1. Corporate information
Satyam Computer Services Limited (hereinafter referred to as ''SCSL'' or
''the Company'') is an information technology (''IT'') services provider
that uses a global infrastructure to deliver value-added services to
its customers, to address IT needs in specific industries and to
facilitate electronic business, or eBusiness, initiatives. The Company
was incorporated on June 24, 1987 in Hyderabad, Andhra Pradesh, India.
The Company offers a comprehensive range of IT services, including IT
enabled services, application development and maintenance, consulting
and enterprise business solutions, extended engineering solutions and
infrastructure management services. SCSL has established a diversified
base of corporate customers in a wide range of industries including
insurance, banking and financial services, manufacturing,
telecommunications, transportation and engineering services.
(i) Rights, preferences and restrictions attached to equity shares
The Company has one class of equity shares having a par value of Rs. 2
each. Each shareholder is eligible for one vote per share held. The
dividend proposed by the Board of Directors is subject to the approval
of the shareholders in the ensuing Annual General Meeting, except in
case of interim dividend. In the event of liquidation, the equity
shareholders are eligible to receive the remaining assets of the
Company in proportion to their shareholding.
(ii) Details of shares allotted as fully paid up by way of bonus shares
during 5 years immediately preceding the Balance Sheet date
As at March 31, 2012 - Nil (As at March 31, 2011 - 327,694,738) equity
shares of Rs. 2 each were allotted as fully paid-up by way of bonus
shares by capitalising free reserves of the Company during the 5 years
immediately preceding the said dates.
(v) Details of shares allotted under Associate Stock Option Plans
(Refer Note 34)
(a) 6,500,000 (As at March 31, 2011 - 6,500,000) equity shares of Rs. 2
each fully paid-up was allotted to Satyam Associates Trust in
connection with the Associate Stock Option Plan - A (ASOP - A).
(b) 28,742,359 (As at March 31, 2011 - 28,742,359) equity shares of Rs.
2 each fully paid-up were allotted to associates of the Company
pursuant to the Associate Stock Option Plan - B (ASOP-B).
(c) 2,493,910 (As at March 31, 2011 - 2,493,910) equity shares of Rs. 2
each fully paid-up were allotted to associates of the Company pursuant
to the Associate Stock Option Plan (ADS) (ASOP-ADS).
(d) 1,495,736 (As at March 31, 2011 - 1,276,153) equity shares of Rs. 2
each fully paid-up were allotted to associates of the Company pursuant
to the Restricted Stock Units (ASOP - RSU).
(e) 408,268 (As at March 31, 2011 - 395,768) equity shares of Rs. 2 each
fully paid-up were allotted to associates of the Company representing
204,134 (As at March 31, 2011 - 197,884) Restricted Stock Units (ASOP -
(vi) Details of shares reserved for issue
For details of shares excluding ADS, aggregating 40,908,777 and
41,128,360, as at March 31, 2012 and March 31, 2011, respectively,
reserved for issue under Associate Stock Options refer Note 34.
(vii) American Depository Shares (ADS)
As at March 31, 2012 there were no underlying shares of American
Depository Shares (ADS) since the same was wound-down - refer Note 28.
(i) Vehicle loans are secured by hypothecation of the vehicles financed
through the loan arrangements. Such loans are repayable in equal
monthly installments over a period of 5 years and carry interest rates
ranging between 9.75% and 13.5% p.a
(ii) Lease obligations are secured by the assets financed through the
finance lease arrangements and the terms of repayment etc, are as
(a) For vehicles such obligations are repayable in equal monthly
installment over periods of 3-5 years and carry a finance charge
(b) For furniture, fixture and leasehold improvements such obligations
are repayable in equal monthly installments over a period of 9 years
and carry a finance charge
(c) For plant and equipment (computers) such obligations are repayable
in equal quarterly installments over a period of 3 years and carry a
2. Financial irregularities
On January 7, 2009, in a communication (the letter) addressed to the
then-existing Board of Directors of the Company and copied to the Stock
Exchanges and the Chairman of Securities and Exchange Board of India
(SEBI), the then Chairman of the Company, Mr. B. RamalingaRaju (the
erstwhile Chairman) admitted that the Company''s Balance Sheet as at
September 30, 2008 carried an inflated cash and bank balances,
non-existent accrued interest, an understated liability and an
overstated debtors position. As per the letter, the gap in the
Company''s Balance Sheet had arisen purely on account of inflated
profits over a period of last several years (limited only to Satyam
In the events following the letter of the erstwhile Chairman, the
Hon''ble Company Law Board (Hon''ble CLB) passed orders to suspend the
then existing Board of Directors of the Company with immediate effect
and authorised the Central Government to nominate directors on the
Company''s Board. Pursuant to the above orders, the Ministry of
Corporate Affairs (MCA) - Government of India (GOI), nominated six
directors on the Board of the Company. Currently, the Board of
Directors of the Company comprises six directors including two nominees
of the Central Government.
Vide a letter dated January 13, 2009, the erstwhile auditors of the
Company, M/s Price Waterhouse, Chartered Accountants, communicated to
the Board of Directors of the Company, that their audit reports issued
on the financial statements of the Company from the quarter ended June
30, 2000 until the quarter ended September 30, 2008 should no longer be
2.2 Forensic investigation and nature of financial irregularities
Consequent to the letter, the Government nominated Board of Directors
appointed an independent counsel (Counsel) to conduct an
investigation of the financial irregularities. The Counsel appointed
forensic accountants to assist in the investigation (referred to as
forensic investigation) and preparation of the financial statements.
The scope of the forensic investigation required investigating the
accounting records of the Company to identify the extent of financial
irregularities. There could be other instances of possible diversion
that remain undetected. The forensic investigation conducted by the
forensic accountants focused on the period from April 1, 2002 to
September 30, 2008, being the last date upto which the Company
published its financial results prior to the date of the letter. In
certain instances, the forensic accountants conducted investigation
procedures outside this period.
There were significant limitations in the forensic investigation, as
stated in the report of the forensic accountants who carried out the
forensic investigation, which would impact identifying the full extent
of the financial irregularities.
The forensic investigation had indicated possible diversion aggregating
USD 41 Million from the proceeds of the American Depositary Shares
(ADS) which were listed with the New York Stock Exchange in May 2001.
The forensic investigation had not come across evidence suggesting that
the financial irregularities, as identified, extended to the Company''s
Specific financial irregularities as identified based on their nature
were classified into two categories i.e. fictitious entries in the
accounting records of the Company and unrecorded transactions. The
overall impact of the fictitious entries and unrecorded transactions
arising out of the forensic investigation, to the extent determined was
accounted in the financial year ended March 31, 2009.
In so far as the financial irregularities, where complete information
was not available, the transactions were either improperly recorded in
the accounting records or remained unrecorded. In addition, since the
forensic investigation focused on the period from April 1, 2002
onwards, there were fictitious balances (cash and bank and debtors) and
unrecorded liabilities where details remain unavailable. The details of
such items as identified by the forensic investigation are given below:
a) Fictitious cash and bank balances (Rs. 9,964Million), debtor balances
(Rs. 557 Million) and unrecorded loans (Rs. 700 Million) originating in
periods prior to April 1, 2002 aggregating Rs. 11,221Million (net debit)
which resulted in a net opening balance difference of Rs. 11,221 Million
as at April 1, 2002.
b) Certain transactions aggregating Rs. 166 Million (net debit)
(comprising of Rs. 2,444 Million of gross debits and Rs. 2,278 Million of
gross credits) during the period from April 1, 2002 to March 31, 2008
and Rs. 7 Million (net debit) (comprising of Rs. 12 Million of gross debits
and Rs. 5 Million of gross credits) during the period from April 1, 2008
to December 31, 2008 which remain unidentified primarily due to lack of
Accordingly, in the absence of complete information, the amounts of Rs.
11,221 Million, Rs. 166 Million and Rs. 7 Million have been accounted under
Unexplained differences suspense account (net)in the Balance Sheet
(Refer Note 19).
During the financial year ended March 31, 2009, the Company, on grounds
of prudence, provided for the opening balance differences (net) of Rs.
11,221 Million as at April 1, 2002 and other differences (net) of Rs. 166
Million pertaining to the period from April 1, 2002 to March 31, 2008
and classified them as Prior Period Adjustments. It also provided for
the other differences (net) of Rs. 7 Million relating to the period from
April 1, 2008 to December 31, 2008 and classified them under Provision
for unexplained differences.
c) The forensic investigation was unable to identify the nature of
certain alleged transactions aggregating Rs. 12,304 Million (net receipt)
against which the Company has received legal notices from 37 companies
claiming repayment of this amount which was allegedly given as
temporary advances. Refer Note 25.3 below.
2.3 Alleged advances
Consequent to the letter of the erstwhile Chairman, on January 8, 2009,
the Company received letters from thirty seven companies requesting
confirmation by way of acknowledgement for receipt of certain alleged
amounts referred to as alleged advances. These letters were followed
by legal notices from these companies dated August 4 / 5, 2009,
claiming repayment of Rs. 12,304 Million allegedly given as temporary
advances. The legal notices also claim damages / compensation @18% per
annum from date of advance till date of repayment. The Company has not
acknowledged any liability to any of the thirty seven companies and has
replied to the legal notices stating that the claims are legally
The Directorate of Enforcement (ED) is investigating the matter under
the Prevention of Money Laundering Act, 2002 and directed the Company
to furnish details with regard to the alleged advances and has further
directed the Company not to return the alleged advances until further
instructions from the ED.
The thirty seven companies had filed petitions / suits for recovery
against the Company before the City Civil Court, Secunderabad
(Court), with a prayer that these companies be declared as indigent
persons for seeking exemption from payment of requisite court fees.
Some petitions (except in the case of one petition where court fees
have been paid and the pauper petition converted into a suit which is
pending disposal), are before the Court, at the stage of rejection /
trial of pauperism.
The remaining petitions are at a preliminary stage before the Court,
for considering condonation of delay in re-submission of pauper
petitions. In one petition, the delay had been condoned by the Court
and the Company has obtained an interim stay order from the Hon''ble
High Court of Andhra Pradesh.
The amount of alleged advances aggregating to Rs. 12,304 Million (As at
March 31, 2011 - Rs. 12,304 Million) has been presented separately in the
Balance Sheet under Amounts pending investigation suspense account
(net). Since the matter is sub judice and the investigation by various
Government Agencies is in progress and having regard to all the related
developments in this matter, the Management at this point of time, is
not in a position to predict the ultimate outcome of the legal
2.4 Investigation by authorities in India
Pursuant to the events stated hereinabove, various regulators /
investigating agencies such as the Central Bureau of Investigation
(CBI), Serious Fraud Investigation Office (SFIO) / Registrar of
Companies (ROC), SEBI, ED, etc., had initiated their investigation on
various matters pertaining to the Company during the financial year
ended March 31, 2009, which are currently not concluded, The CBI
initiated legal proceedings against the erstwhile Chairman and others
before the Additional Chief Metropolitan Magistrate for Trial of Satyam
Scam Cases, Hyderabad (ACMM) and has filed certain specific charge
sheets based on its findings so far. The Trial is underway and has not
The SFIO had submitted its reports relating to various findings and had
also commenced prosecution against the Company for two alleged
violations before the Economic Offenses Court, Hyderabad. Refer Note
The investigating agencies in India are also investigating matters such
as round tripping pertaining to periods prior to April 1, 2002.While no
specific information was available with respect to outflow of funds,
information received from investigative agencies revealed that out of
29 inward remittances aggregating USD 28.41 Million from an entity
registered in a tax haven, it is possible that 20 of these inward
remittances aggregating USD 17.04 Million may have been used to set off
outstanding invoices, In addition, the SFIO has filed complaints
against the former directors and erstwhile management for various
violations under the Companies Act, 1956.
During the previous year, in furtherance to the investigation of the
Company as referred to above, certain Regulatory Agencies in India have
sought assistance from Overseas Regulators and, accordingly,
information has been sought from certain subsidiaries viz., Bridge
Strategy Group LLC, Citisoft Plc. and Nitor Global Solutions Limited.
During previous year, C&S System Technologies Private Limited (C&S), a
subsidiary of the Company, received notice of inspection from SFIO
under Section 209A of the Act, alleging violation of certain procedural
requirements under the Act and directing it to submit information /
certified documents in respect of the same. These alleged offences are
compoundable under Section 621A of the Act and C&S filed its reply
dated March 4, 2011 to the aforesaid show cause notice. Some of these
violations have been rectified and the Compounding Applications have
been filed on September 26, 2011 with the Hon''ble CLB, the proceedings
related to which are in progress.
Knowledge Dynamics Private Limited (KDPL), an erstwhile subsidiary of
the Company, which was dissolved in March 2011, was served a notice of
inspection by the SFIO in April 2012. The Company has informed the SFIO
about the dissolution of KDPL,
2.5 Documents seized by CBI / other authorities
Pursuant to the investigations conducted by CBI / other authorities,
most of the relevant documents in possession of the Company relating to
prior years were seized by the CBI. On petitions filed by the Company,
the ACMM granted partial access to the Company including for taking
photo copies of the relevant documents as may be required in the
presence of the CBI officials, Further, there were also certain
documents which were seized by other authorities such as the Income Tax
Authorities, of which the Company could only obtain photo copies.
2.6 Other matters
The Company has filed a civil suit in the City Civil Court Hyderabad,
against the past Board of Directors (the Board prior to the Government
nominated Board), certain former employees and the former statutory
auditors, its affiliates and partners, seeking damages for inter-alia
perpetrating fraud, breach of fiduciary responsibility and obligations
and negligence in performance of duties.
Based on media reports, it has come to the knowledge of the Company
that the former statutory auditors have filed a suit in the Ranga Reddy
District Court (Court) against the Company seeking damages. The said
suit has not yet been served on the Company and, therefore, it is
unable to comment on the same. However, the Company has been served
summons for appearance in the Court.
2.7 Management''s assessment of the identified financial irregularities
As per the assessment of the Management, based on the forensic
investigation and the information available upto this stage, all
identified / required adjustments / disclosures arising from the
identified financial irregularities, had been made in the financial
statements as at March 31, 2009.
Considerable time has elapsed after the letter and the Company has not
received any further information as a result of the various ongoing
investigations against the Company which requires adjustments to the
financial statements. Since matters relating to several of the
financial irregularities are sub judice and the various investigations
/ proceedings are ongoing, any further adjustments / disclosures, if
required, would be made in the financial results of the Company as and
when the outcome of the above uncertainties is known and the
consequential adjustments / disclosures are identified.
3. Proposed scheme of amalgamation and arrangement
The Board of Directors of the Company in their meeting held on March
21, 2012 have approved the Scheme of Amalgamation and Arrangement
under sections 391 to 394 read with sections 78, 100 to 104 and other
applicable provisions of the Companies Act, 1956 of Venturbay
Consultants Private Limited and Satyam Computer Services Limited and
C&S System Technologies Private Limited and Mahindra Logisoft Business
Solutions Limited and CanvasM Technologies Limited with Tech Mahindra
Limited and their respective shareholders and creditors (the
Scheme), subject to the approvals of the shareholders, Hon''ble High
Court of Andhra Pradesh, Hon''ble Bombay High Court and other
authorities. Thereafter, the Bombay Stock Exchange and the National
Stock Exchange have conveyed to the Company,their no-objection under
Clause 24(f) of the Listing Agreement to the said Scheme.
As per the Scheme, consequent to the amalgamation of Venturbay
Consultants Private Limited with Tech Mahindra Limited, Satyam Computer
Services Limited shall amalgamate with Tech Mahindra Limited and the
shareholders of the Company shall receive Two (2) equity shares of Tech
Mahindra Limited of Rs. 10 each fully paid up in respect of every
Seventeen (17) equity shares of Rs. 2 each fully paid up, held by them.
Upon coming into effect of the Scheme and with effect from the
Appointed Date i.e. April 1, 2011 (after amalgamation of Venturbay with
Tech Mahindra Limited is deemed to have taken effect) and subject to
the provisions of the Scheme, the entire business and whole of the
undertaking of the Company as a going concern including but not limited
to all the movables and immovable properties, assets, debts,
liabilities, duties and obligations of the Company, shall without any
further act or deed, but subject to the charges affecting the same, be
transferred and / or deemed to be transferred to and vested in Tech
Mahindra Limited as a going concern so as to become the assets and
liabilities of Tech Mahindra Limited.
4. Upaid Systems Limited (Upaid)
In connection with the lawsuit filed by Upaid in the United States
District Court for the Eastern District of Texas (the Texas Action),
the Company had deposited USD 70 Million (equivalent to Rs. 3,274
Million) during financial year ended March 31, 2010 into an escrow
account pursuant to the Settlement Agreement.
Subsequently, the Company obtained a favourable binding judgement from
the Supreme Court of the State of New York, USA declaring that Upaid
was solely responsible for any tax liability under Indian law in
respect of the settlement amount. Upaid had filed an application before
the Authority for Advance Rulings (AAR) seeking a binding advance
ruling under the Income Tax Act, 1961 (IT Act) regarding taxability of
the above mentioned payment, which ruling was pronounced in October
In January 2012, Upaid and the Company executed a Supplemental
Settlement Agreement to clarify certain provisions of the Settlement
Agreement and in accordance therewith, the Company discharged in
February 2012 all payment obligations to Upaid aggregating USD 59
Million (equivalent to Rs. 3,046 Million) and applicable interest. The
remittances were made after deduction of applicable withholding taxes
in India. Accordingly, the Texas Action and all other actions related
to this matter in the US Courts have been dismissed.
The aforesaid amount of Rs. 3,046 Million is debited to the Statement of
Profit and Loss for the year as Exceptional item. An equivalent amount
is reversed from provision for contingencies. Also refer Note 54.2 and
note (i) under Note 57.
5. American Depository Shares (ADSs)
Effective October 14, 2010, the Company''s ADSs were delisted from the
New York Stock Exchange (NYSE) but continued to trade on the
over-the-counter (OTC) market in the United States.
Since May 2001, the Company''s equity shares underlying its ADSs and the
ADSs themselves have been registered with the Securities and Exchange
Commission (SEC). The registration obligates the Company to file annual
and other reports with the SEC. The Company has determined that it will
not be able to become current in its SEC filing obligations and hence
expected the SEC to revoke the Company''s registration sometime in
future. The revocation of registration would prevent continued trading
of the ADSs in US markets, and in order to protect the interests of ADS
holders, the Company determined to wind down the ADS program in an
Accordingly, in August 2011 the Company entered into a supplemental
agreement with the depository bank, Citibank, N.A., to terminate the
Deposit Agreement. As a result of the termination, the ADS program was
expected to be wound down by March 2012 in accordance with the
supplemental Deposit Agreement. During the transition period the
holders of ADSs were eligible to surrender their ADSs in exchange for
corresponding equity shares in the Company, subject to applicable
regulatory restrictions of India, the US and jurisdictions where the
holders resided. After trading of ADSs was terminated, the depository
would arrange for the sale (on a commercially reasonable efforts basis)
of the equity shares then held on deposit and would hold the net
proceeds of such sale (after deduction of applicable fees, taxes and
expenses), without liability for interest, in an unsegregated account
for the pro rata benefit of holders of ADSs then outstanding. As
confirmed by the depository bank, as at March 31, 2012 all the equity
shares underlying the ADSs have been exchanged / sold.
The SEC revoked the registration of the Company''s ADS under the
Securities Exchange Act of 1934 on March 29, 2012, after the transition
period and related wind-down of the ADS facility described above was
The Company''s equity shares continue to trade in India on the Bombay
Stock Exchange and the National Stock Exchange.
6. Class action complaint
Subsequent to the letter by the erstwhile Chairman (Refer Note 25), a
number of persons claiming to have purchased the Company''s securities
had filed class action lawsuits against the Company, its former
auditors and others in various courts in the USA alleging violations of
the United States federal securities laws. The lawsuits were
consolidated into a single action (the Class Action) in the United
States District Court for the Southern District of New York (the
USDC). The Class Action Complaint sought monetary damages to
compensate the Class Members for their alleged losses arising out of
their investment in the Company''s common stock and ADS during the Class
During the previous year, the class action complaint was settled for
USD 125 Million (Settlement Amount) and 25% of any net recovery that
the Company may in the future obtain against any of the former
The USDC granted final approval to the Settlement Agreement in
September 2011. The settlement has become effective pursuant to its
terms and in exchange for the Settlement Amount (net of deductions),
the Lead Plaintiffs and the members of the Class who do not opt-out of
the Class, would release, among other things, their claims against the
The Settlement Amount was deposited in an escrow account, of which a
portion has been paid out for expenses and charges in accordance with
the Settlement Agreement and the balance amount of USD 101 Million
(equivalent to Rs. 4,515 Million) would be remitted to the Class Members
after the determination of the applicability of withholding tax by the
Authority for Advance Rulings (AAR).
7. SEC proceedings
During the previous year, the Company entered into a settlement
agreement with the SEC in connection with the SEC investigations into
misstatements in the Company''s financial statements predating January
7, 2009, without admitting or denying the allegations in the SEC''s
complaint and a penalty amount of USD 10 Million (equivalent to Rs. 447
Million), which was accrued during the previous year, was remitted to
the SEC in the current year.
8. Commitments and contingencies
8.1 Aberdeen action (USA)
On November 13, 2009, a trustee of two trusts that are assignees of the
claims of twenty investors who had invested in the Company''s ADS and
common stock, filed a complaint against the Company, its former
auditors and others (the Action) on grounds substantially similar to
those contained in the Class Action Complaint (Refer Note 29). The
Action, which has been brought as an individual action, alleges that
the losses suffered by the twenty investors (Claimants) is over USD 68
Million. The Action has been transferred to the Court in the Southern
District of New York for pre-trial consolidation with the Class Action
On February 18, 2011, an amended complaint was filed in the Action
(Aberdeen Amended Complaint). The Aberdeen Amended Complaint makes
substantially the same allegations and asserted the same claims against
the Company as the original complaint in the Action. In the light of
this amended complaint, the Court denied the then-pending motions to
dismiss the original complaint in the Action as moot. On May 3, 2011,
the Company and other defendants moved to dismiss the Aberdeen Amended
Complaint on various grounds.
Based on the legal advice obtained by the Company, the Company is
contesting the above lawsuit, the outcome of which is not determinable
at this stage.
8.2 Aberdeen (UK) complaint
On April 2, 2012, the Company was served with a Claim Form and
Particulars of Claim dated December 22, 2011, relating to proceedings
initiated in the Commercial Court in London (the English Court) by
Aberdeen Asset Management PLC on behalf of 23 Claimants representing
30 funds who had invested in the Company''s common stock that traded on
the exchanges in India (the English Action). The allegations made in
the English Action are similar to those in the Class Action Complaint
(Refer Note 29). The English Action alleges the Claimants'' losses to be
in excess of 0 Million and simple interest at 8% p.a. but provides
no details on the basis for that amount, nor any details from which an
approximate claimed damages amount may be ascertained. The Company is
currently contesting the jurisdiction of the English Court, while all
other defenses on the merits of the claims and its legal options remain
fully reserved. There will be no substantive activity in the English
Action until the English Court has ruled on the threshold jurisdiction
issue. Accordingly, in addition to the uncertainty over the claimed
losses, it is also uncertain whether the English Court will even
continue to exercise jurisdiction over the lawsuit. Given the lack of
sufficient detail in the particulars of claim on the alleged losses,
and the possibility that the English Court may not retain jurisdiction
over the English Action, its outcome is unpredictable.
8.3 Income tax matters
i. Financial years 2002-03 to 2005-06
Consequent to the letter of the erstwhile Chairman of the Company, the
Assessing Officer rectified the assessments earlier completed for the
financial years 2002-03 to 2005-06, by passing rectification orders
under Section 154 of the Income-tax Act, 1961 by withdrawing foreign
tax credits and raising tax demands aggregating Rs. 2,358 Million
(including interest) against which refunds of financial years 2007-08
and 2009-10 aggregating Rs. 17 Million have been adjusted. During the
financial year ended March 31, 2010, the Company had filed an appeal
with the Commissioner of Income Tax (Appeals) (CIT(A)). In August, 2010
the CIT(A) dismissed the appeals. Subsequently, the Company has filed
appeals before the Income Tax Appellate Tribunal (ITAT) for the
aforesaid years which are pending disposal as on date.
ii. Financial year 2001-02
For the financial year 2001-02, there are pending demands from the
income tax authorities for Rs. 133 Million (including interest) against
which refund for the financial year 2003-04 amounting to Rs. 125 Million
has been adjusted in the normal course of assessment against which the
Company has filed an appeal before the CIT(A) which is pending disposal
as on date,
iii. Financial years 2004-05 and 2005-06
During the previous year, the assessments (in the normal course of
assessment) for the financial years 2004-05 and 2005-06 were further
modified by re-computing the tax exemptions claimed by the Company and
consequently enhancing the tax demands by Rs. 491 Million and Rs. 369
Million, respectively. Such demands have been adjusted to the extent of
Rs. 152 Million and Rs. 172 Million (including interest), being the refunds
for the financial years 2008-09 and 2009-10, respectively. As against
the aforesaid demands,the Company has paid an amount of Rs. 85 Million as
at March 31, 2012 (As at March 31, 2011 - Rs. 85 Million). The Company
has filed appeals before the Commissioner of Income Tax (Appeals) (CIT
(A)) against the said enhancement of tax for the aforesaid years which
are pending disposal as on date.
iv. Financial years 2006-07 and 2007-08
With respect to the financial years 2006-07 and 2007-08, demands of Rs.
812 Million (including interest) and Rs. 2,562 Million (including
interest), respectively, had been raised against the Company by
disallowing the foreign tax credits claimed in the returns. The revised
returns filed by the Company for these years were rejected by the
Income Tax Department. The Company has filed an appeal against the
above said rejection of its revised returns which is pending before the
The Company''s contention with respect to the above tax demands is that
the Income Tax Department should take a holistic view of the assessment
and exclude the fictitious sales and fictitious interest income. If the
said contention of the Company is accepted, there would be no tax
v. Petition before Central Board of Direct Taxes (CBDT) / Hon''ble High
Court of Andhra Pradesh
The Company had filed various petitions before CBDT requesting for stay
of demands for the financial years 2002-03 to 2007-08 till the correct
quantification of income and taxes payable is done for the respective
years. In March 2011 the CBDT rejected the Company''s petition and the
Company filed a Special Leave Petition before the Hon''ble Supreme Court
which directed the Company to file acomprehensive petition /
representation before CBDT giving all requisite details / particulars
in support of its case for re-quantification / re-assessment of
incomeforthe aforesaid years and to submit a Bank Guarantee (BG) for Rs.
6,170 Million. Pursuant to the direction by the Hon''ble Supreme Court,
the Company submitted the aforesaid BG and also filed a comprehensive
petition before the CBDT in April 2011.
The CBDT vide its order dated July 11, 2011 disposed the Company''s
petition directing it to make its submissions before the Assessing
Officer in course of the ongoing proceedings for the aforesaid years
and directed the Income Tax Department not to encash the BG furnished
by the Company till December 31, 2011. Aggrieved by CBDT''s order, the
Company filed a writ petition before the Hon''ble High Court of Andhra
Pradesh on August 16, 2011. The Hon''ble High Court of Andhra Pradesh
vide its order dated December 14, 2011 adjourned the hearing to January
31, 2012 and directed the Income Tax Department not to encash the BG
In the meanwhile, the Assessing Officer served an order for provisional
attachment of properties under Section 281B of the Income Tax Act, 1961
on January 30, 2012 attaching certain immovable assets of the Company
on the grounds that there is every likelihood of a large demand to be
raised against the Company for the financial years 2002-03 to 2008-09
along with interest liability. Aggrieved by such order, the Company
filed a writ petition in the Hon''ble High Court of Andhra Pradesh which
granted a stay on the operation of the provisional attachment order
until disposal of this writ,
The writ petition is pending hearing on June 26, 2012 along with all
other pending writ petitions and the Hon''ble High Court has also
directed to renew the BG for another six months, which has since then
vi. Appointment of Special Auditor and re-assessment proceedings
Financial years 2001-02 and 2006-07:
The Assessing Officer had commissioned a special audit which has been
challenged by the Company on its validity and terms vide writ petitions
filed before the Hon''ble High Court of Andhra Pradesh. The said
petitions are pending disposal.
In August, 2011, the Additional Commissioner of Income Tax has issued
the Draft of Proposed Assessment Orders accompanied with the Draft
Notices of Demands amounting to Rs. 7,960 Million and Rs. 10,757 Million
for the financial years 2001-02 and 2006-07, respectively, proposing
variations to the total income, including variations on account of
Transfer Pricing adjustments. The Company has filed its objections to
the Draft of Proposed Assessment Orders for the aforesaid years on
September 16, 2011 with the Hon''ble Dispute Resolution Panel,
Hyderabad, which is pending disposal.
Financial years 2002-03 and 2007-08:
In December 2011, the Additional Commissioner of Income Tax has
appointed a Special Auditor under section 142(2A) of the Income Tax
Act, 1961 to audit the accounts of the Company for financial years
2002-03 and 2007-08, which is in progress.
vii. The above disputes exclude further interest which may arise in
case of an unfavourable order being finalised.
viii. Provision for taxation
The Company is carrying a total amount of Rs. 5,228 Million (net of
payments) [As at March 31, 2011- Rs. 3,803 Million (net of payments)]
towards provision for taxation including for prior years. Considering
the effects of financial irregularities, status of disputed tax demands
and the appeals / claims pending before the various authorities, the
consequent significant uncertainties regarding the outcome of these
matters and the significant uncertainties in determining the tax
liability, the Company has been professionally advised that it is not
appropriate to make adjustments to the provisions pertaining to prior
years at this stage.
8.4 Indirect tax matters
i. Sales tax / value added tax Karnataka
The Company received demands from the Karnataka Sales Tax Department
for the financial years 2003-04 to 2007-08 totaling to Rs. 656 Million
inclusive of penalty.As against the above demand, the Company paid an
amount of Rs. 639 Million inclusive of penalty under protest. The Company
has gone on appeal against the said demands, which appeals are pending
before the Karnataka Appellate Tribunal for the financial years 2003-04
and 2004-05, and with the Joint Commissioner of Commercial Taxes
(Appeals) for the financial years 2006-07 and 2007-08.
The Company has received demands from the Andhra Pradesh Sales Tax
Department amounting to Rs. 352 Million (As at March 31, 2011 - Rs. 299
Million) inclusive of penalty and interest for the financial years
2002-03 to 2009-10. As against the demand, the Company paid an amount
of Rs. 238 Million (including penalty and interest) (As at March 31, 2011
- Rs. 213 Million) under protest. The Company''s appeal for the financial
years 2002-03 to 2007-08 is pending before the Sales Tax Appellate
Tribunal and the Company has filed a writ petition in the Hon''ble High
Court of Andhra Pradesh for the financial years 2007-08 (in respect to
APVAT and CST Penalty demands only), 2008-09 (entire demand) and
2009-10 (entire demand) and is yet to receive the hearing dates.
ii. Service tax
The Company had availed Service Tax Input Credit on certain input
services which the Service Tax Department challenged for the period
from March 2005 to September 2008 and has demanded service tax
amounting to Rs. 212 Million inclusive of penalty. The Company has gone
on appeal before the Central Excise Service Tax Appellate Tribunal
(CESTAT) for confirming the Service Tax Input Credit availed, which is
pending final disposal. Subsequently, CESTAT has ordered pre-deposit of
Rs. 52 Million (As at March 31, 2011 - Rs. 10 Million) which has been paid
by the Company, by utilising its input tax credits.
(a) Amounts paid by the Company against the above demands under protest
have been reflected under Long-term loans and advances.
(b) The above excludes show cause notices relating to sales tax
amounting to Rs. 4,554 Million (including penalty) (As at March 31, 2011
- Rs. 4,554 Million (including penalty)) and relating to service tax
amounting to Rs. 259 Million (including penalty) (As at March 31, 2011 -
8.5 Foreign Exchange Management Act (FEMA), 1999
The Directorate of Enforcement has issued a show-cause notice to the
Company for contravention of the provisions of the Foreign Exchange
Management Act, 1999 and the Foreign Exchange Management (Realisation,
Repatriation and Surrender of Foreign Exchange) Regulations, 2000, in
respect of the realisation and repatriation of export proceeds to the
extent of foreign exchange equivalent to Rs. 506 Million for invoices
raised during the period July 1997 to December 31, 2002. The Company is
dealing with the matter appropriately.
8.6 Matters relating to overseas branches
Claims / demands on account of direct / indirect taxes- Rs.Nil (As at
March 31, 2011- Rs.317 Million).
8.7 Compliance with employee / labour related laws
Claims / demands from Employee''s State Insurance and Provident Fund
authorities - Rs. 6 Million. As against the demand the Company has paid
an amount of Rs. 3 Million under protest. The Company''s appeals against
the demands are pending disposal at various forums.
8.8 Other claims
a. Alleged advances refer Note 25.3.
b. Claims from employees, vendors and customers - Rs. 368 Million (As at
March 31, 2011- Rs. 424 Million) and dispute in relation to a subsidiary,
refer Note 37.4.
8.9 Guarantees / comfort letters provided by the Company - Refer Note
8.10 Capital commitments
Contracts pending execution on capital accounts (net of advances) Rs.
3,445 Million (As at March 31, 2011 - Rs. 4,683 Million).
8.11 Purchase commitments to / in respect of subsidiaries
i. In respect of a subsidiary (Bridge Strategy Group LLC), the future
purchase consideration payable is Rs. Nil (As at March 31, 2011- USD 4.77
Million equivalent to Rs. 212 Million).
ii. On March 7, 2012 the Company entered into two share purchase
agreements with vCustomer Corporation (the Seller) i.e. Purchase and
Sale Agreement of the Membership Interests of vCustomer Services LLC
and Share Purchase Agreement between Satyam, vCustomer Corporation and
Value Fincon Private Limited:
(a) to acquire 100% of the membership interest in vCustomer Services
LLC, a Washington based limited liability company for a total cash
consideration of upto USD 25.20 Million (equivalent to Rs. 1291 Million)
to be paid in the next financial year, comprising an upfront
consideration of USD 19.20 Million (equivalent to Rs. 983 Million) and a
contingent consideration of upto USD 6 Million (equivalent to Rs. 307
Million) payable by December 31, 2012. The contingent consideration is
payable to the selling shareholders on satisfaction of conditions
prescribed in the Agreement. The said consideration of USD 19.20
Million (equivalent to Rs. 1,020 Million) has been remitted to the Seller
on May 9, 2012;
(b) to acquire 100% of the equity share capital in Value Fincon Private
Limited (now New vC Services Private Limited), a company incorporated
under the Companies Act, 1956, for a total cash consideration of USD
1.80 Million (equivalent to Rs. 91 Million) to be paid in the next
financial year. The said consideration of USD 1.8 Million (equivalent
to Rs. 96 Million) has been remitted to the Seller on May 9, 2012.
8.12 Other commitments
(i) The Company has / had certain outstanding export obligations /
commitments as at March 31, 2012 and March 31, 2011. The Management is
confident of meeting these obligations / commitments within the
stipulated period of time / obtaining suitable extensions, wherever
(ii) Commitments in relation to Land refer Note 36.2 and in relation to
an international sports federation refer Note 39.
8.13 Management''s assessment of contingencies / claims
The amounts disclosed under contingencies / claims represent the best
possible estimates arrived at on the basis of the available
information. Due to high degree of judgment required in determining the
amount of potential loss related to the various claims and litigations
mentioned above in which the Company is involved and the inherent
uncertainty in predicting future settlements and judicial decisions,
the Company cannot estimate a range of possible losses.
However, the Company is carrying a provision for contingencies as at
March 31, 2012, which, in the opinion of the Management, is adequate to
cover any probable losses in respect of the above litigations and
claims. Refer Note 54.2.
9. Other regulatory non-compliances / breaches
9.1 Non-compliances / breaches under the Companies Act, 1956 (''the
Act'') and ESOP Guidelines of SEBI under the erstwhile Management
(i) The present Management had identified certain non-compliances /
breaches of various laws and regulations of the Company under the
erstwhile management including but not limited to the following -
payment of remuneration / commission to whole-time directors /
non-executive directors in excess of the limits prescribed under the
Act, unauthorised borrowings, excess contributions to Satyam
Foundation, loan to ASOP Trust (Satyam Associate Trust) without prior
Board approval under the Act, delay in deposit of dividend in the bank,
dividend paid without profits, non-transfer of profits to general
reserve relating to interim dividend declared, utilisation of the
Securities Premium account, declaration of bonus shares and violation
of SEBI ESOP Guidelines. In respect of some of these matters, the
Company has applied to the Hon''ble Company Law Board for condonation
and is proposing to make an application to the other appropriate
authorities, where applicable, for condoning the remaining
non-compliances and breaches relatable to the Company. Any
adjustments, if required, in the financial statements of the Company,
would be made as and when the outcomes of the above matters are
(ii) Company law violations as per SFIO reports
Consequent to the letter written by the erstwhile Chairman, SFIO
investigated into the affairs of Company under Section 235 of the Act.
As a result of the investigation, SFIO filed seven cases on company law
violations, out of which the Company was accused in the two cases
(a) The payment of professional fee to a non-executive director in
respect of which, the SFIO held that the Company had not complied with
Section 309 of the Act in seeking the opinion of the Central Government
on the requisite qualifications possessed by the director for the
practice of the profession.
The Union of India filed a complaint in the Court of the Special Judge
for Economic Offences at Hyderabad under Section 621 alleging violation
of Section 309 read with Section 629A of the Act. In the said
Complaint, the Union of India has also sought refund of the amount paid
to the said director by the Company. The Court has framed charges with
respect to the aforesaid violation. The Company filed a compounding
application before the Hon''ble CLB, Chennai bench with respect to the
(b) The SFIO stated that the Company had filed incomplete Balance
Sheets as on March 31, 2007 and March 31, 2008 on the MCA website
thereby violating the provisions of Section 220 of the Act,
The Union of India filed a Complaint in the Court of Special Judge for
Economic Offences at Hyderabad under Section 621 alleging violation of
Section 220 read with Section 162 of the Act for filing incomplete
balance sheets, The Court has framed the charges with respect to the
aforesaid violation. The Company filed a compounding application before
the Hon''ble CLB, Chennai bench with respect to the said offence.
The condonation applications filed with the Hon''ble CLB in respect of
the above two cases were dismissed. The Company filed appeals before
the Hon''ble High Court of Judicature of Andhra Pradesh which remanded
the case back to the Hon''ble CLB for its consideration afresh in
accordance with law.
9.2 Foreign Exchange Management Act, 1999 (FEMA)
There are certain uncollected dues / receivables in foreign currency
which are outstanding for a long period of time for which the required
permission for extension of time has not been obtained from the
appropriate authorities.The Company is in the process of regularising
the above and filing all the required applications / details.
During the current year, the Company has established a process of
matching inward remittances on a one-on-one basis to the relevant
invoices. In respect of earlier years (upto March 2011), the Company
has initiated action for matching as aforesaid and the matter is being
appropriately dealt with.
Any adjustments, if required, in the financial statements of the
Company, would be made as and when the outcomes of the above matters
9.3 Non-compliances / breaches of other laws
For non-compliance / breaches of statutory requirements in relation to:
a. Delays in filing of tax returns in overseas jurisdictions
b. Employee / labour related matters in overseas jurisdictions
The Company has taken appropriate remedial action and non-compliances
wherever identified have been appropriately dealt with.
10. Financial Reporting Process
10.1 Internal control matters
Pursuant to an evaluation of the internal controls in the Company by
the current Management for the year ended March 31, 2009, various
deficiencies and weaknesses were identified.
Over the past three financial years i.e. 2009-10, 2010-11 and 2011-12,
the Company under the new management took several steps including
inter-alia appointing a new audit committee, revising the code of
Ethical Conduct, nominating a Corporate Ombudsman and formulating an
entity wide risk management policy duly approved by the Board. The
internal audit function has also been strengthened by appointing a
reputed and independent external agency as the Internal Auditor.
Amongst the initiatives, the Management has carried out a complete
analysis of unexplained / un-reconciled balances between various
sub-systems / sub-ledgers and the general ledger and the same has been
appropriately dealt with in the accounts (Refer Note 33.2). In
addition, physical verification of fixed assets has been conducted in
accordance with a defined program by the Management and the net
differences that were noticed were appropriately dealt with in the
books (Refer Note 36.4),
Further, the new Management, for the purpose of ensuring appropriate
controls over the financial reporting process and the preparation of
the financial statements, has implemented specific procedures like
manual reconciliations between the various sub-systems / sub-ledgers
and the general ledger, requests for various balance confirmations as
part of the year end closure process, confirmation of the department
wise financial details by the business leaders, preparation and review
of proper bank reconciliation statements, review of the revenue
recognition policies and procedures, preparation and review of
schedules for key account balances, implementing proper approval
mechanisms, closer monitoring of the financial closure process etc,
The software platforms including the ones used for financial reporting
are non-integrated contributing to certain deficiencies in IT General
and Application controls, and, therefore, compensating manual
reconciliations are carried out as mentioned above, In addition, the
Management is evaluating migration to a new ERP in a phased manner.
As at March 31, 2012, the new Management''s efforts have resulted in
improved controls over the process of revenue recognition, receivables
management, approval mechanisms and the preparation and review of
material account balances, which have reached a stage so as to provide
reasonable level of assurance regarding these account balances in the
preparation and presentation of the financial statements.
10.2 Year-end reporting
As stated above, with respect to some of the key business processes
like revenues, expenses, payroll, fixed assets, etc., the Company uses
various sub-systems which are not integrated with the financial
reporting package maintained by the Company. Within the financial
reporting package, there are also sub-ledgers and general ledger. In
this respect, certain unexplained differences were noted in the
previous years between the sub-systems / sub-ledgers and the general
ledger for which reconciliations have been completed as at March 31,
2012 and appropriately dealt with in the books.
As part of the year-end financial reporting and closure process,
requests for confirmation of balances / other details were sent out to
various parties including banks, customers, vendors, employees, others
etc., for confirming the year end balances / other details.
With respect to the cases where the balances / other details were not
confirmed by customers / vendors the Company has confirmed these
balances based on alternate procedures and adjustments , where
required, including provision for doubtful receivables and provision
for expenses, which have been carried out in the financial statements
based on the information available with the Management.
11 Employee stock option schemes
The ESOP guidelines issued by SEBI are applicable to options / shares
granted / allotted on or after June 19, 1999. These guidelines were
amended subsequently on June 30, 2003 to include the stock options
granted by a Trust for the schemes administered by the Trust.
11.1 Associate Stock Option Plan A (ASOP A)
In May 1998, the Company established its ASOP A which provides for the
issue of 1,300,000 warrants having a face value of Rs. 10 at a price of Rs.
450 per warrant. The Company issued these warrants to an associate
controlled welfare trust called the Satyam Associate Trust formed vide
agreement dated August 16, 1999. At the twelfth Annual General Meeting
(AGM) held on May 28, 1999, shareholders approved a 1:1 bonus issue to
all shareholders as of August 31, 1999. In order to ensure that all its
employees receive the benefits of the bonus issue, the Trust was
allotted the bonus shares for the warrants held by the Trust. The
Trust exercised all its warrants to purchase the shares from the
Company prior to stock split using the proceeds obtained from bank
loans. The Trust grants warrants to eligible employees to purchase
equity shares held by the Trust. The warrants may vest immediately or
may vest over a period ranging from two to three years, depending on
the employee''s length of service and performance. The warrants vested
on employees needs to be exercised within 30 days from the date of
As at March 31, 2012 and March 31, 2011, 6,500,000 equity shares
(equivalent of the aforesaid 1,300,000 warrants post-split) of Rs. 2 each
have been allotted to the Satyam Associate Trust under ASOP A.
As at March 31, 2012 and March 31, 2011 no options were outstanding.
Changes in number of options outstanding and their weighted average
exercise price were as follows:
11.2 Associate Stock Option Plan (ASOP - B)
The Company has established a scheme ''Associate Stock Option Plan - B''
(ASOP - B) for which 58,146,872 equity shares of Rs. 2 each were
earmarked. These warrants vest over a period of 2-4 years from the date
of the grant. Upon vesting, associates have 5 years to exercise the
warrants. As at March 31, 2012, 28,742,359 (As at March 31, 2011 -
28,742,359) equity shares of Rs. 2 each have been allotted to the
associates under ASOP B.
Accordingly, options (net of cancellations) for a total number of
20,269,437 (As at March 31, 2011 - 21,613,932) equity shares of Rs. 2
each were outstanding as at March 31, 2012.
Grants during the current year include 1,085,602 options granted to
ASOP ADS holders (Refer Note 34.3 (ii)).
For options outstanding at the end of the current year, the exercise
price was in the range of Rs. 65 - Rs. 328 (As at March 31, 2011 - Rs. 65 -
Rs.328) and the weighted average remaining contractual life is 4.50 years
(As at March 31, 2011 - 5.02 years).
The weighted average fair value of options granted during the current
year was Rs. 52.58 (Previous year - Rs. 49.01).
For the options that were exercised during the previous year, the
weighted average share price on the date of exercise was Rs. 91.64.
11.3 Associate Stock Option Plan (ASOP - ADS)
(i) The Company has established a scheme ''Associate Stock Option Plan
(ADS)'' to be administered by the Administrator of the ASOP (ADS), a
committee appointed by the Board of Directors of the Company in May
2000. Under the scheme 3,456,383 ADS are reserved to be issued to
eligible associates with the intention to issue warrants at a price per
option which is not less than 90% of the value of one ADS as reported
on NYSE on the date of the grant converted into Indian Rupees at the
rate of exchange prevalent on the day of the grant as decided by the
Administrator of the ASOP (ADS). Each ADS represents two equity shares
of Rs. 2 each fully paid up. These warrants vest over a period of 1-10
years from the date of the grant. The time available to exercise the
warrants upon vesting is as decided by the Administrator of the ASOP
(ADS). As at March 31, 2012, 1,246,955 ADS (As at March 31, 2011 -
1,246,955) representing 2,493,910 (As at March 31, 2011 - 2,493,910)
equity shares of Rs. 2 each have been allotted to the associates under
As at March 31, 2011, 1,921,751 ADS representing 3,843,502, equity
shares of Rs. 2 each were outstanding.
Changes in number of options outstanding and their weighted average
exercise price were as follows:
For options outstanding at the end of the previous year, the exercise
price was in the range of Rs. 131 - Rs. 641 and the weighted average
remaining contractual life was 5.53 years.
The weighted average fair value of options granted during the current
year was Rs. 121.25 (Previous year - Rs. 111.19).
No options were exercised during the current year and in the previous
(ii) Termination of the ASOP ADS Scheme:
Consequent to the revocation of registration by the Securities and
Exchange Commission (SEC) of the Company''s ADS''s, with respect to the
ASOP ADS Scheme, the Compensation Committee of Directors (Committee)
approved the termination of the ASOP ADS Scheme with effect from March
31, 2012 resulting in 1,236,539 ADS options being extinguished. The
scheme termination is subject to shareholders'' approval. Further, as an
associate friendly measure, the Committee granted 1,085,602 options
under ASOP-B scheme to some of these holders of ASOP-ADS at a ratio
determined by an independent agency.
11.4 Associate Stock Option Plan - Restricted Stock Units (ASOP - RSUs)
The Company has established a scheme ''Associate Stock Option Plan -
Restricted Stock Units (ASOP - RSUs)'' to be administered by the
Administrator of the ASOP - RSUs, a committee appointed by the Board of
Directors of the Company in May 2000. Under the scheme, 13,000,000
equity shares are reserved to be issued to eligible associates at a
price to be determined by the Administrator which shall not be less
than the face value of the share. These RSUs vest over a period of 1-4
years from the date of the grant. The maximum time available to
exercise the warrants upon vesting is five years from the date of
vesting. As at March 31, 2012, 1,495,736 (As at March 31, 2011 -
1,276,153) equity shares of Rs. 2 each have been allotted to the
associates under ASOP - RSUs.
Accordingly, options (net of cancellations) for a total number of
560,185 (As at March 31, 2011 - 811,830) ASOP-RSUs equity shares of Rs.
2 each were outstanding as at March 31, 2012.
For options outstanding at the end of the current year, the exercise
price was Rs. 2 (As at March 31, 2011 - Rs. 2) and the weighted average
remaining contractual life is 2.69 years (As at March 31, 2011 - 3.77
No options were granted during the current year and in the previous
For the options that were exercised during the current year, the
weighted average share price on the date of exercise was Rs. 73.07
(Previous year - Rs. 84.33).
11.5 Associate Stock Option Plan — RSUs (ADS) (ASOP - RSUs (ADS))
(i) The Company has established a scheme ''Associate Stock Option Plan -
RSUs (ADS)'' to be administered by the Administrator of the ASOP - RSUs
(ADS), a committee appointed by the Board of Directors of the Company
in May 2000. Under the scheme 13,000,000 equity shares minus the number
of shares issued from time to time under the Associate Stock Option
plan - RSUs are reserved to be issued to eligible associates at a price
to be determined by the Administrator which shall not be less than the
face value of the share. Each ADS represents two equity shares of Rs. 2
each fully paid up. These RSUs vest over a period of 1-4 years from the
date of the grant. The maximum time available to exercise the options
upon vesting is five years from the date of vesting. As at March 31,
2012, 204,134 (As at March 31, 2011 - 197,884) RSUs (ADS) representing
408,268 (As at March 31, 2011 - 395,768) equity shares of Rs. 2 each have
been allotted to the associates under ASOP - RSUs (ADS).
Accordingly, options (net of cancellation) for a total number of Nil
ADS (As at March 31, 2011 - 154,096 ADS) representing Nil (As at March
31, 2011- 308,192) equity shares of Rs. 2 each were outstanding as at
March 31, 2012.
No options were granted during the current year.
For the options that were exercised during the current year, the
weighted average unit price on the date of exercise was Rs. 156.33
(Previous year - Rs. 245.26).
(ii) Termination of the ASOP - RSU (ADS) Scheme:
The Company had determined that it will not be able to become current
in its SEC filing obligations and hence expected the Securities and
Exchange Commission (SEC) to revoke the Company''s registration of its
ADS under the Securities Exchange Act of 1934 and consequently
proceeded to wind-down its ADS program.
With respect to the ASOP - RSU (ADS) Scheme, the Compensation Committee
of Directors (Committee) approved the termination of the ASOP - RSU
(ADS) Scheme with effect from March 9, 2012 resulting in 92,862 ADS
options being extinguished. The scheme termination is subject to
An amount of Rs. 12 Million has been provided towards compensation
payable for the extinguishment of rights in respect of the aforesaid
options which has been charged to the Statement of Profit and Loss
under Employee benefits expense (Refer Note 22).
11.6 Pro forma disclosures
In accordance with the ESOP guidelines issued by SEBI, had the
compensation cost for employee stock option plans been recognised based
on the fair value method at the date of the grant in accordance with
the Black Scholes'' model (determined based on the report of an
independent agency), the pro forma amounts of the Company''s profit /
(loss) and earnings per share would have been as follows:
12 Share application money pending allotment
The amount received from the associates on exercise of stock options is
accounted as Share application money pending allotment. Upon allotment,
the amount received corresponding to the shares allotted against the
options exercised is transferred to Share capital and Securities
Premium account (if applicable) and taxes (if applicable) recovered
from associates. An amount of Rs. 87,869 is outstanding as at March 31,
2012 (As at March 31, 2011- Rs. 196,071) representing amounts received
from associates of the Company on exercise of stock options towards
face value, securities premium and perquisite tax recovered by the
Company from the associates, pending allotment.
13 Accounting for fixed assets/depreciation
13.1 Additional / accelerated depreciation
The Management has carried out a detailed review of certain fixed
assets as per the fixed assets register and after duly considering the
usability and technical obsolescence of the same, provided for
additional / accelerated depreciation to the extent of Rs. 23 Million
(Previous year - Rs. 29 Million) in the financial statements.
(i) In respect of its land at Hyderabad, the Company entered into an
agreement with the Government of Andhra Pradesh (GoAP) for the purchase
of land. The agreement is covered under the Information and
Communications Technology (ICT) Policy 2002-2005 of the Information
Technology & Communications Department of GoAP. Pursuant to the same,
the Company is eligible for the incentives, concessions, privileges and
amenities applicable to Mega Projects in terms of the said policy and
also certain other incentives as specified in the agreement entered
into with GoAP.
As per the memorandum of understanding (MOU) and other agreements,
entered into by the Company, the Company acquired the land from the
GoAP. During the financial year ended March 31, 2009, the Company
accounted for the eligible grant amounting to Rs. 96 Million towards the
basic cost of the land on acquisition which was adjusted to the cost of
the land as per the books of account in accordance with the accounting
policy followed by the Company. The Company''s entitlement to the
aforesaid rebate is subject to the condition that the Company shall
employ a minimum of 6500 eligible employees in its facilities
constructed over the said land within the periods specified in the MOU
and the agreements. To secure this obligation the Company furnished
bank guarantees (BGs) favouring Andhra Pradesh Industrial
Infrastructure Corporation (APIIC). During the current year, on
employing certain eligible employees, the Company''s obligation towards
the rebate was reduced proportionately and the BG values were
accordingly reduced. As at March 31, 2012, BGs aggregating Rs. 75 Million
(As at March 31, 2011 - Rs. 96 Million) are outstanding.
(ii) In respect of land admeasuring 50 acres purchased from Andhra
Pradesh Industrial Infrastructure Corporation Limited (APIIC) in
Vishakhapatnam for a total cost of Rs. 50 Million there are certain
disputes which have arisen and the Government of Andhra Pradesh has
ordered the District Collector to allot alternate land to the Company.
In view of the Management, the said land will be allotted in favour of
the Company and, pending alternate allotment, the amount of Rs. 50
Million is included in Capital Advances (under Long-term loans and
advances) as at March 31, 2012 and March 31, 2011.
(iii) The Company has entered into an agreement with the Maharashtra
Airport Development Company Ltd (MADC) for the land taken on lease in
Nagpur for which it shall erect buildings and commence commercial
activities by October 24, 2012,
13.3 Capital work-in-progress
(i) The Company had entered into an agreement for purchase of an ERP
software on March 31, 2008 amounting Rs. 451 Million, which was not
accounted as at March 31, 2008. During the year ended March 31, 2009,
the Company accounted for this amount of Rs. 451 Million under Capital
work-in-progress pending use and installation of the software and also
created an impairment provision as at March 31, 2009, since the
Management had not finalised its plan for implementation of ERP
software. In the current year the Management finalised its plans for a
different ERP and decided to write off the amount of Rs. 451 Million
against the provision made earlier.
(ii) During the previous year, the Company sold fixed assets valued at
Rs. 270 Million which were included under Capital work-in-progress.
13.4 Physical verification of fixed assets
During the current year, the Company conducted a physical verification
of its fixed assets in accordance with its physical verification
program.The net difference arising therefrom amounting to Rs. 43 Million
(gross value Rs. 1,551 Million and accumulated depreciation Rs. 1,508
Million) has been written-off in the Statement of Profit and Loss.
13.5 Change in useful life
Based on a technical evaluation during the year, the Company revised
the estimated useful life of computers from two to three years, the
resultant impact of which on depreciation is not significant.
14.1 During the current year, the Company infused an amount of Rs. 211
Million (Previous year - Rs. 211 Million) in Bridge Strategy Group LLC
(Bridge) a subsidiary of the Company. In addition, the Company paid a
contingent consideration of Rs. Nil (Previous year - Rs. 358 Million) which
has been added to the cost of investment.
14.2 During the year, the Company infused an amount of Rs. 194 Million
(Previous year - Rs. 238 Million) in Satyam Computer Services Belgium,
BVBA (Satyam Belgium) a subsidiary of the Company. Satyam Belgium sold
its entire stake in S&V Management Consultants N.V. (a wholly owned
subsidiary of Satyam Belgium), for a consideration of Euro 6 Million.
Consequently, the provision for diminution in the value of investment
in Satyam Belgium made in earlier years were re-assessed and an amount
of Rs. 195 Million was reversed to the Statement of Profit and Loss.
14.3 The Company incorporated its subsidiary in Mexico (Satyam Computer
Services De Mexico S.DE R.L.DE C.V). However, no investments have been
made by the Company as at March 31, 2012 and, consequently, this has
not been included as part of Non-current investments disclosed in Note
14.4 Dispute with Venture Global Engineering LLC
The Company and Venture Global Engineering LLC (VGE) entered into a
50:50 Joint Venture Agreement in 1999 to form an Indian Company called
Satyam Venture Engineering Services Private Limited (SVES). SVES was
formed to provide engineering services to the automotive industry.
On or around March 20, 2003 numerous corporate affiliates of VGE filed
for bankruptcy (Default Event under the SHA) and consequently the
Company, exercised its option under the Shareholders Agreement
(hereinafter referred to as the SHA), to purchase VGE''s shares in
SVES. The Company''s action, disputed by VGE, was upheld in arbitration
by the London Court of International Arbitration vide its award in
April 2006 (the Award).
The Courts in Michigan, USA, confirmed and directed enforcement of the
Award. In 2008, the District Court of Michigan (since affirmed by the
Sixth Court of Appeals in 2009) held VGE in contempt for its failure to
honour the Award and inter-alia directed VGE to dismiss its Board
members and replace them with individuals nominated by the Company.
Following this, VGE has appointed the Company''s nominees on the Board
of SVES and SVES confirmed the appointment at its Board meeting held on
June 26, 2008. The Company is legally advised that SVES became its
subsidiary only with effect from that date.
In the meantime, while proceedings were pending in the USA, VGE filed a
suit in April 2006, before the District Court of Secunderabad in India
for setting aside the Award. The suit to set aside the Award was
dismissed by the District Court and the Hon''ble High Court of Andhra
Pradesh but VGE''s appeal to the Hon''ble Supreme Court was upheld in
January 2008 that set aside the orders of the Hon''ble High Court and
remanded the matter back to the City Civil Court, Hyderabad for hearing
the suit on merits. The Hon''ble Supreme Court also directed status quo
with regard to transfer of shares till the disposal of the suit. In a
separate application, VGE also sought to bring in additional pleadings
on record in the matter pending before the City Civil Court that was
ultimately allowed by the Hon''ble Supreme Court in August 2010. The
City Civil Court, vide its judgment in January 2012, has set aside the
Award. The Company is in the process of evaluating its legal options.
In December 2010, VGE and the sole shareholder of VGE (the Trust, and
together with VGE, the Plaintiffs), filed a complaint against the
Company in the United States District Court for the Eastern District of
Michigan (District Court) asserting claims under the Racketeer
Influenced and Corrupt Organisation Act, 1962 (RICO) and seeking
damages with respect to the fraud claim, interest costs and attorney
fees (the Complaint). The District Court vide its order in March 2012
has dismissed the Plaintiffs'' Complaint. The Plaintiffs have filed an
application seeking amendment of the Compliant that is pending
14.5 Provision for diminution in the value of long-term investments
During the current year, with the assistance of independent
professional agencies, the Company has assessed the operations of the
subsidiaries, including the future projections, to identify indications
of diminution, other than temporary, in the value of the investments
recorded in the books of account and, accordingly, has made a provision
of Rs. 103 Million (Previous year - Rs. 393 Million) and has written-back
a net amount of Rs. 31 Million (Previous year - Rs. Nil).
The above provisions exclude provisions for diminution of Rs. Nil
(Previous Year - Rs. 520 Million) included under Exceptional items (Refer
Note 57) and Rs. 1,005 Million being Share application money considered
doubtful and provided in the year ended March 31, 2010 which in the
previous year, on allotment, had been reclassified as provision for
diminution in the value of investments (Refer Note 11 (vii)).
15 Accounting for revenue and customer receivables
15.1 Customer receivables
The procedures instituted by the Company for automated / manual
reconciliations between sub-systems / sub-ledgers / general ledger were
further strengthened and streamlined during the year pursuant to which,
the un-reconciled balances relating to Customerreceivables between
sub-system / sub-ledger / general ledgers of the earlier years were
identified and appropriately dealt with in the financial statements.
Based on the above:
a. receipts were identified and applied / adjusted against
b. classification of receivables was carried out between those
outstanding for a period exceeding six months from the date they were
due for payment and other debts; and
c. adequate provision for doubtful customer receivables has been made
and the Company is carrying a total provision for doubtful receivables
amounting to Rs. 4,277 Million (As at March 31, 2011 - Rs. 4,264 Million)
including towards contractually reimbursable expenses that are
recoverable from the customers.
15.2 Accounting for revenue
During the year, the Company strengthened its processes and procedures
(also refer Note 33) for accounting for revenue and in particular:
In respect of contracts under Percentage completion method (POC), the
requisite documentation to support initial / revision in estimates of
costs / hours has been streamlined.
(ii) Unbilled revenue:
In respect of services rendered during the year remaining unbilled as
at the Balance Sheet date as well as those services relating to the
current year billed subsequently, proper cut-off procedures were
instituted and the required adjustments have been carried out in the
In the view of the Management, where losses were expected in the
execution of certain projects, appropriate provisions for such contract
losses have been made to the extent of Rs. 194 Million ( As at March 31,
2011 - Rs. 250 Million).
(iii) Accounting for contracts containing multiple deliverables and
In respect of contracts that contain clauses that provide for multiple
elements or deliverables including the delivery of hardware equipment /
software but are still part of an integrated solution to the customer,
hardware and other items included in the contracts have been accounted
under ''Cost of hardware equipment and other items sold'' and unsold
items have been classified as Inventory. Inventories have been valued
at lower of cost and net realisable value.
(iv) Unearned Revenue
In respect of invoices raised in advance of rendering of service,
proper cut-off procedures were instituted and the required adjustments
have been carried out in the financial statements.
(v) Reimbursements / recoveries from customers
In respect of reimbursement / recoveries from customers, the Company
separately identifies the amounts to be recovered and accounts them as
contractual receivables when no significant uncertainty as to
measurability or collectability exists.
15.3 Post contract services / warranties
As per the terms of the contracts, the Company provides post contract
services / warranty support to some of its customers. In the absence
of the required information, the Company has accounted for the
provision for warranty / post contract support on the basis of the
information available with the Management duly taking into account the
current technical estimates. Refer Note 54.1.
16 Accounting for transactions with an international sports federation
The Company had entered into an agreement with an international sports
federation (the federation) in the financial year 2007-08 pursuant to
which the Company was granted various sponsorship rights in respect of
the events conducted by the federation to be held in 2009, 2010, 2013
Based on the terms of the agreement, the Company was required to
discharge the consideration for sponsorship rights partly in the form
of cash and partly in the form of services in lieu of cash (Value in
Kind). The Management is of the view that the sponsorship payments are
in the nature of an intangible item since these are predominantly for
the purpose of advertising and promotion and, hence, the same should be
expensed as incurred in the respective years.
Accordingly, the amount relating to the services rendered and the
corresponding amount of Value in Kind are disclosed on a gross basis
under the heads Revenue from operations and under Marketing expenses in
Operating, administration and other expenses, respectively, in the
Statement of Profit and Loss.
During 2009-10, the Company entered into a Memorandum of Understanding
with the federation as per which the contractual obligations relating
to the 2013 and 2014 events stand cancelled and the remaining
consideration for the sponsorship rights relating to the contractual
obligations for the 2009 and 2010 events, which were to be paid in cash
were also converted to be discharged in the form of Value in Kind. As
at March 31, 2012 the Company is committed to discharge Value in Kind
aggregating Rs. 787 Million.
(a) All the loans and advances to the above subsidiaries, which are
wholly owned, outstanding as at March 31, 2012 and March 31, 2011 are
(b) As at March 31, 2012, amount repayable beyond 7 years Rs.
1,197Million (As at March 31, 2011 - Rs. 2,764 Million)
(iii) During the current year, the Management carried out a detailed
assessment of the amounts due from subsidiaries mentioned above, duly
taking into account the provision for diminution in the value of
investments made in these subsidiaries and created appropriate
provision amounting to Rs. Nil (Previous year - Rs. 79 Million) towards
doubtful trade receivables (including long-term) and doubtful loans and
Further, during the year the Management has written back the provisions
in the Statement of Profit and Loss as under:
(a) doubtful receivables aggregating Rs. 176 Million (Previous year - Rs.
32 Million) which has been included under Liabilities / provisions no
longer required written back, and
(b) doubtful advances aggregating Rs. 2,737 Million (excluding Rs. 20
Million foreign exchange gain) (Previous year - Rs. Nil), of which Rs.
2,718 Million has been included under Exceptional items (Refer Note 57)
and Rs. 19 Million has been included under Liabilities / provisions no
longer required written back.
Consequently, the Company is carrying a total provision of:
(a) Rs. 245 Million (As at March 31, 2011 - Rs. 421 Million) towards dues
from subsidiaries on account of the doubtful trade receivables
(including long-term) and contractually reimbursable expenses (Other
current assets), and
(b) Rs. 479 Million (As at March 31, 2011 - Rs. 3,236 Million) towards
doubtful loans and advances due from subsidiaries and share application
money towards investments in subsidiaries.
17. Commission to Non-Executive Directors
The Board of Directors have approved the payment of commission not
exceeding Rs. 1.20 Million per financial year to each of the directors
who were not in whole-time employment of the Company in that year,
aggregating Rs. 6 Million and Rs. 7 Million, in respect of the financial
years 2010-11 and 2009-10, respectively. Pending Central Government
approval, no provision for the commission has been made in these
18. Government grants
During the financial year ended March 31, 2009, the Company received a
grant from Multimedia Development Corporation (an agent of the
Government of Malaysia) in the form of fully-fitted premises and
reimbursement of salary costs for establishment of a global delivery
center. The fully fitted premises received under the grant have been
recorded at nominal value under fixed assets. The Company recognised Rs.
Nil (Previous year MYR 3.16 Million (equivalent to Rs. 47 Million))
during the current year as Other income. The receivable as at March 31,
2012 is MYR 3.16 Million (equivalent to Rs. 55 Million) (As at March 31,
2011 - MYR 3.16 Million (equivalent to Rs. 48 Million)).
19. Segment reporting
Segment information has been presented in the Consolidated financial
statements as permitted by Accounting Standard (AS 17) on Segment
Reporting as notified under the Companies (Accounting Standards) Rules,
1. As stated in Note 37.4, the Company has, based on legal advice,
treated its investment in SVES as investments in subsidiary only with
effect from June 26, 2008, being the date of appointment of nominee
directors of the Company in the Board of SVES.
2. (a) The Company incorporated its subsidiary in Mexico (Satyam
Computer Services De Mexico S.DE R.L.DE C.V). However, no investment
has been made by the Company in the subsidiary as at March 31, 2012.
(b) As at March 31, 2012, the Company invested an amount of USD 1.00
Million (equivalent to Rs. 48 Million) (As at March 31, 2011 - USD 0.25
Million (equivalent to Rs. 11 Million) in its subsidiary, Satyam Brazil,
incorporated in Brazil. During the year the subsidiary allotted shares
USD 0.5 Million (equivalent Rs. 23 Million), refer Note 11. Shares to the
extent of USD 0.5 Million (equivalent Rs. 25 Million) invested during the
year are pending allotment.
3. These subsidiaries have been liquidated / dissolved as per the laws
of the respective countries.However, approval from the Reserve Bank of
India for writing off the investments from the books of the Company has
not yet been received. Refer Note 11.
a) No options were granted to the Key Management Personnel during the
current year and in the previous year.
b) Guarantees / Comfort Letters provided by the Company
- The Company has issued a corporate guarantee to a customer of
Satyam BPO Limited on behalf of Satyam BPO for an amount not exceeding
Rs. 409 Million (GBP 5 Million) (As at March 31, 2011 - Rs. 360 Million
(GBP 5 Million)).
- During the financial year ended March 31, 2009, the Company issued
a comfort letter to Satyam BPO Limited giving a commitment for all
financial support to meet its debts and obligations as they fall due
for the foreseeable future and atleast until December 31, 2010.
- During the previous year, the Company issued a comfort letter to
Nitor Global Solutions Limited giving a commitment for all financial
support to meet its obligations as they fall due for a period of
atleast 12 months from the date of the financial statements.
c) The Company has given an interest free loan to Satyam Associates
Trust amounting to Rs. 50 Million (Balance outstanding as at March 31,
2012 - Rs. 28 Million (As at March 31, 2011 - Rs. 28 Million)). The loan
was provided by the Company in the prior years as a funding to the
Trust for repayment of loans obtained from the Trust from external
parties. As per the terms of understanding with the Trust, the loan is
repayable by the Trust to the Company on receipt of the exercise price
from the employees who have been allotted options under the ASOP-A
d) Also refer Note 40 (iii) with respect to provision made towards
certain balances due from the above subsidiaries.
i. Termination of leases during the current year
During the current year, the Company terminated the agreements for 19
(Previous year - 32) properties taken on rent which were classified as
The Company incurred Rs. Nil (Previous year-Rs. Nil) being additional
consideration paid / forfeiture of rental deposits, to lessors on
account of early termination. The furniture and fixtures in these
properties belonging to the Company were sold / surrendered and the
loss on account of sale / surrender is Rs. Nil (Previous year - Rs. 2
ii. Obligation on long-term non-cancellable operating leases
The Company has entered into operating lease agreements for its
development centers at offshore, onsite and off-sites ranging for a
period of 3 to 10 years. The lease rentals charged during the year and
maximum obligations on long-term non-cancellable operating leases
payable as per the rentals stated in the respective agreements are as
(i) During the previous year, the weighted average number of equity
shares used for Basic EPS and Diluted EPS was the same since the
outstanding potential equity shares as at March 31, 2011 was
anti-dilutive in nature.
(ii) Earnings per share has been computed in accordance with Accounting
Standard 20 - Earnings per Share 53 Provision for taxation
20.1 Current tax
The Company has made provision towards current tax in respect of its
domestic operations for the year ended March 31, 2012, Further, the
Management has assessed the Company''s tax position in respect of its
overseas operations taking into account the relevant rules and
regulations as applicable in the respective countries and made the
necessary provision. Based on professional advice, it has determined
that the provision made for current tax is adequate and no additional
provision for the current year needs to be made.
No deferred tax asset was recognised as at March 31, 2011 on account of
accumulated business losses and other items in the absence of virtual
certainty of realisation of such assets in accordance with the
accounting policy of the Company. In view of the current year profits
and as permitted by the Accounting Standard (AS) 22 on Accounting for
Taxes on Income, the Management has recognised deferred tax assets as
at March 31, 2012, including the past unrecognised deferred tax assets
as of that date, on certain items as identified by the Management duly
considering the concept of prudence.
20.2 Transfer pricing
The Company has entered into international transactions with related
parties. In this regard, the Management is of the opinion that all
necessary documents as prescribed by the Income Tax Act, to prove that
these transactions are at arms-length are maintained by the Company and
that the aforesaid legislation will not have any impact on the
financial statements, particularly on the tax expense and the provision
21. Hedge Accounting and Derivative instruments
Upto March 31, 2011, foreign exchange forward / option contracts
(derivative contracts) which were used to hedge the Company''s risks
associated with foreign currency fluctuations relating to certain firm
commitments and highly probable forecasted transactions were marked to
market as at the Balance Sheet date and the unrealised losses, if any,
were dealt with in the Statement of Profit and Loss and unrealised
gains, if any, on such derivatives were not recognised in the Statement
of Profit and Loss.
Accordingly, the marked to market losses aggregating Rs. 154 Million
relating to the outstanding derivative contracts as at March 31, 2011
was charged to the Statement of Profit and Loss in that year.
With effect from April 1, 2011, the Company has applied the hedge
accounting principles set out in Accounting Standard 30 Financial
Instruments: Recognition and Measurement (AS 30) in respect of such
derivative contracts used to hedge its risks associated with foreign
currency fluctuations relating to certain firm commitments and highly
probable forecast transactions. Accordingly, in respect of all such
contracts outstanding as on March 31, 2012, that were designated and
effective as hedges of future cash flows, loss aggregating Rs. 343
Million (Net) has been recognised directly in the Hedging reserve
account (Refer Note 4).
Consequent to the above change, loss amounting to Rs. 394 Million for the
year ended March 31, 2012, which would have been recognized in the
Statement of Profit and Loss had the Company followed its earlier
policy of providing for the losses on such outstanding derivative
contracts which were marked to market, has not been recognised in the
Statement of Profit and Loss for the year ended March 31, 2012.
22. Employee benefits expense
Employee benefits expense for the current year includes an amount of Rs.
590 Million provided in respect of certain costs relating to overseas
employees for earlier years which has been determined by the Company
based on a review substantially completed during the current year.
* Exceptional items also include disputed matters settled, net of
release from provision for contingencies:
(i) for the year ended March 31, 2012 includes Rs. Nil (net) (Rs. 3,113
Million less reversal of an equivalent amount from provision for
(ii) for the year ended March 31, 2011 includes Rs. Nil (net) (Rs. 509
Million less reversal of an equivalent amount from provision for
23. Previous year figures
The Revised Schedule VI has become effective from April 1, 2011 for the
preparation of financial statements. This has significantly impacted
the disclosure and presentation made in the financial statements.
Previous year''s figures have been regrouped / reclassified wherever
necessary to correspond with the current year''s classification /