14th annual report for 2008-09

Con t e n t s

Company’s Vision & Mission……………………………………… .................. 1

Chairman’s Letter……………………………………… ..................................... 2

CEO’s Message………………..……………………….. ....................................... 4

Directors’ Profile & Corporate Information……………. ................................... 6

Directors’ Report…………………………………………................................. 9

Auditors’ Report ………………………………………… ................................. 19

Balance Sheet……………………………………………. ................................... 22

Profit & Loss Account…………………………………… .................................. 23

Cash Flow Statement……………………………............... ................................... 24

Schedules to the Accounts………………………………….............................. 26

Balance Sheet Abstract & Co’s General Business Profile… ................................. 55

Statement Pursuant to Section 212………………………... ............................. 56

Subsidiary’s Accounts – Shyam Internet Services Ltd. …… ............................... 57

Notice of 14th Annual General Meeting……………………............................... 68

VVVVVisionisionisionisionision

Booming and prosperous India driven by hundreds of millions success

stories

❖ MTS will be the driving force for bringing New India into the fold of

opportunities. This drive for progress arises from our deep urge–to explore,

to create, to achieve, to change, to improve.

MMMMMissionissionissionissionission

Enable New India’s continuous renewal

❖ We believe the power of connectivity will provide New India with a new

sense of identity and opportunity. We will provide this connectivity in a

simple, effective and affordable manner.

AAAAAmbitionmbitionmbitionmbitionmbition

Outdo Yourself

❖ We will encourage the use of connectivity to rise above social, cultural,

occupational and economic challenges, thus becoming the undisputed

champion of those who have the courage to go against all odds.

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Chairman’s LetterDear Members,

It gives me immense pleasure and a sense of profound satisfaction in presenting the 14th Annual Report of yourCompany.

India is exhibiting a new fortitude of buoyancy and endeavor across all areas of its economy, on the back of anexceptional ‘economic awakening’. This revolution has been the result of an ongoing programme of liberalizationover the last decade, and a greater assimilation with the world economy. A blend of factors such as strong economicfundamentals, availability of skilled and talented manpower and the outsourcing boom have interacted positivelywith each other and transformed India into a globally competitive force. Presently when major economies around theworld are in grip of stern recession, India experienced a relative slowdown but remained a rare attractive place, witha moderate but still a healthy growth rate. India’s economy not much impact adversely in the magnitude compared toeconomies of other major countries. I am hopeful that India’s inherent vigor provides a strong base to face therepercussion of the recession and India will overcome it as soon as the economies of other major countries show thesigns of recovery.

Indian telecom markets have registered startling growth since past several years. Wireless service is growing at closeto 13% quarter on quarter and it is astonishing that this growth comes when monthly India is adding at an average of10 million mobile subscribers. Today, Indian telecom network is the second largest in the world. With the currentpace, the target to reach about 700 million connections by 2012 is likely to be well within reach of the country. Thegrowth of wireless services has been phenomenal. Today, the wireless subscribers are not only much more than thewireline subscribers in the country but also increasing at a much faster pace.

India is one of the most attractive markets in the world, with accelerating productivity and consumption levels, as wellas rapidly developing infrastructure. We are a strategic investor and will initially focus on building out an integratednational telecommunications network and providing our Indian customers with superior telecommunications services.I am very elated to inform you that the Company obtained its Pan-India license for operations of mobile services inMarch 2008 and at present has enough spectrum to provide mobile telephony services in 22 telecom-circles, coveringIndia’s 28 states and 7 union territories, with a population of 130 million.

Our foremost inclination in India is the roll-out of Pan-India mobile operations. I am also enchanted in reporting thatthe network roll-out process is in full swing with the help of world renowned technology partners. The Company hasalso entered into a strategic partnership with reputed companies for supply of customized handsets.

Despite our late entrance to the local telecom market, our growth rate succeeded our expectations. Your Companymeticulously is aligned to the fast paced stride towards accomplishment of Pan India roll out plan with yearning toexcel within scheduled time frame work.

The Joint Venture partners have always been making all their efforts to achieve optimum growth in the networth of theCompany. With the infusion of further funds to the tune of INR 20000 Million by SISTEMA JSFC and Indian Promotersin the Company in the last financial year, the equity share capital of the Company increased to INR 24559.5 Million

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enhancing the book value (NAV) per equity share to Rs. 5.06 as at March 31, 2009 and also defending theCompany to become a Company with negative networth. The said infusion of further equity also improved thecreditworthiness of your Company to swiftly implement the Pan India roll out and thus enhanced the value of investmentof all stakeholders including minority shareholders.

Progressive development of Sistema Shyam TeleServices business in India is closely linked to MTS brand as one of themost popular International telecom brands reflecting high quality of communication and global nature of our services.

Your Company has so far revealed better performance as compared to the business plan. It is because of constantefforts and determination of employees to surpass the rising expectations of all our stakeholders that we stand successful.I strongly believe our management team has the leadership capability to take Sistema Shyam to the next level. I wouldlike to express my appreciation for their continuous commitment to our success. With our commitment to growth, wehad also committed to build an organization based on Transparency and Performance orientation where superlativeefforts of employees are well recognized and rewarded. With your support, we will soon undertake a time-boundexecution of some path breaking People - Centric initiatives which will be based on Employee Centricity and overallExcellence. As we intensify our effort to expand nationally and emerge as market leaders amongst the telecomservice providers we look forward for continued commitment and high performance of employees. I am confident thatin nearest future we will achieve the next limits of our success.

I express my gratitude to our Indian Joint Venture Partners for their unstinted co-operation, support and trust bestowedupon us and looking forward to their continued support.

To conclude, I would like to say that your trust and faith in the Company have been our great strength. I would alsolike to take this opportunity to thank all stakeholders for trusting us. I have no doubt that their confidence and supportwill be redeemed by the Company’s Management, in the years ahead.

Yours Sincerely,

Ron SommerCHAIRMAN

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CEO’s MessageDear Shareholders,

This is my first communication to you and it is indeed a matter of colossal pleasure for me to inform you concerning thedevelopment of the Company during the last one year.

It has been another incredible year in the history of Indian Telecom industry. India - one of the most vibrant and fastestgrowing telecom markets in the world enjoys a sturdy growth rate of 10 million mobile users every month. The lowtariff rates make it affordable for majority of the population even in remote areas to avail the wireless telecomservices. Indian customers are embracing mobile technology in a big way. Subscribers growth in India will continuedriven by wide gap between rural and urban areas in terms of mobile penetration, an improved regulatory climate,telecom policy that aims to encourage and liberalize private and foreign investment, permission to internationalplayer to bring in funds in form of loans, rural expansion, entry of newer operators, cheaper handsets, quick servicedelivery for mobile connections, affordable pricing plans in the form of pre-paid cards and increased purchasingpower among the 18 to 40 years age group as well as sizeable middle etc. The Mobile will emerge as a nextadvertising and marketing medium - and be seen as capable of not just mass reach but also allow a high degree oftargeting.

A little less than a year ago, we embarked on a truly momentous journey of introducing telecom service of worldrenowned MTS brand in India. In retrospect, we are delighted by our performance in terms of the launch of newtelecom circles, growth in customers and the overall financial performance of the Company. The journey was markedwith a lot of challenges and it is only because of our resolve to surpass the rising expectations of all our stakeholdersthat we stand as one of the industry leaders among the new operators, cutting across the length and breadth of ourvast country. This also displays our commitment to our Vision, Corporate Values and emphasis on Creativity andInnovation in the way we approach our Business.

I am very delighted to inform you that the period under review has been significant for your Company with regard tonumber of key achievements and encouraging developments. Your Company has launched its CDMA services in fivenew Circles viz. Tamil Nadu, Kerala, Kolkata, West Bengal and Bihar apart from Rajasthan of which expansionprogram has been completed successfully and the Company is having second largest CDMA network by footprint inthe Rajasthan Circle. In order to reflect the Joint Venture between SISTEMA JSFC and SHYAM GROUP, the name ofyour Company has been changed from Shyam Telelink Limited to Sistema Shyam TeleServices Limited. Keeping inview the need for Pan India Brand name, your Company has launched globally applauded MTS Brand in India.‘MTS’ ranked among BRANDZ™ Top 100 Most Powerful Brands. MTS India mobile sub base has increased thethreshold of almost two million. In the month of March-2009 incremental share in Rajasthan market reached therecord figure of 13%. More than 10,000 BTS to be set up in the first phase, execution of Agreement with the Nationaldistributor UTL, tieing up with Samsung, ZTE and Huawei for superior handset range & quality have also taken placeduring the year. The Corporate office of the Company has re-located from New Delhi to Gurgaon (Haryana) formonitoring the Pan India operations smoothly and efficiently and we have also established required offices in newlylaunched circles.

I am also enchanted in reporting that Roll out of Pan India operations for rest of the circles is also under swift progress.The Company has also entered into a strategic partnership with reputed companies for supply of customized handsets.

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Inter Connect Agreements for all India operations have been executed with most of the major operators. The Companyis primarily focusing to accomplish the task of launching of new circles within scheduled time.

We are now geared to rapidly expand our presence across the Country. Presently we are working on last milestrategies for introducing our path breaking MTS services in Delhi NCR this would be followed close on the heel withlaunches in Mumbai & Karnataka. The increased canvas of operations implies many more million customers enrolledin our network and enjoying our superior services this year.

The growth in the domestic telecom industry has largely been concentrated in the Metros and Class A circles in thepast decade; however, coverage in the Class B and Class C cities is still low. India’s rural tele-density currently standsat less than 15 percent. Your Company is endeavouring to explore the possibilities to add new customers from ruralareas though these markets are volume driven with low tariffs.

Your Company is surfacing and all set to defy the competition in existing Telecom Market with a propel to lead themarket by providing high quality product & services supported by state of the art technology, vigorous and efficientprocesses backed by highly skilled and enthusiastic professionals. We are also putting our all efforts for establishingthe global MTS brand in India, the MTS Brand is internationally recognized and widely respected as a robust,reliable and pioneering brand. Your Company is ongoing its efforts to provide world class quality connectivity withInnovative & Customer friendly Tariff Schemes under the Global brand MTS. Our aspiration is to be an out performingPan-India Telecom player and to deliver high quality product to our valued customers. We will incorporate the MTSvalues in the process of introducing world class services, creating a benchmark organization and above all being arespected, honest, valued and admired corporate citizen. As we move forward, I take this opportunity to reiterate ourcommitment to provide excellent services and value for money products to our valued customers.

It is matter of immense pleasure that your Company has been awarded with the “National Telecom Award” at theNational Telecom Award Ceremony for being the most successful new Telecom Operator in India. This award isrecognition of the MTS establishing itself as a strong challenged brand in India.

The excitement is unfolding and we would have enough opportunities to ‘Outdo Ourselves” to achieve record growthrate and numbers; achievements that would become benchmark in the telecom history. True to our value of reciprocalbenefits the Company would ensure individual growth and development of all our valued team members.

The detailed information of Company’s progress in different operational areas has been appropriately portrayed inthe Directors’ Report.

Before concluding, I would like to take this opportunity to express my gratitude to thank every customer, partner,employee and investor for support and trust bestowed upon us and looking forward to their continued support in theyear ahead in catalyzing our efforts towards building a great organization, which would create records in thearchives of the telecom industry.

Thanking you

Vsevolod RozanovPRESIDENT & CEO

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Ron Sommer

Chairman

Sergey Cheremin

Dy. Chairman

Vsevolod Rozanov

Whole Time Director

(President & CEO)

Mr. Ron Sommer studied mathematics at the University of Vienna, where he earned his doctorate in1971. He began his professional career with the Nixdorf Group in New York, Paderborn and Paris. In1980 he was appointed Managing Director of the German subsidiary of the Sony Group. In 1986 hebecame Chairman of the Management Board of Sony Deutschland, and was subsequently appointedPresident and Chief Operating Officer of Sony Corporation of America in 1990. In 1993, Mr. Sommerserved at Sony Europe in the same function. From May 1995 to July 2002 he served as Chairman of theManagement Board of Deutsche Telekom AG. He has been serving as Chairman of the InternationalAdvisory Council of Sistema JSFC since May 2003. Since May 2009 Mr. Sommer is serving as FirstVice-President of Sistema JSFC.

Mr. Sommer presently is the Director on the Board of several Companies in different countries likeMotorola Inc., USA; Sistema JSFC, Russia; Tata Consultancy Services, India; Munich Reinsurance, Germany;Weather Investment, Italy.

Mr. Sergey Cheremin graduated with honors in 1989 from the Moscow State Institute of InternationalRelations with a specialization in international journalism and completed his postgraduate course atMoscow State University specializing in global economic issues. In 1992, he was an intern at theNew York Institute under the Investments and International Accounts Program and in 1993 joined acourse for banking specialists at Fairfield University (USA).

From 1991 to 1992 Mr. Cheremin was Deputy CEO at Printbank and from 1992 to 1998 worked as theCEO of the Moscow Export-Import Bank. Between 1998 and 2000 he was Vice President of Ural TrustBank and from 2000 to 2003 was Adviser to the President of Severo-Vostochny Alliance Bank where hesubsequently became President. In 2004, he was appointed CEO of MBRD Bank and has acted asthe Chairman of the Board there till April 2005. Since then, he has served with Sistema JSFC asSenior Vice President (Head of External Relations). Presently, he is a Director and Dy. Chairman ofBoard of Directors of Sistema JSFC.

Mr. Vsevolod Rozanov did his graduation from the Lomonosov Moscow State University with a degreein Economics. He is having rich corporate experience of more than 15 years, mainly in the field ofManagement, Economics and Finance. He has served many esteemed Multinational Companies in seniorcapacity. Before joining the Company he was Vice President and CFO with Mobile TeleSystems (MTS),Moscow, another Subsidiary Company of Sistema JSFC. He is a successful professional who made asignificant contribution to consolidating MTS’s position in the telecom market.

Boa rd o f D i r e c to r sBoa rd o f D i r e c to r sBoa rd o f D i r e c to r sBoa rd o f D i r e c to r sBoa rd o f D i r e c to r s

CHIEF FINANCIAL OFFICER

Sergey Savchenko

COMPANY SECRETARY

Rashid J Malik

AUDITORS

M/s S. R. Batliboi & AssociatesChartered Accountants,Golf View, Corporate Tower B, Sector 42,Sector Road, Gurgaon (Haryana), India

REGISTERED OFFICE

B2-D, Shiv Marg, Bani Park,Jaipur – 302016, Rajasthan, IndiaTel. 0141-5100510

INTERNAL AUDITORS

M/s Mehra Goel & Co.Chartered Accountants,505, Chiranjiv Towers,43, Nehru Place,New Delhi -110019, India

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Rajiv Mehrotra

Director

Alok Tandon

Managing Director

Ajay Khanna

Managing Director

Mr Ajay Khanna is a co-promoter of Shyam Group. He has been instrumental in setting up all IndiaDistribution Network for Cable TV, which catapulted Shyam Telecom Limited to become the leadingplayer in the Indian Cable TV equipment Industry. Complete commercial & operational network ofSSTL’s Cellular & Basic Business was set up under his guidance. He handles the Project implementation,Commercial operations (Sales, Marketing, and Credit control) and HR activities of the Shyam Group.

He also does handle Public Relations and liaison with Local Authorities and Statutory / RegulatoryBodies.

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CORPORATE OFFICE

MTS India Towers, Plot No.334,Udyog Vihar, Phase –IV,

Gurgaon, Haryana, IndiaWebsite: www.mtsindia.inTel : 91-124-4812500Fax : 91-124-4812825

AUDIT COMMITTEE

Mr. Sergey ChereminMr. Ajay KhannaMr. Suman Sehgal

REGISTRAR & TRANSFER AGENT

Indus Portfolio Pvt. Ltd.

G-65, Bali Nagar,New Delhi -110015, IndiaE-Mail : [email protected]

Tel: 91-11-25172115, 25422805, 25422801Fax: 91-11-25449863

BOARD EXECUTIVE COMMITTEE

Mr. Ron SommerMr. Sergey ChereminMr. Alok TandonMr. Vsevolod Rozanov

Mr. Rajiv Mehrotra is a new generation technocrat, an electronics engineer by profession, a pioneer anda visionary and has many firsts to his credit. He started his career by setting up the manufacturingfacilities for Cable TV and Satellite TVRO system. With his exemplary, innovative and global ideas hediversified and expanded on several fronts including the services sector like cellular, basic telephonyand GMPCS.

Under his technical leadership and a highly motivated R&D team, Shyam Telecom developed a widerange of cost effective Quality Telecom products, Multi Access Radios, Multiplexes, V-Sat system, SCADA,Fibre Optic Terminal and DECT based Wireless in the Local Loop system. He is avidly involved in theAssociation of Basic Telecom Operators, representing the case of Basic Operators with the Governmentof India, Department of Telecommunications etc. He is also a Member of the FICCI Telecom Committee.

Mr. Alok Tandon is a Chartered Accountant by profession. He looks after all the financial and commercialactivities of the Shyam Group. Mr. Tandon has experience of more than 17 years in this field. Under hisguidance Shyam Telecom successfully concluded the IPO in 1994, which was oversubscribed by 25 times.He has been instrumental in efficiently managing funding and investments for various group Companies.Mr. Tandon also handles group relationships with all leading Banks, Foreign and Indian InstitutionalInvestors. With his efforts Shyam Telecom has been able to smoothly manage its Equity & Debt fundingrequirements at the lowest possible cost. He has been instrumental in closing the several importantdeals of the Shyam Group which gave group the highest ever per customer valuation of any telecomoperation in the country.

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Mr. Suman Sehgal is a graduate from St. Stephens College, Delhi. After graduation he did Practicaltraining in West Germany for 2 years and in 1968 joined the family factory in India producing paperproducts as Managing Director, catering to markets all over India. He went to Russia in 1984 andworked as consultant to Blue Chipped Companies like Indian Tobacco Companies, Harrison Malayalam,Tata Tea, Mackniel and Magor. Presently he is Chairman & Managing Director of Spice Shipping andDirector on the Board of some other Companies of S.R.N. Group. He is also General Consultant toS.R.N. Group.

Suman Sehgal

Director

Mikhail Shamolin

Director

Madhukar

Director

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National Securities Depository Ltd.

4th Floor, Trade World, Kamla Mills Compound,

Senapati Bapat Marg, Lower Parel,Mumbai -400013, IndiaTel: 91-22-24994200Fax: 91-22-66608035/24976351

Central Depository Services (India) Ltd.

Phiroze Jeejeebhoy Towers,1

7th Floor, Dalal Street,Mumbai – 400 001, IndiaTel: 91-22-22723333-3224Fax: 91-22-22723199/22722072

BANKERS

ICICI Bank Bank of China ABN Amro Bank Yes BankPunjab National Bank Indian Bank VTB Bank Societe Generale

Mr. Madhukar holds a Master of Arts degree in Economics and a Bachelor’s degree in Law. He didprofessional programs in Project Management and Human Resource Development etc. from IIMAhemdabad, IIM Kolkata, IMI New Delhi and he is a Certified Associate of Indian Institute of Bankers(CAIIB).

Mr. Madhukar’s banking career spans over 37 years and covers every major dimension of bankingoperations, both in India as well as overseas. From 1990 to 1996 he served as the Managing Director ofthe State Bank International Limited, Mauritius. In 1997, he was appointed Senior General Manager atSBI Capital Markets. From 1998 to 2000, he served as the Chief General Manager, New Delhi Circle atSBI; and in 2000 to 2001, as Managing Director of State Bank of Bikaner & Jaipur. In 2003-2004, he wasappointed Chairman & Managing Director at the Industrial Investment Bank of India Ltd. (IIBI). He heldconcurrent charge from 2001-2004 as Chairman & Managing Director at United Bank of India and wasresponsible for the remarkable turnaround of the bank from being a loss-making bank to aprofit-making success, without any additional financial assistance from the Government of India. He hasalso served as Whole Time Member with the Securities and Exchange Board of India.

Mr. Mikhail Shamolin graduated from the Russian Academy of Government Service under the Presidentof the Russian Federation in 1993. From 1996 to 1997, he studied at Wharton Business School, wherehe completed a finance and management course for top-managers.

Mr. Shamolin is the President and CEO of Mobile TeleSystems Group (MTS), Moscow since May 2008.Prior to his current role, Mr. Shamolin has also held the position of Vice President, Head of MTS Russiafrom August 06 to May 08. In this capacity, Mr. Shamolin managed the largest MTS business unit, onewhich contributes roughly 75% of value to MTS. Mr. Shamolin joined MTS in July 2005 as Vice President,Sales and Customer Service and has been a member of the MTS Board of Directors sinceOctober 2008. Prior to joining MTS, Mr. Shamolin worked at McKinsey & Co. from 1998 to 2004.In 2004 and 2005 he worked at Interpipe Corp. (Ukraine) as Managing Director of the FerroalloysDivision.

DEPOSITORIES

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D I R E C T O R S ’ R E P O RT

Dear Members,

Your Directors have pleasure in presenting the Fourteenth Annual Report on the business and operations of the Companytogether with Audited Statement of Accounts for the financial year ended 31st March 2009.

FINANCIAL HIGHLIGHTS

(Rs. In Mill ion)

S l . Part icu lars Current Year Previous YearNo . ended ended

31st March, 2009 31st March, 2008

1. Total Income 1276 1167

2. Total Expenditure 3098 1394

3. Operating Profit Before Amortizations, Finance Expenses and Depreciation (1822) (227)

4 Financial Expenses 1891 565

5 Cash Profit/(Loss) (3713) (792)

6. Depreciation 721 881

7 Amortization of Intangible Assets, Miscellaneous Expenditure, impairment& Start up Expenses 1460 134

8. Loss for the year (5894) (1807)

9. Loss before Tax- Current & Deferred (5894) (1807)

10. Current Tax 1 3 4

11 Loss after Tax (5907) (1811)

12 Loss Brought forward from previous year 6216 4405

13 Deficit Carried to Balance Sheet (12123) (6216)

The financials of the current year are not comparable to previousyear since the Company was operating in a single circle in Wireline and Fixed Wireless segments, whereas during the currentfinancial year the Company has started services in 5 more circlestill date of this report. Your Company has invested substantialamount in Capital and Operating Expenditure on a Pan Indiabasis on setting up telecom network. The results of these longterm investments will be reflected in future financial statementsof the Company.

The total income of the Company recorded a modest increasefrom Rs.1166.78 million in previous year to Rs.1275.87 millionduring the current year. The increase in revenue was supportedby interest income on Fixed Deposits. Due to launch ofnew circles, the total operating expenditure increased fromRs.1394.33 million in previous year to Rs.3097.56 millionduring the current year. Finance expenses also increased fromRs.565.43 million in previous year to Rs.1891.09 millionduring current year primarily due to increase of long termdebts to Rs.22583.93 million and exchange fluctuation ofRs.299.47 million. Your Company has thus incurred operatingloss (EBITDA) of Rs.1821.68 million as against Rs.227.55 million

last year. The Company also incurred start up expenditure ofRs.897.62 million during the year. On an overall basis yourCompany recorded a negative NPAT of Rs.5907.48 Million asagainst Rs.1811.74 million during the previous year.

FINANCIAL STABILITY

Your Company has comfortable liquidity to meet its short termand long term plans. The Company meets its working capitalrequirement by having suitable commercial arrangement withits creditors and sufficient credit lines with Banks & FinancialInstitutions and operates on a robust cash management systemto ensure timely availability of funds. The Company hasoptimized finance cost so as to ensure funds are available forexpansion of the network in the remaining telecom circles inIndia. The Company actively manages its short-term liquidity togenerate optimum returns. Your Company has full financialsupport from its promoters for its strategic expansion plans inIndia.

DIVIDEND

In view of the loss during the year under review, your Directorsregret their inability to recommend any dividend.

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CHANGE OF COMPANY’S NAME

During the period under review, the name of the Company waschanged from Shyam Telelink Limited to Sistema Shyam

TeleServices Limited with effect from 22nd Jan. 2009. Thename was changed in order to reflect the Joint venture betweenSistema JSFC & Shyam Group. This is reiterated thatSISTEMA is one of the largest public diversified corporationin Russia and the CIS, which manages fast growing companiesoperating in the consumer services sector and SHYAM Group

is a premier telecommunications equipment design &manufacturing organization in India with an eye on theglobal markets, and also in order to make all concerned awareof this JV.

BRAND TRANSITION

Your Company had nurtured and cherished the Rainbow Brandin Rajasthan Circle and the same had wide appeal. However,upon the new strategy of the Company of becoming a Pan IndiaOperator, a need was felt to bring Brand with Pan India appealand global flavor. Accordingly your Directors took a strategicdecision and are delighted to inform you that your Companyhas launched the globally acclaimed MTS brand in India and alsoconcluded the rebranding of Rajasthan from Rainbow to MTSwithout any noticeable disruption in sales and smooth handoverof Rainbow brand equity to MTS. The Directors are confidentthat this global brand will be immensely successful in cutting aniche in the Indian telecom market with its core instinctivevalue for customer focus.

The strength of MTS brand has been consistent and has beenrecognized internationally in both 2009 & 2008 in BRANDZ TMas one of the top 100 most powerful brands, a ranking publishedby the Financial Times and Milliward Brown, a leading globalmarket research and consulting firm. It has been ranked at the71st position by BRANDZ. Global recognition of MTS brandstrength is a testimony to both the success of MTS and the

growing interest in markets of operation of the Company.

Your Directors are confident that in the coming times our mobiletelephony brand MTS will continue to strengthen and becomethe one of the most loved Telecom Brands of India.

LICENCES & SPECTRUM

As reported earlier, your Company has obtained Unified Access

Service License (UASL) from the Department ofTelecommunication (DoT) for all the 22 circles, to become aPan–India Operator. The DoT has allotted Start up Spectrum to

the Company for CDMA based mobility for all the Circles. TheCompany has also obtained in-principle approval to use GSMtechnology under the existing UASL License of Rajasthan Circle.

LAUNCH OF NEW CIRCLES

Your Directors take pride in reporting that during the periodunder review with active support, hard work and dedication ofemployees at all spheres, the Company accomplished fast track

growth expanding its presence by launching its CDMA servicesin five new circles viz. Tamil Nadu, Kerala, Kolkata, West Bengaland Bihar apart from Rajasthan. It is a matter of immense pleasurethat these launches have been achieved on schedule and this allsuccess could be possible due to the untiring efforts that

our employees, vendors, business partners, associates have allput in.

Tamil Nadu & Kerala

The Company has launched its services in Tamil Nadu & KeralaCircles in the month of March 09. In Tamil Nadu Phase-I theCompany is covering nearly 31million people which is 50% oftotal population with coverage of 561 towns of the State. InKerala, initially 6 Districts of the State were launched inMarch 2009 and till July 2009 network installation has beencompleted and business operations have been started in all the14 Districts covering nearly 17 million people which is 50% oftotal population with coverage of 425 towns of the State.

Kolkata & West Bengal

In April 09 the Company entered in the Kolkata circle. ThisCircle is having a population of 18 million and Telecom Districttotal area of 2050 sq. km. In Phase-I the Company is coveringnearly 1886.31 sq.km of the telephony potential and reachingout to a population of around 17.5 million of the circle.

In May 09 your Company has shown its presence in WestBengal Circle by launching its services in the Circle which ishaving population of 60 million. In Phase-I the Companycovered 450 Towns and 26.67 million population i.e. 45% oftotal population of the Circle.

Bihar

In July 09 the Company has also taken entry into Bihar bylaunching its services in the Circle which is having populationof 109.7 million. In Phase-I the Company covered 271 Townsand 22.1 million population i.e. 20% of total population of theCircle.

The Company is committed to launch more Circles in calendaryear 2009 with Delhi, Mumbai, and Karnataka scheduled to belaunched very soon. The Company is now operational in newlylaunched circles and is the only Company to be launch-ready

and aggressive to expand its footprints in other States of theCountry.

The new circles launch has made role of the Company morechallenging; managing the launched circle operations as well as

driving project execution in the yet to be launched circles. Thesechallenges are rarely experienced and require operating with

parallel twin responsibilities; both equally exciting and enriching.The increased canvas of operations implies many more millioncustomers enrolled in our network and enjoying our superiorservices this year.

EXPANSION IN RAJASTHAN

Presently the Company is providing its services in 600 Townsand 12000 villages of Rajasthan where there is a large potential

customer base and major intercity traffic. The Company plansto be operational in over 900 Towns and 13000 villages by the

year end. The Company’s fiber optic network is around6000 km. In FY 2008-09, the Company has deployed in excess of800 Base Transreceiver Stations (BTS) in various parts ofRajasthan and about 600 more BTS are in pipe line and will beoperational very soon. Aggressive expansion works are

underway to offer full mobility services on the CDMA platformin Rajasthan Circle.

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In Rajasthan, we will continue to offer a range of fixed andwireless services, and are already providing cross productofferings with the inclusion of calls made to both the fixed andwireless networks being treated as on-net for all MTScustomers.

The Company is continuously expanding its distribution reachin Rajasthan covering 15000 retail outlets and has plans to cover25000 more retail outlets by end of this calendar year.

PAN INDIA ROLLOUT

Your Company is primarily focused to accomplish Pan-India rollout plan within scheduled time frame work. The Company holdsUAS licenses for all 22 Telecom circles for Pan-India rolloutthat would encompass around 600 district headquarters and4 Metros. Your Company meticulously aligned to the fast pacedstride towards accomplishment of Pan India roll out plan withyearning to excel.

The Company has made arrangements for Infrastructure sharingof Optical Fiber Cables, Towers & Cell Sites etc. with othertelecom operators across the country which would drasticallyreduce the Network rollout costs of the Company and help infaster rollout of networks. The Company has made enormousprogress in establishing network in the telecom circles of Delhi,Haryana & Karnataka where commercial launches are plannedvery soon.

The Company has placed orders to leading International TelecomManufacturers for rollout of its network across circles, whichincludes supply of core telecom equipments. Your Company isswiftly appointing Distributors and retail outlets in variouscircles. The Company has also awarded contract to variousTurnkey Service providers for Tower, shelter supply & erection.The Company has also tied up with Tata Teleservices forproviding national roaming to its customers on Tata TeleservicesNetwork.

Your Company’s endeavor is to become one of the largestintegrated telecom operators in the highly competitive andchallenging private telecommunication market in India. TheCompany is committed to provide state-of-the-art WirelessTechnology for communication services to its customers acrossthe country.

AWARD & RECOGNITION

Your Directors are very excited to inform that your Companyhas been conferred the National Telecom Award at the NationalTelecom Award Ceremony for being most successfulnew Telecom Operator in India. This was indeed a proud moment

for the Company. The award is in recognition of MTS establishingitself as a strong challenger brand in the Indian Market.We are confident that it will be a major boost to the moraleof MTS team.

PRODUCT & SERVICES

Your Company is fully committed to provide globally acclaimed

products and services to its customers at a very competitivetariff plans. The Company has launched its services in all new

circles with competitive and attractive tariff plans for local aswell as STD Calls, VAS etc. ranging from competitive special

tariff vouchers, to variable talk time and validity offerings alongwith smart & lucrative handsets of various companies of reputewith unique and advanced features. Our tag line - Badlo Life

ka Plan – has been developed to tap into a new sense of prideand can do attitude emerging from new India. Honesty, Simplicityand True Value have been developed as cornerstones of ourmarketing approach in all aspects of offer development torespond to the suspicion in the consumer market. Our million

minutes free launch promotion is the most innovativepromotion ever in this market, creating a high engagementmessage to support the launch of the MTS brand and animmediate reason for purchase.

At launch we offered the market a major innovation, a lifetimeSpecial Tariff Voucher (STV). This product category has alreadybeen expanded from the one million minute launch promotionto a 30p/minute lifetime local calling STV. We have also launcheda 1, 2, FREE SMS product allowing customers to have free SMSafter the first two per day, eclipsing all other SMS innovations inthe market currently.

Our terminals range is now expanded to include top brandssuch as Samsung and MTS branded USB modems for laptop/desktop users. The open market handset strategy will seephones being offered by Spice, Haier, Samsung, Fly and Huaweibefore the end of the year, which will reduce our SubscriberAcquisition Cost (SAC) and expand the segments we can target.We will also offer Blackberry type products for power users ofemail, again expanding our reach into new segments.

CUSTOMER CARE

The Customer Service is at the core of every activity undertakenby the Company. The Company believes that “differentiated”customer service practices will provide the competitive edgewithin the market. A well defined two-pronged Service strategyaims to optimize ‘First Contact Resolution’ for customerqueries and provide ‘Consistent Service’ to all business partners.At MTS we ensure that we “own our customers” and whateverwe do for them will be done “first time right”. The focus is inensuring we create and give our customers high quality customerservice through systems, processes and more importantlypeople who will create the - MTS way of Service to customers.

Whether it is ensuring the best in class 24X7 Customer ServiceContact Centers through a few quality strategic partnershipswhich strives to provide complete end to end resolution, orthe dedicated Complaint Resolution and Customer Retention

Management Team - customer satisfaction will be core to ourcustomer care strategy. MTS Services will carry both thepersonal touch and local flavor to ‘reach-out’ to customers

through various initiatives as well as capture their feedback andsuggestions.

In future, we plan to expand our presence in the market in thedirect retail space where customers can meet and interact with

us for all their telecom needs. This facility is currently availableto our customers in Rajasthan circle only. Having grown as atelecom player in 5 circles across the country and more tocome, we are focusing on ensuring Standardized CustomerService Experience with the right balance of customer focus

and compliance to government / regulatory norms.

12

MARKET SCENARIO

India is one of the most dynamic and fastest growing telecommarkets in the world. Indian mobile market has registeredstupendous growth in the current fiscal year due to easyavailability of low cost devices, better network coverage,affordable services etc. As demand boosters, progressiveregulatory regime, network expansion by operators, reductionin tariffs and cost of handsets, which essentially make the serviceaffordable for the common users, have supplemented the growthof the Indian telecom sector.

In the past decade, the growth in domestic telecom industry haslargely been concentrated in the Metros and Class A circles;still the coverage in the Class B and Class C cities is low at15-25%. It’s worth noting that 70% of the Indian populationlives in rural areas, and, equally importantly, 64% of the nation’sexpenditure and 56% of its income comes from these villages–yet India’s rural tele-density currently stands at less than 15%.

As far as year 2009 is concerned, there is not going to be anymajor slowdown in the telecom business, as telecommunicationstools will help reduce expenditures for enterprises andindividuals. The industry is having 415.25 million subscribers asof May 2009 and likely to add between 90-100 million newsubscribers in residual part of 2009. The overall teledensity hasreached 38.88% at the end of May 2009.

As per report of E & Y the total revenue of India’stelecommunications services industry is projected to reach$54 billion in 2012. Total telecom subscriber base of India isestimated to reach about 700 million by 2012, including about650 million mobile phone users. This has been due to the impactof economic reforms and pro-active policies of the Government.The Indian Telecom sector has witnessed dramatictransformation on almost all the fronts.

SECURITY CONTROLS

The Company has established an effective security system ofinternal controls designed to provide reasonable assurance

regarding the achievement of the objectives in the followingareas:

1. Effectiveness, efficiency and continuity in operations;

2. Adequacy of safeguard for assets; and

3. Reliability of financial controls

The integrity and reliability of the security systems areachieved through clear policies and procedures, process,

automations, careful selection, training and development ofemployees, and an organization structure that segregatesresponsibilities.

The Company has also taken the following major initiatives to

further improve security control viz. Development of ProcessRegulation for Contractor Screening & Vendor Verification withthe process regulation, Development of Process Regulation for

Conducting Line of Duty Investigations, Development ofStandard Fraud Level indicator format, Analysis Of CurrentSituation for Combating Fraud, Pre-employment Verification ofemployees, Technical Surveillance Counter Measures(TSCM),Installation of all required Security Equipments etc.

STATUS OF LISTING OF SHARES AS PER SCHEME

OF ARRANGEMENT

As reported in last Annual Report that Hon’ble High Courtof Rajasthan vide its order dated 07.08.2008 while disposingof the Company’s Application in the matter of Schemeof Arrangement between Shyam Telecom & others, orderedthat:

“the Company, SSTL, shall, within a maximum period of 18months from the date of this order initiate the process of listingthe shares representing the Issued Capital of the company byadopting such route as may be permissible in law and shall carryout such compliances as may be required in law including that ofoffering a specified percentage of the shares to the Public, forsubscribing thereto, through the book building process, in themanner provided for under SEBI (DIP) Guidelines 2000, andupon such steps being taken, BSE may issue such orders thatmay be required in law and as may be necessary for securing thesaid listing.”

After the pronouncement of the aforesaid order, the Board hasreviewed the matter in its meetings from time to time. Suitableactions are being planned to follow the directions of the Hon’bleHigh Court.

CAPITAL RESTRUCTURING & NETWORTH

PROGRESSION

Your Directors consistently aspire to achieve optimumgrowth in the share capital of the Company. With theinfusion of further funds to the tune of INR 20000 Millionby SISTEMA JSFC and Indian Promoters in the Companyduring the year under reporting, the equity share capitalof the Company increased from INR. 4559.5 Millionto INR. 24559.5 Million as on 31.03.2009. The loss ofRs.5907 Million incurred during the year as envisaged initially,increased accumulated loss upto Rs.12123 Million as on31st March, 2009 resulting into negative net worth as on thatdate without considering the fresh equity. But the infusionof further capital has tremendously improved its networthfrom a negative one to a positive one. Now the bookvalue (NAV) per equity share as on March 31, 2009 standsat Rs.5.06.

Compliance of FDI Sectoral Policy

As on the date of this report, the Issued, Subscribed and Paid upCapital of the Company is 2,455,957,500 equity shares of

Rs.10/-each out of which SISTEMA JSFC is holding 1,810,289,400shares i.e. 73.71%.

The total paid up capital of the Company along with breakup ofthe Foreign and Indian Holding is as under :-

Category No. of Shares % of Holding

Foreign Holding 1810904912 73.735

Indian Holding 645052588 26.265

TOTAL 2455957500 100.00

13

The present foreign holding in the Company is within sectoralequity cap for foreign equity prescribed in FDI policy as in forceas on date.

CORPORATE SOCIAL RESPONSIBILITY

Your Company realizes the responsibility towards employees,the environment and society, the vital factor to the success. TheCompany understands the needs and aspirations of the peopleliving in the vicinity of our operations and appreciates issuesraised by Authorities. The Company is fully committed to talkand listen to other concerned parties and create value for ourshareholders.

Our entrepreneurial spirit is underpinned by a strong set ofcultural core values including integrity, social and environmentalresponsibility and nurturing of individuals & creativity.

The CSR policy stresses on importance of respectinglocal cultural factors and emphasizes on contributing tosocio-economic development in regions where it undertakesbusiness activities.

Your Company continued to focus on the neglected segmentsof the society, providing Mobile PCO (Chalta Phirta PCO) tophysically challenged individuals. Connect A- School, A- Hospital,Coin Collection Boxes and information Kiosks at Airports &Bus Stands are few of the efforts in this segment.

SUBSIDIARY COMPANY

Shyam Internet Services Limited (SISL), a wholly ownedsubsidiary of your Company is having a Category B ISP licenseto provide Internet Service in the State of Rajasthan. SISL is theleading name in the state of Rajasthan for quality internet services.The Company is running internet services in 131 cities withbrand name “Infinity”.

SISL has also applied for License for category-A ISP for providingInternet Services on different technologies on All India basis.On receipt of category A- ISP license, the SISL would bespreading its service offering multi flavored Internet access toPAN India Internet subscribers with its world classinfrastructure, dedicated optical fiber cable network, Digitalmodems, and fully automated helpdesk.

As required under Section 212 of the Companies Act, 1956,Balance Sheet, Profit & Loss Account, Directors’ Report andAuditors’ Report of the subsidiary (SISL) have been attachedwith the Balance Sheet of the Company.

CORPORATE GOVERNANCE

Your Company believes that Corporate Governance hasbecome most essential element of a mechanism required forcorporate survival and being successful in today’s mostcompetitive business market, and in current regime it isconsidered equally important in a Company as the otheroperations of Corporate Business.

Being the Company interested in implementing a goodCorporate Governance, your Directors are taking all necessarysteps to implement best International Corporate Practices inthe Company in phased manner to promote the value of allstakeholders.

REGULATORY CHANGES

Major Amendment in TTO

On 1st

September, 2008 TRAI prescribed time period forrecharging with minimum specified amount for such tariff planswhich have lifetime validity or unlimited validity, such time periodshall not in any case, be less than six months.

Directions related to National Security

On 06.10.2008 DoT issued direction in the interest of securityof the nation to make provision of Equipment Identity Register(EIR) so that calls without International Mobile EquipmentIdentity (IMEI) or calls with IMEI with all zeros are not processedand rejected.

Amendement to UASL Agreement for Roll outob l i ga t ions

On 10.02.09 DoT made amendments to the UAS LicenseAgreement for roll out obligations for wireless networkonly. It is also provided that the licencee shall ensure thatmetro service area of Delhi Mumbai, Kolkata and Chennai arecovered within one year of the date of allocation of start upspectrum. It was, however, clarified that while computing theperiod of 1 year the average delay in SACFA clearance shall beexcluded.

Standards of Quality of Service of Basic and CellularServ i ces

On 20th March, 2009 - TRAI released Regulations on thestandards of Quality of Service of Basic Telephone Service(wireline) and Cellular Mobile Telephone Service includingrevision of benchmark for the parameter call drop rate, replacingthe parameter on accumulated downtime for communityisolation with new parameter on network availability, prescribingnew parameter to assess the metering and billing credibility inrespect of charging of pre-paid customers, reducing the periodwithin which refund/credit is to be applied to customers in casea billing complaint is upheld from four week to one week, thebenchmark for the parameter “Response time to the customerfor assistance” has been simplified and rationalized to providefor accessibility of call centre and response time by the operator.

Directions for preventing unintentional subscriptionto VAS

On 27.04.2009 TRAI with a view to enhance transparency withregard to explicit consent and for preventing accidental orunintentional subscription to value added services and to protectthe interest of consumers, issued directions to all access serviceproviders to ensure to taking explicit consent of consumersand for preventing accidental subscription to value addedservices.

HUMAN RESOURCES

Human Resource is one of the key constituent for achievingbusiness success in Service Industry. In telecom industry, due toits knowledge driven nature and hyper competitive scenario itis even more vital.

14

The Human Resources Team at Sistema Shyam TeleServices Ltd.aims at partnering with business by developing ‘next’ in classHR practices and creating a learning organization. We believethat performance driven employees with high levels ofmotivation and engagement at work is the key to enhancingbusiness capabilities and subsequently delivering businessresults. Hence we continuously invest in their training, motivatingand development. Both Sistema and Shyam have a proven trackrecord of pursuing quality management systems in their endeavorto achieve excellence. In this regards we at SSTL are ensuringto meet up with the high standard of Excellence through ourEmployees. Our processes have been benchmarked with globalbest practices and standards.

BOARD OF DIRECTORS & CHAIRMAN

During the period under review, the following Directorsresigned from the Directorship of the Company:-

1. Mr. Igor Garshin resigned as Director w.e.f. 01.10.2008

2. Mr. Anurag Dayal resigned as Director w.e.f. 20.03.2009

3. Mr. Vitaly Saveliev resigned as Director w.e.f. 30.03.2009

4. Mr. Shamil Kurmashov resigned as Director w.e.f. 12.05.09

The Board places on record its deep sense of appreciationfor the valuable services rendered by Mr. Vitaly Saveliv,Mr. Igor Garshin, Mr. Shamil Kurmashov and Mr. Anurag Dayalduring their tenure as Directors of the Company.

Mr. Vsevolod Rozanov was appointed as Whole Time Directorunder designation of President & CEO w.e.f. 01.10.2008.Mr. Madhukar was appointed as independent Additional Directoron the Board w.e.f. 27.03.2009, and he holds office only uptothe date of ensuing Annual General Meeting. Mr. Ron Sommerand Mr. Mikhail Shamolin nominated by Sistema JSFC werealso appointed as Additional Directors of the Companyw.e.f. 21.05.2009, and they also hold office only up to the date ofensuing Annual General Meeting of the Company. The Boardrecommends their appointment as Directors in the ensuingAnnual General Meeting.

Consequent upon resignation of Mr. Vitaly Saveliev, the formerChairman of the Company, the Board of Directors of yourCompany elected Mr. Ron Sommer as the new Chairmanof the Company w.e.f. 21.05.2009. The Board also electedMr. Sergey Cheremin as Deputy Chairman of the Companyw.e.f. 21.05.2009.

In terms of clause 86 of Articles of Association of the Companyand as per the provisions of Section 255 of the CompaniesAct, 1956, Mr. Rajiv Mehrotra and Mr. Sergey Cheremin areliable to retire by rotation and being eligible, offer themselvesfor re-appointment.

DIRECTORS’ CONFIRMATION

As required under the provisions of Section 217(2AA) of theCompanies Act, 1956, the Directors confirm that:

1. In the preparation of the annual accounts, the applicableaccounting standards have been followed.

2. Appropriate accounting policies have been selected andapplied consistently and judgment and estimates that arereasonable and prudent have been made so as to give a trueand fair view of the state of affairs of the Company at theend of the financial year ended March 31, 2009 and of theLoss of the Company for the year ended on that date.

3. Proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions ofthe Companies Act, 1956 for safeguarding the assets of theCompany and for preventing and detecting fraud and otherirregularities have been taken.

4. The annual accounts have been prepared on a “going concernbasis”.

AUDIT COMMITTEE

During the period under review the Audit Committee of theDirectors was reconstituted. Presently, the constituentmembers of the Audit Committee are Mr. Sergey Cheremin,Mr. Ajay Khanna and Mr. Suman Sehgal.

AUDITORS

M/s S. R. Batliboi & Associates, Chartered Accountants, theStatutory Auditors shall retire at the ensuing Annual GeneralMeeting and being eligible offer themselves for re-appointment.The Audit Committee and the Board of Directors recommendtheir re-appointment.

AUDITORS’ REPORT

The comments made by Auditors are self explanatory andparawise management response to qualifications/observationsmade in Auditors’ Report is stated as under:

As regards Para No.3 regarding payment of revenue sharefee in respect of consideration received during the year2004-05. The Company has paid under protest Rs 319.86 millionto DoT towards AGR demand on gain from sale of its investmentin HIL. The Telecom Disputes Settlement and AppellateTribunal (TDSAT) has decided the matter in favour of theCompany. At present, the matter is pending with HonorableSupreme Court for judgment. Based on legal Opinion receivedand the TDSAT judgment, the Company is confident of afavorable decision and is hopeful to receive back the amountdeposited under protest and hence no provision has beenmade .

As Regards Para No.( i) (a) of the annexure to their report, theprocess is already covered in agreement with National ServiceVendors and the Company is in the process of updating itsrecords based on acceptance testing and certification of suppliedcapital goods installed by these vendors.

As regards para No (iv) of the annexure to their report,the details of material receipt by national service vendorson behalf of company have been completely reconciled withvendors and acknowledgement of same is obtained. Further,the company is in process of strengthening of recording ofreceipt of material

15

As regards para No (ix) of the annexure to their report, there

have been minor delays in few instances during project phase.

Suitable mechanism to monitor timely payment has been put in

place to ensure timely deposit of statutory dues.

As regards para no(x) of the annexure to their report, it is

stated that the Company is Infrastructure Company operating

in Telecommunication business. As per industry practice, the

company is making cash losses in initial year of operation and it

expect to generate operational profit after the initial gestation

period.

FIXED DEPOSITS

The Company does not hold or accept any deposits and as such,

no amount of principal or interest on fixed deposits was

outstanding on the date of the Balance Sheet.

PARTICULARS OF EMPLOYEES

As required under Section 217(2A) of the Companies Act, 1956

read with Companies (Particulars of Employees) Rules, 1975, as

amended from time to time, a Statement of Particulars of

Employees is annexed hereto and forms part of this report.

PARTICULARS OF CONSERVATION OF ENERGY,

TECHNOLOGY ABSORPTION AND FOREIGN

EXCHANGE EARNINGS & OUTGO

Particulars with respect to Conservation of Energy, Technology

Absorption and Foreign Exchange Earnings and Outgo, as per

Section 217(1)(e) of the Companies Act, 1956 read with the

Companies (Disclosure of Particulars) Rules, 1988 are given

below :

a ) Conservation of Energy

Your Company is a telecommunication service provider

requires minimal energy consumption and every effort has

been made to ensure the optimal use of energy, avoid waste

and conserve energy as far as possible.

b ) Technology Absorption, Adaptation and Innovation

The Company has not imported technical know-how. Your

Company has not yet established any separate R&D facilities.

c ) Foreign Exchange Earnings & Outgo

During the year under review, the Company has not earned

any foreign currency but has incurred expenditure of

Rs.2.39 Million (Previous year Rs.2.31 Million) on travelling

and Rs.8200.28 Million (Previous year Rs.33.27Million) on

purchase of equipments and services in foreign currency.

ACKNOWLEDGEMENT

Your Directors would like to express their sincere appreciation

for valuable co-operation and support received from

Government of India, State Governments, Department of

Telecommunication, TRAI, BSNL, ABTO, Local Authorities,

Financial Institutions, Bankers, Vendors, Customers,

Shareholders and other business constituents during the period

under review.

Your Directors sincerely appreciate the high degree of

professionalism, commitment and dedication, continuing

support and unstinting efforts displayed by employees at all

levels in ensuring an excellent all round operations performance,

they have performed magnificently on all fronts. Our steady

growth was made possible by their hard work, solidarity,

cooperation and support.

For and on behalf of the Board

Place : Gurgaon Ron Sommer

Date : July 16, 2009 CHAIRMAN

16

ANNEXURE TO DIRECTORS’ REPORT

INFORMATION AS PER SECTION 217 (2A) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (PARTICULARS OF EMPLOYEES) RULES,

1975 AS AMENDED AND FORMING PART OF THE DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED MARCH 31, 2009

FOR THE FULL YEAR

S . NAME Gros s Nature of Other terms De s i g n a t i o n Q u a l i f i c a t i o n Date of A g e To t a l Last Company’s Name

N o . E a r n i n g E m p l o y m e n t & Condit ion J o i n i n g E x p .

1 YUDHBIR SINGH 3,452,096 Contractual As per service rules Circle Chief B.S.C 01-Apr-00 47 33 SHYAM TELECOM LTD.

of the Company Technical Officer (Electronics)

2 KALIKA PRASAD 2,072,911 Contractual As per service rules General Manager B.A./ M.A./ 01-Jun-00 40 24 HINDUSTAN COCA

of the Company P.G.D.H.R.M COLA BEV (P) LTD

3 SUNEEL VOHRA 3,453,661 Contractual As per service rules Advisor B.Com./ D.C.A. 01-Jun-01 47 18 SHYAM ACCESS

of the Company

4 SUDESH PANDIT 3,420,996 Contractual As per service rules Chief Operating C.A./ I.C.W.A.I/ 20-Oct-07 45 20 Emirates Integrated

of the Company Officer L.L.B. Telecommunications

Company, Dubai

5 RAJAT ARORA 3,783,253 Contractual As per service rules Chief Operating PGDBM 24-Oct-07 42 18 Bharti Airtel Limited

of the Company Officer

6 T NARASIMHAN 11,278,051 Contractual As per service rules Deputy Chief PGDMM 01-Jan-08 49 31 Vihaan Networks Limited

of the Company Executive Officer

FOR THE PART OF THE YEAR

7 MANMATH NIMAWAT 1,607,780 Contractual As per service rules of General Manager B. Com., Management 02-Jun-08 49 27 ACME TELEPOWER LTD

the Company Development Program

8 DMITRY KUPYSHEV 3,808,779 Contractual As per service rules of Exec. Assistant Bachelor of English 01-Jul-08 25 2 British Petrolium, Moscow

the Company & Law

9 JENS KIRCHNER 11,950,550 Contractual As per service rules of Chief Technical Master of Science 01-Jul-08 43 16 Siemens Ltd.

the Company Officer

10 KOZLOV VALERY 10,399,096 Contractual As per service rules of Chief Real Estate MBA, Moscow 01-Jul-08 53 30 MTS, Comstar

the Company Dev. Officer Electrotechnical

Institute of

Communication

11 SRINIVASA RAO SARIPALLI 3,140,819 Contractual As per service rules of Chief Operating P.G.D.B.M 02-Jul-08 42 22 Tata Teleservices Ltd

the Company Officer

12 KESHHAV TIWARY 2,203,382 Contractual As per service rules of Chief Operating B.Sc./ M.B.A. 10-Jul-08 43 12 RELIANCE

the Company Officer COMMUNICATION

13 NEERA SHARMA 1,617,645 Contractual As per service rules of General Manager L.L.B./ M.B.A. 16-Jul-08 37 13 DISHNET

the Company

14 VINAY MITTAL 1,401,864 Contractual As per service rules of General Manager C.A. 17-Jul-08 38 16 TATA TELESERVICES

the Company

15 KULJIT SINGH 2,411,370 Contractual As per service rules of Vice President M.B.A. 17-Jul-08 46 24 Bharti Airtel Limited

the Company

16 RAYMOND HERMAN 13,318,801 Contractual As per service rules of Deputy Chief Diploma, Moscow 01-Aug-08 47 23 Siemens Ltd.

FRANZ ARMES the Company Executive Officer Technical University

of Information &

Telecommunication

17 PRASUN KUMAR 1,371,493 Contractual As per service rules of General Manager M.B.A. 04-Aug-08 33 12 LEVI STRAUSS ( INDIA)

the Company

18 AMIT MATHUR 1,692,965 Contractual As per service rules of General Manager A.D.M. 12-Aug-08 41 19 Tata Autocomp Mobility

the Company Telematics Ltd

19 RAJIV KHOSLA 2,805,564 Contractual As per service rules of Vice President B.E 14-Aug-08 44 21 RELIANCE

the Company COMMUNICATION

20 SANIL G NAIR 1,297,251 Contractual As per service rules of General Manager M.B.A. 18-Aug-08 38 13 GLOBACOM LIMITED

the Company

21 NIKHIL SHRIVASTAVA 3,311,693 Contractual As per service rules of Vice President B.E (ELECT. 22-Aug-08 35 15 NOKIA SEIMENS

the Company &TELECOM) NETWORK PVT LTD

22 SANJAY JHA 1,412,011 Contractual As per service rules of General Manager B.E 01-Sep-08 38 12 Bharti Airtel Limited

the Company

23 SERGEY SAVCHENKO 16,865,795 Contractual As per service rules of Chief Finance PhD in 05-Sep-08 51 18 MTS, Moscow

the Company Officer Economics

24 SURENDRA NATH 2,729,464 Contractual As per service rules of General Manager M.B.A. 08-Sep-08 45 8 ACME TELEPOWER LTD

the Company

25 M SRINIVAS 1,133,607 Contractual As per service rules of General Manager B.Com. 11-Sep-08 45 24 TATA TELE SERVICES

the Company LTD.

26 VIKAS ARYA 2,988,295 Contractual As per service rules of Vice President B.E/ M.B.A 15-Sep-08 36 15 FUTUREWEI

the Company TECHOLOGIES

17

27 PRADEEP K. YADAV 2,425,620 Contractual As per service rules of Vice President MS-EE 30-Sep-08 47 19 VODAFONE ESSAR LTD.

the Company

28 VSEVOLOD ROZANOV 25,812,502 Contractual As per service rules of President and Degree in 01-Oct-08 38 8 MTS, Moscow

the Company CEO Economics

29 ZULFEQUAR MUJAHID 2,028,883 Contractual As per service rules of Chief Operating B.A.(Hons) 06-Oct-08 45 22 TATA TELE SERVICES

SIDDIQUI the Company Officer LTD.

30 SUNIL KUMAR SHARMA 1,028,174 Contractual As per service rules of Dy. General B.E 21-Oct-08 37 13 HUWAIE

the Company Manager TECHOLOGIES

31 ASHISH BHALLA 1,516,548 Contractual As per service rules of General Manager P.G.D.B.M 21-Oct-08 36 11 RELIANCE


32 PRITI SINGH 1,348,052 Contractual As per service rules of Vice President M.B.A. 27-Oct-08 46 14 RELIANCE


33 P S BAKSHI 1,456,011 Contractual As per service rules of Assistant Vice M.B.A. 01-Nov-08 53 29 LVY HOSPITAL&HEALTH

the Company President CARE LTD..

34 OLEG SUSHKOV 4,334,672 Contractual As per service rules of Head - Corporate Degree in 01-Nov-08 34 8 Aviva Life Insurance,

the Company Development Economics Russia

35 HARPREET SINGH BHATIA 1,207,588 Contractual As per service rules of General Manager M.B.A. 03-Nov-08 40 14 HFCL Infotel Limited

the Company

36 MANISH KHARBANDA 4,437,375 Contractual As per service rules of Chief Human P.G.Diploma in 10-Nov-08 39 13 RELIANCE

the Company Resource Officer Business COMMUNICATION

Administration

37 PANKAJ SHARMA 1,928,415 Contractual As per service rules of Vice President B.E 10-Nov-08 42 19 RELIANCE


38 PRANAY MISHRA 1,708,331 Contractual As per service rules of Circle Chief B.E 10-Nov-08 36 15 TATA TELESERVICES LTD

the Company Technical Officer

39 HARSH CHANDRA 1,025,464 Contractual As per service rules of Chief Operating P.G.D.M 01-Dec-08 41 17 TATA TELESERVICES LTD

the Company Officer

40 ANUP GOMES 739,562 Contractual As per service rules of General Manager P.G.Diploma 02-Dec-08 44 19 RELIANCE HARYANA

the Company in Business SEZ LTD.

Administration

41 ELENA PERETRUKHINA 1,394,377 Contractual As per service rules of General Manager MBA 10-Dec-08 32 1 MTS, Moscow

the Company

42 IGOR KONDARATSKOV 2,648,219 Contractual As per service rules of Advisor To Engineering in 10-Dec-08 48 24 LUKOM Agency

the Company President Radioelectronics

43 ATUL SHARMA 980,429 Contractual As per service rules of General Manager M.A. 11-Dec-08 40 22 RELIANCE


44 SANJEEV SHARAN 581,087 Contractual As per service rules of General Manager P.G.D.B.M (HR) 16-Dec-08 40 15 RELIANCE


45 AJAY KUMAR 676,752 Contractual As per service rules of Dy. General B.E/ P.G.Diploma 22-Dec-08 44 19 VODAFONE ESSAR

the Company Manager in Business LIMITED

Administration

46 RAJ KUMAR SHARMA 655,703 Contractual As per service rules of General Manager PGDBM 07-Jan-09 43 21 NOKIA SEIMENS

the Company NETWORK PVT LTD

47 SANJAY BANKA 991,386 Contractual As per service rules of Vice President F.C.A., F.C.S., 08-Jan-09 40 15 Bharti Airtel Limited

the Company L.I.I.I

48 S BALAGOPAL 965,369 Contractual As per service rules of Vice President PGDBM 09-Jan-09 50 26 INDIA TELECOM INFRA

the Company LTD

49 AJAY SHARMA 787,043 Contractual As per service rules of Assistant Vice A.M.I.E/ Diploma 10-Jan-09 48 21 HFCL Infotel Limited

the Company President in Electronics

50 LEONID MUSATOV 5,472,980 Contractual As per service rules of Chief Marketing Degree in 12-Jan-09 37 13 MTS RUSSIA

the Company Officer Economics &

Marketing

51 PANKAJ CHAUHAN 604,506 Contractual As per service rules of General Manager P.G.Diploma in 12-Jan-09 39 17 RELIANCE

the Company Industrial Relations COMMUNICATION

52 SERGEY KOROBOV 2,229,253 Contractual As per service rules of General Manager Degree in Mobile 13-Jan-09 35 9 MTS RUSSIA

the Company Communication &

Social Science

53 ANDREY CHEREPANOV 877,122 Contractual As per service rules of Project Manager Masters Degree in 14-Jan-09 42 6 MTS RUSSIA

the Company Finance

54 RENU KHANNA 602,844 Contractual As per service rules of Assistant Vice B.A (Hons) 15-Jan-09 42 19 GENPACT

the Company President economics

55 VLADISLAV POZDYSHEV 3,094,416 Contractual As per service rules of Chief Customer Degree in 20-Jan-09 39 15 MTS RUSSIA

the Company Service Delivery Economics

Officer


N o . Earning E m p l o y m e n t & Condit ion J o i n i n g E x p .

18

56 ELENA SIDORINA 1,145,379 Contractual As per service rules of Head - CEO MBA 27-Jan-09 38 11 MTS, Moscow

the Company Office

57 AMIT SANEJA 513,481 Contractual As per service rules of Assistant Vice PGDBM 28-Jan-09 36 11 ICICI PRUDENTIAL

the Company President

58 ATUL MATHUR 384,167 Contractual As per service rules of General Manager BE 30-Jan-09 37 15 TATA TELESERVICES

the Company

59 MAHENDRA PRATAP SINGH 607,894 Contractual As per service rules of Vice President L.L.B. 31-Jan-09 50 26 EMMAR MGF

the Company

60 DIVYA GUPTA 339,202 Contractual As per service rules of General Manager P.G.D.S 07-Feb-09 35 14 RELIANCE


61 ATUL JOSHI 1,382,557 Contractual As per service rules of Chief Sales M.B.A. 09-Feb-09 47 15 Subhiksha Ltd

the Company Officer

62 RAJESH OHRI 417,614 Contractual As per service rules of Assistant Vice M.B.A. 09-Feb-09 39 15 Bharti Airtel Limited

the Company President

63 S SURESH KUMAR 641,273 Contractual As per service rules of Chief Operating M.B.A. 09-Feb-09 41 15 Bharti Airtel Limited

the Company Officer

64 OM PRAKASH TRIPATHI 440,562 Contractual As per service rules of General Manager M.Tech. 11-Feb-09 54 35 Vodafone

the Company

65 RAJESH SHUKLA 378,785 Contractual As per service rules of Circle Chief B.E. 12-Feb-09 43 17 IMIL

the Company Technical Officer

66 SURYA PRAKASH SONI 249,153 Contractual As per service rules of General Manager M.B.A. 16-Feb-09 38 11 IDEA CELLULAR LTD

the Company

67 AVIJIT MUKHERJEE 273,138 Contractual As per service rules of General Manager Bachelor in 20-Feb-09 41 18 AIRCEL

the Company Technology

68 SHALINI VIG WADHWA 291,111 Contractual As per service rules of Corporate PGDBM 06-Mar-09 47 19 DLF

the Company Communication

Director

69 RAHUL KUSHWAHA 5,583,403 Contractual As per service rules of Finance Controler 29-Aug-08 46 20

the Company

70 BIJENDER SINGH YADAV 936,237 Contractual As per service rules of Head Planning Diploma in 30-Aug-08 38 16 Idea Celluler

the Company Electronics &

Communication

Engineering

71 K. GEORGE DAVIS 2,159,738 Contractual As per service rules of CTO - South B.Tech. - 31-Aug-08 42 19 PT Smart Telecom

the Company Electronics &

Telecommunication

72 SHUBHENDU KUMAR 1,649,423 Contractual As per service rules of General Manager MBA - Human 01-Sep-08 38 8 Spice Corporation

the Company Resource & General Limited

Management

73 M. BEJEES KUMAR 1,158,945 Contractual As per service rules of Head - Sales & MBA - Marketing 02-Sep-08 41 16 Self Employed

the Company Marketing

74 MOHIT KHETARPAL 122,377 Contractual As per service rules of Dy. General P.G.D.B.M 03-Sep-08 36 14 Tech Mahindra

the Company Manager

75 BIMAL SAMAL 494,848 Contractual As per service rules of Dy. General B.Com. 04-Sep-08 39 16 Aviva Life Insurance

the Company Manager

76 RAJEN KANJIBHAI VAGADIA 647,155 Contractual As per service rules of Director BE 05-Sep-08 42 17 Motorola India Pvt Ltd

the Company

77 AKSHAY MATHUR 356,604 Contractual As per service rules of Director B.A. 06-Sep-08 41 21 Reliance Communication

the Company Ltd

78 MARGARITA KOROTKOVA 13,669,849 Contractual As per service rules of Manager Higher School of 07-Sep-08 33 4 JSC “TNK - BP

the Company Economics - Management

Moscow State

University

79 WOLFGANG SCHAEDLICH 1,399,490 Contractual As per service rules of Chief Information Diploma from 08-Sep-08 38 13 Complus Ltd

the Company Officer Technical University

80 EVGENY NIKITIN 611,022 Contractual As per service rules of Project Manager Graduate 09-Sep-08 27 2 MTS RUSSIA

the Company

81 K V RAMACHANDRA 434,632 Contractual As per service rules of Sales Director MASTERS OF 06-Mar-09 52 25 SUBHIKSHA TRADING

the Company MANAGEMENT SERVICES

STUDIES

82 NATARAJAN M V 238,459 Contractual As per service rules of Sales Director PGDBM 13-Mar-09 44 17 RELIANCE RETAIL

the Company LIMITED


N o . Earning E m p l o y m e n t & Condit ion J o i n i n g E x p .

19

A U D I T O R S ’ R E P O RT

To

The Members of SISTEMA SHYAM TELESERVICES

LIMITED (Formerly Shyam Telelink Limited),

1. We have audited the attached Balance Sheet of SISTEMA

SHYAM TELESERVICES LIMITED (formerly Shyam Telelink

Limited) (‘the Company’) as at March 31, 2009 and also the

Profit and Loss account and the Cash Flow statement for

the year ended on that date annexed thereto. These financial

statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on

these financial statements based on our audit.

2. We conducted our audit in accordance with auditing

standards generally accepted in India. Those Standards

require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements

are free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also

includes assessing the accounting principles used and

significant estimates made by management, as well as

evaluating the overall financial statement presentation. We

believe that our audit provides a reasonable basis for our

opinion.

3. As more fully discussed in Note 1(e), Schedule 19 to the

Financial Statements, on January 10, 2008, the Company has

paid Rs 319,860 thousand under protest to Department of

Telecommunication (‘DoT’) against the final assessment for

financial year ended March 31, 2005, towards revenue share

license fees, interest and penalty thereon, on the profit of

Rs 628,544 thousand from sale of its investments worth

Rs 1,751,852 thousand in Hexacom India Limited (‘HIL’) to

Bharti Televentures Limited. The Company, based on legal

opinion, believes that the profit on sale of its investments,

does not fall under the definition of Adjusted Gross Revenue

(AGR) generated and, accordingly, has made no provision in

its books of accounts for any such payment. Since revenue

share payable on the sale of investment is dependent upon

the outcome of the above uncertainty, the financial statements

for the year ended March 31, 2009 does not include any

adjustment in this regard. Our audit report on the financial

statements for the year ended March 31, 2008, was also

modified, accordingly.

4. Without qualifying our opinion, we draw attention to

Note 4, Schedule 20 to the financial statements, regarding

managerial remuneration paid in excess of the limits specified

under Schedule XIII to the Companies Act, 1956, pending

approval of the Central Government and accordingly no

adjustments have been made in this regard.

5. As required by the Companies (Auditor’s Report) Order,

2003 (as amended) (‘the Order’) issued by the Central

Government of India in terms of sub-section (4A) of Section

227 of the Companies Act, 1956 (‘the Act’) we enclose in

the Annexure a statement on the matters specified in

paragraphs 4 and 5 of the said Order.

6. Further to our comments in the Annexure referred to above,

we report that:

i) We have obtained all the information and explanations,

which to the best of our knowledge and belief were

necessary for the purposes of our audit;

ii) In our opinion, proper books of account as required by

law have been kept by the Company so far as appears

from our examination of those books;

iii) The balance sheet, profit and loss account and cash

flow statement dealt with by this report are in agreement

with the books of account;

iv) In our opinion, the balance sheet, profit and loss account

and cash flow statement dealt with by this report

comply with the accounting standards referred to in

sub-section (3C) of section 211 of the Act;

v) On the basis of the written representations received

from the directors, as on March 31, 2009, and taken on

record by the Board of Directors, we report that none

of the directors is disqualified as on March 31, 2009

from being appointed as a director in terms of clause

(g) of sub-section (1) of section 274 of the Act;

vi) In our opinion and to the best of our information and

according to the explanations given to us, subject to

the effect of the adjustments that would have been

required had the outcome of uncertainty referred to in

Paragraph 3 above been known, the said accounts give

the information required by the Act, in the manner so

required and give a true and fair view in conformity

with the accounting principles generally accepted in

India;

a) in the case of the balance sheet, of the state of

affairs of the Company as at March 31, 2009;

b) in the case of the profit and loss account, of the

loss for the year ended on that date; and

c) in the case of cash flow statement, of the cash flows

for the year ended on that date.

For S. R. BATLIBOI & ASSOCIATES

Chartered Accountants

per Prashant Singhal

Par tner

Membership No: 93283

Place : Gurgaon

Date : July 16, 2009

20

ANNEXURE REFERRED TO IN PARAGRAPH [4] OF OUR REPORT OF EVEN DATERe: SISTEMA SHYAM TELESERVICES LIMITED (Formerly Shyam Telelink Limited)

(i) (a) The Company has maintained proper records showing

full particulars, including quantitative details and

situation of fixed assets. The Company is in process of

updating its records in respect of the locations of

capital inventories lying with third parties.

(b) The fixed assets are physically verified by the

management according to a regular programme

designed to cover all the items over a period of three

years. During the year, the management had also

designed a plan to physically verify capital work in

progress. Pursuant to the above, a portion of fixed

assets and capital work in progress (other than material

with third parties) has been physically verified by the

management during the year, which in our opinion is

reasonable having regard to the size of the Company

and nature of its assets. As informed, no material

discrepancies were noticed on such verification.

(c) There was no substantial disposal of fixed assets during

the year.

(ii) (a) The inventory has been physically verified by the

management during the year. In our opinion, the

frequency of verification is reasonable.

(b) The procedures of physical verification of inventory

followed by the management are reasonable and

adequate in relation to the size of the Company and

the nature of its business.

(c) The Company is maintaining proper records of

inventory and no material discrepancies were noticed

on physical verification.

(iii) During the year, the Company has neither granted nor

taken any loans, secured or unsecured, to / from the

companies, firms or other parties covered in the

register maintained under section 301 of the

Companies Act, 1956. Accordingly, clause (iii) of the

Order is not applicable to the Company for the current

year.

(iv) In our opinion and according to the information and

explanations given to us, there is an adequate internal

control system commensurate with the size of the

Company and the nature of its business, for the

purchase of inventory and for the sale of goods and

services. However, in respect of purchase of fixed

assets, the Company needs to strengthen internal

controls pertaining to recording of receipts of

material, and this is not a continuing failure. During the

course of our audit, no major weakness has been

noticed in the internal control system in respect of

these areas.

(v) (a) According to the information and explanations

provided by the management, the particulars of

contracts or arrangements referred to in section 301

of the Act that need to be entered into the register

maintained under section 301 have been so entered.

(b) According to the information and explanations given

to us, the transactions made in pursuance of such

contracts or arrangements exceeding value of Rupees

five lakhs have been entered into during the financial

year at prices which are reasonable having regard to

the prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the

public.

(vii) In our opinion, the Company has an internal audit

system commensurate with the size and nature of its

business.

(viii) We have broadly reviewed the books of account

maintained by Company pursuant to the rules made by

the Central Government for the maintenance of cost

records under section 209(1) (d) of the Companies

Act, 1956, and are of the opinion that prima facie, the

prescribed accounts and records have been made and

maintained. We have not, however, made a detailed

examination of records with a view to determine

whether they are accurate or complete.

(ix) (a) Undisputed statutory dues including provident fund,

employees’ state insurance, income-tax, sales-tax,

wealth-tax, service tax, custom duty and cess have

generally been regularly deposited with the appropriate

authorities though there has been delay in a few cases.

21

The provisions relating to excise duty and investor

education fund are not applicable to the Company.

(b) According to the information and explanations given

to us, no undisputed amounts payable in respect of

provident fund, employees’ state insurance, income-

tax, wealth-tax, service tax, sales-tax, customs duty,

cess and other undisputed statutory dues were

outstanding, at the year end, for a period of more than

six months from the date they became payable.

(c) According to the information and explanations given

to us and based on the records of the Company, there

were no dues outstanding under any dispute with

respect to income tax, sales tax, service tax, wealth

tax, excise duty, custom duty and cess as at

March 31, 2009.

(x) The Company’s accumulated losses at the end of the

financial year are more than fifty percent of its net

worth. The Company has incurred cash loss during the

year. In the immediately preceding financial year, the

Company had incurred cash loss.

(xi) Based on our audit procedures and as per the

information and explanations given by the management,

we are of the opinion that the Company has not

defaulted in repayment of dues to a financial institution

and banks. The Company has not issued any debentures.

(xii) According to the information and explanations given

to us and based on the documents and records

produced to us, the Company has not granted loans

and advances on the basis of security by way of pledge

of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a

nidhi / mutual benefit fund / society. Therefore, the

provisions of clause 4(xiii) of the Order are not

applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading

in shares, securities, debentures and other investments.

Accordingly, the provisions of clause 4(xiv) of the Order

are not applicable to the Company.

(xv) According to the information and explanations given

to us, the Company has not given any guarantee for

loans taken by others from banks or financial

institutions.

(xvi) Based on information and explanations given to us by

the management, term loans were applied for the

purpose for which the loans are obtained.

(xvii) According to the information and explanations given

to us and on overall examination of the balance sheet

and cash flow statement of the Company, we report

that no funds raised on short-term basis have been

used for long-term investment.

(xviii) During the year, the Company has made preferential

allotment of shares to the parties or companies

covered in the register maintained under section 301

of the Act. In our opinion, the price at which shares

have been issued is not prejudicial to the interest of

the Company.

(xix) According to the information and explanations given

to us, the Company did not issue any debentures during

the year.

(xx) The Company has not raised any money by public

issue during the year.

(xxi) Based upon the audit procedures performed for the

purpose of reporting the true and fair view of the

financial statements and as per the information and

explanations given by the management, we report that

no fraud on or by the Company has been noticed or

reported during the course of our audit.

For S. R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPar tner

Membership No: 93283

Place : GurgaonDate : July 16, 2009

22

BALANCE SHEET AS AT MARCH 31, 2009

Part iculars As at As atSchedule March 31, 2009 March 31, 2008 No. (Rupees ‘000) (Rupees ‘000)

——————— ——————— ———————SOURCES OF FUNDSSHARE HOLDERS’ FUNDSShare Capital 1 24,559,575 4,559,575Reserves and Surplus 2 6 6

——————— ———————24,559,581 4,559,581

——————— ———————LOAN FUNDSSecured Loans 3 7,571,393 22,371,141Unsecured Loans 4 15,012,542 -

——————— ———————22,583,935 22,371,141

——————— ———————Deferred Payment Liabilities 5,558,659 -[Refer Note 11, Schedule 20]

——————— ———————TOTAL 52,702,175 26,930,722

——————— —————————————— ———————APPLICATION OF FUNDSFIXED ASSETSGross Block 5 10,642,047 6,474,304Less: Accumulated Depreciation 2,538,127 3,065,618

——————— ———————Net Block 8,103,920 3,408,686Capital Work-in-progress [including capital advances ofRs. 226,609 thousand (2008 - Rs. 6,094 thousand)] 3,991,645 31,622

——————— ———————12,095,565 3,440,308

——————— ———————INTANGIBLE ASSETS, NET 6 17,989,859 17,310,258INVESTMENTS 7 7,526 7,526CURRENT ASSETS, LOANS & ADVANCESSundry Debtors 8(a) 111,261 164,074Inventory 8(b) 8,360 -Cash and Bank Balances 8(c) 12,247,782 252,804Loans and Advances 8(d) 2,238,406 674,570Other Current Assets 8(e ) 107,080 390

——————— ———————14,712,889 1,091,838

——————— ———————LESS: CURRENT LIABILITIES AND PROVISIONS 9Current Liabilities 3,537,784 861,418Provisions 689,126 478,421

——————— ———————4,226,910 1,339,839

——————— ———————NET CURRENT ASSETS / (LIABILITIES) 10,485,979 (248,001)

——————— ———————MISCELLANEOUS EXPENDITURE 1 0 - 203,861(to the extent not written off or adjusted)PROFIT AND LOSS ACCOUNT 12,123,246 6,216,770

——————— ———————TOTAL 52,702,175 26,930,722

——————— —————————————— ———————Significant Accounting Policies 1 9Notes Forming Part of the Accounts 2 0The Schedules referred to above form an integral part of the Balance Sheet

As per our report of even date

For S. R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants

per Prashant Singhal Vsevolod Rozanov Alok TandonPartner Whole Time Director - President & CEO Managing DirectorMembership No: 93283

Place : Gurgaon Sergey Savchenko Rashid J MalikDate : July 16, 2009 Chief Financial Officer Company Secretary

23

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

Part icu lars Schedu le For the year For the yearended ended

No . March 31, 2009 March 31, 2008 (Rupees ‘000) (Rupees ‘000)

——————— ——————— ———————INCOME

Service Revenue 941,340 1,144,564Sale of Goods 10,520 1,686Other Income 1 1 324,019 20,537

——————— ———————1,275 ,879 1,166 ,787

——————— ———————EXPENDITURENetwork Operating Expenditure 1 2 1,005,179 609,692Cost of Goods Sold 1 3 33,166 1,736Personnel Expenditure 1 4 587,164 155,727Sales and Marketing Expenditure 1 5 941,873 53,768Administrative and Other Expenditure 1 6 530,181 573,414

——————— ———————3,097 ,563 1,394 ,337

——————— ———————OPERATING PROFIT / (LOSS) BEFORE AMORTISATION, (1 ,821,684) (227,550)FINANCE EXPENSE AND DEPRECIATIONAmortisation of Intangible Assets 1 7 46,150 48,808Finance Expenses 1 8 1,891,019 565,431Depreciation 5 720,951 881,102Provision for Obsolescence of Fixed Assets / CWIP 20, Note 12 515,994 44,137Business Start up / Expansion Cost 20, Note 22 897,628 40,676

——————— ———————4,071 ,742 1,580 ,154

——————— ———————Profit / (Loss) before taxation (5 ,893,426) (1 ,807,704)Provision for Tax

- Current Tax - -- Deferred Tax 20, Note 16 - -- Fringe Benefit Tax (13,050) (4,044)

——————— ———————Profit / (Loss) After taxation (5 ,906,476) (1 ,811,748)

Profit/(Loss), Beginning of the year (6,216,770) (4,405,022)——————— ———————

Loss, end of the year (12,123,246) (6 ,216,770)——————— —————————————— ———————

Loss per Share (equity shares, par value of Rs 10 each)Basic & Diluted [Nominal value of Shares of Rs 10 (Previous Year: Rs 10)] (in Rs) (2 .85) (3 .97)[Refer note 20, Schedule 20]

Weighted Average number of shares in computing earnings per shareBasic & Diluted 2,072,395,856 455,957,500

——————— —————————————— ———————Significant Accounting Policies 1 9Notes Forming Part of the Accounts 2 0The Schedules referred to above form an integral part of the Profit & Loss Account





——————— —————————————— ———————

24

A . CASH FLOW FROM OPERATING ACTIVITIES

Net Profit/(Loss) before Tax (5,893,425) (1,807,705)

Adjustments for:

Depreciation 720,951 881,102

Amortisation of Intangible Assets 46,150 48,808

Provisions for Gratuity and Leave Encashment 15,730 6,088

Provision for Contingencies 38,029 321,226

Provision for Damaged/ Irrecoverable Assets - 9,600

Interest Expense and Other Finance Charges 1,891,019 565,431

Provision for Bad and Doubtful Debts / Advances (Net of Write Back) 24,142 20,310

Dividend on Current Investments - (273)

(Profit) / Loss on Sale of Fixed Assets 958 8,695

Provision for Lease Equalisation Reserve 70,941 68,484

Provision for Obsolescence of Fixed Assets / CWIP 515,994 44,137

Interest Income (321,703) (5,983)——————— ———————

Operating Profit Before Working Capital Change (2 ,891,214) 159 ,920——————— ———————

Adjustments for changes in Working Capital

(Increase)/Decrease in Sundry Debtors 29,368 (29,145)

(Increase)/Decrease in Loans and Advances (1,489,895) (581,817)

(Increase)/Decrease in Inventory (8,360) -

Increase/(Decrease) in Current Liabilities and Provisions 1,438,909 (148,714)——————— ———————

Cash from / (used) in Operations (2 ,921,192) (599,756)——————— ———————

Taxes (Paid) / Received (52,688) (13,588)——————— ———————

Net Cash from / (used in) Operating Activities (2,973,880) (613,344)——————— ———————

B CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (3,726,791) (147,966)

Payment for Intangible Assets (538,401) (17,099,172)

Proceeds from Sale of Investments - 575,275

Proceeds from Sale of Fixed Assets 980 392

Dividend on Current Investments - 273

Interest Received 215,013 6,093

Purchase of Fixed Deposits (With maturity more than three months) (4,144,121) (122,567)

Proceeds from Maturity of Fixed Deposits 246,267 -(With maturity more than three months)

——————— ———————Net Cash from / (used in) Investing Activities (7 ,947,053) (16,787,672)

——————— ———————

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009

For the year For the yearended ended

March 31, 2009 March 31, 2008(Rupees ‘000) (Rupees ‘000)

——————— ———————

25

C CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issuance of Share Capital 20,000,000 -Secured Long Term Borrowing:

Proceeds 7,594,384 2,032Repayments (864,833) (598,831)

Secured Short Term Borrowing:Proceeds 2,888,000 27,026,634Repayments (24,416,777) (7,644,500)

Unsecured Long Term Borrowing:Proceeds 18,438,496 -Repayments (3,713,329) -

Unsecured Short Term Borrowing:Proceeds - 1,726,100Repayments - (2,413,400)

Payment of Finance Setup cost - (199,718)Discounting Charges of Commercial Papers (4,275) (156,788)Interest Expense and Other Finance Charges (1,296,571) (333,279)

——————— ———————Net Cash from / (used in) Financing Activities 18,625,095 17,408,250

——————— ———————Net Increase/(Decrease) in Cash and Cash Equivalents (A+B+C) 8,097,124 7,234Cash and Cash Equivalents at Beginning of the Year 130,238 123,003

——————— ———————Cash and Cash Equivalents at the End of the Year 8 ,227 ,362 130 ,237

——————— —————————————— ———————NOTES TO CASH FLOW STATEMENT:

1 Cash and Cash Equivalents Include:Cash in Hand 881 3,715Cheques in Hand 1,963 2,057Balances with Scheduled Banks in Current Accounts 724,517 124,465Balances with Scheduled Banks in Deposit Account: 11,520,421 122,567

——————— ———————Cash and Bank Balances as per Schedule 8(c) 12 ,247,782 252 ,804

Less : Fixed deposits not considered as cash equivalents (4,020,420) (122,567)——————— ———————

Cash and Cash Equivalents in Cash Flow Statements 8 ,227 ,362 130 ,237——————— —————————————— ———————

2 Previous year figures have been regrouped and reclassified wherever necessary to confirm to the current year classification.

3 Cash and Cash Equivalents as on March 31, 2009 include depostis of Rs 512,611 thousand (2008 - Rs 122,567 thousand) towardsmargin money which is not available for use by the Company.





CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009

For the year For the yearended ended


——————— ———————

26

SCHEDULES FORMING PART OF THE ACCOUNTS

As at As atMarch 31, 2009 March 31, 2008

(Rupees ‘000) (Rupees ‘000)——————— ———————

SCHEDULE - 1

SHARE CAPITAL

[Refer Note 8, Schedule 20]

Authorised Capital

6,000,000,000 (2008 - 6,000,000,000) Equity Shares of Rs 10 each 60,000,000 60,000,000——————— —————————————— ———————

Issued Capital

2,455,957,500 Equity Shares of Rs 10 each 24,559,575 4,559,575——————— ———————

[2008 - 455,957,500 Equity Shares of Rs 10 each]

Subscribed and Paid Up Capital

2,455,957,500 Equity Shares of Rs 10 each fully paid up 24,559,575 4,559,575——————— —————————————— ———————

[2008 - 455,957,500 Equity Shares of Rs 10 each]

SCHEDULE - 2

RESERVES AND SURPLUS

Capital Reserve 6 6——————— —————————————— ———————

SCHEDULE - 3


SECURED LOANS

Long Term

From Banks

Term Loan 7,500,000 840,000

Vehicle Loan 16,205 1,842

From Others 55,188 -

Short Term

From Banks

Term Loans - 19,856,634

Commercial Papers - 1,605,000

Other Loans - 67,143

Interest Accrued and due on Loans from Bank - 522——————— ———————

7,571,393 22,371,141——————— —————————————— ———————

SCHEDULE - 4


UN-SECURED LOANS

Long Term Loans

From Holding Company

External Commercial Borrowing 11,665,600 -

From Banks

External Commercial Borrowing 947,771 -

Unsecured Loan 2,399,171 -——————— ———————

15,012,542 -——————— —————————————— ———————

27

SCHEDULE - 5

FIXED ASSETS[Refer Note 2.3, 2.4 & 2.5 Schedule 19 and Note 12, Schedule 20]

GROSS BLOCK ACCUMULATED DEPRICIATION NET BLOCK

PARTICULARS As at Additions Deletions/ As At As at For the Adjustments As At As At As at

April 1, Adjustments March Apri l Year March March March

2008 31, 2009 1, 2008 31, 2009 31, 2009 31, 2008

Freehold Land 1,823 - - 1,823 - - - - 1,823 1,823

Leasehold Land 2,523 - - 2,523 148 25 - 173 2,350 2,375

Leasehold Improvements 99,235 102,539 7,041 194,733 57,886 11,515 3,281 66,120 128,613 41,349

Building 5,687 - - 5,687 1,105 190 - 1,295 4,392 4,582

Plant & Machinery* 2,415,657 5,644,655 1,722,313 6,337,999 1,395,484 342,072 1,228,149 509,407 5,828,592 1,020,173

Optical Fibre and Copper 2,686,755 64,838 69,598 2,681,995 692,687 133,519 16,527 809,679 1,872,316 1,994,068

Network Interface Units 1,173,562 66,290 36,576 1,203,276 843,953 213,233 - 1,057,186 146,090 329,609

Computers 61,105 59,453 - 120,558 56,610 9,204 - 65,814 54,744 4,495

Furniture & Fixtures 5,804 15,492 - 21,296 4,981 3,526 - 8,507 12,789 823

Office Equipment 13,275 20,455 - 33,730 8,892 2,205 - 11,097 22,633 4,383

Vehicles 8,878 31,972 2,423 38,427 3,872 5,462 485 8,849 29,578 5,006

To t a l 6 , 4 7 4 , 3 0 4 6 , 0 0 5 , 6 9 4 1 , 8 3 7 , 9 5 1 1 0 , 6 4 2 , 0 4 7 3 , 0 6 5 , 6 1 8 7 2 0 , 9 5 1 1 , 2 4 8 , 4 4 2 2 , 5 3 8 , 1 2 7 8 , 1 0 3 , 9 2 0 3 , 4 0 8 , 6 8 6

Previous Year 6,551,946 109,985 187,627 6,474,304 2,363,055 881,102 178,539 3,065,618 3,408,686 4,188,891

Capital Work in Progress* 3,991,645 31,622

* Additions to Plant and Machinery include Rs. 369,630 thousand (2008 - Rs. Nil) and Capital Work in Progress include Rs. 23,333 thousand (2008 - Rs. Nil) on account of capitalisation of exchange

differences on long-term foreign currency monetary items during the year.

(Amount in Rupees ‘000)

SCHEDULE - 6

INTANGIBLE ASSETS[Refer Note 2.7 & 2.10, Schedule 19 & Note 12(e), Schedule 20]

GROSS BLOCK ACCUMULATED AMORTISATION NET BLOCK

PARTICULARS As at Additions Deletions/ As At As at Additions Deletions/ As At As At As at

April 1, Adjustments March Apri l Adjustments March March March

2008 31, 2009 1, 2008 31, 2009 31, 2009 31, 2008

Software 467,070 - - 467,070 440,970 20,790 - 461,760 5,310 26,100

Licence Entry Fees 17,421,672 615,539 - 18,037,211 137,514 20,933 - 158,447 17,878,764 17,284,158

Indefeasible Right to Use - 110,212 - 110,212 - 4,427 - 4,427 105,785 -

To t a l 1 7 , 8 8 8 , 7 4 2 7 2 5 , 7 5 1 - 1 8 , 6 1 4 , 4 9 3 5 7 8 , 4 8 4 4 6 , 1 5 0 - 6 2 4 , 6 3 4 1 7 , 9 8 9 , 8 5 9 1 7 , 3 1 0 , 2 5 8

Prior Year 786,373 17,102,369 - 17,888,742 529,676 48,808 - 578,484 17,310,258 256,697


SCHEDULE - 7INVESTMENTS

[Refer Note 2.9, Schedule 19 and Note 13, Schedule 20]

Long Term and Unquoted: In Subsidiary Company

7,50,000 Equity Shares of Rs. 10/- each,

fully paid up in Shyam Internet Services Limited 7,500 7,500

Current and unquoted investments in Mutual Funds

1,645 Units (2008 - 1,645 Units) of Prudential ICICI

Liquid Plan Growth Option 26 26——————— ———————

7,526 7,526——————— —————————————— ———————


(Rupees ‘000) (Rupees ‘000)——————— ———————


28

SCHEDULE - 8(a)[Refer Note 2.14, Schedule 19 and Note 14, Schedule 20]

SUNDRY DEBTORS

Debts outstanding for a period exceeding six months:

Secured and Considered Good 56,144 45,870

Unsecured and Considered Doubtful 156,103 144,217

Debts outstanding for a period less than six months:

Secured and Considered Good 1,798 13,303

Unsecured and Considered Good 53,319 104,901

Unsecured and Considered Doubtful 6,573 8,448——————— ———————

273 ,937 316 ,739

Less: Provision for Doubtful Debts (162,676) (152,665)——————— ———————

111 ,261 164 ,074——————— —————————————— ———————

SCHEDULE - 8(b)[Refer Note 2.8, Schedule 19 and Note 7, Schedule 20]

INVENTORY

Fixed Wireless Terminals 8,360 -——————— ———————

8,360 -——————— —————————————— ———————

SCHEDULE - 8(c)

CASH AND BANK BALANCES

Cash in Hand 881 3,715Cheques in Hand 1,963 2,057

Balance with Scheduled Banks:In Current Accounts 724,517 124,465In Fixed Deposit Account* 11,520,421 122,567

——————— ———————12,247,782 252 ,804

——————— —————————————— ———————*includes Rs. 512,611 thousand (2008 - Rs. 122,567 thousand)pledged towards margin money.

SCHEDULE - 8(d)

LOANS AND ADVANCES (Unsecured)

Advances recoverable in cash or kind or for value to be received:Considered good 2,051,996 628,649Considered doubtful 14,211 13,514Assets Held for Sale [Refer Note 12 (d), Schedule 20] 35,000 -Loans to Employees 1,264 604Security Deposits 87,923 22,732Advance against equity in Shyam Internet Services Ltd. 1,466 1,466Advance Income Tax 60,757 21,119

——————— ———————2 ,252 ,617 688 ,084

Provision for Doubtful Advances (14,211) (13,514)——————— ———————

2 ,238 ,406 674 ,570——————— —————————————— ———————



(Rupees ‘000) (Rupees ‘000)——————— ———————

29

SCHEDULE - 8(e)

OTHER CURRENT ASSETS

Interest accrued on Fixed Deposits 107,080 390——————— ———————

107 ,080 390——————— —————————————— ———————

Total Current Assets, Loans and Advances 14,712,889 1,091,838——————— —————————————— ———————

SCHEDULE - 9

CURRENT LIABILITIES AND PROVISIONS

[Refer Note 2.16, Schedule 19 and Note 15, Schedule 20]

Current liabilities

Sundry Creditors

- for Capital Goods 1,236,738 284,286

- for Expenses 1,417,543 126,157

- Amount due to Micro and Small Enterprises - -

Unaccrued Income 258,285 200,040

Advances & Deposits from Customers & Others 144,740 168,743

Interest Accrued but not due on Loans 292,991 16,618

Book Overdraft 8,548 17,072

Other Liabilities 178,939 48,502——————— ———————

3 ,537 ,784 861 ,418——————— ———————

Prov i s ions

Provision for Contingencies 361,425 323,397

Wealth Tax / FBT 1,837 33

Leave Encashment 34,105 20,813

Gratuity 8,821 6,384

Others 282,938 127,794——————— ———————

689 ,126 478 ,421——————— ———————

Total Current Liabilities & Provisions 4 ,226 ,910 1,339 ,839——————— —————————————— ———————

SCHEDULE -10

MISCELLANEOUS EXPENDITURE [Refer Note 2.13, Schedule 19]

G r o s s Accumulated Amortisation Net Balance

PA RT I C U L A R S As at A d d i t i o n s / D i s po s a l s / As At As at A d d i t i o n s / D i s po s a l s / As At As At As at

Apri l 1, A d j u s t - A d j u s t - Ma r ch A p r i l Charge * A d j u s t - Ma r ch Mar ch Mar ch

2 0 0 8 m e n t s m e n t s 31, 2009 1, 2008 m e n t s 31, 2009 31, 2009 31, 2008

Finance Setup Cost 930,902 - - 930,902 734,183 196,719 - 930,902 - 196,719

Discount on Issue of

Commercial Papers 257,296 4,275 - 261,571 250,154 11,417 - 261,571 - 7,142

Total 1 , 1 8 8 , 1 9 8 4 , 2 7 5 - 1 , 1 9 2 , 4 7 3 9 8 4 , 3 3 7 2 0 8 , 1 3 6 - 1 , 1 9 2 , 4 7 3 - 2 0 3 , 8 6 1

Prior Year 771,710 416,488 - 1,188,198 676,202 308,135 - 984,337 203,861 95,507

* Out of Rs. 208,136 thousand (2008- Rs. 308,135 thousand) charge for the year, Rs 187,350 thousand (2008- Rs. 59,982 thousand) has been capitalised under intangible assets and Rs 20,786 thousand

(2008- Rs. 248,153 thousand) has been charged off under Finance Expenses.




(Rupees ‘000) (Rupees ‘000)——————— ———————

30

SCHEDULE - 11

OTHER INCOME

Interest [Gross of Tax Deducted at Source - Rs 39,151 thousand(2008 - Rs 1,248 thousand)] 321,703 5,983

Provision no longer required written back - 13,219

Dividend on Current Investments - 273

Miscelleneous Income 2,316 1,062——————— ———————

324 ,019 20,537——————— —————————————— ———————

SCHEDULE - 12

NETWORK OPERATING EXPENDITURE

Interconnect Usage Charges 457,808 346,101

Port Charges and Other Network Related Costs 29,365 35,516

Royalty and license Fees to Wireless Planning Commission 12,502 9,889

Revenue Share License Fees 39,892 64,279

House Wiring Expenses 22,112 19,228

Site Expenses :

Electricity and Water 42,634 24,453

Rent 50,834 36,238

Equipment Hire Charges & DG Set Running Expenses 1,303 972

Insurance 2,602 2,648

Infrastructure Sharing Expenses 269,396 28,118

Lease Line Expenses 8,926 -

Testing Charges 3,063 116

Cost of Telephone Instruments Installed 3,404 7,486

Repair and Maintenance - Network 61,338 34,648——————— ———————

1 ,005 ,179 609 ,692——————— —————————————— ———————

SCHEDULE - 13

COST OF GOODS SOLD


Opening Balance - -

Add: Purchase of Instruments 41,526 1,736

Less: Closing Balance of Instruments 8,360 -——————— ———————

Cost of Goods Sold 33,166 1,736——————— —————————————— ———————

SCHEDULE - 14

PERSONNEL EXPENDITURE

Salaries, Wages and Bonus 512,166 132,418Contribution to Provident and Other Funds 23,112 11,958Staff Welfare Expenses 20,557 9,067Recruitment and Training expenses 31,329 2,284

——————— ———————587 ,164 155 ,727

——————— —————————————— ———————


Year ended Year ended


——————— ———————

31

SCHEDULE - 15

SALES & MARKETING EXPENSES

Advertisement and Marketing expenses 334,885 34,745

Sales Commission & Incentives 79,385 4,775

Sales Promotion Expenses 58,706 14,037

SIM Card Utilisation 29,504 -

Other Subscriber Acquisition Cost 38,091 211

Handset Subsidy (Mobile) 401,302 -——————— ———————

941 ,873 53,768——————— —————————————— ———————

SCHEDULE - 16

ADMINISTRATIVE AND OTHER EXPENDITURERent 99,441 93,815Electricity and Water Charges 13,588 10,573Travelling & Conveyance Expenses 85,262 26,270Printing and Stationery 10,323 8,506Postage and Communication Expenses 15,189 8,795Vehicle Hire Charges 11,749 7,224Insurance 143 239Repair and maintenance -Others 22,482 13,874Repairs and maintenance -Building 2,610 -Professional and Consultancy fees 149,459 15,412Rates and Taxes 3,931 1,153Auditors’ Remuneration 7,804 2,513Membership and Subscription 2,777 269Collection & Recovery Expenses 21,415 19,096Provision for Doubtful Debts/Advances 24,142 20,310Provision for Contingencies 38,029 321,226Provision for damaged/Irrecoverable Assets - 9,600Loss on Sale of Fixed Assets 958 8,695Miscelleneous expenses 20,879 5,844

——————— ———————530 ,181 573 ,414

——————— —————————————— ———————SCHEDULE - 17

LICENSE FEE AND OTHER AMORTISATIONSAmortisation of License Fee 20,933 18,641Amortisation of IRU 4,427 -Amortisation of Software 20,790 30,167

——————— ———————46,150 48,808

——————— —————————————— ———————SCHEDULE - 18

FINANCE EXPENSES[Refer Note 2.12 (ii i), Schedule 19]

Interest :- Term Loans 1,030,545 267,145- Other Loans 33,799 4,984

Bank charges and commission 506,417 45,150Amortisation of Finance Setup Costs 20,786 248,152Exchange Rate Fluctuation 299,472 -

——————— ———————1 ,891 ,019 565 ,431

——————— —————————————— ———————


Year ended Year endedMarch 31, 2009 March 31, 2008

(Rupees ‘000) (Rupees ‘000)——————— ———————

32

SCHEDULE 19: BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

1 . Background

( a ) Nature of business

Sistema Shyam TeleServices Limited (formerly Shyam Telelink Limited) (‘the Company’ or ‘SSTL’), was incorporated onApril 20, 1995, as a wholly owned subsidiary of Shyam Telecom Limited (`STL`). The Company was awarded Basic TelephonyService Licence by Department of Telecommunications (‘the DoT’) on March 4, 1998 for the Rajasthan Circle under fixedlicence fee regime under National Telecom Policy (‘NTP’) 1994, valid for a period of 20 years from the effective date. Furtherto the Telecom Regulatory Authority of India’s (‘TRAI’) recommendations of October 27, 2003 and the DoT guidelines onUnified Access (Basic and Cellular) Services Licence (‘UASL’) dated November 11, 2003, the Company migrated to the UASLwith effect from November 14, 2003. Pursuant to the migration, the Company has signed UASL Agreement in August 2004.

The Company commenced commercial operations of Basic Telephone Services in Jaipur on June 30, 2000 under the ‘Rainbow’brand name, in the state of Rajasthan.

The Company has obtained an in-principle approval to use GSM technology under the existing UASL licence of Rajasthan circleon October 18, 2007 from the DoT. During January 2008, the Company has received UASL for 21 service areas, thus becominglicencee to operate in all India basis on CDMA frequencies. During the year, the Company has relaunched its mobility servicesunder CDMA technology in Rajasthan Circle on September 30, 2008 and has also launched commercial operations in Tamilnaduand Kerala on March 26, 2009 and on March 30, 2009, respectively. The Company is in the process of setting up the infrastructurefor launching the services on the alternate technology in Rajasthan Circle and on CDMA technology in other circles. Subsequentto March 31, 2009, the Company has also launched its commercial operations in Kolkata, Rest of West Bengal (RoWB) and Biharcircles on May 21, 2009, June 11, 2009 and July 2, 2009 respectively.

With effect from April 2009, the Company has rebranded its services from “Rainbow” brand to “MTS” brand.

( b ) Shareholding structure

In accordance with the approval from FIPB Unit of the Department of Economic Affairs of Ministry of Finance datedDecember 7, 2007, subject to the overall equity cap of 74%, SISTEMA Joint Stock Financial Corporation (‘SISTEMA’) of Russiaacquired the shares of the Company from then Promoters of the Company and further infusion of share capital on variousdates. As at March 31, 2009, SISTEMA is holding 73.71% of the total share capital of the Company and therefore, the Companyhas become a subsidiary company of SISTEMA.

( c ) Scheme of arrangement

On May 18, 2006, the Honourable High Court of Rajasthan had approved the Scheme of Arrangement filed on August 11, 2005between STL, Shyam Telecom Manufacturing Limited (‘STML’), SSTL and Shyam Basic Infrastructure Projects Private Limited(‘SBIPL’) (‘petitioner Companies’) (hereinafter referred to as ‘the Scheme’). The Scheme, inter-alia provided for STML, awholly owned subsidiary of STL, to be amalgamated with STL; STL to transfer its investment to the extent of Rs 2,000,000thousand equity shares of STLL to SBIPL, together with certain liabilities; and the balance investment of Rs 2,560,000 thousandequity shares to its existing shareholders, without any consideration, in proportion to their shareholding in STL as per thescheme. The Scheme also envisaged SSTL to be listed in the Bombay Stock Exchange and National Stock Exchange (‘the stockexchanges’).

On October 26, 2006, the Company had transferred the equity shares held in the Company by STL, as per the scheme ofarrangement approved by the Honourable High Court of Rajasthan. Pursuant to distribution of STLL’s shares, in accordancewith the scheme of arrangement, with effect from October 26, 2006, the Company ceased to be wholly owned subsidiarycompany of STL.

The Hon’ble High courts of Rajasthan, vide its order dated August 7, 2008, ordered that the Company shall within a maximumperiod of 18 months from the date of the order initiate the process of listing the shares representing the issued capital of theCompany by adopting such route as may be permissible in law and shall carry out such compliance as may be required in lawincluding that of offering a specified percentage of the shares to the Public, for subscribing thereto, through book buildingprocess, in the manner provided for under SEBI (DIP) Guidelines,2000 and upon such steps being taken, BSE may issue suchorder that may be required in law and as may be necessary for securing the said listing. In the event of STLL not being listed, theshareholders shall continue to have an ‘Exit Option’.

In the meeting held on October 1, 2008, the Board of the Company has reviewed the above order and decided to prepare adetailed proposal on the future course of action.


33

(d ) Licence Entry Fees

The Licence Entry Fees for Rajasthan Circle was based on the total licence fees of Rs 292,890 thousand paid under the oldlicence fee regime, wherein the annual licence fee dues from inception till July 31, 1999 were considered as the Licence EntryFees as part of the migration package to NTP ’99. In addition, the Company paid Rs 29,600 thousand on November 12, 2003 tomigrate to UASL. Further, on December 12, 2007, the Company has paid Rs 322,500 thousand as a one time charge for use ofGSM spectrum under the original terms of the UASL agreement.

On January 10, 2008, the Company has paid a combined fee of Rs 16,263,201 thousand and provided bank guarantee ofRs 8,470,000 thousand to DoT towards the licence to provide UASL services in 21 telecom circles Andhra Pradesh, Assam,Bihar, Delhi, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Kolkata, Madhya Pradesh, Maharashtra,Mumbai, North East, Orissa, Punjab, Tamilnadu (including Chennai), Uttar Pradesh (East), Uttar Pradesh (West) & Rest ofWest Bengal.

On March 3, 2008 through March 7, 2008, DoT has granted licence to the Company to provide UASL services in the abovementioned 21 telecom circles.

As per the UASL entered into by the Company, it is required to pay revenue share fees as prescribed in the licence agreement.Adjusted Gross Revenue (‘AGR‘), under the licence agreement is defined as Gross Revenue inclusive of installation charges,late fees, sale proceeds of handsets, revenue on account of interest, dividend, value added services, interconnection charges,roaming charges, revenue from permissible sharing of infrastructure and any miscellaneous revenue after deduction of accesscharges paid to other operators and service tax paid to the Government.

In addition, spectrum charges are payable on the revenue earned through the CDMA and CorDect wireless technology asprescribed in the licence agreement.

( e ) Sale of investment in Hexacom India Limited (‘HIL’)

During the year ended March 31, 2005, the Company invested Rs 1,020,882 thousand for 27.5 percent stake in HIL. As perAcquisition and Share Swap agreement dated April 5, 2004 as amended by the supplementary agreement dated April 12, 2004,the Company sold its holding in HIL to Bharti Televentures Limited for a consideration of Rs 1,751,852 thousand in the formof 17,519 Optionally Convertible Redeemable Debentures (‘OCRD’) at the rate of Rs 100 thousand per OCRD; these OCRDswere repayable at the end of one year from May 14, 2004. However, before the transfer of OCRD in its name, the Companytransferred its beneficial interest, right and title in these OCRDs to Shyam Cellular Infrastructure Projects Limited (‘SCIPL’)for a consideration of Rs 1,649,246 thousand, net of discounting charges of Rs 102,426 thousand. Accordingly during the yearended March 31, 2005, the Company has recorded gain on sale of the transaction of Rs 628,544 thousand, net of discountingcharges of Rs 102,426 thousand.

Further, Department of Telecommunication (‘DoT’) vide its assessment order dated May 26, 2006 for Financial Year 2004-05,had raised demand of Rs 147,694 thousand towards revenue share licence fees on above transaction, interest on short payment(upto May 31, 2006) and penalty (including interest on penalty). On January 10, 2008, the Company has paid Rs 319,860 thousandunder protest to the DoT, based on an estimated licence fees demand for above transaction.

The Company filed a petition with TDSAT against the Department of Telecommunication, which is of this contentionthat all revenue are part of AGR and related levies are eligible to be taken on the same. TDSAT, wide its order datedAugust 30, 2007, concluded that sharing of revenue can be only out of the gross revenue derived from the transferredprivilege of establishing, maintaining and working of telecommunication which alone are the licenced activities. The Tribunalhas analysed the legal position particularly in the light of Section 4 of the Indian Telegraph Act and come to the conclusionthat AGR is only the revenue earned through licenced activity. On the basis of above judgement by TDSAT, AUSPI(Association of Unified Telecom Service Providers of India) filed a civil petition in Supreme Court, which is under processof hearing.

Based on above facts, the Company has strong opinion to get back the money paid under protest. In view of the legal opinion,the Company is of the opinion that there is no financial liability towards revenue share against the gain from sale of aboveinvestments, and has, accordingly, made no provisions in its books of account and has disclosed the amount paid under protestto the DoT as Contingent Liability [Refer Note 2(a), Schedule 20].

2 . Significant Accounting Policies

2 . 1 Basis of preparation of financial statements

The financial statements have been prepared to comply in all material respects with the notified accounting standard by theCompanies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956 (‘theAct’). The financial statements have been prepared under the historical cost convention, on the accrual basis of accounting. Theaccounting policies have been consistently applied by the Company except for the changes in accounting policy discussed morefully below, and are consistent with those used in the previous year.

34

2 . 2 Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilitiesat the date of the financial statements and the results of operations during the reporting period end. Although these estimatesare based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.

2 . 3 Changes in Accounting Policies

Upto March 31, 2008, the company was charging off exchange differences arising on foreign currency monetary assets andliabilities to Profit and Loss Account. Pursuant to the Companies (Accounting Standards) Amendments Rules, 2009, dated March31, 2009, the Company has exercised the option of deferring the charge to the Profit and Loss Account arising on exchangedifferences, in respect of accounting periods commencing on or after December 7, 2006, on long-term foreign currency monetaryitems (i.e. monetary assets or liabilities expressed in foreign currency and having a term of 12 months or more at the date oforigination). As a result, such exchange differences so far as they relate to the acquisition of a depreciable capital asset have beenadjusted with the cost of such assets and would be depreciated over the balance life of the asset and in other cases, have beenaccumulated in Foreign Currency Monetary Item Translation Difference Account and would be amortised over the balance periodof such long term asset/liability but not beyond accounting period ending on or before March 31, 2011. There was no exchangedifferences on long term foreign currency monetary items during the period commencing December 7, 2006 till March 31, 2008.

Had the Company continued to use the earlier basis of accounting for exchange differences arising on long-term foreign currencymonetary items, the loss after tax for the current year ended March 31, 2009 would have been higher by Rs 389,272 thousand andthe net block of fixed assets (including capital work in progress) would have been lower by Rs 389,272.

2 . 4 Fixed Assets

Fixed assets are stated at cost less accumulated depreciation and impairment loss, if any. Cost comprises the purchase priceincluding taxes and duties (net of cenvat credit) and any attributable cost of bringing the asset to its working condition for itsintended use. Capital spares/ standby equipment are capitalised as part of the respective main assets, to which they relate to.Any expenditure on upgradation of existing assets resulting in increase in their capacity and the benefits expected therefromis capitalised. All expenditure, including advances given and capital inventory are shown as capital work-in-progress until theassets are ready for commercial use. Capital work-in-progress is stated at cost.

Provision for slow moving and obsolescence related to capital work-in-progress is made based upon the ageing of the capitalassets and a periodic technical evaluation undertaken by the Company.

Site restoration cost obligations are capitalized when it is probable that an outflow of resources will be required to settle theobligation and a reliable estimate of the amount can be made.

2.5 Depreciation/Amortisation

(i) Fixed assets are depreciated pro rata from the date on which the asset is ready for commercial use (except for WirelessTelephone Sets which are depreciated from the beginning of the month, following the month of purchase), on a straight linemethod, based on the following estimated useful economic lives of assets.

Useful Life (in years)Leasehold Land Over the period of the leaseLeasehold Improvements Over the period of the lease or 10 years, whichever is lowerBuilding 30Plant and Machinery:

Network Equipments 12Towers, Air Conditioners, Generators 6Electrical equipment 6Tools and Testing Equipment 5

Optical Fibre and Copper Cable Network 20Wireless Telephone Sets 5Computers 3Furniture and Fixtures 6Office Equipment 6Vehicles 5

(ii) Depreciation rates derived from the above are not less than the rates prescribed under Schedule XIV of the Act.

(iii) Depreciation on the amount capitalised on upgradation of existing assets is provided over the remaining useful lives of theoriginal assets.

(iv) The site restoration cost obligation capitalised is depreciated over the period of useful life of the related asset.

(v) Fixed assets individually costing less than Rs 5 thousand are fully depreciated in the year of acquisition.

35

2 . 6 Impairment

The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based oninternal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverableamount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, theestimated future cash flows are discounted to their present value at the weighted average cost of capital. After impairment,depreciation is provided on the revised carrying amount of the assets over its remaining useful life.

A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However thecarrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciationif there was no impairment.

2 . 7 Intangible Assets

All expenditure on intangible items are expensed as incurred unless it qualifies as an intangible asset as defined in AccountingStandard 26. The carrying value of intangible asset is assessed for recoverability by reference to the estimated future discountednet cash flows that are expected to be generated by the asset. Where this assessment indicates a deficit, the assets are writtendown to the market value or fair value as computed above.

Bandwidth capacity is amortised on straight line basis over the period of the agreement.

Software is capitalised on the date of installation and is amortised over a period of 5 years on straight line method.

For accounting policy related to Licence Entry Fees, see Note 2.10(i) of Schedule 19, below.

2 . 8 Inventory

Inventory is valued at the lower of cost and net realisable value. Cost is determined on weighted average basis. Net realisablevalue is estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costsnecessary to make the sale.

The Company provides for obsolete and slow- moving inventory based on management estimates of the usability of inventory.

2 . 9 Investments

Investments that are readily realizable and intended to be held for not more than a year are classified as current investments;all other investments are classified as long-term investments. Current investments are carried at lower of cost and fair marketvalue determined on an individual investment basis. Long-term investments are carried at cost, except the cost of investmentsacquired or partly acquired by the issue of shares or other securities, which is the sum total of the fair value of the securitiesissued and other acquisition costs. Provision for diminution in value of long-term investments is made to recognize only adecline other than temporary in the value of the investments.

2 .10 Licence Fees

(i) License Entry Fee

The License Entry Fee has been recognised as an intangible asset and is amortised over the remainder of the license period of20 years from the date of commencement of commercial operations [Refer Note 1(d), Schedule 19]. Fees paid for migrationof the original licences to the UASL is amortised over the remainder of the licence period of 20 years from the date ofmigration to UASL.

Licence fee paid for use of GSM spectrum under the existing UASL licence is amortized over the remainder of the originallicence from the date of commencement of commercial operations on straight line method. [Refer Note 1(c) of Schedule 19].

The borrowing cost directly attributable to the qualifying asset [‘Licences’] is capitalized and amortized over the remainder oflicence period of 20 year from the date of commencement of commercial operation.

(ii) Revenue Sharing Fee

Revenue Sharing Fee, as a percentage of Adjustable Gross Revenue (AGR) payable as per terms of the UASL [Refer Note 1(d)of Schedule 19] is expensed in the Profit and Loss Account in the year in which the related income from providing UnifiedAccess Services is recognised.

An additional revenue share towards spectrum charges is payable as a percentage of AGR, as defined in the Licence Agreementearned from the customers who are provided services through the CDMA and CorDect wireless technology. These costs areexpensed in the Profit and Loss Account in the year in which the related revenues are recognised.

2 .11 Cash and Cash Equivalents

Cash and cash equivalents comprise Cash at Bank and Cash in Hand and short term investments with an original maturity ofthree months or less.

36

2 .12 Foreign Currency Transactions

(i) Initial Recognition

Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchangerate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Conversion

Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms ofhistorical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported usingthe exchange rates that existed when the values were determined.

(iii) Exchange Difference

Exchange differences, in respect of accounting periods commencing on or after 7th December, 2006, arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, orreported in previous financial statements, in so far as they relate to the acquisition of a depreciable capital asset, are added to ordeducted from the cost of the asset and are depreciated over the balance life of the asset, and in other cases, are accumulated ina “Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s financial statements and amortized overthe balance period of such long-term asset/liability but not beyond accounting period ending on or before March 31, 2011.

Exchange differences arising on the settlement of monetary items not covered above, or on reporting such monetary items of theCompany at rates different from those at which they were initially recorded during the year, or reported in previous financialstatements, are recognized as income or as expenses in the year in which they arise.

2 .13 Miscellaneous Expenditure

(i) Finance set up costs

Finance set-up cost, including financial fees and cost of arranging and restructuring long-term loans, is amortised over theperiod of the loan or five years, whichever is lower, commencing from the date of the first draw-down of the related loan, ona straight-line basis.

(ii) Discount on issue of Commercial Papers

Discount on issue of Commercial Papers represents the difference between the face value and issue price of CommercialPapers. This cost is deferred and amortised on a straight-line basis over the redemption period of Commercial Paperscommencing from the date of issue of Commercial Papers.

2 .14 Revenue Recognition and Receivable

(i) Service Revenue

Service Revenues are recognised as services are rendered and are net of discounts & waivers Unbilled revenues resulting fromUnified Access Services provided from the billing cycle date to the end of month is recorded based on billing system reports.Revenues from Unified Access Services rendered through prepaid cards are recognised based on actual usage by the customers

Processing and activation revenue on activation and on recharge vouchers are recognized as revenue, as and when the samegets activated.

Revenue from infrastructure services is recognised as services are rendered, in accordance with the terms of the relatedcontracts.

Indefeasible Right of use contracts are accounted for as operating lease and revenue is recognized over the term of lease.Payments received from customers, before the relevant criteria for revenue recognition are satisfied, are included in incomereceived in advance.

(ii) Sale of Goods

Revenue, net of discounts and return, from sale of goods is recognised on transfer of all significant risks and rewards and thereis no significant uncertainty towards realization of consideration.

(iii) Provision for Doubtful Debts

The company provides for entire outstanding net of security deposit for active subscribers whose outstanding is more than 90days, deactivated customers or in specific cases, where management is of the view, that the amount for certain customers arenot recoverable.

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For receivables due from other operators on account for lease line revenue and IUC, the company provides for amountoutstanding for more than 180 days from the date of billing net of any amounts, payable to the operators, or in specific cases,where management is of the view that the amounts for these customers are not recoverable.

2 .15 Interconnection Usage Charges

The TRAI issued Interconnection Usage Charges Regulation 2003 (as amended) (‘IUC regime’). Under the IUC regime, withthe objective of sharing of call revenues across different operators involved in origination, transit and termination of every call,the Company pays interconnection charges for all outgoing calls originating in its network to other operators, depending onthe termination point of the call i.e. mobile, fixed line and distance i.e. local, national long distance and international longdistance. The Company also receives certain interconnection charges from other operators for all calls terminating in itsnetwork.

Accordingly, interconnect cost is recognised as incurred on termination of calls originating from the Company’s network andterminating on the network of other telecom operators Interconnect revenue are recognised as earned on calls originatingfrom another telecom operator network and terminating on the Company’s network. The interconnect revenue and costs arerecognised in the financial statement on gross basis and included in service revenue and network operating cost, respectively.

2 .16 Retirement Benefits

Short Term Employee Benefits

Short term employee benefits are recognised in the year during which the services have been rendered.

Long Term Employee Benefits

(i) Defined Contribution Plan

Provident Fund and employees’ state insurance schemes

All employees of the Company are entitled to receive benefits under the Provident Fund, which is a defined contribution plan.Both the employee and the employer make monthly contributions to the plan at a predetermined rate (presently 12%) of theemployees’ basic salary. These contributions are made to the fund administered and managed by the Government of India. Inaddition, some employees of the Company are covered under the employees’ state insurance schemes, which are also definedcontribution schemes recognized and administered by the Government of India.

The Company’s contributions to both these schemes are expensed in the Profit and Loss Account. The Company has no furtherobligations under these plans beyond its monthly contributions.

(ii) Defined Benefit Plan

Leave Encashment

The Company has provided for the liability at year end on account of unavailed earned leave as per the actuarial valuation as perthe Projected Unit Credit Method.

Gratuity

The Company provides for gratuity obligations through a defined benefit retirement plan (the ‘Gratuity Plan’) covering allemployees. The Gratuity Plan provides a lump sum payment to vested employees at retirement or termination of employmentbased on the respective employee salary and years of employment with the Company. The Company provides for the GratuityPlan based on actuarial valuations in accordance with Accounting Standard 15 (revised), “Employee Benefits”. The Companymakes annual contributions to the Life Insurance Corporation of India (LIC) for the Gratuity Plan in respect of its employees.

(iii) Short term compensated absences are provided for based on estimates.

(iv) Actuarial gains and losses are recognized in the P & L account as and when incurred.

2 .17 Borrowing Costs

Borrowing costs attributable to the acquisition or construction of those fixed asset which necessarily take substantial periodto get ready for their intended use, including interest attributable to the funding of license fees with respect to New Circles upto the date of commencement of commercial operations, are capitalised as a part of the cost of that asset [Refer Note 10(e) ofSchedule 20]. The accounting treatment of finance set-up cost has been discussed in Note 2.13 (i) of Schedule 19 to the financialstatements. Other borrowing costs are recognised as an expense in the period in which they are incurred.

2 .18 Income Taxes

Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax is measured at theamount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred income taxes reflects

38

the impact of current year timing differences between taxable income and accounting income for the year and reversal of timingdifferences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date.Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable incomewill be available against which such deferred tax assets can be realised. If the Company has carry forward of unabsorbeddepreciation and tax losses, deferred tax assets are recognised only if there is virtual certainty that such deferred tax assets canbe realised against future taxable profits. Unrecognised deferred tax assets of earlier years are re-assessed and recognised tothe extent that it has become reasonably certain that future taxable income will be available against which such deferred taxassets can be realised.

2 .19 Loss per Share

Basic loss per share is calculated by dividing the net loss for the year attributable to equity shareholders by the weightedaverage number of equity shares outstanding during the year.

The number of shares used in computing diluted loss per share comprises the weighted average shares considered for derivingbasic loss per share, and also the weighted average number of shares, if any which would have been used in the conversion ofall dilutive potential equity shares.

2 .20 Leases

(i) Where the Company is the lessee

Leases under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operatingleases. Lease payments under operating leases are recognized as an expense in the Profit and Loss account on a straight-linebasis over the lease term.

Assets acquired on ‘Finance Lease’ which transfer risk and rewards of ownership to the Company are capitalized as assets bythe Company at the lower of fair value of the leased property or the present value of the related lease payments or whereapplicable, estimated fair value of such assets.

Amortization of capitalised leased assets is computed on the Straight Line method over the useful life of the assets. Leaserental payable is apportioned between principal and finance charge using the internal rate of return method. The financecharge is allocated over the lease term so as to produce a constant periodic rate of interest on the remaining balance ofliability.

(ii) Where the Company is the lessor

Assets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss Accounton a straight-line basis over the lease term. Costs, including depreciation are recognised as an expense in the Profitand Loss Account. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately in the Profitand Loss Account.

2 .21 Segment Reporting

(i) Identification of segment

The Company’s operating businesses are organized and managed separately according to the nature of services provided, witheach segment representing a strategic business unit that offers different services to different markets. The analysis of geographicalsegments is based on the areas in which the Company’s services are sold.

(ii) Allocation of common costs

Common allocable costs are allocated to each segment according to the relative contribution of each segment to the totalcommon costs.

(iii) Unallocated items

The Corporate and other segment include general corporate income and expense items, which are not allocated to anybusiness segment.

2 .22 Prov i s ions

A provision is recognised when an enterprise has a present obligation as a result of past event and it is probable that an outflowof resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are notdiscounted to its present value and are determined based on best estimate required to settle the obligation at the BalanceSheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

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SCHEDULE 20: NOTES TO ACCOUNTS (Amount in Rupees ‘000)

1 . Capital Commitments 2009 2008

Estimated value of contracts remaining to be executed on capitalaccount and not provided for (net of advances) 10,479,101 1,262,864

—————— ———————————— ——————2 . Contingent Liabilities not provided for

Financial Bank Guarantees 6,062,830 6,050,000

Performance Bank Guarantees 2,702,830 2,599,290

Claims not acknowledged as debt(Refer note (a) & (b) below) 517,842 319,860—————— ———————————— ——————

9,283 ,502 8,969 ,150—————— ———————————— ——————

(a) As more fully discussed in Note 1(e) of Schedule 19, the Company has paid Rs 319,860 thousand to DoT under protesttowards AGR demand on gain from sale of investment in HIL. The TDSAT has decided the matter in favour of the Company.At present, the matter is pending with Honorable Supreme Court for judgment. The Company based on legal opinion andjudgment of TDSAT is confident of securing decision in its favour and hopeful to receive back the amount deposited underprotest with DoT.

(b) During the year ended March 31, 2009, the Company has received demand letters dated November 11, 2008,December 20, 2008 and on January 02, 2009 respectively from Bharat Sanchar Nigam Limited (BSNL) wherein BSNLhas raised demand of Rs 143,316 thousand, Rs 43,103 thousand and Rs 3,980 thousand respectively on accountof unilateral revision of access charges for the period from June 2001 to May 2003 in contravention of the InterconnectAgreement and TRAI Regulations. The Company, Association of Unified Service Providers of India ‘AUSPI’(erstwhile Association of Basic Telephone Operators ‘ABTO’) and other Basic Service Operators contested aforesaidrevision in the rates of access charges before Telecom Dispute Settlement Appellate Tribunal (‘TDSAT’). TDSAT vide itsreasoned and detailed judgement dated April 27, 2005 allowed the refund claims and struck down the unilateral revisionin the rates of access charges by BSNL and held that Telecom Regulatory Authority of India (‘TRAI’) is the final authorityfor fixing of access charges and access charges would be payable as rates prescribed by the TRAI and as per the Interconnectagreements. BSNL preferred an appeal in Hon’ble Supreme Court against the order of TDSAT and an interim stay wasgranted on October 19, 2006. Therefore aggrieved by such unilateral action on the part of BSNL by raising aforesaiddemand and disturbing the status-quo, applications were moved by the Company, AUSPI and other operators in theHon’ble Supreme Court vide C.A No.5834-5836 of 2005 that was listed for hearing on February 9, 2009 and Hon’bleSupreme Court passed an order clarifying its previous order of October 19, 2006 and stayed the refunds claim against theBSNL there by upholding the TDSAT order dated April 27, 2005 where by BSNL is refrained from raising the accesscharges demand.

Against the aforesaid demands, the Company has paid Rs 143,316 thousand under protest against the demand note datedNovember 28, 2008 only.

Based on the legal opinion on the above, the Company believes that the amount paid under protest to BSNL is recoverableand there would be no further financial liability against these demands and has accordingly not recorded any liabilitytowards access charges during the year ended March 31, 2009.

(c) The Company had executed certain contracts (‘the contracts’) with an equipment vendor (‘the vendor’) for the supply ofnetwork equipment and services for the turnkey implementation of the basic telephone service project in Rajasthan.Under the contracts, the vendor was obliged to ensure a total financing solution for the project, including credit enhancementsupport from the vendor’s sponsors. As the vendor defaulted in its contractual obligations in providing a total financingsolution for the project, the vendor executed an agreement (‘the agreement’) with the Shyam Group of Companies tosubscribe to warrants of the Group Companies aggregating 50 per cent of the value of supplies of equipment and servicesby the vendor to the Company. Disputes have arisen between the Company and vendor with respect to fulfillment ofobligations under the contracts and the agreement. As at March 31, 2009, Rs 246,573 thousand (2008 - Rs 246,573 thousand)was due by the Company to the vendor. The Company and the vendor are in the process of resolving their differences.The management of the Company believes that the default under the contracts and the agreement primarily lies on thepart of the vendor and thus the Company does not bear any liability under the same. However, the vendor has made acounter claim for an interim award of Rs 288,000 thousand, which has been rejected by the Arbitral Tribunal. Since, thematter is under process for resolution with the Arbitral Tribunal and based on legal opinion from the Company’s counsel,no additional liability has been provided in these financial statements.

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3 . Expenditure in Foreign Currency (on accrual-basis) 2009 2008—————— ——————

Travelling 2,390 2,308Interest 265,324 -Loan Processing Fees 3,315 -Professional & Consultancy Fees 411,098 9Project Management Consultancy 196,012 -Maintenance Services 390 -

—————— ——————878 ,529 2 ,317

—————— ———————————— ——————

4 . Managerial Remuneration 2009 2008—————— ——————

Salary 5,000 10,800Contribution to PF 600 1,296Other Allowances 19,400 3,600Company Leased Accommodation 870 -

—————— ——————25,870 15,696

—————— ———————————— ——————

The Company provides for Gratuity and leave encashment on an actuarial basis for the Company as a whole, the amountpertaining to the Whole Time Director is not readily ascertainable and hence not included above. Further, the Whole TimeDirector of the Company is entitled to Performance Linked Incentive of 100 percent of Annual Fixed Salary which has beenprovided for in the books of accounts and will be payable based on approval from the Board.

During the year, the Company has appointed a Whole Time Director with effect from October 1, 2008 under section 269 of theAct and has paid remuneration in excess of the limits specified under Schedule XIII to the Act and pursuant to the provision of thesaid section, the Company has filed an application with the Central Government on December 29, 2008 for the approval of theappointment and remuneration of the Whole Time Director. The Company is confident of receiving the approval from the CentralGovernment.


5 . Payment to Auditors (excluding service tax) 2009 2008—————— ——————

Statutory Audit 3,800 1,750Tax Audit 400 -Other Services 2,050 400Reimbursement of Out-of-Pocket Expenses 441 363

—————— ——————6,691 2,513

—————— ———————————— ——————6 . Value of imports calculated on CIF basis

Import of Capital Equipment and spares 7,324 ,140 33,267—————— ———————————— ——————

7 . Quantitative particulars of equipments

a) Under the schemes offered by the Company to its customers other than those where the Fixed Wireless Terminal(FWT) are sold, the ownership of the FWT sets are retained by the Company. Accordingly, these have been classifiedas Fixed Asset.

b) The Company is issuing SIM cards to customers for using services being offered by the company. The SIM cards are notsold to customers but are being given for use only. Since, cost of per SIM card is not of material amount and theCompany does not perceive any retrieval value of the same, once the same is issued to the customers, cost of the sameis expensed off at the purchase itself and company does not maintain quantitative records of the issued SIM cards.

c) Detail of Trading Goods (FWT)Quantity (Units) Value (in Rs. ‘000)

2009 2008 2009 2008———— ———— ———— ————

Opening Stock - - - - Purchase 22,801 1,054 41,526 1,736Sales 12,801 1,054 10,520 1,686Closing Stock 10,000 - 8,360 -

———————————————————————

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8 . Share Capital

a) As more fully discussed in Note 1(b), Schedule 19, on September 26, 2007, SISTEMA had acquired ten percent stake into

the Company and on January 17, 2008 had increased its stake in the Company to fifty one percent by acquiring additional

forty one percent stake from existing promoters, hence, with effect from January 17, 2008, the Company became

subsidiary of SISTEMA. The shareholding of SISTEMA has further increased to 73.71 percent on June 10, 2008 on

account of fresh infusion of equity in the Company during the year and SISTEMA holds 1,810,289,400 equity shares as

at March 31, 2009.

b) Out of 2,455,957,500 shares, 63,925,000 shares were allotted as fully paid up Bonus Shares by capitalisation of Capital

Reserve on September 12, 2000.

9 . Secured Loans

a) During the year, the Company has obtained following secured loans:

i) Term loan of Rs 7,500,000 thousand from a Bank, secured against assignment of all telecom licences allotted by

Department of Telecommunication (DoT) other than the licence pertaining to Rajasthan Circle and first charge over

present and future assets of Rajasthan Circle on pari passu basis with other lenders. Registration of charge over

Telecom Licences with Registrar of Companies is pending. Outstanding balance as at March 31, 2009 is Rs 7,500,000

thousand. The amount repayable within one year is Rs Nil (2008 – Rs Nil).

ii) Term loan of Rs 73,584 thousand. The loan is secured against first and exclusive charge of the assets financed by the

lender. Outstanding balance as at March 31, 2009 is Rs 55,188 thousand. The amount repayable within one year is

Rs 11,225 thousand (2008- Rs Nil).

iii) Vehicle loans of Rs 20,770 thousand. These are secured by way of exclusive hypothecation charge in favour of the

respective lenders. Outstanding balance of these loans as at March 31, 2009 is Rs 16,175 thousand (2008- Rs 1,842

thousand). The amount repayable within one year is Rs 5,303 thousand (2008- Rs 806 thousand).

b) During the year, the Company has made repayment of the following secured loans:

i) Term Loans of Rs 840,000 thousand, outstanding as at March 31, 2008, from a Bank repayable by September 2011 has

been fully repaid in April 2008.

ii) Short-term loan of Rs 17,500,000 thousand, outstanding as at March 31, 2008, from a Bank repayable by November

2008 has been fully repaid in June 2008.

iii) Commercial papers of Rs 1,605,000 thousand, outstanding as at March 31, 2008, has been fully repaid on various dates

during the year.

10 . Unsecured Loans

a) During the year, the Company has obtained following unsecured loans:

i) Term Loan from a bank of Rs 4,800,000 thousand. The loan is fully secured against unconditional & irrevocable Stand By

Letter of Credit of ABN AMRO Bank, London. Outstanding balance as at March 31, 2009 is Rs 2,399,170 thousand. The

amount repayable within one year is Rs 1,200,000 thousand (2008- Rs Nil).

ii) Foreign Currency Term Loan from its holding company of USD 230,000 thousand (Rs 11,420,650 thousand). The entire

loan amount will be due for repayment in full by December 2014. Outstanding balance as at March 31, 2009 is

Rs 11,665,600 thousand. The amount repayable within one year is Rs Nil (2008- Rs Nil).

iii) Foreign Currency Term loan from a foreign bank of USD 18,686 thousand (Rs 927,870 thousand) against supply of

Network Equipments for Rajasthan Circle by ZTE Corporation, China, secured by Corporate Guarantee issued by the

holding company. Outstanding balance as at March 31, 2009 is Rs 947,771 thousand. The amount repayable within one

year is Rs Nil (2008- Rs Nil).

b) Short-term loan of Rs 2,320,000 thousand, outstanding as at March 31, 2008, from a bank has been fully repaid in

June 2008.

11 . Deferred Payment Liabilities

During the year, the Company has entered into contracts with international vendors for supply of network equipments and

rendering of services on deferred payments terms. On transfer of title and risk of the supplies and rendering of services as per

the terms of the respective vendor under above contracts, the Company has recorded the liabilities payable over the deferred

payment period as Deferred Payment Liabilities. Of which, the amount payable within one year is Rs 230,035 thousands.

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12 . Fixed Assets and Capital Work in Progress

a) Plant and Machinery includes loose tools of Rs 38,564 thousand (2008 — Rs 22,960 thousand).

b) Optical fibre and copper cable network and capital work-in-progress include optical fibre and ducts of Rs 174 thousand(2008 — Rs 2,770 thousand) lying with third parties for building of the backbone and feeders and plant and machineryincludes equipment of net book value of Rs 3,832,611 thousand (2008 – Rs 68,900 thousand) located at the infrastructureproviders’ sites.

c) As on March 31, 2009, Fixed Wireless Phone (FWP) sets included equipment aggregating to net book value ofRs 121,645 thousand (2008 — Rs 170,970 thousand) located at customer premises.

d) During re-launch of CDMA mobile services in Rajasthan Circle in September 2008 [Refer Note 1(a) of Schedule 19], theCompany has replaced certain network equipments of old technology from new network equipments and does notplan to use the old network equipments going forward. Accordingly, the Company has recorded Provision forObsolescence of Rs 515,994 thousand against total written down value of Rs 550,994 thousand as atSeptember 30, 2008.

e) The borrowing cost of Rs 615,539 thousand has been capitalized during the year (2008 – Rs 513,471 thousand)pertaining to acquisition of Intangible Assets.

f) During the year, the Company incurred certain expenses to the tune of Rs. 229,027 thousand (2008 – Nil) on pre-launchrelated activities in various circles, out of which Rs. 180,250 thousand (2008 – Nil) is capitalised pertaining to the circleswhich has started commercial operations during the year and Rs. 48,777 thousand (2008 - Nil) is pending allocation relatedto the circles which are yet to start commercial operations as at the year end.

13 . Investments

The Company has invested Rs 8,966 thousand (including advance for share capital of Rs 1,466 thousand) in subsidiary companyShyam Internet Services Private Limited, which has licence for internet services for the state of Rajasthan. The accumulatedlosses of the subsidiary Company as at March 31, 2009 are Rs 18,596 thousand (2008 - Rs. 12,840 thousand). The subsidiarycompany has been awarded ‘Letter of Intent’ on March 28, 2008 to operate Internet services for pan India. Based on thebusiness plan of the subsidiary company, the Company is of the view that the diminution in investment is temporary in natureand hence, has not made any provision for diminution in the value of investment.

14 . Debtor s

a) Debtors include unbilled debtors of Rs 1,223 thousand (2008 - Rs 2,233 thousand).

b) Debtors include Rs 19,442 thousand (2008 - 10,318 thousand) due from Shyam Internet Services Limited, a companyunder same management u/s 370 (1B) of the Companies Act, 1956. Maximum balance outstanding during the year was Rs20,556 thousand (2008 - 10,318 thousand).

15 . Current Liabilities and Provisions

a) Sundry Creditors include amount payable to Micro, Small and Medium Enterprises as at March 31, 2009 of Rs Nil(2008 – Rs Nil) (based on the information, to the extent available with the Company).

b) Salary outstanding to the Directors as at March 31, 2009 was Rs 310 thousand (2008 - Rs 880 thousand).

c) Advance and deposits from customers and channel partners include amounts refundable to subscribers ofRs 21,210 thousand (2008 - Rs 21,136 thousand), which represents security deposits received from permanentlydeactivated subscribers pending final settlement.

Income Received in Advance include advance revenue received for dark fibre given to customers on IRU basisof Rs 144,385 thousand (2008 - Rs 157,222 thousand) and unaccrued prepaid revenue of Rs 55,461 thousand(2008 - Rs 17,538 thousand).

d) Provisions:

A . Employee Benefits :

i) During the year, the Company has recognized the following amounts in the Profit and Loss Account

Defined Contribution Plans (Amount in Rupees ‘000)

Part icu lars 2009 2008

Employer’s Contribution to Provident Fund # 19,797 8,094

Employer’s Contribution to ESI # 1,238 1,569

# Included in Contribution to Provident and Other Funds (Refer Schedule 14)

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Defined Benefit Plans

The employee’s gratuity fund scheme managed by Life Insurance Corporation of India is a defined benefit plan. The present valueof obligation is determined based on actuarial valuation using Project Unit Credit Method (PUC). Under PUC Method, aprojected accrued benefit is calculated at the beginning of the period and again at the end of the period for each benefit that willaccrue for all active members of the plan. The projected accrued benefit is based on the plan accrual formula and upon serviceas of the beginning or end of the period, but using member final compensation, projected to the age at which the employee isassumed to leave active service. The plan liability is the actuarial present value of the projected accrued benefits as of thebeginning and end of the period for active members the obligation for leave encashment is recognized in the same manner asgratuity.

Net Cost towards Gratuity for the year ended March 31, 2009 is as follow:


Par t i cu l a r s 2009 2008

Current service cost # 6,033 2,805Interest cost 725 679Expected Return on plan assets (278) (335)Actuarial (gain) / loss (2,362) (446)Past service cost - - Benefit Paid - - Curtailment and Settlement cost / (credit) - - Net Cost 4,118 2,703

Actual Return on Plan Assets 427 297Actual Rate of Return on Plan Asset 8.65% 9.15%

# Included in Salaries, Wages and Bonus (Refer Schedule 14)

Net Cost towards Leave Encashment for the year ended March 31, 2009 is as follow:

Par t i cu l a r s 2009 2008

Current service cost # 19,057 4,889Interest cost 1,324 1,162Expected Return on plan assets - - Actuarial (gain) / loss (5,168) (1,258)Past service cost - - Benefit Paid - - Curtailment and Settlement cost / (credit) - - Provision for Provident Fund for the year 13,293 433Net Cost 28,506 5,226

Actual Return on Plan Assets - -

Actual Rate of Return on Plan Asset - -

# Included in Salaries, Wages and Bonus (Refer Schedule 14)

ii) The major categories of plan assets as a percentage of the fair value of total plan assets are as follow:

Gratu i ty

2009 2008

Investments with LIC 100% 100%

iii) The assumptions used to determine the benefit obligations are as follows:

Gratu i ty

Pa r t i cu l a r s 2009 2008

Discount Rate 7.00% 8.00%Expected Rate of Increase in Compensation levels 6.00% 8.00%Expected Rate of Increase on Plan Assets 7.00% 9.50%Retirement Age 58 years 58 years

44

Leave Encashment

Pa r t i cu l a r s 2009 2008

Discount Rate 7.00% 8.00%Expected Rate of Increase in Compensation levels 6.00% 8.00%Expected Rate of Increase on Plan Assets 0% 0%Retirement Age 58 years 58 years

The principal assumptions are discount rate & salary growth rate. The discount rate is generally based upon the market yieldsavailable on Government bonds at the accounting date with a term that matches the liabilities and the salary growth rate takesaccount of inflation, seniority, promotion and other relevant factors on long term basis.

iv) Reconciliation of opening and closing balances of benefit obligations and plan assets

Gratu i ty (Amount in Rupees ‘000)

Par t i cu l a r s 2009 2008

Change in Projected Benefit Obligation (PBO)PBO at beginning of year 10,362 8,481Current service cost 6,033 2,805Interest cost 725 679Benefits paid (656) (982)Past service cost - - Actuarial (gain) / loss (2,214) (622)Projected benefit obligation at year end 14,250 10,361Change in plan assets:Fair value of plan assets at beginning of year 3,978 3,360Expected return on plan assets 278 - Actuarial gain / (loss) 149 - Employer contribution 1,680 1,273Claim paid from Fund (656) (990)Interest credited by LIC for the year - 335Settlement cost - - Benefit paid - - Fair value of plan assets at year end 5,429 3,978Net funded Status of the plan 8,821 6,383Net amount recognised as liability 8,821 6,383

Leave EncashmentPa r t i cu l a r s 2009 2008

Change in Projected Benefit Obligation (PBO) PBO at beginning of year 18,917 14,524Current service cost 19,057 4,889Interest cost 1,324 1,162Benefits paid (25) (400)Past service cost - - Actuarial (gain) / loss (5,168) (1,258)Projected benefit obligation at year end 34,105 18,917

Change in plan assets: Fair value of plan assets at beginning of year - - Expected return on plan assets - - Actuarial gain / (loss) - - Employer contribution - - Claim paid from Fund - - Interest credited by LIC for the year - - Settlement cost - - Benefit paid - - Fair value of plan assets at year end Net funded Status of the plan 34,105 18,917

Provident Fund (12% on Earned Leave) - -Net amount recognized 34,105 20,813

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v) Amounts for the current and previous four periods are as follows:

Gratu i ty (Amount in Rupees ‘000)

Par t i cu l a r s 2009 2008

Defined benefit obligation 14,250 10,361

Plan assets 5,429 3,978

Surplus / (deficit) (8,821) (6,383)

Experience adjustments on plan liabilities Not Available1 Not Available1

Experience adjustments on plan assets Not Available1 Not Available1

1 The management has relied on the overall actuarial valuation conducted by the actuary. However, experience adjustments onplan liabilities and plan assets are not readily available and hence not disclosed.

vi) The Company made annual contributions to the LIC of an amount advised by the LIC. The Company was not informed by LICof the investments made by the LIC or the break-down of plan assets by investment type.

vii) Estimated contributions to be made in next financial year for gratuity is Rs 14,205 thousand and for leave encashment Rs 20,717thousand.

viii) The expected rate of return on plan assets was based on the average long-term rate of return expected to prevail over the next15 to 20 years on the investments made by the LIC. This was based on the historical returns suitably adjusted for movementsin long-term government bond interest rates. The discount rate is based on the average yield on government bonds of 20 years.

B . Provision for Contingencies and Other Provisions :-

The following table sets forth the movement in the provisions: (Amount in Rupees ‘000)

S l . Descr ipt ion As at Add i t ions Amount As atNo . April 1, 2008 dur ing used March 31, 2009

(April 1, 2007) 2008-09 (March 31, 2008)(2007-08)

1. Provision for 323,397 38,029 - 361,425Contingencies (2,171) (321,226) (-) (323,397)

2. Provision for Damaged / 50,997 - 36,576 14,421Irrecoverable Assets (41,397) (96,00) (-) (50,997)

3. Provision for Lease 68,484 70,941 - 139,424Equalisation Reserve (-) (68,484) (-) (68,484)

4. Asset Retirement 8,313 120,780 - 129,093Obligation (-) (8,313) (-) (8,313)

a) The Company makes contingency provision for any un-anticipated regulatory liabilities that may arise subsequent to theyear end.

b) The Company had branded its CDMA services and Cor DECT services as fixed wireless services. BSNL unilaterallydeclared these as Limited Mobility service [‘WLL (M)’] as against it being treated as a ‘Fixed wireless services’ by theCompany and raised demand notes for differential Access Deficit Charges (‘ADC’) for the period November 14, 2004to August 30, 2005. On September 7, 2006, the Company had filed a petition with TDSAT against the above demand.TDSAT vide its order dated September 7, 2006 has restrained BSNL from disconnecting POIs of the Company and notto take coercive action against the Company to recover the demands. During the year ended March 31, 2008, theCompany had received demands of Rs 77,489 thousand (March 31, 2008 – Rs 77,489 thousand) related to periodNovember 14, 2004 to August 30, 2005. The Company is still awaiting final decision of TDSAT but has provided for theabove demand as contingent liability in the financial statement.

c) The DoT has raised demand on December 25, 2007 and February 14, 2008 aggregating Rs 243,152 thousand includinginterest and penalty towards use of additional spectrum for Rajasthan Circle for CDMA and CorDect technology. Thecompany has paid the said demand under protest. The company has made an application to DoT for cancellation ofdemand and refund of amount paid under the demand. The Company is in discussion with DOT to settle the abovedemand and provided for it as contingent liability in the 2008 financial statement.

46

d) In accordance with its accounting policy (See Note 2.4, of Schedule 19), the Company makes provision for slow movingand obsolescence related to capital work-in-progress, based on the ageing of the capital assets and a periodic technicalevaluation undertaken by the Company.

16 . Income Taxes

Deferred tax

During the year ended March 31, 2009, the Company has incurred book loss of Rs 5,906,476 thousand (2008 - Rs 1,811,748thousand), aggregating to accumulated losses of Rs 12,123,246 thousand (2008 - Rs 6,216,770 thousand) as on that date, resultinginto a tax loss carry forward situation. The Company is eligible for a tax holiday under section 80IA of the Income-tax Act, 1961,beginning with the financial year in which the Company started providing telecommunication services. Though the management isconfident of generating profits in the future, there is currently no convincing evidence of virtual certainty that the Company wouldreverse the tax loss carry forwards beyond the tax holiday period. Accordingly, the Company has not recognized any deferred taxassets resulting from the carry forward tax losses. Further, no deferred tax liabilities on account of temporary timing differenceshave been recognized since they are expected to reverse in the tax holiday period.

17 . Segmental Reporting

The primary reporting of the Company has been performed on the basis of business segments. The Company has only onebusiness segment, which is providing unified access services. Accordingly, the amounts appearing in these financial statementsrelate to this primary business segment. Further, the Company provides services only in India and, accordingly, no disclosuresare required under secondary segment reporting.

18 . Related Party Disclosure

In accordance with the requirements of Accounting Standards (AS) -18 on Related Party Disclosures, the names of the relatedparties where control exists and/or with whom transactions have taken place during the year and description of relationships,as identified and certified by the management are:

Key Management Personnel:

Re la t ion Name of the related party

Whole Time Director Vsevolod Rozanov

Other Related Parties

Re la t ion Name of the related party

Holding Company JSFC Sistema, Russia

Subsidiary Company Shyam Internet Services Limited

List of Fellow Subsidiaries is as below :

- Intracom S.A Telecom Solutions, Russia - CJSC Invest proekt

- OJSC Intellect Telecom, Russia - CJSC Kuntsevo - Invest

- OJSC Sitronics - CJSC Sistema Hals Severo-Zapad

- LLC Mobile TeleSystem-T - CJSC Sistema Hals Severo-Zapad

- MTS Finance – SPV - CJSC City - Hals branch in Saint – Petersburg

- MTS-Capital – SPV - LLC City - Hals Kazan’

- Ukrainian Mobile Communications (UMC) - LLC City - Hals Povilzh’e

- OJSC Mobile communication systems - LLC City - Hals Sibir’

- LLC MTS Kostroma - LLC City - Hals Tambov

- OJSC Company Novitel - LLC City - Hals Ural

- CJSC Novitel Plus - LLC City - Hals Yug

- LLC Overseas production company Uzdunrobita - CJSC Mosdachtrest

- Barash Communication Technologies, Inc - CJSC City - Hals

- LLC Svit – Kom - LLC Yurlack

- MTS Bermuda, LIMITED - CJSC Sistema - Hals

- LLC Dagtelekom - Asesco Grupo Sistema, s.a.

- K – Telecom - SGI Management Zagreb

47

- LLC MTS - Financial Fleurus

- LLC TS Service - Kerguelen Systems

- PTT Telekom Kiev - Edificaciones Giordino

- CJSC Sibintertelekom (Chita) - Torgoviy Dom Detskiy Mir

- CJSC Primtelephone (Vladivostok) - Detskiy Mir

- CJSC Volgograd Mobile (Volgograd) - CJSC DM-Centre

- OJSC MTS - P (Moscow) - DM - Base

- LLC MTS - RK (Siktyvkar) - DM-Tambov

- International Cell Holding Limited - LLC Detskaya Galereya Yakimanka

- CJSC BashSel (Agidel’, republic of Bashkorstostan ) - Neuekoeln

- LLC Bastion (Moscow) - LLC DM Orel

- Cezanne B.V. (Amsterdam) - LLC S-Toys

- Tarino Limited (Republic of Seychelles) - LLC Sapojok

- CJSC RTK (Moscow) - DM Ukraine

- Dega Retail Holding Limited - OJSC VAO Intourist

- LLC Telephone.ru – since 10.02.09 - Intourist S. A. (Luxembourg)

- LLC Eldorado – since 31.03.09 - Intourist Overseas Limited (Cyprus)

- OJSC TS-Retail - Intourist Trading (Cyprus)

- OJSC Comstar - UTS - CJSC Inturist - Blagoveshhensk

- CJSC Comstar – Direct - CJSC Inturist - Vladivistok

- MGTS FINANCE S.A. - OJSC InturAvtoServis

- CJSC AMT - CJSC Inturist - Nahodka

- CJSC United Telesystems MGTS” - CJSC Inturist - Sankt-Peterburg

- CJSC Petrodvor - CJSC Nord Vest Bas E’kspress

- OJSC MGTS - CJSC Inturist - Samara

- OJSC MS-Tel - CJSC Inturist - Petrozavodsk

- Callnet - Intourist Limited

- Cornet-AM - Intours Corp

- Neophone LLC - OJSC Intourist Hotel Group

- CJSC Technology Systems - OJSC GK Kosmos

- LLC Degre - OJSC Gostinichno-Ofisniy complex “Pekin”

- LLC Comstar – Ukraine - Savoy Westend Hotel

- LLC TK Civrovye Global Telecommunications - LLC Stepan’kovo

- LLC Astelit - LLC Riviera Holding

- LLC Unitel - AZZURRO ITALIA H.M.G. S.R.L.

- CJSC Golden Line - Rivera Wings

- CJSC Port Telekom - Riviera Turism

- Comstar One Limited - Riviera Orange

- OJSC Tymenneftegazsvyaz - Lunisoft

- CJSC Conversia-svyaz - OJSC Intourist Magazin Puteshestvii

- LLC TK Overta - OJSC Orient

- LLC Sochitelekomservice - LLC Orient-Tour

- LLC CTS Yug - LLC Orient-Anapa

- OJSC Regional Technical Centre - LLC Orient-Piter

- LLC Komtel - LLC Orient-Sochi

- OJSC Pansionat Priazov’e - LLC Berau Puteshestvii Orient

- CJSC Intersvyaz – Servis - LLC Kaztur

- LLC Inter – TV Media - Intourist Polska

- CJSC Ural telephone company - OJSC NTK Intourist

48

- LLC Strategiya - Intourist transportation services

- OJSC Intellect-Telekom - Intourist Hotel Islet

- CJSC Centre-Telko - OJSC Sistema Mass Media

- CJSC Metrotelekom - Newspaper Rossia

- CJSC Sistema-telekom - RA Maksima

- LLC Vast - Rosbalt

- LLC Investsviaz - OJSC MTS

- LLC United TeleSystems - Media Planning

- Joint-stock bank MBRR - Thema Production

- CJSC Sietema - K Invest - LLC Lingway

- CJSC Sistema – Finleasing - CJSC Òhema Production

- LLC MBRR – capital - OJSC Esta

- CJSC Invest Svyaz Holding - CJSC Regionalnaya Kabelnaya Set

- LLC MBRR – Finance - CJSC Esta Telekom

- LLC Leasing - Maximum - CJSC Esta TV

- LLC NOSTRO - CJSC Tversviazinform

- East-West United Bank - Maksima Kiev

- OJSC Dalkombinat - Euro Dawn Limited

- OJSC NIIME and Mikron - LLC Cifrovoe TV

- OJSC Elion - LLC Upravlenie and Leasing

- OJSC Elaks - JIR Broadcast, Inc.

- CJSC Koncel - JIR Broadcast Management

- OJSC NIITM - JIR, Inc.

- CJSC VZPP Mikron - JIR Management, Inc.

- CJSC Sitronics - LLC United cabel network

- CJSC Sitronics Telekom Solutions - CJSC Infotek

- CJSC Vostochniy Veter - CJSC Integralnaia Telecommunication Network

- OJSC Kvant - CJSC Integralnaia Telecommunication Network+

- LLC Sitronics-management - CJSC Channel - 7

- Intracom Telecom - LLC Channel - 7 plus

- OJSC NTP Intellect Telekom - CJSC Channel VT

- Sitronics Finance SA - CJSC Kaskad - TV

- SITRONICS Telecom Solutions Czech Republic - CJSC Trank

- OJSC Ladoga Telekom - CJSC Kabelnoe Televidenie Mark

- LLC InterTelSibir - CJSC MPK Channel - 7

- SITRONICS Telecom Solutions, Pakistan Co. - CJSC NPO Vidis(Private.) Limited

- SITRONICS Telecom Solutions BH d.o.o. Sarajevo - CJSC TV Maidan

- SITRONICS IT B.V. - LLC Kuznetsktelemost

- Kvazar - Micro International Limited - LLC Seti TV

- Kvazar - Micro, s.r.o (Czech Republic) - OJSC OJSC Teleservice

- UAB Kvazar - Micro Baltic (Lithuania) - CJSC TCN

- LLC Kvazar - Micro.ru - CJSC Komtel - Kemerovo

- KM-HUB Handels GmbH - CJSC Perviy Permskiy Internet Centre

- Kvazar - Micro Hungary Ktf - CJSC Ruslan TV

- KM-Investments Ukraine - CJSC Simbirsk KTV

- AO3TKBA3AP - Micro - LLC Komtel - Vologda

- CJSC Kvazar-Micro Tech - LLC Komtel - Taganrog

- LLC SITRONICS Telecom Solutions Ukraine - CJSC Tagylteleseti

49

- LLC Sitronics Smart Technology - CJSC Astro - Tel

- SITRONICS Telecom Solutions Slovakia - CJSC Trankmedia

- Ice informatics systems (Slovenia) - LLC PKF Trank - service

- SIA Kvazar-Micro ACC - LLC Norilsk InterKom

- Sitronics Informational technology - LLC Dudinka Interkom

- Cosmos Wealth - CJSC Sendi Service

- Kvazar-Micro LLC (RF) - LLC inforservice

- LLC Amfitel - LLC Sendi info

- CJSC SITRONICS personal solutions - LLC Kabelnie Seti “Inter - TV

- SITRONICS Telecom Solutions Tashkent - LLC Ivanova Cable Network

- OJSC Sitronics – NanoTechnology - LLC Inter - Telekom

- OJSC Navigation – information system - LLC Inter - net

- LLC SITRONICS - microdezign - LLC Inter TV -Shuya

- LLC Aventa Realty - LLC Inter-TV

- CJSC “Real estate agency Sistema Hals” - CJSC Ivanova Cable Network

- CJSC Management company Active management - LLC Group of company Sallak

- CJSC “Business park Novaia Riga” - LLC Telecommunication company Elkom - service

- LLC Hals - Architecture - LLC Euro Tel

- LLC Hals - Garant - LLC Bioritm

- LLC Hals - Prof - LLC Skart

- CJSC Hals - Finance - LLC Elektronika

- LLC Geokom - LLC Telesat

- CJSC Glavmontagespetsstroy - CJSC Teleradiotechnika

- LLC “Detskiy Mir - Development” - CJSC Stream - TV

- Zhilstroyindustriya - CJSC Stream - Content

- LLC Zdravnitsa – Laif - TOO RA Maxima KZ

- LLC Investicirni Rezerv - CJSC PBC (Russian World Studios)

- LLC Corporate Investments” - CJSC Binofarm

- LLC Merkuriy - CJSC Medico - Technological holding

- LLC Michurenskiy 39 - CJSC MT - MTH

- LLC Proekt Aviatsionnaya - CJSC NPO Tovarishestvo Orgsintez - I

- SMM -TV - Pharmapek

- LLC Proekt Artekovskaia - Mapichem

- LLC Proekt Babaevskaya - LLC Fita Line

- LLC Proekt Vavilova - LLC Valeksfarm

- LLC Proekt Davydova - Bi – Prom

- LLC Proekt Dem’yana Bednogo - Concern “RTI Sistemi

- LLC Proekt Dubininskaya - RTI im Mintsa

- LLC Proekt Zhukova - RTI Radio

- LLC Proekt Zelenodolskaya - Saranskiy televizionnyiy zavod

- LLC Proekt Kastanaevskaya - Vyimpel - S

- LLC Proekt Klenoviy - OJSC MTU Saturn

- LLC Proekt Krasnosel’skiy - Yaroslavskiy radiozavod

- LLC Proekt Krasnostudencheskiy - NIIDAR

- LLC Proekt Leninskiy - OJSC Mednogorskiy elecrotechnical plant Uralelectro

- LLC Proekt Lomonosovskiy - CJSC Uralelektro - K

- LLC Proekt Luysinovskaya - OJSC DMZ - Kamov

- LLC Proekt Nagatinskaya 4g - LLC Uralinstrument

- LLC Proekt Nastas’inskiy - LLC Alianz KD

50

- LLC Proekt Octyabr’skaya - CJSC Uralelektro - CTM

- LLC Proekt Sevastopol’skiy - LLC OKB - Planeta

- LLC Proekt Sel’skohozyayistvennaya - CJSC NPK High technology and strategy systems

- LLC Proekt Simferopol’skiy - CJSC MedSi

- LLC Proekt Snezhnaya - OJSC Medsi Holding

- LLC Proekt Usievicha - OJSC Medsi II

- LLC Proekt Fotievoy - CJSC Group of company Medsi

- LLC Proekt Sh’epkina - CJSC Company Medexpress

- LLC Proekt Yaroslavskoe - LLC Medical Centre ROSNO

- LLC Profalyance - CJSC Hospital Zapad

- LLC Terra - LLC Saxalin ekstrenno medical assistance

- CJSC Elestroy M - LLC American Hospital Group

- LLC Art-Gals - CJSC Corporation of family medicine

- CJSC “Bolshoy City - CJSC Medsi fitness

- LLC Vilina - OJSC Sistema Finance Investments

- LLC Hals - Invest - LLC Manej 13/1

- CJSC Hals - Tehnopark - Desantis

- OJSC Hotel Korona Intourist - Sheton Investing Corp.

- LLC Detskiy Mir Krasnoyarsk - Sistema Capital S.A.

- LLC Zemli Poselenii - Sistema Finance S.A.

- CJSC Invest Prof - OJSC NTR Region

- CJSC Sistema-Hals Invest - OJSC Reestr

- LLC Korona Invest - CJSC R-Brok

- LLC Sistema Gals management - Non-government pension fund Sistema

- OJSC Tamanskaya 2 - LLC Davidov place

- CJSC Triada Invest - OJSC Sistema Venture

- CJSC Yaht club proekt - OJSC Asset management Dubna-Sistema

- LLC Alianz Bud - LLC Notris

- CJSC Biznesstroymonolit - CJSC Lamineia

- LLC HalsOblStroy - CJSC DBD place

- CJSC Hals - Story Severo-Zapad - CJSC Promtorg centre

- LLC Gorky-8 - OJSC CTT Sistema Sarov

- LLC Istochnik - CJSC System project

- CJSC Hals - Story Yug - OJSC TC Retail (transferred in business line “Telecommunications)

- LLC Landshaft II - OJSC Systema Leasing

- CJSC Landshaft - CJSC Investitsionnaya Pensionnaya Company

- OJSC Noviy gorodskoy tsentr - OJSC Noel’

- CJSC Prestizh - CJSC Finconsultproekt

- CJSC Promresurs - CJSC Fintehresours - M

- CJSC RemStoyTrest - 701 - CJSC Fineskort - M

- LLC SIB - BROK - CJSC Sistema - Invenchur

- LLC Sistema Hals Ukraine - OJSC Sistema - Invest

- LLC Sistema Hals Privolzh’e - CJSC Cottagestroy

- OJSC Sistema - Temp - ECU GEST

- LLC City - Service - Mardenhead Limited

- OJSC TRK Kazan - Siviera

- CJSC Eksperimental’niy zavod napitkov v Khamovnikah - Lytton Management

- OJSC Yaltinskiy rybokombinat - Bengala Holdings Corp.

- Sapidus Holdings - Brentington Trading Limited

51

- Deus Holdings Limited - Hurdsfield Corporation

- Galtiemo Trading Limited - Ober

- Bariety Holding Limited - Areva

- Celosita Holding Limited - Sistema Holding (Cyprus)

- OJSC Baidging-Invest - Zeta Telecom

- LLC Sistema – Hals TSENTR - CJSC Vedeofon MB

- CJSC Hals - Service - CJSC Olympic System

- CJSC Hals - Stroy - Partnership CJSC New sport company and company

- OJSC Investicii v razvitie tehnologiy

Related Party Transactions during the year

Name of Party R e l a t i o n s h i p D e s c r i p t i o n April 1, 2008 to Balance as at April 1, 2007 to Balance as at

March 31, 2009 March 31, 2009 March 31, 2008 March 31, 2008

JSFC Sistema Holding Company Car Hire Charges 2 ,533 1 ,020

Sales of Car 980 -

Unsecured Loan Taken 11,420,650 -

Security Deposit Received 4,000 -

Issue of Equity 14,820,000

Interest on Loan 279,363 -

Balance as on March 31,

2009 : (Payable)/Receivable

Loan (11,665,600)

Security Deposit (4,000)

Car Hire Charges 292

Others (2) 151

Shyam Internet Services Wholly Owned Internet Charges 3,685 344Limited Subsidiary Company Leaseline Revenue 14,779 15,197

Balance as on March 31,2009 : (Payable)/Receivable 19,442 10,318

Intracom S.A Telecom Fellow Subsidiary Purchase of Equipments 230,107 -

Solutions Project Services received 66,352 -

Interest incurred 6,224 -

Balance as on March 31,2009 : (Payable)/Receivable (315,957) -

OJSC Intellect Telecom Fellow Subsidiary Project Consultancy 261,940 -

Balance as on March 31,2009 : (Payable)/Receivable - -

Sitronics Telecom Solutions Fellow Subsidiary Purchase of Equipments 236,849 -

Balance as on March 31,2009 : (Payable)/Receivable (236,849) -

OJSC Mobile Telesystems Fellow Subsidiary Consultancy Charges 14,192 -

Balance as on March 31,2009 : (Payable)/Receivable - -

Mr. Vsevolod Rozanov Key Managerial Personnel Managerial Remuneration 25,870 -

Balance as on March 31,

2009 : (Payable)/Receivable - -


52

19 . Leases

a) Where the Company is a lessee

The Company has entered into various lease agreements for leased premises, which expire at various dates over the next

ten years. Lease rental expense for the year was Rs 167,654 thousand (2008 - Rs 139,262 thousand). Further, the

Company has entered into infrastructure sharing agreement with Telecom Operators for a period of ten years. Infrastructure

sharing expense for the year is Rs 494,616 thousand (2008 - Rs 28,118 thousand).

Future lease payments under operating leases are as follows:


2009 2008

Payable not later than one year 1,118,746 65,604

Payable later than one year and not later than five years 4,356,216 353,162

Payable later than five years 4,138,294 147,740—————— ———————————— ——————

The escalation clause includes escalation at various periodic levels ranging from 0 to 15% includes option of renewal from

0 to 6 years and there are not restrictions imposed on lease arrangements.

b) Where the Company is a lessor

(i) Infeasible Right to Use (IRU)

During the year ended March 31, 2005, the Company has entered into Indefeasible Right of Use contract for use of optical

fibre with telecom operators for a period of 15 years The gross carrying amount and accumulated depreciation of the

optical fibre is Rs 237,594 thousand (2008 - 237,594 thousand) and Rs 70,502 thousand (2008 - 58,622 thousand). The

income and depreciation recognised in the Profit and Loss for the year is Rs 12,837 thousand (2008 -Rs 12,837 thousand)

and Rs 11,880 thousand (2008 - Rs 11,880 thousand) respectively.

Future minimum lease receipts under operating leases are as follows:


2009 2008

Recoverable not later than one year 12,837 12,837

Recoverable later than one year and not later than five years 64,186 64,186

Recoverable later than five years 67,362 80,199—————— ———————————— ——————

(ii) The Company has also entered into an agreement to take optical fibre in exchange on IRU basis for a period of 15 years.

Due to the nature of the transaction, it is not possible to compute gross carrying amount, depreciation for the year and

accumulated depreciation of the asset given on operating lease as at March 31, 2008 and accordingly, disclosures required

by AS 19 is not provided.

(iii) Infra sharing

The Company has entered into infrastructure sharing agreement to lease its network infrastructure (Gross book value

Rs 61,036 thousand and net book value Rs 7,214 thousand) with telecom operators. Infrastructure sharing income for the

year is Rs 29,239 thousand (2008 - Rs 27,178 thousand).

53

Future lease receipts under operating leases are as follows:


2009 2008

Receivable not later than one year 29,239 10,441

Receivable later than one year and not later than five years 69,317 81,227

Receivable later than five years 173,293 173,293—————— ———————————— ——————

(iv) Car Hire Agreement

The Company entered into car hiring agreement to lease a car (Gross book value Rs 2,423 thousand and Opening Net

book value Rs 2,181 thousand) with a company for a period of three years. Another car hiring agreement was entered

during the year for a period of three years, which is having Gross book value of Rs 8,433 thousand and accumulated

depreciation of Rs 1,414 thousand. Car Hiring income for the year is Rs 2,416 thousand (2008 - Rs 970 thousand).



2009 2008

Receivable not later than one year 3,360 1,944

Recoverable later than one year and not later than five years 5,600 -

Recoverable later than five years - -—————— ———————————— ——————

(v) Rental Agreement

The Company has entered into leasing agreement to lease two flats with a company for a period of two years Rental

income for the year is Rs 180 thousand (2008 - Rs 90 thousand).



2009 2008

Receivable not later than one year 90 180

Recoverable later than one year and not later than five years - -

Recoverable later than five years - -—————— ———————————— ——————

20. Loss per Share

Par t i cu l a r s 2009 2008

Net loss as per profit and loss account (Rupees in thousand) 5,906,476 1,811,748

Net loss for calculation of diluted EPS (Rupees in thousand) 5,906,476 1,811,748

Weighted average number of equity shares in calculating basic EPS 2,072,395,856 455,957,500

Weighted average number of equity shares in calculating diluted EPS 2,072,395,856 455,957,500

Loss per Share (equity shares, par value of Rs 10 each)

Basic (in Rs) 2.85 3.97

Diluted (in Rs) 2.85 3.97

The share capital of the Company does not include any future dilutive equity shares, it only comprises of equity share capitalhence the basic and dilutive loss per share is same.

54

21 . Particulars of Unhedged Foreign Currency Exposure as at March 31, 2009

Par t i cu l a r s Amount in Amount inRs ‘000 USD ‘000

Import Creditors 6,422,723 126,631Loan 12,613,371 248,686Interest 209,721 4,135

—————— —————Tota l 19 ,245,815 379 ,452

Note: Closing exchange rate is Rs 50.72 per USD

22 . Business Start up/Expansion Cost

During the year, the Company has incurred Rs 897,628 Thousand (2008 – Rs 40,676 thousand) on development of business planand expansion of its operations in new circles other than Rajasthan circle. Accordingly, Business start-up/expansion costincludes the following and has been separately disclosed.


Par t i cu l a r s 2009 2008

Salaries, Wages & Bonus 50,381 15,133Contribution to provident & other fund 3,962 1,154Advertisement & Publicity Expenses 35,517 1,200Sales Promotion Expenses - 801Rent 13,994 9,209Travelling & Conveyance Expenses 10,526 3,842Legal, Professional & Consultancy Fees 484,485 8,896Network Operating Expenses 266,622 0Others 32,141 441

————— —————Tota l 897 ,628 40,676

23 . Licenced Capacity, Installed Capacity and Actual Production

Due to the nature of its activities, the Company is not subject to industrial licensing and the clause related to licenced capacity,installed capacity and actual production is not applicable.

24 . The Company has appointed independent consultants for conducting Transfer Pricing study to determine whether the transactionswith associate enterprises were undertaken at “arms length prices”. Adjustments, if any arising from the transfer pricing studyshall be accounted for as and when study is completed. As per the management of the Company, all international transactionswith associate enterprises are undertaken at negotiated contracted prices on usual commercial terms.

25 . Prior Year Comparatives

Prior year comparatives have been reclassified, where necessary, to conform with current year’s presentation.





55

i REGISTRATION DETAILS

Registration No. State Code

Balance Sheet Date

i i CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousand)

Public Issue Right Issue

Bonus Issue Private Placement

i i i POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousand)

Total Liabilities Total Assets

SOURCES OF FUNDS

Paid up capital Reserve & Surplus

Secured Loans Unsecured Loans

APPLICATION OF FUNDS

Net Fixed Assets (including capital work in progress) Net Intangible Assets

Investment Net Current Assets

Misc. Expenditure Accumulated Losses

i v PERFORMANCE OF COMPANY (Amount in Rs. Thousand)

Turnover (Including other income ) Total Expenditure

Loss Before Tax Loss After Tax

Earning Per Share in Rs. Dividend Rate

v GENERIC NAMES OF THREE PRINCIPAL PRODUCTS / SERVICES OF COMPANY( As per monetary terms )

Product Description Item CodeTelephony Services Not applicable

1 7 7 7 9

3 1 0 3 2 0 0 9

1 7

N I L N I L

0 0 0N I L

5809296

5759554 6

3931757

5655902 958989

6257

LIN

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

5 58092965

71

L

50396

58.2-

9785721 17

6243985 6746095

IN

2

1

0 0 02 0

24521051

97958401

64232121

56

1. Name of the Subsidiary Company

2. Financial Year of the Subsidiary Company ended on

3. Financial Year of Holding Company ended on

4. Holding Company’s Interest as on 31.03.09

5. Net aggregate amount of profit / (loss) of the Subsidiary

Company so far as it concerns the members of Sistema Shyam

TeleServices Limited.

(a) Not dealt with the accounts of Sistema Shyam TeleServices

Limited.

(i) For the subsidiary’s financial year ended on 31.03.09

(ii) For the previous subsidiary’s financial year of

subsidiary’s since it became Subsidiary of Sistema

Shyam TeleServices Limited.

(b) Dealt with the accounts of Sistema Shyam TeleServices

Limited.

(i) For the subsidiary’s financial year ended on 31.03.2009

(ii) For the previous subsidiary’s financial year of

subsidiary’s since it became Subsidiary of Sistema

Shyam TeleServices Limited.

6. Material changes which have occurred between the

end of financial year of the Subsidiary Company and the

end of the holding company’s financial year in respect of :

(a) Fixed Assets (including capital work in progress of the

subsidiary company)

(b) Investment of subsidiary company.

(c) Money lent by subsidiary company.

(d) Money borrowed by Subsidiary company for any purpose

other than that of meeting current liabilities.

STATEMENT REGARDING SUBSIDIARY COMPANY PURSUANT TO

SECTION 212 OF THE COMPANIES ACT, 1956

Shyam Internet Services Limited

31st March, 2009

31st March, 2009

100%

Holders of the entire issued, subscribed & paid up

Equity share capital of 750000 shares of Rs 10 each.

Rs (57,56,529)

Rs (70,89,812)

Nil

Nil

Nil

Shyam Internet Services Ltd.

57

Dear Members,

Your Directors are pleased to present the 9th Annual Report

on the Business and the Operations of the Company togetherwith the Audited Annual Accounts for the Financial Year ended31st March, 2009.

CORPORATE REVIEW

During the year under review, Company has registered a Revenueof Rs.1.31 crores and Net Loss for the year is Rs.0.58 crores.

Your Company is Category “B” ISP and is running internetservices in 131 cities with brand name “Infinity” possessingaggressive, hard core technical, loyal and dedicated team to satisfyrequirements of its customers and provide strong support.Infinity is equipped with world class infrastructure, withdedicated Optical Fiber Cables, Digital Modems, Fully AutomatedHelpdesk, a Users-to-Lines Ratio conforming to globalstandards and the promise of a Multi flavored Internet Access.Your Company is having over 32,600 Internet customers.

The Company has applied to Department of Telecommunications(DoT) for category ‘A’ ISP license for providing Internet Serviceson all India basis. On receipt of category ‘A’ ISP license yourCompany would be spreading its world-class services offeringmulti flavoured Internet access to Pan India Internet subscribers.

DIVIDEND

In view of loss during the year under review, your Directorsregret their inability to recommend any dividend.

DIRECTORS

As per the provisions of the Companies Act, 1956,Mr. Dharmender Dhingra, Director of the Company retires byrotation at the ensuing Annual General Meeting and being eligibleoffers himself for re-appointment.

FIXED DEPOSITS

Your Company has not accepted deposits from public underSection 58A of the Companies act.

AUDITORS AND AUDITORS’ REPORT

M/s Mehra Goel & Co., Chartered Accountants, retiringAuditors of the Company, expressed their willingness tocontinue as Auditors, if reappointed at the ensuing AnnualGeneral Meeting.

The Company has received from the Auditors a certificate tothis effect that their appointment, if made would be within theprescribed limits under section 224(1B) of the Companies

Act, 1956.

The notes to the accounts referred to in the Auditors’ Reportare self-explanatory and therefore, does not call for any further

comment.

DIRECTORS’ RESPONSIBILITY STATEMENT

In terms of the provisions of Section 217(2AA) of theCompanies Act, 1956 your Directors confirm as under that:

i. In the preparation of the annual accounts, the applicableaccounting standards have been followed.

ii. Appropriate accounting policies have been selected and

applied consistently and judgment and estimates that arereasonable and prudent have been made so as to give a true

and fair view of the state of affairs of the Company at theend of the financial year ended March 31, 2009 and of theLoss of the Company for the year ended on that date.

iii. Proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions ofthe Companies Act, 1956 for safeguarding the assets of theCompany and for preventing and detecting fraud and otherirregularities have been taken.

iv. The annual accounts have been prepared on a “going concernbasis”.

PARTICULARS OF EMPLOYEES

There was no employee as per the provisions of Section 217(2A) of the Companies Act, 1956, getting a remunerationaggregating Rs.24,00,000/- or more per annum if employedthroughout the year and Rs.2,00,000/- per month or more ifemployed for a part of the year.

PARTICULARS OF CONSERVATION OF ENERGY,TECHNOLOGY ABSORPTION AND FOREIGNEXCHANGE EARNINGS & OUTGO

Particulars with respect to Conservation of Energy, TechnologyAbsorption and Foreign Exchange Earnings and Outgo, as perSection 217(1)(e) of the Companies Act, 1956 read with theCompanies (Disclosure of Particulars) Rules, 1988 are givenbelow :

a ) Conservation of Energy

Your Company is an Internet service provider requiresminimal energy consumption and every effort has beenmade to ensure the optimal use of energy, avoid waste andconserve energy as far as possible.

b ) Technology Absorption, Adaptation andInnovat ion

The Company has not imported technical know-how. YourCompany has not yet established any separate R&Dfacilities.

c ) Foreign Exchange Earnings & Outgo

The Company has not earned any foreign currency but hasincurred expenditure in foreign currency of Rs. 1.15 Lacs

(Previous Year Rs.1.08 Lacs) during the financial year.

COMPLIANCE CERTIFICATE

The Company has obtained a Compliance Certificate fromPracticing Company Secretary, pursuant to provision of section

383A of the Companies Act, 1956.

ACKNOWLEDGEMENT

Your Directors acknowledge with gratitude the assistance, Co-

operation and support received by the Company from theDepartment of Telecommunication, various State and CentralGovernment Authorities and the Banks.

For & on behalf of the Board of Directors

Place: New Delhi Dharmender Dhingra

Date: June 18, 2009 Chairman of the Meeting

D I R E C T O R S ’ R E P O RT


58

TO

THE MEMBERS OF SHYAM INTERNET SERVICES

LIMITED

1 . We have audited the attached Balance Sheet of SHYAMINTERNET SERVICES LIMITED as at 31st March, 2009,and also the Profit & Loss Account and the cash flowstatement of the Company for the year ended on that dateannexed thereto. These financial statements are theresponsibility of the Company’s management. Ourresponsibility is to express an opinion on these financialstatements based on our audit.

2 . We conducted our audit in accordance with the auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used andsignificant estimates made by the management, as well asevaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for ouropinion.

3 . As required by the Companies (Auditor’s Report) Order,2003 (as amended), issued by the Central Government ofIndia in terms of sub-section (4A) of section 227 of theCompanies Act, 1956, we enclose in the Annexure, astatement on the matters specified in paragraph 4 and 5 ofthe said order.

4 . Further to our comments in the Annexure referred to inparagraph 3 above, we report that:-

(a) We have obtained all the information and explanations,which to the best of our knowledge and belief were

necessary for the purposes of our audit;

(b) In our opinion, proper books of account as requiredby law have been kept by the company so far as appearsfrom our examination of those books;

(c) The Balance Sheet, Profit and Loss Account and CashFlow Statement dealt with by this report are in

agreement with the books of account;

(d) In our opinion, the Balance Sheet, Profit & Loss Accountand Cash Flow Statement dealt with by this report

comply with the Accounting Standards referred to insub-section (3C) of section 211 of the Companies Act,1956;

(e) On the basis of written representations received fromthe directors as on 31st March, 2009 and taken onrecord by the Board of Directors, we report that none

of the directors is disqualified as on 31st March 2009from being appointed as a director in terms of clause

(g) of sub-section (1) of section 274 of the CompaniesAct, 1956;

(f) In our opinion, and to the best of our information andaccording to explanations given to us, read with Notes

on Accounts (Schedule: 9), the said accounts givethe information required by the Companies Act, 1956,in the manner so required and give a true and fair viewin conformity with the accounting principles generallyaccepted in India:

i. In the case of the Balance Sheet, of the state ofaffairs of the company as at 31st March, 2009;

ii. In the case of the Profit and Loss Account, of theLoss for the year ended on that date.

iii. In the case of the Cash Flow Statement, of thecash flows for the year ended on that date.

For Mehra Goel & Co.Chartered Accountants

Place: New Delhi R.K.MEHRADate: June 18, 2009 Partner

M. No. 6102

ANNEXURE(Referred To In Paragraph 3 of Our Report of EvenDate)

I . The Company has maintained proper records showingfull particulars, including quantitative details and situation

of fixed assets. The fixed assets covering significant valuehave been physically verified by the management during

the year, which in our opinion is reasonable, havingregard to the size of the Company and the nature of its

assets. On the basis of the information and explanationsgiven by the management, no material discrepancies have

been noticed on such verification.

No substantial part of fixed assets has been disposed offduring the year, which has affected the going concern.

I I . The company is in the business of providing internetservices. Accordingly clause 4 (ii) relating to physicalverification of inventory is not applicable on the company.

I I I . To the best of our knowledge and according to the

information and explanations given to us, the Companyhas not taken/granted any loans, secured/unsecured from/to companies, firms or other parties listed in the register

maintained under Section 301 of the Companies Act,1956.

IV. In our opinion and according to the information andexplanations given to us, there are adequate internal

AUDITORS ’ R E P O R T


59

control procedures commensurate with the size of theCompany and the nature of its business for the purchaseof machinery, equipment and other assets and for theprovision of the services, inventory, fixed assets andwith regard to services rendered. During the course ofour audit, no major weakness has been noticed in theinternal controls.

V. In our opinion and according to the information andexplanations given to us, there are no transactions madein pursuance of contracts or arrangements entered inthe register maintained under section 301 of thecompanies act, 1956.

VI . To the best of our knowledge and according tothe information and explanations given to us, theCompany has not accepted any deposits covered underSection 58 A and 58 AA of the Companies Act, 1956.

VI I . To the best of our knowledge and as per the informationand explanations given to us, the Company has areasonable internal audit system commensurate withits size and nature of its business. However the sameneeds to be strengthened.

VI I I . The central government has under clause (d) of subsection (1) of section 209 of the Companies Act, 1956,prescribed maintenance of cost records for the company.We are of the opinion that prima facie the prescribedaccounts and records have been maintained and are beingmade up. We have, however, not made nor we arerequired to carried out any detailed examination ofrecords with the view to determine whether they areaccurate or complete.

I X . To the best of our knowledge and according to theinformation and explanations given to us, the Companyis generally regular in depositing undisputed statutorydues namely Investor Education and Protection fund,Wealth Tax, Custom Duty, Service Tax, Excise Duty, Cessand any other statutory dues, where applicable with theappropriate authorities. There were no arrears ofoutstanding statutory dues at the last day of financialyear for a period of more than six months from the datethey became payable.

Further according to the information and explanations

given by the management, there were no disputed duesof sales tax, income tax, custom duty, wealth tax, exciseduty and cess as on the balance sheet date.

X . The company’s accumulated losses at the end of thefinancial year are more than fifty percent of its net worth.Further the company has not incurred cash losses duringthe financial year. In the immediately preceding financial

year the company had incurred cash loss.

X I . In our opinion, the Company has not defaulted inrepayment of dues to Financial Institutions or banks or

debenture holders.

XI I . On the basis of verification of accounts and recordsmaintained by the Company and to the best of ourknowledge & belief, the Company has not granted anyloans and advances on the basis of security by way ofpledge of shares, debentures and other securities.

XI I I . In our opinion, and to the best of our information andaccording to the explanation by the management, we areof the opinion that the company is neither a chit fundnor a nidhi /mutual benefit fund/ society. Therefore theprovisions of the clause 4 (xiii) of the order are notapplicable to the company.

XIV. To the best of our knowledge and according toinformation given to us, the Company is not dealing ortrading in shares, securities and other investments.Accordingly the provisions of clause 4 (xiv) or the orderare not applicable to the company.

XV. To the best of our knowledge and according to theinformation and explanation given to us, the Companyhas not given any guarantee for loans taken by othersfrom Banks / Financial Institutions.

XVI . To the best of our knowledge and according to theinformation and explanations given to us, Company hadnot taken any term loan during the previous year.

XVI I . According to the Cash Flow Statement and otherrecords examined by us and information andexplanations given to us, on an overall basis, funds raisedon short term basis have, prima facie, not been usedduring the year for long term investment.

XVI I I . According to the information & explanations given tous, the Company has not made any preferential allotment

of shares during the year to parties and companiescovered in the Register maintained under Section 301

of the Companies Act, 1956.

X I X . According to the information & explanations given tous, the Company has not issued any debentures duringthe year.

X X . According to the information & explanations given to

us, the Company has not raised any money by PublicIssue during the year.

X X I . Based upon the audit procedure performed andinformation and explanations given by the management,we report that no fraud on or by the company has beennoticed or reported during the year.

For Mehra Goel & Co.Chartered Accountants

Place: New Delhi R.K.MEHRADate: June 18, 2009 Partner

M. No. 6102


60

I . SOURCES OF FUNDSSHARE HOLDER’S FUNDS(a) Share Capital 1 7,500,000 7,500,000(b) Advance Against Share Capital 1,466,020 1,466,020Reserve and SurplusProfit And Loss Account - -

—————— ——————TOTAL 8,966 ,020 8,966 ,020

—————— ———————————— ——————

I I . APPLICATION OF FUNDSFIXED ASSETS 2(a) Gross Block 14,741,098 14,741,098(b) Depreciation 13,121,786 12,497,841

—————— ——————(c) Net Block 1,619,312 2,243,257

INVESTMENT 3,000 3,000

CURRENT ASSETS ,LOANS AND ADVANCES(a) Sundry Debtors 3 1,477,923 2,786,634(b) Cash & Bank Balances 4 4,214,354 3,685,707(b) Loans and Advances 5 6,287,734 2,757,812

—————— ——————11,980,011 9,230,153

Less:CURRENT LIABILITIES & PROVISIONS(a) Current Liabilities 6 23,232,738 15,350,296

—————— ——————23,232,738 15,350,296

NET CURRENT ASSETS (11,252,726) (6,120,143)

MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted)Profit and Loss account 18,596,435 12,839,906

—————— ——————TOTAL 8,966 ,020 8,966 ,020

—————— ———————————— ——————

SIGNIFICANT ACCOUNTING POLICIES 9& NOTES TO ACCOUNTS

As per our report of even date attached

For MEHRA GOEL & CO. For and on behalf of the Board of DirectorsChartered Accountants

R K Mehra Suneel Vohra Dharmender DhingraPartner Director DirectorM.No. 6102

Place: New DelhiDate : June 18, 2009

BALANCE SHEET AS AT 31ST MARCH, 2009

SCHEDULE AS AT AS ATNO. March 31, 2009 March 31, 2008

(Rupees) (Rupees)—————— —————— ——————


61

INCOMEServices & Other Income 7 13,048,508 16,057,775

—————— ——————13,048,508 16,057,775

—————— ———————————— ——————

EXPENDITUREOperating Expenditure 8 18,181,092 22,282,418

—————— ——————18,181,092 22,282,418

—————— ———————————— ——————

PROFIT BEFORE DEPRECIATION (5,132,584) (6,224,643)

Less : Depreciation 623,945 865,169

PROFIT/(LOSS) BEFORE TAX (5,756,529) (7,089,812)

PROVISION OF INCOME TAX

Current Tax - -

PROFIT/(LOSS) AFTER TAX (5,756,529) (7 ,089,812)

Profit/(Loss) Carried forward from Previous Year (12,839,906) (5,750,094)

PROFIT/(LOSS) CARRIED FORWARD TO BALANCE SHEET (18,596,435) (12,839,906)

Profit/ (Loss) for the Year (5,756,529) (7,089,812)

Weighted average number of ordinary equity shares 750,000 750,000

Advance received for equity shares 1,466,020 1,466,020

Dilutive Potential Equity Shares 146,602 146,602

Number of Equity shares used to compute diluted earning per share 896,602 896,602

Basic earning per share (7.68) (9.45)

Diluted earning per share (6.42) (7.91)

Nominal Value of equity share 10.00 10.00

SIGNIFICANT ACCOUNTING POLICIES 9& NOTES TO ACCOUNTS





PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED 31ST MARCH, 2009

SCHEDULE For The Year For The YearEnded Ended

NO. March 31, 2009 March 31, 2008(Rupees) (Rupees)

—————— —————— ——————


62

CASH FLOW STATEMENT FOR THE YEAR ENDED AS ON 31ST MARCH, 2009

Current Year Previous Year

(Rupees) (Rupees)——————— ———————

A . CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before Tax and before prior period/ extra ordinary items (5,756,529) (7,089,812)

Adjustment for :

Depreciation 623,945 865,169

Expenses amortised - -

Interest Received (311,000) (272,000)

Operating profit before working capital change (5,444,584) (6,497,643)

Adjustment for :

(Increase)/ Decrease in Trade and Other Receivables (1,950,917) (3,405,000)

Increase /(Decrease) in Trade Payable 7,882,442 7,592,000

Sundry balances written off (2,665) 332,633

Cash Generated from operations 486,941 (2,310,643)

Sundry balances written off 2,665 (332,633)

Direct Taxes refund/(paid) (Inclusive of TDS) (249,408) (137,000)

Cash flow before prior period items 237,533 (2,447,643)

Net Cash (used in)From Operating Activities 237,533 (2,447,643)

B CASH FLOW FROM INVESTING ACTIVITIES

(Purchase)/Sale of Fixed Assets - 131,000

Purchase of Investment - -

Interest Received(Net of TDS) 290,114 240,000

Net cash (used in) / from investing activities 290,114 371,000

C CASH FLOW FROM FINANCING ACTIVITIES

Net cash (used in) / from Financing Activities - -

Net increase/(Decrease) in cash and cash equivalents (A+B+C) 527,647 (2,075,643)

Cash and cash equivalents at beginning of the Period 3,686,000 5,762,000

Cash and cash equivalents at the end of the Period 4,214,354 3,686,000


For MEHRA GOEL & CO. For and on behalf of the Board of Directors

Chartered Accountants

R K Mehra Suneel Vohra Dharmender Dhingra

Partner Director DirectorM.No. 6102

Place: New Delhi

Date : June 18, 2009


63

SCHEDULE - 3

SUNDRY DEBTORSDebts Outstanding for a period exceeding six months :Unsecured Considered Doubtful 276,350 276,350Debts Outstanding for a period less than six months :Unsecured Considered Good 1,477,923 2,786,634

——————— ———————1,754,273 3,062,984

Provision for Doubtful Debts (276,350) (276,350)——————— ———————

1,477 ,923 2,786 ,634——————— —————————————— ———————

SCHEDULE - 4

CASH & BANK BALANCESCash in hand 28,322 27,183

Balance With Scheduled Banks in:-in Current Account 736,927 499,204-in Term Deposits 3,341,202 3,159,320

Interest Accrued on FDR 107,903 -——————— ———————

4,214 ,354 3,685 ,707——————— —————————————— ———————

SCHEDULE - 5

LOANS AND ADVANCES(Unsecured considered Good)Advances recoverable in cash or in Kind or for value to be received 5,243,050 1,983,422Advance Tax (Net) 1,044,684 774,390

——————— ———————6,287 ,734 2,757 ,812

——————— —————————————— ———————


AS AT AS ATMarch 31, 2009 March 31, 2008

(Rs . ) (Rs . )——————— ———————

SCHEDULE - 1

SHARE CAPITALAuthorised Capital7,50,000 Equity Shares of Rs.10/- each. 7,500,000 7,500,000

Issued, Subscribed and Paid up Capital7,50,000 Equity Shares of Rs.10/-each fully paid 7,500,000 7,500,000

——————— ———————7,500 ,000 7,500 ,000

——————— —————————————— ———————

SCHEDULE - 2

FIXED ASSETS

GROSS BLOCK DEPRECIATION NET BLOCK

S. Asset As On Additions Sold during As At As On During Adjustment Upto As at As atNo. 01 Apr 08 during The Year 31 Mar 09 01 Apr 08 The Year 31 Mar 09 31 Mar 09 31 Mar 08

The Year

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

1 Plant & Machinery 14,709,598 - - 14,709,598 12,468,342 623,519 - 13,091,861 1,617,737 2,241,256

2 Computer 31,500 - - 31,500 29,499 426 - 29,925 1,575 2,001

TOTAL 14,741,098 - - 14,741,098 12,497,841 623,945 - 13,121,786 1,619,312 2,243,257

Previous Year 14,888,498 - 147,400 14,741,098 11,649,524 865,169 16,852 12,497,841 2,243,257 3,238,974

AS AT AS ATMarch 31, 2009 March 31, 2008

(Rs . ) (Rs . )——————— ———————


64

SCHEDULE - 6

CURRENT LIABILITIES & PROVISIONSCurrent LiabilitiesSundry Creditors 21,240,590 11,035,280Unaccrued Revenue 945,861 2,124,595Other Liabilities 1,046,287 2,190,421

——————— ———————23,232,738 15,350,296

——————— —————————————— ———————

SCHEDULES FORMING PART OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED

31st MARCH, 2009

For The Year For The YearEnded Ended

March 31, 2009 March 31, 2008(Rs . ) (Rs . )

——————— ———————SCHEDULE - 7

SERVICES AND OTHER INCOMERevenue from Internet Services* 12,737,837 15,786,026Interest on deposits ** 310,671 271,749

——————— ———————* TDS deducted Rs.239261 /-(Previous Year Rs.444812 /-) 13,048,508 16,057,775

——————— —————————————— ———————** TDS deducted Rs.20886 /-(Previous Year Rs.32244 /- )

SCHEDULE - 8

OPERATING AND OTHER EXPENDITURE

Bandwidth Charges 16,417,098 20,260,765

I.P. Annual Charges 115,372 107,899

Software Expenses 414,184 400,925

Insurance Expenses 15,337 16,517

Employee Cost 516,000 468,000

Auditors Remuneration:

- Audit fee 75,000 60,000

- Tax Audit fee 25,000 25,000

Bank Charges 8,766 4,022

Bank Gaurantee Charges - 45,408

Legal & Professional Charges 32,950 20,300

Printing & Stationery Expenses - 32,188

Repair & Maintenance Charges - 331,161

Equipment Hire Charges 443,500 60,600

Office Expenses 4,990 -

Office Rent 115,560 108,000

Sundry Balance W/o (2,665) 332,633

Rates And Taxes - 9,000——————— ———————

18,181,092 22,282,418——————— —————————————— ———————

SCHEDULES FORMING PART OF THE ACCOUNTSAS AT AS AT

March 31, 2009 March 31, 2008(Rs . ) (Rs . )

——————— ———————


65


SCHEDULE - 9

I . SIGNIFICANT ACCOUNTING POLICIES

Background

The company has been granted the category ‘A’ license for operating Internet Services throughout the country on 16th November2000 by the Department of Telecommunications. The company has converted the Licence to Category ‘B’ on 18th December 2003.The License is granted initially for 15 years. The Company has started its services commercially from 1st November 2001 in stateof Rajasthan. On March 28,2008 the company has received Letter of Intent ( LOI) for award of Licence of providing Internetservices in All India service area.The Company is a wholly owned subsidiary of Sistema Shyam TeleServices Limited as at31st March 2009.

1 . BASIS FOR PREPARATION OF ACCOUNTS

Financial statements are prepared under historical cost convention on accrual basis of accounting and in accordance withapplicable accounting standards in India.

2 . FIXED ASSETS

Fixed assets are stated at cost, net of CENVAT, wherever availed, less accumulated depreciation. All costs include borrowingcost for bringing the assets to their working condition for their intended use.

3 . REVENUE RECOGNITION

Revenue in respect of INTERNET access services is recognized over the period in which the related services are rendered.

4 . DEPRECIATION

Depreciation on fixed assets is provided on written down value method at the rates and in the manner prescribed inSchedule XIV to the Companies Act, 1956.

5 . FOREIGN CURRENCY TRANSACTIONS

Transactions denominated in the foreign currencies are normally recorded at the exchange rate prevailing at the time of thetransaction. Monetary items denominated in foreign currencies outstanding at the year end are translated at the exchange rateapplicable as of that date. Non-Monetary items denominated in foreign currency are valued at the exchange rate prevailing onthe date of transaction. Any income or expenses on account of exchange difference, either on settlement or on translation,is recognised in Profit & loss account.

Exchange difference on forward exchange contract is recognized in the statement of Profit & Loss account in the year in whichthe exchange rate changes. Profit or loss arising on cancellation or renewal of forward exchange contracts are recognized asincome or expense for the year.

6 . Intangible Assets

All expenditure on intangible items are expensed as incurred unless it qualifies as an intangible asset as defined in AccountingStandard 26. The carrying value of intangible asset is assessed for recoverability by reference to the estimated futurediscounted net cash flows that are expected to be generated by the asset. Where this assessment indicates a deficit, the assetsare written down to the market value or fair value as computed above.

7 . Income Taxes

Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax is measured atthe amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxesreflects the impact of current year timing differences between taxable income and accounting income for the year and reversalof timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date.Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable incomewill be available against which such deferred tax assets can be realised. If the company has carry forward of unabsorbeddepreciation and tax losses, deferred tax assets are recognised only if there is virtual certainty that such deferred tax assetscan be realised against future taxable profits. Unrecognised deferred tax assets of earlier years are re-assessed and recognisedto the extent that it has become reasonably certain that future taxable income will be available against which such deferred taxassets can be realized.

8 . Provision and Contingent Liabilities

Show Cause Notices issued by the various Government Authorities are not considered as obligation. Where the demandnotices are raised, the show cause notice, disputed by the company, are classified as possible obligation.


66

Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as aresult of past event and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized butare disclosed in Notes.

I I . NOTES TO ACCOUNTS

1 . The year’s operations have resulted into net loss. We are informed that the company’s revenues will increase on extendinginternet service on all India basis. The parent company will infuse necessary funds required for all India operations. We havetherefore considered the company as going concern

2 . Contingent Liabilities (Rs. In Lacs)

Part icu lars 31 .3 .2009 31.3 .2008

Financial Bank Guarantee 20.00 20.00Performance Bank Guarantee Nil 4.45

Tota l 20 .00 24.45

3 . Expenditure in foreign currency(Rs. In Lacs)

Part icu lars 31 .3 .2009 31.3 .2008

Registration and Annual Fees 1. 15 1.08

4. Employee Benefits:

The company has not provided retirement benefits as the company has on its rolls less than 20 persons, the minimum forapplicability of P.F. and Gratuity. The provisions of AS-15 (Revised) 2006 issued by the Institute of Chartered Accountants ofIndia is not applicable. Hence the information & disclosures required under the said AS have not been furnished.

5. Deferred Taxes

The company is eligible for a tax holiday under section 80IA of the Indian Income Tax Act, 1961, beginning with the financial yearin which the Company started providing telecommunication services. No deferred tax liabilities on account of temporarytiming differences have been recognized since they are expected to reverse in the tax holiday period.

6 . As certified by the company, in compliance with the Micro, Small and Medium Enterprises Development Act, 2006, thecompany has called for the information from vendors. However, no response has been received till date. Hence, the desiredinformation has not been furnished.

7 . Segmental Reporting

The primary reporting of the Company has been recognized on the basis of business segments. The Company has only onebusiness segment, which is providing internet services. Accordingly, the amounts appearing in these financial statementsrelate of this primary business segment. Further, the Company provides services only in the state of Rajasthan and accordingly,no disclosures are required under secondary segment reporting.

8 . Related Party Disclosures (Rs. In Lacs)

Name of related Re la t ions Nature of Transact ion Outstanding Outstandingparty Transact ion 31.03 .2009 31.03 .2008

Sistema Shyam Holding Revenue 23.37 194.42 103.18

Teleservices Ltd Company Payable Payable

Bandwidth 107.84Charges

9 . Previous Period figures have been regrouped and reclassified, wherever necessary, for comparative purpose.

10. Other information pursuant to paragraphs 3 & 4 of Part II of Schedule VI to the Companies Act, 1956 are NIL/ Not Applicableto the company.





67

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

i REGISTRATION DETAILS

Registration No. State Code

Balance Sheet Date

i i CAPITAL RAISED DURING THE YEAR (Amount in Rs. Thousand)

Public Issue Right Issue

Bonus Issue Private Placement

i i i POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (Amount in Rs. Thousand)

Total Liabilities Total Assets

SOURCES OF FUNDS

Paid up capital (including advance for capital) Reserve & Surplus

Secured Loans Unsecured Loans

APPLICATION OF FUNDS

Net Fixed Assets (including capital work in progress) Net Intangible Assets

Investment Net Current Assets

Misc. Expenditure

i v PERFORMANCE OF COMPANY (Amount in Rs. Thousand)

Turnover (Including other income ) Total Expenditure

Loss Before Tax Loss After Tax

Earning per Share in Rs. Dividend Rate

v GENERIC NAMES OF THREE PRINCIPAL PRODUCTS / SERVICES OF COMPANY ( As per monetary terms )

Product Description Item Code

Internet Services Not applicable

1 0 5 6 2 5

3 1 0 3 2 0 0 9

5 5

N I L N I L

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Notice is hereby given that the 14th Annual General Meeting of

the members of Sistema Shyam TeleServices Limited will be

held at Hotel Pink Pearl, 10th Mile, Mahapura, Ajmer Road,

Jaipur – 302026, Rajasthan, India, on Friday, the 25th September,

2009 at 11 A.M. to transact the following business:

ORDINARY BUSINESS

1. To receive, consider and adopt the Audited Balance Sheet

as at 31st March 2009 and the Profit and Loss Account for

the year ended on that date together with the Directors’

Report and the Auditors’ Report thereon.

2. To appoint a Director in place of Mr. Rajiv Mehrotra, who

retires by rotation and, being eligible, offers himself for

re-appointment.

3. To appoint a Director in place of Mr. Sergey Cheremin,

who retires by rotation and, being eligible, offers himself

for re-appointment.

4. To appoint Auditors to hold office from the conclusion of

this Annual General Meeting till the conclusion of the next

Annual General Meeting and authorize the Audit Committee

of the Board / Board of Directors to fix their remuneration.

M/s S. R. Batliboi & Associates, Chartered Accountants, the

retiring Auditors of the Company, being eligible, offer

themselves for re-appointment.

SPECIAL BUSINESS

5. To consider and if thought fit, to pass with or without

modification, the following resolution as an Ordinary

Resolut ion :

“RESOLVED THAT Mr. Ron Sommer, a German

National, whose term of office as an Additional Director

of the Company expires at this Annual General Meeting

and in respect of whom the Company has received

a notice under Section 257 of the Companies Act, 1956,

proposing the candidature of Mr. Ron Sommer for the office

of Director, be and is hereby appointed as a Director of the

Company whose period of office will be liable to

determination for retirement by rotation.”



Resolut ion :

“RESOLVED THAT Mr. Mikhail Shamolin, a Russian

National, whose term of office as an Additional Director of

the Company expires at this Annual General Meeting and in

respect of whom the Company has received a notice under

Section 257 of the Companies Act, 1956, proposing the

candidature of Mr. Mikhail Shamolin for the office of

Director, be and is hereby appointed as a Director of the

Company whose period of office will be liable to

determination for retirement by rotation.”



Resolut ion :

“RESOLVED THAT Mr. Madhukar, whose term of office

as an Additional Director of the Company expires at this

Annual General Meeting and in respect of whom the

Company has received a notice under Section 257 of the

Companies Act, 1956, proposing the candidature of

Mr. Madhukar for the office of Director, be and is hereby

appointed as a Director of the Company whose period of

office will be liable to determination for retirement by

rotation.”

By Order of the Board

For Sistema Shyam TeleServices Limited

Place: Gurgaon Rashid J Malik

Dated: July 16, 2009 Company Secretary

Registered Office:B2-D, Shiv Marg, Bani Park,Jaipur-302016, Rajasthan (India)

NOTES

1 . A MEMBER ENTITLED TO ATTEND AND VOTE AT

THE MEETING IS ENTITLED TO APPOINT A

PROXY TO ATTEND AND VOTE, ON A POLL,

INSTEAD OF HIMSELF/ HERSELF AND SUCH

PROXY NEED NOT BE A MEMBER OF THE

COMPANY.

The instrument appointing a proxy should be duly

completed, stamped & signed, and must be sent so as to

reach the Company’s Registered Office not less than

48 hours before the commencement of the Meeting.

2. Members/Proxies are requested to produce the enclosed

attendance slip duly signed as per the specimen signature

recorded with the Company for admission to the meeting

hall. Members, who hold shares in Dematerialized Form,

NOTICE OF 14th ANNUAL GENERAL MEETING

68

are requested to bring their Client – ID & DP – ID numbers

for easier identification of attendance at the meeting.

3. Corporate Members are requested to send a duly certified

copy of the Board Resolution authorizing their

representative(s) to attend and vote at the Annual General

Meeting.

4. Members desirous of getting any information from the

Company are requested to send their queries to the

Company at its Registered Office well in advance so that

the same may reach at least 7 days before the date of the

Meeting to enable the management to keep the required

information, readily available at the Meeting.

5. As a measure of economy, copies of the Annual Report

shall not be distributed at the Meeting. Members are

requested to bring along their own copies to the meeting.

6. Members are requested to immediately intimate the

change of their address, if any, along with pin-code number

to the Registered Office of the Company quoting

their Folio Numbers, and members holding shares in

electronic form may inform the same to their Depository

Participants.

7. Explanatory Statement pursuant to Section 173 (2) of the

Companies Act, 1956 in respect of the Special Business

set out under item nos. from 5 to 7 is annexed hereto.

ANNEXURE TO NOTICE

Explanatory Statement pursuant to Section 173(2) of

the Companies Act, 1956

Item No. 5

Mr. Ron Sommer was appointed as an Additional Director of

the Company in the Board Meeting held on 21.05.2009. As per

provisions of Section 260 of the Companies Act, 1956, he holds

office only up to the date of the ensuing Annual General Meeting

of the Company.

Mr. Ron Sommer studied mathematics at the University of Vienna,

where he earned his doctorate in 1971. He has vast experience

of over 30 years. He began his professional career with the

Nixdorf Group in New York, Paderborn and Paris. In 1980 he

was appointed Managing Director of the German subsidiary of

the Sony Group. In 1986 he became Chairman of the

Management Board of Sony Deutschland, and was subsequently

appointed President and Chief Operating Officer of Sony

Corporation of America in 1990. In 1993 Mr. Sommer served at

Sony Europe in the same function. From May 1995 to July 2002

he served as Chairman of the Management Board of Deutsche

Telekom AG. He has been serving as Chairman of the

International Advisory Council of Sistema JSFC since May 2003

and as member of the Board of Directors since June 2005.

Since May 2009 Mr. Sommer is serving as First Vice-President of

Sistema JSFC.

The Company has received a notice in writing from a member

along with requisite deposit, proposing his candidature for the

office of Director of the Company under Section 257 of the

Companies Act, 1956.

The Board of Directors believes that Mr. Ron Sommer as a

Director on the Board will make immense contribution in the

development of the Company.

The Board recommends the resolution set forth under Item

No. 5 for the approval of the members.

None of the Directors, except appointee, are in any way

concerned or interested in the said resolution.

Item No. 6

Mr. Mikhail Shamolin was appointed as an Additional Director

of the Company in the Board Meeting held on 21.05.2009. As

per provisions of Section 260 of the Companies Act, 1956, he

holds office only up to the date of the ensuing Annual General

Meeting of the Company.

Mr. Mikhail Shamolin graduated from the Russian Academy of

Government Service under the President of the Russian

Federation in 1993. From 1996 to 1997, he studied at Wharton

Business School, where he completed a finance and management

course for top-managers.

Mr. Mikhail Shamolin has been the President and CEO of Mobile

TeleSystems Group (MTS), Moscow since May 2008. Prior to

his current role, Mr. Shamolin has also held the position of

Vice President, Head of MTS Russia from August 2006. In this

capacity, Mr. Shamolin managed the largest MTS business unit,

one which contributes roughly 75% of value to MTS.

Mr. Shamolin joined MTS in July 2005 as Vice President, Sales

and Customer Service and has been a member of the MTS Board

of Directors since October 2008. Prior to joining MTS,

Mr. Shamolin worked at McKinsey & Co. from 1998 to 2004. In

2004 and 2005 he worked at Interpipe Corp. (Ukraine) as

Managing Director of the Ferroalloys Division.





69

The Board of Directors believes that Mr. Mikhail Shamolin as a

Director on the Board will make immense contribution in the




None of the Directors, except appointee, are in any way

concerned or interested in the said resolution.

Item No. 7

Mr. Madhukar was appointed as an Additional Director of the

Company in the Board Meeting held on 27.03.2009. As per

provisions of Section 260 of the Companies Act, 1956, he holds

office only up to the date of the ensuing Annual General Meeting

of the Company.

Mr. Madhukar is M.A. in Economics and LL.B. He did professional

programs in Project Management and Human Resource

Development etc. from various IIMs and he is a Certified

Associate of Indian Institute of Bankers (CAIIB). He did his

International Banker Course from Midland Bank, London and

Investment Management from MOBAA, Mauritius. Mr. Madhukar’s

banking career spans over 37 years and covers every major

dimension of banking operations, both in India as well as

overseas. From 1990 to 1996 he served as the Managing Director

of the State Bank International Ltd., Mauritius. In 1997, he was

appointed Senior General Manager at SBI Capital Markets. From

1998 to 2000, he served as the Chief General Manager,

New Delhi Circle at SBI; and in 2000-2001, as Managing Director

of State Bank of Bikaner & Jaipur. In 2003-2004, he was appointed

Chairman & Managing Director at the Industrial Investment Bank

of India Ltd. (IIBI). He held concurrent charge from 2001-2004

as Chairman & Managing Director at United Bank of India and

was responsible for the remarkable turnaround of the bank

from being a loss-making bank to a profit-making success.

He has also served as Whole Time Member with the Securities

and Exchange Board of India.





The Board of Directors believes that Mr. Madhukar as a Director

on the Board will make immense contribution in the




None of the Directors of the Company, except appointee, are

in any way concerned or interested in the said resolution.

By Order of the BoardFor Sistema Shyam TeleServices Limited

Place : Gurgaon Rashid J Malik

Date : July 16, 2009 Company Secretary

Registered Office:B2-D, Shiv Marg, Bani Park,Jaipur-302016, Rajasthan (India)

70

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SISTEMA SHYAM TELESERVICES LIMITEDRegistered Office: B-2D, Shiv Marg,

Bani Park, Jaipur-302016 Raj. (India)

ATTENDANCE SLIP

(Please complete this attendance slip and hand it over at the entrance of the meeting hall)

Name & Address Folio No. DP ID Client ID # No. of Shares Held

# Applicable for members holding shares in dematerialized form.

I / We hereby record my / our presence at the 14TH ANNUAL GENERAL MEETING of SISTEMA SHYAM

TELESERVICES LTD. to be held on Friday, the 25th day of September 2009, at Hotel Pink Pearl, 10th Mile,

Mahapura, Ajmer Road, Jaipur-302026, Rajasthan, India at 11:00 a.m.

SIGNATURE OF THE MEMBER OR THE PROXY ATTENDING THE MEETING

If Member, please sign here If Proxy, please sign here

Note: Members are requested to bring their copies of the ANNUAL REPORT and AGM Notice at the Meeting as the same will not be circulated atthe Meeting.

SISTEMA SHYAM TELESERVICES LIMITEDRegistered Office: B-2D, Shiv Marg,

Bani Park, Jaipur-302016 Raj. (India)

PROXY FORM

Folio No …………….....……… DP ID………………………Client ID. ……….…....…..…...................................

Shares Held………………..........

I/We,…………………………………………….of…………………………………being a Member / Members of

SISTEMA SHYAM TELESERVICES LIMITED, hereby appoint…………….....…of................................

or failing him/her……….................................................... of………………………................................ or failing

him/her…………………………............................... of………………………………………………………

as my /our Proxy to attend and vote for me / us on my / our behalf at the 14TH ANNUAL GENERAL MEETING

of the Company to be held on Friday, the 25th day of September, 2009, at Hotel Pink Pearl, 10th Mile, Mahapura,

Ajmer Road, Jaipur-302026, Rajasthan (India) at 11:00 a.m. and at any adjournment thereof.

Signed this ..............................................day of September, 2009.

Note:The Proxy form duly completed must be deposited at the Registered Office of the Company, not less than

FORTY EIGHT HOURS before the time of holding the meeting. The Proxy need not be a Member of the Company.

Affix

Revenue

Stamp

14th annual report for 2008-09

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