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Directors Report of Zenotech Laboratories Ltd.

Mar 31, 2014

Dear Members,

The Directors are pleased to present the twenty fifth Annual Report together with the audited accounts of the Company for the year ended March 31, 2014.

Standalone results

(Rs. in thousands)

Particulars 2013-14 2012-13

Sales (net) 27,557 30,441

Other Income 23,868 1,719

Depreciation 35,561 35,150

Loss before tax (228,554) (255,219)

Exceptional Items - -

(Loss) after tax (228,554) (255,219)

Loss brought forward from previous year (12,47,557) (992,338)

Profit/(Loss) carried forward to Balance Sheet (1,476,111) (1,247,557)

OPERATIONS

The year under review was challenging for your Company in the absence of technical documents, as it strived to revive the bio-technology division to manufacture products such as Rituximab with the available cell lines. After repeated trials on bacterial cell lines, your Company was able to manufacture products such as GCSF and GMCSF on commercial lines. It was however observed that expressions of the mammalian products was exceptionally low demonstrating that the available cell lines were weak. Your Company recognized that manufacturing of products with minimal yield would lead to unacceptable commercial viability, leading to further losses. Therefore, the limited operations at Unit-II are temporarily suspended.

As members are aware, there are legacy issues that inhibit your Company from delivering commercially viable products. Most vital technical information and essential lab records have not been accessible since 2011, the time when the present management took over the actual control of the affairs of your Company. All the DNA clones relating to the biotech products and projects on which your Company was working upon have been unavailable.

Team Zenotech is committed to strengthen the business performance, create and rebuild product pipeline and deliver superior results despite the constraints and hence has been focused on the core business of chemo oncological range. The team has commenced work on technical and clinical data collection for preparation of regulatory approval applications for building a product range with market opportunities in emerging markets.

While your Company has been vigorously pursuing the erstwhile promoter with criminal law suits and is confident of positive outcome, the management is fully committed to develop products that are in demand in commercially attractive therapeutic segments.

In the meantime, your Company is streamlining, cost cutting and turning cost competitive and as part of the action plan aims to improve the operational efficiency. At the same time, care is also being taken not to compromise on quality of both processes and products and to gear Zenotech to meet the demands of a highly competitive market.

During the year under review, WHO GMP approval was received for the range of products manufactured in the Company''s facility. Operations in chemo-oncologicals were continued and supplies were made in the domestic market. Your Company participated in select tenders and it is gratifying that orders from institutional supplies, though of small volumes, are being received.

OUTLOOK

Looking ahead, your Company aims to explore opportunities in the international markets and has generated interest among a few customers. It must be appreciated that such rebuilding exercise of a pharmaceutical organization has to be calibrated carefully which is inherently a time consuming process, with probable under utilization of manufacturing capacity. Efforts are hence, being made to seek business by offering in-house facilities to reputed companies to outsource their requirements by manufacturing at Zenotech''s production units. Overall, your Company is positive that revenue streams would improve in the foreseeable future.

RESEARCH & DEVELOPMENT

A detail on Research & Development has been provided in form B to annexure-C attached and forms part of this report.

BIFR

The Company became a Potential Sick Company as defined under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) in the year ended March 31, 2011. The Company continues to be a potentially sick company under the said provisions. The matter has been intimated to Board for Industrial and Financial Reconstruction (BIFR). A report on the foregoing is provided as annexure - A to this report.

PUBLIC ANNOUNCEMENT BY SUN PHARMA UNDER SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER) REGULATIONS, 2011

On April 6, 2014, the Board of Directors of Sun Pharmaceutical Industries Limited have communicated that they (''Sun Pharma/Acquirer'') and Ranbaxy Laboratories Limited (''Ranbaxy''), have approved a Scheme of Arrangement under the provisions of Sections 391 to 394 and other applicable provisions of the Companies Act, 1956 and corresponding provisions of the Companies Act, 2013 (''Scheme'') whereby Ranbaxy shall merge into Sun Pharma (''Primary Acquisition'').

By virtue of Ranbaxy holding 16,127,293 equity shares representing 46.79% of the fully diluted equity and voting capital of Zenotech Laboratories Limited (Zenotech), post consummation of the Primary Acquisition and the consequential implementation of the Scheme, the merger of Ranbaxy into Sun Pharma pursuant to the Scheme will result in Sun Pharma indirectly acquiring 46.79% of the voting rights held by Ranbaxy in, and control over Zenotech, although the acquisition of voting rights in or control over Zenotech is not the objective of the Primary Acquisition.

Accordingly, a public announcement has been issued pursuant to Regulation 3(1) and Regulation 4 read with Regulation 5(1) and Regulation 13(2)(e) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for and on behalf of the Acquirer to the public shareholders of Zenotech excluding the Acquirer, person acting in concert with the Acquirer, Ranbaxy, person acting in concert with Ranbaxy or such other persons as are excluded by law.

However, in terms of the explanation to the proviso to Regulation 13(4) of the SEBI (SAST) Regulations, this Open Offer is subject to the completion of the Primary Acquisition as provided in the Scheme and other executed documents. Therefore, it is hereby clarified that in the event the Acquirer is unable to exercise or direct the exercise of voting rights in, or control over, Zenotech on account of the Primary Acquisition having failed, the Acquirer shall not proceed with this Open Offer.

SHARE CAPITAL

The authorized share capital of the Company has been increased from Rs. 35 crores to Rs. 100 crores during the year under review, while the subscribed and the paid up capital remain unchanged.

AUDITORS'' QUALIFICATIONS/REMARKS

With regard to qualifications/remarks contained in the Auditors'' Report and Annexure thereto, your Directors'' wish to state as under:

a. Regarding Para No. 1 in the Basis for Qualified Opinion of the Audit report: Reconstructed books of account for the financial years ended March 31, 2011 and 2012, differences between the current management and the then Co-Managing Director, non resolution of the above, inability of the auditors to determine the adjustments/disclosures which may become necessary etc.: As has been reported in the annual report for the previous year, it is reiterated that your Company, under the current management, has initiated appropriate steps to recover various missing assets and properties, valuable information and records of the Company and the matters are currently being investigated or sub-judice.

Post November 12, 2011, the reconstruction of the books of account for the years ended March 31, 2011 and March 31, 2012 were carried out by the present management with the best of its ability within the constraints. Any further adjustments/disclosures to the financial statements, if required, would be made in the financial statements as and when the outcome of the uncertainties related to those years become known and the consequential adjustments/ disclosures are identifiable/determinable.

b. Regarding Para No. 2 in the Basis for Qualified Opinion of the Audit report: Contravention of the provisions of Companies Act, 1956 with respect to payment of Rs. 7,980 thousands towards managerial remuneration for the period from October 1, 2007 to March 31, 2011: It is informed that your Company in order to recover the excess amount paid, has filed money suit before the Hon''ble Court of Chief Judge, City Civil Court, Hyderabad, and the matter is currently sub-judice.

c. Regarding Para No. 3 in the Basis for Qualified Opinion of the Audit report: Application made to the Ministry of Corporate Affairs, Government of India (MCA) seeking approval to pay remuneration to Mr. B. K. Raizada, former Managing Director of the Company: The management wishes to inform that MCA vide letter dated February 27, 2012 conveyed approval to the Company to pay remuneration to Mr. B. K. Raizada subject to the condition that the Company cleared its outstanding dues to Technology Development Board (TDB) and file a compliance report with MCA by February 29, 2012. As the Company is unable to repay the outstanding dues towards the loan assistance granted by TDB, the Company has not been able to pay remuneration to Mr. B. K. Raizada, former Managing Director of the Company.

d. Regarding Para No. 4 in the Basis for Qualified Opinion of the Audit report: Notice by ex-Director pursuant to Section 299 of Companies Act, 1956 for the year ended March 31, 2013, non availability of complete information etc.: This is to inform you that the ex Director ceased to be a Director of the Company effective from December 28, 2012 and there was no business transaction with him during the year ended March 31, 2014.

e. Regarding Point no. (x) of Annexure to the Audit Report: Accumulated losses exceeding fifty percent of Company''s net worth: Appropriate intimation has been made to Board for Industrial and Financial Reconstruction under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and a more detailed report has been attached as annexure - A to this report.

f. Regarding Point no. (xi) of Annexure to the Audit Report: Outstanding dues that included interest on the loan assistance granted by Technology Development Board was overdue. The Company has no other outstanding loans from any bank/financial institution.

g. Regarding Point no. (xvii) of Annexure to the Audit Report: Money raised on short-term basis utilized for long-term uses: The utilization was made due to losses suffered by the Company. The management is taking all the requisite steps to minimize costs and increase revenue to meet its short-term fund requirements.

CONSOLIDATED FINANCIAL STATEMENTS

As has been reported in annual reports for the financial years ended March 31, 2012 and 2013, it is reiterated that the overseas subsidiaries of the Company do not exist anymore. Due to the missing and non-availability of the books of account and other related records and documents of those overseas subsidiaries, the Company is unable to prepare consolidated accounts and attach the required statements and particulars in terms of the provisions of Section 212 of the Companies Act, 1956 and the listing agreement with BSE Ltd.

Overseas subsidiaries were apparently created, investments and loans were made during the period from 2006-07 to 2010-11 under the erstwhile management. It was the responsibility of that management to handover those details to the present management during the transition. However, no details on those subsidiaries were made available to your Company. Despite several attempts by the current management to recover them, details concerning those subsidiaries including the documents and certificates related to the foreign exchange transactions which included loans and investments made to those foreign subsidiaries, could not be obtained.

The erstwhile management deliberately ignored and has so far remained non-compliant to the directions of your Company. Your Company therefore has filed a complaint before the Hon''ble Economic Offences Court, Nampally, Hyderabad, under the provisions of Section 630 of the erstwhile Companies Act, 1956 against the former Managing Director, who was in complete control over the Company affairs during the period of these events. The matter is currently sub-judice.

DIRECTORS'' RESPONSIBILITY STATEMENT

In terms of provisions of Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

a. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, wherever applicable;

b. they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period;

c. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities to the extent possible in the circumstances;

d. they have prepared the annual accounts on a going concern basis.

EMPLOYEE STOCK OPTION SCHEME

Disclosures as on March 31, 2014 as required to be made in accordance with Clause 12 of SEBI (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are provided in the Annexure B to this Report.

REPORT ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION & ANALYSIS

Report on Corporate Governance together with the compliance certificate of Mr. Mahadev Tirunagari, Company Secretary in Practice, Hyderabad, on the status of compliance of conditions of corporate governance as stipulated under Clause 49 of the Listing Agreement and the Management Discussion & Analysis form part of this Annual Report.

DEPOSITS

The Company has not accepted any deposit under Section 58A of the Companies Act, 1956 during the year under review.

AUDITORS

M/s. BSR & Associates, Chartered Accountants, Statutory Auditors of your Company, hold office until the conclusion of the ensuing Annual General Meeting and are proposed to be appointed as statutory auditors for a period of one year to hold office from the conclusion of the 25th Annual General Meeting till the conclusion of 26th Annual General Meeting of the Company, according to the provisions of Companies Act, 2013.

COST AUDIT

For the financial year ended March 31, 2014, the Board of Directors had appointed M/s. K.C. Kohli & Co., Cost Consultant & Advisor, Delhi, as Cost Auditor and the audit report for the year shall be submitted to the Central Government in the due course.

For the financial year ending March 31, 2015 it has been advised that the Company is exempted from cost audit in terms of the provisions of Section 148 of the Companies Act, 2013 read with Companies (Cost Records and Audit) Rules, 2014. Accordingly, your Company has not appointed Cost Auditor for the financial year 2014-15.

DIRECTORS

As members are aware, 24th Annual General Meeting of your Company was held on August 13, 2013. Dr. N. K. Ganguly and Dr. R. S. Bakshi who retired by rotation and were re-appointed as Directors, liable to retire by rotation.

During the year, restructuring of the Board was made on November 6, 2013. Dr. Junichi Koga, nominee of Daiichi Sankyo Company Limited, was appointed as Additional Director of the Company. Dr. Sudershan Kumar Arora and Dr. N. K. Ganguly resigned from the Board of Directors while Mr. B. K. Raizada resigned from the office as Managing Director of the Company. Dr. Sudershan Kumar Arora was appointed as Alternate Director to Dr. Junichi Koga.

Mr. Rajiv Gulati was appointed as Additional Director on February 14, 2014 and is proposed to tbe appointed as Director at the ensuing Annual General Meeting. Mr. B. K. Raizada resigned from the office as Director effective from February 24, 2014. Dr. Junichi Koga also resigned from the office as Director effective from June 10, 2014. According to the provisions of the Companies Act, 2013, Dr. Sudershan Kumar Arora vacated his office as Alternate Director from the date.

In terms of the provisions of the Companies Act, 2013, Mr. K. L. Khurana and Dr. R. S. Bakshi, Independent Directors, are being proposed for appointment as Independent Directors for a period of five years. Mr. Rajiv Gulati is being proposed to be appointed as Director liable to retire by rotation. Appropriate resolutions with the requisite information are being placed before the members for their approval at the meeting.

PARTICULARS OF EMPLOYEES

Statement of particulars of employees as required under Section 217(2A) of the Companies Act, 1956 (''Act'') and Rules framed there under forms part of the Annual Report. However, in terms of the provisions of Section 219(1)(b)(iv) of the Act, this Report and Accounts are being sent to all the members excluding the Statement of particulars of employees under Section 217(2A) of the Act. Any Member interested in obtaining a copy of the statement may write to the Company Secretary at the Registered Office of the Company.

LISTING AT STOCK EXCHANGE

The Equity Shares of the Company continue to be listed on BSE. The annual listing fee for the year 2014-15 has been paid to the exchange.

ENERGY CONSERVATION, RESEARCH AND DEVELOPMENTS, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars relating to energy conservation, research and development, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are provided in the Annexure C to this report.

ACKNOWLEDGEMENT

The Board of Directors would like to express their grateful appreciation for the assistance and co-operation received from the banks, various government authorities, customers, vendors and members of the Company during the period.

Your Directors also wish to place on record the sincere efforts and committed services put in by the employees across all levels, who continued to stand and support the Company and its management in the difficult times.

For and on behalf of the Board

Place : Gurgaon K. L. Khurana Date : August 13, 2014 Chairman


Mar 31, 2013

The Directors are pleased to present the twenty fourth Annual Report together with the audited annual accounts of the Company for the year ended March 31, 2013.

Standalone working results under Indian GAAP

(Rs. in thousands)

Particulars 2012-13 2011-12

Sales(net) 30,441 21,842

Other Income 1,719 1,337

Operating expenses 2,22,718 61,341

Research & development expenses 14,797 8,744

Finance costs 14,714 5,051

Depreciation 35,150 34,927

Loss before tax (255,219) (86,884)

Exceptional Items 15,735

(Loss) after tax (255,219) (102,619)

Loss brought forward from previous year (992,338) (889,719)

Profi t/(Loss) carried forward to balance sheet (1,247,557) (992,338)

Earnings Per Share (Rs..) - Basic (7.41) (2.98)

Operations

The management recruited new manpower and commenced implementation and training to ensure that the plants would meet GMP standards. In the last one year, while all the necessary steps have been taken by the Company to resume operations at plants, production of trial batches aimed at meeting quality specifi cations and standards, was commenced in October 2012 for some of the products range. The renewal applications were fi led for all expired drug licenses and by September 2012 the applications for oncology range were approved by the Drug Authorities after completing inspections/ audits by both the State and Central Drug Regulators. All equipments'' validation was also undertaken and extensive repairs and maintenance work have been undertaken to ensure that the plants are geared to commence production up to their installed capacities. Approval of central authorities for biologics licences is expected shortly as all inspections and enquiries are completed. Further, steps have been initiated for certifi cations under WHO GMP and inspections in this regard by the regulatory authorities concerned, have been completed. . Since October 2012, market seeding of your Company''s products has been undertaken with assistance from our largest shareholder. We have also commenced quoting for our products in various tenders in the new fi scal.

BIFR

Your Company had become a potentially sick Company in terms of the provisions of Section 23 of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the matter was intimated to Board for Industrial and Financial Reconstruction (BIFR) in August 2012 after approval of the Accounts for the year ended March 2011. Your Company had received a communication from BIFR seeking information and the course of action contemplated by the Company to increase its Networth. The Board of Directors has initiated actions to engage an independent fi nancial agency to review and recommend a revival strategy including steps required for increasing the Networth of the Company.

A report to the shareholders detailing the reasons for such erosion and the steps taken/ proposed to be taken as required under the above-mentioned provisions of SICA is provided as Annexure A to this Report.

Share Capital

There has been no change in the share capital of the Company during the year.

Board''s responses to Auditors Qualifi cations/Remarks

With regard to qualifi cations/remarks contained in the Auditors'' Report and Annexure thereto, your Directors'' wish to state as under:

a. Paragraph No. 1 in the Basis for Qualifi ed Opinion of the said Auditors'' report as to recognition of certain expenditures during the years ended 31 March 2011 and 31 March 2012 and outcome of the uncertainties, related to several nancial and non fi nancial irregularities, which are sub judice and various ongoing legal proceedings, current Management has initiated necessary steps to recover various missing assets, valuable information and records before CLB as well as appropriate court of law. The current Management had carried out reconstruction of books of account for the year ended 31 March 2011 and 31 March 2012 with the best of its ability, given the limitations, and any further adjustments / disclosures to the fi nancial statements, if required, would be made in the fi nancial statements of the Company as and when the outcome of the uncertainties related to those years is known and the consequential adjustments / disclosures are identifi able/ determinable.

b. Paragraph No. 2 in the Basis for Qualifi ed Opinion of the said Auditors'' report as to recovery of amount paid to Dr. Jayaram Chigurupati as Managerial Remuneration from October 1, 2007 to March 31, 2011 in contravention of provisions of the Companies Act, 1956 along with Interest thereon. The said matter is pending before the Court of the Hon''ble Chief Judge City Civil Court at Hyderabad. As the matter remains sub-judice, no adjustments have been made to the fi nancial results for years ended March 31, 2013 as well as March 31, 2012.

c. Paragraph No. 3 in the Basis for Qualifi ed Opinion of the said Auditors'' report as to pending approval of managerial remuneration to another co-Managing Director, the Management wishes to state that MCA had granted its approval for payment of remuneration to Mr. Raizada, subject to the condition that the company makes payment of its outstanding dues towards the loan assistance granted by TDB by February 29, 2012. The company, while citing the Arbitration proceedings pending with TDB requested MCA to modify the above date to "within 30 days of the Arbitration Award". The company is yet to receive the Ministry''s response in this regard. In the meantime, the Arbitration Award has been announced on February 28, 2013 which TDB is unable to enforce, including action on the personal guarantees of Dr. Chigurupati, as there is a stay granted by the Hon''ble High Court of Andhra Pradesh.

d. Point no. (ix) (a) of Annexure to Auditors'' Report with regard to few instances of delay in depositing provident fund, employees'' state insurance, service tax and income tax deposit with the departments: Company was generally regular in depositing material statutory dues during the year. However, due to heavy losses incurred by the Company during the last few years including in the current year due to the reasons as indicated in this Annual Report few instances of delay occurred. Your Company is taking all the required steps to resume production and increase revenues and ensure timely deposit of the statutory dues.

e. Point no. (x) of Annexure to Auditors'' Report with regard to accumulated losses being more than fi fty percent of its net worth and cash losses incurred during the current year and immediately preceding fi nancial year ; Appropriate intimation as required under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 have been made to Board of Industrial and Financial Reconstruction and necessary steps are being taken to revive the Company which includes decision to engage an independent fi nancial agency to review and recommend a rehabilitation scheme and suggest ways to increase the net worth of your Company.

f. Point no. (xi) of Annexure to Auditors'' Report with regard to delay in payment of certain dues (including interest ) to fi nancial institutions; Interest and loan taken from Technology Development Board was overdue and was subject matter of Arbitration proceedings. Award has been pronounced by Arbitrator on February 28, 2013 which is currently subject to stay order granted by the Hon''ble High Court of Andhra Pradesh in pursuance to a petition fi led by Dr. Jayaram Chigurupati. It is further informed that as on date, the Company has no outstanding loans from Banks/ Financial institutions except loan outstanding from TDB.

g. Point no. (xvii) of Annexure to Auditors Report with regard to utilization of money raised on short term basis to long- term: Utilization of money raised on short term basis to long term was made due to losses suffered by your Company during the period, which was in turn, due to the reasons indicated in this Annual Report. Your Company is taking all required steps to resume production and increase revenue to meet to its short term requirements of the funds.

Consolidated Financial Statements

On getting possession of the premises in 2011, the new management noticed that no books of account and records of the overseas subsidiaries of the company were available. As part of efforts to obtain relevant information, the management had approached the consultants and advisors of the subsidiaries in the respective countries, and tried to retrieve the relevant information. However the company has been unsuccessful and was unable to retrieve any relevant information, books and records. Under the circumstances, it is fi rmly believed that the entities were sham entities and do not exist anymore.

After evaluating the extent of the missing information and the regulatory non compliances etc., relating to the above subsidiaries, your Company had issued a legal notice to Dr. Jayaram Chigurupati, former Managing Director, to immediately release all the details pertaining to these subsidiaries including the documents / certifi cates related to all the foreign exchange transactions which include certain loans and investments made in those subsidiaries. He has further been instructed to complete audit of those subsidiaries and submit the fi nancial statements to the Company. However, it is unfortunate that in spite of reminders no response was received from Dr. Chigurupati. Accordingly the Company approached Company Law Board for issuing directions to Dr. Chigurupati to return and produce all the missing records.

Even after the directions from CLB, no proper response has been forthcoming from Dr. Chigurupati. In view of the same, the Company has now initiated contempt proceedings before the Hon''ble High Court of Andhra Pradesh, which are currently pending.

In view of the above, consolidated accounts could not be prepared. Further, your company has not been able to attach and provide the statements and particulars as required under the provisions of Section 212 of the Companies Act, 1956, relating to subsidiary companies.

Directors'' Responsibility Statement

In terms of provisions of Section 217(2AA) of the Companies Act, 1956("Act"), your Directors confi rm that:

- in the preparation of the Annual Accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, wherever applicable;

- the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the fi nancial year and of the loss of the company for that period;

- the Directors have taken proper and suffi cient care for the maintenance of adequate accounting records in accordance with the provisions of the act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

- the Directors have prepared the annual accounts on a going concern basis.

Employee Stock Option Scheme

Disclosures as on March 31, 2013 as required to be made in accordance with Clause 12 of SEBI (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are provided as Annexure B to this Report.

Energy Conservation, Research and Developments, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars relating to energy conservation, research and development, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1) (e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988; prepared based on the information to the extent available are provided as Annexure B to this report.

Report on Corporate Governance and Management''s Discussion Analysis

Reports on Corporate Governance together with the certifi cate of Mr. Mahadev Tirunagari, Company Secretary in Practice, Hyderabad, on the status of compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement and Management Discussion and Analysis form part of this Annual Report and enclosed to this report.

Deposits

The Company has not accepted any deposit under Section 58A of the Companies Act, 1956, during the year under review.

Auditors

M/s. BSR & Associates, Chartered Accountants, Statutory Auditors of your Company hold offi ce until the conclusion of the ensuing Annual General Meeting and are proposed to be reappointed. The Company has received a certifi cate from them to the effect that their reappointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956.

Cost Audit:

The Board of Directors of the Company appointed M/s. K.C. Kohli & Co., Cost Consultant & Advisor, Delhi, as Cost Auditor of the Company for the fi nancial year ended March 31, 2014. The audit report for the cost accounts of the Company for the year ended March 31, 2013, will be submitted to the Central Government in the due course.

Directorate

At the 22nd Annual General Meeting of the Company held on July 25, 2012:

i) Mr. Udbhav Ganjoo term as Additional Director of the Company expired and since he sought not to be appointed as Director at the said AGM, he ceased to be a Director from that date;

ii) Dr. R. S. Bakshi and Mr. K.L. Khurana were appointed as Directors of the Company;

iii) Mr. Ranjit Kohli, who sought not to be reappointed, retired by rotation and the members decided not to fi ll the resultant vacancy;

At the 23rd Annual General Meeting of the Company held on December 28, 2012:

i) Dr. Jayaram Chigurupati retired by rotation and sought his reappointment as Director of the Company. However, the resolution for his reappointment as Director was not passed at the AGM and the members resolved not to fi ll the resultant vacancy.

ii) Mr. B. K. Raizada was reappointed as the Managing Director of the company for a further period of 2 years effective October 1, 2012.

Prof. N. K. Ganguly and Dr. R.S. Bakshi retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment.

Particulars of Employees

None of the employees of the Company have drawn remuneration in excess of the limits contemplated under the provisions of the said section.

Listing at Stock Exchange

The Equity Shares of the company continue to be listed on Bombay Stock Exchange Ltd. (BSE). The annual listing fees for the year 2013–2014 have been paid to the Exchange.

Energy Conservation, Research and Developments, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars relating to energy conservation, research and development, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are provided as Annexure C to this report.

Acknowledgement

The Board of Directors would like to express their grateful appreciation for the assistance and co-operation received from the fi nancial institutions, banks, various Government Authorities, customers, vendors and members of the Company during the period.

Your Directors also wish to place on record the sincere efforts and committed services put in by the employees across all levels, who continued to stand and support the Company and its Management in these diffi cult times.

For and on behalf of the Board

Place : Gurgaon Dr. Sudershan K. Arora

Date : May 25, 2013 Chairman


Mar 31, 2011

The Directors herewith present the Twenty Second Annual Report together with the audited accounts of the Company for the year ended March 31, 2011.

Standalone Working Results under Indian GAAP

(Rs. in thousands)

Particulars 2010-11 2009-10

Sales(net) 70,014 65,651

Other Income 8,633 21,126

Depreciation 35,378 32,434

Amortisation of Misc. expenditure 15,232 11,942

(Loss)/Profit before tax (148,278) (124,749)

Exceptional Items 230,103 -

Current tax for earlier year written back - (203)

(Loss)/Profit after tax (378,381) (124,546)

(Loss)/Profit brought forward from previous year (511,338) (386,792)

(Loss)/Profit carried forward to Balance Sheet (889,719) (511,338)

Earnings Per Share (Rs.) - Basic (10.99) (3.62)

At the last Annual General Meeting (AGM) of the Company held on January 18, 2011, Dr. Sudershan K. Arora, Mr. Ranjit Kohli and Prof. N.K.Ganguly were appointed as Directors of the Company. Subsequently, Hon'ble High Court of Andhra Pradesh dismissed the appeal of Dr. Jayaram Chigurupati, Managing Director filed against the orders of the Hon'ble Company Law Board (CLB) for inclusion of the items for appointment of said Directors in the Notice of the AGM.

The reconstituted Board of Directors reviewed the state of affairs of the Company and being completely dissatisfied with the performance of Dr. Chigurupati, decided to appoint Mr. B.K.Raizada as another Managing Director for a period of two years effective March 19, 2011 subject to requisite approvals. The Board also allocated the responsibilities between the two Managing Directors. The CLB dismissed the appeal filed by Dr. Chigurupati against the said decision of the Board, and held that the appointment of Mr. Raizada was legal and he could perform his allocated duties as Managing Director. In view of Dr. Chigurupati continuing to act in total disregard to the directions of the Board and his performance continuing to be unsatisfactory, the Board of Directors in its meeting held on July 21, 2011, removed him from the position of Managing Director of the Company subject to approval of CLB, which is currently pending.

Despite the best efforts, Mr. Raizada and his Management team were not able to access the premises of Company's Registered Office and the plant in view of the Registered Office of the Company being locked and illegal strike by some of the employees of the Company. Finally in November 2011, pursuant to the orders of the CLB, the Management was able to get possession of the Plant facilities in the presence of Advocate Commissioner appointed by CLB.

Once the access, as explained above was provided, the Management began exercise for retrieval of assets, including a detailed technical and business assessment of the status of entire manufacturing facilities, fixed assets, inventories, key records and books of accounts of the Company. To the utter shock of the management, it was discovered that key records, assets, books of accounts and statutory records were missing. Appropriate action, including filing of criminal complaints against the persons responsible including Dr. Chigurupati, has already been initiated by the Management.

Due to non availability of the records, a comprehensive exercise was carried out to reconstruct the books of accounts and other financial information by obtaining requisite information from external sources including previous Auditors, banks and financial institutions, customers, suppliers, tax authorities, Registrar of the Companies, employees and other relevant sources as detailed in Schedule 22 in the notes to Accounts and forming part of the aforesaid financial statements (herein after "Schedule 22"). The said mechanism is also based on the announcement / guidance notes of Institute of Chartered Accountants of India.

The shareholders are further requested to note that in view of the non-availability of records, these accounts have been prepared on the basis of certain inferences based on the availability of information and in case, if the actual records are later found to be inconsistent with the present information, the accounts may be required to be redrawn.

Operations

The Company recorded a total loss after tax of Rs. 37.84 crores for the year ended March 31, 2011. Included in this figure is a loss from exceptional items of Rs 23.01 crores, mainly on account of provisions for impairment and doubtful debts/ advances, and a loss of Rs.14.83 crores being incurred from operations.

Since April 2011, there has been no production in the plant as employees of the Company were on an illegal strike. The Management after taking over the possession of the plant premises published an advertisement in English and local dailies advising employees to report for duty on or before November 23, 2011. While, some of the employees have joined back the duties, others have submitted their resignations which are being processed in accordance with the legal provisions. Necessary steps are being taken by the Company to resume operations at the plant.

Sale of the Company's products in Oncology has been resumed though Licenced production after necessary approvals from the various authorities. This has been done to ensure continued availability of your Company's products to meet tender commitments and demand for life saving drugs from the market. Soon after taking over the possession of premises in November, 2011, the Management reviewed matters relating to Technical viability and further steps required to be taken to restart the Company's facilities related to Bio-tech, Oncology Injectables manufacturing plant and FDA approved Injectables manufacturing Plant including the manpower requirements etc. Presently cleaning and validation of the process of all the facilities has started including training of new personnel, on completion of which, the Management is confident of restarting the operations. The Company has applied for renewal of all expired Drug licenses.

Share Capital

As per the intimation made earlier by the Company to BSE, it is learnt that 4,250 equity shares were allotted to four employees on November 16, 2009 under Company's ESOPs Scheme, which was subject to leave of CLB. CLB vide its order dated 06.08.2010 approved the allotment of 2500 shares and accordingly, an intimation to this effect was sent to BSE from Company stating that these shares are issued proportionately to the said four employees.

Auditors Qualifications/Remarks

With regard to qualifications/remarks contained in the Auditors' Report and Annexure thereto, your Directors' wish to state as under:

a. Point No. 3(a), (b) and (c) of the main report as to recognition of certain expenditure and exceptional charges as well as non-recognition of potential financial consequences, the Management, for the reasons as explained in various foregoing paragraphs i.e. missing of books and records including supporting documents etc., read with Schedule 22, was not in a position to:

- produce any document to support the nature, completeness validity and accuracy of the expenditure as quantified in 3(a) of the said report;

- not able to make provision for potential financial implications of non-compliances.

- justify the carrying value of respective fixed assets, capital work in progress etc., as detailed in Schedule 21 to the stated financials.

The Management, as mentioned above, has initiated necessary steps to recover various missing assets, valuable information and records before CLB as well as appropriate court of law.

Considering the un-audited financial results, as submitted under signature of Dr. Chigurupati to Bombay Stock Exchange upto the quarter ended December 31, 2010; reasonability of carrying value of certain fixed assets and the state of affairs of subsidiaries as more detailed in Schedule 22 etc., the management exercised its best judgment in recognition / non recognition of aforesaid expenses.

b. Point No. 3 (d) of the main report as to completeness of disclosures on related parties, as required under Accounting Standard 18; despite best efforts, two of the Directors viz. Dr. Chigurupati and Mr. Raghu Vasu have chosen not to submit information as required under Sections 274 and 299 of the Companies Act as mentioned in Note no. 3(d) and 7 (v) of the Auditors report. The Management therefore has been unable to provide complete information as required under the said Accounting Standard.

c. Point No. 5 of the main report as to recovery of amount paid to Dr. Jayaram Chigurupati as managerial remuneration from October 1, 2007 to March 31, 2011 in contravention of provisions of the Companies Act, 1956 along with Interest thereon; the Management wishes to reaffirm that the said matter is pending before the Court of the Hon'ble Chief Judge City Civil Court at Hyderabad. As the recovery of the claim is dependent of the outcome of the judicial action, no adjustments have been made to the financial statements.

d. Point No. 4, 7(i) and 7(ii) of the main report as to significance of material misstatement of reconstructed books of accounts; the inability of Auditors' to obtain all the information and explanations necessary for the purpose of audit and thus to express their opinion on the financial statements, the Management wishes to state the following, in addition to what has been already mentioned either in this report or Schedule 22:

i. Your Company has been unable to comply with various statutory requirements, the latest one being the Accounts for the year ended 31st March 2011, completion of statutory Audit and conducting the 22nd AGM of the Company due for the aforesaid financial year of the Company. It may be mentioned here that the present Management approached the Registrar of Companies, Andhra Pradesh, to grant extension of time for holding the aforesaid AGM on or before December 31, 2011. But, when the Management got the access to the premises and tried to set right the issues as explained above, inter-alia, books of accounts, records including vouchers and other information necessary to complete the statutory audit for 2010-11 was not available.

ii. the Management was unable to commence preparation of the Accounts for the year ended 31st March 2011 till December 2011, as a result of which the Company was unable commence the Statutory Audit and conduct the AGM on or before December 31, 2011.

iii. Due to non availability of all relevant books of account and records the present Management, was left with no other choice, but to carry out a detailed exercise to reconstruct whole of the books of accounts and other financial information by obtaining requisite information from external sources including previous Auditors, banks and financial institutions, customers, suppliers, tax authorities, Registrar of the Companies, employees and other relevant sources as detailed in Schedule 22.

iv. The management further wishes to emphasize that the process of Reconstruction of Books undertaken by the present management should be seen as a positive move to reconstruct value of each item of Balance Sheet based on widest possible data to check its veracity from a true and fair viewpoint and subject to certain implications and inferences etc, to be made in that connection. The said mechanism is supported by the announcement / guidance notes of Institute of Chartered Accountants of India and since, no other option was available to comply with the requirements of statutory Audit, the present Management, after much deliberation, had agreed to reconstruct the same and to complete the statutory Audit.

v. The shareholders are further requested note that the period under review was in total control of previous Management and as the present Management did not have any knowledge of the factual position, it had to make certain inferences based on the availability of above information.

vi. The Management would once again emphasize that as the present management completed the statutory Audit by complete reconstruction of books as explained above, the information provided in financial statements having its own limitations in so far as it relates to the financial year 2010-11 and in case, later on, if actual data is found, the same may force us to change the accounts may be required to be redrawn.

e. Appointment of Internal Auditors as mentioned in Annexure, the Management wishes to state that the Company is in process of implementing a robust internal control system regarding inventory movements and has initiated institution of certain internal controls over purchases of goods and fixed assets and sale of goods and services post year-end. The Company has also started working to improve the system of internal controls by issuing necessary Standard Operating Procedures. Further, management is also contemplating to appoint an Internal Auditor, commensurate with the size of its operations, to review and strengthening of internal controls.

f. Maintenance of cost records as required under Section 209(1)(d) of the Companies Act, 1956 as mentioned in Annexure, the Management wishes to state that the Company has now appointed M/s. K.C.Kohli & Co., Cost Accountants as Cost Auditor of the Company for audit of the cost accounts pertaining to Bulk Drugs and Formulations for the year 2011-12 & 2012-13. The Company is in the process of making requisite applications with the Central Government for seeking their approval for the aforesaid appointment of Cost Auditors.

g. Accumulated losses at the end of the financial year are not less than fifty percent of its net worth and incurring of cash losses in the current year and immediately preceding financial year, as mentioned in Annexure, the Management wishes to state that necessary steps are being taken to revive the operations by management.

h. Delay in payment of Interest on Secured loans: Note 10 of schedule 22 to the financial statements, as mentioned in Annexure, the Management wishes to state that interest on loan taken from Technology Development Board is overdue and is subject matter of arbitration proceedings. The Company would take necessary steps on receipt of the final award in this regard.

i. Application for term loans taken by the Company, as mentioned in Annexure, the Management wishes to state that as on date, the Company has no outstanding loans from Banks/Financial institutions except loan outstanding from Technology Development Board (TDB) and in absence of the documents/records as explained above, your Directors are not in a position to comment further. Arbitration proceedings, started by TDB, are complete and the Award is awaited.

j. Notice/Reporting of fraud on or by the Company- note 1 of Schedule 22, as mentioned in Annexure, the Management wishes to state that the Company has already taken requisite steps including filing of criminal complaints for retrieval of the records. The Management is also trying to retrieve records to the extent possible by obtaining certified true copies from various sources. The irregularities noted are under investigation and financial consequences of the same are being ascertained.

Consolidated Financial Statements

Upon taking control of the Company, the Management observed that no books of account and records were available regarding its overseas subsidiaries. As part of efforts to obtain relevant information the Company through its consultants and local advisors in the respective countries above reached out to the overseas subsidiaries. The Company has been unable to retrieve any relevant information, books and records and based on all reasonable efforts that it could have made under the circumstances believes that information relating to the subsidiaries is missing and the entities are either delinquent or do not exist anymore. The Management is currently in the process of evaluating the extent of the missing information and the regulatory non compliances, if, any relating to the above subsidiaries. Provision has not been made for potential financial consequences arising out of such ongoing evaluations, the outcome of which will depend on the nature and extent of non compliances which is currently not determinable.

In view of the above, consolidated accounts could not be prepared. Further, for the same reason, the Company has not been able to attach / provide the statements / particulars as required pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies.

Directors' Responsibility Statement

Subject to the limitations of the missing records and consequential reconstruction of the accounts as explained previously, the Board submits in compliance of Section 217 (2AA) of the Companies Act, 1956, as under:

- in the preparation of the Annual Accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures, if any;

- the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for that period;

- the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities to the extent possible in the circumstances;

- the Directors had prepared the annual accounts on a going concern basis.

Employee Stock Option Scheme

Disclosures in this regard upto March 31, 2011 as required to be made in accordance with Clause 12 of SEBI (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are provided as Annexure A to this report.

Reports on Corporate Governance and Management's Discussion and Analysis

Reports on Corporate Governance alongwith the Certificate of Mr. Mahadev Tirunagari, practicing Company Secretary on the status of compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchange and Management Discussion and analysis forms part of the Annual Report and enclosed as Annexure B to this report.

Deposits

The Company has not accepted any deposit under Section 58A of the Companies Act, 1956, during the year under review.

Auditors

M/s BSR & Associates, Chartered Accountants, Statutory Auditors of your Company hold office until the conclusion of the ensuing Annual General Meeting and are proposed to be reappointed at the said meeting to hold office until conclusion of 23rd AGM of the Company. The Company has received a certificate from them to the effect that their appointment if made would be within the limits prescribed under Section 224(1) of the Companies Act, 1956.

Directors

At the Board Meeting held on March 19, 2011, Dr. Sudershan K.Arora was elected as Chairman of the Board of Directors of the Company and Mr. B.K.Raizada was appointed as another Managing Director of the Company. The shareholders of the Company in the Extra-ordinary General Meeting held on July 21, 2011 unanimously approved the appointment of Mr. Raizada as Managing Director for a period of two years effective March 19, 2011 and payment of remuneration subject to the approval of the Central Government. The Company has made requisite application in this regard.

Justice (Retd.) A.Gopal Rao, who was appointed as a Director of the Company by the Hon'ble Andhra Pradesh High Court (Court), has resigned as Director of the Company effective July 7, 2011. The Board of Directors appointed Mr. Udbhav Ganjoo as an Additional Director of the Company w.e.f. December 9, 2011 who holds office till the conclusion of the ensuing Annual General Meeting (AGM). Mr. Ganjoo has sought not to be appointed as Director at the AGM. Mr. Ranjit Kohli retires by rotation at the AGM and has expressed his intention not to seek reappointment. Further, in terms of the Hon'ble Court's order dated April 24, 2012, Mr. A. Raghu Vasu, who was also appointed as a Director of the Company by the Hon'ble Court, has vacated the office of the Director.

The Directors place on record their warm appreciation for the contribution made by Justice (Retd.) A.Gopal Rao, Mr. Raghu Vasu, Mr. Ranjit Kohli and Mr. Udbhav Ganjoo during their tenure as Directors of the Company.

Particulars of Employees

In absence of the records/information available with the Company, the Directors are unable to confirm if during the year under review, any of the employees of the Company have drawn remuneration as specified under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975.

Listing at Stock Exchange

The Equity Shares of the Company continue to be listed on Bombay Stock Exchange Ltd (BSE). The annual listing fees for the year 2010-2011 has been paid to the Exchange. BSE had issued a circular in March 2012 suspending the trading in the shares of the Company in view of the non-compliances of the Listing Agreement. However, the Hon'ble High Court of Andhra Pradesh, on considering the submissions of the Company that the non-compliances were due to non-availability of records with the existing management, granted stay against the said order of the BSE.

Energy Conservation, Research and Developments, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars relating to energy conservation, research and development, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are not provided in view of non-availability of data in this regard for the afore stated reasons.

Acknowledgement

The Board of Directors would like to express their grateful appreciation for the assistance and co-operation received from the Financial Institutions, Banks, Government Authorities, Customers, Vendors and Members during the year under review.

Yours Directors also wish to place on record the sincere efforts and committed services put in by the employees who have stood by us in these difficult times.



For and on behalf of the Board

Place : New Delhi Dr. Sudershan K. Arora

Date : June 4, 2012 Chairman

 
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