* Represents the margin money deposits with banks towards the bank guarantees, having remaining maturity period of more than 12 months from the balance sheet date, these deposits are made for varying periods, depending on the requirements of business and earn interest at the respective term deposit rates.
* includes dues from related parties. Refer note 33.
** During the year ended March 31, 2017, the Company has written off bad debts amounting to Rs.4,854.64 Lakhs (March 31, 2016 : Rs,998.01 Lakhs) including intercompany receivables.
As at March 31, 2017, the Company has netted off Rs,28,734.61 Lakhs of trade receivables from its subsidiaries against trade payables to the respective subsidiaries pursuant to approval from its Authorized Dealer.
No trade or other receivable are due from directors or other officers of the company either severally or jointly with any other person. Further, there are no trade or other receivables due from firms or private companies in which any director is a partner, a director or a member.
Trade receivables are non-interest bearing and are generally on terms of 30 to 180 days.
* Balances represents service tax erroneously paid by the Company during the financial year 2004 to 2008, under reverse charge mechanism, for which refund application has been filed with the service tax department and the same is under dispute. The Company is contesting the same and the management including its tax advisors are confident of obtaining the refund.
* includes 243,207 (March 31, 2016: 243,207; April 1, 2015: 243,207) shares in respect of which Global Depository Receipts of the Company are listed on London Stock Exchange.
(a) Terms/ rights attached to equity shares
The Company has only one class of equity shares having par value of Rs,10 per share. Each holder of equity shares is entitled to one vote per share and such amount of dividend per share as declared by the Company. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.
The Company had not declared any dividend during the year ended March 31, 2017 and March 31, 2016.
In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
(b) Details of shares held by each shareholder (together with Persons Acting in Concert[PAC]) holding more than 5% shares in the Company
Equity shares of Rs,10 each issued, subscribed and fully paid
As per records of the Company, including its register of shareholders/ members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares.
* Secured FCCBs are carried at amortized cost at an effective interest rate of 9% (March 31, 2016: 9%, April 1, 2015: 9%) with maturity date July 07, 2017.
** Unsecured FCCBs are carried at amortized cost at an effective interest rate of 10.5% (March 31, 2016: 10.5%, April 1, 2015: 10.5%) with maturity date March 09, 2017. These FCCBs were repaid on due date.
(i) The secured loan from banks are secured by primary charge on customer receivables of the Company and pari-passu first charge on the current assets of the Company, and collateral pari-passu first charge on the fixed assets of the Company, collateral pari-passu first charge along with other working capital lenders and FCCB holders to the extent of the FCCBs III repayment fund to be set up with the working capital lenders.
(ii) The Company has also submitted a corporate guarantee by Subex Technologies Limited of RS,4,205.00 Lakhs (March 31, 2016 : RS,5,570.00, April 1, 2015: RS,6,495.00 Lakhs) and with effect from October 01, 2014 corporate guarantee by Subex (UK) Limited of RS,4,205.00 Lakhs (March 31, 2016: RS,5,570.00 Lakhs; April 1, 2015: RS,6,495.00 Lakhs) and pledged it''''s 100% shares in Subex (UK) Limited.
(iii) Loans repayable on demand from banks consists of Cash Credit (CC) of RS,2,933.84 Lakhs (March 31, 2016: RS,1,762.89 Lakhs, April 1, 2015: RS,4,223.45 Lakhs), Pre-shipment Credit in Foreign Currency (PCFC) of RS,1,419.53 Lakhs (March 31, 2016: RS,3,945.39 Lakhs, April 1, 2015: RS,2,880.38 Lakhs) and Export Bill Rediscounting (EBRD) of RS,4,236.54 Lakhs (March 31, 2016: RS,4,687.46 Lakhs, April 1, 2015: RS,5,402.71 Lakhs), which carried an average interest rate of 11.67%, 3.89% and 5.51% (March 31, 2016: 12.91%, 4.05% and 5.89%, April 1, 2015: 14.25%, 5.05% and 8.88%) respectively. These facilities are renewable on a yearly basis.
1(i) Provision for foreign withholding taxes represents provision in respect of withholding taxes deducted/deductible by customers. 21(ii) No deferred tax asset, other than MAT credit entitlement has been recognized in the absence of reasonable certainty that taxable profit will be available against which the unused tax losses, unused tax credit and other deductible temporary differences can be utilized.
2[i] As at March 31, 2016, the Company had assessed the recoverability of its receivables and loans and advances from its overseas subsidiaries. Based on future operational plan, projected cash flows and the financial position of these subsidiaries, the Company had made a provision of RS,2,455.31 Lakhs (net off adjustment towards provision for expected credit loss of RS,5,906.28 Lakhs) and RS,1,959.76 Lakhs towards trade receivables and loans and advances respectively due from these subsidiaries. Further, the Company had also written off RS,10,475.97 Lakhs as bad debts towards trade receivables from these subsidiaries as at March 31, 2016. During the year ended March 31, 2017, provision for doubtful advances amounting to RS,1,578.94 Lakhs has been written back on collection of the aforesaid loans and advances.
3[ii] As at March 31, 2017, the Company had assessed the carrying value of its investment in its wholly owned subsidiary viz., Subex Americas Inc., of RS,7,005.74 Lakhs (March 31, 2016: RS,12,495.74 Lakhs). Based on future operational plan, projected cash flows and valuation carried out by an external valuer, the Company has made an impairment provision of RS,6,070.00 Lakhs (March 31, 2016: RS,5,490.00 Lakhs) towards the carrying value of its investment in the said subsidiary. The management is of the view that, the carrying value of the aforesaid investment in in the said subsidiary of RS,935.74 Lakhs, as at March 31, 2017 is appropriate.
Also, during the current year the Company has made provision for impairment of RS,100.00 Lakhs (March 31, 2016: CNil) towards the carrying value of its investment in the Subex Technologies Limited as the said subsidiary is under liquidation.
Note 30. EARNINGS/(LOSS) PER SHARE
Basic earnings/(loss) per share (EPS) amounts are calculated by dividing the loss for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares.
* Foreign currency convertible bonds and employee stock options outstanding as at March 31, 2017 and March 31, 2016 are anti-dilutive and accordingly have not been considered for the purpose of dilutive EPS.
Note 4. FOREIGN CURRENCY CONVERTIBLE BONDS
a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds ("FCCBs I") aggregating to US$ 180 Million, with an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being :
i) Exchange rate for conversion of FCCB : C44.08/ US$
ii) Conversion priRs,e : C656.20 per share
iii) Redemption date : March 09, 2012
iv) Premium payable on redemption : US$. 14.05 Million.
v) Listing on the London Stock Exchange
The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009 10, the Company presented to restructure the FCCBs I by offering a discount of ~30% on the face value of the existing bonds in return for new FCCBs ("FCCBs II")having a face value of US$ 126 Million.
Pursuant to the offer, the FCCBs I bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new FCCB II bonds, for the US$ 98.70 Million face value, were as under :
i) Interest rate : 5% p.a. payable semi annually
ii) Exchange rate for conversion of FCCB : C48.17/ US$
iii) Conversion price : RS,80.31 per share
iv) Redemption date : March 09, 2012
v) Premium payable on redemption : US$. 23.23 Million.
vi) Listing on the Singapore Exchange Securities Trading Limited
Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012.
Out of the US$ 98.70 Million of FCCBs II, bonds having a face value of US$ 31.90 Million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 Million were converted during the year ending March 31, 2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds.
b) Pursuant to the approval of the holders of "US$ 180 Million 2% convertible unsecured bonds", [of which US$ 39 Million was outstanding ("FCCBs I")] and "US$ 98.70 Million 5% convertible unsecured bonds", [of which US$ 54.80 Million was outstanding ("FCCBs II")], at their respective meetings held on July 5, 2012 and exchange offers received under the exchange offer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II offered their bonds for exchange and secured bonds with a face value of US$ 127.721 Million ("FCCBs III") were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring.
The terms and conditions of FCCBs III are as under :
i) Interest rate : 5.70% p.a. payable semi annually
ii) Exchange rate for conversion of FCCB : C56.0545/ US$
iii) Equity Conversion price : RS,22.79 per share
iv) Redemption date : July 07, 2017
v) Listing on the Singapore Exchange Securities Trading Limited
vi) Second ranking pari-passu charge in respect of all movable properties, present & future, covered under the existing security and first ranking charge in respect of all movable properties, present & future, other than and to the extent covered by the existing security. First ranking charge on FCCB repayment fund on a paripassu basis jointly and equally with SBI and Axis Bank Ltd. The promoters of the company have pledged their shares towards securing the repayment of FCCBs III.
vii) Mandatory conversion of bonds with a face value of US$ 36.321 Million into equity shares at the aforesaid conversion price on July 07, 2012.
c) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company''''s US$ 180 Million convertible unsecured bonds and US$ 98.70 Million convertible unsecured bonds, the maturity period of the unexchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, 2017, with its other terms and conditions remaining unchanged.
During the year ended March 31, 2017, the FCCBs I and FCCBs II are repaid in full along with the accrual premium applicable on these bonds on the maturity date.
d) The Board in its meeting held on May 14, 2015, has approved the reset of conversion price of the FCCBs III, which are convertible into equity shares of the Company, from C22.79 to C13.00 per equity share. Subsequently, the reset of the conversion price has been approved by the shareholders in the annual general meeting held on June 19, 2015 and the bondholders in their meeting held on August 5, 2015. The Board in its meeting held on August 26, 2015 has approved August 26, 2015 as the effective date of reset of conversion price of C13 per share.
As a result of the aforesaid reset of conversion price, the said bonds with outstanding face value of US$ 3.60 Million as at March 31, 2017 would potentially be converted into 15,522,785 equity shares at an exchange rate of C56.0545/US$ with a conversion price of C13 per equity share.
f) The FCCB holders in their respective meetings have approved the deferral of aggregate interest of US$ 0.73 Million ( RS,473.41 Lakhs) in respect of outstanding FCCBs III with face value of US$ 3.60 Million ( RS,2,334.60 Lakhs) for the period July 6, 2012 to January 5, 2016 till redemption date of the bonds, being July 07, 2017.
g) Upon extinguishment of liability (i.e. principal and interest accrued), due to conversion of FCCBs III, the portion of liability in excess of share capital and securities premium as the date of conversion is credited to surplus/ deficit of profit and loss. Refer note 15.
h) The amortized cost of the borrowings and fair value and equity component of FCCBs outstanding as on March 31, 2017 is as follows:
Note 32. SEGMENT REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The board of directors of the Company assesses the financial performance and position of the Company. The Chief Executive Officer has been identified as the chief operating decision maker.
The Company has identified a single business segment being software products and related services. This being a single segment no additional segment disclosure has been made for the business segment.
The Company''''s operations spans across the world and are categorized geographically as (a) Americas, (b) EMEA (c) India and (d) APAC and rest of the World. ''''Americas'''' comprises the Company''''s operations in North America, South America and Canada. ''''EMEA'''' comprises the Group''''s operations in Europe, Middle East and Africa and the Group''''s operations in the rest of the world, excluding India are organized under ''''APAC and the rest of the world''''. Customer relationships are driven based on customer domicile.
** Non-current operating assets includes Property, plant and equipment, Intangible assets, Balance with statutory/ government authorities and Prepaid expenses.
Note 5. RELATED PARTY TRANSACTIONS
i. Related parties where control exists
Wholly owned subsidiaries Subex Americas Inc.
Subex (UK) Limited Subex Technologies Limited Subex Azure Holdings Inc.
Subex (Asia Pacific) Pte. Limited Subex Inc.
Subex Technologies Inc.
Subex Middle East (FZE)
ii. Related parties under Ind AS 24 and as per The Companies Act, 2013 Key management personnel
Surjeet Singh Managing Director and Chief Executive Officer
Anil Singhvi Independent Director
Nisha Dutt Independent Director
Poornima Prabhu Independent Director - Appointed w.e.f March 24, 2017
Sanjeev Aga Independent Director - Resigned w.e.f October 27, 2016
Priyanka Roy Independent Director - Resigned w.e.f March 10, 2017
Ganesh KV Chief Financial Officer, Global Head- Legal and Company Secretary
*Bad debts written off during the year ended March 31, 2017 from provision for doubtful debts.
**The Company has netted off trade receivables from its subsidiaries against trade payables to the respective subsidiaries pursuant to approval from its Authorized Dealer. Also refer note 8.
*** The remuneration to the key managerial personnel does not include the provision/accruals made on best estimate basis as they are determined for the Company as a whole.
* Loans and advances to Subex Americas Inc., is provided as at March 31, 2017: RS,376.80 Lakhs (March 31, 2016: RS,1,947.76 Lakhs, April 1, 2015: RS, Nil).
** Loans and advances to Subex Technologies Limited is provided as at March 31, 2017: RS,1,717.67 Lakhs (March 31, 2016: RS,1,717.67 Lakhs, April 1, 2015: RS, 1,705.67 Lakhs).
Note 6. COMMITMENTS AND CONTINGENT LIABILITIES
a) Commitments Operating leases
The Company is obligated under non-cancellable lease for office and residential space that are renewable on a periodic basis at the option of both the lessor and lessee. The total rental expenses for the year under non-cancellable operating leases amounted to RS,697.65 Lakhs (March 31, 2016: RS,482.11 Lakhs).
Future minimum lease payments under non-cancellable operating lease payable within one year from balance sheet date is RS,Nil (March 31, 2016: RS,723.59 Lakhs, April 1, 2015: RS,Nil).
The Company leases office facilities, residential facilities and servers under cancellable operating lease agreements. The Company intends to renew such leases in the normal course of its business. Total rental expense for the year under cancellable operating leases was RS,566.79 Lakhs (March 31, 2016: RS,705.89 Lakhs)
i. Income tax
The Company has received assessment orders in respect of each of the financial years from March 31, 2002 to March 31, 2007 and from March 31, 2009 to March 31, 2013, wherein certain adjustments were made to the taxable income in relation to various matters including adjustments in respect of transfer pricing under section 92CA of the Income Tax Act, 1961 and disallowances of certain expenditures. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the prices determined by it are at arm''''s length, expenditures are deductible based on outcome of previous litigations, and is confident that the demands raised by the Assessing Officers are not tenable under the Income Tax Act, 1961. Pending outcome of the aforesaid matters under litigation, no provision has been made in the books of account towards these tax demands.
ii. Service tax
The Company has received demand order towards the service tax on import of certain services and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest during the period April 2006 to July 2009. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the service tax is not applicable on those import of services, and is confident that the demands raised by the Assessing Officers are not tenable under law. Pending outcome of the aforesaid matter under litigation, no provision has been made in the books of account towards these tax demands.
The Company has received certain claims from ex-directors of the Company for an amount of RS,1,293.44 Lakhs. The aforesaid claims are disputed by the Company and the matter is presently under arbitration with the arbitral tribunal. The management is of the view that these claims are not tenable.
The Company has also claimed the excess managerial remuneration of RS,123.80 Lakhs (March 31, 2016: RS,123.80 Lakhs, April 1, 2015: RS,123.80 Lakhs) paid to the aforementioned ex-directors during the year ended March 31, 2013, in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956 which has been treated as monies due from the directors, being held by them in trust for the Company, and other advances paid to directors during the year 2012-13 amounting to RS,110.00 Lakhs (March 31, 2016: RS,110.00 Lakhs, April 1, 2015: RS,110.00 Lakhs). The aggregate amount of RS,233.80 Lakhs (March 31, 2016: RS,233.80 Lakhs, April 1, 2016: RS,233.80 Lakhs) is included in ''''Other Financial Assets'''' in the financial statements. Pending final outcome of the litigations, no provision has been made in the books of account in this regard.
iv. The Company does not have any commitments as at balance sheet date except towards the operating lease as disclosed in note 35(a).
v. The Company has issued a comfort letter to provide continued financial support to its wholly owned subsidiary viz., Subex Americas Inc., to ensure that the entity is able to meet its debts, commitments and liabilities as they fall due and it continues as a going concern.
Note 7. EMPLOYEE STOCK OPTION PLAN (''''ESOPs'''')
The Company during the years 1999-2000, 2005-2006 and 2008-09 has established equity settled ESOP schemes of ESOP II, ESOP III and ESOP IV respectively. As per these schemes, the Compensation Committee grants the options to the employees deemed eligible by the Advisory Board constituted for the purpose. The options are granted at a price, which is not less than 85% of the average market price of the underlying shares based on the quotation on the Stock Exchange where the highest volume of shares are traded for 15 days prior to the date of grant. The shares granted vest over a period of 1 to 4 years and can be exercised over a maximum period of 3 years from the date of vesting.
The expected life of stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Note 8. EMPLOYMEE BENEFIT PLANS
a) Provident fund
The Company makes contributions to Provident Fund, Employee State Insurance scheme contributions which are defined contribution plan for qualifying employees. Under the scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognized RS,281.33 Lakhs (March 31, 2016: RS,261.42 Lakhs) for Provident Fund contributions and C Nil (March 31, 2016: RS,0.08 Lakhs) for Employee State Insurance scheme contribution in the Statement of profit and loss.
The Company offers Gratuity benefits to employees, a defined benefit plan, Gratuity plan is governed by the Payment of Gratuity Act, 1972. Under gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy.
Note 9. CAPITAL MANAGEMENT
The Company''''s objective is to maintain a strong capital base to ensure sustained growth in business and to maximize the shareholders value. The Capital Management focuses to maintain an optimal structure that balances growth and maximizes shareholder value.
The Company has transformed from a debt dominated Company to an equity dominated Company from financial year 2015-16. Current maturities represent FCCBs III of RS,2,277.17 Lakhs, due for repayment in July 07, 2017. The current borrowings are in the nature of working capital loans from banks. The Company has sufficient cash and cash equivalents and other financial assets which are liquid to meet the aforesaid FCCBs debt and current borrowings.
In order to achieve this overall objective, the Company''''s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. There have been no breaches in the financial covenants of any interest-bearing loans and borrowing in the current year.
* The carrying value of these accounts are considered to be the same as their fair value, due to their short term nature. Accordingly, these are classified as level 3 of fair value hierarchy.
# These accounts are considered to be highly liquid/ liquid and the carrying amount of these are considered to be the same as their fair value value. Accordingly, these are classified as level 3 of fair value hierarchy.
" The fair value of these accounts was calculated based on cash flow discounted using a current lending/ borrowing rate, they are classified as level 3 fair value hierarchy due to inclusion of unobservable inputs including counterparty credit risk.
Note 10. FINANCIAL RISK MANAGEMENT:
The Company''''s activities expose it to the following risks:
i. Credit risk
ii. Interest rate risk
iii. Liquidity risk
iv. Market risk
1 Credit risk:
Credit risk is the risk that counter party will not meet its obligations under a financial instruments or customer contract leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables and unbilled revenue) from its financing activities including deposits with banks and financial institutions, investments, foreign exchange transactions and other financial instruments. a. Trade receivables
Credit risk is managed by each business unit subject to the Company''''s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored.
The impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security.
The Company evaluates the concentration of risk with respect to trade receivables as low as majority of its customers are reputed telecom companies and are spread across multiple geographies.
c. Other financial assets and deposits with banks
Credit risk is limited as Company generally invests in deposits with banks with high credit ratings assigned by international and domestic credit rating agencies. Counter-party credit limits are reviewed by the Company periodically and the limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty''''s potential failure to make payments.
ii Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company''''s debt obligations are: 1) FCCBs which carry a fixed coupon rate and 2) Short term borrowings in nature of working capital loans, which carry floating interest rates. Accordingly, the Company''''s risk of changes in interest rates relates primarily to the Company''''s debt obligations with floating interest rates.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant. The impact on entity''''s loss before tax due to change in the interest rate/ fair value of financial liabilities are as disclosed below: iv Market risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''''s exchange risk arises from its foreign operations, foreign currency revenues and expenses, (primarily in United States Dollars (''''USD''''). Company also has exposures to Great Britain Pound (''''GBP'''') and United Arab Emirates Dirham (''''AED''''). The Company''''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''''s operating activities and financing activities.
Every 1% increase or decrease of the respective foreign currencies compared to functional currency of the Company would cause the profit before exceptional items in proportion to revenue to decrease or increase respectively by 0.02% (loss before exceptional items for the year ended March 31, 2016 by 0.27%).
Note 11. ADOPTION OF IND AS A First time adoption
These financial statements, for the year ended March 31, 2017, have been prepared in accordance with Ind AS. For the year ended March 31, 2016, the Company prepared its financial statements in accordance with accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (''''Indian GAAP'''' or '''' Previous GAAP'''').
Accordingly, the Company has prepared financial statements which comply with Ind AS applicable for year ending on March 31, 2017 together with the comparative period data, as described in the summary of significant accounting policies. In preparing these financial statements, the Company''''s opening balance sheet was prepared as at April 1, 2015, the Company''''s date of transition to Ind AS. This note explains the principal adjustments made by the Company in restating its Indian GAAP financial statements, including the balance sheet as at April 1, 2015 and the financial statements as at and for the year ended March 31, 2016.
B Exemption applied
Ind AS 101 allows first time adopters certain exemptions from the retrospective application of certain requirements under Ind AS. The Company has applied the following exemptions:
1 The Company has elected to avail exemption under Ind AS 101 to use Indian GAAP carrying value as deemed cost at the date of transition for all items of property, plant and equipment and intangible assets as per the statement of financial position prepared in accordance with previous GAAP.
2 Ind AS 102 Share-based Payment has not been applied to equity instruments in share-based payment transactions that vested before April 1, 2015.
D Notes to reconciliation between Previous GAAP and Ind AS:
1 Fair valuation of foreign currency convertible bonds:
In accordance with the recognition and measurement principles laid down in Ind AS, the Company has revised the accounting treatment in respect of FCCBs with effect from the transition date. As required by the applicable Ind AS, the Company has identified FCCBs as compound financial instruments and identified the equity component on the date of inception of the bonds. The fair value of the liability component is re-evaluated at each date of significant modification. The fair value of the liability is computed by amortized cost method by discounting the liability using the applicable effective interest rate as at the date of the last significant modification. The difference between the carrying value as per previous GAAP and as per Ind AS as at April 1, 2015 is adjusted through ''''Surplus/ (deficit) in the statement of profit and loss''''. Subsequently interest cost is recognized at the effective interest rate in the ''''standalone statement of profit and loss''''.
Similarly, the non-current portion of interest accrued but not due on FCCBs is carried at amortized cost by discounting the same to its fair value and the difference between the carrying value as per previous GAAP and as per Ind AS as at April 1, 2015 is adjusted through ''''Surplus/ (deficit) in statement of profit and loss''''. Subsequently interest cost is recognized at the effective interest rate in the ''''standalone statement of profit and loss''''.
Under the previous GAAP, upon conversion of FCCBs III into equity shares, the interest accrued but not due pertaining to the converted FCCBs and foreign exchange gain on FCCBs conversion was credited to the ''''standalone statement of profit and loss'''' as ''''exceptional item''''. Under Ind AS, such conversion is treated as extinguishment of liability and the gain on such extinguishment of liability of FCCBs is required to be credited to ''''other equity'''' and not recognized through the ''''standalone statement of profit and loss''''. Accordingly, the excess of amortized cost of liability (i.e., principle and interest accrued but not due pertaining to converted FCCBs) over share capital and securities premium on conversion of FCCBs is credited to ''''Surplus/ (deficit) in the statement of profit and loss''''.
Under previous GAAP, exchange gain/ loss on restatement of FCCBs was not immediately charged to the standalone statement of profit and loss and deferred over the contractual life of the FCCBs, by crediting/ debiting ''''Foreign currency monetary item translation difference'''', under reserves and surplus. Under Ind AS gain/ loss on restatement of FCCBs is immediately recognized in the standalone statement of profit and loss in the period in which such gain/ loss occurs.
12 Provision for expected credit loss
Under the previous GAAP the Company had provided for trade receivables from its subsidiaries based on management’s assessment regarding recoverability of such balances as at March 31, 2016. Under Ind AS the Company has provided for the expected credit loss on aged trade receivables from its subsidiaries, by discounting the net trade receivables to its present value on the basis of expected date of collection and risk free interest rate. The difference between the carrying value and discounted value of such net trade receivables as at April 1, 2015 was charged to ''''Surplus/ (deficit) in the statement of profit and loss'''' as provision for doubtful receivables (expected credit loss). Accordingly, the provision recognized under previous GAAP during the year ended March 31, 2016 is reduced by such amount.
13 Deferred revenue
Under the previous GAAP, the cost related to free support services was deferred and charged to the ''''standalone statement of profit and loss'''' over the period of the free support services. Under Ind AS, the fair value of revenue in relation to free support services is deferred and recognized over the period of free support services. Accordingly, the adjustment of deferred revenue as at April 1, 2015 is debited to ''''Surplus/ (deficit) in the statement of profit and loss'''' and debited to revenue for the year ended March 31, 2016. Further, the cost deferred under previous GAAP is reversed through the ''''standalone statement of profit and loss'''' for the year ended March 31, 2016 as a transition adjustment.
14 Security deposits and rent equalization reserve
Under Ind AS interest free security deposits are carried at amortized cost by, discounting the same using interest rates applicable to the counter party. The difference between transaction cost and fair value is recognized as prepaid lease and amortized over the period of the lease on a straight-line basis. Further, interest income is recognized on the amortized cost of the security deposits over the lease period.
Under previous GAAP operating lease expenses were recognized in the ''''standalone statement of profit and loss'''' on a straight line basis over the lease term. The difference between lease expense recognized in the ''''standalone statement of profit and loss'''' and contractual lease payments was recognized as ''''rent equalization reverse''''. Under Ind AS when the escalations in lease payments are linked to inflation, the operating lease expenses are recognized in the ''''standalone statement of profit and loss'''' as per the terms of the lease arrangement. Accordingly, rent equalization as at April 1, 2015 was reversed to ''''Surplus/ (deficit) in the statement of profit and loss'''' and for the year ended March 31, 2016, the same was reversed through the ''''standalone statement of profit and loss''''.
15 Employee benefits
Under previous GAAP, actuarial gains and losses were recognized in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of net defined benefit liability/asset which is recognized in other comprehensive income in the respective periods.
Note 16. STANDARDS ISSUED BUT NOT YET EFFECTIVE:
In March 2017, the Ministry of Corporate Affairs issued the Companies (Indian Accounting Standards) (Amendments) Rules, 2017, notifying amendments to Ind AS 7,''''Statement of cash flows'''' and Ind AS 102, ''''Share-based payment.'''' These amendments are in accordance with the recent amendments made by International Accounting Standards Board (IASB) to IAS 7, ''''Statement of cash flows'''' and IFRS 2, ''''Share-based payment,'''' respectively. The amendments are applicable to the Company from April 1, 2017.
Amendment to Ind AS 7:
The amendment to Ind AS 7 requires the entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, suggesting inclusion of a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, to meet the disclosure requirement.
The Company is currently evaluating the requirements of the amendment and has not yet determined the impact on the financial statements.
Amendment to Ind AS 102:
The amendment to Ind AS 102 provides specific guidance to measurement of cash-settled awards, modification of cash-settled awards and awards that include a net settlement feature in respect of withholding taxes. It clarifies that the fair value of cash-settled awards is determined on a basis consistent with that used for equity-settled awards. Market-based performance conditions and non-vesting conditions are reflected in the ''''fair values'''', but non-market performance conditions and service vesting conditions are reflected in the estimate of the number of awards expected to vest. Also, the amendment clarifies that if the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Further, the amendment requires the award that include a net settlement feature in respect of withholding taxes to be treated as equity-settled in its entirety. The cash payment to the tax authority is treated as if it was part of an equity settlement.
The Company is currently evaluating the requirements of the amendment and has not yet determined the impact on the financial statements.
For the purposes of this clause, the term ''''Specified Bank Notes'''' shall have the same meaning provided in the notification of the Government of India, in the Ministry of Finance, Department of Economic Affairs number S.O. 3407(E), dated the November 08, 2016.
Note 17. COST OF HARDWARE, SOFTWARE AND SUPPORT CHARGES:
The Company purchases hardware and software to fulfill its obligations under contracts for sale of its products or rendering of its services. There was no inventory of such hardware/software at the beginning and end of the year.
Cost of hardware, software and support charges for the year ended March 31, 2017 is net of reversal of provision no longer required amounting to RS, Nil (March 31, 2016: RS,173.46 Lakhs)
As at March 31, 2017, the Company has assessed the carrying value of the investment in its wholly owned subsidiary viz., Subex (UK) Limited of RS,64,738.68 Lakhs. Considering the future operational plan, projected cash flows and the valuation carried out by an external valuer, the management is of the view that, the carrying value of its aforesaid investment in Subex (UK) Limited as at March 31, 2017 is appropriate.
Subsequent to balance sheet date, the Company has made an allotment of 55,094,999 equity shares of the Company on a preferential basis, at an issue price of C14 per equity share (Face value of C10 per equity share) amounting to RS,7,713.30 Lakhs.
The Company had remitted the withholding taxes on interest on FCCBs III in accordance with the provisions of the Income Tax Act, 1961 amounting to RS,1,051.60 Lakhs pertaining to FCCBs III which have been converted into equity shares of the Company. Pursuant to such conversion, the interest accrued but not due is considered no longer payable and the management basis expert advice, is of the view that the withholding taxes paid by the Company in respect of the aforesaid interest, are recoverable from income tax department and/ or are adjustable against its other withholding taxes obligations. Accordingly, in the current year the Company has revised the returns of withholding taxes and adjusted withholding taxes of RS,1,036.59 Lakhs (March 31, 2016: C Nil) on salary, professional services and others by write-back of withholding taxes on interest on FCCBs paid earlier, and such write back is included under other income.
The Company has entered into ''''International transactions'''' with ''''Associated Enterprises'''' which are subject to Transfer Pricing regulations in India. The Company is in the process of carrying out transfer pricing study for the year ended March 31, 2017 in this regard, to comply with the requirements of the Income Tax Act, 1961. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm''''s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the standalone financial statements, particularly on account of tax expense and that of provision for taxation.
As per Section 135 of the Companies Act, 2013, a Corporate Social Responsibility (''''CSR'''') committee has been formed by Subex Limited. The primary function of the Committee is to assist the Board of Directors in formulating a CSR Policy and review the implementation and progress of the same from time to time. The CSR Policy focuses on creating opportunities for the disadvantaged with emphasis on persons with disabilities. The Company has incurred losses during the three immediately preceding financial years and accordingly, is not required to spend any amount for this purpose. However, during the year ended March 31, 2017, the Company has voluntarily incurred an expense of RS,3.60 Lakhs towards CSR activities.
The standalone financial information of the Company for transition date i.e. opening standalone balance sheet date being April 01, 2015 included in these standalone financial statements, are based on the previously issued standalone financial statements which were prepared under previous GAAP and audited by a firm of Chartered Accountants other than S.R. Batliboi & Associates LLP as adjusted for the differences in the accounting principles adopted by the Company on transition to Ind AS, which have been audited by us.
The comparative standalone financial information as at and for the year ended March 31, 2016 have been compiled after making necessary Ind AS adjustments to the audited standalone financial statements prepared under previous GAAP to give a true and fair view in accordance with Ind AS.