Notes to Accounts of R Systems International Ltd.

Dec 31, 2018

1. Nature of operations

R Systems International Limited (the ‘Company’) is a leading global provider of IT services and Business Process Outsourcing (BPO) services. The Company is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956 having its registered office at New Delhi. Its shares are listed on National Stock Exchange of India Limited and BSE Limited. The Company’s primary focus is to provide IT services and solutions, software engineering services, technical support, customer care and other IT enabled services under the umbrella of Knowledge Services. The Company’s services and solutions span over seven major business verticals i.e. Telecom, Media & Entertainment, Retail & E-commerce, Banking & Finance, Manufacturing & Logistics, Technology, and Healthcare & Life Sciences.

(a) Terms/rights attached to equity shares:

The Company has only one class of equity shares having par value of Re. 1 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupee. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

(c) Shares held by holding / ultimate holding company and / or their subsidiaries / associates:

The Company does not have any holding / ultimate holding company.

(d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

(e) The Board of Directors of the Company at its meeting held on January 15, 2019 has approved the buyback of upto 3,690,000 fully paid up equity shares of the Company of face value of Re. 1/- each from its existing shareholders as on record date (i.e. February 01, 2019) on a proportionate basis through Tender Offer route in accordance with the provisions contained in the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 at a price of Rs. 65/- per equity share, payable in cash for a total amount not exceeding Rs. 239.85 million.

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

* Including shares allotted pursuant to the Scheme of Amalgamation of GM Solutions Private Limited and R Systems International Limited. (See also Note 35)

# Not having significant influence over the Company.

(g) Shares reserved for issue under options

(i) R Systems International Limited Employees Stock Option Plan - Year 2001 (‘the Plan’ or ‘ESOP Plan 2001’)

Indus Software Private Limited (‘Indus’) had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the R Systems International Limited Employees Stock Option Plan - Year 2001 under various vesting periods as specified in the said Plan, duly approved by the erstwhile shareholders. Indus had established “R Systems Employees Welfare Trust’’ (‘the R Systems Trust’) (formerly known as Indus Software Employees Welfare Trust”) to administer the plan, as approved by the members, for the benefits of the Company’s employees and had provided an interest free loan of Rs. 3.38 million. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the R Systems Trust to be further issued to the Indus’ eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favour of the R Systems Trust to enable them to obtain options for shares in R Systems International Limited after the merger. The Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the R Systems Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares, 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each, then issued 1:1 bonus share to each of the then existing shareholder and further sub-divided each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each. Consequently, the total number of shares issued are now 738,980 equity shares of Re. 1 each, which are treated as Treasury Shares.

The financial statement of the R Systems Trust have been included in the standalone financial statements of the Company as the trust was created for the benefit of the employees and administered by the Company and in substance the R Systems Trust functions as an extension of the Company. Therefore, an amount of Rs. 0.74 million and Rs. 2.28 million has been adjusted against issued, subscribed and paid-up capital and Securities Premium Account, respectively.

The movement in the options (in equivalent number of shares of the Company) held by the R Systems Trust during the year ended December 31, 2018 and the year ended December 31, 2017 is set out below:

The Board of Directors at their meeting held on May 04, 2017 had approved a Scheme of Arrangement between the Company and its Shareholder and Creditors (“Scheme”) for reduction of equity shares held by the R Systems Trust. The Scheme was filed on August 18, 2017 with the National Company Law Tribunal, New Delhi (Tribunal) for necessary directions.

The Board of Directors at its meeting held on December 21, 2018, decided not to implement the Scheme in its current form and considered to modify the current scheme in the light of certain management policies and changes that would have a bearing on the Scheme. The Tribunal has allowed the Company to withdraw the Scheme vide order dated January 03, 2019.

(ii) R Systems International Limited Employee Stock Option Scheme 2007 (‘the Plan’ or ‘ESOP Plan 2007’)

During the year 2007, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price in respect of 632,500 options granted on July 11, 2007 is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil. Further, during the year ended December 31, 2014, the Company had sub-divided equity shares of Rs. 10 each into 10 equity shares of Re. 1 each, the exercise price is accordingly adjusted from Rs. 120.70 per share to Rs. 12.07 per share.

On the recommendation of the Compensation Committee and Nomination and Remuneration Committee, the Board of Directors at its meeting held on April 30, 2016, had further granted 150,000 options at an exercise price of Rs. 12.07 /- per option under R Systems International Limited Employee Stock Option Scheme 2007.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2018 and year ended December 31, 2017 is set out below:

Options vested during the year 37,500 37,500

For options exercised during the year 2018, the weighted average share price at the exercise date was Rs. 38.78 (Previous year Rs. 50.40).

The weighted average remaining contractual life for the stock options as at December 31, 2018 is 88 months (as at December 31, 2017 : 100 months; as at January 01, 2017: 13 months).

Fair value of share options

The fair value of the options, calculated by an external valuer, was estimated on the date of grant using the Black-Scholes model with the following significant assumptions:

* Originally the price was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, the Company had issued 206,822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Hon’ble High Courts of Delhi and Mumbai. The details given above for plan are before making the required adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year ended December 31, 2006 and further sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

# The information is based on Rs.10 per share before sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

Notes:

(1) Term loans for motor vehicles are secured by hypothecation of underlying motor vehicles and carries interest rate ranging from 8.34% to 10.23% per annum. The term loans are repayable in equated monthly instalments ranging from 35 to 60 months from the date of loan.

(2) Finance lease obligation is unsecured. The interest rate implicit in aforesaid lease is 11.9% per annum. The lease obligation are repayable in 180 months from the date of lease.

Gratuity

The Company has funded defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 2 million (previous year Rs. 1 million).

The Company has a unit at Greater Noida registered as Special Economic Zone (SEZ) unit which is entitled to a tax holiday under Section 10AA of the Income Tax Act, 1961.

A significant portion of the profits of the Company’s operations are exempt from income taxes being profits attributable to export operations from undertakings situated in Special Economic Zone (SEZ). Under the Special Economic Zone Act, 2005 scheme, units in designated Special Economic Zones providing service on or after April 1, 2005 will be eligible for a deduction of 100 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent of such profits and gains for a further five years. Certain tax benefits are also available for a further period of five years subject to the unit meeting defined conditions.

2. Earnings per share

Reconciliation of number of equity shares used in the computation of basic and diluted earnings per share is set out below:

Fair value hierarchy:

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.

There have been no transfers among Level 1, Level 2 and Level 3 during the year.

3. Financial risk management

Financial risk factors and risk management objectives

The Company’s activities expose it to foreign currency risk, credit risk and liquidity risk. The Company’s primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial instruments to mitigate foreign exchange related risk exposures. All derivative activities for risk management purposes are carried out by team that has the appropriate skills, experience and supervision. It is the Company’s policy that no trading in derivative for speculative purposes may be undertaken.

The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

Foreign currency risk

The Company’s exchange risk arises from its foreign currency revenues (primarily in U.S. Dollars and Euros). A significant portion of the Company’s revenues are in these foreign currencies, while a significant portion of its costs are in Indian Rupees. As a result, if the value of the Indian Rupee appreciates relative to these foreign currencies, the Company’s revenues measured in Rupees may decrease.

Derivative financial instruments

The Company holds derivative foreign currency forward contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. These derivative financial instruments are valued based on quoted prices for similar assets in active markets or inputs that are directly or indirectly observable in the marketplace. The Company has recognised mark-to-market gain of Rs. 22.59 million (Previous year gain of Rs. 16.33 million) relating to such derivative financial instruments in the statement of profit and loss for the year ended December 31, 2018.

The following table gives details in respect of outstanding foreign currency forward contracts:

Foreign currency sensitivity analysis

For the year ended December 31, 2018 and December 31, 2017, every percentage point depreciation / appreciation in the exchange rate between the Indian rupee and foreign currencies, would decrease / increase Company’s profit before tax margin (PBT) by approximately 1.80% and 0.78%, respectively.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Credit risk arises from deposits held with banks, investments with financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors.

Trade receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the industry and country in which the customer operates, also has an influence on credit risk assessment.

One customer accounted for more than 10% of the revenue for the year ended December 31, 2018 and December 31, 2017.

Investments

Credit risk on cash and cash equivalent is limited as the Company generally invests in deposits with banks. Investments primarily includes investment in liquid mutual funds having good rating and debentures. The Company does not expect any losses from non-performance by the counterparties.

Liquidity risk

The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The investment of surplus cash is governed by the Company’s investment policy approved by the Board of Directors. The Company believes that the working capital is sufficient to meet its current requirements.

As at December 31, 2018, the Company had a working capital of Rs. 1,344.62 million including cash and cash equivalents and current fixed deposits of Rs. 475.24 million and current investments of Rs. 199.50 million. As at December 31, 2017, the Company had a working capital of Rs. 1,109.88 million including cash and cash equivalents and current fixed deposits of Rs. 740.32 million and current investments of Rs. 136.88 million. Accordingly, no liquidity risk is perceived.

4. Capital Management

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital as well as the level of dividends on its equity shares. The Company’s objective, when managing capital, is to maintain an optimal structure so as to maximize shareholder value. The capital structure is as follows:

The Company is predominantly equity financed which is evident from the capital structure table above. Further, the Company has always been a net cash company with surplus cash and bank balances invested in fixed deposit with banks and liquid mutual funds.

5. Segment information

Information reported to the Chief Operating Decision Maker (CODM) for the purpose of resource allocation and assessment of segment performance focuses on the types of services provided. The CODM has identified the following as its reportable segments.

a) Information technology

b) Business process outsourcing

Revenues and expenses directly attributable to segments are reported under each reportable segment. Expenses which are not directly identifiable to each reportable segment have been allocated on the basis of associated revenues of the segment and manpower efforts. All other expenses which are not attributable or allocable to segments have been disclosed as unallocable expenses.

Assets and liabilities of the Company are used interchangeably between segments and the CODM does not review assets and liabilities at reportable segment level. Accordingly, segment disclosure relating to assets and liabilities has not been provided as per Ind AS 108.

Geographic segments are based on the areas in which the major customers of the Company operate and / or the area in which the assets are located. Although the Company’s major operating divisions are managed on a worldwide basis, they operate in five principal geographical areas of the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

6. Leases

a) Finance lease - Company as lessee

The Company has finance leases for furniture and fixture. Each renewal is at the option of the lessee. Future minimum lease payments (MLP) under finance leases together with the present value of the net MLP are as follows:

b) Operating Lease - Company as lessee

The Company has operating lease for office premises. Lease payments recognised as expense during the year ended December 31, 2018 and December 31, 2017 is Rs. 33.06 million and Rs. 31.94 million, respectively.

Non-cancellable operating lease arrangements extend for a maximum period of 5 years from their respective dates of inception. The leases have varying terms, escalation clauses, renewal rights and no restrictions are imposed.

c) Operating Lease - Company as lessor

The Company has entered into an operating lease arrangement for its surplus land and building which has been classified under investment property. Lease rentals recognised as income during the year ended December 31, 2018 and December 31, 2017 is Rs. 6.78 million and Rs. 6.85 million, respectively.

The operating lease arrangement extends for a maximum period of 3 years and has price escalation clause of 5% for every subsequent 3 years of the extended term. The lease is cancellable and there are no restrictions imposed on lease agreements.

Notes:

1. Figures for the year ended December 31, 2018 and December 31, 2017 are as per provisions of the Companies Act, 2013. Figures for the year ended December 31, 2017 are based on the Previous GAAP.

2. The remuneration paid during the year ended December 31, 2018 and December 31, 2017, in excess of the limits specified above has been approved by the Central Government.

7. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specified period irrespective of the terms agreed with the suppliers. Based upon the information and the supplier profile available with the Company, the management believes that there are no dues to such suppliers.

8. The Board of Directors of Company at its meeting held on September 22, 2017 had approved a scheme of amalgamation under Section 230-232 and other applicable provisions of the Companies Act, 2013 between GM Solutions Private Limited (“GM Solutions”) and R Systems International Limited and their respective shareholders and creditors (the “Scheme”), with effect from the appointed date i.e. January 1, 2018. The purpose of the amalgamation was to simplify the shareholding structure by reducing the shareholding tiers and also to demonstrate the promoters’ direct commitment to and engagement with the Company.

The Scheme was approved by the National Company Law Tribunal, New Delhi vide order dated December 07, 2018. In accordance with the Scheme, 29,746,353 (Two Crore Ninety Seven Lakhs Forty Six Thousand Three Hundred and Fifty Three Only) fully paid up equity shares of the face value of Re. 1/- (Rupee One) of R Systems International Limited has been issued and allotted to the equity shareholders of GM Solutions in the proportion of their respective equity shareholding in GM Solutions. Upon the issuance and allotment of aforesaid shares, the existing 29,746,353 equity shares of the Company held by the GM Solutions have been extinguished. Authorised share capital of the Company stands increased by the amount of authorized share capital of GM Solutions in accordance with the Scheme. Further, the Scheme envisages transfer of all rights and obligations, assets and liabilities, interests and claims of the Transferor Company to the Company with effect from the appointed date.

The aforesaid Scheme has been accounted under ‘Common Control’ method in accordance Ind AS 103 “Business Combinations” and correspondingly all assets, liabilities and reserves of the Transferor Company have been accounted for at their respective book values in the books of the Company effective January 01, 2017.

Details of assets, liabilities and reserves of GM Solutions as on January 01, 2017 and December 31, 2017 are as follows:

* Tax deducted at source is Rs. 900.

The total comprehensive income for the year ended December 31, 2017 has been adjusted to give effect of amalgamation. Consequent to this restatement, the total comprehensive income for the year ended December 31, 2017 is reduced by INR 3.88 million.

9. First time adoption of Ind AS

These are the Company’s first financials prepared under Ind AS.

The accounting policies set out in Note 2 have been applied in preparing the financial statements for the year ended December 31, 2018, the comparative information presented in these financial statements for the year ended December 31, 2017 and in the preparation of opening Ind AS balance sheet at January 01, 2017. In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Section 133, of the Act and other relevant provisions contained in the Act (previous GAAP or Indian GAAP). In its transition from previous GAAP to Ind AS, the Company has also availed certain optional exemptions and mandatory exceptions in accordance with Ind AS 101.

An explanation of how this transition has affected the Company’s financial performance and cash flows is set out in the following tables and notes.

A. Exemption from full retrospective application:

a. Share based payment transactions

The Company has elected to apply the exemption available under Ind AS 101 regarding application of Ind AS 102 “Share Based Payments’; to equity instruments that had vested before the date of transition to Ind AS.

b. Investments in subsidiaries

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its investments in subsidiaries as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP, and use that as its deemed cost as at the date of transition.

B. Mandatory exceptions

a. Estimates

An entity’s estimate on the date of transition to Ind AS shall be consistent with estimates made for the same date on accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at January 01, 2017 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for the following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

- Investment in mutual funds carried at FVTPL;

- Impairment of financial assets based on expected credit loss model;

- Fair valuation of financial assets and liabilities excluding derivatives.

b. De-recognition of financial assets and liabilities

Ind AS 101 requires a first time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind-AS. However, Ind AS 101 allows a first time adopter to apply the derecognition requirements under Ind AS 109, retrospectively from a date of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial assets and liabilities de-recognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

The company has elected to apply the de-recognition provision of Ind AS 109 prospectively from the date of transition to Ind AS.

c. Classification and measurement of financial assets

As required under Ind AS 101, the Company has classified and measured the financial assets on the basis of the facts and circumstances existing at the date of transition to Ind AS.

C. Reconciliation between previous GAAP and Ind AS

The following reconciliations provide a quantification of the effect of significant differences arising from the transition from previous GAAP to Ind AS in accordance with Ind AS 101:

- Equity as at January 01, 2017;

- Equity as at December 31, 2017;

- Total comprehensive income for the year ended December 31, 2017; and

- Explanation of material adjustments to cash flow statements. In the reconciliations mentioned above, certain reclassifications have been made to previous GAAP financial information to align with the Ind AS presentation.

e. Notes to first time adoption

Note 1 - Security deposits measured at amortised costs

Under IGAAP, security deposits (both assets and liabilities) were accounted for at their undiscounted nominal values. Under Ind AS, these have been accounted for at amortised cost method by discounting the cash flows using effective interest rates. Consequently, the impact of aforesaid amortisation has been accounted for in the statement of profit and loss. The resulting changes as at the transition date has been adjusted in opening retained earnings.

Note 2 - Deferred tax

Ind AS 12 requires entities to account for deferred taxes using the balance sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. The various transitional adjustments have led to temporary tax differences, which the Company has accounted for as deferred tax adjustments. Deferred tax adjustments are recognised in correlation to the underlying transaction as either in profit and loss or other comprehensive income. The resulting changes as at the transition date has been adjusted in opening retained earnings.

Note 3 - Fair valuation of investment in Mutual Funds

Under IGAAP, investments in mutual funds were classified as current investments and were carried at lower of cost and fair value. Under the Ind AS, these investments are classified as at fair value through profit or loss (FVTPL) and measured at fair value. The resulting fair value changes have been recognised in the statement of profit and loss.

Note 4 - Allowance for credit loss

Under IGAAP, the entity determined provisions for impairment of trade receivables (provision for bad and doubtful debts) using incurred loss model i.e. if they remained outstanding over the prescribed period. Under Ind AS, impairment allowance has been determined based on expected credit loss model (ECL) for trade receivables and other financial assets, which has resulted in additional provisions being accounted for in statement of profit and loss. The impact of additional provisions due to ECL as at the transition date has been adjusted in opening retained earnings.

Note 5 - Effect of inclusion of ESOP trust

Under Ind AS, the financial statement of R Systems Employee Welfare Trust (ESOP Trust) have been included in the standalone financial statements of the Company as the trust was created for the benefit of the employees and administered by the Company and in substance the ESOP Trust functions as an extension of the Company.

Note 6 - Share-based payments measurements

The Company has granted equity-settled share-based payments to certain employees. The Company accounted for these share-based payment arrangements by reference to their intrinsic value under previous GAAP. Under Ind AS, the related liability has been adjusted to reflect the fair value of the outstanding equity-settled share-based payments. Accordingly, the amount transferred from Employee Stock Option Outstanding account to Securities Premium account, due to issue of shares to employees against options, is also measured at fair value.

Note 7 - Re-measurements of post-employment defined benefit obligation

Under the previous GAAP, the actuarial gains/losses on defined benefit obligations and plan assets were recognised as employee benefits expense in the statement of profit and loss. Under Ind AS, such actuarial gains/losses are recognised under other comprehensive income. The related tax expense/income is also reclassified to other comprehensive income.

Note 8 - Impact of merger of GM Solutions Private Limited

Merger of GM Solutions Private Limited with the Company has been accounted for with effect from January 01, 2017. (Refer to Note 35 for details)

Note 9 - Retained earnings

Retained earnings as at January 01, 2017 has been adjusted consequent to the above Ind AS adjustments.

10. The financial statements have been approved by the Board of Directors at its meeting held on February 08, 2019.

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Dec 31, 2016

b. Terms / rights attached to the equity share

The Company has only one class of equity shares having a par value of Re. 1 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupee. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.

c. Shares held by holding / ultimate holding company and / or their subsidiaries / associates The Company does not have any holding / ultimate holding company.

d. Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date:

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

f. Shares reserved for issue under options

For details of shares reserved for issue under the employee stock option plans (ESOP) of the Company, please refer note 32 (a) to 32 (f).

Notes:

(1) The Company has issued Public Announcement dated September 15, 2016, for buy-back of equity shares of face value of Re. 1/each from its existing shareholders as on the record date September 30, 2016 on a proportionate basis through "Tender Offer" route in accordance with the applicable provisions of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act, 2013 at a price of Rs. 65/- per equity share, payable in cash for a total consideration not exceeding Rs. 195,000,000. Under the Buy-back offer, the Company has bought back 3,000,000 equity shares for an aggregate amount of Rs. 195,000,000 by utilising the Securities Premium Account to the extent of Rs. 192,000,000 and General Reserve to the extent of Rs. 3,000,000. The Capital Redemption Reserve has been created out of General Reserve for Rs. 3,000,000 being the nominal value of equity shares bought back in terms of Section 68 of the Companies Act, 2013. The aforesaid buy-back has been completed on November 29, 2016.

(2) The Company had issued Public Announcement dated December 29, 2014, for buy-back of equity shares of face value of Re. 1/- each from the open market at a price not exceeding Rs. 100 per share for an aggregate amount not exceeding Rs. 60,000,000. Under the Buy-back offer, the Company had bought back 678,155 equity shares for an aggregate amount of Rs. 59,573,776 by utilising the Securities Premium Account to the extent of Rs. 58,895,621 and General Reserve to the extent of Rs. 678,155. The Capital Redemption Reserve had been created out of General Reserve for Rs. 678,155 being the nominal value of equity shares bought back in terms of Section 68 of the Companies Act, 2013. The Company had closed the buy-back offer pursuant to approval by the Board of Directors of the Company at its meeting held on April 23, 2015.

(3) The Company had written back proposed dividend for the year ended December 31, 2014 and tax thereon towards shares bought back under the buy back offer.

Notes:

(1) Term loans for motor vehicles are secured by hypothecation of underlying motor vehicles and carries interest rate ranging from 9.11% to 11.94% per annum. The term loans are repayable in equated monthly installments ranging from 35 to 60 months from the date of loan.

(2) Finance lease obligation is unsecured. The interest rate implicit in aforesaid lease is 11.9% per annum. The lease obligation are repayable in 180 months from the date of lease.

1. Segment information

Business segments:

The Company considers business segment as the basis for primary segmental reporting. The Company is organised into two business segments - Information technology services and products and Business process outsourcing services. Costs and expenses which cannot be allocated to any business segment are reflected in the column ''corporate and others''. Segments have been identified and reported based on the nature of the services, the risks and returns, the organisation structure and the internal financial reporting system.

Geographical segments:

The Company reports secondary segment information on the basis of the geographical location of the customers / assets. Although the Company''s major operating divisions are managed on a worldwide basis, they operate in five principal geographical areas of the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

2. Related Party Disclosures

(i) Names of related parties:

Names of related parties where control exists:

S_ub_sidiaries - Systems (Singapore) Pte Ltd, Singapore

- Systems, Inc., USA

ECnet Ltd, Singapore

Computaris International Limited, U.K.

RSYS Technologies Limited, Canada (formerly known as Systemes R. International Ltee )

- Systems Technologies Limited, USA (formerly known as Indus Software, Inc., USA)

- Systems Product & Technologies Private Limited, India (ceased to be subsidiary w.e.f. July 07, 2015) R Systems Solutions, Inc., USA (merged with R Systems, Inc., USA w.e.f. December 10, 2015) Following are the subsidiaries of ECnet Ltd, Singapore

- ECnet (M) Sdn Bhd, Malaysia

- ECnet Systems (Thailand) Co. Ltd., Thailand

- ECnet (Shanghai) Co. Ltd., People''s Republic of China

- ECnet (Hong Kong) Ltd., Hong Kong

- ECnet, Inc., USA

- ECnet Kabushiki Kaisha, Japan

Following are the subsidiaries of Computaris international Limited, U.K.

- Computaris Romania Srl, Romania

- Computaris Polska sp z o.o., Poland

- ICS Computaris International Srl, Moldova

- Computaris Malaysia Sdn. Bhd., Malaysia

- Computaris USA, Inc., USA

- Computaris Philippines Pte. Ltd. Inc., Phillippines (incorporated on May 23, 2016)

Following are the subsidiaries of R Systems (Singapore) Pte Ltd, Singapore

- IBIZCS Group Pte Ltd- Singapore with the following step down subsidiaries

- IBIZ Consulting Services Pte Ltd, Singapore

- IBIZ Consulting Services Sdn. Bhd., Malaysia

- PT. IBIZCS Indonesia., Indonesia

- IBIZ Consultancy Services India Private Limited, India

- IBIZ Consulting Services Limited, Hong Kong

- IBIZ Consulting Services (Shanghai) Co., Ltd, People''s Republic of China

Names of other related parties with whom transactions have taken place during the year:

Key management personnel Satinder Singh Rekhi, Managing Director

Lt. Gen. Baldev Singh (Retd.), President and Senior Executive Director Raj Swaminathan, Director (resigned as director on June 27, 2015)

Nand Sardana, Chief Financial Officer Ashish Thakur, Company Secretary & Compliance Officer Relatives of Key management Harpreet Rekhi, (related to Satinder Singh Rekhi) p_ersonnel Sartaj Singh Rekhi, (related to Satinder Singh Rekhi)

Amrita Kaur, (related to Satinder Singh Rekhi)

Ramneet Singh Rekhi, (related to Satinder Singh Rekhi)

Anita Behl, (related to Satinder Singh Rekhi)

Kuldeep Baldev Singh, [related to Lt. Gen. Baldev Singh (Retd.)]

Mandeep Singh Sodhi, [related to Lt. Gen. Baldev Singh (Retd.)], Vice President - Sales Enterprises where key U Infosoft Private Limited

management personnel or their GM Solutions Private Limited relatives exercise significant GMU Infosoft Private Limited i_nfl_uence Right Match Holdings Limited

Satinder and Harpreet Rekhi Family Trust

3. Corporate Social Responsibility (CSR)

As per the requirements of Section 135 of the Companies Act, 2013, the Company is required to spend an amount of Rs. 10,608,333 on CSR expenditure for the year December 31, 2016. Out of this, the Company has disbursed Rs. 1,500,000 for education of the underprivileged children in accordance with its Corporate Social Responsibility Policy.

Further, during the year the Company was in the process of ascertaining various avenues, projects etc. for fulfilling the requirement of its CSR policy, therefore Company could not utilize the entire amount embarked for its CSR activities.

The operating lease arrangements extend for a maximum period of 5 years from their respective dates of inception. Some of the operating lease arrangements have price escalation and option of renewal clause as mutually agreed between the parties and there are no restrictions imposed on lease arrangements.

The operating lease arrangement extends for a maximum period of 3 years from their respective dates of inception and has price escalation clause of 5% for every subsequent 3 years of the extended term. There are no restrictions imposed on lease agreements.

Note:

As the future liability for gratuity and long term compensated absences is provided on an actuarial basis for the Company as a whole, the amount pertaining to the directors is not ascertainable and, therefore, not included above.

29.1 (b) Computation of net profit under Section 198 of the Companies Act, 2013 for calculation of managerial remuneration under Section 197 of the Companies Act, 2013.

Note:

4. Figures for the year ended December 31, 2016 and December 31, 2015 are as per provisions of the Companies Act, 2013.

5. The remuneration paid during the year ended December 31, 2016 and December 31, 2015 , in excess of the limits specified in 29.1 (b) above has been approved by the Central Government.

6. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specified period irrespective of the terms agreed with the suppliers. For the purpose of identification of such suppliers, the Company has sent confirmations to all its suppliers. Based upon the confirmations received so far and the supplier profile available with the Company, the management believes that there are no dues to such suppliers.

7. (a) During earlier years, the Company had acquired shares in ECnet Limited, a company incorporated in Singapore at a total consideration of Rs. 34,938,958. During the year ended December 31, 2005, the Company had based upon an order of High Court of Delhi written down the investment value to Rs. 10,443,237 and adjusted the write off of Rs. 24,495,721 against the Securities Premium Account as this had not been represented by available assets.

During the year ended December 31, 2007, the Company had settled the liabilities towards certain erstwhile shareholders. As a result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management. Out of above, Rs. 10,442,237 had been adjusted against the value of the investment.

During the year ended December 31, 2015, after the expiry of relevant limitation period under applicable laws, the Company had reversed deferred payment compensation amounting to Rs. 12,609,305. This reversal is included under ''Exceptional items'' in the financial statements for the year ended December 31, 2015.

(b) On November 27, 2014, the Company had completed the transfer of Europe BPO Business by way of sale of its 100% holding in R Systems Europe B.V., Netherlands and R Systems S.A.S., France, being wholly owned subsidiaries, by executing the Share Sale Agreement (the "SSA") along with other necessary documents for a sale consideration of Euro 4.70 million (Rs. 357,469,488). Out of the sale consideration, Euro 0.35 million (Rs. 26,628,000) was placed in an escrow account in the Netherlands, the realization of which was subject to certain conditions pursuant to the provision of the SSA.

During the year ended December 31, 2015, on the stipulated conditions under the SSA being completed, the Company had received Euro 0.35 million (Rs. 26,628,000) which was placed in an escrow account. The amount so received, has been included as profit on sale of aforesaid subsidiaries under the ''Exceptional items'' in the financial statements for the year ended December 31, 2015.

(c) On December 10, 2015, R Systems Solution Inc. (RSSI), a wholly owned subsidiary of the Company was merged into R Systems Inc. (RSI), also a wholly owned subsidiary of the Company, as per the applicable laws of India and USA. Pursuant to aforesaid merger, the Company had received incremental 150 common stock of RSI against outstanding common and preferred (series A) stocks held in RSSI. Accordingly the Company had recorded receipt of incremental shares in RSI at Rs. 57,816,448, being the fair value of investments given up. The Company in the earlier years had provided for permanent diminution in value of its investments in RSSI amounting to Rs. 172,676,590 and was carrying these investments at Rs. 13,414,875. Consequent to the above merger, the Company had written back such permanent diminution to the extent of available net assets of Rs. 57,816,448 and accordingly recorded Rs. 44,401,573 as gain under ''Exceptional items'' in the financial statements for the year ended December 31, 2015.

(d) On July 11, 2014, the Company had incorporated a wholly owned subsidiary in India, namely, R Systems Products & Technologies Limited (which was later converted into R Systems Products & Technologies Private Limited ("RSPTPL") on May 28, 2015). The shareholders of the Company by passing special resolution through postal ballot on September 23, 2014 had accorded necessary approval for transfer of the Company''s Indus Business Unit operated out of Pune and Chennai to RSPTPL.

The Company had entered into ''Business Transfer Agreement'' (BTA) with RSPTPL on June 27, 2015 for the aforesaid transfer on a going concern basis by way of slump sale, for consideration of Rs. 783,900,000 to be discharged by RSPTPL through issuance of 60,000,003 equity shares of Re. 1/- each at a premium of Rs. 6.227333 per share and 35,026 compulsorily redeemable debentures of Rs. 10,000 each to be redeemed over a period of 4 years, on the terms and conditions agreed in BTA and Debenture Subscription Agreement.

The Company also entered into ''Share Purchase Agreement'' (SPA) with BD Capital Partners Ltd. ("BDC"), a Mauritius based company on June 27, 2015 to sell 93% of its equity share in RSPTPL to BDC for a consideration of Rs. 443,170,000 (USD 7 million). The closing (as defined in the agreements) under the BTA and SPA occurred on July 07, 2015.

The gain on sale of Indus Business Unit amounting to Rs. 535,713,373 (net of related expenses) and gain on sale of aforesaid equity share in RSPTPL amounting to Rs. 28,721,375 (net of related expenses) is disclosed as ''Exceptional items'' in the financial statements for the year ended December 31, 2015. The income tax attributable to aforesaid gains amounting to Rs. 132,635,363 is included in the ''Current Tax'' in the financial statements for the year ended December 31, 2015. The name of RSPTPL has been changed to Indus Software Technologies Private Limited (ISPTPL) w.e.f August 19, 2015.

Subject to the satisfaction of certain conditions, BDC had also agreed to purchase the balance 7% equity shares for a consideration up to Rs. 66,510,000 (USD 1 million). These conditions were under evaluation and yet to be concluded as at the year ended December 31, 2015. During the year ended December 31, 2016, the Company has fulfilled the conditions specified in the SPA for the sale of balance 7% share in ISPTPL. The gain on sale of aforesaid equity share amounts to Rs. 37,174,220 is disclosed as ''Exceptional items'' in the financial statements. The income tax attributable to aforesaid gains amounting to Rs. 12,684,221 is included in the ''Current Tax'' in the financial statements for the year ended December 31, 2016.

Inter unit transactions between continuing and discontinuing operations have been excluded.

(e) The Company has realized additional amounts of Rs. 9,173,022 towards the sale of Indus Business unit and disclosed as ''Exceptional items'' in the financial statements for the year ended December 31, 2016.

(f) The consequent tax expense of aforesaid ''Exceptional items'' amounting to Rs. 14,800,621 for the year ended December 31, 2016 and Rs. 63,017,987 for year ended December 31, 2015, is included in the ''Current tax'' in the financial statements for the respective year.

8. (a) R Systems International Limited - Year 2004 Employee Stock Option Plan (''the plan'')

The Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 997,500 options for equity shares of face value of Rs. 10 each, to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "1.60 times the Book Value of the Share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous accounting year audited balance sheet rounded off to nearest rupee as on the date of Exercise whichever is higher''; till the time equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted / shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by

utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders. Further, during the year ended December 31, 2014, the Company had sub-divided equity shares of Rs. 10 each into 10 equity shares of Re. 1 each, the exercise price is accordingly adjusted from Rs. 105 per share to Rs. 10.50 per share.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. As per the plan, the Compensation Committee cannot grant any outstanding options after August 31, 2014, therefore there are no grants outstanding for determination by the Compensation Committee.

The weighted average remaining contractual life for the stock options as at December 31, 2015 is Nil months.

(b) R Systems International Limited Employees Stock Option Plan - Year 2001 (''the plan'')

Indus Software Private Limited (''Indus'') had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the R Systems International Limited Employees Stock Option Plan - Year 2001 under various vesting periods as specified in the said Plan, duly approved by the erstwhile shareholders. Indus had established "R Systems Employees Welfare Trust'''' (''the R Systems Trust'') (formerly known as Indus Software Employees Welfare Trust") to administer the plan, as approved by the members, for the benefits of the Company''s employees and had provided an interest free loan of Rs. 3,382,792. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the R Systems Trust to be further issued to the Indus'' eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favour of the R Systems Trust to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the R Systems Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30, 2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956 and further sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014, consequently the total number of shares issued are now 738,980 equity shares of Re. 1 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from Issued, subscribed and paid-up capital and Securities Premium Account respectively as suggested by the "Guidance Note on Accounting for Employee Share-based Payments" issued by The Institute of Chartered Accountants of India.

(c) R Systems International Limited Employee Stock Option Scheme 2007 (''the plan'')

During the year 2007, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price in respect of 632,500 options granted on July 11, 2007 is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil. Further, during the year ended December 31, 2014, the Company had sub-divided equity shares of Rs. 10 each into 10 equity shares of Re. 1 each, the exercise price is accordingly adjusted from Rs. 120.70 per share to Rs. 12.07 per share.

On the recommendation of the Compensation Committee and Nomination and Remuneration Committee, the Board of Director at its meeting held on April 30, 2016, had further granted 150,000 options at an exercise price of Rs. 12.07 /- per option under R Systems International Limited Employee Stock Option Scheme 2007.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2016 and year ended December 31, 2015 is set out below:

For options exercised during the year 2015, the weighted average share price at the exercise date was Rs. 68.71.

The weighted average remaining contractual life for the stock options as at December 31, 2016 is 13 months (Previous year 19 months).

(d) For the purpose of valuation of the options granted before year ended December 31, 2004 , the management obtained fair value of the options at the date of grant under respective schemes from a firm of Chartered Accountants to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer, the fair value of option determined using ''Black Scholes Valuation Model'' under each of above schemes [except R Systems International Limited Employee Stock Option Scheme 2007 refer 32 (c) above] is "Nil" and thus no accounting thereof is required.

* R Systems International Ltd. - Year 2004 Employee Stock Option Plan under which the price was based on Rs. 2 per share.

** R Systems International Limited Employees Stock Option Plan - Year 2001 under which originally the price was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, R Systems had issued 206,822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Hon''ble High Courts of Delhi and Mumbai.

The details given above for plan (a) and (b) are before making the required adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year ended December 31, 2006 and further sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

Further, for the purpose of valuation of the options granted during the year 2005 under R Systems International Limited- Year 2004 Employee Stock Option Plan, the management obtained fair value of the options at the date of grant from a firm of Chartered Accountants, to determine accounting impact, if any, of options granted. In the considered opinion of the valuer, the fair value of these option determined using ''Black Scholes Valuation Model'' is "Nil" and thus no accounting thereof is required.

The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share of Rs. 10 each and subsequent allotment of bonus shares in the ratio of 1 : 1 and further sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

(e) For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme - 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Nil.

The management obtained fair value of the options at the date of grant from a firm of Chartered Accountants. In the considered opinion of the valuer, the fair value of these options determined using ''Black Scholes Valuation Model'' is "Rs. 50.73" per option.

The above information is based on Rs.10 per share before sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

(f) For the purpose of valuation of the options granted during the year ended December 31, 2016 under R Systems International Limited Employee Stock Option Scheme - 2007, the year to date compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Rs. 2,589,490.

The management obtained fair value of the options at the date of grant i.e. April 30, 2016 from a firm of Chartered Accountants. In the considered opinion of the valuer, the weighted average fair value of these options determined using ''Black Scholes Valuation Model'' is "Rs. 49.89" per option.

The above information is based on per equity share having face value of Re. 1 each.

9. As at January 01, 2015, the Company, based on technical assessment, reassessed the useful life of tangible assets and accordingly changed the useful lives of certain assets on the basis the transitional provision under Schedule II of the Companies Act, 2013. Consequently, the Company had transferred Rs. 12,455,113 (net of tax) to reserves during the year ended December 31, 2015.

10. The Company has received the ''Letter of Approval'' (LOA) from Department of Commerce, Ministry of Commerce & Industry, Government of India on October 19, 2016 for setting up ''Special Economic Zone'' (SEZ) unit measuring approx. 15,000 sq. ft. located at Greater Noida West (NCR). Subsequent to the year end, the Company has commenced its operation in SEZ premises on January 25, 2017.

11. Particulars of Derivative instruments and Unhedged Foreign Currency Exposure as at December 31, 2016 and December 31, 2015

As of December 31, 2016, the Company has derivative financial instruments to sell USD 14,700,000 (Previous year USD 15,300,000), EURO 1,400,000 (Previous year EURO 1,850,000). The Company has not applied hedge accounting as these instruments do not qualify for hedge accounting. The Company has recognised mark-to-market gain of Rs. 26,417,667 (Previous year gain of Rs. 15,645,821) relating to such derivative financial instruments in the statement of profit and loss for the year ended December 31, 2016.

* Cash credit limit / Bank guarantee / Loan equivalent risk / Letter of credit is secured by first charge by way of hypothecation of entire current assets and collateral over an immovable property situated in Noida.

12. Previous year figures have been regrouped / reclassified where necessary to make them comparable to the current year classification.

---

Dec 31, 2015

# The Company has issued 90,000 (previous year 804,000) equity shares of Re. 1 each at an exercise price of Rs. 12.07 per share
pursuant to exercise of employee stock options under the R Systems International Limited Employee Stock Option Scheme 2007 [refer
note 32 (d)].

B. Terms / rights attached to the equity share

The Company has only one class of equity shares having a par value of Re. 1 per share. Each holder of equity shares is entitled
to one vote per share. The Company declares and pays dividend in Indian Rupee.*

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

* Pursuant to the approval of the shareholders accorded by passing necessary resolution through Postal Ballot on January 14,
2014, each equity share of face value of Rs. 10/- each of the Company was sub-divided into ten equity shares of face value of Re.
1/-each fully paid up. The sub-division had been given effect as per record date fixed by the Board of Directors i.e. February
28,2014.

C. Shares held by holding / ultimate holding company and / or their subsidiaries / associates

The Company does not have any holding / ultimate holding company.

D. Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the
period of five years immediately preceding the reporting date

The Company had issued Public Announcement dated December 29, 2014, for buy-back of equity shares of face value of Re. 1/-each
from the open market at a price not exceeding Rs. 100 per share for an aggregate amount not exceeding Rs. 60,000,000. Under the
Buy-back offer, the Company has bought back 678,155 equity shares for an aggregate amount of Rs. 59,573,776 by utilizing the
Securities Premium Account to the extent of Rs. 58,895,621 and General Reserve to the extent of Rs. 678,155. The Capital
Redemption Reserve has been created out of General Reserve for Rs. 678,155 being the nominal value of equity shares bought back
in terms of Section 68 of the Companies Act, 2013. The Company has closed the buy-back offer pursuant to approval by the Board of
Directors of the Company at its meeting held on April 23, 2015.

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

F. Shares reserved for issue under options

For details of shares reserved for issue under the employee stock option plans (ESOP) of the Company, please refer note 32.

Notes:

(1) For the year ended December 31, 2015, the Board of Directors had declared three interim dividends aggregating to Rs. 3.95 per
equity share of face value of Re. 1/-each. These dividends had been paid to the shareholders during the year ended December 31,
2015. The shareholder''s assent for these interim dividends will be taken in forthcoming Annual General Meeting. Further for the
year ended December 31, 2014, the Board of Directors had recommended a final dividend of Re. 0.95/- per equity share of face
value of Re. 1/- each, in addition to four interim dividends aggregating to Rs. 4.90 per equity share of face value of Re. 1/-
each paid during the year, which had been approved and confirmed by the shareholder''s at the Annual General Meeting held on June
09,2015. Based on applicable provisions of the Companies Act, 2013 on aforesaid dividends, the Company has not transferred any
amount to the general reserves as the dividends has been declared and paid after April 1, 2014.

(2) The Company has written back proposed dividend for the year ended December 31, 2014 and tax thereon towards shares bought
back under the buyback offer [refer note 3(d)].

Note:

The Board of Directors at its meeting held on December 20, 2014, had declared fourth interim (special) dividend for the year 2014
@ Rs. 2.55 per equity share of face value of Re. 1/- each to the shareholders as per record date December 29, 2014. The amount
payable was transferred in a separate bank account before the year ended December 31, 2014 and the same has been paid on January
07, 2015.

Notes:

(1) The Board of Directors at its meeting held on December 20,2014, had declared fourth interim (special) dividend for the year
2014 @ Rs. 2.55 per equity share of face value of Re. 1/-each to the shareholders as per record date December 29, 2014. The
amount payable was earlier transferred in a separate bank account which has been subsequently paid on January 07, 2015.

(2) During the year ended December 31, 2014, the Company had deposited an amount aggregating to Rs. 15,000,000, being 25% of the
maximum buy-back size in an escrow account with a bank pursuant to the buyback offer. The Company has utilized the aforesaid
amount against the shares brought back during the year ended December 31, 2015 [refer note 3(d)].

* includes revenue from Information technology services Rs. 2,482,276,272 (Previous year Rs. 2,537,023,260) and Business process
outsourcing services Rs. 410,290,972 (Previous year Rs. 372,474,637).

1. Segment information

Business segments:

The Company considers business segment as the basis for primary segmental reporting. The Company is organized into two business
segments - Information technology services and products and Business process outsourcing services. Costs and expenses which
cannot be allocated to any business segment are reflected in the column ''corporate and others''. Segments have been identified and
reported based on the nature of the services, the risks and returns, the organization structure and the internal financial
reporting system.

Geographical segments:

The Company reports secondary segment information on the basis of the geographical location of the customers / assets. Although
the Company''s major operating divisions are managed on a worldwide basis, they operate in five principal geographical areas of
the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

2. Related Party Disclosures:

(i) Names of related parties:

Names of related parties where control exists:

Subsidiaries R Systems (Singapore) Pte Ltd, Singapore

R Systems, Inc., USA ECnet Ltd, Singapore Computer’s International Limited, U.K. Systemes R. International Ltee, Canada

R Systems Technologies Limited, India (formerly known as Indus Software, Inc., USA) R Systems Product &Technologies Private
Limited, India (formerly known as R Systems Product & Technologies Limited) (ceased to be subsidiary w.e.f. July 07, 2015) R
Systems Solutions, Inc., USA (merged with R Systems, Inc., USA w.e.f. December 10, 2015) R Systems Europe B.V., Netherlands
(ceased to be subsidiary w.e.f. November 27, 2014) R Systems S.A.S., France (ceased to be subsidiary w.e.f. November 27, 2014)

Following are the subsidiaries of ECnet Ltd, Singapore

- ECnet (M)SdnBhd, Malaysia

- ECnet Systems (Thailand) Co. Ltd.,Thailand

- ECnet (Shanghai) Co. Ltd., People''s Republic of China

- ECnet (Hong Kong) Ltd., Hong Kong

- ECnet, Inc., USA

- ECnet Kabushiki Kaisha, Japan

Following are the subsidiaries of Computer’s International Limited, U.K.

- Computer’s Romania Sri, Romania

- Computer’s Polska spzo.o., Poland

- ICS Computer’s International Sri, Moldova

- Computer’s Malaysia Sdn. Bhd., Malaysia

- Computer’s USA, Inc., USA

Following are the subsidiaries of R Systems (Singapore) Pte Ltd, Singapore

- IBIZCS Group Pte Ltd- Singapore with the following step down subsidiaries

> IBIZ Consulting Services Pte Ltd - Singapore

> IBIZ Consulting Services Sdn. Bhd. Malaysia

> PT. IBIZCS Indonesia, Indonesia

> IBIZ Consultancy Services India Private Limited - India

> IBIZ Consulting Services Limited - Hong Kong

> IBIZ Consulting Services (Shanghai) Co., Ltd China

Key management personnel Satinder Singh Rekhi, Managing Director

Lt. Gen. Baldev Singh (Retd.), President and Senior Executive Director

Raj Swaminathan, Director (resigned as director on June 27, 2015)

Nand Sardana, Chief Financial Officer #

Vikash KumarTiwari, Company Secretary & Compliance Officer (resigned on December 20, 2014) #

Ashish Thakur, Company Secretary & Compliance Officer (appointed on December 20, 2014)

# Pursuant to the Companies Act, 2013.

Relatives of Key Harpreet Rekhi, (related to Satinder Singh Rekhi)

management Sartaj Singh Rekhi, (related to Satinder Singh Rekhi)

personnel Amrita Kaur, (related to Satinder Singh Rekhi)

Ramneet Singh Rekhi, (related to Satinder Singh Rekhi)

Anita Behl, (related to Satinder Singh Rekhi)

Kuldeep Baldev Singh, [related to Lt. Gen. Baldev Singh (Retd.)]

Mandeep Singh Sodhi, [related to Lt. Gen. Baldev Singh (Retd.)], Vice President - Sales

Enterprises where key U Infosoft Private Limited

management personnel GM Solutions Private Limited

or their relatives exercise GMU Infosoft Private Limited

significant influence Right Match Holdings Limited

Satinder and Harpreet Rekhi Family Trust

3. Corporate Social Responsibility (CSR)

As per the requirements of Section 135 of the Companies Act, 2013, the Company is required to spend an amount of Rs. 9,425,281 on
CSR expenditure for the year December 31, 2015. Out of this, the Company has disbursed Rs. 1,500,000 for education of the
underprivileged children in accordance with its Corporate Social Responsibility Policy.

Further, during the year the Company was in the process of ascertaining various avenues, projects etc. for fulfilling the
requirement of its CSR policy, therefore Company could not utilise the entire amount embarked for its CSR activities.

* Out of this Rs. 20,673,940 (previous year Rs. 28,746,337) is reimbursement for expenses which have been netted off from the
respective expenses in the statement of profit and loss and balance Rs. 1,209,918 (previous year Rs. 17,782,512) is reimbursement
for purchase of fixed assets.

Notes:

1. Figures for the year ended December 31,2015 and December 31,2014 are as per provisions of the Companies Act, 2013 and the
Companies Act, 1956, respectively.

2. The remuneration paid during the year ended December 31,2015, in excess of the limits specified in 29.1 (b) above has been
approved by the Central Government.

30. During the year ended December 31,2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises
Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to
identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specified
period irrespective of the terms agreed with the suppliers. For the purpose of identification of such suppliers, the Company has
sent confirmations to all its suppliers. Based upon the confirmations received so far and the supplier profile available with the
Company, the management believes that there are no dues to such suppliers.

4. (a) During earlier years, the Company had acquired shares in ECnet Limited, a company incorporated in Singapore at a total
consideration of Rs. 34,938,958. During the year ended December 31, 2005, the Company had based upon an order of High Court of
Delhi written down the investment value to Rs. 10,443,237 and adjusted the write off of Rs. 24,495,721 against the Securities
Premium Account as this had not been represented by available assets.

During the year ended December 31,2007, the Company had settled the liabilities towards certain erstwhile shareholders. Asa
result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management.
Out of above, Rs. 10,442,237 had been adjusted against the value of the investment. The reassessed amount payable as at December
31, 2014 was shown under ‘Other current liabilities''.

During the year ended December 31, 2015, after the expiry of relevant limitation period under applicable laws, the Company has
reversed deferred payment compensation amounting to Rs. 12,609,305. This reversal is included under ‘Exceptional items ‘in the
financial statements.

(b) During the year ended December 31, 2011, the Company had acquired 100% shares of Computer’s International Limited, UK
(Computer’s) on January 26, 2011 for a maximum consideration of GBP 9 million out of which GBP 4.25 million was the initial
payout and balance was based on earn outs as well as fulfillment of certain condition by the erstwhile shareholders of Computer’s
over the next two years.

During the year ended December 31, 2013, the management basis the settlement entered into with erstwhile shareholders of
Computer’s, has agreed the final consideration at Rs. 421,812,565 and accordingly adjusted the investments value by Rs.
17,209,661.

The Board of Directors at its meeting held on July 07,2014 has approved the offer of buy-back from Computer’s International
Limited (a wholly owned subsidiary) of 13,500 shares held by the Company in the said subsidiary at the rate of GBP 111.38 per
share amounting to for a consideration of Rs. 148,979,660. The aforesaid buy-back proceeds have been received by the Company on
September 17, 2014. Even after this buy-back, Computer’s International Limited continues to remain wholly owned subsidiary of the
Company. The profit on the buy-back amounting to Rs. 77,798,790 is included in ''Exceptional items'' in the financial statements
for the year ended December 31, 2014.

(c) During the year ended December 31, 2014, the Company has received Rs. 55,484,250 as dividend from R Systems Europe B.V., its
wholly owned subsidiary in Netherlands.

(d) On November 27,2014, the Company had completed the transfer of Europe BPO Business by way of sale of its 100% holding in R Systems
Europe B.V., Netherlands and R Systems S.A.S., France, being wholly owned subsidiaries, to Customer Contact Management Group B.V.
("CCMG") a Europe based company by executing the Share Sale Agreement (the "SSA") along with other necessary documents for a sale
consideration of Euro 4.70 million (Rs. 357,469,488). Out of the sale consideration, Euro 0.35 million (Rs. 26,628,000) had been
placed in an escrow account in the Netherlands, the realization of which was subject to certain conditions pursuant to the
provision of the SSA. The profit on transfer amounting to Rs. 176,158,238 and Rs. 64,529,277 for R Systems Europe B.V., Netherlands
and R Systems S.A.S., France respectively are disclosed as ‘Exceptional items ‘in the financial statements for the year ended
December 31, 2014.

Also, during the year ended December 31, 2014, the Company had reversed the provision considered in earlier years towards
diminution in the value of investment amounting to Rs. 42,052,275 and Rs. 32,592,766 for R Systems Europe B.V., Netherlands and R
Systems S.A.S., France respectively. These reversals are included in ''Exceptional items'' in the financial statements for the year
ended December 31, 2014.

Further, during the year ended December 31, 2015, on the stipulated conditions under the SSA being completed, the Company has
received Euro 0.35 million (Rs. 26,628,000) which had been placed in an escrow account. The amount so received, has been included
as profit on sale of aforesaid subsidiaries under the ‘Exceptional items ‘in the financial statements for the year ended December
31, 2015.

(e) On December 10, 2015, R Systems Solution Inc. (RSSI), a wholly owned subsidiary of the Company has been merged into R Systems
Inc. (RSI), also a wholly owned subsidiary of the Company, as per the applicable laws of India and USA. Pursuant to aforesaid
merger, the Company has received incremental 150 common stock of RSI against outstanding common and preferred (series A) stocks
held in RSSI. Accordingly the Company has recorded receipt of incremental shares in RSI at Rs. 57,816,448, being the fair value
of investments given up. The Company in the earlier years had provided for permanent diminution in value of its investments in
RSSI amounting to Rs. 172,676,590 and was carrying these investments at Rs. 13,414,875. Consequent to the above merger, the
Company has written back such permanent diminution to the extent of available net assets of Rs. 57,816,448 and accordingly
recorded Rs. 44,401,573 as gain under ‘Exceptional items ‘for the year ended December 31, 2015.

(f) On July 11, 2014, the Company had incorporated a wholly owned subsidiary in India, namely, R Systems Products & Technologies
Limited (which was later converted into R Systems Products & Technologies Private Limited ("RSPTPL") on May 28, 2015). The
shareholders of the Company by passing special resolution through postal ballot on September 23, 2014 had accorded necessary
approval for transfer of the Company''s Indus Business Unit operated out of Pineland Chennai to RSPTPL.

The Company had entered into ''Business Transfer Agreement'' (BTA) with RSPTPL on June 27, 2015 for the aforesaid transfer on a
going concern basis by way of slump sale, for consideration of Rs. 783,900,000 to be discharged by RSPTPL through issuance of
60,000,003 equity shares of Re. 1/-each at a premium of Rs. 6.227333 per share and 35,026 compulsorily redeemable debentures of
Rs. 10,000 each, on the terms and conditions agreed in BTA.

The Company also entered into ‘Share Purchase Agreement''(SPA) with BD Capital Partners Ltd. ("BDC"), a Mauritius based company on
June 27, 2015 to sell 93% of its equity share in RSPTPL to BDC for a consideration of Rs. 443,170,000 (USD 7 million). Subject to
the satisfaction of certain conditions, BDC has also agreed to purchase the balance 7% equity shares for a consideration up to
Rs. 66,510,000 (USD 1 million). These conditions are under evaluation and yet to be concluded as at the year ended December 31,
2015.The Company will continue to hold the compulsorily redeemable debentures having an aggregate face value of Rs. 350,260,000
in accordance with the terms of the BTA. The closing (as defined in the agreements) under the BTA and SPA occurred on July 07,
2015.

The gain on sale of Indus Business Unit amounting to Rs. 535,713,373 (net of related expenses) and gain on sale of aforesaid
equity share in RSPTPL amounting to Rs. 28,721,375 (net of related expenses) is disclosed as ‘Exceptional items ‘in the financial
statements for the year ended December 31, 2015. The income tax attributable to aforesaid gains amounting to Rs. 132,635,363 is
included in the ‘Current Tax ‘in the financial statements for the year ended December 31, 2015. The name of RSPTPL has been changed
to Indus Software Technologies Private Limited w.e.f August 19, 2015.

Accordingly, the aforesaid Indus Business Unit, being part of Information technology services and products segment, is considered
as "Discontinuing Operations “till July 07, 2015. The revenue and expenses attributable to the said operations included in the
financial statements are as follows.

Inter unit transactions between continuing and discontinuing operations have been excluded

(g) The consequent tax expense of aforesaid ‘Exceptional items ‘amounting to Rs. 63,017,987 for the year ended December 31, 2015
and Rs. 55,731,548 for year ended December 31, 2014, is included in the ‘Current tax'' in the financial statements for the
respective year.

5. (a) R Systems International Limited -Year 2004 Employee Stock Option Plan (''the plan'')

The Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution
duly approved by the shareholders. The plan provides for the issuance of 997,500 options for equity shares of face value of Rs.
10 each, to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "1.60 times the Book Value of the Share as per the
audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous
accounting year audited balance sheet rounded off to nearest rupee as on the date of Exercise whichever is higher" till the time
equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock
price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are
granted/shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one
equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option
holders) by utilization of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956.
Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees
and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2
per share, the employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price
of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During
the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the
number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during
the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing
option holders. Further, during the year ended December 31,2014, the Company had sub-divided equity shares of Rs. 10 each into 10
equity shares of Re. 1 each, the exercise price is accordingly adjusted from Rs. 105 per share to Rs. 10.50 per share.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an
option to exercise it over a period of 10 years from the date of grant under the plan. As per the plan, the Compensation
Committee cannot grant any outstanding options after August 31, 2014, therefore there are no grants outstanding for determination
by the Compensation Committee.

(b) Indus Software Employees Stock Option Plan -Year 2001 (''the plan''):

Indus Software Private Limited (''Indus'') had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be
issued to the eligible employees under the Indus Software Employees Stock Option Plan -Year 2001 under various vesting periods as
specified in the sand Plan, duly approved by the erstwhile shareholders. Indus had established "R Systems Employees Welfare
Trust" (''the R Systems Trust'') (formerly known as Indus Software Employees Welfare Trust) to administer the plan, as approved by
the members, for the benefits of the Company''s employees and had provided an interest free loan of Rs. 3,382,792. Consequently,
Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the R Systems Trust to be
further issued to the Indus ‘eligible employees on the exercise of the underlying options granted to them.

Asa result of the merger of Indus with the Company, all employees had surrendered their options in favour of the R Systems Trust
to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued
206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the R Systems Trust in exchange of 21,967 equity
shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were
issued to the employees on exercise of options.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30,
2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilization of Securities Premium Account in
terms of the provisions of Section 78 of the Companies Act, 1956 and further sub-division of each of the equity shares of Rs. 10
each into 10 equity shares of Re. 1 each as per record date of February 28, 2014, consequently the total number of shares issued
are now 738,980 equity shares of Re. 1 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from
Issued, subscribed and paid-up capital and Securities Premium Account respectively as suggested by the "Guidance Note on
Accounting for Employee Share-based Payments" issued by The Institute of Chartered Accountants of India.

(c) R Systems International Limited -Year 2004 Employees Stock Option Plan ECnet (''the plan'')

The Company had instituted the plan for all eligible employees in pursuance of the special resolution duly approved by the
shareholders. The plan provides for the issuance of 1,000,000 options to eligible employees as recommended by the Compensation
Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "book value of the share as per the audited balance
sheet as on December 31, 2003 i.e. Rs. 26 or as on the date of exercise, the book value as per immediate previous accounting year
audited balance sheet rounded off to nearest rupee whichever is higher" till the time equity shares of the Company are not
listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available
closing price, prior to the date of the meeting of the Board of Directors in which options are granted /shares are issued, on the
stock exchange on which the shares of the Company are listed.

During the year ended December 31,2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity
share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by
utilization of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these
changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price
to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the
employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 26 per
share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 65 per equity share. During the year ended
December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options
vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended
December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders.
Further, during the year ended December 31,2014, the Company had sub-divided equity shares of Rs. 10 each into 10 equity shares
of Re. 1 each, the exercise price is accordingly adjusted from Rs. 65 per share to Rs. 6.50 per share.

The weighted average remaining contractual life for the stock options as at December 31,2015 is Nil (Previous year Nil months).

(d) R Systems International Limited Employee Stock Option Scheme 2007 (''the plan'')

During the year 2007, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of
the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible
employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is Rs. 120.70 being the latest available closing price,
prior to the date of the meeting of the Board of Directors/Compensation Committee held on July 11,2007 in which options were
granted, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock
Option is taken as Rs. Nil. Further, during the year ended December 31, 2014, the Company had sub-divided equity shares of Rs. 10
each into 10 equity shares of Re. 1 each, the exercise price is accordingly adjusted from Rs. 120.70 per share to Rs. 12.07 per
share.

For options exercised during the period, the weighted average share price at the exercise date was Rs. 68.71 per share (Previous
year Rs. 49.72). The weighted average remaining contractual life for the stock options as at December 31,2015 is 19 months
(Previous year 31 months).

(e) For the purpose of valuation of the options granted before year ended December 31, 2004, the management obtained fair value
of the options at the date of grant under respective schemes from a firm of Chartered Accountants to determine accounting impact,
if any, of options granted over the periods. In the considered opinion of the value, the fair value of option determined
using ‘Black Scholes Valuation Model ‘under each of above schemes [except R Systems International Limited Employee Stock Option
Scheme 2007 refer 32 (d) above] is "Nil “and thus no accounting thereof is required.

*: R Systems International Ltd.-Year 2004 Employee Stock Option Plan under which the price was based on Rs. 2 per share.

**: Indus Software Employees Stock Option Plan - Year 2001 under which originally the price was based on Rs. 10 per share for
21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, R Systems had issued 206,822 equity
shares of Rs. 2 each pursuant to the swap ratio approved by Hon''ble High Courts of Delhi and Mumbai.

***: R Systems International Ltd.-Year 2004 Employee Stock Option Plan - ECnet under which the price was based on Rs. 2 per
share.

The details given above for plan (a), (b)and (c)are before making the required adjustments in relation to consolidation of each
of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year ended
December 31,2006 and further sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1 each as per
record date of February 28,2014.

Further, for the purpose of valuation of the options granted during the year 2005 under R Systems International Limited-Year 2004
Employee Stock Option Plan, the management obtained fair value of the options at the date of grant from a firm of Chartered
Accountants, to determine accounting impact, if any, of options granted. In the considered opinion of the value, the fair value
of these option determined using ‘Black Scholes Valuation Model’s" Nil “and thus no accounting thereof is required.

The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share
of Rs. 10 each and subsequent allotment of bonus shares in the ratio of 1 :1 and further sub-division of each of the equity
shares of Rs. 10 each into 10 equity shares of Re. 1 each as per record date of February 28, 2014.

(f) For the purpose of valuation of the options granted during the year ended December 31,2007 under R Systems International Limited
Employee Stock Option Scheme - 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic
value method is Nil.

The management obtained fair value of the options at the date of grant from a firm of Chartered Accountants. In the considered
opinion of the value, the fair value of these options determined using ‘Black Schools Valuation Model'' is "Rs. 50.73" per option.

6. As at January 01,2015, the Company, based on technical assessment, reassessed the useful life of tangible assets and accordingly changed
the useful lives of certain assets resulting in incremental charge of depreciation. Accordingly, the depreciation charge for the
year ended December 31,2015 is higher by Rs. 32,249,242.The profit after tax for the year ended December 31,2015 is lower by Rs.
21,151,945. Further, during the year ended December 31, 2015, the Company had transferred Rs. 12,455,113 (net of tax) to reserves
based on the transitional provision under Schedule II of the Companies Act, 2013.

7. Post-employment benefits

The Company has funded defined benefit gratuity plan. Every employee who has completed five years or more of service gets a
gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof
in excess of six months subject to a maximum of Rs. 1,000,000. The following table summarizes the components of net employee
benefits expense recognized in the statement of profit and loss.

8. Particulars of Derivative Instruments and Unheeded Foreign Currency Exposure as at December 31,2015 and December 31,2014:

As of December 31, 2015, the Company has derivative financial instruments to sell USD 15,300,000 (Previous year USD 14,750,000),
EURO 1,850,000 (Previous year EUR01,200,000) and put options USD Nil (Previous year 150,000).The Company has not applied hedge
accounting as these instruments do not qualify for hedge accounting. The Company has recognized mark-to-market gain of Rs.
15,645,821 (Previous year loss of Rs. 549,541) relating to such derivative financial instruments in the statement of profit and
loss for the year ended December 31,2015.

* Cash credit limit / Bank guarantee / Loan equivalent risk / Letter of credit is secured by first charge by way of hypothecation of entire
current assets and collateral over an immovable property situated in Noida.

9. Previous year figures have been regrouped/ reclassified where necessary to make them comparable to the current year
classification.

---

Dec 31, 2014

1. Corporate information

R Systems International Limited (the ''Company'') is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on National Stock Exchange of India Limited and BSE Limited. The Company is a leading global provider of IT solutions and Business Process Outsourcing (BPO) services. The Company''s primary focus is to provide full service IT solutions, software engineering services, technical support, customer care and other IT enabled services to the high technology sector, independent software vendors (ISV''s), banks, financial services companies, telecom and digital media technology companies and services providers, insurance and health care sector. The Company also develops and markets a suite of applications under the brand name "Indus" for the retail lending to banks and non-banking finance companies, insurance and telecom segment.

2. Basis of preparation

The Financial Statements comprising of balance sheet, statement of Profit & loss, cash flow statement and notes to accounts has been prepared to comply in all material respects with the accounting standards notifed under the Companies Act, 1956 read with General Circular 8/2014 dated 4 April 2014, issued by the Ministry of Corporate Afairs in respect of section 133 of the Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014 and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared on an accrual basis and under the historical cost convention except for certain financial instruments which are measured at fair value. The accounting policies have been consistently applied by the Company and are consistent with those used in previous year.

All figures are in Rupees except where expressly stated.

3. post-employment benefts

The Company has funded defned beneft gratuity plan. Every employee who has completed five years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 1,000,000.

4. particulars of derivative Instruments and unhedged Foreign Currency exposure as at december 31, 2014 and december 31, 2013:

As of December 31, 2014, the Company has derivative financial instruments to sell USD 14,750,000 (Previous year USD 11,450,000), EURO 1,200,000 (Previous year EURO 750,000) and put options USD 150,000 (Previous year Nil). The Company has not applied hedge accounting as these instruments do not qualify for hedge accounting. The Company has recognised mark-to-market loss of Rs. 549,541 (Previous year loss of Rs. 22,918,617) relating to such derivative financial instruments in the Statement of Profit and Loss for the year ended December 31, 2014.

* Cash credit limit / Bank guarantee / Loan equivalent risk / Letter of credit is secured by frst charge by way of hypothecation of entire current assets and collateral over an immovable property situated in Noida.

5. Previous year figures have been regrouped / reclassifed where necessary to make them comparable to the current year classifcation.

6. Contingent liabilities:

As at As at December 31, December 31, 2014 2013 (Rs.) (Rs.)

Performance guarantees given to Department of Telecommunication for 20,000,000 20,000,000 Domestic and International ''Other Service Provider'' licenses

Performance bank guarantee issued to a customer 279,000 6,138,000

Total 20,279,000 26,138,000

---

Dec 31, 2013

1. notes:

(1) For the year ended December 31, 2013, the Board of Directors of the Company has recommended a final dividend of Re. 0.95 per equity share of face value of Re. 1/- each, equivalent to Rs. 9.50 per equity share of Rs. 10/- per share before the sub-division of equity shares (being 95% on the par value), subject to the approval of the shareholders in forthcoming Annual General Meeting. This is in addition to first and second interim dividend of Rs. 2.50 and Rs. 8.50 per equity share of face value of 10/- each paid in August 2013 and November 2013, shareholder''s confirmation for which will be taken in forthcoming Annual General Meeting. The Company has transferred Rs. 36,552,200 from current year profits to General Reserve in compliance with the Companies (Transfer of Profits to Reserves) Rules, 1975. Further for the year ended December 2012, the Board of Directors had recommended a final dividend of Rs. 7.50 per share in addition to a special interim dividend of Rs. 16.00 per equity share of face value of 10/- each paid in June 2012 , which had been approved and confirmed respectively by the shareholders at the Annual General Meeting held on May 11, 2013. Also refer note 32 (b).

(2) The Company has issued 50,100 shares pursuant to exercise of employee stock options under the R Systems International Limited Employee Stock Option Scheme 2007 up to book closure date for distribution of dividend for the year ended December 31, 2012 and accordingly increased the appropriation in the current year by Rs. 375,750 and Rs. 63,859 as dividend and tax on dividend respectively. Further, due to increase in surcharge rate under Finance Act, 2013 the Company has additionally appropriated Rs. 725,419 towards tax on dividend proposed for the year ended December 31, 2012. For the year ended December 31, 2011 the Company has issued 97,220 shares pursuant to exercise of employee stock options under the R Systems International Limited Employee Stock Option Scheme 2007 up to book closure date for distribution of dividend and accordingly increased the appropriation by Rs. 349,992 and Rs. 56,777 as dividend and tax on dividend respectively.

2. Segment information

Business segments:

The Company considers business segment as the basis for primary segmental reporting. The Company is organised into two business segments – Information technology services and products and Business process outsourcing services. Costs and expenses which cannot be allocated to any business segment are reflected in the column ''corporate and others''. Segments have been identified and reported based on the nature of the services, the risks and returns, the organisation structure and the internal financial reporting system.

Geographical segments:

The Company reports secondary segment information on the basis of the geographical location of the customers / assets. Although the Company''s major operating divisions are managed on a worldwide basis, they operate in five principal geographical areas of the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

3. Contingent liabilities:

As at As at December 31, 2013 December 31, 2012 (Rs.) (Rs.)

Performance guarantees given to Department of Telecommunication for Domestic and International Other Service Provider'' licenses 20,000,000 20,000,000

Performance bank guarantee issued to a customer 6,138,000 4,408,736

Total 26,138,000 24,408,736

4. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specified period irrespective of the terms agreed with the suppliers. For the purpose of identification of such suppliers, the Company has sent confirmations to all its suppliers. Based upon the confirmations received so far and the supplier profile available with the Company, the management believes that there are no dues to such suppliers.

5. (a) During earlier years, the Company had acquired 98.59% shares in ECnet Limited, a company incorporated in Singapore at a total consideration of Rs. 34,938,958. During the year ended December 31, 2005, the Company had based upon an order of High Court of Delhi written down the investment value to Rs. 10,443,237 and adjusted the write of of Rs. 24,495,721 against the Securities Premium Account as this had not been represented by available assets.

During the year ended December 31, 2007, the Company had settled the liabilities towards certain erstwhile shareholders. As a result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management. Out of above, Rs. 10,442,237 had been adjusted against the value of the investment. The reassessed amount payable Rs. 13,153,262 (reinstated as at December 31, 2013) [Previous year Rs. 12,117,859 (reinstated as at December 31, 2012)] is shown under ''Other current liabilities''.

(b) As at December 31, 2013, the net worth of R Systems Singapore Pte. Limited and ECnet Limited is partially eroded. However the Company, based on future business plans of these subsidiaries does not consider the diminution in its investment value to be permanent.

(c) During the year ended December 31, 2011, the Company had acquired 100% shares of Computaris International Limited, UK (Computaris) on January 26, 2011 for a maximum consideration of GBP 9 million out of which GBP 4.25 million was the initial payout and balance was based on earn outs as well as fulfillment of certain condition by the erstwhile shareholders of Computaris over the next two years.

During the year ended December 31, 2013, the management basis the settlement entered into with erstwhile shareholders of Computaris, has agreed the fnal consideration at Rs. 421,812,565 and accordingly adjusted the investments value by Rs. 17,209,661.

(d) One of the step down subsidiaries i.e. Computaris Limited (a wholly owned dormant subsidiary of Computaris International Limited) has been liquidated as per applicable laws in United Kingdom and India on December 24, 2013.

(e) During the year ended December 31, 2010, the Board of Directors of the Company and R Systems NV, Belgium (wholly owned subsidiary of the Company) had approved the liquidation of R Systems NV, Belgium subject to the required statutory and corporate approvals in India and Belgium. The above said liquidation has been completed on June 24, 2013, in compliance with the applicable laws of India and Belgium. Out of the investments value of Rs. 3,471,640, Rs. 223,662 has been received in the current year and balance Rs. 3,247,978 has been written of as loss on liquidation of a subsidiary by utilising Rs. 3,036,745 provision created in earlier years towards long term diminution, thus the net loss on liquidation of Rs. 211,233 is disclosed under operating expenses.

6. (a) R Systems International Limited - Year 2004 Employee Stock Option Plan (''the plan'')

During the year 2004, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 997,500 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "1.60 times the book value of the share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee as on the date of exercise whichever is higher", till the time equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted / shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders.

(b) Indus Software Employees Stock Option Plan – Year 2001 (''the plan'') :

Indus Software Private Limited (''Indus'') had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the Indus Software Employees Stock Option Plan – Year 2001 under various vesting periods as specified in the said Plan, duly approved by the erstwhile shareholders. Indus had established "Indus Software Employees Welfare Trust" (''the Indus Trust'') to administer the plan, as approved by the members, for the benefits of the Company''s employees and had provided an interest free loan of Rs. 3,382,792. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the Indus Trust to be further issued to the Indus'' eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favor of the Indus Trust to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the Indus Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30, 2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956, consequently total number of shares issued are now 73,898 equity shares of Rs. 10 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from Issued, subscribed and paid-up capital and Securities Premium Account respectively as suggested by the "Guidance Note on Accounting for Employee Share-based Payments" issued by The Institute of Chartered Accountants of India.

(c) R Systems International Limited – Year 2004 Employees Stock Option Plan ECnet (''the plan'')

The Company had instituted the plan for all eligible employees in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 1,000,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "book value of the share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 26 or as on the date of exercise, the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee whichever is higher" till the time equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted / shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 26 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 65 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders.

The vesting period is 4 years (40% in 1st year & 20% in 2nd, 3rd & 4th year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2013 and year ended December 31, 2012 is set out below:

(d) R Systems International Limited Employee Stock Option Scheme 2007 (''the plan'')

During the year 2007, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee held on July 11, 2007 in which options were granted, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil.

For options exercised during the period, the weighted average share price at the exercise date was Rs. 234.17 per share (Previous year Rs. 164.49)

The weighted average remaining contractual life for the stock options as at December 31, 2013 is 43 months (Previous year 55 months).

(e) For the purpose of valuation of the options granted before year ended December 31, 2004 , the management obtained fair value of the options at the date of grant under respective schemes from a firm of Chartered Accountants to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the value, the fair value of option determined using ''Black Scholes Valuation Model'' under each of above schemes (except R Systems International Limited Employee Stock Option Scheme 2007 refer 31 (d) above) is "Nil" and thus no accounting thereof is required.

(f) For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme – 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Nil.

The management obtained fair value of the options at the date of grant from a firm of Chartered Accountants. In the considered opinion of the value, the fair value of these options determined using ''Black Scholes Valuation Model'' is "Rs. 50.73" per option.

(b) Subsequent to the year end, on January 14, 2014, the shareholders of the Company, through postal ballot, approved the sub-division (stock split) of one equity share of face value of Rs. 10/- into ten equity shares of face value of Re. 1/- each fully paid up as recommended by the Board of Directors at their meeting held on November 29, 2013. The Board of Directors has fixed February 28, 2014 as the record date to give effect of the sub-division.

As at December 31, 2013, the sub-division has not been given effect in the disclosure pertaining to change in capital structure, terms / rights of shareholder and shareholding under note 3 "Share capital" and outstanding Employees stock options plans / scheme under note 31. However, for the purpose of computing Earnings Per Share for the current year and previous year, the effect of sub-division has been considered in accordance with the requirements of Accounting Standard - 20 "Earnings Per Share".

7. post-employment benefits

The Company has funded defend benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 1,000,000.

8. particulars of derivative Instruments and unheeded Foreign Currency exposure as at December 31, 2013 and December 31, 2012:

As of December 31, 2013, the Company had derivative financial instruments to sell USD 11,450,000 (Previous year USD 11,600,000), EURO 750,000 (Previous year EURO 400,000). The Company has not applied hedge accounting as these instruments do not qualify for hedge accounting. The Company has recognised mark-to-market loss of Rs. 22,918,617 (Previous year gain of Rs. 5,814,261) relating to such derivative financial instruments in the Statement of Profit and Loss for the year ended December 31, 2013.

9. Previous year fgures have been regrouped / reclassified where necessary to make them comparable to the current year classification.

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Dec 31, 2012

1. CORPORATE INFORMATION

R Systems International Limited (the ''Company'') is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on National Stock Exchange of India Limited and BSE Limited. The Company is a leading global provider of IT solutions and Business Process Outsourcing (BPO) services. The Company''s primary focus is to provide full service IT solutions, software engineering services, technical support, customer care and other IT enabled services to the high technology sector, independent software vendors (ISV''s), banks, fnancial services companies, telecom and digital media technology companies and services providers, insurance and health care sector. The Company develops and markets a suite of applications under the brand name "Indus" for the retail lending to banks and non-banking fnance companies, insurance and telecom segment.

2. BASIS OF PREPARATION

The fnancial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Company has prepared these fnancial statements to comply in all material respects with the Accounting Standards notifed by Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The fnancial statements have been prepared under the historical cost convention on an accrual and going concern basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year, except for the change in the accounting policy explained below.

All fgures are in Rupees except where expressly stated.

A. Terms / rights attached to the equity share

As per secretarial records, the Company has only one class of equity shares having a par value of Rs. 10 per share. Each holder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in forthcoming Annual General Meeting, except in case of interim dividend.

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

B. Shares held by holding / ultimate holding company and / or their subsidiaries / associates

The Company does not have any holding / ultimate holding company as defned under Companies Act, 1956.

C. Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of fve years immediately preceding the reporting date:

The Board of Directors of the Company at its meeting held on September 07, 2008, had approved the Buy-back of the equity shares. Under the Buy-Back program, the Company had bought back 1,265,820 equity shares up to August 27, 2009 (including 146,346 equity shares up to December 31, 2008) at an average price of Rs. 63.20 per share for an aggregate amount of Rs. 80,000,000 by utilising the Securities Premium Account to the extent of Rs. 67,341,773 and General Reserve to the extent of Rs. 12,658,200. The Capital Redemption Reserve has been created out of General Reserve for Rs.12,658,200 being the nominal value of equity shares bought back in terms of Section 77AA of the Companies Act, 1956. The Ofer for Buy-back was successfully completed on August 27, 2009.

Notes:

(1) For the year ended December 31, 2012, the Board of Directors has recommended a fnal dividend of Rs. 7.50 per share, subject to the approval of the shareholders in forthcoming Annual General Meeting. This is in addition to a special interim dividend of Rs. 16.00 per equity shares paid in June 2012, confrmation for which will be taken in forthcoming Annual General Meeting. Based on expert legal advice the Company has transferred Rs. 20,527,701 from the current year proft and Rs. 39,001,591 from the carried forward surplus in Statement of Proft and Loss in compliance with the Companies (Transfer of Profts to Reserve) Rules, 1975.

Further for the year ended December 2011, the Board of Directors had recommended a dividend of Rs. 3.60 per share which had been approved by the shareholders at the Annual General Meeting held on May 04, 2012.

(2) The Company has issued 97,220 shares pursuant to exercise of employee stock options under the R Systems International Limited Employee Stock Option Scheme 2007 up to book closure date for distribution of dividend, for the year ended December 31, 2011 and accordingly increased the appropriation by Rs. 349,992 and Rs. 56,777 as dividend and tax on dividend respectively.

3. SEGMENT INFORMATION

Business segments :

The Company considers business segment as the basis for primary segmental reporting. The Company is organised into two business segments – software development and customisation services and BPO services. Costs and expenses which cannot be allocated to any business segment are refected in the column ''corporate and others''. Segments have been identifed and reported based on the nature of the services, the risks and returns, the organisation structure and the internal fnancial reporting system.

Geographical segments :

The Company reports secondary segmentation information on the basis of the geographical location of the customers / assets. Although the Company''s major operating divisions are managed on a worldwide basis, they operate in fve principal geographical areas of the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

Geographical segments:

The Company reports secondary segment information on the basis of the geographical location of the customers / assets. The management views the domestic and export markets as distinct geographical segments.

Assets and additions to tangible and intangible fxed assets by geographical area:

The following table shows the carrying amount of assets and additions to tangible assets and intangible assets (including capital advances) by geographical area in which assets are located:

(ii) Other commitments:

The Company has undertaken to provide continual fnancial support to its following subsidiaries to enable such subsidiaries to meet its working capital and other fnancial requirements:

(a) R Systems (Singapore) Pte Ltd, Singapore

(b) R Systems, Inc., USA

(c) Indus Software, Inc., USA

(d) R Systems Solutions, Inc., USA

(e) ECnet Ltd, Singapore

(f) Computaris International Limited, U.K.

The operating lease arrangements extend for a maximum of 9 years from their respective dates of inception. Some of the operating lease arrangements have price escalation clause at various periodic levels ranging from 0 to 10%, includes option of renewal from 1 to 6 years and there are no restrictions imposed on lease arrangements.

Note:

As the future liability for gratuity and long term compensated absences is provided on an actuarial basis for the Company as a whole, the amount pertaining to the directors is not ascertainable and, therefore, not included above.

4.1 (b) Computation of net proft under Section 349 of the Companies Act, 1956 for calculation of managerial remuneration under Section 198 of the Companies Act, 1956.

* The Company depreciates fxed assets based on estimated useful lives that are lower than those implicit in Schedule XIV of the Companies Act, 1956. Accordingly, the rates of depreciation used by the Company are higher or equal than the minimum prescribed under Schedule XIV.

4.1 (c) The remuneration paid in excess of the limits specifed in 27.1 (b) above has been approved by the Central Government.

* Out of this Rs. 42,892,076 (previous year Rs. 47,250,955) is reimbursement for expenses which have been netted of from the respective expenses in the Statement of Proft and Loss and balance Rs. 10,593,943 (previous year Rs. 415,319) is reimbursement for purchase of assets.

5. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with efect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specifed period irrespective of the terms agreed with the suppliers. For the purpose of identifcation of such suppliers, the Company has sent confrmations to all its suppliers. Based upon the confrmations received so far and the supplier profle available with the Company, the management believes that there are no dues to such suppliers.

6. (a) During earlier years, the Company had acquired 98.59% shares in ECnet Limited, a Company incorporated in Singapore at total consideration of Rs. 34,938,958. During the year ended December 31, 2005, the Company had based upon an order of High Court of Delhi written down the investment value to Rs. 10,443,237 and adjusted the write of of Rs. 24,495,721 against the Securities Premium Account as this had not been represented by available assets.

During the year ended December 31, 2007, the Company had settled the liabilities towards certain erstwhile shareholders. As a result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management. Out of above, Rs.10,442,237 had been adjusted against the value of the investment. The reassessed amount payable Rs. 12,117,859 (reinstated as at December 31, 2012) [Previous year Rs. 11,068,991 (reinstated as at December 31, 2011)] is shown under ''Other current liabilities''.

During the year ended December 31, 2010, the Board of Directors had approved a Scheme for corporate restructuring of its two subsidiaries based in Singapore viz ECnet Limited and R Systems (Singapore) Pte Limited subject to applicable corporate and other regulatory approvals in India and Singapore. The proposed corporate restructuring involves conversion of loan by the Company to ECnet Limited into equity investment and thereafter amalgamation of both these subsidiaries.

During the year ended December 31, 2011, pursuant to the above restructuring plan, the loan to ECnet Limited amounting to Rs. 152,000,000 (SGD 3,800,000) has been converted into equity investment at the fair value of Rs Nil. Post conversion the shareholding of the Company in ECnet Limited has increased from 98.59% to 99.55% (38,306,451 number of shares issued post conversion). The Company is in the process of obtaining relevant regulatory approvals for the amalgamation of both the subsidiaries.

During the year ended December 31, 2012, the Company has made further equity investment amounting to Rs. 5,525,000 (SGD 1,25,000) for long term purposes and increased its shareholding from 99.55% to 99.56%. The Company, based on internal assessment of performance of the subsidiary has considered provision towards long-term diminution in the value of this investment.

(b) During the year ended December 31, 2011, the Company had acquired 100% shares of Computaris International Limited, UK (Computaris) on January 26, 2011 for a maximum consideration of GBP 9 million out of which GBP 4.25 million is the initial payout and balance is based on earn outs as well as fulfllment of certain condition by the erstwhile shareholders of Computaris over the next two years. As at December 31, 2011, the management assessed investment value at Rs. 484,583,504 which represented consideration assessed as probable to be paid as on that date.

As at December 31, 2012, the management has reassessed the investment value at Rs. 439,022,226 basis the fnal earn out amount payable to the erstwhile shareholders of Computaris.

As at December 31, 2012 amount payable to the erstwhile shareholders of Computaris, within one year from the year-end is shown under ''Other current liabilities'' of Rs. 20,706,710 (reinstated as at December 31, 2012) [previous year Rs.116,232,952 (reinstated as at December 31, 2011)] and balance amount is payable after one year which has been disclosed under ''Other long-term liabilities'' of Rs. Nil [previous year Rs.70,994,905 (reinstated as at December 31, 2011)].

(c) R Systems, Inc., USA has net book value of Rs. 156,166,002 as at December 31, 2012, as against the investment value of Rs. 223,358,532. The management based on future business plans of the subsidiary as well as its continuing fnancial support does not consider there to be diminution other than temporary.

(d) During the year ended December 31, 2010, the Board of Directors of the Company and R Systems NV, Belgium (wholly owned subsidiary of the Company) had approved the liquidation of R Systems NV, Belgium subject to the required statutory and corporate approvals in India and Belgium. The Company is in the process of obtaining relevant regulatory approvals.

7. (a) R Systems International Limited - Year 2004 Employee Stock Option Plan (''the plan'')

During the year 2004, the Company had instituted the plan for all eligible employees as specifed in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 997,500 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "1.60 times the book value of the share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee as on the date of exercise whichever is higher", till the time equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted / shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefts intended to be made available under the plan i.e. instead of fve options of Rs. 2 per share, the employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confrming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modifcation and no additional beneft was ofered to the existing option holders.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2012 and year ended December 31, 2011 is set out below:

(b) Indus Software Employees Stock Option Plan – Year 2001 (''the plan''):

Indus Software Private Limited (''Indus'') had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the Indus Software Employees Stock Option Plan – Year 2001 under various vesting periods as specifed in the said Plan, duly approved by the erstwhile shareholders. Indus had established "Indus Software Employees Welfare Trust" (''the Indus Trust'') to administer the plan, as approved by the members, for the benefts of the Company''s employees and had provided an interest free loan of Rs. 3,382,792. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the Indus Trust to be further issued to the Indus'' eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favour of the Indus Trust to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the Indus Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30, 2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956, consequently total number of shares issued are now 73,898 equity shares of Rs. 10 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from Issued, subscribed and paid- up capital and Securities Premium Account respectively as suggested by the "Guidance Note on Accounting for Employee Share-based Payments" issued by The Institute of Chartered Accountants of India.

The movement in the options (in equivalent number of shares of the Company) held by the Trust during the year ended December 31, 2012 and the year ended December 31, 2011 is set out below:

(c) R Systems International Limited – Year 2004 Employees Stock Option Plan ECnet (''the plan'')

The Company had instituted the plan for all eligible employees in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 1,000,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "book value of the share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 26 or as on the date of exercise, the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee whichever is higher" till the time equity shares of the Company are not listed. Once the equity shares are listed, the exercise price is prevailing price or stock price i.e. the latest available closing price, prior to the date of the meeting of the Board of Directors in which options are granted / shares are issued, on the stock exchange on which the shares of the Company are listed.

During the year ended December 31, 2006, the Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefts intended to be made available under the plan i.e. instead of fve options of Rs. 2 per share, the employees'' entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 26 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 65 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confrming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modifcation and no additional beneft was ofered to the existing option holders.

The vesting period is 4 years (40% in 1st year & 20% in 2nd, 3rd & 4th year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2012 and year ended December 31, 2011 is set out below:

(d) R Systems International Limited Employee Stock Option Scheme 2007 (''the plan'')

During the year 2007, the Company had instituted the plan for all eligible employees as specifed in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee held on July 11, 2007 in which options were granted, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil.

The vesting period is 4 years (25% in each year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options

(e) For the purpose of valuation of the options granted during earlier years, the management obtained fair value of the options at the date of grant under respective schemes from a frm of Chartered Accountants to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer, the fair value of option determined using ''Black Scholes Valuation Model'' under each of above schemes (except R Systems International Limited Employee Stock Option Scheme 2007 refer 30 (d) above) is "Nil" and thus no accounting thereof is required.

*: R Systems International Ltd. - Year 2004 Employee Stock Option Plan under which the price was based on Rs. 2 per share.

**: Indus Software Employees Stock Option Plan - Year 2001 under which originally the price was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, R Systems had issued 206,822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Hon''ble High Courts of Delhi and Mumbai.

***: R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet under which the price was based on Rs. 2 per share.

The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share of Rs. 10 each and subsequent allotment of bonus shares in the ratio of 1 : 1.

Further, for the purpose of valuation of the options granted during the year 2005 under R Systems International Limited- Year 2004 Employee Stock Option Plan, the management obtained fair value of the options at the date of grant from a frm of Chartered Accountants, to determine accounting impact, if any, of options granted. In the considered opinion of the valuer, the fair value of these option determined using ''Black Scholes Valuation Model'' is "Nil" and thus no accounting thereof is required.

The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share of Rs. 10 each and subsequent allotment of bonus shares in the ratio of 1 : 1.

(f) For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme – 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Nil.

The management obtained fair value of the options at the date of grant from a frm of Chartered Accountants. In the considered opinion of the valuer, the fair value of these options determined using ''Black Scholes Valuation Model'' is "Rs. 50.73" per option.

The assumptions used by the valuer for the purpose of

8. POST-EMPLOYMENT BENEFITS

The Company has an unfunded defned beneft gratuity plan. Every employee who has completed fve years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 1,000,000.

The following table summarises the components of net beneft expense recognised in the Statement of Proft and Loss.

9. PARTICULARS OF DERIVATIVE INSTRUMENTS AND UNHEDGED FOREIGN CURRENCY EXPOSURE AS AT DECEMBER 31, 2012 AND DECEMBER 31, 2011:

As of December 31, 2012, the Company had derivative fnancial instruments to sell USD 11,600,000 (Previous year USD 10,950,000), EURO 400,000 (Previous year EURO 700,000) and buy GBP Nil (Previous year GBP 500,000). The Company has not applied hedge accounting as these instruments do not qualify for hedge accounting. The Company has recognised mark-to-market gain of Rs. 5,814,261 (Previous year loss of Rs. 56,376,100) relating to such derivative fnancial instruments in the Statement of Proft and Loss for the year ended December 31, 2012.

10. As of December 31, 2012 there is uncertainty regarding ultimate realisation relating to some of the customers due to their current fnancial position, therefore revenue aggregating Rs. 49,556,647 (Previous year Rs. 39,626,845) has been deferred till the time the realisation becomes reasonably certain.

11. During the year ended December 31, 2006:

(a) The Company had made Initial Public Ofering (IPO) of 4,408,361 equity shares of Rs. 10 each for cash at premium of Rs. 240 per share comprising of fresh issue of 2,825,006 equity shares by the Company and 1,583,355 equity shares ofered for sale by the selling shareholders.

(b) Expenses of Rs. 101,895,339 net of recovery from certain selling shareholders Rs. 2,795,944 incurred in connection with the public issue of the Company had been adjusted against Securities Premium Account in terms of Section 78 of the Companies Act, 1956.

(c) Pursuant to initial public ofer the Company gathered Rs. 706,250,000 (net of selling shareholders'' proceeds), details of utilisation of IPO proceeds till December 31, 2011:

*The Company had obtained approval from its shareholders at the Annual General Meeting held on May 2, 2008 for reallocation in the estimated project cost among above mentioned heads.

Further, the Company had also obtained approval from its shareholders at the Annual General Meeting held on May 20, 2010 for extension of time up to June 30, 2012 for utilisation of balance IPO proceeds.

During the year ended December 31, 2011, the Company has utilised the balance IPO proceeds amounting to Rs. 100,439,802 under General corporate purposes towards the initial payout for the acquisition of 100% shares of Computaris International Limited, U.K. With this the Company has utilised the entire IPO proceeds and complete details relating to utilisation are incorporated in the above table.

12. Previous year fgures have been regrouped / reclassifed where necessary to make them comparable to the current year classifcation.

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Dec 31, 2010

1. NATURE OF OPERATIONS

R Systems International Limited (the Company) is a leading global provider of IT solutions and Business Process Outsourcing (BPO) services. The Companys primary focus is to provide full service IT solutions, software engineering services, technical support, customer care and other IT enabled services to the high technology sector, independent software vendors (ISVs), banks, financial services companies, telecom and digital media technology companies and services providers, insurance and health care sector. The Company develops and markets a suite of applications under the brand name "Indus" for the retail lending sector and undertakes software projects in the banking and financial services and telecom segment.

2. SEGMENT INFORMATION

Business segments :

The Company considers business segment as the basis for primary segmental reporting. The Company is organised into two business segments – software development and customisation services and BPO services. Costs and expenses which cannot be allocated to any business segment are reffected in the column corporate and others. Segments have been identif ed and reported based on the nature of the services, the risks and returns, the organisation structure and the internal financial reporting system.

Geographical segments :

The Company reports secondary segmentation information on the basis of the geographical location of the customers. Although the Companys major operating divisions are managed on a worldwide basis, they operate in five principal geographical areas of the world which are: India, United States of America, South East Asian countries, Europe and Other areas.

Geographical segments:

The Company reports secondary segment information on the basis of the geographical location of the customers. The management views the domestic and export markets as distinct geographical segments.

The geographical segments considered for disclosure are based on the sales within India and sales outside India on the basis of location of customers.

3. RELATED PARTY DISCLOSURES

(i) Subsidiaries

R Systems (Singapore) Pte Ltd, Singapore

R Systems, Inc., USA

Indus Software, Inc., USA

R Systems Solutions, Inc., USA

R Systems N.V., Belgium

R Systems Europe B.V., Netherlands

R Systems S.A.S., France

ECnet Ltd, Singapore

Following are the subsidiaries of ECnet Ltd, Singapore

ECnet (M) Sdn Bhd, Malaysia

ECnet Systems (Thailand) Co. Ltd., Thailand

ECnet (Shanghai) Co. Ltd., Peoples Republic of

China

ECnet (Hong Kong) Ltd., Hong Kong

ECnet, Inc., USA

ECnet Kabushiki Kaisha, Japan

Key management personnel (directors) and their relatives

Satinder Singh Rekhi, Chairman and Managing

Director

Lt. Gen. Baldev Singh (Retd.), President and

Senior Executive Director

ONeil Nalavadi, Director Finance and Chief

Financial officer (resigned in 2009)

Raj Swaminathan, Director and Chief Operating

officer

Mandeep Singh Sodhi [related to Lt. Gen. Baldev

Singh (Retd.)], Vice President –Sales

Amrita Kaur [related to Satinder Singh Rekhi],

Assistant Business Manager

4. The Company is engaged in the business of development of Software and Business Process Outsourcing, which is not capable of being expressed in any generic unit. Hence, other information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956 are not applicable to the Company.

5. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specif ed period irrespective of the terms agreed with the suppliers. For the purpose of identif cation of such suppliers, the Company has sent confirmations to all its suppliers. Based upon the confirmations received so far and the supplier prof le available with the Company, the management believes that there are no dues to such suppliers.

6. (a) The Issued, subscribed and paid up equity share capital of the Company as on December 31, 2010, includes the following:

- 67,000 equity shares of Rs. 10 each, allotted at a premium of Rs. 10,838 (approx) per equity share pursuant to a contract for share swap with existing shareholders of R Systems, Inc., USA after obtaining necessary regulatory approvals on January 2, 2001.

- 3,600,000 equity shares of Rs. 10 each, allotted as fully paid up bonus shares by way of capitalisation of accumulated Profits on January 5, 2001.

Note:

The Company had sub divided each of its equity shares of Rs. 10 each into 5 equity shares of Rs. 2 each and accordingly all the aforementioned shares had been sub divided on January 5, 2001.

- 3,596,869 equity shares of Rs. 2 each, allotted on March 4, 2002 at a premium of Rs. 113.42 per equity share pursuant to a "Share Purchase Agreement" resulting in share swap with specif c shareholders of Indus Software Private Limited (or Indus) after obtaining necessary regulatory approvals.

- 1,281,364 equity shares of Rs. 2 each, allotted on December 28, 2002 at a premium of Rs. 113.42 per equity share to the remaining shareholders of Indus, pursuant to the approval of "Scheme of Amalgamation" relating to the amalgamation of Indus with the Company by the High Courts of Delhi and Mumbai.

- 495,667 equity shares of Rs. 2 each issued in January 2006 upon conversion of warrants under the Shareholders Agreement dated February 16, 2002.

Note:

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and accordingly the aforementioned shares had been consolidated on January 30, 2006.

- 5,355,255 equity shares of Rs. 10 each had been allotted on January 30, 2006 as fully paid up bonus shares by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956.

(b) Buy back of equity shares:

Prior to the year 2004, the Company had advanced Rs. 115,131,450 to R Systems Employee Stock Option Trust, and allotted 997,500 equity shares at the rate of Rs. 115.42. During the year ended December 31, 2004, the Company bought back these shares at the rate of Rs. 115.42 per equity share.

Further the Board of Directors of the Company at its meeting held on September 07, 2008, had approved the Buy-back of the equity shares of Rs. 10 each, not exceeding 1,306,941 number of equity shares from the existing owners, at a maximum price of Rs. 150 per equity share, for an aggregate amount not exceeding Rs. 80,000,000 from the open market through stock exchange(s) in terms of the SEBI (Buy Back of Securities) Regulations, 1998 pursuant to the f rst proviso to clause (b) of sub-section (2) of Section 77A of the Companies Act, 1956. Consequently, the Company made a public announcement dated October 15, 2008 regarding Buy-back of equity shares.

Under the Buy-back programme, the Company had bought back 1,265,820 equity shares up to August 27, 2009 inclusive of payout formalities (including 146,346 equity shares up to December 31, 2008) at an average price of Rs. 63.20 per share for an aggregate amount of Rs. 80,000,000 by utilising the Securities Premium Account to the extent of Rs. 67,341,773 and General Reserve to the extent of Rs. 12,658,200. The Capital Redemption Reserve has been created out of General Reserve for Rs. 12,658,200 being the nominal value of equity shares bought back in terms of Section 77AA of the Companies Act, 1956. The Of er for Buy Back has been successfully completed on August 27, 2009.

The Board of Directors of the Company had recommended a dividend of Rs. 2.40 per share at its meeting held on February 12, 2009 subject to the approval of the shareholders at the Annual General Meeting and accordingly made an appropriation of Rs. 31,693,018 and Rs. 5,386,229 towards proposed dividend and dividend distribution tax respectively. Company had announced the record date for distribution of dividend as April 17, 2009 and accordingly reduced the appropriation of Rs. 715,332 and Rs. 121,570 made earlier towards proposed dividend and dividend distribution tax respectively, to adjust for shares bought back subsequent to the earlier appropriation.

For the year ended December 31, 2010, the Board of Directors have recommended a dividend of Rs. 2.40 per share, subject to the approval of the shareholders at the forthcoming Annual General Meeting.

7.(a) During earlier years, the Company had acquired 98.59% shares in ECnet Limited, a company incorporated in Singapore at total consideration of Rs. 34,938,958. During the year ended December 31, 2005, the Company had based upon an order of High Court of Delhi written down the investment value to Rs. 10,443,237 and adjusted the write of of Rs. 24,495,721 against the Securities Premium Account as this had not been represented by available assets.

During the year ended December 31, 2007 the Company had settled the liabilities towards certain erstwhile shareholders. As a result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management. Out of above, 10,442,237 had been adjusted against the value of the investment. The reassessed amount payable Rs. 9,352,294 (Previous year Rs. 8,916,859) is shown under current liabilities. The management will extend its continual financial support to enable the subsidiary to meet its working capital and other f nancing requirements and is pursuing its business plan.

During the year ended December 31, 2010, the Board of Directors had approved a Scheme for corporate restructuring of its two subsidiaries based in Singapore viz ECnet Limited and R Systems (Singapore) Pte Limited subject to applicable corporate and other regulatory approvals in India and Singapore. The proposed corporate restructuring involves conversion of loan by the Company to ECnet Limited into equity investment and thereafter amalgamation of both these subsidiaries. The Company is in the process of obtaining relevant regulatory approvals for the restructuring.

(b) During the year ended December 31, 2006 the Company had completed the acquisition and integration of R Systems Solutions, Inc., a technical support company based in the USA. The Company had acquired 8,666,884 Series A convertible preferred stock of "no par" value and 10,335,833 common stock of no par value from the erstwhile shareholders of R Systems Solutions, Inc. The Company had recognised the investment at value of US$ 2.85 million i.e. Rs. 132,796,088 which represents the consideration assessed as probable to be paid.

Out of such payables, US$ 1.17 million i.e. Rs. 54,803,268 had been paid at time of acquisition and US$ 1.41 million i.e. Rs. 62,167,878 had been paid from the date of acquisition till the year ended December 31, 2008. During the year ended December 31, 2008, the Company had reassessed the probable payment for purchase consideration and reversed US$ 0.07 million i.e. Rs. 3,264,820 against investment appearing in the books. The balance amount payable US$ 0.20 million i.e. Rs. 9,782,911 as at December 31, 2008 was shown under current liabilities.

During the year ended December 31, 2009, the Company had reassessed the probable payment for purchase consideration and reversed US$ 0.02 million i.e. Rs. 706,178 against investment appearing in the books. The balance purchase consideration of US$ 0.18 million i.e. Rs. 7,583,873 has been paid during the year 2009.

During the year ended December 31, 2007, the Company invested an additional amount of US$ 1.00 million i.e. Rs. 43,852,500 towards acquisition of additional 1,000,000 common stock of "no par" value in R Systems Solutions, Inc.

Further during the year ended December 31, 2009, R Systems Solutions, Inc. has received termination notice from a Significant customer. Consequently the management has assessed that there is a decline, other than temporary, in the value of the subsidiary and had reduced the carrying amount of investment by Rs. 172,676,590 to recognise the decline in value.

(c) R Systems, Inc, USA has net book value of Rs. 107,300,522 as at the year ended December 31, 2010, as against the investment value of Rs. 223,358,532. The management on the basis of future business plan of the subsidiary as well as its continuing financial support does not consider there to be diminution other than temporary.

(d) During the year ended December 31, 2008, the Company had completed the acquisition of R Systems Europe B.V., Netherlands and R Systems S.A.S, France, two wholly owned subsidiaries based in Europe effective January 23, 2008. The purchase considerations for the acquisition of R Systems Europe B.V., Netherlands Rs. 42,053,275 and R Systems S.A.S., France Rs. 32,593,766 have been recognised as investment.

During the year ended December 31, 2009, these subsidiaries have received termination notices from two Significant customers. Consequently the management had assessed that there is a decline, other than temporary, in the value of these subsidiaries and had reduced the carrying amount of investment in these subsidiaries R Systems Europe B.V., Netherlands by Rs. 42,052,275 and R Systems S.A.S., France by Rs. 32,592,766 to recognise the decline in value of investment.

(e) Subsequent to the year end, the Company has acquired 100% of shares of Computaris International Limited (Computaris) on January 26, 2011 for a maximum consideration of GBP 9 million (Rs. 653,625,000) out of which GBP 4.25 million (Rs. 308,656,250) is initial payout and balance is based on earn outs of Computaris as well as fulf llment officertain condition by the erstwhile shareholders of Computaris over the next two years.

(f) The Board of Directors of the Company and R Systems NV, Belgium (wholly owned subsidiary of the Company) has approved the liquidation of R Systems NV, Belgium subject to the required statutory and corporate approvals in India and Belgium.

8. (a) R Systems International Limited - Year 2004 Employee Stock Option Plan (the plan)

During the year 2004, the Company had instituted the plan for all eligible employees as specif ed in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 997,500 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "1.60 times the Book Value of the Share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee as on the date of Exercise whichever is higher".

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of

five options of Rs. 2 per share, the employees entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modif cation and no additional benefit was of ered to the existing option holders.

(b) Indus Software Employees Stock Option Plan – Year 2001 (the plan):

Indus Software Private Limited (Indus) had outstanding options aggregating 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the Indus Software Employees Stock Option Plan – Year 2001 under various vesting periods as specif ed in the said Plan, duly approved by the erstwhile shareholders. Indus had established "Indus Software Employees Welfare Trust" (the Indus Trust) to administer the plan, as approved by the members, for the benefits of the Companys employees and had provided an interest free loan of Rs. 3,382,792. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the Indus Trust to be further issued to the Indus eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favour of the Indus Trust to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the Indus Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30, 2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956, consequently total number of shares issued are now 73,898 equity shares of Rs. 10 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from Issued, subscribed and paid-up capital and Securities Premium Account respectively as suggested by the "Guidance Note on Accounting for Employee Share-based Payments" issued by The Institute of Chartered Accountants of India.

(c) R Systems International Limited – Year 2004 Employees Stock Option Plan ECnet (the plan)

The Company had instituted the plan for all eligible employees in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 1,000,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is "Book Value of the Share as per the audited Balance Sheet as on 31st December 2003 i.e. Rs. 26 or as on the date of Exercise, the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee whichever is higher".

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 26 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 65 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modif cation and no additional benefit was of ered to the existing option holders.

The vesting period is 4 years (40% in 1st year & 20% in 2nd, 3rd & 4th year) commencing from the date of grant under the plan. The eligible employees have an option to exercise it over a period of 10 years from the date of grant under the plan. The movement in the options during the year ended December 31, 2010 and year ended December 31, 2009 is set out below:

(d) R Systems International Limited Employee Stock Option Scheme 2007 (the plan)

During the year 2007, the Company had instituted the plan for all eligible employees as specif ed in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee held on July 11, 2007 in which options are granted, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil.

(e) For the purpose of valuation of the options granted during earlier years, the management obtained fair value of the options at the date of grant under respective schemes from a f rm of Chartered Accountants to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer, the fair value of option determined using Black Scholes Valuation Model under each of above schemes is "Nil" and thus no accounting thereof is required.

(f) For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme – 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Nil.

The management obtained fair value of the options at the date of grant from a f rm of Chartered Accountants. In the considered opinion of the valuer, the fair value of these options determined using Black Scholes Valuation Model is "Rs. 50.73" per option.

9. POST-EMPLOYMENT BENEFITS

The Company has an unfunded defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 1,000,000.

The following table summarises the components of net benefit expense recognised in the Profit and Loss Account.

10. Details of loans given to subsidiary-ECnet Limited, Singapore (fully provided for)

Balance as at December 31, 2010 is Rs. 131,974,000 (SGD 3,800,000) [Previous year Rs. 109,272,900 (SGD 3,300,000)]. Maximum amount outstanding during the year is Rs. 131,974,000 (SGD 3,800,000) [Previous year Rs. 112,662,000 (SGD 3,300,000)].

Loan is repayable on demand.

11. During the financial year ended December 31, 2007, the Company had received nonrefundable licensee fee of Rs. 39,435,000 from one of its customer against sale of eighteen modules / licenses. As at December 31, 2008, the Company had been carrying Rs. 19,717,500 as deferred revenue against unconsumed modules / licensees. The management believed that it was unlikely that the customer will utilise any additional modules and the customer had confirmed that the Company did not have any outstanding obligation against the aforesaid sale of licenses. Accordingly revenue of Rs. 19,717,500 had been recognised during the year ended December 31, 2009.

12. As of December 31, 2010 there is uncertainty regarding ultimate realisation relating to some of the customers due to their current financial position, therefore revenue aggregating Rs. 11,915,759 (Previous year Rs. 18,190,787) has been deferred till the time the realisation becomes reasonably certain.

13. During the year ended December 31, 2006:

(a) The Company had made Initial Public Of ering (IPO) of 4,408,361 equity shares of Rs. 10 each for cash at premium of Rs. 240 per share comprising of fresh issue of 2,825,006 equity shares by the Company and 1,583,355 equity shares of ered for sale by the selling shareholders.

(b) Expenses of Rs. 101,895,339 net of recovery from certain selling shareholders Rs. 2,795,944 incurred in connection with the public issue of the Company had been adjusted against Securities Premium Account in terms of Section 78 of the Companies Act, 1956.

14. The Company has a policy of recognising deferred tax assets only to the extent that there is reasonable certainty that suf cient future taxable income will be available against which such deferred tax assets can be realised. Accordingly, on the basis of such evaluation, the Company had recognised incremental deferred tax asset of Rs. 31,806,316 during the year ended December 31, 2010.

15. Prior period expense for the year ended December 31, 2010 amounting to Rs. 1,729,293 represents communication cost related to prior year.

16. Previous year figures have been regrouped / reclassified where necessary to make them comparable to the current year classification.

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Dec 31, 2009

1. Nature of operations

The Company is a leading global provider of IT solutions and Business Process Outsourcing (BPO) services. The Company’s primary focus is to provide full service IT solutions, software engineering services, technical support, customer care and other IT enabled services to the high technology sector, independent software vendors (ISV’s), banks, financial services companies, telecom, insurance and health care sector. The Company develops and markets a suite of applications under the brand name“Indus” for the retail lending sector and undertakes turnkey software projects in the banking and financial services segment.

2. Related Party Disclosures

(i) Subsidiaries

R Systems (Singapore) Pte Ltd, Singapore

R Systems, Inc., USA

Indus Software, Inc., USA

R Systems Solutions, Inc., USA

R Systems N.V., Belgium

R Systems Europe B.V., Netherlands

(formerly known as Sento

Europe B.V., Netherlands)

(date of acquisition January 23, 2008)

R Systems S.A.S., France

(formerly known as Sento S.A.S., France)

(date of acquisition January 23, 2008)

ECnet Ltd, Singapore

ECnet (M) Sdn Bhd, Malaysia

ECnet Systems (Thailand) Co. Ltd.,

Thailand

ECnet (Shanghai) Co. Ltd.,

People‘s Republic of China

ECnet (Hong Kong) Ltd., Hong Kong

ECnet, Inc., USA

ECnet Kabushiki Kaisha, Japan

Key management personnel (directors) and their relatives

Satinder Singh Rekhi

Chairman and Managing Director

Lt. Gen. Baldev Singh (Retd)

President and Senior Executive Director

O’Neil Nalavadi

Director Finance and Chief Financial Ofcer (resigned w.e.f. November 8, 2009)

Raj Swaminathan

Director and Chief Operating Ofcer

Mandeep Singh Sodhi

[related to Lt. Gen. Baldev Singh (Retd.)], Vice President - Sales

Amrita Kaur

[related to Satinder Singh Rekhi], Assistant Business Manager

3. Contingent liabilities not provided for:

(Amount in Rs.)

As at As at December December 31, 2009 31, 2008

Performance guarantees given to 102,000,000 102,000,000 Department of telecommunication for Domestic & International ‘Other Service Provider’licenses Guarantees given on behalf of wholly owned subsidiary

- R Systems, Inc., USA 39,559,000 114,351,400

- R Systems Europe B.V. - 94,620,150 Netherlands

Total 141,559,000 310,971,550

Also refer below note 11(a), 11(b) and 11(c) towards support extended to subsidiaries.

4 The Company is engaged in the business of development of Software and Business Process Outsourcing, which is not capable of being expressed in any generic unit. Hence, other information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956 are not applicable to the Company.

5. During the year ended December 31, 2006, Government of India has promulgated an Act namely The Micro, Small and Medium Enterprises Development Act, 2006 which comes into force with effect from October 2, 2006. As per the Act, the Company is required to identify the Micro, Small and Medium suppliers and pay interest to micro and small enterprises on overdue beyond the specified period irrespective of the terms agreed with the suppliers. For the purpose of identification of such suppliers, the Company has sent confirmations to all its suppliers. Based upon the confirmations received so far and the supplier profile available with the Company, the management believes that there are no dues to such suppliers.

6. (a) The Issued, subscribed and paid up equity share capital of the Company as on December 31, 2009, includes the following:

- 67,000 equity shares of Rs. 10 each, allotted at a premium of Rs. 10,838 (approx) per equity share pursuant to a contract for share swap with existing shareholders of R Systems, Inc., USA after obtaining necessary regulatory approvals on January 2, 2001.

- 3,600,000 equity shares of Rs. 10 each, allotted as fully paid up bonus shares by way of capitalisation of accumulated profits on January 5, 2001.

The Company had sub divided each of its equity shares of Rs. 10 each into 5 equity shares of Rs. 2 each and accordingly all the afore-mentioned shares had been sub divided on January 5, 2001.

- 3,596,869 equity shares of Rs. 2 each, allotted on March 4, 2002 at a premium of Rs. 113.42 per equity share pursuant to a “Share Purchase Agreement” resulting in share swap with specific shareholders of Indus Software Private Limited (or ‘Indus’) after obtaining necessary regulatory approvals.

- 1,281,364 equity shares of Rs. 2 each, allotted on December 28, 2002 at a premium of Rs. 113.42 per equity share to the remaining shareholders of Indus, pursuant to the approval of“Scheme of Amalgamation” relating to the amalgamation of Indus with the Company by the High Courts of Delhi and Mumbai.

- The Company had earlier advanced Rs. 115,131,450 to R Systems Employee Stock Option Trust, and allotted 997,500 equity shares at the rate of Rs. 115.42. During the year ended December 31, 2004, the Company bought back these shares at the rate of Rs 115.42 per equity share.

- 495,667 equity shares of Rs. 2 each issued in January 2006 upon conversion of warrants under the Shareholders Agreement dated February 16, 2002.

The Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and accordingly the afore-mentioned shares had been consolidated on January 30, 2006.

- 5,355,255 equity shares of Rs. 10 each had been allotted on January 30, 2006 as fully paid up bonus shares by utilisation of Securities premium account in terms of the provisions of Section 78 of the Companies Act, 1956.

(b) The Board of Directors of the Company at its meeting held on September 07, 2008, had approved the Buy-back of the equity shares of Rs. 10 each, not exceeding 1,306,941 number of equity shares from the existing owners, at a maximum price of Rs. 150 per equity share, for an aggregate amount not exceeding Rs. 80,000,000 from the open market through stock exchange(s) in terms of the SEBI (Buy Back of Securities) Regulations, 1998 pursuant to the first proviso to clause (b) of sub-section (2) of Section 77A of the Companies Act, 1956. Consequently, the Company made a public announcement dated October 15, 2008 regarding Buy-back of equity shares.

During the year ended December 31, 2008, the Company had bought back 146,346 equity shares of Rs. 10 each. Out of which 132,670 equity shares of Rs. 10 each had been extinguished till the year end and balance 13,676 equity shares were lying in share suspense account. These equity shares have been extinguished subsequent to December 31, 2008.

Under the Buy-back programme, the Company has bought back 1,265,820 equity shares up to August 27, 2009 inclusive of payout formalities (including 146,346 equity shares up to December 31, 2008) at an average price of Rs. 63.20 per share for an aggregate amount of Rs. 80,000,000 by utilising the Securities Premium Account to the extent of Rs. 67,341,773 and General Reserve to the extent of Rs. 12,658,200. The Capital Redemption Reserve has been created out of General Reserve for Rs. 12,658,200 being the nominal value of equity shares bought back in terms of Section 77AA of the Companies Act, 1956. The Offer for Buy Back has been successfully completed on August 27, 2009.

The Board of Director of the Company had recommended a dividend of Rs. 2.40 per share at its meeting held on February 12, 2009 subject to the approval of the shareholders at the annual general meeting and accordingly made an appropriation of Rs. 31,693,018 and Rs. 5,386,229 towards proposed dividend and dividend distribution tax respectively. Company had announced the record date for distribution of dividend as April 17, 2009 and accordingly reduced the appropriation of Rs. 715,332 and Rs. 121,570 made earlier towards proposed dividend and dividend distribution tax respectively, to adjust for shares bought back subsequent to the earlier appropriation.

Final Dividend of Rs. 2.40 per share (24% on equity share of par value of Rs 10) for the year ended December 31, 2008 was approved by the shareholders in Annual General Meeting held on April 27, 2009 and same was paid during the quarter ended June 30, 2009.

7. (a) During earlier years, the Company had acquired 98.59% shares in ECnet Limited, a company incorporated in Singapore at total consideration of Rs. 34,938,958. The Company had based upon an order of High Court of Delhi written down the investment value to Rs. 10,443,237 and adjusted the write of of Rs. 24,495,721 against the Securities Premium Account as this had not been represented by available assets.

During the year ended December 31, 2007 the Company had settled the liabilities towards certain erstwhile shareholders. As a result thereof, the deferred payment compensation of Rs. 14,452,222 was released, as considered appropriate by the management. Out of above, 10,442,237 had been adjusted against the value of the investment. The reassessed amount payable Rs. 8,916,859 (Previous year Rs. 9,285,242) is shown under current liabilities. The management will extend its continual fnancial support to enable the subsidiary to meet its working capital and other financing requirements and is pursuing its business plan.

(b) During the year ended December 31, 2006 the Company had completed the acquisition and integration of R Systems Solutions, Inc., a technical support company based in the USA. The Company had acquired 8,666,884 Series A convertible preferred stock of "no par" value and 10,335,833 common stock of no par value from the erstwhile shareholders of R Systems Solutions, Inc. The Company had recognised the investment at value of US$ 2.85 million i.e. Rs. 132,796,088 which represents the consideration assessed as probable to be paid.

Out of such payables, US$ 1.17 million i.e. Rs. 54,803,268 had been paid at time of acquisition and US$ 1.41 million i.e. Rs. 62,167,878 had been paid from the date of acquisition till the year ended December 31, 2008. During the year ended December 31, 2008, the Company had reassessed the probable payment for purchase consideration and reversed US$ 0.07 million i.e. Rs. 3,264,820 against investment appearing in the books. The balance amount payable US$ 0.20 million i.e. Rs. 9,782,911 as at December 31, 2008 was shown under current liabilities

During the year ended December 31, 2009, the Company had reassessed the probable payment for purchase consideration and reversed US$ 0.02 million i.e. Rs. 706,178 against investment appearing in the books. The balance purchase consideration of US$ 0.18 million i.e. Rs. 7,583,873 has been paid during the year 2009.

During the year ended December 31, 2007, the Company invested an additional amount of US$ 1.00 million i.e. Rs. 43,852,500 towards acquisition of additional 1,000,000 common stock of "no par" value in R Systems Solutions, Inc.

Further during the year, R Systems Solutions, Inc. has received termination notice from a significant customer. Consequently the management has assessed that there is a decline, other than temporary, in the value of the subsidiary and had reduced the carrying amount of investment by Rs. 172,676,590 to recognise the decline in value.

(c) R Systems, Inc, USA has net book worth of Rs 101,123,974 as at the year ended December 31, 2009, against the recorded investment value of Rs. 223,358,532. The subsidiary is meeting its short term funding requirements through the parent and the fellow subsidiaries. The management will extend its continual financial support to enable the subsidiary to meet its working capital and other financing requirements and is pursuing its business plan. Accordingly, the management is of the view that the diminution is temporary and there is no need to carry any provision against this investment.

(d) During the year ended December 31, 2008, the Company had completed the acquisition of R Systems Europe B.V., Netherlands (formerly known as Sento Europe B.V.) and R Systems S.A.S, France (formerly known as Sento S.A.S, France), two wholly owned subsidiaries based in Europe effective January 23, 2008. The purchase considerations for the acquisition of R Systems Europe B.V., Netherlands Rs. 42,053,275 and R Systems S.A.S., France Rs. 32,593,766 have been recognised as investment.

During the year, these subsidiaries have received termination notices from two significant customers. Consequently the management had assessed that there is a decline, other than temporary, in the value of these subsidiaries and had reduced the carrying amount of investment in these subsidiaries R Systems Europe B.V., Netherlands by Rs. 42,052,275 and R Systems S.A.S., France by Rs. 32,592,766 to recognise the decline in value of investment.

8. (a) R Systems International Limited -Year 2004 Employee Stock Option Plan (‘the plan’)

During the year 2004, the Company had instituted the plan for all eligible employees as specifed in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 997,500 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is “1.60 times the Book Value of the Share as per the audited balance sheet as on December 31, 2003 i.e. Rs. 42 per Share or 1.60 times of the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee as on the date of Exercise whichever is higher”.

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees’ entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 42 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 105 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders.

(b) Indus Software Employees Stock Option Plan – Year 2001 (‘the plan’):

Indus Software Private Limited (‘Indus’) had outstanding options aggregating to 21,967 equity shares as on March 31, 2002, to be issued to the eligible employees under the Indus Software Employees Stock Option Plan – Year 2001 under various vesting periods as specified in the said Plan, duly approved by the erstwhile shareholders. Indus had established “Indus Software Employees Welfare Trust” (‘the Indus Trust’) to administer the plan, as approved by the members, for the benefits of the Company’s employees and had provided an interest free loan of Rs. 3,382,792. Consequently, Indus had allotted 21,967 equity shares of Rs. 10 each at a premium of Rs. 144 per equity share to the Indus Trustto be further issued to theIndus’eligible employees on the exercise of the underlying options granted to them.

As a result of the merger of Indus with the Company, all employees had surrendered their options in favour of the Indus Trust to enable them to obtain options for shares in R Systems International Limited after the merger. Also, the Company had issued 206,822 equity shares of Rs. 2 each at a premium of Rs. 113.42 per share to the Indus Trust in exchange of 21,967 equity shares of Indus, apropos to the agreed swap ratio. During the earlier years out of the said 206,822 shares 22,079 shares were issued to the employees on exercise of options.

The Company had consolidated each of its fve equity shares of Rs. 2 each into one equity share of Rs. 10 each on January 30, 2006 and then issued 1:1 bonus share to each of the then existing shareholder by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956, consequently total number of shares issued are now 73,898 equity shares of Rs. 10 each. Accordingly an amount of Rs. 738,980 and Rs. 2,282,728 is shown as deduction from Issued, subscribed and paid-up capital and Securities Premium Account respectively as suggested by the “Guidance Note on Accounting for Employee Share-based Payments” issued by The Institute of Chartered Accountants of India.

(c) R Systems International Limited – Year 2004 Employees Stock Option Plan ECnet (‘the plan’)

The Company had instituted the plan for all eligible employees in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 1,000,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is“Book Value of the Share as per the audited Balance Sheet as on 31st December 2003 i.e. Rs. 26 or as on the date of Exercise, the book value as per immediate previous accounting year audited balance sheet rounded of to nearest rupee which ever is higher”.

During the year ended December 31, 2006, the Company had consolidated each of its five equity shares of Rs. 2 each into one equity share of Rs. 10 each and then issued 1:1 bonus share to each of the then existing shareholder (excluding the option holders) by utilisation of Securities Premium Account in terms of the provisions of Section 78 of the Companies Act, 1956. Considering these changes in the capital structure, the management had adjusted the number of options vesting to its employees and exercise price to preserve the benefits intended to be made available under the plan i.e. instead of five options of Rs. 2 per share, the employees’entitlement had been adjusted to one option of Rs. 10 per share and instead of earlier exercise price of Rs. 26 per share for each Rs. 2 share, the exercise price had been accordingly adjusted to Rs. 65 per equity share. During the year ended December 31, 2008, the Company had obtained a legal opinion confirming that the adjustments undertaken to the number of options vesting to its employees and exercise price, pursuant to the consolidation and subsequent bonus issue during the year ended December 31, 2006, does not tantamount to modification and no additional benefit was offered to the existing option holders.

(d) R Systems International Limited Employee Stock Option Scheme 2007 (‘the plan’)

During the year 2007, the Company had instituted the plan for all eligible employees as specified in the rules in pursuance of the special resolution duly approved by the shareholders. The plan provides for the issuance of 650,000 options to eligible employees as recommended by the Compensation Committee constituted for this purpose.

The plan is administered by a Compensation Committee and exercise price is Rs. 120.70 being the latest available closing price, prior to the date of the meeting of the Board of Directors/Compensation Committee held on July 11, 2007 in which options are granted, on the stock exchange on which the shares of the Company are listed. Accordingly, the intrinsic value of Employee Stock Option is taken as Rs. Nil.

(e) For the purpose of valuation of the options granted during earlier years, the management obtained fair value of the options at the date of grant under respective schemes from a firm of Chartered Accountants (N Maini & Co.), to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer (mentioned above), the fair value of option determined using ‘Black Scholes Valuation Model’ under each of above schemes is “Nil”and thus no accounting thereof is required.

(f) For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme – 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Nil.

The management obtained fair value of the options at the date of grant from a firm of Chartered Accountants (N. Maini & Co.). In the considered opinion of the valuer (mentioned above), the fair value of these options determined using ‘Black Scholes Valuation Model’is “Rs. 50.73”per option.

9. Post employment benefits

The Company has an unfunded defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on separation equal to 15 days salary (last drawn salary) for each completed year of continuous service or part thereof in excess of six months subject to a maximum of Rs. 350,000.

The following table summaries the components of net benefit expense recognised in the Profit and Loss Account.

(b) As of December 31, 2009 the Company had derivative fnancial instruments to sell USD 9,750,000 that are designated as inefective cash flow hedges relating to highly probable forecasted transactions. The Company has recognised mark-to-market gain of Rs. 19,109,927 relating to such derivative financial instruments in the Profit and Loss Account for the year ended December 31, 2009.

10. Details of loans given to subsidiary-ECnet Limited, Singapore (fully provided for) Balance as at December 31, 2009 is Rs. 109,272,900 (SGD 3,300,000) [Previous year Rs. 94,822,750 (SGD 2,750,000)]. Maximum amount outstanding during the year is Rs. 112,662,000 (SGD 3,300,000) [Previous year Rs. 94,822,750 (SGD 2,750,000)].

Loan is repayable on demand.

11. During the financial year ended December 31, 2007, the Company had received non refundable license fee of Rs. 39,435,000 from one of its customer against sale of eighteen modules / licenses. As at December 31, 2008, the Company had been carrying Rs. 19,717,500 as deferred revenue against unconsumed modules/ licenses. Due to the recent developments in the customer’s business, the management believes that it is unlikely that the customer will utilize any additional modules and the customer has confirmed that the Company does not have any outstanding obligation against the aforesaid sale of licenses. Accordingly revenue of Rs. 19,717,500 has been recognised during the year ended December 31, 2009.

12. As of December 31, 2009 there is uncertainty regarding ultimate realisation relating to some of the customers due to their current financial position, therefore revenue aggregating Rs. 18,190,787 (Previous year Rs. 8,858,213) has been deferred till the time the realisation becomes reasonably certain.

13. During the year ended December 31, 2006:

(a) The Company had made Initial Public Offering (IPO) of 4,408,361 equity shares of Rs. 10 each for cash at premium of Rs. 240 per share comprising of fresh issue of 2,825,006 equity shares by the Company and 1,583,355 equity shares offered for sale by the selling shareholders.

(b) Expenses of Rs. 101,895,339 net of recovery from certain selling shareholders Rs. 2,795,944 incurred in connection with the public issue of the Company had been adjusted against Securities Premium Account in terms of Section 78 of the Companies Act, 1956.

14. Previous year fgures have been regrouped / reclassifed where necessary to make them comparable to the current year classifcation. As per our report of even date.