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Notes to Accounts of Sequent Scientific Ltd.

Mar 31, 2014

SHARE CAPITAL

(i) Reconciliation of the number of shares and amount outstanding at the beginning and at the end of the reporting year:

Note:

a) Conversion of 2,750,000 warrants issued during the year 2012-13 on preferential basis at a conversion price of Rs. 172.00 per equity share of the company as approved in the Extra Ordinary General Meeting dated 20 March 2013 and 550,00C warrants issued during the year 2013-14 on preferential basis at a conversion price of Rs. 135.25 per equity share of the company as approved in the Extra Ordinary General Meeting dated 14 January 2014.

(During the previous year conversion of 2,100,000 warrants issued on preferential basis at a conversion price of Rs. 120.75 per equity share of the company as approved in the Annual General Meeting dated 26 September 2012).

(ii) Terms/rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. Each equity shareholder is entitled to dividend in the Company. The dividend is proposed by the Board of Directors and is subject to the approval of the shareholders in the ensuing Annual General Meeting, except interim dividend.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts, if any. The distribution will be in proportion to the number of equity shares held by the shareholders.

The amount of dividend per share recognised as distributions to equity shareholders is Nil (31 March 2013 : Rs. Nil)

(iv) 700,000 shares (As at 31 March, 2013 700,000 shares) of Rs. 10 each are reserved towards outstanding employee stock options granted / available for grant. (Refer Note 30)

(v) As at 31 March 2014 3,150,000 warrants (31 March 2013: 2,750,000) of Rs. 10 each are outstanding to be converted into equivalent number of share. (Refer Note 28.1)

SHORT-TERM BORROWINGS

(i) Working capital loan from banks are secured by a first pari-passu charge on current assets of the Company and a second pari-passu charge on fixed assets of the Company as a collateral.

(ii) Short-term borrowings of Rs. 728.45 million (31 March 2013 Rs. 1,044.84 million) are guaranteed by some of the Directors of the Company in their personal capacities.

(iii) The Company has not defaulted in repayment of loans and interest.

(iv) Unsecured short-term borrowings of Rs. 1,200 million (31 March 2013 Rs. Nil) are secured against securities provided by entities owned by Promoters.

Money received against share warrants

The Board of Directors of the Company by circular resolution dated 28 January 2014 and as approved at its Extra-ordinary General Meeting held on 14 January 2014 have resolved to create, offer, issue and allot up to 3,700,000 warrants, convertible into 3,700,000 equity shares of Rs. 10/- each on a preferential allotment basis, pursuant tc Section 81(1A) of the Companies Act, 1956, at a conversion price of Rs. 135.25/- per equity share of the Company, arrived at in accordance with the SEBI Guidelines in this regard and the application money amounting to Rs. 125.10 Million was received from them. Out of this 550,000 warrants are convertered and shares are issued during the year. The balance application money as at 31 March, 2014 amounting to Rs. 106.51 Million represents money received against Rs. 3,150,000 warrants.

The warrants may be converted into equivalent number of shares on payment of the balance amount at any time on or before 28 July 2015. In the event the warrants are not converted into shares within the said period, the Company is eligible to forfeit the amounts received towards the warrants. The Company has sufficient authorised capital to cover the allotment of these shares.

Contingent liabilities and commitments

(I) CONTINGENT LIABILITIES

(Rs. In Million) Particulars As at As at 31 March 2014 31 March 2013

(a) Claims against the Company not acknowledged as debts

Sales tax / Value added tax* 16.52 16.52 Income tax* 53.50 32.87 Service tax* 0.32 0.32 Excise duty* 9.08 8.47

(b) Guarantees

Guarantees to banks and financial 500.00 303.45 institutions against credit facilities extended to subsidiaries (Refer note below)

(c) Other money for which the Company is contingently liable

Bills receivables discounted with banks 353.51 133.90

* Outflow, if any, arising out of the said claim would depend on the outcome of the decision of the appellate authority and the Company''s right for future appeal before the judiciary.

Note

(a) The Company had given a corporate guarantee to Triodos Sustainable Trade Fund towards a credit facility availed by its stepdown subsidiary (Vedic Fanxipang Pharma Chemic Company Ltd) amounting to USD 1.30 Million. During the year the same has been encashed by said fund and the balance outstanding amount of USD 0.23 Millions (INR 147.80 lakhs) has been paid by the Company. Outstanding balance as on 31 March 2014 is Rs. Nil (31 March 2013 Rs. 21.22 Million).

(b) The Company had given a corporate guarantee to Stichting Triodos Sustainable Trade Fund towards a credit facility availed by its stepdown subsidiary (Elysian Life Sciences (Mauritius) Limited) amounting to USD 1.95 Million. During the year, the loan has been repaid. Outstanding balance as on 31 March 2014 is Rs. Nil (31 March 2013 64.27 Million).

(c) the Company had given a corporate guarantee to State Bank of Hyderabad and State Bank of travancore towards a credit facility availed by its subsidiary (Sequent penems private Limited) amounting to Rs. 900 Million (previous Year Rs. 900 Million). Outstanding balance as on 31 March 2014 is Rs. 228.65 Million (31 March 2013 Rs. 217.96 Million). during the year, the same has been provided by the Company and shown under exceptional items under Note 27.

(d) the Company has given a corporate guarantee to export and Import Bank of India towards a credit facility availed by its subsidiary (Alivira Animal Health Limited) amounting to Rs. 1,250 Million. (previous Year Rs. nil). Outstanding balance as on 31 March 2014 is Rs. 500 Million (31 March 2013 Rs. nil).

Managerial Remuneration

Based on the revised approval received from the Central Government during the year, the Company has recovered excess salaries and allowances paid to its directors in the earlier years of ` 26.81 Million (Previous year ` NIL Million) and recognised it in the statement of profit and loss.

Employee benefit plans

A. DEFINED CONTRIBUTION PLANS

The Company makes provident Fund and Employee State Insurance Scheme contributions which are defined contribution plans, for qualifying employees. Under the Schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognised Rs. 25.01 Million (Year ended 31 March 2013 Rs. 20.18 Million) for Provident Fund contributions and Rs. 1.54 Million (Year ended 31 March 2013 Rs. 2.01 Million) for Employee State Insurance Scheme contributions in the Statement of profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.

B. DEFINED BENEFIT PLANS

Notes

1. The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

2. The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors.

3. The Company''s best estimate, as soon as it can reasonably be determined, of contributions expected to be paid to the plan during the annual period beginning after balance sheet date is Rs. Nil (31 March, 2013 Rs. Nil)

C. Notes

1. The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

2. The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors.

Related Party Disclosures:

A LIST OF RELATED PARTIES;

i) Wholly-owned subsidiaries;

SeQuent Global Holdings Limited

SeQuent European Holdings Limited (step-down subsidiary)

SeQuent Research Limited

SeQuent Antibiotics private Limited

SeQuent Oncolytics private Limited

Elysian Life Sciences private Limited (Refer Note 1)

Alvira Animal Health Limited (Refer Note 2)

ii) Other subsidiaries;

Galenica B.V.

Codiffar N.V. (wholly Owned Subsidiary of Galenica B.V.)

Elysian Health Care private Limited (wholly owned subsidiary of Elysian Life Sciences private Limited till 31 March 2013) (Refer Note 3)

Vedic Fanxipang pharma Chemic Company Limited (wholly owned subsidiary of Elysian Life Sciences private Limited)

Elysian Life Sciences Mauritius Limited (step-down subsidiary)

SEQUENT Penems Private Limited

iii) Key Management Personnel

Mr. K.R.Ravishankar, Director Dr. Gautam Kumar Das, Joint Managing Director

iv) Enterprises owned or significantly influenced by key management personnel and relative of key management personnel;

Strides Arcolab Limited

Atma projects

Agnus Holdings private Limited

Latitude projects pvt. Limited

Chayadeep properties private Limited

Desha properties

Agnus Capital LLP

Chayadeep Ventures LLP

Pronomz Ventures LLP

Note:

1 On 31 March 2013, the Company purchased additional shares in Elysian Life Sciences private Limited, resulting in it becoming a wholly owned subsidiary.

2 Alvira Animal Health Limited was incorporated on 30 September 2013.

3 On 31 March 2013, Elysian Life Sciences private Limited sold its entire shareholding of Elysian Health Care private Limited.

4 Related parties are as identified by the Company and relied upon by the Auditors.

Discontinuing operations

a. During the year, the Board of Directors of the Company have approved the transfer of Specialty Chemicals Division of the Company along with all related assets and liabilities by way of slump sale. The Specialty Chemicals Division is reported as part of the Specialty Chemicals segment of the Company as part of Segment disclosure presented in the Consolidated Financial Statements. Subsequent to the year end requisite approval from the shareholders as per the provisions of Section 180(1)(a) of the Companies Act, 2013 has been obtained through postal ballot. The transfer of the Specialty Chemicals division is expected to be completed in 2nd Quarter of financial year 2014-15.

b. During the year, the Board of Directors of the Company and the Shareholders have approved the transfer of Veterinary Formulations Division of the Company along with all related assets and liabilities by way of slump sale to Alivira Animal Health Limited, a wholly owned subsidiary of the Company. The Veterinary Formulations business is reported as part of the Pharmaceuticals segment of the Company. The transfer of the Veterinary Formulations division is expected to be completed in 3rd Quarter of financial year 2014-15.

DISCLOSURES ON EMPLOYEE SHARE BASED PAYMENTS

Employee Stock Option Scheme

a) In the extraordinary general meeting held on March 8, 2008, the shareholders approved the issue of 700,000 options under the ESOP scheme. In accordance with the above, the Company established an ESOP trust to administer the scheme on February 25, 2010.

On the board meeting dated March 29, 2010, the Company has allotted 700,000 equity shares to the ESOP trust with a Face value of Rs. 10 per share at a premium of Rs. 103 per share.

As per the scheme, the Compensation committee grants the options to the employee eligible. The exercise price and vesting period of each option shall be as decided by the compensation committee from time to time. The options granted would normally vest over a maximum period of 4 years from the date of the grant in proportions specified in the scheme. Options may be exercised with in period not exceeding 4 years from the date of first vesting of the options by the Company.

b) During the current year, the Compensation Committee in its meeting held on May 30, 2013 and February 12, 2014 has granted 540,000 and 100,000 options respectively under Sequent Scientific Employees Stock Option Plan - 2010 (Sequent ESOP 2010) to certain eligible employees of the Company. The options allotted under Sequent Scientific Employees Stock Option Plan - 2010 (Sequent ESOP 2010) are convertible into equal number of equity shares.

The vesting period of these options range over a period of 1 to 4 years. The options may be exercised within a period of 1 to 4 years from the date of vesting.

TRANSFER PRICING

In respect of Transfer pricing regulations under Section 92 to 92F of the Indian Income Tax Act, 1961, the Management confirms that its international transactions and Specified Domestic Transactions are at arm''s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for tax.

NOTE

The Company has not received a written representation from Mr. K.R.Ravishankar, one of the director of the Company as on March 31, 2014, confirming that he is not disqualified from being appointed as a director of the Company in terms of Section 274(1)(g) of the Companies Act, 1956.

NOTE

Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure. Disclosure made under Note 28 to 32 reflects combined items pertaining to continuing and discontinuing operations.


Mar 31, 2013

1.1 Money received against share warrants

The Board of Directors of the Company by circular resolution dated 30 March 2013 and as approved at its Extra-ordinary General Meeting held on 20 March 2013 have resolved to create, offer, issue and allot up to 2,750,000 warrants, convertible into 2,750,000 equity shares of Rs.10/- each on a preferential allotment basis, pursuant to Section 81(1A) of the Companies Act, 1956, at a conversion price of Rs.172/- per equity share of the Company, arrived at in accordance with the SEBI Guidelines in this regard and the application money amounting to Rs. 118.79 Million was received from them. The warrants may be converted into equivalent number of shares on payment of the balance amount at any time on or before 29 September 2014. In the event the warrants are not converted into shares within the said period, the Company is eligible to forfeit the amounts received towards the warrants.

1.2 Contingent liabilities and commitments

(Rs. In Million) As at 31 As at 31 March 2013 March 2012

i. CONTINGENT LIABILITIES

(a) Claims against the Company not acknowledged as debts

Sales tax / Value added tax * 16.52 16.68

Income tax * 32.87 2.08

Service tax * 0.32 0.16

Excise duty* 8.47 0.02

(b) Guarantees

Guarantees to banks and financial 303.45 260.71 institutions against credit facilities extended to subsidiaries (Refer note below)

(c) Other money for which the Company is contingently liable

Bills receivables discounted with banks 133.90 154.85

* Outflow, if any, arising out of the said claim would depend on the outcome of the decision of the appellate authority and the Company''s right for future appeal before the judiciary.

Note

(a) The Group has given a corporate guarantee to Triodos Sustainable Trade Fund towards a credit facility availed by its stepdown subsidiary (Vedic Fanxipang Pharma Chemic Company Ltd) amounting to USD 1.30 Million (Rs. 70.71 Million.) (Previous Year Rs. 66.50 Million). Outstanding balance as on 31 March 2013 is Rs. 21.22 Million ( 31 March 2012 Rs. 55.02 Million).

(b) The Group has given a corporate guarantee to Stichting Triodos Sustainable Trade Fund towards a credit facility availed by its stepdown subsidiary (Elysian Life Sciences (Mauritius) Limited) amounting to USD 1.95 Million (Rs.106.06 Million.) (Previous Year Rs. 99.76 Million). Outstanding balance as on 31 March 2013 is Rs. 64.27 Million ( 31 March 2012 Rs. 30.69 Million).

(c) The Company has given a corporate guarantee to State Bank of Hyderabad and State Bank of Travancore towards a credit facility availed by its subsidiary (Sequent Penems Private Limited) amounting to Rs. 900 Million. (Previous Year Rs. 900 Million). Outstanding balance as on 31 March 2013 is Rs. 217.96 Million ( 31 March 2012 Rs. 175 Million).

1.3 Disclosures required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006

Dues to Micro and Small Enterprises have been determined to the extent such parties have been identified on the basis of information collected by the Management based on enquiries made by the Management with the creditors which have been relied upon by the auditors.

1.5 Details on derivatives instruments and unhedged foreign currency exposures

I. No derivative positions were open as at 31 March, 2013. Derviative transactions are undertaken to act as economic hedges for the Company''s exposures to various risks in foreign exchange markets and may / may not qualify or be designated as hedging instruments.

(a) Forward exchange contracts and options [being derivative instruments], which are not intended for trading or speculative purposes but for hedge purposes to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(i) Outstanding forward exchange contracts entered into by the Company as on 31 March, 2013

1.6 Managerial Remuneration

Based on the approval received from the Central Government during the year and subsequent to the year-end, the Company has recognised in the Statement of Profit and Loss for the year ended 31 March 2013 Rs.27.70 Million of excess salaries and allowances paid to its directors and which was included under Short term loans and advances in the previous years.

2.1 Details of amalgamations

I. Amalgamation of Fraxis Life Sciences Limited with the Company:

During the previous year ended 31 March 2012, the Scheme of Amalgamation of Fraxis Life Sciences Limited ("Transferor Company”) with the Company ("Transferee Company”) was sanctioned by the High Court of Bombay on August 20, 2011 with the appointed date and effective date being September 14, 2011, the date on which the sanctioned Scheme is filed by the Company with the Registrar of Companies, Mumbai ("the Scheme”). In terms of the Scheme:

a) The amalgamation was accounted for under the Purchase Method of accounting as specified in Accounting Standard (AS) – 14 Accounting for Amalgamations, notified by the Central Government of India under the Companies (Accounting Standards) Rules, 2006.

b) All the assets and liabilities of the Transferor Company have been recorded by the Transferee Company at their respective carrying amounts as appearing in the books of the Transferor Company as on the appointed date.

c) The investment in the equity share capital of the Transferee Company as appearing in the books of accounts of the Transferor Company got cancelled and accordingly, the share capital of the Transferee Company was reduced to the extent of face value of shares held by the Transferor Company in the Transferee Company as on the appointed date.

d) The excess of the value of the net assets of the Transferor Company acquired by the Transferee Company over the face value of the shares issued by the Transferee Company as consideration to the shareholders of the Transferor Company and after adjusting for cancellation of equity share capital as mentioned in (c)above was treated as Capital Reserve amounting to NIL (net of merger expenses).

e) All costs, charges, taxes including duties, levies and all other expenses incurred in carrying out and implementing the Scheme and to put it into operation were adjusted against the Capital Reserve.

Details of assets and liabilities acquired on amalgamation and treatment of the difference between the net assets acquired and the face value of the shares issued by the Transferee Company as consideration to the shareholders of the Transferor Company and after adjusting for cancellation of equity share capital:

2.2. Related Party Disclosures

A List of related parties:

i) Holding Company:

Fraxis Life Sciences Limited (merged with the Company w.e.f September 14, 2011: Refer Note 28(1)(i))

ii) Wholly-owned subsidiaries: SeQuent Global Holdings Limited SeQuent European Holdings Limited (step-down subsidiary) SeQuent Research Limited SeQuent Antibiotics Private Limited SeQuent Oncolytics Private Limited Elysian Life Sciences Private Limited (Refer Note 1)

iii) Other subsidiaries: Galenica B.V.

Codiffar N.V. (wholly Owned Subsidiary of Galenica B.V.) Elysian Health Care Private Limited (Wholly owned Subsidiary of Elysian Life Sciences Pvt. Ltd. till 31st March 2013) (Refer Note 2) Vedic Fanxipang Pharma Chemic Company Limited (wholly owned subsidiary of Elysian Life Sciences Private Limited) Elysian Life Sciences Mauritius Limited (step-down subsidiary) Sanved Research Labs Private Limited (Refer Note 3) SeQuent Penems Private Limited (with effect from 15 March 2012)

iv) Key Management Personnel

Mr. K.R.Ravishankar, Managing Director and Chief Executive Officer

Dr. Gautam Kumar Das, Joint Managing Director

Mr. K.R.N.Moorthy, Deputy Managing Director (upto 23 January 2012)

v) Associate

SeQuent Penems Private Limited (till 15 March 2012)

vi) Enterprises owned or significantly influenced by key management personnel and relative of key management personnel: Strides Arcolab Limited Atma Projects

Agnus Holdings Private Limited Latitude Projects Pvt. Limited Chayadeep Properties Private Limited Agnus Capital LLP Chayadeep Ventures LLP

Note:

1. On 31 March 2013, the Company purchased additional shares in Elysian Life Sciences Private Limited resulting in it becoming a wholly owned subsidiary.

2. On 31 March 2013, Elysian Life Sciences Private Limited sold entire shareholding of Elysian Health Care Private Limited.

3. Sanved Research Labs Private Limited was struck off during the year ended 31 March 2012.

4. Related parties are as identified by the Company and relied upon by Auditors.

2.3. Details of leasing arrangements

The Company''s significant leasing arrangement is mainly in respect of factory building and office premises; the aggregate lease rent payable on these leasing arrangements charged to Statement of Profit and Loss is Rs.28.20 Million. (Previous Year: Rs. 12.80 Million)

The Company has entered in to non-cancelable lease arrangement for its facilities and office premises, the tenure of lease ranges from 1 year to 10 years. The said lease arrangements have an escalation clause where in lease rental is subject to an increment of ranging from 5% to 15%. Details of lease commitments are given below:

3 DISCLOSURES ON EMPLOYEE SHARE BASED PAYMENTS

a) In the extraordinary general meeting held on March 8, 2008, the shareholders approved the issue of 700,000 options under the ESOP scheme. In accordance with the above, the Company established an ESOP trust to administer the scheme on February 25, 2010.

On the board meeting dated March 29, 2010, the Company has allotted 700,000 equity shares to the ESOP trust with a Face value of Rs.10 per share at a premium of Rs. 103 per share.

As per the scheme, the Compensation committee grants the options to the employee deemed eligible. The exercise price and vesting period of each option shall be as decided by the compensation committee from time to time. The options granted would normally vest over a maximum period of 4 years from the date of the grant in proportions specified in the scheme. Options may be exercised with in period not exceeding 4 years from the date of first vesting of the options by the Company.

4 TRANSFER PRICING

In respect of Transfer pricing regulations under Section 92 to 92F of the Indian Income Tax Act, 1961, the Management confirms that its international transactions and Specified Domestic Transactions are at arm''s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for tax.

The Company has not received a written representation from Mr. K.R. Ravishankar,

5 one of the Director of the Company as on March 31, 2013, confirming that he is not disqualified from being appointed as a director of the Company in terms of Section 274 (1) (g) of the Companies Act, 1956. Previous year''s figures have been regrouped / reclassified wherever necessary to

6 correspond with the current year''s classification / disclosure.

 
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