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Notes to Accounts of Polaris Consulting & Services Ltd.

Mar 31, 2016

1. Investments in subsidiaries

During the year ended March 31, 2012, pursuant to the Approved Scheme of Arrangement with Optimus Global Services Limited ("Optimus"), a subsidiary of the Company (with 99.94% holding), the Company had merged the BPO division of Optimus into the Company with effect from October 1, 2011. Consequent to the scheme, as at March 31, 2016, the company holds 8,49,997 equity shares and 14,92,030 preference shares in the reorganised capital structure of the subsidiary. Further, the Company had taken over net assets aggregating to Rs. 1,652.33 lakhs and accumulated losses of Rs. 3,033.72 lakhs and credited the same to the Company''s investment in equity and preference shares of Optimus, resulting in the carrying value of the respective investments in Optimus to be Nil

2. COMMITMENTS AND CONTINGENT LIABILITIES

(i) The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2016 is Rs 236 Lakhs (March 31, 2015 : Rs 678 Lakhs)

(ii). Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2016 is Rs 10,957.34 Lakhs (March 31, 2015: Rs. 6,895.50 Lakhs).

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2016 is Rs.520 Lakhs (March 31, 2015: Rs.520 Lakhs).

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2016 is Rs.42.4 Lakhs (March 31, 2015: Rs 107 Lakhs). Against the said liability the Company has made a deposit of Rs.21.20 lakhs (March 31, 2015 : Rs 27.91 lakhs)

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2016 is Rs. Nil (March 31, 2015: Rs. 201 Lakhs) Against the said liability the Company has made a deposit of Rs.Nil ( March 31, 2015 Rs 68.28 lakhs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.

The Company has received draft assessment order for Assessment Year 2012-13 and since the order is in the draft stage, the same has not been disclosed as contingent liability.

(iii) There is a claim for damages by the vendor for an amount of Rs 90 lakhs towards alleged breach of intellectual property rights which the Company has not accepted and is defending itself appropriately.

(iv) The Company is also involved in a law suit with and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

3. HEDGING OF FOREIGN CURRENCY EXPOSURES

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

4. SEGMENT REPORTING

The company''s operations predominantly relates to IT services only and accordingly this is the only primary reportable segment as per AS-17

Secondary segmental information is based on geographical location of the customers.

5. SCHEME OF ARRANGEMENT (DE-MERGER) BETWEEN THE COMPANY AND INTELLECT DESIGN ARENA LIMITED

The Company (Demerged Company) had entered into a Scheme of Arrangement (''the Scheme'') with Intellect Design Arena Limited (''Resulting Company'', ''Intellect'') to demerge the Product Business Undertaking into Intellect. In consideration for the vesting of the Product business undertaking to Intellect as per the terms of the Scheme, each member of the demerged company shall receive one equity share of Rs 5/- each in the resulting company for every one equity share of Rs 5/- each held in the demerged company.

6. EXCEPTIONAL ITEMS

public shareholders of the Company to purchase up to an additional 26.0% of the outstanding shares of the Company. Virtusa India accepted the purchase of 26,719,942 shares of Polaris common stock for Rs. 220.73 per share ($3.25 per share) for an aggregate purchase price of Rs. 589.8 Crore ($86.8 million). The mandatory open offer began on March 11, 2016 and closed on March 28, 2016 and was fully subscribed. As a result, Virtusa India now holds approximately 79% of the total outstanding share capital of Polaris. In connection with this transaction, Polaris incurred a costs of Rs.1,517.55 lakhs for the year ended March 31, 2016 and the same is disclosed under exceptional items-others, being significant and non-recurring.

** The Company entered into a Business Transfer Agreement with M/s Gamma Process Hub India Limited on February 25, 2016 to transfer all its legal and beneficial ownership in the BPO business as a going concern for a consideration of Rs 200 Lakhs. The Company has recognised an impairment loss of Rs 666 Lakhs during the quarter ended March 31, 2016, which included a commitment to infuse working capital in cash prior to transfer amounting to Rs. 400 Lakhs pursuant to the terms of the Business Transfer Agreement.

7. DETAILS OF DUES TO MICRO AND SMALL ENTERPRISES AS DEFINED UNDER THE MSMED ACT, 2006

As at March 31, 2016, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2015: Rs Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

8. SALE OF STAKE IN INTELLECT POLARIS DESIGN LLC

On December 31, 2015, the Company divested 45% of its membership interest in Intellect Polaris Design LLC for a consideration of Rs. 1,380.15 lakhs to Intellect Design Arena Limited. After the divestment, Intellect Design Arena Limited and Polaris Software Lab Inc. ("PSL") (a wholly owned subsidiary of Intellect Design Arena Limited, which already owns 5% of the membership interest in Intellect Polaris Design LLC) together holds 50% of the membership interest in Intellect Polaris Design LLC and the Company holds the remaining 50%. On December 31, 2015, a principal shareholder of the Company was also a principal owner of Intellect Design Arena Limited. For a period of twelve months commencing on March 3, 2016, PSL has an option to purchase all, but not less than all, of the membership interest in Intellect Polaris Design LLC held by the Company for consideration equal to the product of USD 5,000,000 and the percentage interest held by the Company. If the option is not exercised, for the next twelve months, the Company has the option to purchase all, but not less than all, of the membership interest in Intellect Polaris Design LLC held by PSL for consideration equal to the product of USD 5,000,000 and the percentage interest held by the Company. As the Company held 95% shareholding in Intellect Polaris Design LLC till December 31, 2015, the same has been treated as a subsidiary till December 31, 2015 and with effect from January 01, 2016, the same been treated as a joint venture and accounted under proportionate consolidation method

9. PREVIOUS PERIOD COMPARATIVES

Previous year figures have been regrouped/reclassified, wherever material and necessary to conform to current year presentation


Mar 31, 2013

1. Corporate Information

Polaris Financial Technology Limited (formerly known as Polaris Software Lab Limited), a public limited company domiciled in India and incorporated under the provision of the Companies Act, 1956, was founded in 1993 and is headquartered in Chennai. The Company''s shares are listed on Madras Stock Exchange, The National Stock Exchange and The Bombay Stock Exchange in India. The Company, with its comprehensive portfolio of products, smart legacy modernization services and consulting offers state-of-the-art solutions for Core Banking, Corporate Banking, Wealth & Asset Management and Insurance.

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 financial statements have been prepared on an accrual basis and under the historical cost convention. The accounting policies adopted in the preparation of financial statements are consistent with those used in the previous year.

3. Related party transactions

List of related parties

Subsidiaries

1. Polaris Software Lab Pte Limited, Singapore (''PSL Singapore'')

2. Polaris Software Lab Canada Inc (''PSL Canada'')

3. Polaris Software Lab Limited, UK (''PSL UK'')

4. Polaris Software Lab GmbH, Germany (''PSL Germany'')

5. Polaris Software Lab SA, Switzerland (''PSL Switzerland'')

6. Polaris Software Lab FZ-LLC (''PSL Dubai'')

7. Polaris Software Pty Ltd, Australia (''PSL Australia'')

8. Polaris Software Lab Ireland Ltd., Ireland (''PSL Ireland'')

9. Polaris Software Lab Japan KK (''PSL Japan'')

10. Polaris Enterprise Solution Limited, India (''PESL'')

(Formerly Polaris Retail Infotech Limited)

11. Optimus Global Services limited (''Optimus'')

12. Polaris Software Lab B.V, Netherlands* (''PSL Netherlands'')

13. Polaris Software lab Limitada, Chile* (''PSL Chile'')

14. Polaris Software Lab Inc (''PSL Inc. - SEEUS'')**

15. SEEC Technologies Asia Private Limited (''Seec Asia'') ***

16. Polaris Software Lab (Shanghai) Limited (''PSL China'')**

17. Laser Soft Infosystems Limited, India (''Laser Soft'')

18. Indigo TX Software Private Ltd India (''Indigo TX'')

19. Polaris Software Lab Vietnam Co. Ltd, Vietnam (''PSL Vietnam)

20. Polaris Software Lab Sdn Bhd, Malaysia (''PSL Malaysia'')**

21. SFL Properties Private Ltd, India (''SFL Properties'')

22. Polaris Software Lab (Philippines) Company Inc.(''PSL Philippines'')**

23. Iden Trust Inc, US (''Iden Trust'')

24. Sonali Polaris FT Limited, Bangladesh (''Sonali Polaris FT'')

25. FinTech Grid Limited, India (''FinTech'')

26. FT Grid Pte Ltd., Singapore**

* Subsidiaries of Polaris Software Lab Limited, UK

** Subsidiaries of Polaris Software Lab Pte Limited, Singapore

*** Subsidiary of Intellect SEEC Inc., USA

Associates

1. NMS Works Software Private Limited (NMS)

2. Adrenalin eSystems Limited (Adrenalin esystems)

Others

(a) Enterprises that directly, or indirectly through one or more intermediaries, control the Company and enterprise of which the Company is an associate

1. Polaris Holdings Private Limited

2. Orbitech Limited

3. Orbitech Employees Welfare Trust

4. Associate Stock Option Plan (Trust) 2011 (''ASOP Trust 2011'')

(b) Key managerial person

Mr. Arun Jain, Chairman and Managing Director

21. Commitments and contingent liabilities

i) The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2013 is Rs. 1,214 Lakhs (March 31, 2012 : Rs 1,369 Lakhs).

ii) Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2013 is Rs. 7,537.45 Lakhs (March 31, 2012: Rs 10,828.42 Lakhs). The Company is contesting these demands at various higher appellate levels and the Company believes that the final outcome of the dispute will be in favour of the company and will not have any material impact on the financial results of the Company.

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2013 is Rs. 520 Lakhs (March 31, 2012: Rs.520 Lakhs);

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2013 is Rs 98 Lakhs (March 31, 2012: Rs 98 Lakhs); and

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2013 is Rs 32 Lakhs (March 31, 2012: Rs. 32 Lakhs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company''s financial position and results of operations.

iii) The Company is also involved in other law suit and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

4. Hedging of foreign currency exposures

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

The following are the outstanding Forward Exchange Contracts entered into by the Company as at March 31, 2013 including forward cover taken for forecasted revenue receivable transactions:

5. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2013, the Company had no outstanding dues to Micro and Small enterprises (for March 31, 2012: Rs Nil). The list of Micro and Small enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

6. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. A trust by name "Polaris Software Lab group gratuity trust" has been constituted to administer the gratuity fund.

The following tables summarise the components of net benefit expense recognised in the Statement of profit and loss and the funded status and amounts recognized in the Balance Sheet for the respective plans.

The amount expected to be contributed to the gratuity fund in the next financial year is Rs. 330.87 Lakhs

The funds are invested in the form of a prescribed insurance policy with ICICI prudential and Life Insurance Corporation of India ("LIC"). The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

7. Lease payments

The Company has taken certain offices and residential premises for the employees under operating leases, which expires at various dates in future years. There are no restrictions imposed by the lease arrangements. The minimum lease rental payments to be made in respect of these leases are as follows.

8. Segment reporting

The Company''s operations predominantly relate to providing IT services to customers operating in various industry segments globally. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is based on the geographical location of customers.

The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments.

Business (primary) segments of the Company are:

a) Banking and financial services; and

b) Emerging verticals

Revenue and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while other costs, wherever allocable, are apportioned to the segments on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as ''unallocated'' and directly charged against total income. Fixed assets used in the Company''s business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Customer relationships are driven based on the location of the respective client. The geographical segments comprise:

a) United States of America;

b) Europe;

c) Asia Pacific; and

d) India and Middle East

9. Research and Development Expenditure

The Company has incurred the following expenditure towards Research & Development (including expenditure incurred at DSIR recognized centers at Chennai): Revenue expenditure amounting to Rs.8,643.08 Lakhs (Previous Year Rs 8,324.74 Lakhs) and capital expenditure of Rs. 1,356.79 Lakhs (Previous year Rs Nil) for the year ended March 31, 2013.

10. Prior year Comparatives

Previous year figures have been regrouped / reclassified, wherever necessary to conform to current year presentation.


Mar 31, 2012

1. Corporate Information

Polaris Financial Technology Limited (formerly known as Polaris Software Lab Limited), a public limited company domiciled in India and incorporated under the provisions of the Companies Act, 1956, was founded in 1993 and is headquartered in Chennai. The Company's shares are listed on Madras Stock Exchange, The National Stock Exchange and The Bombay Stock Exchange in India. The Company, with its comprehensive portfolio of products, smart legacy modernization services and consulting offers state-of-the-art solutions for Core Banking, Corporate Banking, Wealth & Asset Management and Insurance.

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 financial statements have been prepared on an accrual basis and under the historical cost convention. The accounting policies adopted in the preparation of financial statements are consistent with those used in the previous year.

With effect from the current year, the revised Schedule VI notified under the Companies Act 1956, has become applicable to the company, for preparation and presentation of its financial statements. The adoption of revised Schedule VI does not impact recognition and measurement principles followed for preparation of financial statements. However, it has significant impact on presentation and disclosures made in the financial statements. The company has also reclassified the previous year figures in accordance with the requirements applicable in the current year.

The Company had filed a petition before The Hon'ble High Court of Madras ("High Court") on 23/04/2012 for the demerger of the BPO division, of its subsidiary Company Optimus Global Services Limited into the Company, subsequent to the shareholders consent obtained at a meeting convened on 09/04/2012 under the direction of the High Court. The High Court has sanctioned the Scheme of Arrangement (demerger) with effect from October 1, 2011. Accordingly, the financial statements for the current year reflect the effect of the demerger. The Scheme and its effect on the financial statements have been discussed in Note 12.III (a) below.

Of the total authorized capital of the company referred above, the company has issued only one class of equity shares having a face value of Rs.5 per share. Each holder of such equity share 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. The distribution will be in proportion to the number of equity shares held by the shareholders.

Share capital suspense

The company has issued total 277 (31st March 2011 - Nil) equity shares of Rs. 5/- each fully paid-up for consideration other than cash pursuant to the Scheme of Arrangement (demerger) of the BPO division of Optimus Global Service Ltd into the Company (As more fully discussed in Note 12.III (a)). The Company is yet to complete the allotment and issue of share certificates with respect to these shares, accordingly these have been shown under share capital suspense account.

Share application money pending allotment

The company has received share application money during the month of March 2012 for issue of 2000 Equity shares at Rs.140.90 each (face value of Rs.5/- each with a premium of Rs.135.90) (31st March 2011 - Nil) under the scheme of ASOP 2003. These have been subsequently allotted during the month of April 2012.

Stock option plans

The Company has four stock option plans that provide for the granting of stock options to employees including directors of the Company (not being promoter directors and not holding more than 10% of the equity shares of the Company).

The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives and promoting the success of the Company by providing employees the opportunity to acquire equity shares. The option plans are summarized below:

Associate Stock Option Plan 2003

The Shareholders of the Company at the EGM held on March 12, 2004 approved an Associate Stock Option Plan (the 2003 Plan). The 2003 Plan provides for issuance of 3,895,500 options, convertible to equivalent number of equity shares of Rs 5 each, to the employees including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed.

If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. A summary of the status of the options granted under 2003 plan as at March 31, 2012 is presented below.

Associate Stock Option Plan 2004

The Shareholders of the Company in the AGM held on the 22 July 2005 approved an Associate Stock Option Plan (the 2004 plan). The 2004 plan provides for issuance of 1,084,745 options, convertible to equivalent number of equity shares of Rs 5 each, to the associates including Directors. The options are granted at the market price on the date of the grant. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 36 months from the last vesting date.

No compensation cost has been recorded as the scheme terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. A summary of the status of the options granted under 2004 plan at March 31, 2012 is presented on below

Associate Stock Option Plan 2011

The Shareholders of the Company in the Extraordinary General Meeting held on the 28th October 2011 approved an Associate Stock Option Plan (the 2011 plan). The 2011 plan provides for issuance of 4,960,000 options convertible into equivalent number of equity shares of Rs 5 each. The plan shall be administered under 4 different schemes based on the following terms:

The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The options shall be valued using the intrinsic value model.

The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date.

During the current year the Company has granted options under Swarnam 11 scheme. As the market price on the date of the grant was less that Rs 175, no option discount has been provided as per the scheme terms and the options are issued at the market price. Accordingly no compensation cost has been recorded. A summary of the status of the options granted under 2011 plan at March 31, 2012 is presented on below

Associate Stock Option Plan (TRUST) 2011

The Shareholders of the Company in the Extraordinary General Meeting held on the 28th October 2011 approved an Associate Stock Option Plan (TRUST) 2011 [the 2011(Trust) plan]. The 2011(Trust) plan provides for issuance of 1,984,000 options, convertible to equivalent number of equity shares of Rs 5 each. The options shall be granted at the market price if the market price is below Rs. 175 or at discount of 10% on market price if the market price is Rs. 175 or above. The market price, in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 as amended from time to time, shall be the latest available closing price prior to the date of the meeting of the Board of Directors in which options are granted, on the stock exchange on which the shares of the Company are listed. If the Shares are listed on more than one stock exchange then the stock exchange where there is highest trading volume on the said date shall be considered. The option vests over a period of 5 years from the date of grant in a graded manner, with 20% of the options vesting each year. The exercise period shall commence from the date of vesting and expires within 60 calendar months from the relevant vesting date. The Company has not granted any options under the plan as on March 31, 2012.

Pro forma Disclosure

The Company follows the intrinsic value model for valuation of its options under the various plans. In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, had the compensation cost for associate stock option plans been recognized based on the fair value at the date of grant in accordance with Black- Scholes model, the pro forma amounts of the Company's net profit and earnings per share would have been as follows:

The expected life of stock is based on historical data and current expectation and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

I. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES

a. Scheme of Arrangement between Optimus Global Service Limited and the Company

Optimus Global Services Limited ("Demerged Company" or "Optimus") was incorporated on September 25, 2002 and is a subsidiary of the Company (99.94% holding). Optimus has two undertakings; Undertaking 1 is engaged in the business of facilitating procurement and sale of equipments and software products and Undertaking 2 ("demerged undertaking" or "BPO division") is engaged in the activity of Business Process Outsourcing (BPO).

The Company had entered into a Scheme of Arrangement with Optimus for the demerger of its BPO division into the Company with effect from October 1, 2011. The Scheme was approved by the Hon'ble High Court of Judicature of Madras on 20/07/2012. The Company has filed the order approved by High court order with the Registrar of Companies, Chennai (ROC) on October 5, 2012. The ROC has approved the said registration on October 9, 2012 and as of that date; the BPO division of Optimus has been demerged with the Company. The scheme has accordingly been given effect to in these financial statements with retrospective effect from October 1, 2011.

In accordance with the scheme the Company has accounted for the demerger as follows:

(I) The Company has taken over net assets aggregating to Rs. 1,652.33 Lacs and accumulated losses of Rs.3,032.72 Lacs as on October 1, 2011. These have been transferred to and vested in the Company at the carrying values as appearing in the financial statements of the demerged undertaking.

(ii) The Company has allotted to shareholders comprising 0.06% of the paid up equity share capital of the demerged Company on the record date, 1 equity share of Rs 5 each in the Company in respect of every 200 shares of Rs 2 each held by them in the demerged Company. Accordingly the company has issued 277 equity shares of Rs 5/- each, fully paid up to the shareholders of the demerged Company. These shares have not yet been allotted, accordingly the same has been disclosed as capital suspense account.

(iii) The book value of net assets and accumulated losses taken over as per (i) above, after adjusting the aggregate value of the shares issued to the minority as per (ii) above, has been credited to the Company's investment in equity and preference capital of Optimus.

Further, consequent to the demerger scheme, there has been a reorganization of the share capital of Optimus. As per the reorganized capital structure, the Company holds 8,50,500 equity shares and 14,92,030 preference shares of Optimus on March 31, 2012.

b. The Company's equity ownership interest in Adrenalin e-systems Limited is 40.25% as at March 31, 2012. Adrenalin e-Systems Limited ("ASL") is primarily engaged in the business of providing specific solutions relating to Human resource and payroll management. The Accumulated losses to the extent of Rs 2,861.31 Lacs on March 31, 2012, (Rs.2,936.33 Lacs - March 31, 2011) have eroded the Companies share of investment in the associate. The Company has started showing marginal profits over the last two years. The management is positive about the future outlook, see growing acceptance of the product among top players in the market, and is confident of recouping its losses and breaking even in the coming years. Accordingly, the management believes that there is no other than temporary diminution in the value of its investments in ASL and hence, it is stated at cost.

c. The Company's equity ownership interest in NMS Works Software Private Limited ("NMS") is 36.54% as at March 31, 2012. NMS is primarily engaged in the business of designing network management in Telecommunication and Internet Services. NMS had been incurring losses since its inception accordingly the Company has determined and recorded a provision of Rs 415 Lacs in the earlier year for other than temporary diminution in the value of its equity investment in NMS. The Company has made significant profits in the current year and its accumulated losses as on March 31, 2012 have reduced to Rs 56.29 Lacs (Rs.267.42 Lacs - March 31, 2011)

d. The Company has acquired 85.30% equity stake in IdenTrust Inc, a US based Global leader in trusted Identity solutions and one of the premier providers of digital identity authentication services with effect from April 27, 2011. The total consideration for the acquisition is Rs 8,813 Lacs.

e. The Company has acquired the balance 49% equity stake in Indigo TX Software Private Limited, a SAAS Software developer on November 22, 2011 for a consideration of Rs. 902.22 Lacs. Consequently, Indigo TX became a 100% subsidiary of the company.

f. During the current year, the Company has entered into a JV agreement with Sonali Bank to implement online real time core banking solution for Sonali bank and Bangladesh commerce bank, and offer services to other banks and financial institutions in Bangladesh. Accordingly, the Company has incorporated a subsidiary company with 51% holding, named Sonali Polaris FT limited in terms of the JV agreement.

*Has been pledged as a security by the Company for availing non-fund based facilities from the banker. The deposit carries interest rate at 7.25% per Annum.

3. Commitments and contingent Liabilities

i. The estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) as at March 31, 2012 is Rs.1,369 Lacs (March 31, 2011 : Rs 3,171 Lacs).

ii. Claims against the Company, not acknowledged as debts includes:

1. Demand from Indian income tax authorities as at March 31, 2012 is Rs 10,828.42 Lacs (March 31, 2011: Rs. 755 Lacs) The Company is contesting these demands at various higher appellate levels and the Company believes that the final outcome of the dispute will be in favour of the company and will not have any material impact on the financial results of the Company.

2. Sales Tax demand from Commercial Tax Officer Chennai as at March 31, 2012 is Rs. 520 Lacs (March 31, 2011: Rs.520 Lacs);

3. Sales Tax demand from Commercial Tax Officer, Hyderabad as at March 31, 2012 is Rs 98 Lacs (March 31, 2011: Rs 98 Lacs); and

4. Service tax demand from Commissioner of Central Excise, Chennai as at March 31, 2012 is Rs 32 Lacs (March 31, 2011: Rs. 32 Lacs)

The Company is contesting the demands raised by the respective tax authorities, and the management, including its tax advisers, believes that its position will likely be upheld in the appellate process and ultimate outcome of these proceedings will not have a material adverse effect on the Company's financial position and results of operations.

iii. The Company is also involved in other law suit and claims including suits filed by former employees, which arise in the ordinary course of business. However there are no such matters pending that the Company expects to be material in relation to its business.

4. Hedging of foreign currency exposures

The Company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations relating to forecasted transactions. The Company does not use forward contracts for speculative purposes.

5. Details of dues to micro and small enterprises as defined under the MSMED Act, 2006

As at March 31, 2012, the Company had no outstanding dues to Micro and Medium enterprises (for March 31, 2011: Rs Nil). The list of Micro and Medium enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

6. Gratuity

The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. A trust by name "Polaris Software Lab group gratuity trust" has been constituted to administer the gratuity fund.

The amount expected to be contributed to the gratuity fund in the next financial year is Rs. 279.53 Lacs.

The funds are invested in the form of a prescribed insurance policy with ICICI prudential and Life Insurance Corporation of India ("LIC"). The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

7. Lease payments

The Company has taken certain offices and residential premises for the employees under operating leases, which expires at various dates in future years. There are no restrictions imposed by the lease arrangements. The minimum lease rental payments to be made in respect of these leases are as follows.

8. Segment reporting

The Company's operations predominantly relate to providing IT services to customers operating in various industry segments globally. Accordingly, IT service revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is based on the geographical location of customers.

The accounting policies consistently used in the preparation of the financial statements are also applied to record revenue and expenditure in individual segments.

Business (primary) segments of the Company are:

a) Banking and financial services; and

b) Emerging verticals

Revenue and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while other costs, wherever allocable, are apportioned to the segments on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Company believes that it is not practicable to provide segment disclosures relating to such expenses, and accordingly such expenses are separately disclosed as 'unallocated' and directly charged against total income.

Fixed assets used in the Company's business or liabilities contracted have not been identified to any of the reportable segments, as the fixed assets and services are used interchangeably between segments. The Company believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Customer relationships are driven based on the location of the respective client. The geographical segments comprise:

a) Americas;

b) Europe;

c) ANZ & Asia Pacific; and

d) India and Middle East

9. Prior year Comparatives

Till the year ended March 31, 2011, the company was using pre-revised Schedule VI to the Companies Act 1956, for the preparation and presentation of its financial statements. During the year ended March 31, 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. As stated in Note 12.III (a), in view of the Scheme of Arrangement between the demerged undertaking and the Company with effect from October 1, 2011, the figures for the year ended March 31, 2012 are not comparable with those for the year ended March 31, 2011.


Mar 31, 2011

1. [B15] Investments in subsidiaries and associates

a) The Companys subsidiary Optimus Global Services Limited (`Optimus) incorporated in September 2002, is engaged in the business processing outsourcing services. Optimus has accumulated losses amounting to Rs.2,822.35 as at March 31, 2011 on account of initial/set up stage operation in earlier years and on account of slowdown in BPO industry during the last three years. The management is optimistic about the future growth of Optimus and expects that Optimus will earn profits in the future. Accordingly, management believes that there is no other than temporary diminution in the value of its investments in the subsidiary and hence it is stated at cost.

b) The Companys equity ownership interest in Adrenalin eSystems Limited ("ASL") is 40.25% as at March 31, 2011. ASL is primarily engaged in the business of providing specific solutions relating to Human Relations suite of software solutions. The accumulated losses to the extent of Rs.2,941.10 as per the unaudited financial statements of ASL as on March 31, 2011 are on account of initial / start-up stage of operations. ASL has earned nominal profits in current year. As per the valuation of ASL as at March 31, 2011 carried out by the independent valuation expert, there is no diminution in the carrying value of investments. Accordingly, management believes that there is no other than temporary diminution in the value of its investments in ASL and hence it is stated at cost.

c) The Companys equity ownership interest in NMSWorks Software Private Limited ("NMS") is 39.59% as at March 31, 2011. NMS is primarily engaged in the business of designing network management in Telecommunication and Internet Services. The Company has made substantial profits of Rs. 363.04 during the year. The orders secured during the year have reduced the accumulated losses. NMS had accumulated losses aggregating to Rs. 180.46 as per the unaudited financial statements of NMS as on March 31, 2011. Accordingly, the Company had determined and recorded a provision of Rs. 415, in the earlier years, for other than temporary diminution in the value of equity investment in NMS.

d) The Company has acquired entire equity interest in Laser Soft Infosystems Limited (Laser Soft), a leading Banking software services company specializing in serving the unique needs of India & emerging markets with effect from November 16, 2009. The total consideration for acquisition is Rs.5,201.05 subject to price adjustment conditions based on future financial performance of Laser Soft over the next two years. The Company has paid a sum of Rs.4,322.94 for 94.29% equity interest as at March 31, 2011. The Company has accrued for the consideration payable for the balance equity shares, as the management expects the payment is probable in accordance with the term of the agreement and a reasonable estimate of the amount can be made as at March 31, 2011.

e) The Company has acquired 51% equity stake in Indigo Tx Software Private Limited, a SAAS Software developer of Rs.800.75 on May 10, 2010. The company has the obligation to acquire the balance equity at a price to be determined based on future financial performance over a period of 6 years.

f) The Company has acquired 100% equity in SFL Properties Ltd. The total consideration for acquisition is Rs. 984.53.

g) Laser Soft Infosystem Limited & SFL Properties Private Limited, subsidiaries of the company are proposed to be merged with the company with effect from April 1, 2011.

2. [B9] As at March 31, 2011, the Company had no outstanding dues to Micro and Medium enterprises (March 31, 2010: Rs.Nil). The list of Micro and Medium enterprises was determined by the Company on the basis of information available with the Company. The Company also had no outstanding dues that require to be furnished under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006.

3. [B20] Previous year figures have been regrouped/reclassified, wherever necessary, to conform to current year presentation.

 
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