will be recorded in the next year. The management confirms that all international transactions with associated enterprises are undertaken at negotiated contracted prices on usual commercial terms.

13. During the previous year, the Company carried out buy back of 5,592,000 equity shares of face value of Re.1 each at an average price of Rs.196.39 per share, from the open markets through Stock Exchanges. The Company accordingly transferred Rs.5.5 million to Capital redemption reserve from Securities premium account and also utilized an amount of Rs.1,092.8 million from Securities Premium Account towards the premium paid on the buyback of equity shares. Consequent to the buy back the proposed dividend and dividend distribution tax thereon pertaining to the financial year 2009-10 amounting to Rs. 1.1 million and Rs.0.2 million respectively were written back during the previous financial year.

The shares so bought back were considered to determine weighted average number of equity shares for the purpose of computing diluted EPS of the previous year.

14. In earlier years, the Company's erstwhile wholly owned subsidiary viz. Panacea Biotec Inc. and erstwhile joint venture viz. Cambridge Biostability Ltd. went into liquidation. Due to the financial position of both companies, the Company already considered its investment, loan given and other receivables as doubtful for recovery in earlier years and the necessary provisions in respect of recoverable balances were also provided for in the books of accounts. During the current year, the Company has received an amount of Rs.2.0 million as final settlement against its recoverable balances from these companies. Therefore, balances in respect of investment value, loan given and other receivables have accordingly been adjusted against their respective provisions made in earlier years.

15. As at March 31, 2012, an amount of Rs.654.3 million (previous year Rs.490.5 million) including interest of Rs.36.2 million (previous year Rs.6.1 million) is receivable from its wholly owned subsidiary viz. Rees Investment Ltd. During the current year, pursuant to the diminution in the value of investment in US based listed company 'PharmAthene Inc.' by Rees through its subsidiary and losses in Rees & its other subsidiaries, Company assessed that the loan repayment capability of Rees Investment Ltd. has come under pressure. Based on a conservative approach, an amount of Rs.421.4 million has been provided for as 'Provision for bad and doubtful advances'.

16. 0.0 under "Rs. in million" represents amount less than Rs. 50,000 and 0.0 under units represents units less than 50,000.

17. Till the year ended March 31, 2011, the Company was using pre- revised Schedule VI to the Companies Act 1956, for preparation and presentation of its financial statements. During the year ended March 31, 2012, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the Company. The Company has reclassified previous year figures to conform to this year's classification. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it significantly impacts presentation and disclosures made in the financial statements, particularly presentation of balance sheet.


Mar 31, 2011

A. Nature of Operations

Panacea Biotec Limited is one of the India's leading research based health management companies engaged in the business of research, development, manufacture and marketing of branded Pharmaceutical Formulations and Vaccines. The Company has products for various segments, which include pain management, diabetes management,organ transplantation and pediatric vaccines.

1. Contingent Liabilities (to the extent not provided for)

(Rs.in million)

S.No. Particulars As at As at

March 31,2011 March 31,2010

I. Disputed demands/ show-cause notices under:-

a) IncomeTaxcases 1.8 0.8

b) Customs Duty cases 4.0 4.0

c) Central Excise Duty cases 6.6 6.6

d) Service Tax 8.3 2.7

Total 20.7 14.1

II. Uncalled liability on partly paid shares of NewRise Healthcare Private Limited 42.3 115.6 (Formerly known as Umkal Medical Institute Pvt.Ltd.) (Refer Schedule VI - Investments)

III. Demand from Maharashtra State Electricity Distribution Company Limited (Refer note (e) below) I 8.1 8.1

IV. Labour cases (in view of large number of cases, it is impracticable to disclose each of them) 1.2 2.0

V. Premium on Redemption of'USS 50 Million Zero Coupon Convertible Bonds due 2011'(Refer - 565.0 note 3 below)

Notes:

a) In respect of Income Tax demand, the Assessing Officer disallowed certain expenses in respect of A. Y. 2007-08 and A.Y. 2008-09 which were computed in accordance with the provisions of IncomeTax Act, 1961. The matter is pending with Hon'ble IncomeTax Appellate Tribunal.The Company believes that it has merit in its case, hence no provision is required.

b) In respect of Custom Duty demand, the Assessing Officer levied Custom Duty on certain exempted items imported by the company. The Company has deposited the entire amount of demand under protest and the matter is pending before Hon'ble Customs, Excise and Service Tax Appellate Tribunal. The Company believes that it has merit in its case, hence no provision is required.

c) In respect of Central Excise Duty demand, the Assessing Officer levied Excise Duty on common inputs used in manufacture of exempted and taxable products.The Company has deposited the entire amount of demand under protest and the matter is pending before Hon'ble Customs, Excise and Service Tax Appellate Tribunal.The Company believes that it has merit in its case, hence no provision is required.

d) In respect of service tax demand, the Assessing Officer levied Service Tax on foreign services rendered & delivered outside India by the Company & certain other services on which there was no liability to pay Service Tax.The Company believes that it has merit in its case, hence no provision is required.

e) Maharashtra State Electricity Distribution Company Ltd. served a demand notice to the company on account of wrong tariff rates for the activities at R&D Center, Navi Mumbai.The Company has taken legal opinion which is in favour of the Company & hence no provision is considered necessary in this regard.

f) Liability on account of guarantees given to Government authorities for various purposes is considered remote. Hence,those have not been disclosed.

3. Foreign Currency Convertible Bonds

"US$ 50 Million Zero Coupon Convertible Bonds due 2011" amounting to US$ 36.8 million were pending for redemption or conversion (at the option of bondholders) as on March 31, 2010. Since these bonds were not converted, repurchased or cancelled during the current year, the Company has redeemed these bonds at a price equal to 142.80% of the outstanding principal amount on the maturity date i.e. February 14,2011.The premium on redemption of these bonds amounting to Rs.713.0 million and withholding tax thereon amounting to Rs.84.2 million have been adjusted against the Securities Premium Account.

The conversion price of'US$ 50 Million Zero Coupon Convertible Bonds due 2011' (FCCBs) was pre-determined at Rs.357.57 per Share.This rate was used to determine dilutive Equity Shares of the previous financial year.

b) Computation of net profit in accordance with Section 198 read with section 349 of the Companies Act, 1956 ("the Act") and maximum amount permissible for managerial remuneration.

2. Related Party Disclosures

A. Names of Related Parties

Names of related parties where control exists irrespective of whether transactions have occurred or not

(a) JointVentures - Chiron Panacea Vaccines Private Limited

- Cambridge Biostability Limited

(b) Subsidiaries - Best On Health Limited (BOH) (Wholly-owned subsidiary (WOS))

- RadicuraS Co.Limited (Indirect WOS through BOH),

- Panacea Hospitality Services Pvt. Ltd. (Indirect WOS through BOH)

- Panacea Educational Institute Pvt. Ltd. (Indirect WOS through BOH)

- Sunanda Steel Company Ltd. (Indirect WOS through BOH)

- Nirmala Organic Farms & Resorts Pvt. Ltd (Indirect WOS through BOH) w.e.f. February 23,2011

- Best On Health Foods Limited (Indirect WOS through BOH) w.e.f. December 6,2010

- Rees Investments Ltd. (Rees) (Guernsey):WOS

- Kelisia Holdings Ltd. (Cyprus): Indirect WOS through Rees

- Kelisia Investment Holding AG (KIH) (Switzerland): Indirect WOS through Kelisia Holdings Ltd.

- Panacea Biotec (International) SA (PBS) (Switzerland) (Indirect WOS through KIH)

- Panacea Biotec GmbH (Germany) (Indirect WOS through PBS)

- Panacea Biotec (Europe) AG, (Switzerland): Indirect WOS through PBS

- Panacea Biotec FZE, (UAE): WOS

- Panacea Biotec Germany GmbH (Germany) (Indirect WOS through PBS) w.e.f. August 12, 2010

- Panacea Biotec Inc.(USA):WOS

- NewRise Healthcare Private Limited (Formerly known as Umkal Medical Institute Pvt. Ltd.): Subsidiary

(c) Associates - PanEra Biotec Private Limited

- Lakshmi & Manager Holdings Ltd. (LMH)

- Best General Insurance Company Ltd. (Indirect Associate (subsidiary of LMH))

(d) Key Management -

Mr. Soshil Kumar Jain - Chairman and Whole-time Director

Personnel - Mr.Ravinder Jain - Managing Director

- Dr. Rajesh Jain - Joint Managing Director

- Mr.SandeepJain - Joint Managing Director

- Mr.SumitJain - Whole-time Director

(f) Relatives of Key Management personnel having transactions with the Company:

Mr. Ashwani Jain, Son-in-law of Mr. Soshil Kumar Jain

Mr. Shagun Jain, Son-in-law of Mr. Ravinder Jain

Mrs. Radhika Jain, Daughter of Mr. Ravinder Jain

Mrs. Shilpy Jain, Wife of Mr. Sumit Jain

Mr. Ankesh Jain, Son of Dr. Rajesh Jain

(g) Enterprises over which person(s) having control or significant influence over the Company / Key management personnel(s),along with their relatives, are able to exercise significant influence:

i) Neophar Alipro Ltd.;

ii) All India S. L.Jain Charitable Foundation;

iii) First Lucre Partnership Co.*;

iv) Second Lucre Partnership Co.*;

v) Radhika Associates;

vi) Sumit Nipun& Co.;

vii) Rattan Sons;

viii)Tahir&Co.;

ix) Best On Health Foods Ltd.;

x) Soshil Kumar Jain (HUF)*;

xi) Ravinder Jain (HUF)*;

xii) Rajesh Jain (HUF)*;

xiii) SandeepJain (HUF)*.

*These enterprises are also holding Shares in the Company.

3. Segment Information

Business Segments:

Panacea Biotec Limited is one of the India's leading research based companies engaged in the business of research, development, manufacture and marketing of Vaccines and Branded Pharmaceutical Formulations.The Company has products for various segments, which include pediatric vaccines, pain management,diabetes management and organ transplantation.

4. Leases

i. For assets given under Operating Lease agreements:

a) The Company has leased out the assets situated at Lalru, Punjab on operating lease to its Associate, PanEra Biotec Private Limited.

ii. For assets taken on Lease

a) The Company has taken various residential, office and godown premises under operating lease agreements.These are generally not non-cancelable and are renewable by mutual consent on mutually agreed terms.There is no sublease payments expected to be received under non-cancellable subleases at the balance sheet date and no restrictions is imposed by lease arrangements.

b) Lease payments for the year are Rs. 72.4 million (Previous year Rs. 70.3 million).

d) The Company has purchased software licenses on finance lease.The lease term is for 3 years after which the legal title is passed on to the lessee.There is no escalation clause in the lease agreement.There are no restrictions imposed by lease arrangements.

d) During the financial year 2009-10, Company's erstwhile Joint Venture Cambridge Biostability Limited (CBL) had initiated steps to place it into creditors'voluntary liquidation. Due to the financial position of erstwhile Joint Venture company, the Company has considered its investment and loan given to it doubtful for recovery. Accordingly provision created in earlier years for the said amount is continued in the current year.

5. Additional information as required under Para 3 & 4 of Part II of Schedule VI of the Companies Act, 1956.

A. Particulars of Licensed Capacity, Installed Capacity & Production a) Licensed Capacity per annum

Recombinant Bulk Vaccines - 18 million doses Others - Not Applicable

6. The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service subject to maximum of Rs.1 million (except in case of Managing/ Joint Managing/Whole time Directors).The scheme is funded with an insurance company in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognized in the Profit & Loss Account and the funded status and amounts recognized in the Balance Sheet for the respective plans.

7. The Company has incurred expenditure on Pre-Clinical Development studies amounting to Rs.67.2 million during the year (Previous year Rs. 32.1 million). This expenditure relates to studies carried out by Clinical Research Organization (CRO) towards obtaining registration of Company's products outside India primarily in US or Europe. The expenditure incurred has been capitalized and carried in Capital Work in Progress. Management believes that it is in the nature of development expenditure and meets the capitalization criteria set out in Accounting Standard 26 on Intangible Assets notified by the Companies Accounting Standard Rules, 2006 due to the following reasons:

The expenditure is not towards basic research and therefore no new chemical entity comes into being. This expenditure relates to the developmental work performed through external agencies (CROs). Safety profile of the basic molecule is well established in several countries in Europe and in India and the products are being marketed successfully in several countries under different brand names.

There is no experience to suggest that the studies conducted by CROs on behalf of the Company would lead to or make it difficult for the Company to obtain regulatory approvals in US and/or Europe.

The management believes that these products would be commercially viable and there is no reason to believe that there is any uncertainty that may lead to not securing registration for the products from regulatory authorities outside India primarily in US or Europe.

8. In accordance with Accounting Standard 9 on 'Revenue Recognition' notified by the Companies Accounting Standard Rules, 2006, Excise Duty on turnover amounting to Rs.3.6 million (Previous year Rs.8.0 million) has been reduced from turnover in Profit & Loss Account.

9. The Company had exercised the option as per the Companies (Accounting Standard) Amendment Rules, 2009 in the financial year 2008-09. As per the option, exchange differences related to long term foreign currency monetary items so far as they relate to the acquisition of depreciable capital assets are capitalized and depreciated the same over the useful life of the assets. In other cases, have transferred to Foreign Currency Monetary Item Translation Difference Account and amortized over the balance period of such long term assets/liabilities but not beyond accounting period ending on or before 31st March 2011.The unamortized balance in this account is Nil (Previous year Rs. 16.8 million (liability)).

10.The Company has appointed independent consultants for conducting a Transfer Pricing study to determine whether the transactions with associated enterprises were undertaken at "Arm's length basis" The management confirms that all international transactions with associated enterprises are undertaken at negotiated contracted prices on usual commercial terms. Further there has been no change in the terms of such international transactions till March 31,2011.

11. In the financial year 2009-10, the Company had received a capital subsidy of Rs.3.0 million under the Central Investment Subsidy Scheme, 2003 based on investment in plant & machinery as its manufacturing unit at Baddi, in the state of Himachal Pradesh which is in the nature of promoters' contribution. As per the scheme, the Company has to maintain such investment for a minimum period of five years. This has been treated as capital reserve in books of account.

12. Owing to recoveries,during the financial year 2009-10, the Company had written back the provision for bad and doubtful advances of Rs. 135.5 million created during earlier years on account of old recoverable from PanEra Biotec Pvt. Ltd., an associate company.The same had been shown as other income during the year 2009-10.

13. The President of India acting through Department of Biotechnology, Ministry of Science & Technology, and Government of India under Biotechnology Industrial Partnership Programme (BIPP) granted a loan for conducting the research Sdevelopment activities amounting to Rs.100 million for H1N1 project. The first loan disbursement of Rs.30 million was received in the financial year 2009-10 and second disbursement of Rs.48.3 million has been received in the current financial year. Repayment of the loan shall be in 10 equal half-yearly installments and repayment would commence one year after the completion of the said project.

14. During the current financial year, the Company has carried out buy back of 5,592,000 equity shares of face value of Re. 1 each at an average price of Rs. 196.39 per share,from the open markets through Stock Exchanges. The Company has accordingly transferred Rs. 5.5 million to Capital Redemption Reserve from Securities Premium Account and also utilized an amount of Rs. 1,092.8 million from Securities Premium Account towards the premium paid on the buyback of equity shares. Consequent to the buy back the proposed dividend and Dividend Distribution Tax thereon pertaining to the financial year 2009-10 amounting to Rs. 1.1 million and Rs.0.2 million respectively have been written back during the current financial year.

The shares so bought back have been considered to determine weighted average number of equity shares for the purpose of computing basic & diluted EPS.

15. During the year, the Company has initiated the process of Liquidation of one of its wholly owned subsidiary viz. Panacea Biotec Inc. (incorporated in the United States of America) as it is not currently operational. Accordingly, provision of Rs.2.4 million for permanent diminution in the value of Investments in Panacea Biotec Inc. has been made during the year.

16. 0.0 under "Rs. in million" represents amount less than Rs. 50,000 and 0.0 under units represents units less than 50,000.

17. Previous year's figures have been rearranged and reclassified wherever necessary to make them comparable with the current year's figures.

 
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