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Notes to Accounts of 3i Infotech Ltd.

Mar 31, 2015

1.1.1 Pursuant to the Act coming into effect from April 1, 2014, based on internal technical evaluation, the management reassessed the remaining useful life of tangible assets with effect from April 1, 2014. Accordingly, the useful lives of certain assets required a change from the previous estimates.

1.1.2 Buildings - Leasehold:

During the year, the Company has revalued its Leasehold Building (60 years lease period) based on the fair market valuation obtained from an independent expert valuer. Accordingly, Rs. 125.50 crores has been credited to revaluation reserve and incremental depreciation thereon ofRs. 0.91 crores has been included in Depreciation and Amortisation Charge. Also, Rs. 146.35 crores remain substituted for historical cost in the gross block.

1.1.3 Depreciation for the year includes gain on sale/discarding of various assets amounting toRs.0.09 crores (for the year ended March 31, 2014 loss of Rs.4.36 crores) and certain intangible assets have been fully amortized having Gross Block of Rs.7.26 crores (as at March 31, 2014 Rs.15.40 crores), Accumulated Depreciation Rs.6.54 crores (as at March 31, 2014 Rs.2.66 crores) and Net Block of Rs.0.72 crores (as at March 31, 2014 Rs.12.74 crores) due to technological obsolescence/commercial unviability

1.2.1 Pledge of shares

Investments in these companies have been pledged as per the Master Restructuring Agreement entered by the Company with CDR Lenders. (Also refer note on securities offered under Corporate Debt Restructuring)

1.2.2 During the year, pursuant to Board resolution dated May 28, 2015, Company has re-converted its unsecured loan receivable from its wholly owned subsidiary viz. 3i Infotech Holdings Private Limited, Mauritius to investment in zero coupon redeemable preference shares redeemable at a premium with retrospective effect from July 1, 2012. Accordingly, the Company has accountedRs. 22.80 crores as a debit to FCMITDA being long term monetary asset and Rs. 0.43 crores as additional foreign exchange gain amortized for the period upto March 31, 2015 with respect to the aforesaid amount accounted under FCMITDA.

Further, Premium receivable of Rs.226.44 crores (as at March 31, 2014 Rs. 230.15 crores) on aforesaid preference shares will be recognized as income as and when the uncertainty as to the realization ceases to exist.

1.3.2 Commitments:

(a) Capital Commitments

Capital commitments as at March 31, 2015 Rs. 0.09 crores (Rs. Nil as at March 31, 2014)

(b) Derivative Instruments:

During the financial year ended March 31, 2012, the Company had entered into a cross currency interest rate swap to the tune of USD 26 mn (Rs.115 crores). The Company designated this instrument as cash flow hedge against its forecasted foreign currency inflows. For hedge transactions, the Company identifies the hedged item (asset or liability) at the inception of the hedge itself. The effectiveness is assessed at the time of inception of the hedge and periodically thereafter.

For the year ended March 31, 2015, the Company recognized Rs. 22.60 crores (for the year ended March 31, 2014 Rs. 1.21 crores) in Cash flow hedging reserve account as effective fair value changes on derivative under cash flow hedge accounting.

The balance of the Cash flow Hedging Reserve account as at Mar 31, 2015 is Nil. (as at March 31, 2014 negative Rs. 22.60 crores).

As at March 31, 2015, the fair value of outstanding derivative designated under cash flow hedge accounting was Rs. Nil (as at March 31, 2014Rs. 22.60 crores), of which Rs. Nil (as at March 31, 2014, Rs. 22.60 crores) is presented under "Other current liabilities".

(c) Leases:

a. Operating Lease:

(i) The Company has acquired certain Land and Building under a lease arrangement for a period of sixty years at a premium ofRs. 0.50 crores starting from December 4, 2000 for Land, Rs. 15.62 crores starting from March 13, 2000 and Rs. 5.05 crores March 1, 2003 for building and the same are being amortized over the lease period. All other lease arrangements in respect of properties from are renewable/ cancellable at the Company's and/or lessors' option as mutually agreed. The future lease rental payment committed is as under:

1.4.1 Going Concern:

During the financial year 2011-12, the Company undertook restructuring of its debts through CDR cell and also renegotiated with the FCCB holders with respect to its obligations. Post the debts restructuring, there have been substantial delays in repayments of Principal and payment of Interest in respect of CDR lenders as well as for the interest on FCCBs, which may be construed as Default as per the MRA and the terms of FCCB. The Company is negotiating with the aforesaid lenders as also with the lease financiers to restructure the debt and is reasonably certain to renegotiate and meet its financial obligations.

1.4.2 Impairment Analyses of Cash Generating Units (CGUs):

The Company, as per its Accounting Policy and in accordance with the requirements of the Accounting Standard (AS) 28-'Impairment of Assets' and Accounting Standard (AS) -13 Accounting for Investments, specified under Section 133 of the Act, has carried out an impairment analysis of its Cash Generating Units / Long term Investments on a going concern basis, with the assistance of an independent expert valuer and accordingly provision for diminution in value of long term investments (subsidiaries) ofRs. 350 crores (Previous yearRs. Nil) has been made. Besides, the Company has provided loss ofRs. 305.79 crores on account of divestment of stake in step down subsidiaries during the year.

1.5 Employee Benefit Plans

The expected return on plan assets is based on market expectations at the beginning of the year for the returns over the entire life of the related obligations. The estimates for future salary increases considered take into account, inflation, seniority, promotion and other relevant factors.

The following table set out the status of the gratuity plan as required under AS 15 (Revised) and figures given below are as per actuarial valuation.

1.6 a In the opinion of the Board of Directors of the Company, the investments, current and non - current assets, long term and short term loans and advances are realizable at a value, which is at least equal to the amount at which these are stated, in the ordinary course of business and provision for all known and determined liabilities are adequate and not in excess of the amount stated.

1.6 b The accounts of certain Trade Receivables, Trade Payables, Loans and Advances and banks are, however, subject to formal confirmations/reconciliations and consequent adjustments, if any. However, the management does not expect any material difference affecting the current year financial statements on such reconciliation/ adjustments.

1.7 Foreign Currency Monetary Item Translation Difference:

(a) During the year, in compliance with Accounting Standard (AS) 11 -The Effects of Changes in Foreign exchange Rates, exchange loss ofRs. 15.40 crores (for the year ended March 31, 2014 loss ofRs. 52.34 crores) arising on FCCBs and exchange gain ofRs. 2.79 crores (for the year ended March 31, 2014 gain ofRs. 49.88 crores) on long term foreign currency investment in Preference shares/loan, exchange gain ofRs. 0.42 crores (for the year ended March 31, 2014 loss ofRs. 0.42 crores) on foreign currency loan being long term monetary liability/asset, has been debited/credited to "Foreign Currency Monetary Item Translation Difference Account" to be amortized over the balance period of the liability/asset. The amount of exchange loss amortized during the year is Rs. 7.35 crores (for the year ended March 31, 2014 Rs. 9.93 crores).

(b) The Company has a liability of Rs.1038.31 crores (as at March 31, 2014 Rs. 987.48 crores) towards acquisition of Intellectual Property Rights (IPRs) to its step down subsidiary, 3i Infotech (Middle East) FZLLC, for Company's software products meant for sale in respect of which, the Company has approached Reserve Bank of India (RBI) through authorized dealer during the period to extend the timeline for repayment of the aforesaid liability till March 31, 2017 and is awaiting. In view of the same, the said liability is considered long term from inception and the resulting foreign exchange translation loss ofRs. 46.48 crores (for the year ended March 31, 2014 loss of Rs. 89.28) for the year have been capitalized to the cost of the software.

1.8 Share Application Money Pending Allotment:

During the year, in line with the CDR Scheme and execution of the Deed of Accession to Master Restructuring Agreement (MRA) with one ofthe Non CDR lenders, the Company has transferred the Principal outstanding ofRs.16.75 crores and accumulated interest payable for the period from October 1, 2011 to March 31, 2012 of Rs.16.75 crores to "Share Application Money pending allotment"; against which the equity shares are to be issued at a price of Rs.19.74 per equity share.

1.9 a) Figures for the previous year have been re-grouped/re-arranged, wherever considered necessary to conform to current quarter's presentation,

b) Rs. 0.00 crores denote figures less than Rs. 50,000.


Mar 31, 2014

1.1.1 Contingent liabilities (to the extent not provided for)

'' crores

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

Contingent liabilities not provided for in respect of:-

Corporate Guarantee on behalf of subsidiaries (to the extent of outstanding) 157.17 161.25

Outstanding bank guarantees 0.10 0.22

Arrears of cumulative preference dividend (including dividend distribution tax thereon) 4.83 4.82

Estimated amount of claims against the company not acknowledged as debts in respect of:-

- Disputed income tax matters 38.28 102.52

- Disputed service tax matters (excluding interest as applicable) 181.56 10.54

- Disputed sales tax matters 3.10 -

- Customer claims 0.19 0.24

- Others* 49.80 12.79

Total 435.03 292.38

* Includes claim in respect of legal cases relating to Registrar and Transfer Services, which are reimbursable by the Principal to the extent of Rs.0.85 crores (as at March 31, 2013 - Rs.0.79 crores).

During the year, due to financial crunch, the Company has not been regular in payment of statutory dues and also has unpaid dues. Further, there are delays/defaults in payment to lenders and others as per the payment schedule. The delayed payment/defaults of statutory dues, in payment to lenders and others may result into consequential additional liability, as may arise, on such delays/defaults, amount whereof is not presently ascertainable.

(b) Derivative Instruments:

During the financial year ended March 31, 2012, the Company had entered into a cross currency interest rate swap to the tune of USD 26 mn (''115 crores).The Company designated this instrument as cash flow hedge against its forecasted foreign currency inflows. For hedge transactions, the Company identifies the hedged item (asset or liability) at the inception of the hedge itself. The effectiveness is assessed at the time of inception of the hedge and periodically thereafter.

For the year ended March 31,2014, the Company recognized Rs.1.21 crores (for the year ended March 31,2013 Rs.6.03 crores) in Cash flow hedging reserve account as effective fair value changes on derivative under cash flow hedge accounting.

The balance of the Cash flow Hedging Reserve account as at March 31, 2014 was negative Rs.22.60 crores (as at March 31, 2013 negative Rs.21.39 crores).

As at March 31 2014, the fair values of outstanding derivatives designated under cash flow hedge accounting was Rs.22.60 crores (as at March 31, 2013 Rs.23.15 crores), of which Rs.Nil (as at March 31, 2013 Rs.15.67 crores) is presented in the balance sheet under ''Other long term liabilities'' and the balance Rs.22.60 crores (as at March 31, 2013 Rs.48 crores) is presented under "Other current liabilities".)

2.1 Debt Restructuring

The Company had restructured its debt and Foreign Currency Convertible Bonds in the year ended March 31, 2012. The details of the restructuring are as under:

A. Corporate Debt Restructuring:

In line with the CDR scheme and Master Restructuring Agreement (MRA) entered into with certain lenders, during the year the Company has allotted 384,498 equity shares of Rs.10 each at a price of Rs.19.74 against the conversion of Sacrifice amount of Rs.0.76 crores as per the Master Restructuring Agreement in pursuance of the CDR scheme.

During the year ended March 31,2013, the Company allotted 264,725,928 equity shares of Rs.10 each at a price of Rs.19.74 against principal outstanding of Rs.252.81 crores and interest of Rs.269.76 crores was accrued for the period October 1, 2011 to March 31, 2013.

On 22rd March 2012, the Company launched an Exchange Offer for the Third and Fourth series of outstanding FCCBs(subsequent to buy back) of USD 20 million and USD 66.37 million respectively, whereby the Company offered a new series of FCCBs to the existing bond holders on surrender of the earlier series of FCCBs for a value including the premium payable on those FCCBs. Out of the Third Issue, 100% of the bond holders and out of the Fourth Issue, 96.33% of the bond holders have surrendered the earlier series of the FCCBs in exchange for the new series of FCCBs, which is effective from April 3, 2012. Consequent to this, during the previous year ended March 31, 2013 the Company cancelled 100% of the bonds under the Third Issue and 96.33% of the bonds under the Fourth Issue and replaced them with a new series of FCCBs (''Fifth Issue''). The terms of the remaining FCCBs under the Fourth Issue had also been amended by the Company.

During the year ended March 31,2014, the Company allotted 7,04,914 equity shares (For the year ended March 31 2013, 97,111,993 equity shares) of Rs.10 each against conversion of 229 numbers (For the year ended March 31 2013, 31,548 numbers) of above mentioned FCCBs amounting to Rs.1.16 crores (For the year ended March 31, 2013 Rs.160.22 crores equivalent to USD 2,29,000 (For the year ended March 31, 2013 USD 31,548,000).

The conversion price as per the Offering Circular dated March 22, 2012 was Rs.16.50 per share.

2.2.1 Going Concern:

During the financial year 2011-12, the Company undertook to restructuring of its debts through CDR cell and also renegotiated with the FCCB holders with respect to its obligations. Post the debts restructuring, the Company is confident of successful implementation of the CDR package and is also confident of meeting its FCCB obligations. Therefore, financial statements have been prepared on a going concern basis.

2.2.2 Impairment Analysis of Cash Generating Units (CGUs):

The Company, as per its Accounting Policy and in accordance with the requirements of the Accounting Standard (AS) 28 - Impairment of Assets and Accounting Standard (AS) - 13 Accounting for Investments, prescribed under Companies (Accounting Standard) Rules 2006, has carried out an impairment analysis of its Cash Generating Units / Long term Investments, in order to ascertain the extent of impairment, if any, in their carrying values.

The valuation analysis carried out by an independent expert valuer was used to assess the values generated by these CGUs/Long Term Investment on a going concern basis for the above purpose. Based on the valuation exercise so carried out, current year''s performance and the future earnings estimates of the Company, there is no impairment revealed.

2.2.3 Deferred tax asset:

In respect of Net Deferred Tax Asset of Rs.121.33 crores (as at March 31, 2013 Rs.103.66 crores) being carried forward, the management, based on the order book on hand and relying on the Restructuring Scheme approved by the CDR Cell, is confident of having taxable income in foreseeable future, which would enable reversals of deferred tax assets already recognized in earlier years.

2.3 Employee Benefit Plans

The expected return on plan assets is based on market expectations at the beginning of the year for the returns over the entire life of the related obligations. The estimates for future salary increases considered take into account, inflation, seniority, promotion and other relevant factors.

The following table set out the status of the gratuity plan as required under AS 15 (Revised) and figures given below are as per actuarial valuation.

The liability recognized with respect to Gratuity within the balance sheet as at March 31, 2014 is Rs.18.45 crores (as at March 31, 2013 is Rs.18.13 crores)

The liability recognized with respect to leave encashment/entitlement in the balance sheet as at March 31, 2014 is Rs.2.16 crores (as at March 31, 2013 is Rs.1.91 crores)

2.4 The Company had acquired till March 31, 2014, 74% of the equity of Locuz Enterprise Solutions Ltd. (''Locuz'') for an aggregate consideration of Rs.22.80 crores. As per the share purchase agreement, the Company was committed to acquire the balance stake at a future date for additional consideration payable on achieving certain measurable criteria such as future revenue/profitability etc., as per the agreement. However, given the current liquidity constraints, the Company is exploring divestment options of its current equity interest in Locuz.

2.5 (a) In the opinion of the Board of Directors of the Company, the investments, current and non - current assets, long term and short term loans and advances are realizable at a value, which is at least equal to the amount at which these are stated, in the ordinary course of business and provision for all known and determined liabilities are adequate and not in excess of the amount stated.

(b) The accounts of certain Trade Receivables, Trade Payables, Loans and Advances and banks are, however, subject to formal confirmations/reconciliations and consequent adjustments, if any. However, the management does not expect any material difference affecting the current year financial statements on such reconciliation/ adjustments.

2.6 Exceptional items

a) Exceptional item represents "losses on litigation" accounted of Rs.35.85 crores on settlement reached with Dangold Investments Corporation in connection with dispute relating to acquisitions in subsidiaries.

b) The Company had during the financial year ended March 31,2013 capitalized expenditure on Intangible Assets viz. internally developed Software Products (meant for sale) incurred during the years from FY 2006-07 up to FY 2011-12 as also for the financial year ended March 31,2013 in terms of Accounting Standard 26 - "Intangible Assets". The software development costs so capitalized have been amortized at the lower of 10 years or the estimated economic useful life of each of these products from the date of their being put to use in terms of the accounting policy followed by the Company. Consequently, the product developement expenses aggregating to '' 160.43 crores (net of amortization) charged off in the earlier years (FY 2006-07 to FY 2011-12) have been capitalised during the Financial Year ended March 31, 2013.

c) The Company had provided for/reversed certain slow moving trade receivables and unbilled revenue amounting to '' 21.90 crores during the financial year ended March 31, 2013 which have arisen largely due to the tight liquidity situation, resource constraints etc. faced by the Company in the year immediately preceding the financial year ended March 31, 2013.

d) The items referred above in (b) and (c) have been disclosed as a net adjustment in the Statement of Profit and Loss as an exceptional item.

2.7 Foreign Currency Monetary Item Translation Difference:

(a) During the year, in compliance with Accounting Standard (AS) 11 - The Effects of Changes in Foreign exchange Rates, exchange loss of Rs. 52.34 crores (for the year ended March 31, 2013 loss of Rs.23.53 crores) arising on FCCBs (which hitherto was charged upto June 30, 2012 to Statement of profit and loss) and exchange gain of Rs.49.88 crores (for the year ended March 31, 2013 loss of Rs.15.69 crores) on long term foreign currency loan, exchange loss of Rs.0.42crores (for the year ended March 31, 2013 Rs.Nil) on foreign currency loan being long term monetary liability/asset, has been debited/credited to "Foreign Currency Monetary Item Translation Difference Account" to be amortized over the balance period of the liability/asset. The amount of exchange gain amortized during the year is Rs.9.93 crores (For the year ended March 31, 2013 Rs.7.62 crores).

(b) The Company has a liability of Rs.987.48 crores (as at March 31, 2013 Rs.898.20 crores) towards acquisition of Intellectual Property Rights (IPRs) to its step down subsidiary, 3i Infotech (Middle East) FZLLC, for Company''s software products meant for sale in respect of which, the Company has approached Reserve Bank of India (RBI) through authorized dealer during the period to extend the timeline for repayment of the aforesaid liability till March 31, 2017 and is expecting the response shortly. In view of the same, the said liability is considered long term from inception and the resulting foreign exchange translation loss of Rs.89.28 crores (for the year ended March 31,2013 Rs.Nil) for the year have been capitalized to the cost of the software, which hitherto was charged up to March 31, 2013 to the Statement of Profit and Loss.

2.8 a) Figures for the previous year have been re-grouped/re-arranged, wherever considered necessary to conform to current quarter''s presentation.

b) Rs.0.00 crores denote figures less than Rs.50,000.


Mar 31, 2013

1.1.1 Pledge of shares

Investments in these companies have been pledged as per the Master Restructuring Agreement entered by the Company with CDR Lenders. (Also refer note on securities offered under Corporate Debt Restructuring)

1.2.1 Contingent liabilities (to the extent not provided for)

Rs.crores

As at As at March 31, 2013 March 31, 2012

Contingent liabilities not provided for in respect of :-

Corporate Guarantee on behalf of subsidiaries 272.40 264.13

Outstanding bank guarantees 0.22

Arrears of cumulative preference dividend (including dividend distribution tax 4.82 7.40 thereon)

Estimated amount of claims against the company not acknowledged as debts in respect of:-

Disputed income tax matters 102.52 51.41

Disputed service tax matters (excluding interest as applicable) 10.54 175.55

Disputed sales tax matters 1.72

Customer claims 0.24 1.20

Others* 12.79 14.25

Total 403.53 515.66

* Includes claim in respect of legal cases relating to Registrar and Transfer Services, which are reimbursable by the Principal to the extent ofRs. 0.79 crores (as at March 31, 2012 - Rs. 1.27 crores).

During the year, due to financial crunch, the Company was not regular in payment of statutory dues and also has unpaid dues. Further, there are delays/defaults in payment to lenders & others as per the payment schedule. The delayed payment/defaults of statutory dues, in payment to lenders & others may result into consequential additional liability, as may arise, on such delays/defaults, amount whereof is not presently ascertainable.

1.3 Debt Restructuring

The Company had restructured its debt and Foreign Currency Convertible Bonds in the year ended March 31, 2012. The details of the restructuring are as under:

A. Corporate Debt Restructuring :

In line with the CDR scheme and Master Restructuring Agreement (MRA) entered into with certain lenders, during the year the Company has allotted 26,47,25,928 equity shares of Rs. 10 each at a price ofRs. 19.74 against principal outstanding ofRs. 252.81 crores and interest of Rs. 269.76 crores accrued for the period October 1, 2011 to March 31, 2013.

On 22nd March 2012, the Company launched an Exchange Offer for the Third and Fourth series of outstanding FCCBs(subsequent to buy back) of USD 20 million and USD 66.37 million respectively, whereby the Company offered a new series of FCCBs to the existing bond holders on surrender of the earlier series of FCCBs for a value including the premium payable on those FCCBs. Out of the Third Issue, 100% of the bond holders and out of the Fourth Issue, 96.33% of the bond holders have surrendered the earlier series of the FCCBs in exchange for the new series of FCCBs, which is effective from April 3, 2012. Consequent to this, during the year the Company cancelled 100% of the bonds under the Third Issue and 96.33% of the bonds under the Fourth Issue and replaced them with a new series of FCCBs (''Fifth Issue''). The terms of the remaining FCCBs under the Fourth Issue have been amended by the Company.

During the year, the Company allotted 9,71,11,993 equity shares of Rs. 10 each against conversion of 31,548 numbers of above mentioned FCCBs amounting to Rs. 160.22 crores (equivalent to USD 3,15,48,000). The conversion price as per the Offering Circular dated March 22, 2012 was Rs. 16.50 per share.

1.4.1 Proposed plan for capital restructuring

The Board of Directors of the Company at its meeting held on November 2, 2012 resolved in principle to approach the High Court of Mumbai with regard to a Re-organization Scheme which inter-alia includes capital re-organization under section 100 read with section 391/394 of the Companies Act, 1956 subject to necessary approvals of the shareholders, CDR Cell, creditors and other agencies. The Company is in the process of evaluating the same.

1.4.2 Going Concern

During the previous year, the Company undertook restructuring of its debts through CDR cell and also renegotiated with the FCCB holders with respect to its obligations. Post the debts restructuring, the Company is confident of successful implementation of the CDR package and is also confident of meeting its FCCB obligations. Accordingly the financial statements have been prepared on a going concern basis.

1.4.3 Impairment Analysis of Cash Generating Units (CGUs)

The Company, as per its Accounting Policy and in accordance with the requirements of the Accounting Standard (AS) 28- Impairment of Assets and Accounting Standard (AS) -13 ''Accounting for Investments", as per Companies Accounting

Standard Rules 2006, had carried out an impairment analysis of its Cash Generating Units / Long term Investments, in order to ascertain the extent of impairment, if any, in their carrying values.

The valuation analysis carried out by an independent expert valuer was used to assess the values generated by these CGUs / Long Term Investments on a going concern basis for the above purpose. Based on the valuation exercise so carried out, current year''s performance and the future earnings estimates of the Company, there is no impairment revealed.

1.4.4 Deferred tax asset

In respect of Net Deferred Tax Asset of Rs. 103.66 crores (as at March 31, 2012 - Rs. 103.66 crores) being carried forward, the management, based on the order book on hand and relying on the Restructuring Scheme approved by the CDR Cell, is confident of having taxable income in foreseeable future, which would enable reversals of deferred tax assets already recognized in earlier years.

1.5 Employee Benefit Plans

The following table sets out the status of the gratuity plan as required under AS 15 (Revised) and figures given below are as per actuarial valuation.

The liability recognized with respect to Gratuity within the balance sheet as at March 31, 2013 is Rs. 18.13 crores (as at March 31, 2012 - f 25.15 crores).

The liability recognized with respect to leave encashment/entitlement in the balance sheet as at March 31, 2013 is Rs. 1.91 crores (as at March 31, 2012 - f 1.32 crores).

1.6 The Company had acquired till March 31, 2013, 74% of the equity of Locuz Enterprise Solutions Ltd. (''Locuz'') for an aggregate consideration of Rs. 22.80 crores. As per the share purchase agreement, the Company was committed to acquire the balance stake at a future date for additional consideration payable on achieving certain measurable criteria such as future revenue/profitability etc., as per the agreement. However, given the current liquidity constraints, the Company is exploring divestment options of its current equity interest in Locuz..

1.7

(a) In the opinion of the Board of Directors of the Company, the investments, current and non - current assets, long term and short term loans and advances are realizable at a value, which is at least equal to the amount at which these are stated, in the ordinary course of business and provision for all known and determined liabilities are adequate and not in excess of the amount stated.

(b) The accounts of certain Trade Receivables, Trade Payables, Loans and Advances and banks are, however, subject to formal confirmations/reconciliations and consequent adjustments, if any. However, the management does not expect any material difference affecting the current year''s financial statements on such reconciliation/ adjustments.

1.8 Exceptional items

(a) Effective 1st April 2006, expenditure on Intangible Assets viz. internally developed Software Products (Meant for sale) was recognized in the Statement of Profit and Loss, as the Company perceived such costs were bringing in innovation in base products and not new products. However, on a review of the performance of these products which resulted in economic benefits of enduring nature from those respective years of usage, over and above the originally estimated benefits of the base software, the management felt it appropriate to capitalize such costs incurred during the years from FY 2006-07 up to FY 2011-12 in terms of Accounting Standard (AS)26 - "Intangible Assets". The software development costs so capitalized have been amortized at the lower of 10 years or the estimated economic useful life of each of these products from the date of their being put to use in terms of the accounting policy followed by the Company. Consequently, the product development expenses, aggregating to Rs. 160.43 crores (net of amortization) charged off in the earlier years (FY 2006-07 up to FY 2011 - 12) have been capitalized during the year.

(b) The Company has provided for/reversed certain slow moving trade receivables and unbilled revenue amounting to Rs. 21.90 crores during the current year which have arisen largely due to the tight liquidity situation, resource constraints etc. faced by the Company in the last one year.

(c) The items referred above in (a) and (b) have been disclosed as a net adjustment in the Statement of Profit and Loss as an exceptional item. This net adjustment is proposed to be part of the re-organization scheme as referred in note no. 2.27.1

1.9 Foreign Currency Monetary Item Translation Difference Account

During the year, in compliance with Accounting Standard (AS) 11 - "The Effects of Changes in Foreign Exchange Rates", exchange loss of Rs. 23.53 crores arising on FCCBs (which hitherto was charged to Statement of Profit and Loss) and exchange loss of Rs. 15.69 crores on long term foreign currency loan being long term monetary liability/ asset, has been debited to "Foreign Currency Monetary Item Translation Difference Account" to be amortized over the balance period of the liability/asset. In accordance with the clarification in AS-11, the amount of exchange loss amortized during the year is Rs. 7.62 crores

1.10

a) Figures for the previous year have been re-grouped/re-arranged, wherever considered necessary to conform to current year''s presentation.

b) Rs. 0.00 crores denote figures less than Rs. 50,000.


Mar 31, 2012

1. Notes forming part of the Financial Statements

The Company has only one class of equity shares having a par value of Rs10 each. Each holder of equity shares is entitled to one vote per share. Of the total number of equity shares issued, 8,47,88,331 equity shares were allotted as fully paid-up Bonus shares of which 2,00,00,700 equity shares were issued in July 1999 and 6,47,87,631 equity shares in August 2007, by capitalization of Securities Premium Account and accumulated profits.

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

The Preference Shares redeemable at par on expiry of nine years from the date of allotment i.e. March 31, 2003 were due on March 31, 2012. The Company is in the process of obtaining Equity Shareholders approval for amending the terms and conditions with respect to one of the Preference shareholder viz., IDBI Trusteeship Services Limited and conversion into equity in respect of the other .

Also refer note no. 2.21 A in respect of Corporate Debt Restructuring (CDR).

i) Employee Stock Option Scheme (ESOS) -

The Company's Employees Stock Option Scheme provides for issue of equity option upto 25% of the paid-up Equity Capital to eligible employees. The Scheme covers the managing director, whole time directors and the employees of the subsidiaries, the erstwhile holding Company and subsidiaries of the erstwhile holding Company, apart from the employees of the Company. The options vest in a phased manner over three years with 20%, 30% and 50% of the grants vesting at the end of each year from the date of grant and the same can be exercised within ten years from the date of the grant by paying cash at a price determined on the date of grant. One option is available for conversion to one equity share.

Method used for accounting for the share based payment Scheme:

The Company has elected to use the intrinsic value method to account for the compensation cost of stock options to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share as on the date of grant exceeds the exercise price of the option.

Summary of the options outstanding under the Employees Stock Option Scheme (ESOS) and Weighted Average Exercise Price (WAEP):

*Includes 31,37,000 options granted to managing director/whole time directors and non-executive directors (as at March 31, 2011 - 31,87,000 options).

Weighted average market price of the shares with respect to stock options exercised during the year ended March 31, 2012 is Rs33.75 (for the year ended March 31, 2011 is Rs60.28).

Fair Value methodology for the option

The fair value of options used to compute net income and earnings per equity share have been estimated on the dates of each grant within the range of Rs37.00 to Rs150.00 using the Black - Scholes pricing model. The Company estimated the volatility based on the historical share prices. The various assumptions considered in the pricing model for the options granted under ESOP are:

Security Note:

As at March 31, 2012

The Company is yet to create security as envisaged in the CDR package. The security offered by the Company is as follows:

Facilities covered by the security proposed:

Tranche A : Term Loan facility of Rs141.07 crores Tranche

B : Term Loan facility of Rs250.00 crores

Tranche C : Fund based facility of Rs79.86 crores and non fund based facility of Rs2.77 crores Tranche

D : Term Loan facility of Rs95.00 crores

Tranche E : Cash Credit (Working capital) facility of Rs100.00 crores and non fund based facility of Rs60.00 crores Tranche

F : Term Loan facility of Rs2.75 crores Tranche

G : Term Loan facility of Rs25.00 crores Tranche

H : Term Loan facility of Rs8.37 crores

Tranche I : Fund based facility of Rs5.22 crores and non fund based facility of Rs2.00 crores

Tranche J : Term Loan facility of Rs13.68 crores

Tranche K : Cash Credit (Working capital) facility of Rs108.63 crores

Tranche L : Term Loan facility of Rs100.42 crores

B. Corporate guarantees from Material Subsidiaries:

Corporate guarantees of each of the Material Subsidiaries guaranteeing the Secured Obligations ("Corporate Guarantees"), in favour of all the CDR Lenders. Each Corporate Guarantee shall be secured/credit enhanced by Security Interest over assets of the relevant Material Subsidiary providing the Corporate Guarantee, as permitted under Applicable laws in the relevant jurisdictions, as detailed in the table below and shall have the ranking as mentioned against each security.

In addition:

a. Corporate guarantees from Professional Access Software Development Pvt. Ltd. and Professional Access Limited, shall be further secured by a second ranking pari passu charge on all the present and future movable fixed assets and Current Assets of the relevant guarantor, while the first charge shall be held by Bank of India, New York in respect of the facilities advanced by them, after settlement of an existing promissory note issued in favour of erstwhile promoters of the above mentioned Companies.

b. Pledge of shareholding in Professional Access (India) and Professional Access (US) in favour of the CDR Lenders.

C. Pledge of shares:

Pledge of shares held by the Companies set out in column I of the table below in respect of their respective investments set out in column II and with details of shares mentioned in column III:

The pledge over subject Shares (except 3i Infotech (UK) Ltd) shall be created as a first ranking charge in favour of CDR Lenders. The amounts realized from enforcement of such pledge over equity shares of 3i Infotech (UK) Ltd shall be utilized first towards satisfaction of Tranche B - to the extent of Rs25 crores and Tranche D, and thereafter, towards satisfaction of other Tranches.

D. Security & terms and condition for Other Parties (Vehicle loans):

Rs1.93 crores is secured by way of hypothecation of certain Company owned vehicles.

As at March 31, 2011 :

1. Security and terms and conditions for Term Loans :

a. Rs 249.99 crores secured by first pari passu charge over all movable tangible fixed assets and immovable fixed assets of the Company located at its offices at Navi Mumbai & Goregaon. A part of this loan (Rs125 crores) is further secured by pledge of the shares held by the Company in its subsidiary, 3i Infotech (UK) Ltd.

b. Rs125 crores is secured by subordinated charge over all movable tangible fixed assets and immovable fixed assets of the Company located at its offices at Navi Mumbai & Goregaon.

c. Rs53 crores loan is secured by way of pari passu charge on Trade Receivables.

d. Rs115 crores secured by hypothecation charge over the Intellectual Property Rights of Company's software products namely Orion and Premia.

2. Certain non-fund facilities of Rs46.83 crores and Cash Credit are secured by way of floating charge on Trade Receivables.

3. Security and terms and conditions for Other Parties (Vehicle Loans):

Rs1.98 crores loan is secured by way of hypothecation on certain Company owned vehicles.

1.1.1 Buildings - Leasehold include :

(i) Gross Block of Rs20.85 crores (as at March 31, 2011 Rs20.85 crores), Accumulated Depreciation of Rs3.69 crores (as at March 31, 2011 Rs3.58 crores) and Net Block of Rs17.16 crores (as at March 31, 2011 Rs17.27 crores) being lease premium paid in respect of building taken on lease for sixty years.

(ii) Gross Block of RsNil crores (as at March 31, 2011 Rs11.49 crores), Accumulated Depreciation of RsNil crores (as at March 31, 2011 Rs3.46 crores) and Net Block RsNil crores (as at March 31, 2011 Rs8.03 crores) being lease premium paid in respect of building taken on lease for ninety nine years.

1.2.1 Pledge of shares

Investment in these companies are to be pledged as per the Master Restructuring Agreement entered by the Company with CDR lenders. (Also Refer Note No. 2.3 Security note C)

1.3.1 Deferred tax balance in respect of Companies merged/business purchased during the year is included.

1.3.2 In respect of Net Deferred Tax Asset of Rs103.66 crores (Previous Year- Rs103.66 crores) being carry forward, the management, based on the order book on hand and relying on the Restructuring Scheme approved by the CDR Cell, is confident of having taxable income in foreseeable future, which would enable reversals of deferred tax assets already recognized in earlier years.

1.4.1 Contingent liabilities to the extent not provided for:

Rs in crores As at As at March 31, 2012 March 31, 2011

Contingent Liabilities not provided for in respect of:-

Outstanding guarantees on behalf of Subsidiaries 264.13 679.10

Premium payable on redemption of FCCB (Refer Note no 2.21 B) - 43.32

Arrears of Cumulative Preference Dividend (including Dividend 7.40 - Distribution Tax thereon)

Estimated amount of claims against the Company not acknowledged as debts in respect of :

- Disputed Income tax matters 51.41 6.22

- Disputed Service tax matters (excluding interest as applicable) 175.55 -

- Disputed Sales tax matters 1.72 1.08

- Customer Claims 1.20 0.37

- Others* 14.25 15.42

*Includes claim in respect of legal cases relating to Registrar & Transfer Services, which are reimbursable by the Principal to the extent of Rs1.27 crores (as at March 31, 2011 - Rs0.74 crores).

(b) Derivative Instruments:

i) During the year, the Company entered into a foreign currency cum interest rate swap to the tune of USD 26mn (~ Rs 115 crores). The Company designates this instrument as cash flow hedge against its forecasted foreign currency inflows. The difference in the fair value of the instrument from the date of inception is recognized in Cash Flow Hedging Reserve Account. Accordingly Rs15.36 crores has been debited to Cash Flow Hedging Reserve Account.

ii) The movement in Hedging Reserve Account during the year ended March 31, 2012 for derivatives designated as Cash Flow Hedges is (debit) Rs15.36 crores.

(c) Leases:

a. Operating Lease:

(i) The Company has acquired certain Land and Building under a lease arrangement for a period of sixty years at a premium of Rs0.50 crores starting from December 4, 2000 for Land and Rs15.62 crores starting from March 13, 2000 and Rs5.05 crores from March 1, 2003 for building and the same is being amortized over the lease period. All other lease arrangements in respect of properties are renewable/ cancelable at the Company's and/or lessors' option as mutually agreed. The future lease rental payment that the Company is committed to make is:

1.5 Debt Restructure

A. Corporate Debt Restructure :

During the year several external factors such as meltdown in overseas financial markets, RBI monetary policy, ECB guidelines etc impacted the Company's ability to refinance its debts in a timely manner. This led to severe liquidity challenges arising out of a mismatch of loan maturities vis-a-vis the cash flows to the Company which then impacted the timely payment of its loans and interest. As a result of this, the Company filed an application with Corporate Debt Restructuring Cell ("CDR") to recast its debt obligations. A Letter of Approval was issued by the CDR on March 29, 2012, based on which all the lenders connected with the proposal signed a Master Restructure Agreement ("MRA") on March 30, 2012. The significant highlights of the package are as under:

a. Out of the total loans of Rs1,674.12 crores, the CDR package covered Rs1,560.34 crores.

b. 15% of the secured borrowings amounting to Rs130.86 crores and 20% of the unsecured borrowings amounting to Rs122.69 crores, to get converted into equity shares.

c. A common pool of security to be created and the lenders to have charge on those assets in a structured manner as enumerated in the MRA.

d. The principal payments to start after a moratorium of 2 years from the cut-off date, which is October 1, 2011, over 96 structured monthly installments. The interest accrued from the cut-off date till 18 months shall be converted into equity shares at the beginning of every quarter.

e. The rate of interest has been fixed at 14.75% per annum from October 1, 2011 till March 31, 2013 and to be reset at the beginning of every year, thereafter.

f. Additional funding in the form of Terms loans to the tune of Rs58.37 crores to be extended by the lenders upon completion of documentation of MRA.

The financial impacts arising out of aforesaid CDR are as under:

a. Upto March 12, Rs344.76 crores have been taken under Share application money. Interest payable for 2012-13 will be converted into equity capital in terms of CDR package.

b. Share application money of Rs344.76 crores represents principal portion of 'loan' and interest payable from cut off date till March 31, 2012 to be converted into equity capital for which necessary approval from shareholders is being obtained. The lenders would be allotted 17,58,97,959 equity shares of Rs10 each at a premium of Rs9.60 per share. The company has adequate authorized Share Capital for the aforesaid issue.

c. Expenses related to the above restructuring exercise of Rs11.82 crores has been shown under exceptional item.

* Subject to certain criteria as per offer document.

On March 22, 2012 the Company launched an Exchange Offer for the Third and Fourth series of FCCBs whereby the Company offered a new series of FCCBs to the existing bond holders on surrender of the earlier series of FCCBs. Out of the Third Issue, 100% of the bond holders and out of the Fourth Issue, 96.33% of the bond holders have surrendered the earlier series of the FCCBs in exchange for the new series of FCCBs, which is effective from April 25, 2012. Consequent to this the Company cancelled 100% of the bonds under the Third Issue and 96.33% of the bonds under the Fourth Issue and replaced them with the new series of FCCBs ('Fifth Issue').

C. Leases:

During the year, the Company has also approached certain leasing companies to reassess the existing leases and reschedule the same in order to ensure payment obligations match with the cash flows of the Company. Arising out of the restructuring, the lease liabilities have been re-estimated and considering the characteristics of these leases, they are treated as finance leases effective from October 1, 2011.

Consequently, the assets are capitalized at their respective fair value so assessed as at October 1, 2011 aggregating to Rs239.00 crores. As a result, the depreciation for the year has increased by Rs28.87 crores and the interest and financial charges has increased by Rs8.08 crores.

The documentation in respect of certain leases are in the process of being executed.

D. Going Concern & Impairment:

During the year, the Company underwent various challenges in form of increase in interest rates, non availability of financial assistance at certain crucial time, attrition of senior employees etc. All these led to drop in revenues and profit therefrom, in the last two quarters of this financial year.

As explained earlier, the Company undertook to restructuring of its debts through CDR cell and also renegotiated with the bond holders with respect of its FCCB. Post the debts restructuring, the Company is confident of successful implementation of the CDR package and is also confident of meeting its FCCB obligation. Therefore it has prepared the financial statements on a going concern basis.

Besides the above, the management has also written off on account of unrealizable trade receivables/reversal of unbilled revenue aggregating to Rs75.40 crores & has been shown under exceptional item.

Impairment Analysis of Cash Generating Units (CGUs):

The Company, as per its Accounting Policy and in accordance with the requirements of the Accounting Standard (AS) 28 - Impairment of Assets and Accounting Standard (AS) -13 Accounting for Investments, as per Companies Accounting Standard Rules 2006, had carried out an impairment analysis of its Cash Generating Units/Long term Investments, in order to ascertain the extent of impairment, if any, in their carrying values.

The valuation analysis was carried out by an independent expert valuer who has reckoned the projections as considered in the Scheme approved by the CDR Cell, to assess the values generated by these CGUs/Long Term Investments on a going concern basis for the above purpose and such exercise did not reveal any impairment. Besides the above, the Company is also carrying a payment solution software product of Rs27.23 crores, to be adapted for application in different geographies which is pending for quite some time due to manpower/financial constraints. The management is confident of localizing the product in due course of time and commercially exploit thereafter.

In view of the above, no provision thereof is considered necessary.

Changes in estimates:

Hitherto, the Company's foreign branch was considered as 'non- integral operations' in terms of AS-11 "Accounting for Changes in the Exchange Rates" which on business restructuring during the year is being considered as 'integral operations' w.e.f. January 1, 2012. Consequently, loss for the year is stated lower by Rs0.23 crores.

1.6 Employee Benefit Plans

The following table set out the status of the gratuity plan as required under AS 15 (Revised) and below figures are as per actuarial valuation.

The liability recognized with respect to Gratuity in the balance sheet as on March 31, 2012 is Rs25.15 crores (as on March 31, 2011 - Rs15.75 crores).

The liability recognized with respect to leave encashment/entitlement in the balance sheet as on March 31, 2012 is Rs1.33 crores (as on March 31, 2011 - Rs7.41 crores). Further due to change in leave policies of the Company, leave entitlement provision is lower by Rs6.52 crores.

As the contribution expected to be paid to the plan during the annual period beginning after the balance sheet date is based on various internal/ external factors, a best estimate of the contribution is not determinable

1.6.1 The Company has upto previous year acquired 74% of the equity of Locuz Enterprise Solutions Ltd. ('Locuz') for aggregate consideration of Rs22.80 crores. As per the share purchase agreement, the Company has committed to acquire the balance stake at a future date for additional consideration payable on achieving certain measurable criteria such as future revenue/profitability etc., as per the agreement. However, given the current liquidity constraints, the Company is exploring divestment of its interest in Locuz.

1.6.2 (a) In August 2011, the Company has sold its 100% stake in HCCA Business Services Pvt. Ltd. for a consideration of Rs38.50 crores. The net gain on sale of investment being Rs16.53 crores. As per terms of agreement, Rs4.24 crores has been deposited in Joint Escrow Account to be released by August 2012.

(b) During the year, the Company merged one of its wholly owned subsidiary company viz., Fineng Solutions Private Limited, whose business was already acquired by the Company subsequent to receiving court sanction and complying with necessary compliance thereof. The said merger was accounted under 'Pooling of interest Method' as prescribed in the AS -14 "Accounting for Amalgamations". The appointed date of the merger was April 1, 2010. Consequently the excess of investment over networth of Fineng Solutions Private Limited, being Rs27.15 crores is debited to opening balance of Statement of Profit & Loss as envisaged in the scheme and Rs0.01 crores is credited to Capital Reserve Account.

(c) During the year, the Company merged with itself one of its wholly owned subsidiary company viz., J&B Software (India) Private Limited, whose business was acquired by the Company subsequent to receiving court sanction and complying with necessary compliance thereof. The said merger was accounted under 'Pooling of interest Method' as prescribed in the AS -14 "Accounting for Amalgamations". The appointed date of the merger was April 1, 2010. Consequently the excess of investment over networth of J&B Software (India) Private Limited, being Rs7.23 crores is credited to opening balance of Statement of Profit & Loss as envisaged in the scheme.

1.7 As at March 31, 2012, the Company has no outstanding dues to micro, small and medium enterprises. There is no liability towards interest on delayed payments under the Micro, Small and Medium Enterprises Development Act, 2006 during the year.There is also no amount of outstanding interest in this regard brought forward from the previous year.

The above information is on the basis of intimation received by the Company, on request made to all vendors in the course of vendors' registration under the said Act.

1.8 (a) In the opinion of the Board, the investments, current and non - current assets, long term and short term loans and advances are realizable at a value, which is at least equal to the amount at which these are stated, in the ordinary course of business and provision for all known and determined liabilities are adequate and not in excess of the amount stated.

(b) The accounts of certain Trade Receivables, Trade Payables, Loans & Advances and banks are, however, subject to formal confirmations/reconciliations and consequent adjustments, if any. However there is no indication of dispute on these accounts, other than those mentioned in the Financial Statements.The management does not expect any material difference affecting the current year's financial statements on such reconciliation/ adjustments.

2. Other related parties with whom transactions have been entered into in the ordinary course of business:-

Directors / Key Management Personnel (KMP): Mr. V. Srinivasan (Managing Director), Mr. Amar Chintopanth (Deputy Managing Director & CFO), Mr. Anirudh Prabhakaran (Executive Director & President - South Asia) till November 2, 2010.

Enterprise in which relative of key managerial personnel has substantial interest - Cadenza Solutions Private Limited, India.

3. Related party as identified by the management and relied upon by the auditor.

4. No balances in respect of the related parties have been provided for/written back/ written off except as stated above.

* This foreign exchange currency exposure is covered by derivative instruments (Cross Currency and Interest Rate Swap) as at March 31, 2012.

1.9 Residual Dividend represents dividend on shares issued (entitled to previous year dividend) between the date of proposed dividend and record date. Residual dividend of RsNil crores (inclusive of tax of RsNil crores), for the year ended March 31, 2011 Rs4.03 crores (inclusive of tax of Rs0.57 crores)), is appropriated out of Statement of Profit & Loss.

1.10 a) During the year, the Financial Statements have been prepared in accordance with Revised Schedule VI. Figures for the previous year have been re-grouped/re-arranged, wherever considered necessary to conform to current year's presentation.

b) Rs0.00 crores denotes figures less than Rs50,000.

 
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