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Notes to Accounts of Subex Ltd.

Mar 31, 2016

Note - 1. EXCEPTIONAL ITEMS (contd.)

(iii) As at March 31, 2016, the Company has assessed the carrying value of its investment in its wholly owned subsidiary viz., Subex Americas Inc., of RS. 12,495.74 Lakhs. Based on future operational plan, projected cash flows and valuation carried out by an external value, the Company has made a provision of Rs. 5,490.00 Lakhs towards diminution, other than temporary, in the carrying value of its investment in the said subsidiary.

Note - 2. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs)

a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (FCCB I) aggregating to US$ 180 Million, with an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being:

i) Exchange rate for conversion of FCCB: Rs.44.08/ US$

ii) Conversion price: Rs.656.20 per share

iii) Redemption date: March 09, 2012

iv) Premium payable on redemption: US$. 14.05 Million.

v) Listing on the London Stock Exchange

The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009-10, the Company presented to restructure the FCCBs I by offering a discount of ~30% on the face value of the existing bonds in return for new FCCBs ("FCCBs II") having a face value of US$ 126 Million.

Pursuant to the offer, the FCCBs I Bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new FCCB II bonds, for the US$ 98.70 Million face value, were as under:

i) Interest rate : 5% p.a. payable semi annually

ii) Exchange rate for conversion of FCCB: Rs.48.17/ US$

iii) Conversion price : Rs.80.31 per share

iv) Redemption date: March 09, 2012

v) Premium payable on redemption: US$. 23.23 Million.

vi) Listing on the Singapore Exchange Securities Trading Limited

Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012.

Out of the US$ 98.70 Million of FCCBs II, bonds having a face value of US$ 31.90 Million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 Million were converted during the year ending March 31, 2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds.

b) Pursuant to the approval of the holders of "US$ 180 Million 2% convertible unsecured bonds", [of which US$ 39 Million was outstanding ("FCCBs I")] and "US$ 98.70 Million 5% convertible unsecured bonds", [of which US$ 54.80 Million was outstanding ("FCCBs II")], at their respective meetings held on July 5, 2012 and exchange offers received under the exchange offer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II offered their bonds for exchange and secured bonds with a face value of US$ 127.721 Million ("FCCBs III") were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring.

Note - 3. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs)

The terms and conditions of FCCB III are as under:

i) Interest rate : 5.70% p.a. payable semi annually

ii) Exchange rate for conversion of FCCB: Rs.56.0545/ US$

iii) Equity Conversion price : Rs.22.79 per share

iv) Redemption date : July 07, 2017

v) Listing on the Singapore Exchange Securities Trading Limited

vi) Second ranking paripassu charge in respect of all movable properties, present & future, covered under the existing security and first ranking charge in respect of all movable properties, present & future, other than and to the extent covered by the existing security. First ranking charge on FCCB repayment fund on a paripassu basis jointly and equally with SBI and Axis Bank Ltd. The promoters of the Company have pledged their shares towards securing the repayment of FCCB III.

vii) Mandatory conversion of bonds with a face value of US$ 36.321 Million into equity shares at the aforesaid conversion price on July 07, 2012.

c) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company''s US$ 180 Million convertible unsecured bonds and US$ 98.70 Million convertible unsecured bonds, the maturity period of the un-exchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, 2017, with its other terms and conditions remaining unchanged.

d) The Board in its meeting held on May 14, 2015, has approved the reset of conversion price of the FCCBs III, which are convertible into equity shares of the Company, from Rs. 22.79 to Rs. 13.00 per equity share. Subsequently, the reset of the conversion price has been approved by the shareholders in the annual general meeting held on June 19, 2015 and the bondholders in their meeting held on August 5, 2015. The Board in its meeting held on August 26, 2015 has approved August 26, 2015 as the effective date of reset of conversion price of Rs. 13 per share.

As a result of the aforesaid reset of conversion price, the said bonds with outstanding face value of US$ 4.55 Million as at March 31, 2016 would potentially be converted into 19,619,075 equity shares at an exchange rate of Rs. 56.0545/US$ with a conversion price of Rs. 13 per equity share.

Subsequent to balance sheet date, conversion requests from the bondholders of FCCBs III amounting to US$ 0.45 Million have been received by the Company, which have been approved by the Board of Directors in the Board meeting dated April 28, 2016, and allotted 1,940,348 equity shares at an exchange rate of Rs. 56.0545/US$ with a conversion price of Rs. 13 per equity share.

f) The FCCB bond holders in their respective meetings have approved the deferral of aggregate interest of US$ 0.92 Million (Rs. 610.48 Lakhs) in respect of outstanding FCCBs III of USD 4.55 Million for the period July 6, 2012 to January 5, 2016 till redemption date of the bonds, being July 07, 2017. Accordingly, interest on FCCBs III included under finance costs in the statement of profit and loss to the extent of above deferrals is due for payment on July 07, 2017. These amounts have accordingly been categorized as long-term liabilities.

g) The premium payable on maturity of FCCB I and FCCB II has been accrued by charge to securities premium account, and exchange fluctuation on restatement of such outstanding balance is also adjusted with securities premium account.

h) Interest accrued but not due pertaining to FCCBs converted during the current year has been written back as the same is considered no longer payable due to the conversion of FCCBs III into equity shares of the Company, and FCMITD balance pertaining to converted bonds till the date of conversion has been charged off to the statement of profit and loss net of foreign exchange gain on account of conversion of these FCCBs into equity shares of the Company. These amounts have been disclosed as exceptional items, refer note 24(i) for details.

Note - 4.

The Company adopted the amendments to Accounting Standard 11 "The Effects of Changes in Foreign Exchange Rates" that were notified during the year ended March 31, 2012. Pursuant to this amendment, exchange fluctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates different from those at which they were initially recorded or reported in the previous financial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Difference account (''FCMITD'') and are amortized over the balance period of such long term asset/ liability, and/or charged off on settlement/ conversion of such long term monetary foreign currency assets/ liabilities. Consequently, exchange fluctuation losses (net) arising on restatement of such items have been deferred to the extent of Rs. 376.63 Lakhs as at March 31, 2016 (March 31, 2015: Rs.5, 111.21 Lakhs).

Note - 5.

The Company had remitted the withholding taxes in respect of FCCBs in accordance with the provisions of Income Tax Act, 1961 amounting to Rs. 1,016.81 Lakhs Pursuant to the conversion of FCCBs III in to equity shares of the Company, the interest accrued but not due has been reversed as the same is considered no longer payable. The management basis expert advice, is of the view that the withholding taxes paid by the Company is recoverable from income tax department and/or is adjustable against its other withholding taxes obligations. The management has initiated necessary steps for revision of withholding tax returns of prior years and accordingly, H204.98 Lakhs pertaining to withholding taxes on salary, professional services and others have not been paid.

Note - 6.

As at March 31, 2016, the Company has trade receivables of Rs.41,272.75 Lakhs (net of provision for doubtful debts of Rs.11,287.42 Lakhs) from its subsidiaries and trade payables of Rs. 44,128.19 Lakhs to its subsidiaries. The management is in the process of filing necessary application with the Reserve Bank of India (''RBI'') for settlement of these balances by setting off aforesaid trade payables against trade receivables. Pending filing of application with RBI and requisite approval from RBI, no adjustments have been made in these financial statements.

Note - 7.

As at March 31, 2016, the Company has an investment of Rs.64, 738.68 Lakhs in its wholly owned subsidiary viz., Subex (UK) Limited. Considering the future operational plan, projected cash flows and the valuation carried out by an external valuer, the management is of the view that, the carrying value of its aforesaid investment in Subex (UK) Limited as at March 31, 2016 is appropriate.

Note - 8. RELATED PARTY INFORMATION

i) Related parties where control exists Wholly owned subsidiaries

Subex Americas Inc.

Subex (UK) Limited

Subex Technologies Limited

Subex Azure Holdings Inc.

Subex (Asia Pacific) Pte. Limited

Subex Inc.

Subex Technologies Inc.

Subex Middle East (FZE)

ii) Related parties under AS 18 and as per Companies Act, 2013.

Key management personnel

Surjeet Singh Managing Director and Chief Executive Officer

Ganesh KV Chief Financial Officer, Global Head- Legal and Company Secretary

Note - 9. LOANS AND ADVANCES GIVEN TO SUBSIDIARIES

Disclosure as per Regulation 34(3) and Regulation 53(f) read with Para A of Schedule V of the Securities and Exchange Board of Ir (Listing Obligations and Disclosure Requirements) Regulations, 2015 of the listing agreement with the Stock Exchanges

Note - 10.SEGMENT REPORTING

Since the Company prepares consolidated financial statements in addition to these financial statements, both of which form part of the annual report of the Company, as permitted by Accounting Standard 17 "Segment reporting", the segment information is presented on the basis of the consolidated financial statements.

i. Income tax

The Company has received assessment orders for the financial years ended March 31, 2002, March 31, 2003, March 31, 2004, March 31, 2005, March 31, 2006, March 31, 2007, March 31, 2009, March 31, 2010, March 31, 2011 and March 31, 2012, wherein certain adjustments were made to the taxable income in relation to various matters including adjustments in respect of transfer pricing under section 92CA of the Income Tax Act, 1961 and disallowances of certain expenditures. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the prices determined by it are at arm''s length, expenditures are deductible based on outcome of previous litigations, and is confident that the demands raised by the Assessing Officers are not tenable under the Income Tax Act, 1961. Pending outcome of the aforesaid matters under litigation, no provision has been made in the books of account towards these tax demands.

ii. Service tax

The Company has received demand order towards the service tax on import of certain services and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest during the period April 2006 to July 2009. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the service tax is not applicable on that import of services, and is confident that the demands raised by the Assessing Officers are not tenable under law. Pending outcome of the aforesaid matter under litigation, no provision has been made in the books of account towards these tax demands.

iii. Others

The Company has received certain claims from ex-directors of the Company for an amount of Rs.1, 293.44 Lakhs. The aforesaid claims are disputed by the Company and these matters are presently under arbitration with the tribunal. The management is of the view that these claims are not tenable. The Company has also claimed the excess managerial remuneration of Rs.123.80 Lakhs paid to the aforementioned ex-directors during the year ended March 31, 2013, in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956, which has been treated as monies due from the directors, being held by them in trust for the Company, and other advances paid to such ex-directors during the year 2012-13 amounting to Rs.110.00 Lakhs (March 31, 2015: Rs.110.00 Lakhs). The aggregate amount of Rs.233.80 Lakhs (March 31, 2015: Rs. 233.80 Lakhs) is included in ''Long-term loans and advances'' in the financial statements. Pending final outcome of the litigations, no provision has been made in the books of account in this regard.

iv. The Company does not have any other commitments as at balance sheet date except towards the operating lease as disclosed in note 34.

v. The Company has issued a comfort letter to provide continued financial support to its wholly owned subsidiary viz., Subex Americas Inc, to ensure that the entity is able to meet its debts, commitments and liabilities as they fall due and it continues as a going concern.

Note - 11. OPERATING LEASES

The Company is obligated under non-cancellable lease for office and residential space that are renewable on a periodic basis at the option of both the lessor and lessee. The total rental expenses under non-cancellable operating leases amounted to Rs. 449.02 Lakhs and H Nil for the year ended March 31, 2016 and March 31, 2015 respectively.

Future minimum lease payments under non-cancellable operating lease payable within one year from balance sheet date is Rs.723.59 Lakhs (March 31, 2015: Rs. Nil).

The Company leases office facilities, residential facilities and servers under cancellable operating lease agreements. The Company intends to renew such leases in the normal course of its business. Total rental expense under cancellable operating leases was Rs.705.89 Lakhs and Rs.1, 085.74 Lakhs for the year ended March 31, 2016 and March 31, 2015 respectively.

Note - 12 EMPLOYEES STOCK OPTION PLAN (ESOP)

The Company during the years 1999-2000, 2005-2006 and 2008-09 has established equity settled ESOP schemes i.e. ESOP II, ESOP III and ESOP IV respectively. As per these schemes, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The Company has obtained in-principle approval for listing of shares up to a limit as mentioned below.

ESOP II: 883,750 shares ESOP III: 2,000,000 shares ESOP IV: 2,000,000 shares

Note - 13. EMPLOYEE BENEFIT PLANS

a) Defined contribution plans

The Company makes contributions to Provident Fund, Employee State Insurance scheme contributions which are defined contribution plan for qualifying employees. Under the scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognized Rs. 261.42 Lakhs (March 31, 2015: Rs. 219.18 Lakhs) for Provident Fund contributions (excluding administration charges) and Rs. 0.08 Lakhs (March 31, 2015: Rs. 0.55 Lakhs) for Employee State Insurance scheme contribution in the Statement of profit and loss.

b) Defined benefit plans

The Company offers Gratuity benefits to employees, a defined benefit plan. Under 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.

Note - 14. EMPLOYEE BENEFIT PLANS

The following table’s summaries the components of net benefit expenses recognized in the statement of profit and loss and the funded status and amount recognized in the balance sheet.

Note - 15. UNHEDGED FOREIGN CURRENCY EXPOSURES

The Company does not have any outstanding forward foreign exchange contracts or other derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures as at the year end. The net foreign currency exposure that has not been hedged by derivative instruments or otherwise as at March 31, 2016 is Rs. 9,353.40 Lakhs (March 31, 2015: Rs. 46,608.80 Lakhs).

Note - 16. COSTS OF HARDWARE, SOFTWARE AND SUPPORT CHARGES:

(i) The Company purchases hardware and software to fulfill its obligations under contracts for sale of its products or rendering of its services. There was no inventory of such hardware/software at the beginning and end of the year.

(ii) Cost of hardware, software and support charges for the year ended March 31, 2016 is net of reversal of provision no longer required amounting to Rs.173.46 Lakhs ( March 31, 2015: Rs. Nil).

Note - 17

The Company has entered into ''International transactions'' with ''Associated Enterprises'' which are subject to Transfer Pricing regulations in India. The Company is in the process of carrying out transfer pricing study for the year ended March 31, 2016 in this regard, to comply with the requirements of the Income Tax Act, 1961. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm''s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financial statements, particularly on account of tax expense and that of provision for taxation.

Note - 18.

During the previous year, the Company has transferred the unclaimed dividend outstanding for a period more than 7 years of Rs. 1.31 Lakhs to Investor Education and Protection Fund.

Note - 19.

The figures of the previous year were audited by a firm of Chartered Accountants other than S.R. Batliboi & Associates LLP. Previous year figures have been regrouped/ reclassified, wherever necessary to conform to the current year''s classification.

Benefits Provided to Mr. Surjeet Singh:

a. Medical Reimbursement: Reimbursement of medical expenses incurred, including premium paid on health insurance policies, whether in India or aboard, for self and family as per the policy of the Company or as approved by the Board of Directors .

b. Insurance: Personal accident insurance and Keyman or other insurance as per the policy of the Company or as approved by the Board of Directors.

c. Taxes: All taxes, duties, levies, surcharge etc. shall be borne solely by him.

d. Expenses: Reimbursement of all reasonable travelling, entertainment and other similar out of pocket expenses necessarily and reasonably incurred by him wholly in the proper performance of his duties and responsibilities. He shall be entitled to travel business class on all Company related travel which involves travel of more than five hours at any time.


Mar 31, 2015

1. CORPORATE INFORMATION

Subex Limited, a public limited company incorporated in 1994, is a leading global provider of Operations and Business Support Systems (OSS/ BSS) to communication service providers (CSPs) worldwide in the Telecom industry.

The Company pioneered the concept of a Revenue Operations Center (ROC) - a centralized approach that sustains profitable growth and financial health for the CSPs through coordinated operational control. Subex''s product portfolio powers the ROC and its best-in-class solutions enable new service creation, operational transformation, subscriber-centric fulfilment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect / inter-party settlement. Subex also offers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational efficiency to deliver enhanced service experiences to their subscribers. The Company has a development center in India and sales offices in the form of wholly owned subsidiaries/ branches in UK, USA, Singapore, Australia, Dubai and Canada.

2. ACCOUNTING UNDER THE PROPOSAL APPROVED BY THE HON''BLE HIGH COURT

(a) During the year ended March 31, 2010, the shareholders of the Company approved the Board''s proposal (hereinafter referred to as ''the Proposal'' for transferring amounts from the Securities Premium and Capital Reserves as on or arising after April 1,2009) (upto March 31,2012) to a Business Restructuring Reserve (BRR) to be utilised from April 1,2009 for certain Permitted Utilisations as mentioned in the Proposal.

The Proposal was approved by the Hon''ble High court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11,2010, thereby completing all the requirements for the order to be effective.

3. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs)

a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (FCCB I) aggregating to US$ 180 Million, with an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being :

i) Exchange rate for conversion of FCCB : RS. 44.08/ US1$

ii) Conversion price : RS. 656.20 per share

iii) Redemption date : March 09, 2012

iv) Premium payable on redemption : US$ 14.05 Million.

v) Listing on the London Stock Exchange

The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009-10, the Company presented to restructure the FCCBs I by offering a discount of ~30% on the face value of the existing bonds in return for new FCCBs ("FCCBs II") having a face value of US$ 126 Million.

Pursuant to the offer, the FCCBs I Bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new FCCB II bonds, for the US$ 98.70 Million face value, were as under :

i) Interest rate : 5% p.a. payable semi annually

ii) Exchange rate for conversion of FCCB : RS. 48.17/ US1$

iii) Conversion price : RS. 80.31 per share

iv) Redemption date : March 09, 2012

Note - 26| FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS)

v) Premium payable on redemption : US$. 23.23 Million.

vi) Listing on the Singapore Exchange Securities Trading Limited

Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012.

Out of the US$ 98.70 Million of FCCBs II, bonds having a face value of US$ 31.90 Million were converted into equity shares as of March 31,2010 and bonds with a face value of US$ 12 Million were converted during the year ending March 31,2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds.

b) Pursuant to the approval of the holders of ”US$ 180 Million 2% convertible unsecured bonds",[of which US$ 39 Million was outstanding ("FCCBs I")] and "US$ 98.70 Million 5% convertible unsecured bonds", [of which US$ 54.80 Million was outstanding ("FCCBs II")], at their respective meetings held on July 5, 2012 and exchange offers received under the exchange offer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II offered their bonds for exchange and secured bonds with a face value of US$ 127.72 Million ("FCCBs III") were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring.

c) The terms and conditions of FCCB III are as under:

i) Interest rate : 5.70% p.a. payable semi annually

ii) Exchange rate for conversion of FCCB : RS. 56.06/ US1$

iii) Equity Conversion price : RS. 22.79 per share

iv) Redemption date : July 07, 2017

v) Listing on the Singapore Exchange Securities Trading Limited

vi) Second ranking paripassu charge in respect of all movable properties, present & future, covered under the Existing security and First ranking charge in respect of all movable properties, present & future, other than & to the extent covered by the existing security. First ranking charge on FCCB Repayment fund on a paripassu basis jointly & equally with SBI & Axis Bank Ltd. The promoters of the company have pledged their share towards securing the repayment of FCCB III.

vii) Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 07, 2012. During 2012-13, 2013-14 and 2014-15, FCCB III with a face value of US$ 3.25 Million, US$ Nil and US$ 6.62 Million, respectively, were converted into equity shares of the Company, retaining a closing balance of US$ 81.53 Million as at March 31,2015 (Previous Year : US$ 88.15 Million).

The Company has, during 2013-14 and 2014-15, received approvals from the FCCB holders for deferment of the semi-annual interest payments falling due on January 2013, July 2013, January 2014, July 2014 and January 2015 to be settled with the principal on the redemption date. These have accordingly been categorized as long-term liabilities.

d) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company''s US$ 180 Million convertible unsecured bonds and US$ 98.70 Million convertible unsecured bonds, the maturity period of the un-exchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, 2017, with its other terms and conditions remaining unchanged.

e) FCCB I : As at March 31,2015, the face value of the US$ 1 Million FCCBs (Previous Year US$ 1 Million) amounts to RS. 625.03 Lakhs (Previous Year: RS. 599.16 Lakhs) and is included in Note 5 - Long Term Borrowings.

The premium payable on maturity has been accrued by a charge to Securities Premium.

FCCB II :As at March 31, 2015, the face value of the US$ 1.40 Million FCCBs (Previous Year US$ 1.40 Million) amounts to RS. 875.05 Lakhs (Previous Year: RS. 838.87 Lakhs) and is included in Note 5 - Long Term Borrowings.

The premium payable on maturity has been accrued by a charge to Securities Premium.

FCCB III :As at March 31, 2015, the face value of the US$ 81.53 Million FCCBs (Previous Year US$ 88.15 Million) amounts to RS. 50,956.17 Lakhs (Previous Year: RS. 52,815.00 Lakhs) and is included in Note 5 - Long Term Borrowings. Subsequent to the year ended March 31, 2015, the company has received an intimation for conversion of FCCB''s III of US$ 5 Million, leaving an outstanding of FCCB III bonds of face value of US$ 76.53 Million.

f) The Board in its meeting on May 14, 2015 has approved the reset of conversion price of the FCCB III which are convertible into equity shares of the Company, from RS. 22.79 to RS. 13.00 per equity share. As a result of the reset of conversion price, subject to necessary approvals, the said bonds of face value of US$ 76.53 Million would potentially be converted into 329,988,530 shares at an exchange rate of RS. 56.05.

4. EMPLOYEES STOCK OPTION PLAN (ESOP)

The Company during the years 1999-2000, 2005-2006 and 2008-09 has established ESOP II, ESOP III and ESOP IV respectively.

These schemes have been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per these schemes, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The Company has obtained in-principle approval for listing of shares upto a limit as mentioned below.

ESOP II : 8,83,750 shares ESOP III : 20,00,000 shares ESOP IV : 20,00,000 shares

5. EMPLOYEES STOCK OPTION PLAN (ESOP)

Fair Value Methodology

The fair value of options used to compute pro-forma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model.

The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8% (Previous year 8%), expected life: 3 years (Previous year: 3 years), expected volatility of share: 54.49% (Previous year 54.49%), and expected dividend yield: 0% (Previous year 0%) The variables detailed herein represent the average of the assumptions during the pendency of the grant dates.

The Company adopted the amendments to Accounting Standard 11 "The Effects of Changes in Foreign Exchange Rates" that were notified during the year ended March 31, 2012. Pursuant to this amendment, exchange fluctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates different from those at which they were initially recorded or reported in the previous financial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Difference account and are amortised over the balance period of such long term asset/liability. Consequently, exchange fluctuation losses (net) arising on restatement of such items have been deferred to the extent of RS. 5,111.21 Lakhs (Previous Year RS. 5,801.74 Lakhs) at March 31,2015.

6. EMPLOYEE BENEFIT PLANS

a) Defined Contribution Plans

The Company makes contributions to Provident Fund, Employee State Insurance scheme contributions which are defined contribution plan for qualifying employees. Under the Scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognized RS. 219.18 Lakhs (Year ended 31 March, 2014 RS. 203.99 Lakhs) for Provident Fund contributions (excluding administration charges) and RS. 0.55 Lakhs (Year ended 31 March 2014 RS. 1.89 Lakhs) for Employee state insurance scheme contribution in the Statement of Profit and Loss.

* The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors, benefit obligation such as supply and demand in the employment market.

* The mortality rate is based on the table as specified by the Indian Assured Lives Mortality (2006-08) (modified) Ult.

Since the Company prepares consolidated financial statements in addition to these financial statements, both of which form part of the annual report of the Company, as permitted by Accounting Standard 17 "Segment reporting", the segment information is presented on the basis of the consolidated financial statements.

7. RELATED PARTY INFORMATION

i) Related Parties

Wholly Owned Subsidiaries

Subex Americas Inc.

Subex (UK) Ltd

Subex Technologies Ltd

Subex Azure Holdings Inc.

Subex (Asia Pacific) Pte Ltd

Subex Inc.

Subex Technologies Inc.

Key Management Personnel

Surjeet Singh, Managing Director & CEO

8. OPERATING LEASES

The Company has entered into lease agreement for certain properties and servers/computers which are cancellable at the option of the Company. The total rent charged to the Statement of Profit and Loss for the year towards such leases amount to RS. 1085.74 Lakhs (Previous year - RS. 1,081.32 Lakhs)

9. DEFERRED TAX

The Company has a net deferred tax asset as at March 31,2015 significantly arising from brought forward unabsorbed depreciation and tax losses, which has not been recognized as a matter of prudence in the absence of virtual certainty.

10. OTHERS

1 During the year, the Company has transferred RS. 1.31 Lakhs (Previous Year - RS. 1.60 Lakhs) to Investor Education and Protection Fund. Unclaimed dividend of RS. Nil as at March 31, 2015 (Previous Year - RS.1.31 Lakhs) represent dividends not claimed for the financial year NIL (Previous Year : for 2006-2007).

2 The Company has during the year revised certain estimatess on useful life of the assets based on the assesment carried out on account of the application of Schedule II of the Companies Act, 2013. This has resulted in the depreciation charge and the loss for the year to be higher by RS. 51.32 Lakhs. The Company has in accordance with the transitional provisions available, adjusted RS. 9.46 Lakhs to retained earnings representing the value of assets whose life was Nil as of April 01,2014.

3 Research and Development cost for the year includes expenditure of RS. 1,414.96 Lakhs (Previous year - RS. 1,366.10 Lakhs). This is as certified by the management and relied upon by the auditors.

4 The Company does not have any outstanding foreign exchange forward contracts or other derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures as at the year end.

5 The Company has RS. International transactions'' with ''Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm''s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financial statements, particularly on account of tax expense and that of provision for taxation.

6 In view of the losses incurred by the Company during the year ended March 31, 2013, the excess of the managerial remuneration paid to the directors during the FY 2012-13 over the limits prescribed under Schedule XIII of the Companies Act, 1956 has been treated as monies due from the directors, being held by them in trust for the Company, and is included under ''Short-term loans and advances'' amounting to RS. 123.80 Lakhs (Previous year RS.123.80 Lakhs). Other advances to directors paid during FY 2012-13 is RS. 110 Lakhs (Previous Year RS. 110 Lakhs)

The Company has taken necessary steps for recovery of the above amounts and these items along with other claims are a subject matter of arbitration which is in progress.

9 In the opinion of the management, considering the future operational plans and cash flows of its subsidiary, viz. Subex Americas Inc., the net outstanding being trade receivables of '' 13,046.76 Lakhs (Previous Year : RS. 14,521.33 lakhs) and of RS. 4,345.54 Lakhs (Previous Year : RS. 5,411.57 Lakhs) under Note 14 "Other Non-current Assets" and Note 15 "Trade Receivables", respectively, and loans and advances of RS. 1,844.20 Lakhs (Previous Year RS. 1,838.22 Lakhs) under Note 13 "Long-term Loans and Advances", are considered good and recoverable.

Further, based on the management''s assessment, there is no diminution, other than temporary, in the carrying value of its investment in the said subsidiary of RS. 12,495.74 Lakhs included in Note 12 "Non-Current Investments" and accordingly, no provision is required to be made at this stage.

Schedule III of the Companies Act, 2013 has become effective from April 1,2014 for the preparation of financial statements. Previous year''s figures have been regrouped / reclassified to be comparable with current year''s classification / disclosures.


Mar 31, 2013

1. CORPORATE INFORMATION

Subex Limited, a public limited Company incorporated in 1994, is a leading global provider of Operations and Business Support Systems (OSS/BSS) to Communication Service Providers (CSPs) worldwide in the Telecom industry.

The Company pioneered the concept of a Revenue Operations Center (ROC) - a centralized approach that sustains profitable growth and financial health for the CSPs through coordinated operational control. Subex'' s product portfolio powers the ROC and its best-in-class solutions enable new service creation, operational transformation, subscriber-centric fulfillment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/inter-party settlement. Subex also offers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational efficiency to deliver enhanced service experiences to their subscribers. The Company has a development center in India and sales offices in the form of wholly owned subsidiaries/ branches in UK, USA, Singapore, Australia, Dubai and Canada.

NOTE 2 Accounting under the Proposal approved by the Hon''ble High court

a) During the year ended March 31, 2010, the shareholders of the Company approved the Board''s proposal (hereinafter referred to as ‘the Proposal'' for transferring amounts from the Securities Premium and Capital Reserves as on or arising after April 1, 2009) (upto March 31, 2012) to a Business Restructuring Reserve (BRR) to be utilised from April 1, 2009 for certain Permitted Utilisations as mentioned in the Proposal.

The Proposal was approved by the Hon''ble High court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective.

b) Adjustments in the BRR during the previous year ended March 31, 2011

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2011: transfer of 717,400.00 Lakhs during the year from the balances in Securities Premium Account and Capital Reserve to the BRR utilization of the BRR for permitted utilisations to the extent of 715,503.70 Lakhs (net).

c) Adjustments in the BRR during the previous year ended March 31, 2012

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2012: transfer of 7346.69 Lakhs during the year from the balances in Capital Reserve to the BRR utilization of the BRR for permitted utilisations to the extent of 7 2,574.93 Lakhs (net of reversals).

d) Adjustments in the BRR during the current year ended March 31, 2013

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2013: transfer of 7271.10 Lakhs during the year to Securities Premium, towards FCCB restructuring expenses 7359.58 Lakhs, towards reversal of unbilled revenue 7 206.00 Lakhs, towards provision for Receivables 7 752.90 Lakhs.

NOTE 3 Foreign Currency Convertible Bonds

a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (FCCB I) aggregating to US$ 180 Million, with an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being :

i) Exchange rate for conversion of FCCB :744.08/ US$ 1

ii) Conversion price :Rs. 656.20 per share

iii) Redemption date : March 09, 2012

iv) Premium payable on redemption : US$ 14.05 Million

v) Listing on the London Stock Exchange

The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009-10, the Company presented to restructure the FCCBs I by offering a discount of ~30% on the face value of the existing bonds in return for new FCCBs ("FCCBs II") having a face value of US$ 126 Million.

Pursuant to the offer, the FCCBs I Bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new

FCCB II bonds, f or the US$ 98.70 Million face value, were as under :

i. Interest rate : 5% p.a. payable semi annually

ii. Exchange rate for conversion of FCCB : 748.17/ US$ 1

iii. Conversion price : 7 80.31 per share

iv. Redemption date : March 09, 2012

v. Premium payable on redemption : US$. 23.23 Million

vi. Listing on the Singapore Exchange Securities Trading Limited

Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012.

Out of the US$ 98.70 million of FCCBs II, bonds having a face value of US$ 31.90 million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 million were converted during the year ending March 31, 2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds.

b) Pursuant to the approval of the holders of "US$ 180 Million 2% convertible unsecured bonds", [of which US$ 39 Million was outstanding ("FCCBs I")] and "US$ 98.70 Million 5% convertible unsecured bonds", [of which US$ 54.80 was outstanding ("FCCBs II")], at their respective meetings held on July 5, 2012 and exchange offers received under the exchange offer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II offered their bonds for exchange and secured bonds with a face value of US$ 127.72 million ("FCCBs III") were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring.

c) The terms and conditions of FCCB III are as under:

i. Interest rate : 5.70% p.a. payable semi annually

ii. Exchange rate for conversion of FCCB : 7 56.06/ US$ 1

iii. Equity Conversion price : 722.79 per share

iv. Redemption date : July 07, 2017

v. Listing on the Singapore Exchange Securities Trading Limited

vi. Second ranking paripassu charge in respect of all movable properties, present & future, covered under the Existing security and

First ranking charge in respect of all movable properties, present & future, other than & to the extent covered by the existing security First ranking charge on FCCB Repayment fund on a paripassu basis jointly & equally with SBI & Axis Bank Ltd. The promoters of the

Company have pledged their share towards securing the repayment of FCCB III.

vii. Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 17, 2012.

During the year FCCB III with face value of US$ 3.25 Million were converted into equity shares of the Company retaining a closing balance of US$ 88.15 Million.

d) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company''s US$ 180 million convertible unsecured bonds and US$ 98.70 million convertible unsecured bonds the maturity period of the un- exchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, 2017, with its other terms and conditions remaining unchanged.

e) FCCB I : As at March 31, 2013, the face value of the US$ 1 Million FCCBs (Previous Year: US$ 39 Million) amounts to 7 542.81 Lakhs (Previous Year: 719,841.27 Lakhs) and is included in Note 5 - Long Term Borrowings.

The premium payable on maturity has been accrued by a charge to Securities Premium.

FCCB II : As at March 31, 2013, the face value of the US$ 1.40 Million FCCBs (Previous Year: US$ 54.80 Million) amounts to 7 759.99 Lakhs (Previous Year: 727,879.48 Lakhs) and is included in Note 5 - Long Term Borrowings.

The premium payable on maturity has been accrued by a charge to Securities Premium.

FCCB III : As at March 31, 2013, the face value of the US$ 88.15 Million FCCBs (Previous Year: US$ Nil) amounts to 7 47,852.27 Lakhs (Previous Year: 7 Nil) and is included in Note 5 - Long Term Borrowings.

NOTE 4 Employees Stock Option Plan (ESOP)

The Company during the years 1999-2000, 2005-2006 and 2008-2009 has established ESOP II, ESOP III and ESOP IV respectively.

These schemes have been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per these schemes, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The Company has obtained in-principle approval for listing of shares upto a limit as mentioned below.

ESOP II : 8,83,750 shares

ESOP III : 20,00,000 shares ESOP IV : 20,00,000 shares

NOTE

The Company adopted the amendments to Accounting Standard 11 "The Effects of Changes in Foreign Exchange Rates" that were notified during the year ended March 31, 2012. Pursuant to this amendment, exchange fluctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates different from those at which they were initially recorded or reported in the previous financial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Difference account and are amortised over the balance period of such long term asset/liability. Consequently, exchange fluctuation losses (net) arising on restatement of such items have been deferred to the extent of 7 2,765.65 Lakhs (Previous Year: 7 357.00 Lakhs) at March 31, 2013 and the loss for the year is lower by a corresponding amount.

NOTE 5 Employees Benefit''s Plans

a) Defined Contribution Plans

The Company makes contributions to Provident Fund, Employee State Insurance scheme contributions which are defined contribution plan for qualifying employees. Under the Scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognizedRs.229.59 Lakhs (Year ended March 31, 2012 Rs.307.51 Lakhs) for Provident Fund contributions 7 2.04 Lakhs (Year ended March 31, 2012 7 2.09 Lakhs) for Employee state insurance scheme contribution in the Statement of Profit and Loss.

b) Defined Benefit Plans

The Company offers Gratuity benefits to employees, a defined benefit plan. The following table sets out the funded status of Gratuity

liability and the amounts recognised in the financial statements:

¦ The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations.

¦ The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors

NOTE 6

Since the Company prepares consolidated financial statements in addition to these financial statements, both of which form part of the annual report of the Company, as permitted by Accounting Standard 17 "Segment reporting", the segment information is presented on the basis of the consolidated financial statements.

NOTE 7 Related Party Information

i. Related Parties

Wholly Owned Subsidiaries

Subex Americas Inc.

Subex (UK) Ltd

Subex Technologies Ltd

Subex Azure Holdings Inc.

Subex (Asia Pacific) Pte Ltd

Subex Inc.

Subex Technologies Inc.

Key Management Personnel

Surjeet Singh, Managing Director & CEO, October 5, 2012 onwards

Subash Menon, Managing Director & CEO upto September 27, 2012

Sudeesh Yezhuvath, Wholetime Director & Chief Operating Officer upto October 5, 2012

NOTE 8 Operating Leases

The Company had non-cancellable leasing arrangement for its office premises which on renewal during the year got converted into cancellable operating lease arrangement. Rental expenses for operating leases included in the Statement of Profit and Loss for the year is 7 940.95 Lakhs (Previous year: 7 906.12 Lakhs)

NOTE 8 Commitments and Contingent Liabilities

(a) Receivables factored: Current Year -Nil (Previous Year: 72,661.10 Lakhs).

(b) Claims against the Company not acknowledged as debt:

I. Current Year - 715.97 Lakhs (Previous Year: 715.97 Lakhs). These claims relate to Indian Income Tax demands which are being contested by the Company.

II. Others : Current year - 7 956.84 Lakhs (Previous Year: Nil)

(c) Guarantees given to Subex Technologies Inc 7 2,171.40 Lakhs (Previous year: 7 2,171.40 Lakhs)

(d) The Company has received a demand of service tax of 7 3,607.60 Lakhs and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest, for the period from April, 2006 to July, 2009 towards service tax payable on import of certain services. The Company has filed an appeal contesting the demand before the Central Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore. The Company has also obtained a stay against the said demand on March 27, 2013. In view of the Company, the demand is not sustainable. Further, the Company contends that in the event of the demand being upheld by the Appellate Authority, the Company is eligible to avail the service tax as input credit upon payment of the tax, excluding penalty and interest, if any.

NOTE 9 Others

1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Nil (Previous year -Rs. 17.31 Lakhs)

2. Unclaimed dividend of 7 2.92 Lakhs as at March 31, 2013 (Previous Year - 7 4.08 Lakhs) represent dividends not claimed for the period from 2005-2006. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the Investor Education and Protection Fund''. During the current year, the Company has transferredRs.0.59 Lakhs (Previous Year -71.80 Lakhs) to Investor Protection Fund.

3. Direct Taxes paid and others in the Cash Flow Statement comprises outflows on account of permitted utilizations from the BRR of 7 359.58 Lakhs (Previous Year -7120.50 Lakhs) and Direct Taxes Nil. (Previous Year - 7 391.70 Lakhs).

4. Personnel Cost for the year includes expenditure on Research and Development of 7 1,108.71 Lakhs (Previous year - 7 1,295.12 Lakhs). This is as certified by the management and relied upon by the auditors.

5. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures.

NOTE 10

Previous year''s figures have been regrouped/reclassified wherever necessary to correspond with the current year''s classification/ disclosures.


Mar 31, 2012

1. CORPORATE INFORMATION

Subex Limited, a public limited company incorporated in 1994, is a leading global provider of Operations and Business Support Systems (OSS/BSS) to Communication Service Providers (CSPs) worldwide in the Telecom industry.

The Company pioneered the concept of a Revenue Operations Center (ROC) – a centralized approach that sustains Profitable growth and financial health for the CSPs through coordinated operational control. Subex's product portfolio powers the ROC and its best-in- class solutions enable new service creation, operational transformation, subscriber-centric fulfillment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/ inter-party settlement. Subex also offers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational efficiency to deliver enhanced service experiences to their subscribers. The Company has a development center in India and sales offices in the form of wholly owned subsidiaries/ branches in UK, USA, Singapore, Australia, Dubai and Canada.

2. Accounting Under the Proposal Approved by the Hon'ble High Court

a) During the year ending March 31, 2010, the shareholders of the Company approved the Board's proposal (hereinafter referred to as 'the Proposal') for transferring amounts from the Securities Premium and Capital Reserves as on or arising after April 1, 2009 (upto March 31, 2012) to a Business Restructuring Reserve (BRR) to be utilised from April 1, 2009 for certain Permitted Utilisations as mentioned in the Proposal.

The Proposal was approved by the Hon'ble High court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective.

b) Adjustments in the BRR during the previous year ended March 31, 2011

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2011:

- transfer of Rs. 1,740 million during the year from the balances in Securities Premium Account and Capital Reserve to the BRR

- utilization of the BRR for permitted utilisations to the extent of Rs. 1,550.37 million (net)

c) Adjustments in the BRR during the current year ended March 31, 2012

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2012:

- transfer of Rs. 34.67 million during the year from the balances in Capital Reserve to the BRR

- utilization of the BRR for permitted utilisations to the extent of Rs. 257.49 million (Net).

3. A. Foreign Currency Convertible Bonds (FCCBs)

During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (the Old FCCBs) aggregating to US$ 180 million. During the year 2009-10, the Company restructured the Old FCCBs by offering in exchange new FCCBs having a face value of US$ 126 million. Pursuant to the offer, Old FCCBs with a face value of US$ 141 million were exchanged for new FCCBs with a face value of US$ 98.7 million. The remaining bondholders holding Old FCCBs with a face value of US$ 39 million (out of the original bondholders holding US$ 180 million) did not choose the option for restructuring. The bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, these bonds are now redeemable on July 9, 2012.

As at March 31, 2012, the face value of the US$ 39 million FCCBs amounts toRs. 1,984.13 million (Previous Year: 1,739.21 million) and is included in Note 8 - Other Current Liabilities as Current Maturities of Long-term borrowings-FCCBs (Unsecured).

The other terms and conditions governing the US$ 39 million Old FCCBs outstanding are as follows:

a) Conversion Price - Rs. 656.20 per share

b) Exchange Rate for purpose of conversion - 1 US$ = Rs. 44.08

c) Interest of 2% per annum payable semi-annually in arrears

d) Premium payable on maturity US$ 14.05 million

e) Listing on the London Stock Exchange

The premium payable on maturity is being accrued prorata by a charge to Securities Premium/BRR over the term of the FCCBs.

B. New Foreign Currency Convertible Bonds (New FCCBs)

During the financial year 2009-10, in terms of the Company's offer to exchange and restructure its outstanding Old FCCBs, the Company received Old FCCBs with a face value of US$ 141 million for issue of New FCCBs with a face value of US$ 98.7 million. The bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, these bonds are now redeemable on July 9, 2012.

Other terms and conditions governing the new FCCBs are as follows:

a) Conversion Price -Rs. 80.31 per share

b) Exchange Rate for purpose of conversion - 1 US$ = Rs. 48.17

c) Compensating the bond holders for the reduction in principal amount by providing an increased interest element in the New FCCBs of 5% per annum payable semi-annually in arrears

d) Premium payable on maturity - US$ 23.23 million.

e) Listing on the Singapore Exchange Securities Trading Limited

Out of the US$ 98.7 million new FCCBs, bonds having a face value of US$ 31.9 million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 million were converted during the year ending March 31, 2011. Consequently new FCCBs outstanding at March 31, 2012 amount to US$ 54.8 million (Rs. 2,787.95 million), (Previous Year: Rs. 2,443.80 million) and are included in other current liabilities under Note 8 - Other Current Liabilities as Current Maturities of Long-term borrowings-FCCBs (Unsecured).

The premium payable on maturity is being accrued prorata by a charge to Securities Premium/BRR over the term of the FCCBs.

4. Employees Stock Option Plan (ESOP)

The Company during the years 1999-2000, 2005-2006 and 2008-09 has established ESOP II, ESOP III and ESOP IV respectively.

These schemes have been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per these schemes, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The Company has obtained in-principle approval for listing of shares upto a limit as mentioned below.

ESOP II : 883,750 shares ESOP III : 2,000,000 shares ESOP IV : 2,000,000 shares

Fair Value Methodology

The fair value of options used to compute pro-forma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model.

The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8%, expected life: 3 years, expected volatility of share: 33.73% (Previous Year: 48.39%) and expected dividend yield: 0% (Previous Year: 0%).The variables detailed herein represent the average of the assumptions during the pendency of the grant dates.

5. The Company adopted the amendments to Accounting Standard 11 "The effects of Changes in Foreign Exchange Rates" that were notified during the year ended March 31, 2012. Pursuant to this amendment, exchange fluctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates different from those at which they were initially recorded or reported in the previous financial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Diference account and are amortised over the balance period of such long term asset/liability. Consequently, exchange fluctuation losses (Net) arising on restatement of such items have been deferred to the extent of Rs. 35.7 million at March 31, 2012 and the Profit for the year is higher by a corresponding amount.

6. Employee benefit Plans

a) defined Contribution Plans

The Company makes contributions to Provident Fund, a defined contribution plan for qualifying employees. Under the Scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognised Rs. 30.96 million (Year ended March 31, 2011 Rs. 29.18 million) for Provident Fund contributions in the Statement of Profit and Loss.

7. Since the Company prepares consolidated financial statements in addition to these financial statements, both of which form part of the annual report of the Company, as permitted by Accounting Standard 17 "Segment reporting", the segment information is presented on the basis of the consolidated financial statements.

8. Related Party Information i) Related Parties

Wholly Owned Subsidiaries

Subex Americas Inc.

Subex (UK) Limited

Subex Technologies Limited

Subex Azure Holdings Inc.

Subex (Asia Pacifc) Pte. Ltd

Subex Inc.

Subex Technologies Inc.

Key Management Personnel

Subash Menon, Founder Chairman, Managing Director & CEO Sudeesh Yezhuvath, Chief Operating officer & Wholetime Director

Note – Related parties are as identified by the Company based on information available and relied upon by auditors.

9. Operating Leases

The Company has entered into operating lease arrangements for its office facilities. These leases are for periods ranging from 1 to 5 years with an option to the Company for renewing at the end of the initial term. Rental expenses for operating leases included in the Statement of Profit and Loss for the year isRs. 90.61 million (Previous year -Rs. 88.49 million).

10. Contingent Liabilities

(a) Receivables factored: Current Year -Rs. 266.11 million (Previous year -Rs. 368.01 million).

(b) Claims against the Company not acknowledged as debt: Current Year -Rs. 1.59 million (Previous year -Rs. 64.52 million). These claims relate to Indian Income Tax demands which are being contested by the Company.

11. Others

1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs. 1.73 million (Previous year -Rs. 3.41 million)

2. Unclaimed dividend of Rs. 0.41 million as at March 31, 2012 (Previous Year -Rs. 0.59 million) represent dividends not claimed for the period from 2004-2007. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the 'Investor Education and Protection Fund'. During the current year, the Company has transferred Rs. 0.18 million (Previous Year -Rs. 0.05 million) to Investor Protection Fund.

3. Direct Taxes paid and others in the Cash Flow Statement comprisesoutflows on account of permitted utilisations from the BRR of Rs. 12.05 million (Previous Year -Rs. 20.91 million) and Direct Taxes ofRs. 39.17million. (Previous Year -Rs. 36.10 million).

4. Personnel Cost for the year includes expenditure on Research and Development of Rs. 129.51 million (Previous year - Rs. 107.42 million). This is as certified by the management and relied upon by the auditors.

5. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures.

6. The dues to Micro and Small enterprises as defined in The Micro, Small & Medium Enterprises Development Act, 2006, are identified by the Company based on inquiries with the parties and information available with the Company is Rs. Nil (Previous Year : Nil). This has been relied upon by the auditors.

7. Revenue is net of Rs. Nil (Previous Year:Rs. 20.62 million) being reversal of Unbilled Revenues.

8. The Company purchases hardware and software to fulfill its obligations under contracts for sale of its Products. There were no inventory of such hardware/software at the beginning and end of the year.

9. The Company has 'International transactions' with 'Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm's length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financial statements, particularly on account of tax expense and that of provision for taxation.

10. Remuneration to wholetime directors relating to earlier years which were subject to approval of Central Government as at March 31, 2010 aggregated to Rs. 56.26 million. During the year ended March 31, 2011, the Company received the approval for a portion of the above and accordingly, an amount of Rs. 33.27 million was charged to the Statement of Profit and Loss for the year ended March 31, 2011 and the balance was recovered from the wholetime directors by March 31, 2011.

11. The Company has been legally advised that exchange differences arising out of the restatement/settlement of FCCBs, is of a capital nature as contemplated under Section 349(5)(d) of the Companies Act, 1956 and not be deducted from the Profits of the Company in determining the remuneration and commission payable to directors. Accordingly, exchange losses of Rs. 553.36 million (Previous year - exchange gain of Rs. 2.98 million) have been adjusted in determining the net Profits of the Company under Section 349 of the Companies Act.

12. The Revised Schedule VI has become effective from 1 April, 2011 for the preparation of financial statements. This has significantly impacted the disclosure and presentation made in the financial statements. Previous year's fgures have been regrouped/reclassified wherever necessary to correspond with the current year's classifcation/disclosures.


Mar 31, 2011

I.1. Accounting Under the Proposal Approved by the Honble High court

During the year ending March 31, 2010, the shareholders of the Company approved the Boards proposal (hereinafter referred to as the Proposal) for transferring amounts from the Securities Premium and Capital reserves as on or arising after April 1, 2009 (upto March 31, 2012) to a Business Restructuring Reserve (BRR) to be utilized from April 1, 2009 for certain Permitted Utilisations as mentioned in the Proposal.

The Proposal was approved by the Honble High court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective.

Adjustments in the BRR in the previous year ended March 31, 2010

In accordance with the Proposal, the Board of Directors of the Company had thus approved the following for financial year ended March 31, 2010

transfer of amounts standing to the credit of Securities premium and Capital reserve (including the Profit of Rs. 1,583.49 Million arising out of reduction in liability to the Foreign currency convertible bond holders pursuant to the Restructuring of the US$ 180 Million Foreign currency convertible bonds. Refer Note II.3.A below) to the extent of Rs. 6,700 Million to the BRR.

utilization of the BRR for certain Permitted utilisations for the amounts aggregating to Rs. 6,499.79 Million.

Adjustments in the BRR during the current year ended March 31, 2011

In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2011 transfer of Rs. 1,740 Million during the year from the balances in Securities Premium Account and Capital Reserve to the BRR.

Utilization of the BRR for permitted utilisations to the extent of Rs. 1,550.37 Million (net).

Had the Proposal not provided for the above, the effect of accounting under the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 would have been as under:

Out of the balance outstanding in the Business Restructuring Reserve as at March 31, 2011, an amount of Rs. 280 Million is reserved for adjustment in Consolidation.

11.2. Contingent Liabilities

Receivables factored: Current Year - Rs. 368.01 Million (Previous year - Rs. 286.65 Million)

Claims against the Company not acknowledged as debt: Current Year – Rs. 64.52 Million (Previous year - Rs. 69.06 Million). These claims relate to Indian Income Tax demands which are being contested by the Company.

The Company has provided Corporate Guarantees to Banks for credit facilities availed by its wholly owned subsidiaries to the amount of Rs. Nil (Previous Year - Rs. 500 Million) at the year end. These facilities were utilized to the extent of Rs. Nil (Previous Year - Rs. 155.26 Million) by the subsidiaries.

11.3. A. Foreign Currency Convertible Bonds (FCCBs)

During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (the Old FCCBs) aggregating to US$ 180 Million. The bonds carry an initial interest rate of 2% per annum and are redeemable by March 9, 2012, if not converted into equity shares as per terms of issue.

During the year 2009-10, the Company restructured the Old FCCBs by offering in exchange new FCCBs having a face value of US$ 126 Million. Pursuant to the offer, Old FCCBs with a face value of US$ 141 Million were exchanged for new FCCBs with a face value of US$ 98.7 Million. The remaining bondholders holding US$ 39 Million worth of Old FCCBs (out of the original bondholders holding US$ 180 Million) didnt chose the option for restructuring and are thus outstanding at March 31, 2011 (were outstanding at March 31, 2010 also). Liability in respect of the US$ 39 Million FCCBs at March 31, 2011 amounts to Rs. 1,739.21 Million (Previous Year: 1,751.10 Million) (included in Long Term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds).

The terms and conditions governing the US$ 39 Million FCCBs outstanding are as follows:

a) Conversion of the bonds into equity shares at the option of

the bond holders at any time after April 18, 2007

b) Conversion Price – Rs.656.20 per share

c) Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08

d) Interest of 2% per annum payable semi-annually in arrears

e) Redemption with yield to maturity guaranteed return of 8% per annum, calculated on semi-annual basis

f) The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document.

g) Listing on the Professional Securities Market of London Stock Exchange

h) Redeemable on March 9, 2012, if not converted into Equity shares earlier.

The difference between the yield to maturity guaranteed rate of return of 8% and the coupon rate of 2% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds.

B. New Foreign Currency Convertible Bonds (New FCCBs)

During the financial year 2009-10, in terms of the Companys offer to exchange and restructure its outstanding Old FCCBs, the Company received Old FCCBs with a face value of US$ 141

Million for issue of New FCCBs with a face value of US$ 98.7 Million. The new bonds carry an initial interest rate of 5% per annum and are redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue.

Other terms and conditions governing the new FCCBs are as follows:

a) Conversion of the bonds into equity shares at the option of the bond holders at any time after November 2, 2009

b) Conversion Price - Rs.80.31per share

c) Exchange Rate for purpose of conversion - 1 US$ = Rs.48.17

d) Compensating the bond holders for the reduction in principal amount by providing an increased interest element in the New FCCBs of 5% per annum payable semi-annually in arrears.

e) Redemption with yield to maturity guaranteed return of 20% per annum, calculated on semi-annual basis

f) The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document.

g) Listing on the Singapore Exchange Securities Trading Limited.

h) Redeemable on March 9, 2012, if not converted into Equity shares earlier.

The difference between the yield to maturity guaranteed rate of return of 20% and the coupon rate of 5% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds.

Out of the US$ 98.7 Million new FCCBs, bonds having a face value of US$ 31.9 Million were converted into equity shares as of March 31, 2010 and bonds with a face value of USD 12 Million were converted during the year ending March 31, 2011. Consequently new FCCBs outstanding at March 31, 2011 amount to US$ 54.8 Million (Rs. 2,443.80 Million) (Previous Year: 2,999.32 Million) and is included in Long Term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds.

II.4. Operating Leases

The Company has entered into operating lease arrangements for its office facilities. These leases are for periods ranging from 1 to 5 years with an option to the Company for renewing at the end of the initial term. Rental expenses for operating leases included in the Profit and Loss account for the year is Rs. 88.49 Million (Previous year - Rs. 95.34 Million)

The lease agreement for the above non-cancellable lease provides for escalation of rentals at the end of 3 years of the lease, which has been factored in the future minimum rentals disclosed above.

II.5. Employees Stock Option Plan (ESOP)

ESOP - II

During 1999-2000, the Company established the Employee Stock Option Scheme 2000 ("ESOP 2000") under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing upto a maximum of 883,750 shares to be allotted pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each and carries an entitlement of bonus shares if and when declared. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs. 0.03 Million (Previous Year: Rs. 2.12 Million) to the Profit & Loss Account during the year.

ESOP - III

During 2005-2006, the Company established the Employee Stock Option Scheme 2005 ("ESOP 2005") under which 500,000 options have been allocated for grant to the employees. Subsequently, during the year 2006-2007, the number of options allocated for grant to the employees was increased to 2,000,000 options. The Company has obtained in-principle approval for listing upto a maximum of 2,000,000 shares pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs. 2.43 Million (Previous Year: credit of Rs. 8.24 Million) to the Profit & Loss Account during the year.

ESOP - IV

During 2008-2009, the Company established the Employee Stock Option Scheme 2008 ("ESOP 2008") under which 2,000,000 options have been allocated for grant to the employees. The Company has obtained in-principle approval for listing upto a maximum of 2,000,000 shares pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock

Exchange where the traded volume is the highest for the 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years can be exercised over a maximum period of 3 years from the date of vesting.

The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs. 3.75 Million (Previous Year : Rs. 0.54 Million) to the Profit & Loss Account during the year.

Method Used for Accounting for Share Based Payment Plan:

The Company has used intrinsic value method to account for the compensation cost of stock option to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option.

Fair Value Methodology

The fair value of options used to compute proforma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model.

The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8%, expected life: 3 years,

expected volatility of share: 48.39% (Previous Year: 34.267%) and expected dividend yield: 0% (Previous Year: 0.71%). The variables detailed herein represent the average of the assumptions during the pendency of the grant dates.

The impact on the EPS of the Company if fair value method is adopted is given below:

II.13. Others

1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs. 3.41 Million (Previous year - Rs 6.05 Million)

2. Unclaimed Dividend of Rs. 0.59 Million as at March 31, 2011 (Previous Year - Rs. 0.64 Million) represent dividends not claimed for earlier years. During the current year, the Company has transferred Rs. 0.05 Million (Previous Year Rs. 0.10 Million) to Investor Education and Protection Fund. As on March 31, 2011, no portion of the unclaimed dividends are outstanding for a period of seven years from the due date of payment, requiring a transfer to Investor Education and Protection Fund.

3. Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs. 0.59 Million (Previous Year - Rs. 0.64 Million), Fixed Deposit of Rs. 5.97 Million (Previous Year - Rs. 25.97 Million) which are not available for use by the Company. The breakup of Cash and Cash Equivalents are given in Schedule I of financial statements.

Direct Taxes paid and Others in the Cash Flow Statement includes outflows on account of permitted utilisations from the BRR of Rs. 20.91 Million (Previous Year - Rs. 43.56 Million) and Direct Taxes of Rs. 36.10 Million (Previous Year - Rs. 44.14 Million).

4. Other Provisions comprises of -

Provision for Redemption - Rs. 1,140.35 Million

Premium on FCCBs (Previous Year Rs. 612.71 Million)

Provision for Other Long - Rs. 79.20 Million

Term Employee Benefits (Previous Year: Rs. 628.60 Million)

Differential Interest on - Rs. 80.79 Million

Restructured FCCBs (Previous Year: Rs. 203.06 Million)

MTM Losses on Option - Rs. Nil

Contracts (Previous Year: Rs. 0.95 Million)

5. Personnel Cost for the year includes expenditure on Research and Development of Rs. 107.42 Million (Previous year - Rs. 85.14 Million). This is as certified by the management and relied upon by the auditors.

6. A director of the Company has provided a personal guarantee in respect of short term loans from Banks/ Financial Institutions included in Schedule D and Schedule E of the financial statements. Further, portion of promoters shares have also been pledged towards portion of these loans.

7. As per the guidelines on accounting for Derivatives issued by the Institute of Chartered Accountants of India, the Company has provided for Mark to Market losses of Rs. Nil (Previous Year - Rs. 0.95 Million) on outstanding option contracts.

8. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures.

The composition of the plan assets held under the funds managed by the Insurer is not provided, since the information is not available.

Payments to Provident fund, a defined contribution plan Rs. 29.18 Million (Previous Year Rs. 26.15 Million)

10. The dues to Micro and Small enterprises as defined in The Micro, Small & Medium Enterprises Development Act, 2006, are identified by the Company based on inquiries with the parties and information available with the Company. This has been relied upon by the auditors.

11. Revenue is net of Rs. 20.62 Million (Previous Year: Rs. 23.87 Million) being reversal of Unbilled Revenues.

12. Since the Company prepares consolidated financial statements, no segment information is disclosed in these financial statements.

13. The Company purchases hardware and software to fulfill its obligations under contracts for sale of its Products.

There were no inventory of such hardware/software at the beginning and end of the year. No quantitative information of purchases of hardware/software items have been disclosed since none of the individual items of such purchases constitute more than 10% of the total value of Purchases of hardware and / software.

14. The Company has International transactions with Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the company is of the opinion that such transactions with Associated Enterprises are at arms length and hence in compliance with the aforesaid legislation and consequently that, these transactions do not have any impact on the financials statements, particularly on account of tax expense and that of provision for taxation.

15. Previous years figures have been regrouped to conform to the classifications for the current year.


Mar 31, 2010

I.1. Business Restructuring Reserve

The shareholders of the Company approved the Boards Proposal (hereinafter referred to as the Proposal) for transferring amounts from the Securities premium and Capital Reserves as on or arising after April 1, 2009 (upto March 31, 2012), to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the Proposal

The Companys petition seeking the approval of the above Proposal from the Honble High Court of Karnataka was filed with the Court on March 2, 2010. The Company has received the order of the Honble High Court approving the Proposal on May 4, 2010 and has registered the same with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be effective.

In accordance with the Proposal, the Board of Directors of the Company have thus approved the following:

- transfer of amounts standing to the credit of Securities premium and Capital reserve (including the Profit of Rs.1,583,488,419 arising out of reduction in liability to the Foreign currency convertible bond holders pursuant to the Restructuring of the US$ 180 Million Foreign currency convertible bonds. Refer Note II.3.A below) to the extent of Rs. 6,700,000,000 to the BRR.

- Utilisation of the BRR for certain Permitted utilisations to the tune of Rs.6,499,792,468 Consequently the Company carries a balance of Rs.200,207,532 in the BRR as at March 31, 2010 which shall be used for such Permitted utilizations in the future as the Board may deem fit. Had the Proposal not provided for (a) transferring Profits arising out of restructuring of US$ 180 Million FCCBs (refer Note II.3.A of Schedule P) into the BRR and (b) utilisation of the BRR for Permitted utilisations as defined in the Proposal the effect of accounting under the Accounting Standards referred in to Section 211(3C) of the Companies Act, 1956 would have been as under:

1.2. Contingent Liabilities

Receivables factored: Current Year - Rs.286,654,667, Previous year - Rs.401,044,585.

Claims against the Company not acknowledged as debt – Rs.69,065,359 (Previous year - Rs.54,272,325). These claims relate to Indian Income Tax demands which are being contested by the Company.

The Company has provided Corporate Guarantees to Banks for credit facilities availed by its wholly owned subsidiaries to the amount of Rs.500,000,000 (Previous Year- Rs.731,850,000) at the year end. These facilities were utilized to the extent of Rs.155,264,299 (Previous Year Rs.657,229,872) by the subsidiaries.

1.3. A. Foreign Currency Convertible Bonds (FCCBs)

During the year 2006-07, the company issued Foreign Currency Convertible Bonds (the Old FCCBs) aggregating to US$ 180 Million to Institutional Investors. The bonds carry an initial interest rate of 2% per annum and were redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue.

During the year 2009-10, the Company restructured the Old FCCBs by offering in exchange new FCCBs having a face value of US$ 126 Million. Pursuant to the offer, Old FCCBs with a face value of US$ 141 Million were exchanged for new FCCBs with a face value of US$ 98.7 Million. The remaining bondholders holding US$ 39 Million worth of Old FCCBs (out of the original bondholders holding US$ 180 Million) didnt chose the option for restructuring and are thus outstanding at March 31, 2010. Liability in respect of the US$ 39 Million FCCBs at March 31, 2010 amounts to Rs.1,751,100,000 (included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds).

Consequent to the exchange of the bonds as referred above, the reduction in liability (net of issue expenses and incremental interest payable on the new FCCBs vis-à-vis the old FCCBs) of Rs.1,583,488,419 has been credited to the Capital reserve during the year ended March 31 2010. The said amount has been transferred to Business Restructuring Reserve, in accordance with the Proposal approved by the shareholders of the Company and confirmed by the Honourable Judge of High Court of Karnataka. [Refer Note II.1 above].

The terms and conditions governing the US$ 39 Million FCCBs outstanding at March 31, 2010 are as follows:

a) Conversion of the bonds into equity shares at the option of the bond holders at any time after April 18, 2007

b) Conversion Price – Rs.656.20 per share

c) Exchange Rate for purpose of conversion - 1 US$ = Rs.44.08

d) Interest of 2% per annum payable semi-annually in arrears

e) Redemption with yield to maturity guaranteed return of 8% per annum, calculated on semi-annual basis

f) The Company can exercise an option to redeem the bonds in whole

or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document.

g) Listing on the Professional Securities Market of London Stock Exchange

The difference between the yield to maturity guaranteed rate of return of 8% and the coupon rate of 2% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds.

B. New Foreign Currency Convertible Bonds (New FCCBs)

During the year 2009-10, in terms of the companys offer to exchange and restructure its outstanding Old FCCBs, the company received Old FCCBs with a face value of US$ 141 Million for issue of New FCCBs with a face value of US$ 98.7 Million. The new bonds carry an initial interest rate of 5% per annum and are redeemable by March 9, 2012, if not converted in to equity shares as per terms of issue.

Other terms and conditions governing the new FCCBs are as follows:

a) Conversion of the bonds into equity shares at the option of the bond holders at any time after November 2, 2009.

b) Conversion Price – Rs.80.31 per share.

c) Exchange Rate for purpose of conversion - 1 US$ = Rs.48.17.

d) Compensating the bond holders for the reduction in principal amount by providing an increased interest element in the New FCCBs of 5% per annum payable semi-annually in arrears.

e) Redemption with yield to maturity guaranteed return of 20% per annum, calculated on semi-annual basis.

f) The Company can exercise an option to redeem the bonds in whole or in part on or any time after March 9, 2010, but prior to January 29, 2012, subject to appropriate approvals at a price determined on the terms defined in the offer document.

g) Listing on the Singapore Exchange Securities Trading Limited.

The difference between the yield to maturity guaranteed rate of return of 20% and the coupon rate of 5% represents the premium payable on redemption and is charged to Securities Premium over the life of the bonds.

Out of the US$ 98.7 Million new FCCBs, bonds having a face value of US$ 31.9 Million have been converted into equity shares as of March 31, 2010. Consequently new FCCBs outstanding at March 31, 2010 amount to US$ 66.8 Million (Rs.2,999,320,000 and is included in Long term Unsecured loans in Schedule E, under the head Foreign currency convertible bonds).

1.4. Monies Received Pending Allotment

During financial year 2007-08, the Company allotted 2,230,000 warrants to promoters/ promoters group, entitling each holder to obtain allotment of one equity share against each such warrant on a preferential basis at a price of Rs.630.31. Under the terms of issue, the Company has received 10% of the total consideration amounting to Rs.140,559,130. To obtain the underlying equity shares, the balance 90% was to be paid within 18 months from the date of allotment of the warrants in one or more tranches.

During financial year 2008-09, the warrants issued, lapsed and were forfeited and the money was transferred to Capital Reserve. The money received by the Company has been utilized for long term working capital requirements.

1.5. Operating Leases

The Company has entered into operating lease arrangements for its office facilities. These leases are for periods ranging from 1 to 5 years with an option to the Company for renewing at the end of the initial term. Rental expenses for operating leases included in the Profit and Loss account for the year is Rs.95,344,518 (Previous year Rs.94,686,746)

The future minimum lease payments for non-cancelable operating leases were:

Amount in Rs.

March 31, 2010 March 31, 2009

Within one year 90,728,870 86,881,548

Due in a period between

one year and five years 159,254,801 253,011,623

Due after five years - -

The lease agreement for the above non-cancellable lease provides for escalation of rentals at the end of 3 years of the lease, which has been factored in the future minimum rentals disclosed above.

1.6. Employees Stock Option Plan (ESOP)

ESOP - II

During 1999-2000, the Company established the Employee Stock Option Scheme 2000 (“ESOP 2000”) under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing upto a maximum of 883,750 shares to be allotted pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each and carries an entitlement of bonus shares if and when declared. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

During 2008-09, the Company amended the ESOP 2000 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 156,211 options were surrendered by 122 employees during 2008-09. Due to this, Rs.6,611,773, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09.

During the year, the Company has allotted 1,210 equity shares under its ESOP 2000 scheme to the option holders upon exercise of stock options.

Under this scheme 669,188 (net) options have been granted to 624 employees as at March 31, 2010. Out of the above 161,663 options are vested and exercisable. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs.2,118,869 (Previous Year: Rs.1,759,270) to the Profit & Loss Account during the year.

ESOP- III

During 2005-2006, the Company established the Employee Stock Option Scheme 2005 (“ESOP 2005”) under which 500,000 options have been allocated for grant to the employees. Subsequently, during the year 2006-2007, the number of options allocated for grant to the employees was increased to 2,000,000 options. The Company has obtained in- principle approval for listing upto a maximum of 2,000,000 shares pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.

During 2008-09, the Company amended the ESOP 2005 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. Pursuant to this, 1,069,407 options were surrendered by 538 employees during 2008-09. Due to this, Rs.41,876,574, being the previously recognized ESOP compensation cost on these options, was reversed and credited to personnel costs in 2008-09.

During the year, the Company has allotted 1,203 equity shares under its ESOP 2005 scheme to the option holders upon exercise of stock options.

Under this scheme 1,590,558 (net) options have been granted to 1,618 employees as at March 31, 2010. Out of the above 468,088 options are vested and exercisable. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a charge of Rs.8,238,058 (Previous Year: credit of Rs.25,098,927) to the Profit & Loss Account during the year.

ESOP - IV

During 2008-2009, the Company established the Employee Stock Option Scheme 2008 (“ESOP 2008”) under which 2,000,000 options have been allocated for grant to the employees. The Company has obtained in-principle approval for listing upto a maximum of 2,000,000 shares pursuant to exercise of options granted under the scheme. Each option comprises one underlying equity share of Rs.10/- each. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per the scheme, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the traded volume is the highest for the 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years can be exercised over a maximum period of 3 years from the date of vesting.

Under this scheme 598,954 (net) options have been granted to 272 employees as at March 31, 2010. The difference between the market price of the share underlying the options granted on the date of grant of option and the exercise price of the option are expensed over the vesting period as per the SEBI guidelines. The net impact of the movement in option grants during the period resulted in a credit of Rs.537,915 (Previous Year : Nil) to the Profit & Loss Account during the year.

Method Used for Accounting for Share Based Payment Plan:

The Company has used intrinsic value method to account for the compensation cost of stock option to employees of the Company. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the option.

Fair Value Methodology

The fair value of options used to compute pro forma net income and earnings per equity share have been estimated on the date of grant using Black-Scholes model.

The key assumptions used in Black-Scholes model for calculating fair value is: risk-free interest rate of 8%, expected life: 3 years, expected

volatility of share: 34.267% and expected dividend yield: 0.71%. The variables detailed herein represent the average of the assumptions during the pendency of the grant dates.

1.7. Others

1. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Rs.6,048,373 (Previous year: Rs.981,108)

2. Unclaimed dividend of Rs. 642,243 as at March 31, 2010 (Previous Year: Rs.751,860) represent dividends not claimed for the period from 2002-2008. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the Investor Education and Protection Fund. During the current year, the Company has transferred Rs.105,835 (Previous Year: Rs.52,514) to Investor Protection Fund.

3. Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account of Rs.642,243 (Previous Year: Rs.751,860), fixed deposit of Rs.25,969,391 (Previous Year: Rs.31,907,440) which are not available for use by the Company. The breakup of Cash and Cash Equivalents are given in Schedule I of financial statements.

Direct taxes paid and Others in the Cash Flow Statement includes outflows on account of permitted utilisations from the BRR of Rs.43,559,667 (Previous Year: Nil) and Direct Taxes of Rs.44,138,205 (Previous Year: Rs.34,765,054).

4. Other Provisions comprise of -

Redemption Reserve on FCCB - Rs.612,713,322

(Previous Year: Rs.1,361,916,700)

Provision for Other Long Term - Rs.628,600,000 Employee Benefits (Previous Year: Rs. Nil)

Differential Interest on - Rs.203,050,568

Restructured FCCBs (Previous Year: Rs. Nil)

MTM Losses on Option - Rs.954,666

Contracts (Previous Year: Rs.102,731,040)

5. Personnel Cost for the year includes expenditure on Research and Development of Rs.85,139,573 (Previous year: Rs.70,461,643). This is as certified by the management and relied upon by the auditors.

6. A director of the Company has provided a personal guarantee in respect of long term loans from Banks included in Schedule D (For Current Year) and Schedule E (For Previous Year) of the financial statements. Further, portion of promoters shares have also been pledged towards portion of these loans.

7. As per the guidelines on accounting for Derivatives issued by the Institute of Chartered Accountants of India, the Company has provided for Mark to Market losses of Rs.954,666 (Previous Year: Rs.102,731,040) on outstanding option contracts.

8. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures:

10. The dues to Micro and Small enterprises as defined in The Micro, Small & Medium Enterprises Development Act, 2006, are identified by the Company based on inquiries with the parties and information available with the Company. This has been relied upon by the auditors.

11. Since the Company prepares consolidated financial statements, no segment information is disclosed in these financial statements.

12. Revenue is net of Rs.23,872,350/- (Previous Year: Rs.46,562,941) being reversal of Unbilled Revenues written-off or provided.

13. The Company purchases hardware and software to fulfill its obligations under contracts for sale of its Products. There were no inventory of such hardware/software at the beginning and end of the year. No quantitative information of purchases of hardware/software items have been disclosed since none of the individual items of such purchases constitute more than 10% of the total value of Purchases of hardware and / software.

14. The Company has International transactions with Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arms length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the financials statements, particularly on account of tax expense and that of provision for taxation.

15. Current Taxes include Foreign Taxes of Rs. Nil (Previous Year: Rs.6,976,548)

16. Previous years figures have been regrouped to conform to the classifications for the current year.

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