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Notes to Accounts of AGC Networks Ltd.

Mar 31, 2015

1. Corporate Information

AGC Networks Limited ('the Company') or 'AGC' is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company, along with its foreign subsidiaries, is a global information, communications technology (ICT) solutions provider and integrator seamlessly delivering technology based solutions across global markets and verticals layered with a spectrum of applications and services. The Company is the leader in Enterprise Communications in India with global footprint in locations spanning India, Middle East/Africa, North America and Australia/New Zealand.

2. Basis of preparation of financial statements

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in India (Indian GAAP). The financial statements have been prepared to comply in all material respects with the accounting standards specified under section 133 of the Companies Act, 2013 read together with Rule 7 of the Companies (Accounts) Rules, 2014 and guidelines issued by the Securities and Exchange Board of India (SEBI). The financial statements are prepared under the historical cost convention, on an accrual basis of accounting. The accounting policies applied are consistent with those used in the previous year.

All assets and liabilities are classified as current if they are expected to be realised or settled within the operating cycle, which is up to 12 months.

(b) Right, preference and restriction on shares

The Company has only one class of equity shares having par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend if proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.

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

The Company has one class of preference shares i.e. 1% non-cumulative non-convertible redeemable preference shares. The preference shares have preferred right on payment of dividend and repayment of capital over equity shareholders.

The preference shares shall be redeemed at the option of Investor in one or more tranches at any time between 5th year from the date of allotment and before expiry of 7th year from the date of allotment and the shares shall be redeemed at par. If the option is not exercised by the investor it will automatically redeem at par at the end of the 7th year from the date of allotment.

As per records of the Company, including its register of shareholders / members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.

Footnotes:

1. Working capital loan from bank is secured against first pari-passu charge on Lease hold land, Free hold land and buildings situated at Gandhinagar, Gujarat, second pari-passu charge on entire current assets (present and future) including stocks of materials and components, work-in-progress, stock- in-trade, trade receivables, etc. and corporate guarantee from a fellow subsidiary. The Company has transferred its Gandhinagar properties vide deed of assignment (Refer Note 28 (d)). However, the loan is considered as secured since these properties have not been discharged as securities by the lender and continuance of the other assets as security.

As per the original payment schedule loan is repayable in 14 quarterly installments starting from 9 February, 2016. 6 installments of Rs. 2.25 Crore each, 4 installments of Rs. 3.375 Crore each and 4 installments of Rs. 4.50 Crore each. The same has been classified under "Short term borrowings" in view of the intention of the Company to expire the borrowing either by way of assignment to the buyer of the aforesaid property or by way of repayment of the loan from the sale consideration. The effective rate of interest is base rate of the lending bank which is 10.75% plus spread 1.5%. Hence current effective rate is 12.25% p.a..

2. Cash credits from banks are secured by first exclusive pari-pasu charge on entire current assets of the Company (present and future) including stocks of materials and components, work in progress, stock- in-trade, trade receivables, insurances, etc. and by second pari-pasu charge on all moveable fixed assets of the Company, and corporate guarantee from a fellow subsidiary. The cash credit is repayable on demand and carries average interest @ 13.5% p.a.

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last one year, based on past experience of the level of repairs and returns. It is expected that significant portion of these costs will be incurred in the next financial year and all will have been incurred within a year after the reporting date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the one-year warranty period for all products sold. The table below gives information about movement in warranty provisions.

3 Deferred tax assets (net)

The Company does not have any deferred tax liability as at 31 March 2015 and as at 31 March 2014. The Company has not recognised deferred tax assets in the absence of virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

Footnote:

"Disposal / adjustments" under plant and equipment relate to re-classification of spares utilised for servicing maintenance contracts with customers, to inventory. The management believes this to be a more appropriate classification owing to the nature of its usage.

Accordingly, the net carrying value as at 1 April 2014 amounting to Rs. 6.94 Crore has been transferred to inventory and the amount consumed during the year ended 31 March 2015 amounting to Rs. 2.83 Crore, has been disclosed under "Consumption of stores and spares" (as a part of "Other Expenses"), which was disclosed under "Depreciation and amortisation expense" till the earlier year (Rs. 3.16 Crore for the year ended 31 March 2014). There is no impact of the same on the statement of profit and loss account for the year or the previous year except that the respective expenses are not comparable to this extent.

Note: During the year, the Company has reversed the sales pertaining to earlier years aggregating Rs. Nil (31 March 2014 : Rs. 18.00 Crore).

# Excise duty on sales amounting to Rs. 1.15 Crore (31 March 2014 : Rs. 0.96 Crore) has been reduced from sales in the statement of profit and loss and excise duty on increase/decrease in stock amounting to Rs. 0.16 Crore (31 March 2014 : Rs. 0.14 Crore) has been considered as expense in the statement of profit and loss.

* The Company is an global ICT solution provider and integrator operating in various quadrants and the solutions sold to customers are configured as per specific customer requirements. The heterogeneous mix of components in solution are offered to customers makes it difficult to establish a meaningful/homogenous relationship for providing break up of goods purchased/sold during the year and the stock position. Consequently, it is neither feasible nor meaningful to give the category-wise details of goods purchased and sold during the year and stock position for all its product solutions.

Note: The Company is an global ICT solution provider and integrator operating in various quadrants and the solutions sold to customers are configured as per specific customer requirements. The heterogeneous mix of components in solution are offered to customers makes it difficult to establish a meaningful/homogenous relationship for providing break up of goods purchased/sold during the year and the stock position. Consequently, it is neither feasible nor meaningful to give the category-wise details of goods purchased and sold during the year and stock position for all its product solutions.

Notes:

a) The Company has made provision for identified obsolete/slow moving/non-moving inventories aggregating to Rs. 10.69 Crore (previous year Rs. 11 Crore).

b) During the previous year, the Company has provided the amounts arising out of vendor reconciliations aggregating to Rs. 5.4 Crore pertaining to earlier years.

c) During the previous year, the Company entered into an agreement with another company, whereby it sold certain trade receivables totaling to Rs. 17.84 Crore at a discounted value for cash consideration of Rs. 14.54 Crore on a fully non-recourse basis. Of the total receivables sold, Rs. 10.24 Crore represented old overdue balances for which the Company had previously recorded an allowance for doubtful debts. Accordingly, the Company has reversed the doubtful debt provision and recorded Rs. 6.94 Crore (net of discount of Rs. 3.30 Crore).

d) During the year the Company has entered into deeds of assignment to transfer all the rights, title and obligations of its land and building situated at Gandhinagar to another company for a consideration of Rs. 50.52 Crore. Subsequent to the year end, the lender to whom these assets were provided as security, has provided its in-principal approval for the said transfer subject to fulfillment of conditions stated therein. The said transfer is pending approval from the relevant government authority and transfer of legal title, that are considered to be procedural in nature. Company has recognised profit on sale of Fixed Assets of Rs. 46.04 Crore (net of incidental expenses Rs. 3.39 Crore).

(b) Defined benefit plan - The Company has one defined plan, i.e. Gratuity, for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @ 15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.

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

Eligible employees can carry forward and encash leave on superannuation, death, permanent disablement and resignation subject to maximum accumulation as per the Company policy. Benefit would be paid at the time of separation based on the last drawn basic salary. Amount recognised as an expenses in respect of compensated absences is Rs. 1.46 Crore (previous year Rs. 1.71 Crore).

4. Leases

Operating lease: Company as lessee

The Company has entered into various leasing agreements classified as operating leases for residential, office and warehouse premises which are renewable by mutual consent on mutually agreeable terms. These agreements generally range between 11 months to 5 years. Company does not have sub-leasing agreements or any contingent arrangements. Lease payments are recognised in the statement of profit and loss under 'Rent' in note 26.

5. Segment information

The Company is a ICT solution provider and integrator delivering technology based solutions across verticals layered with a spectrum of applications and services. All these solutions fall with in a single (primary) business segment of Enterprise Communication Solutions and Integration. All the fixed assets are lying in India and the Company's operations are restricted to India, hence there is one geographical segment viz. India. However, segment information for the group has been reported as a part of consolidated financial statements.

6. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for is Rs. Nil (31 March 2014: Rs. 0.10 Crore)

(b) For commitments relating to lease arrangements, refer note 31.

7. Employee benefit expense for the year ended 31 March 2015 includes:-

(a) Rs. 1.07 Crore towards remuneration payable by the Company to its erstwhile whole-time Director (now a Non-executive Director) for a part of the financial year 2014-15, as per the shareholders' sanction, which exceeds the limits specified under Schedule V to the Companies Act, 2013 by Rs. 0.72 Crore and against which the Company has paid Rs. 0.82 Crore. In absence of profits, the Company filed an application with the Central Government seeking approval for such excess which is awaited till date. Until such time the excess has not been adjusted and is held in trust for the Company by the Director.

(b) Rs. 0.67 Crore towards remuneration payable to the Managing Director for a part of the financial year 2014- 15. The remuneration payable as per the shareholders' sanction was Rs. 3.19 Crore against which the Company has paid Rs. 2.01 Crore during the year. In absence of profits, the Company filed an application with the Central Government seeking approval for remuneration sanctioned by the shareholders, which exceeds the limits specified under Schedule V to the Companies Act, 2013. However, it has received an approval, subsequent to the year end for Rs. 0.84 Crore per annum. In view of the same, the excess amount has been reversed and disclosed as excess remuneration recoverable under "Other current assets".

8. Contingent liabilities

31 March 31 March Rs. in Crore Rs. in Crore

Contingent liabilities

I) In respect of disputed demands of:

(a) Income tax authorities (refer note (i) below) 21.00 26.25

(b) Excise, service tax and customs authorities 24.21 24.21 (refer note (ii) below)

(c) Sales tax matters (refer note (iii) below) 2.15 1.44

II) Corporate Guarantee 112.66 108.18

The Company has given a corporate guarantee of USD 1.8 Crore,

equivalent to Rs. 112.66 Crore (31 March 2014: USD 1.8 Crore, equivalent to Rs. 108.18 Crore) towards the financial obligation of M/s AGC Networks Pte. Ltd., Singapore.

III) Claims against the Company not acknowledge as debt - 1.00

(i) Income tax:

The demand is raised mainly on deferred profit due to change in revenue recognition policy and other cases for the assessment years 2005-06 till 2011-12 for Rs. 21.00 Crore (31 March 2014: Rs. 26.25 Crore). This is a timing difference liability and appeal is filed before Commissioner of appeals and other adjudicating authorities as required.

(ii) Excise, Service tax and Customs

The amount is reported as contingent liability as an abundant caution for :

Rs. 6.60 Crore (31 March 2014: Rs. 6.60 Crore) for applicability of Custom duty on royalty remittance, appeal is filed by the Customs department with CESTAT, the order from the lower authority is issued in favour of the Company.

Rs. 0.74 Crore (31 March 2014: Rs. 0.74 Crore) for demand of Service tax on Royalty payments, the matter is pending before the Commissioner Appeals.

Rs. 0.40 Crore (31 March 2014: Rs. 0.40 Crore) for Service tax Demand on RTU Charges, the matter is remanded back by Commissioner Appeals for fresh adjudication.

Rs. 0.47 Crore (31 March 2014: Rs. 0.47 Crore) related to Excise duty demand on sales of Software. The Company has filed appeal before CESTAT.

Rs. 4.17 Crore (31 March 2014: Rs. 4.17 Crore) for Service tax Demand on RTU Charges, the matter is pending before the CESTAT.

Rs. 4.73 Crore (31 March 2014: Rs. 4.73 Crore) related to order passed by Commissioner of Central Excise towards excise duty on CT3 cases and incorrect input tax credit of service tax paid on foreign service providers for which the matter is pending before CESTAT.

Rs. 7.04 Crore (31 March 2014: Rs. 7.04 Crore) related to incorrect utilization of Input Credit of Service tax, the CESTAT has remanded back the matter to the Commissioner for fresh adjudication.

Rs. 0.06 Crore (31 March 2014: Rs. 0.06 Crore) related to interest and penalty demand on Foreign Service Provider, the matter is pending before the Commissioner Appeals, Ahmedabad.

(iii) Sales tax:

This represents Rs. 0.83 Crore (31 March 2014: Rs. 0.83 Crore) on account of non-receipt of 'F' form which is treated as contingent liability as an abundant caution. 'F' forms are to be received from Company's own branches. Balance amount of Rs. 1.32 Crore (31 March 2014: Rs. 0.61 Crore) is sales tax liability in the state of Kerala, West Bengal, Uttar Pradesh, Maharashtra and Gujarat against which the Company has filed appeal before the competent authority.

The Company is contesting all of the above demands in respect of Income tax, Excise, Service tax, Custom duty and Sales tax and the management, believes that its position will likely be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demand raised. The management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the Company's financial position and results of operations and hence no provision has been made.

The amount of further interest remaining due and payable Included in S. No. 4(b) above is Rs. 0.02 Crore even in the succeeding years, until such date when the (31 March 2014Rs.0.03 Crore) being interest on interest dues as above are actually paid to the small amounts outstanding as at the beginning of enterprise, for the purpose of disallowance as a deductible the accounting year. expenditure under Section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.

The information has been given in respect of such vendors to the extent they could be identified as "Micro and Small Enterprises" on the basis of information available with the Company.

9. As per the transfer pricing rules, the Company is examining domestic and international transactions and documentation in respect thereof to ensure compliance with the said rules. The management does not anticipate any material adjustments with regard to the transaction involved.

10. Persuant to the shareholders approval dated 21 April 2015, the Nomination and Remuneration Committee of the Board of Directors granted 1,004,866 stock options equivalent to 3.53% of equity paid-up capital of the Company on 14 May, 2015 as per the terms of ESOP Scheme 2015.

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


Mar 31, 2014

1. Corporate information

AGC Networks Limited (''the Company'') or ''AGC is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in manufacturing, trading and integrating network solutions and selling reputed brand of Video Conference, Voice and Data Products. The Company caters to both domestic and international markets. The Company also provides annual maintenance service for telecom, networking and electronic products.

2. Basis of preparation of financial statements

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956 (the ''Act''), read with General Circular 8/2014 dated 04 April 2014 issued by the Ministry of Corporate Affairs. The financial statements have been prepared on an accrual basis and under the historical cost convention except in case of assets for which provision for impairment is made. The accounting policies adopted in preparation of financial statements are consistent with those used in the previous year.

3. Share capital

(b) Terms / rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend if proposed by the Board of Directors is subject to the approval of the shareholders in the Annual General Meeting.

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

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last one year, based on past experience of the level of repairs and returns. It is expected that significant portion of these costs will be incurred in the next financial year and all will have been incurred within a year after the reporting date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the one-year warranty period for all products sold. The table below gives information about movement in warranty provisions.

4. Employee benefits plan

(b) Defined benefit plan - The Company has one defined plan, i.e. Gratuity, for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @ 15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.

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

5. Leases

Operating lease: company as lessee

The Company has entered into various leasing agreement classified as operating leases for residential, office, warehouse premises and vehicles which are renewable by mutual consent on mutually agreeable terms. These agreement generally range between 11 months to 5 years. The Company does not have sub-leasing agreements. Lease payments are recognised in the statement of profit and loss under ''Rent'' in note 25.

6. Segment information

The Company operates as technology and network solution integrators and thus there is only one business segment i.e., technology and networks solution. All the fixed assets are lying in India and the Company operates its facilities from India, hence there is one geographical segment viz. India.

7. Heiatea party disclosures

Names of related parties and related party relationship Related parties where control exists

Holding company

Essar Telecom Limited (Subsidiary of Essar Global Fund Limited) (w.e.f. 28 March 2014) Aegis Limited (upto 28 February 2014)

Ultimate holding company Subsidiaries

Essar Global Fund Limited

AGC Networks Australia Pty. Limited

AGC Networks Pte. Ltd.

AGC Networks Inc.

Related parties with whom transactions have taken place

Fellow subsidiaries

Aegis Tech Limited

Actionline De Argentina S.A.

Aegis Communication Group LLC

Aegis Services Australia Pty Ltd

Aegis Services Philippines Inc.

Aegis Aspire Consultancy Services Ltd

Aegis BPO (Costa Rica) SRL

Aegis Outsourcing UK Ltd

Global Vantedge Private Limited

Equinox Business Parks Pvt Limited

Essar Oil Limited

Essar Projects (India) Limited

Essar Power (Orissa) Limited

Essar Bulk Terminal (Salaya) Limited

Essar Steel India Limited

Essar Telecom Kenya Limited

Essar Power Transmission Company Limited

Vadinar Power Company Limited

Key management personnel

Mr. S. K. Jha - Managing Director (upto 22 April 2014)

Related party transactions

The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:

8. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 1 Million (31 March 2013:Rs. Nil Million)

(b) For commitments relating to lease arrangements, please refer note 29.

9. Remuneration to Managing Director

Approval from the Central Government of India is awaited for the amount of Rs. 5 Millions paid/payable to the Managing Director of the Company for the period ended 31 March 2011 in excess of the limits specified under the Companies Act, 1956. The Company had filed the application on 20 May 2011.

10. Contingent liabilities

31st March 2014 31st March 2013 Rs. Millions Rs. Million

Contingent liabilities

I. In respect of disputed demands of:

(a) Income tax authorities (refer note (i) below) 262 194

(b) Excise and Customs authorities (refer note (ii) below) 237 242

(c) Sales tax matters (refer note (iii) below) 14 16

II. Corporate Guarantee 1,082 The Company has given a corporate guarantee of USD 18 Millions equivalent to Rs. 1,082 Millions (31 March 2013 : Nil Millions) towards the financial obligation of M/s AGC Networks Pte. Limited, Singapore.

III. Claims against the Company not acknowledge as debt 10 10 (i) Income tax:

The demand is raised mainly on deferred profit due to change in revenue recognition policy and other cases for the assessment years 2005-06 till 2010-11 for Rs. 262 Millions (31 March 2013 Rs. 194 Millions). This is a timing difference liability and appeal is filed before Commissioner of appeals and other adjudicating authorities as required. (ii) Excise, Service tax and Customs:

The amount is reported as contingent liability as an abundant caution for:

Rs. 67 Millions (31 March 2013 Rs. 67 Millions) for applicability of Custom duty on royalty remittance, appeal is filed by the Customs department with CESTAT, the order from the lower authority is issued in favour of the Company.

Rs. 7 Millions (31 March 2013 Rs. 7 Millions) for demand of Service tax on Royalty payments, the matter is pending before the Commissioner Appeals.

Rs. 4 Millions (31 March 2013 Rs. 4 Millions) for Service tax Demand on RTU Charges, the matter is remanded back by Commissioner Appeals for fresh adjudication.

Rs. 0 Million (31 March 2013 Rs. 5 Millions) related to Excise duty demand on sales of Software. The Company has filed appeal before CESTAT.

Rs. 42 Millions (31 March 2013 Rs. 42 Millions) for Service tax Demand on RTU Charges, the matter is pending before the CESTAT.

Rs. 47 Millions (31 March 2013 Rs. 47 Millions), related to order passed by Commissioner of Central Excise towards excise duty on CT3 cases and incorrect input tax credit of service tax paid on foreign service providers for the matter is pending before CESTAT.

Rs. 70 Millions (31 March 2013 Rs. 70 Millions), related to incorrect utilization of Input Credit of Service tax, the CESTAT has remanded back the matter to the Commissioner for fresh adjudication.

(iii) Sales tax:

This represents Rs. 8 Millions (31 March 2013 Rs. 8 Millions) on account of non-receipt of ''F'' form which is out of abundant precaution. ''F'' forms are to be received from Company''s own branches. Balance amount of Rs. 6 Millions (31 March 2013 Rs. 8 Millions) is sales tax liability in the state of Kerala, West Bengal, Uttar Pradesh and Gujarat against which the Company has filed appeal before competent authority.

The Company is contesting all of the above demands in respect of Income tax, Excise, Service tax, Custom duty and Sales tax and the management, believe that its position will likely be upheld in the appellate process. No tax expense has been accrued in the financial statements for the tax demand raised. The management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the Company''s financial position and results of operations and hence no provision has been made.

11. As per the transfer pricing rules, the Company is examining domestic and international transactions and documentation in respect thereof to ensure compliance with the said rules. The management does not anticipate any material adjustments with regard to the transaction involved.

12. Previous year figures

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

13. All amounts are in Rupees (in Million) except otherwise stated specifically - ''0'' denotes amounts less than a Million rupees.


Mar 31, 2013

1. Corporate information

AGC Networks Limited (''the Company'') or ''AGC is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The company is engaged in manufacturing, trading and integrating network solutions and selling reputed brand of Video Conference, Voice and Data Products. The Company caters to both domestic and international markets. The Company also provides annual maintenance service for telecom, networking and electronic products.

2. Basis of Preparation of Financial Statements

The financial statements of the company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956 (the ''Act''). The financial statements have been prepared on an accrual basis and under the historical cost convention except in case of assets for which provision for impairment is made. The accounting policies adopted in preparation of financial statements are consistent with those used in the previous year.

3. Leases

Operating lease: company as lessee

The company has entered into various leasing agreement classified as operating leases for residential, office, warehouse premises and vehicles which are renewable by mutual consent on mutually agreeable terms. These agreement generally range between 11 months to 4 years. The company does not have sub-leasing agreements. Lease payments are recognised in the statement of profit and loss under ''Rent'' in note 25.

4. Segment information

The Company operates as technology and network solution integrators and thus there is only one business segment i.e., technology and networks solution. All the fixed assets are lying in India and the company operates its facilities from India, hence there is one geographical segment viz. India.

5. Related party disclosures

Names of related parties and related party relationship

Related parties where control exists

Holding company Aegis Limited (w.e.f. 03 June 2011)

Aegis Limited - Subsidiary of holding company (w.e.f. 20 January 2011 till 02 June 2011)

AGC Holdings Limited [(formerly known as Essar Services Holdings Limited)] upto 02 June 2011]

Essar Telecom Limited (Subsidiary of Essar Global Limited) Ultimate holding company Essar Global Limited Subsidiaries AGC Networks Australia Pty. Limited

AGC Networks Pte. Ltd. (w.e.f. 01 May 2011, fellow subsidiary upto 30 April 2011)

AGC Networks Inc. (w.e.f. 22 February 2012)

Related parties with whom transactions have taken place during the year Fellow subsidiaries Aegis Tech Limited

Actionline De Argentina S.A.

Aegis Communication Group LLC

Aegis Services Australia Pty Ltd

Aegis Services Philippines Inc

Aegis Aspire Consultancy Services Ltd

Aegis BPO (Costa Rica) SRL

Aegis Outsourcing UK Ltd

Global Vantedge Private Limited

Equinox Business Parks Pvt Limited

Essar Oil Limited

Essar Projects (India) Limited

Essar Power MP Limited

Essar Power Gujarat Limited

Essar Power (Jharkhand) Limited

Essar Steel India Limited

Essar Telecom Kenya Limited

Essar Power Transmission Company Limited

Vadinar Power Company Limited

Key management personnel Mr. S. K. Jha Managing director (w.e.f. 31 August 2010)

Remuneration (w.e.f. 01 December 2011)

Mr. Anil Nair (upto 31 August 2011)

6. Capital and other commitments

(a) Estimated amount of contracts remaining to be executed on capital account and not provided for X Nil (31 March 2012: Rs.32 Million)

(b) For commitments relating to lease arrangements, please refer note 29.

7. Remuneration to Managing Director

Approval from the Central Government of India is awaited for the amount of Rs. 5 Million paid to the Managing Director for the period ended 31 March 2011 in excess of the limits specified under the Companies Act 1956. The Company had filed the application on 20 May 2011 however approval is awaited.

8. As per the transfer pricing rules prescribed under the Income Tax Act, 1961, the Company is examining domestic and international transactions and documentation in respect thereof to ensure compliance with the said rules. The management does not anticipate any material adjustments with regard to the transaction involved.

9. During the previous year ended 31 March 2012

a) The Company has entered into a 60:40 joint venture agreement with a Saudi Arabian Company for developing the Saudi Arabian market for the products and services of AGC or any of its affiliates.

b) The Company, through its wholly owned subsidiary in Singapore has entered into a 42:40:18 joint venture agreement with an enterprise in UAE for execution of implementation projects in Dubai offering technology, infrastructure, integration, operation and management services.

10. Previous year figures

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

11. All amounts are in Rupees (in Million) except otherwise stated specifically - ''0'' denotes amounts less than a Million rupees.


Mar 31, 2012

1. Corporate information

AGC Networks Limited (the company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing and integrating network solutions and selling reputed brand of Video Conference, Voice and Data Products and electronic appliances. The Company caters to both domestic and international markets. The Company also provides annual maintenance service for electronics products.

2. Basis of Preparation of Financial Statements

The financial statements have been prepared to comply in all material respects with the Accounting Standards notified by Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956 (the 'Act'). The financial statements have been prepared under the historical cost convention on an accrual basis except in case of assets for which provision for impairment is made. The accounting policies have been consistently applied by the Company and except for the changes in accounting policy discussed more fully below, are consistent with those used in the previous year.

(a) Terms / rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. During the year ended 31 March 2012, the amount of per share dividend recognized as distributions to equity shareholders was Rs. 15.00 (31 March 2011: Rs. 2.25).

Provision for warranties

A provision is recognized for expected warranty claims on products sold during the last one year, based on past experience of the level of repairs and returns. It is expected that significant portion of these costs will be incurred in the next financial year and all will have been incurred within a year after the reporting date. The table below gives information about movement in warranty provisions.

Cash credit and Buyers credit from banks is secured against hypothication of inventories and sundry debtors. The cash credit is repayable on demand and Buyers credit is repayable on due date.

-Margin money deposits given as security

Margin money deposits with a carrying amount of Rs. 7 Millions (31 March 2011: Rs. 7 Millions) are given against bank guarantees issued.

It includes deposit with the original maturity of less than 12 months which is rolled over till the maturity of the bank guarantee.

# Excise duty on sales amounting to Rs. 30 Million (Period ended 31 March 2011: Rs.17 Million) has been reduced from sales in statement of profit & loss and excise duty on increase/decrease in stock amounting to Rs. 1 Million (Period ended 31 March 2011: Rs. 7 Million) has been considered as expense in the statement of profit and loss.

Note: The accounting policy in relation to Revenue Recognition has been reiterated and re-framed during the year in-order to clarify and to be more specific for better understanding for the users of the financial statements. The revenues are accounted consistently as were accounted during the previous year and reiterating the accounting policy has no impact on the revenues accounted for the year.

(b) Defined benefit plan - The company has one defined plan, i.e. Gratuity, for its employees. Under the gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @ 15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.

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

3. Segment information

The Company operates as technology and network solution integrators and thus there is only one business segment i.e., technology and network solutions and there is only one geographical segment viz. India.

4. Capital and other commitments

(a) Estimate amount of contracts remaining to be executed on capital account and not provided for Rs. 32 Million (Period ended 31 March 2011: Rs. 44 Million)

(b) For commitments relating to lease arrangements, please refer note 28.

5. Remuneration to Managing Director

Approval from the Central Government of India is awaited for the amount of Rs.5 Million paid/payable to the Managing Director for the period ended March 31, 2011 in excess of the limits specified under the Companies Act 1956. The company had filed the application on 20 May 2011.

6. Contingent liabilities

01 April 2011 01 October 2010 to 31 March 2012 to 31 March 2011 Rs. Millions Rs. Millions

Contingent liabilities in respect of disputed demands of:

(a) Income tax authorities 236 170

(b) Excise and Customs authorities 83 83

(c) Sales tax matters 14 9

(d) Bills Discounted 19 46

Income tax:

The demand is raised mainly on deferral profit due to change in revenue recognition policy and other cases for Rs. 236 Million (31 March 2011 Rs. 170 Million). This is a timing difference liability and appeal is filed before Commissioner of appeals.

Excise :

The amount is reported as contingent liability as an abundant caution for the appeal filed by the department with higher authority for applicability of custom duty on royalty remittance for Rs. 67 Million (31 March 2011 Rs. 67 Millions). The order from the lower authority is issued in favour of the company. Rs. 11 Million (31 March 2011 Rs. 11 Million) relate to Service tax on RTU activation charges & penalty thereon. AGC has filed appeal before commissioner in this case. Rs. 5 Million (31 March 2011 Rs. 5 Million) related to Excise duty demand on sales of Software. AGC has filed appeal before tribunal.

Sales tax:

This represents Rs. 8 Million (31 March 2011 Rs. 8 Million) on account of non-receipt of 'F' form which is based on abundant precaution. 'F' forms are to be received from AGC's own branches. Balance amount of Rs. 6 Million (31 March 2011 Rs. 1 Million) is sales tax liability in the state of Kerala & West Bengal against which we have filed appeal before competent authority.

Bills Discounted:

Bill discounted represents sales bills discounted with banks against receivables from customers.

7. During the year ended 31 March 2012

a) The Company has entered into a 60:40 joint venture agreement with a Saudi Arabian Company for developing the Saudi Arabian market for the products and services of AGC or any of its affiliates.

b) The Company, through its wholly owned subsidiary in Singapore has entered into a 42:40:18 joint venture agreement with an enterprise in UAE for execution of implementation projects in Dubai offering technology, infrastructure, integration, operation and management services.

8. Previous year figures

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

Since the company had changed its year end from September end to March end in the previous year, current year statement of profit and loss is for twelve months ended 31 March 2012 and is not comparable to previous period figures which is for six months period ended 31 March 2011.

9. All amounts are in Rupees (in Million) except otherwise stated specifically - '0' denotes amounts less than a Million rupees.


Mar 31, 2011

Oct 01, 2009 to Sep 30, 2010 Rupees in million Rupees in million

1 Estimated amounts of contracts remaining to be executed on capital account and not provided for 44 22

2 Contingent liabilities in respect of disputed demands of:

(a) Income tax authorities 170 183

(b) Excise and Customs authorities 83 94

(c) Sales tax matters 9 9

(d) Bills Discounted 63 1

Income tax:

The demand is raised mainly on deferral profit due to change in revenue recognition policy for Rs.98 million. This is a timing difference liability and appeal is filed before Commissioner of appeals.

Excise :

The amount is reported as contingent liability as an abundant caution for the appeal filed by the department with higher authority for applicability of custom duty on royalty remittance for Rs.66 million. The order from the lower authority is issued in favour of the Company.

3 (b) Approval from the Central Government of India is awaited for the amount of Rs.5 million paid/payable to the Managing Director for the year ended March 31, 2011 in excess of the limits specified under the Companies Act 1956.

4 During the 6 months year ended March 31, 2011, the Company has changed its revenue recognition policy consistent with practice followed in the industry. Had the Company continued with the earlier policy i.e. income from sale of goods/installation & commissioning was recognised on completion of sale/installation and commissioning, the Gross Sales/Income from operations would have been lower by Rs.210 million and Profit after tax would bave been lower by Rs.51 million.

5 Segment Reporting

The Company operates in one business segment i.e., Business Communication Solutions and there is only one geographical segment viz. India.

6 Related Party Disclosures

(a) Related party disclosures as required by Accounting Standard -18 (AS-18), "Related Party Disclosures" issued by the Institute of Chartered Accountants of India

Nature of Relationship Name of Party

Where control exists Essar Services Holdings Limited - Holding Company (w.e.f. 01.09.2010)

Essar Capital Finance Private Limited - (upto 19.01.2011)

Aegis Limited - Subsidiary of Holding Company - (w.e.f. 20.01.2011)

Essar Global Limited - Ultimate Holding Company (w.e.f. 01.09.2010)

Avaya Inc., USA - Ultimate Holding Company (upto 31.08.2010) through its 100% subsidiaries

1) Sierra Communication International LLC (formerly Avaya International, LLC, USA) (upto 31.08.2010)

2) Avaya Mauritius Limited(upto 31.08.2010) Subsidiaries GlobalConnect Australia Pty Limited

Fellow Subsidiaries Essar Steel Limited (w.e.f. 01.09.2010)

(where transactions occurred during the year) Essar Oil Limited (w.e.f. 01.09.2010)

Aegis Limited (w.e.f. 01.09.2010)

Aegis Tech Ltd

Aegis Tech Singapore Pte. Ltd

Aegis Communication Group LLC.

Aegis Aspire Consultancy Services Ltd

Essar House Ltd

Essar Infrastructure Services Ltd

Essar Investment Ltd

Essar Power Ltd

Essar Power Gujarat Ltd

Essar Power MP Ltd

Essar Projects (India) Ltd

Essar Technology Park BKC Pvt. Ltd

Global Vantedge Private Ltd

Essar Information Technology Ltd

Equinox Business Parks Pvt. Ltd

Avaya India Private Limited (upto 31.08.2010)

Avaya Singapore Pte Ltd (upto 31.08.2010) Avaya International Sales Ltd., Ireland (upto 31.08.2010)

Key Management Personnel Mr. Anil Nair (w.e.f. 01.01.2009)

Mr. S. K. Jha (w.e.f. 01.09.2010)

7 Lease transactions

Operating leases

(i) The Company has taken various residential, office, warehouse premises and vehicles under operating lease or leave and licence agreements. These range between 11 months to 4 years under leave and licence, or longer for other leases and are renewable by mutual consent on mutually agreeable terms.

(ii) Lease payments are recognised in the Profit and Loss Account under Rent and Lease rentals in Schedule 15.

8 The figures of previous year were audited by a firm of Chartered Accountants other than S. R. Batliboi & Associates. Previous year figures have been re-grouped and reclassified, wherever necessary, to correspond to those of the current period classification.

Since the Company has changed its year end from September end to March end, current period Profit and Loss Account is for six months period ended March 31, 2011 and is not comparable to previous year figures which is for the year ended September 30, 2010.

9 All amounts are Rupees (In million) except otherwise stated specifically - "0" denotes amounts less than a million rupees.


Sep 30, 2010

1) Other Long-term Employee Benefits:

Liability for Compensated Absences is provided on the basis of valuation, as at the Balance Sheet date, carried out by an independent actuary. Encashment of leave benefit is payable on death whilst in service, withdrawal from service such as resignation, termination or early retirement or from retirement from service at normal retirement date. In view of increase in salary taking place, salary growth rates have been used to project the salary at the time when encashment of leave is assumed to take place. The assumptions with regard to Mortality rates, Withdrawal rates and Retirement age have been used to construct a suitable multiple decrement service/mortality table which determines the expected time when leave encashment is likely to take place. The accumulated leave may be reduced on account of in-service utilization or encashment if permissible under the rules of leave encashment, or increase on account of leave entitlement every year. The effect of in service utilization or encashment and entitlement will be reflected in year to year balance and the liability will be adjusted accordingly at every periodic actuarial valuation.

2) Termination benefits are recognised as an expense as and when incurred.

3) The actuarial gains and losses arising during the year are recognised in the Profit and Loss Account of the year without resorting to any amortisation.

Previous year Rupees in 000 Rupees in 000

1 Estimated amounts of contracts remaining to be executed on capital account and not provided for 22,029 1,565

2 Contingent liabilities in respect of disputed demands of:

(a) Income tax authorities 182,731 155,316

(b) Excise and Customs authorities 93,863 159,492

(c) Sales tax matters 8,744 7,898

(d) Bills Discounted 714 39,768

3 (b) Approval from the Central Government of India is awaited for the amount of Rs. 5,323 (000) paid to the Managing Director for the year ended September 30, 2009 in excess of the limits specified under the Companies Act, 1956.

4 Exceptional item for the year ended September 30, 2010 pertains to profit on sale of land of Rs. 9,701 (000) and for the year ended September 30, 2009 pertains to employees separation costs of Rs. 53,405 (000).

5 Segment Reporting

The Company operates in one business segment i.e., Business Communication Solutions and there are no reportable geographical segments.

6 Related Party Disclosures (Refer Note No. 2 of Schedule 1)

(a) Related party disclosures as required by Accounting Standard - 18 (AS-18), "Related Party Disclosures" issued by the Institute of Chartered Accountants of India

Nature of Relationship Name of Party

Where control exists Essar Services Holdings Limited - Holding Company (w.e.f. 01.09.2010)

Essar Capital Finance Private Limited- (w.e.f. 01.09.2010)

Essar Global Limited-Ultimate Holding Company (w.e.f. 01.09.2010)

Avaya Inc., USA - Ultimate Holding Company (upto 31.08.2010)

Through its 100% subsidiaries -

1) Sierra Communication International LLC (formerly Avaya International, LLC, USA) (upto 31.08.2010)

2) Avaya Mauritius Limited (upto 31.08.2010) Subsidiaries Global Connect Australia Pty Limited

Fellow Subsidiaries Avaya India Private Limited (upto 31.08.2010) (where transactions occurred during the year) Avaya Singapore Pte Ltd (upto 31.08.2010)

Avaya International Sales Ltd., Ireland (upto 31.08.2010)

Essar Steel Limited (w.e.f. 01.09.2010)

Essar Oil Limited (w.e.f. 01.09.2010)

Aegis Limited (w.e.f. 01.09.2010)

Key Management Personnel Mr. Niru Mehta (upto 31.12.2008)

Mr. Anil Nair (w.e.f. 01.01.2009)

Mr. S. K. Jha (w.e.f. 01.09.2010)

7 Lease transactions

Operating leases

(i) The Company has taken various residential, office, warehouse premises and vehicles under operating lease or leave and licence agreements. These range between 11 months to 4 years under leave and licence, or longer for other leases and are renewable by mutual consent on mutually agreeable terms.

(ii) Lease payments are recognised in the Profit and Loss Account under Rent and Lease rentals in Schedule 15.

8 Previous year figures have been re-grouped and reclassified, wherever necessary, to correspond to those of the current year.


Sep 30, 2009

Previous year Rupees in Crores Rupees in Crores

1 Estimated amounts of contracts remaining to be executed on capital account and not provided for 0.16 3.42

2 Contingent liabilities in respect of disputed demands of:

(a) Income tax authorities 15.52 17.52

(b) Excise and Customs authorities 15.95 12.43

(c) Sales tax matters 0.79 0.82

(d) Bills Discounted 3.98 6.50

3 (a) Managerial Remuneration

Salary 0.19 -

Perquisites & Allowances (includes Rs. NIL (previous year Rs. 0.21 crore) in respect of earlier year) 1.24 1.69

Contribution to provident fund, superannuation and other funds 0.06 -

Total 1.49 1.69

3 (b) Managerial remuneration for the year ended September 30, 2009 includes Rs. 0.53 crore, paid/payable to the Manager / Managing Director, subject to the approval of the Central Government of India, for which an application has been made. The appointment and remuneration of the Manager / Managing Director from April 1, 2009 is also subject to the approval of the shareholders.

Managerial remuneration for the year ended September 30, 2008 excludes Rs. 0.72 crore, being the amount paid to the Director in excess of the limits specified under the Companies Act, 1956, for the year ended September 30, 2008 for which an application has been made by the Company to the Central Government. In the event the approval is not received, Avaya Inc., the ultimate holding company, has agreed to pay this amount to the Company.

4 In respect of contracts, for the provision / supply of services / goods, with a private company in which a then Director of the Company was Director, the Company is of the view that the provisions of section 297 of the Companies Act, 1956 are not applicable. However, as a matter of abundant caution, the Board of Directors of the Company in their meeting held on 26th October, 2007 resolved to make an application seeking the approval of the Central Government.

Pursuant to above, Company filed application under section 621 (A) for compounding of offence committed under the section 297 of the Companies Act, 1956, for the transactions entered in 2006-07 and in 2007-08 (upto February 24, 2008) for which approval is pending. The Company has obtained Central Government approval for entering into transactions with the above mentioned Company from the date of approval February 25, 2008 to September 30, 2010.

5 (b) Advances include a loan of Rs. 5.70 Crores granted to a trust formed pursuant to an engagement and retention plan for the benefit of certain employees of the Company. The trust has invested the amount borrowed in the equity shares of the Company.

6 Segment Reporting

The Company operates in one business segment i.e., Business Communication Solutions and there are no reportable geographical segments.

7 Related Party Disclosures

(a) Related party disclosures as required by Accounting Standard -18 (AS-18), "Related Party Disclosures" issued by the Institute of Chartered Accountants of India

Nature of Relationship Name of Party

Where control exists Avaya Inc., USA - Ultimate Holding Company

Through its 100% subsidiaries -

1) Avaya International, LLC, USA

2) Avaya Mauritius Limited

Subsidiaries GlobalConnect Australia Pty Limited

Fellow Subsidiaries Avaya India Private Limited

(where transactions occurred during the year) Avaya Singapore Pte Ltd

Avaya Licensing Corporation

Avaya U. K.

Avaya International Sales Ltd., Ireland

Avaya Australia Pty. Ltd

Avaya Asia Pacific Inc., Bangkok

Avaya Asia Pacific Inc., Taiwan

Key Management Personnel Mr.Niru Mehta (Vice-Chairman and Managing Director) (Upto 31.12.2008)

Mr. Anil Nair (Manager) (w.e.f. 01.01.2009 upto 27.04.2009)

Mr. Anil Nair (Managing Director) (w.e.f. 28.04.2009)

1) Avaya Inc. and Avaya Singapore Pte. Ltd. have reimbursed the Company a sum of Rs. 0.22 Crores & Rs. 0.13 Crores (previous year Rs. 1.03 Crores & Rs. 0.06 Crores) and Rs. NIL & Rs. 0.18 Crores (previous year Rs. 1.51 Crores & Rs. 0.29 Crores) is recoverable as on September 30, 2009 towards Avaya Technical Assistance Center (ATAC) project in accordance with agreements dated September 17, 2004 and October 1, 2007 respectively.

2) Consists of reimbursement of Advertisement costs and other expenses.

3) Consists of reimbursement of Rent & other expenses.

Recovery of above expenses/cost of fixed assets aggregating to Rs. 3.42 Crores (previous year Rs. 4.65 Crores) have been netted off against the respective accounts in the Profit and Loss Account/Fixed Assets.

4) Figures in brackets are in respect of previous year.

5) Previous year figures have been re-grouped and reclassified, wherever necessary, to correspond to those of the current year.

 
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