Tata Communications

1.  The Company was incorporated on 19 March, 1986. The Government of
 India vide its letter No. G-25015/6/86-OC dated 27 March, 1986,
 transferred all the assets and liabilities of the Overseas
 Communications Service (OCS) (part of the
 Department of Telecommunications, Ministry of Communications) as
 appearing in the Balance Sheet as at 31 March, 1986 to the Company with
 effect from 1 April, 1986. As per the letter no. G-25015/6/86-OC dated
 23 October, 2001 of Government of India, Department of
 Telecommunications, there was no requirement to register a formal
 transfer deed or deed of sale in the matter of such transfer of assets.
 During the year 2007-08, the Company changed its name to Tata
 Communications Limited and the fresh certificate of incorporation
 consequent upon the change of name was issued by the Registrar of
 Companies, Maharashtra on 28 January, 2008.
 
 2.  Capital reserve includes Rs. 205.22 crores in respect of foreign
 exchange gains on unutilised proceeds from Global Depository Receipts
 credited to Capital Reserve in 2000-01 Rs. 203.70 crores and Rs. 1.52
 crores in 2001-02.
 
 3.  The Board of Directors have recommended a dividend of Rs. 4.50
 (2008: Rs. 4.50) per share for the year ended 31 March, 2009.
 
 4.  In terms of the agreements entered into between Tata Teleservices
 Ltd. (TTSL), Tata Sons Ltd. (TSL) and NTT DoCoMo, Inc. of Japan
 (Strategic Partner-SP), TSL gave an option to the Company to sell
 36,542,378 equity shares in TTSL to the SP, as part of a secondary sale
 of 253,163,941 equity shares effected along with a primary issue of
 843,879,801 shares by TTSL to the SP. Accordingly, the Company realised
 Rs 424.22 crores on sale of these shares resulting in a profit of Rs
 346.65 crores which has been reflected as an exceptional item in the
 profit and loss account for the current year.
 
 If certain performance parameters and other conditions are not met,
 should the SP decide to divest its entire shareholding in TTSL,
 acquired under the primary issue and the secondary sale, and should TSL
 be unable to find a buyer for such shares, the Company is obligated to
 acquire the shareholding of the SP, at the higher of fair value or 50
 percent of the subscription purchase price, in proportion of the number
 of shares sold by the company to the aggregate of the secondary shares
 sold to the SP, or if the SP divests the shares at a lower price pay a
 compensation representing the difference between such lower sale price
 and the price referred to above.
 
 Further, in the event of breach of the representations and warranties
 (other than title and tax) and covenants not capable of specific
 performance, the Company is liable to reimburse TSL, on a pro rata
 basis, up to a maximum sum of Rs 548.50 crores.
 
 The exercise of the option by SP being dependent on several variables,
 the liability, if any, in this respect is remote and indeterminable.
 
 5.  The Company has an investment of Rs. 28.99 crores (2008: Rs. 28.99
 crores) in United Telecom Ltd. Nepal (UTL) representing an equity
 interest of 26.66 percent (2008: 26.66 percent) in the issued and
 paid-up capital of UTL. UTL has accumulated losses, which have
 significantly eroded its net worth. In the opinion of the management,
 having regard to the long gestation period inevitable to the nature of
 its business and future business projections, there is no permanent
 diminution in value of the investment.
 
 6.  The Company has an investment of Rs. 474.23 crores (2008: Rs.
 265.77 crores) in Equity Shares and Rs.139.32 crores (2008: Rs. 139.32
 crores) in preference shares of Tata Communications International Pte.
 Ltd (TCIPL), a wholly owned subsidiary. In the opinion of the
 management, having regard to the nature of its business and future
 business projections, there is no diminution in value of the
 investment.
 
 7.  As at 31 March, 2009 the proportionate share of pension obligations
 and payments of Rs. 61.15 crores (2008 : Rs 61.15 crores) to the
 erstwhile Overseas Communications Service (OCS) employees were
 recoverable from the Government of India (the Government). Pursuant
 to discussions with the Government, the Company had made a provision of
 Rs. 53.71 crores (2008 : Rs 53.71 crores) thereby having a net amount
 due from the Government towards its share of pension obligations of Rs.
 7.44 crores (2008 : Rs 7.44 crores).
 
 8.  Pursuant to acquisitions of Tyco Global Network (TGN) and
 Teleglobe (TLGB), the Company from 1 April, 2006 adopted the Residual
 Profits Split Method (RPSM) for recording transactions pertaining to
 International Telecommunications Services under its Transfer Pricing
 Policy. This policy governs the majority of the transactions between
 the Company and its international subsidiaries. The Company’s
 subsidiary in the Netherlands is designated as the Central Contracting
 Party (CCP) and Transfer Pricing Administrator (TPA).
 
 9.  The Board of Directors of the Company in their meeting held on 14
 March, 2007 had approved a Scheme of Arrangement (Scheme) to hive-off
 its Retail Business Undertaking (RBU) to its wholly owned subsidiary,
 Tata Communications Internet Services Ltd (TCISL) (formerly known as
 VSNL Internet Services Limited). The High Court of Judicature at Bombay
 and Delhi approved the Consolidated Scheme vide their orders dated 25
 April, 2008 and 27 May, 2008 respectively.
 
 In this respect the loss of RBU for financial year 2006-07 transferred
 to subsidiary as aforesaid amounting to Rs 28.25 crores (net of tax)
 was adjusted in the opening balance of profit and loss account of the
 previous year.
 
 10.  The Board of Directors of the company at its meeting held on 4
 December, 2007 had approved the merger of the Company’s wholly owned
 subsidiary, VSNL Broadband Limited with effect from 1 March, 2007.
 
 Consequent to the filing of the final certified order dated 3 April,
 2009 of the Hon’ble High Court of juridicature at Bombay with the
 Registrar of the Companies, Maharashtra the Scheme of Amalgamation
 between VSNL Broadband Limited with the Company has become effective
 from the appointed date of 1 March, 2007.
 
 The amalgamation has been accounted for based on the Scheme of
 Amalgamation approved by Hon’ble High Court of juridicature at Bombay.
 
 In accordance with the said Scheme:
 
 i). All the assets, debts, liabilities and obligations of VSNL
 Broadband Limited have been vested in the Company with effect from 1
 March, 2007 and have been recorded at their respective book values.
 
 Accordingly, to give effect to the scheme, VSNL Broadband’s net profit
 for the period 1 March, 2007 to 31 March 2008 amounting to Rs. 2.72
 crores (net of tax) (the item-wise break-up is given in (iv) below) has
 been included in the Company’s opening balance of Profit and Loss
 account. There were no material difference in the account- ing policies
 of VSNL Broadband Limited and the Company.
 
 ii). VSNL Broadband Limited being a wholly owned subsidiary of the
 Company, no securities have been issued and allotted as a part of
 purchase consideration.
 
 iii). As on 1 March, 2007 Net Book value of total assets and
 Liabilities was Rs. 150.22 crores and Rs. 58.00 crores respectively.
 The excess of the cost of investment held by the Company in VSNL
 Broadband Limited over the net book value of assets taken over by the
 Company amounting to Rs. 109.87 crores has been transferred to the
 Securities Premium Account.
 
 11.  On 27 August, 2008, the Arbitration Tribunal (the Tribunal) of
 the International Chamber of Commerce, Hague handed down a final award
 in the arbitration proceedings brought by Reliance Globalcom Limited
 (Reliance), formerly known as ‘FLAG Telecom’, against the Company
 relating to the Flag Europe Asia Cable System. The Tribunal directed
 the Company to pay Rs. 95.60 crores (US$ 21.45 million) (2008: Rs. NIL)
 as final settlement against US$ 385 million claimed by Reliance. The
 amount of Rs. 95.60 crores has been charged to profit and loss account
 and has been disclosed as an exceptional item.
 
 12.  In January 2008, an amount of Rs. 295 crores (2008: Rs. 295
 crores) was paid to the Department of Telecommunications (DoT) under
 protest, towards payment of licence fees, interest and penalty demanded
 by DoT before issue of certain licences to the Company. Against this,
 the Company carried a provision of Rs. 174. 15 crores for license fees
 and interest thereon which has been set off against the payment of Rs.
 295 crores for the presentation in the financials.  The Company has
 filed a petition in the Telecom Disputes Settlement and Appellate
 Tribunal (TDSAT) challenging applicability of penal provisions under
 ILD and NLD licence agreements. The Company believes that the DoT’s
 claim for penalty and interest on penalty, aggregating Rs. 115.73
 crores (included in the aforesaid Rs. 295 crores) will not be sustained
 based on the terms of the license agreement. Consequently this amount
 of Rs.115.73 crores together with the excess license fee paid of Rs.
 5.12 crores (Payment of Rs. 295 crores minus license fees, interest
 thereon and penalty all aggregating to Rs. 289.88 crores computed by
 the Company) totalling to Rs. 120.85 crores is retained as an asset in
 books.
 
 13.  Secured Debentures
 
 During the year the Company has issued Rated taxable Secured Redeemable
 Non-convertible Debentures in demat form for cash at par on private
 placement basis aggregating to Rs.1,250 Crores (2008: Rs NIL). IDBI
 Trusteeship Services Limited has been appointed as trustee to the
 debenture issue.
 
 i).  Nature of Security
 
 Rs. 1,000 crores, 11.70% debentures (face value of Rs. 1,000,000 each)
 are secured by a first legal mortgage and charge on the Company’s
 immovable property being the free hold land at Mouje Maharajpura,
 Gujarat and Plant and machinery represented by earth stations, network
 equipments, Land and sea cables, transmission equipments and other
 telecom equipments.
 
 Rs. 250 crores, debentures (interest ranging from 11.00% to 11.25%,
 face value of Rs. 1,000,000 each) are secured by a first legal mortgage
 and charge on the Company’s immovable property being the free hold land
 at Parambur Barracks, Chennai and Plant and machinery represented by
 land cable network and equipments.
 
 14. Employee Benefits:
 
 Effective from 1 April, 2006 the Company adopted the revised Accounting
 Standard 15 Employee Benefits (AS-15).
 
 Retirement Benefits
 
 a) Defined Contribution plan
 
 Provident Fund
 
 The Company makes contribution towards provident fund under a defined
 contribution retirement benefit plan for qualifying employees. The
 provident fund is administered by the Trustees of the Tata
 Communications Employees’ Provident Fund Trust. Under this scheme, the
 Company is required to contribute a specified percentage of payroll
 cost to fund the benefits.
 
 The Rules of the Company’s Provident Fund administered by a Trust
 require that if the Board of Trustees are unable to pay interest at the
 rate declared for Employees’ Provident Fund by the Government under
 para 60 of the Employees’ Provident Fund Scheme, 1952 for the reason
 that the return on investment is less or for any other reason, then the
 deficiency shall be made good by the Company. Having regard to the
 assets of the Fund and the return on the investments, the Company does
 not expect any deficiency in the foreseeable future. There has also
 been no such deficiency since the inception of the Fund.
 
 Provident fund contributions amounting to Rs.11.36 crores (2008:
 Rs.8.88 crores) have been charged to the profit and loss account.
 
 b) Defined Benefit Plans
 
 Gratuity
 
 The Company makes annual contributions under the Employees Gratuity
 scheme to a fund administered by Trustees covering all eligible
 employees. The plan provides for lump sum payments to vested employees
 at retirement, death while in employment or on termination of
 employment of an amount equivalent to fifteen days salary for each
 completed year of service or part thereof in excess of six months.
 Vesting occurs upon completion of five years of service.
 
 Medical Benefit
 
 The Company reimburses domiciliary and hospitalization expenses not
 exceeding specified limits incurred by eligible and qualifying
 employees and their dependent family members under the Tata
 Communications Employee’s Medical Reimbursement Scheme. The scheme
 provides for cashless hospitalization where the claims are directly
 settled by the Company.
 
 Pension Plan
 
 The Company’s pension obligations relate to certain employees
 transferred to the Company from the Overseas Communications Service
 (OCS). The Company purchases life annuity policies from an insurance
 company to settle such pension obligations. During the year the Company
 has incurred a charge of Rs 10.51 crores (2008 : Rs. 3.49 crores) to
 meet the additional pension obligation on account of increase in
 Dearness Allowances.
 
 The details in respect of the status of funding and the amounts
 recognized in the Company’s financial statements for the year ended 31
 March, 2009 for these defined benefit schemes are as under:
 
 15. Related Party Disclosures:
 
 A.  List of related parties and relationship: I.  Investing parties
 (Promoters)
 
 1 Panatone Finvest Limited
 
 2 Tata Sons Limited
 
 II.  Subsidiaries (Held directly)
 
 1 Tata Communications Internet Services Limited
 2 Banking ATM InfraSolutions Limited
 3 Tata Communications Transformation Services Limited
 4 Tata Communications Lanka Limited
 5 Tata Communications Services (America) Inc.
 6 Tata Communications International Pte. Ltd.
 7 VSNL SNOSPV Pte. Ltd.
 
 III.  Other Subsidiaries (Held indirectly)
 
 1 Tata Communications (Australia) Pty Limited
 2 Tata Communications (Belgium) SPRL
 3 Tata Communications Services (Bermuda) Limited
 4 VSNL Telecommunications (Bermuda) Ltd (In Members Voluntary
 Liquidation)
 5 Tata Communications (Bermuda) Limited
 6 Teleglobe Bermuda Ltd (In Members Voluntary Liquidation)
 7 Tata Communications (Canada) ULC
 8 VSNL International (IPCO) LLC
 9 Tata Communications (US) Inc.
 10 VSNL International (ITXC) Corp.
 11 Tata Communications (America) Inc.
 12 VSNL International (Global) Corp.
 13 Tata Communications (Middle East) FZ-LLC
 14 Tata Communications (UK) Limited
 15 Tata Communications (France) SAS
 16 Tata Communications Deutschland GmbH
 17 Tata Communications (Guam) L.L.C.
 18 ITXC Global Hong Kong Limited (In Liquidation)
 19 VSNL International (Hong Kong) Limited (In Liquidation)
 20 Tata Communications (Hong Kong) Limited
 21 Tata Communications (Hungary) LLC
 22 Tata Communications (Ireland) Limited
 23 VSNL UK Limited (In Liquidation)
 24 Teleglobe International Limited (In Liquidation)
 25 Tata Communications (Italy) S.r.l
 26 Tata Communications (Japan) KK
 27 ITXC IP Holdings S.a r.l
 28 Teleglobe International Luxembourg S.a r.l (In Liquidation)
 29 TLGB Luxembourg Holdings S.a r.l (In Liquidation)
 30 Tata Communications (Nordic) AS
 31 VSNL International (Poland) Sp. z o.o.
 32 VSNL (Portugal) Unipessoal Limitada
 33 VSNL International (Portugal) Instalacao e Manutencao de Redes LDA
 34 Tata Communications (Puerto Rico) Inc.
 35 Tata Communications (Russia) LLC
 36 Teleglobe Asia Pte Ltd
 37 Videsh Sanchar Nigam Spain Srl
 38 Tata Communications (Sweden) AB
 39 Tata Communications (Switzerland) GmbH
 40 Tata Communications (Netherlands) BV
 
 IV.    Joint Venture
 
 United Telecom Limited
 Cochin Submarine Cable Depot (INDIA) Private Limited
 
 V.  Joint Venture of wholly owned subsidiary
 
 SEPCO Communications (Pty) Ltd. (Held through VSNL SNOSPV Pte. Ltd.)
 Neotel Pty Ltd. (Subsidiary of SEPCO Communications (Pty) Ltd.)
 
 VI.  Key Managerial Personnel
 
 Mr. N.Srinath - Managing Director and Chief Executive Officer TCL Group
 
 Mr. Vinod Kumar - Director of Tata Communications Ltd. and Managing
 Director of Tata Communications International Pte Ltd.
 
 16. Contingent Liabilities and Capital Commitments
 
 A.  Contingent Liabilities:
 
                                                     As at         As at
                                            31 March, 2009 31 March, 2008
                                            Rs. in crores   Rs. in crores
 
 i. Guarantees given on behalf of 
 subsidiaries (Refer note 1)                  4,941.03        2,341.21
 ii.Claims for taxes on income 
 (Refer note 2 )
 
 (a)Income tax disputes where the 
 department is in
 appeal against the Company                     310.61           94.15
 
 (b) Income tax disputes where the 
 Company has a favorable decision in 
 other assessment year for the same issue        22.39            2.43
 
 (c) Income tax disputes other than the above 1,544.18        1,405.85
 
 iii.Claims for other taxes                      49.80            0.53
 
 iv. Other claims                               788.71          727.45
 
 Notes:
 
 (1) Guarantees given on behalf of subsidiaries:
 
 The guarantees have been provided in the ordinary course of business
 and no liability on the Company is expected to materialise in this
 respect.
 
 (2) Significant claims by the revenue authorities in respect of income
 tax matters are in respect of:
 
 (a) Deductions claimed under Section 80 IA of the Income Tax Act, 1961
 from Assessment years 1996-97 onwards have been disallowed by the
 revenue authorities. The Company has contested the disallowance and has
 preferred appeals which are pending.
 
 (b) Reimbursement by the Department of Telecommunications (DoT) of
 income tax paid by the Company on the DoT levy during Assessment year
 1994-95, that was taxed by the revenue authorities. The Commissioner of
 Income Tax (Appeals) has upheld the disallowance. The Company is in
 appeal before the Income Tax Appellate Tribunal.
 
 (c) The Company has taken appropriate professional advice in respect of
 the claims / appeals and has taken all necessary steps to protect its
 interest. Based on expert opinion, no provision is required in respect
 of these claims / appeals.
 
 (3) As on 31 March, 2009, the Company has issued Letters of Comfort for
 the credit facility agreement, aggregating Rs. 89.48 crores (US $ 17.60
 million) (2008 : Rs 200.10 crores ( US $ 50 million)), Rs. 30.50 crores
 (US $ 6 million) (2008 : Rs 24.01 crores (US $ 6 million)), Rs. Nil
 (2008 : Rs 60 crores) and Rs. 50.84 crores (US $ 10 million) availed of
 by Tata Communications (US) Inc. (TCU), a wholly owned subsidiary of
 TCIPL, Tata Communications Transformation Services Limited, (TCTSL),
 VSNL Broadband Limited * (VBL) and Tata Communication International
 Pte Limited (TCIPL) respectively.
 
 The Company has undertaken to the lenders of TCU, TCTSL and TCIPL that
 it shall retain full management control so long as amounts are due to
 the lenders.
 
 (* Refer note B10, Schedule 20 )
 
 (4) The Company has issued a support letter to Tata Communications
 International Pte Limited (TCIPL), regarding providing financial
 support enabling, in turn, TCIPL to issue such support letters to
 certain subsidiaries having negative net worth as at 31 March, 2009
 aggregating Rs. 1,417.55 crores (2008 : Rs 1,594.71 crores) in various
 geographies in order that they remain going concern with reference to
 the provisions of applicable insolvency laws in their country of
 incorporation.
 
 The letters of comfort / support mentioned in (3) and (4) above have
 been provided in the ordinary course of business and no liability on
 the company is expected to materialise in these respects.
 
 (5) Contingent liabilities, if any, in respect of sale of shares of
 Tata Teleservices Limited has beeen stated in note B4, Schedule 20.
 
 B.  Capital commitments:
 
 Estimated amount of contracts remaining to be executed on capital
 account and not provided for Rs. 792.37 crores (2008: Rs. 568.40
 crores). The Company has subscribed the capital clause of Memorandum of
 Association of a new company Cochin Submarine Cable Depot (INDIA)
 Private Limited which is intended to be 40% Joint venture of the
 Company.
 
 17. Previous years figures have been regrouped and reclassified
 wherever necessary. The results for the current year ended 31 March,
 2009 include the operations of VSNL Broadband Limited. In view of this,
 the results for the current year are not comparable with the
 corresponding period of the previous financial year.