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Notes to Accounts of Syngene International Ltd.

Mar 31, 2015

1. Corporate information

Syngene International Limited (Syngene* or 'the Company') was incorporated at Bangalore in 1993. On March 30, 2002, the Company became the subsidiary of Biocon Limited ('Bioconi).

The Company is engaged in providing contract research and manufacturing services in early stage drug discovery and development to pharmaceutical and biotechnology companies worldwide. Syngene's services include discovery chemistry and biology services, toxicology, pharmaceutical development, process development /manufacture of advanced intermediates, active pharmaceutical ingredients and bio therapeutics. Pursuant to merger as discussed in note 1.1, the Company also undertakes clinical research activities in India on discovering new biomarkers and discovering new diseases subsets and novel data based on pharmacogenomics.

1.1 Scheme of arrangement

On April 23, 2014, the Board of Directors of the Company approved a scheme of amalgamation ('the Scheme') of Clinigene International Limited (Clinigene* / "Transferor Company"), a wholly owned subsidiary, with the Company under section 391 and 394 of the Companies Act, 19S6. The Honourable High Court of Karnataka ('the Court') approved the aforesaid Scheme with Appointed Date as April 01, 2014 ("Appointed Date") vide its order dated February 5, 201S ("the Order"). The copy of the Order was filed with the Registrar of Companies on March 2, 2015. Clinigene was Incorporated on August 4,2000 at Bangalore and became a wholly owned subsidiary of Biocon on March 31,2001. In February 2012, Syngene purchased the shares in Clinigene from Biocon.

Accordingly, the assets and liabilities, and balance in reserves and surplus of Clinigene as at Appointed Date have been recorded at their carrying values in the books of Syngene under the Pooling of Interest method as prescribed by Accounting Standard 14 - Accounting for Amalgamation ('AS 14').

2. Basis of preparation

The financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis and under the historical cost convention.

3. Share capital

a. Terms / rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 10/- (March 31, 2014: Rs. 5/-) per share. The Company declares and pays dividend in Indian Rupees. Each holder of equity shares is entitled to one vote per share. 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. The distribution will be in proportion to the number of equity shares held by the shareholders.

During the year ended March 31, 2015, interim dividend distributed to equity shareholders was Rs. 21 (March 31, 2014 - Rs. Nil) per share on face value of Rs. 5/- each.

b. The Shareholders' at the Extraordinary General Meeting ('EGM') of the Company held on October 31, 2012, approved increase in authorised share capital from 50,000,000 equity shares of Rs. 5/- each to 60,000,000 equity shares of Rs. 5/- each.

c. The Company alloted 1,875,000 equity shares on October 31,2012 at the rate of Rs 80 per share (Face Value : Rs. 5 per Share) to Syngene Employees Welfare Trust ('Trust') under section 81 (1A) of the Companies Act, 1956. [Refer Note 38 (b)].

d. The Board of Directors of the Company in the meeting held on September 12, 2014 approved allotment of 1,971,060 equity shares at the rate of Rs.676.91 per share (Face value: Rs. 5 per share) on rights basis to Biocon Research Limited (a wholly owned subsidiary of Biocon Limited), in accordance with the provisions of section 62(1)(a) of the Companies Act, 2013.

e. The Board of Directors of the Company in the meeting held on September 10, 2014 approved the transfer of 4,166,667 equity shares (Face value: Rs. 5 per share) in the Company pursuant to the share purchase agreement dated September 9, 2014, executed between Biocon Research Limited, the Company and GE Equity International Mauritius

f. The Board of Directors of the Company in the meeting held on October 20, 2014 noted the execution of the share purchase agreement between Silver Leaf Oak (Mauritius) Limited ['Silver Leaf'], Biocon Research Limited ['BRL'] and the Company for transfer of 5,613,773 equity shares (Face value: Rs. 5 per share) in the Company by BRL to Silver Leaf. In January 2015, Silver Leaf assigned its rights and obligations to purchase the aforesaid 10% equity stake in the Company to IVF Trustee Company Private Limited ['IVF'], a fund advised by India Value Fund Advisors. Thereafter, BRL concluded such sale of Shares to IVF.

g. The Board of Directors of the Company in the meeting held on March 14, 2015 approved allotment of 1 equity share (Face value: Rs. 5 per share) at the rate of Rs.676.91 on rights basis, in accordance with the provisions of section 62(1 )(a) of the Companies Act, 2013.

h. The Shareholders' at the Extraordinary General Meeting ('EGM') of the Company held on March 16, 2015, approved the consolidation (i.e. reverse share split) of 2 equity shares of face value of Rs. 5/- each into 1 equity share of face value of Rs. 10/- each. Subsequent to this, the authorised share capital of 60,000,000 equity shares of Rs. 5/- each consolidated to 30,000,000 equity shares of Rs. 10/- each.

i. The Shareholders' at the EGM of the Company held on March 16, 2015, approved increase in authorised share capital from Rs. 300 to Rs. 2,500. Subsequent to this, the authorised share capital increased from 30,000,000 equity shares of Rs. 10/- each to 250,000,000 equity shares of Rs 10/- each

j. The Shareholders' at the EGM of the Company held on March 16, 2015, approved the issue of fully paid bonus shares of face value of Rs. 10/- each in the ratio of 1: 6.1253329 by capitalisation of Securities premium account.

k. Pursuant to a share purchase agreement dated March 31, 2015, IVF agreed to sell 20,000,000 equity shares (Face value: Rs. 10/- per share) in the Company to Silver Leaf. The Board of Directors of the Company recorded the transfer of shares to Silver Leaf on April 21, 2015.

l. Shares reserved for issue under options

For details of shares reserved for issue under the employee stock option (ESOP) plan of the Company, refer to note 38.

4. Contingent liabilities

(a) The Company has given corporate guarantees in favour of the Customs and Excise department ('CED') in respect of certain performance obligations of Biocon aggregating to Rs 500 (March 31, 2014- Rs 465).The necessary terms and conditions have been complied with and no liability has arisen till date. Biocon has given corporate guarantees of Rs 242 (March 31, 2014 - Rs 218) to the Customs and Excise department ('CED') on behalf of the Company.

March31,2015 March 31, 2014

(b) Taxation matters under appeal 1,045 1,045

Income tax demand from the tax authorities for payment of tax, based on assessment orders issued for which the Company has gone on appeal. The tax demand is mainly on account of denial of relief under section 10B of the Income-tax Act, 1961 and denial of relief under section 10AA of the Income-tax Act, 1961. The matter is pending final assessments / conclusion of appeals.

The Company is contesting the demands and the management is confident that its position will be upheld in the appellate process. Accordingly, no tax expense has been accrued in the financial statements for the demand raised.

c) Service Tax matters 57 -

d) VAT matters under appeal 1 -

5. Segmental Information

Business segments

The Company is engaged in a single business segment of providing contract research and manufacturing services.

6. Employee Stock Incentive Plan

(a) Selected employees of the Company were granted stock options of Biocon Limited('Biocon'), the holding company based upon performance, criticality to business and long-term potential to the Company. The options vest rateably over a period of 4 years. The Institute of Chartered Accountants of India has issued a Guidance Note on Accounting for Employee Share-based Payments, which is applicable to employee share based payment plans, the grant date in respect of which falls on or after April 1, 2005. The management is of the opinion that the schemes detailed above are managed and administered by Biocon for its own benefit and do not have any settlement obligations on the Company. Further the aforesaid schemes pertain to shares of Biocon. The compensation benefits in respect of such schemes is paid by the Company based on the cross charge from Biocon. Accordingly, the Company is of the opinion that there is no further accounting treatment/ disclosure required under the said Guidance Note.

(b) Syngene ESOP Plan:

On July 20, 2012, Syngene Employee Welfare Trust ('Trust') was created for the welfare and benefit of the employees and directors of the Company and subsidiary company. The Board of Directors has approved the employee stock option plan of the Company. On October 31, 2012 the Trust subscribed 1,875,000 equity shares (Face Value of Rs. 5 per share) of the Company using the proceeds from interest free loan of Rs. 150 obtained from the Company. The loan granted and receivable from the Trust has been adjusted in the shareholders' funds as per the Guidance Note on Accounting for Employee Share- based Payments issued by Institute of Chartered Accountants of India. Also refer note 3 and 4 above. As at March 31, 2015, the Trust holds 6,680,000 equity shares of face value : Rs. 10/- each, adjusted for the consolidation of shares and bonus issue.

7. Employee Stock Incentive Plan (contd.)

Grant

Pursuant to the Scheme, the Company has granted options to eligible employees of the Company under Syngene Employee Stock Option Plan - 2011. Each option entitles for one equity share. The options under this grant will vest to the employees as 25%, 35% and 40% of the total grant at end of second, third and fourth year from the date of grant, respectively, with an exercise period of three years for each grant. The vesting conditions include service terms and performance grades of the employees. These options are exercisable at an exercise price of Rs. 80/- per share (Face Value of Rs. 5 per share).

8. During the year ended March 31,2015,the Company identified a)certain discrepancies in the list of allottees in the e-form filed with Registrar of Companies (ROC) dated April 24, 2012 in respect of Bonus shares allotted on February 28, 2012 and b) that the explanatory statement in respect of notice for EGM held on December 14, 2011 for preferential issue of 625,000 shares of Face Value of Rs. 5/- each did not contain certain information as required under Rule 6 of Unlisted Public Companies (Preferntial Allotment) Rules, 2003.

Accordingly, the Company has made an application for Compounding of offences with the ROC. Based on the legal advice received, the Company is confident that the penalty, if any, levied by the ROC, will not be material to the financial statements and hence no provision for penalty has been made in the financial statements.

9. Prior years' comparatives

The current period financial information include the state of affairs and operations of the Transferor Company, as described in note 1.1 above. Hence, the current period's figures are strictly not comparable with the previous year's figures. The Company has reclassified and regrouped the previous year figures to confirm to current period's classification.

 
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