NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2016 1. CORPORATE INFORMATION eClerx Services Limited ('the Company') is engaged in providing Knowledge Process Outsourcing (KPO) services to global companies. Established in 2000, the Company provides data management, analytics solutions and process outsourcing services to a host of global clients through a network of multiple locations in India, and is headquartered in Mumbai. The Company is listed on the BSE Limited and National Stock Exchange of India. 2. BASIS OF brPARATION The financial statements of the Company have been brpared in accordance with the generally accepted accounting principles in India (Indian GAAP). The Company has brpared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been brpared on an accrual basis and under the historical cost convention, except derivative financial instruments which have been measured at fair value. The accounting policies adopted in the brparation of financial statements are consistent with those of brvious year. 3. SUMMERY OF SIGNIFICANT ACCOUNTING POLICIES a) Use of estimates The brparation of the financial statements in conformity with generally accepted accounting principles ('GAAP') in India requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities on the date of the financial statements. Management believes that the estimates made in the brparation of financial statements are prudent and reasonable. Actual future period's results could differ from those estimates. Any revision to accounting estimates is recognised prospectively in current and future periods. b) Revenue recognition Revenue from time and material and unit priced contracts are recognised when services are rendered and related costs are incurred. Revenue from fixed price contracts, are recognised over the life of the contract using the proportionate completion method, with contract costs determining the degree of completion. Foreseeable losses on such contracts are recognised when probable. Revenue from maintenance contracts are recognised on prorata basis over the period of the contract. Unbilled revenues included in other current assets rebrsent revenue in excess of billings as at the balance sheet date. Advance Billing Included In Other Current Liabilities Rebrsents Billing In Excess Of Revenue Recognized. Revenue Is Recognized Net Of Rebate. The Rebate Is Accrued Evenly Based On The Probability Of Achievement Of The Specified Level Of Sales Interest Income Is Recognized On Time Proportion Basis Taking Into Account The Amount Outstanding And The Interest Rate Applicable. Interest Income Is Included Under The Head "Other Income" In The Statement Of Profit And Loss. Dividend Income Is Recognized When Company's Right To Receive Dividend Is Established By The Reporting Date. c) Fixed assets Tangible Assets Assets are stated at the cost of Acquisition Including Incidental Costs Related To Acquisition And Installation Less Accumulated Debrciation And Impairment Loss, If Any. Advances Paid Towards Acquisition Of Fixed Assets Are Disclosed As Capital Advances Under Loans And Advances And Cost Of Assets Not Ready For Use Before The Year-End, Are Disclosed As Capital Work In Progress. Gains Or Losses Arising From Disposal Of Tangible Assets Are Measured As The Difference Between The Net Disposal Proceeds And The Carrying Amount Of The Asset And Are Recognized In The statement of profit and Loss when the asset is disposed. Intangible Assets Intangible Assets Acquired Separately Are Measured On Initial Recognition At Cost. Following Initial Recognition, Intangible Assets Are Carried At Cost Less Accumulated Amortisation And Accumulated Impairment Losses, If Any. d) Debrciation and amortization The Company Provides Debrciation On Tangible Fixed Assets Using The Written Down Value Method (Other Than Leasehold Assets) Using The Rates Arrived At, Based On Useful Lives Estimated By The Management. Investments Investments, Which Are Readily Realisable And Intended To Be Held For Not More Than One Year From The Date On Which Such Investments Are Made, Are Classified As Current Investments. ALL Other Investments Are Classified As Non-Current Investments. On Initial Recognition, All Investments Are Measured At Cost. The Cost Comprises Purchase Price And Directly Attributable Acquisition Charges Such As Brokerage, Fees And Duties. Current Investments Are Carried In The Financial Statements At Lower Of Cost And Fair Value Determined On An Individual Investment Basis. Non-Current Investments Are Carried At Cost And Provisions Recorded To Recognise Any Decline, Other Than Temporary, In The Carrying Value Of Each Investment. Profit or loss on sale of investments is recorded on transfer of title from the Company and is determined as the difference between the sales price and the carrying value of the investment. f) Impairment of Assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount. The recoverable amount of the assets (or where applicable, that of the cash generating unit to which the asset belongs) is estimated as the higher of its net selling price and its value in use. An impairment loss is recognized whenever the carrying amount of an asset or a cash generating unit exceeds its recoverable amount. Impairment loss is recognized in the statement of profit and loss or against revaluation surplus where applicable. If at the balance sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciable historical cost. g) Retirement and Other Employee Benefits Provident Fund Retirement benefit in the form of provident fund is a defined contribution scheme. Both the employee and the employer make monthly contributions to the plan at a brdetermined rate of the employees' basic salary. These contributions are made to the fund administered and managed by the Government of India. The Company's contributions are charged to statement of profit and loss on accrual basis. The Company has no further obligations under these plans beyond its monthly contributions. Gratuity The Company provides for gratuity benefit, which is a defined benefit plan, covering all its eligible employees. Actuarial valuation is done by an independent actuary as at the balance sheet date using the projected unit credit method and actuarial gains and losses are recognized in full in the period in which they occur in the statement of profit and loss. Compensated Absences Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short-term employee benefit. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve months, as long-term employee benefit for measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year-end. The Company treats the entire leave as current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for 12 months after the reporting date. Actuarial gains / losses are immediately taken to the statement of profit and loss and are not deferred. Current taxes Current Income-Tax Expense Is Recognized In Accordance With The Provisions Of Indian Income Tax Act, 1961. Minimum Alternate Tax (MAT) Paid In A Year Is Charged To The Statement Of Profit And Loss As Current Tax. The Company Recognizes MAT Credit Available As An Asset Only To The Extent That There Is Convincing Evidence That The Company Will Pay Normal Income Tax During The Specified Period, I.E., The Period For Which MAT Credit Is Allowed To Be Carried Forward. Accordingly, MAT Credit Is Recognized As An Asset In The Balance Sheet When It Is Probable That The Future Economic Benefit Associated With It Will Flow To The Company And The Asset Can Be Measured Reliably. Deferred taxes Deferred Income Taxes Reflect The Impact Of Timing Differences Between Taxable Income And Accounting Income Originating During The Current Year And Reversal Of Timing Differences For The Earlier Years. Deferred Tax Is Measured Using The Tax Rates And The Tax Laws Enacted Or Substantively Enacted At The Reporting Date. Deferred Tax Liabilities Are Recognised For All Taxable Timing Differences. Deferred Tax Assets Are Recognised For Deductible Timing Differences Only To The Extent That There Is Reasonable Certainty That Sufficient Future Taxable Income Will Be Available Against Which Such Deferred Tax Assets Can Be Realised. In Situations Where The Company Has Unabsorbed Debrciation Or Carry Forward Tax Losses, All Deferred Tax Assets Are Recognised Only If There Is Virtual Certainty Supported By Convincing Evidence That They Can Be Realised Against Future Taxable Profits. In The Situations Where The Company Is Entitled To A Tax Holiday Under The Income-Tax Act, 1961 Enacted In India Or Tax Laws Prevailing In The Respective Tax Jurisdictions Where It Operates, No Deferred Tax (Asset Or Liability) Is Recognised In Respect Of Timing Differences Which Reverse During The Tax Holiday Period, To The Extent The Company's Gross Total Income Is Subject To The Deduction During The Tax Holiday Period. Deferred Tax In Respect Of Timing Differences Which Reverse After The Tax Holiday Period Is Recognised In The Year In Which The Timing Differences Originate. The Carrying Amount Of Deferred Tax Assets Are Reviewed At Each Reporting Date. The Company Writes Down The Carrying Amount Of Deferred Tax Asset To The Extent That It Is No Longer Reasonably Certain Or Virtually Certain, As The Case May Be, That Sufficient Future Taxable Income Will Be Available Against Which Deferred Tax Asset Can Be Realised. Any Such Write-Down Is Reversed To The Extent That It Becomes Reasonably Certain Or Virtually Certain, As The Case May Be, That Sufficient Future Taxable Income Will Be Available. Leases Operating Lease Leases, Where The Less or Effectively Retains Substantially All The Risks And Benefits Of Ownership Of The Leased Item, Are Classified As Operating Leases. Operating Lease Payments Are Recognized As An Expense In The Statement Of Profit And Loss On A Straight-Line Basis Over The Lease Term. Derivative Instruments and Hedge Accounting The Company uses derivative financial instruments (foreign currency forward contracts) to hedge its risks with foreign currency fluctuations relating to certain highly probable forecast transactions. The use of forward contracts to hedge foreign currency risk is governed by the Company's strategy, which provides principles on the use of such forward contracts, consistent with the Company's Foreign Exchange Risk Management Policy. The Company does not use derivative financial instruments for speculative purposes. The derivative instruments are initially measured at fair value, and are re-measured at subsequent reporting dates. From April 1, 2014 the Company has adopted the principles of Accounting Standard 30, Financial Instruments: Recognition and Measurement (AS-30) issued by Institute of Chartered Accountants of India ('ICAI') to the extent the adoption of AS-30 does not conflict with existing accounting standards specified under section 133 of the Companies Act, 2013, read with paragraph 7 of the Companies (Accounts) Rules, 2014. In respect of derivatives entered into on or after April 1, 2014 and designated as hedges, the Company follows the hedge accounting principles of AS 30 and formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also formally assesses both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows of the hedged item. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognized directly in the hedging reserve account under shareholders' funds. Changes in the fair value relating to the ineffective portion of the hedges and also relating to the forward contracts that do not qualify for hedge accounting are recognized in the statement of profit and loss. Hedge accounting is discontinued from the last testing date when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Cumulative gain or loss on such hedging instrument recognized in shareholders' funds is retained until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognized in shareholders funds is transferred to the statement of profit and loss for the year. Foreign Currency Transactions Transactions in foreign currency are recorded at the exchange rate brvailing on the date of transaction. Net exchange gain or loss resulting in respect of foreign exchange transactions settled during the year is recognized in the statement of profit and loss. Foreign currency denominated monetary items at year end are translated at exchange rates as on the reporting date and the resulting net gain or loss is recognized in the statement of profit and loss. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Employee Stock Compensation Cost The Company grants stock options from time to time to its employees and also to employees of its subsidiaries. In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India('ICAI'), the cost of equity-settled transactions is measured using the intrinsic value method. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The expense or credit Recognized In The Statement Of Profit And Loss For A Period Rebrsents The Movement In Cumulative Expense Recognized As At The Beginning And End Of That Period And Is Recognized In Employee Benefits Expense m) Cash and Cash Equivalent Cash And Cash Equivalents For The Purposes Of Cash Flow Statement Comprise Cash At Bank And In Hand And Short-Term Investments With An Original Maturity Of Three Months Or Less. n) Provisions and Contingencies The Company Creates A Provision When There Is A Present Obligation As A Result Of A Past Event That Probably Requires An Outflow Of Resources Embodying Economic Benefits And A Reliable Estimate Can Be Made Of The Amount Of The Obligation. A Disclosure For A Contingent Liability Is Made When There Is A Possible Obligation Or A Present Obligation That May, But Probably Will Not, Require An Outflow Of Resources. When There Is A Possible Obligation Or A Present Obligation In Respect Of Which The Likelihood Of Outflow Of Resources Is Remote, No Provision Or Disclosure Is Made. 2. EMPLOYEES STOCK OPTION PLAN (ESOP) ESOP 2008 scheme: The Company Instituted ESOP 2008 Scheme Under Which 1,000,000 Stock Options Have Been Allocated For Grant To The Employees. The Scheme Was Approved By The Shareholders By Way Of Postal Ballot, The Result Of Which Was Declared On May 19, 2008. The Scheme Was Subsequently Amended To Increase The Number Of Options To 1,600,000 Stock Options Vide Resolution Passed At Ninth Annual General Meeting Held On August 26, 2009. Pursuant To Bonus Issue By The Company On July 29, 2010, The Number Of Options Available Under The Scheme Accordingly Increased To 2,400,000 Pursuant To Relevant SEBI Regulations. During The Year The Nomination And Remuneration Committee Approved That No Further Options Will Be Granted Under ESOP 2008 Plan, However Active Options Thereunder Would Continue To Vest As Per The Respective Terms. 3. DISCLOSURE PURSUANT TO LISTING REGULATIONS There are no loans and advances in nature of loans outstanding from subsidiary for the year ended March 31, 2016. 4. EARNINGS PER SHARE The Basic Earnings Per Equity Share Are Computed By Dividing The Net Profit Attributable To The Equity Shareholders For The Year By The Weighted Average Number Of Equity Shares Outstanding During The Reporting Period. The Number Of Shares Used In Computing Diluted Earnings Per Share Comprises The Weighted Average Number Of Shares Considered For Deriving Basic Earnings Per Share, And Also The Weighted Average Number Of Equity Shares, Which May Be Issued On The Conversion Of All Dilutive Potential shares, unless the results Would Be Ant dilutive. EMPLOYEE BENEFIT PLANS The Company Makes Annual Contribution To The Employee's Group Gratuity Assurance Scheme Of The Life Insurance Corporation Of India (LIC). The Scheme Provides For Lump Sum Payment To Vested Employees At Retirement, Death While In Employment Or On Termination Of Employment Based On Completed Year Of Service Or Part Thereof In Excess Of Six Months. Vesting Occurs On Completion Of Five Years Of Service. The Following Table Sets Out The Status 5. EXCEPTIONAL ITEMS The Company, Through Its Subsidiary Eclerx Investment Ltd, Acquired Agilyst Inc. In May 2012. One Of The Major Clients Of Agilyst Inc. Decided To Move Its Service Agreement From Agilyst Inc. To The Company For Better Physical And IT Infrastructure And Stronger Financial Position, With Effect From October 22, 2015. The Company Had Hence Reviewed The Carrying Value Of Investment In Agilyst Inc. Made Through Its Subsidiary Eclerx Investments Ltd And Made A Provision For Diminution In Value Of Rs 259.14 Million In The Standalone Financials In The Year Ended March 31, 2016. 6. SCHEME OF AMALGAMATION The Board Of Directors Of Eclerx Services Limited At Their Meeting Held On September 11, 2015 Have Approved The Scheme Of Amalgamation Between Agilyst Consulting Private Limited, Step Down Subsidiary And Eclerx Services Limited And Their Respective Shareholders (The "Scheme") Which Provides For The Amalgamation Of Agilyst Consulting Private Limited A Step Down Subsidiary, With Eclerx Services Limited ('The Company') Under Sections 391 To 394 And Other Applicable Provisions, If Any, Of Companies Act, 1956 And The Other Relevant Provisions Of Companies Act, 2013. The Appointed Date Of The Scheme Is April 1, 2015. The Company Has Received The Observation Letter From BSE Ltd. And The National Stock Exchange Of India Limited Conveying Their No-Objection In Filing The Scheme With The Hon'ble High Court Of Bombay ('High Court'). The Scheme Of Amalgamation Was Filed By Agilyst Consulting Private Limited With The Hon'ble High Court. The High Court Vide Its Order Dated April 1, 2016, Has Dispensed With The Requirement For Filing A Separate Company Summons For Direction And Company Scheme Petition Under Section 391-394 Of The Companies Act, 1956 For Eclerx Services Limited And Therefore There Was No Requirement For Holding Meetings Of Shareholders Or Creditors Of The Company In This Regard. The Scheme Is Pending Before The Hon'ble Court For Approval And Would Be Effective Only Once The Order Is Received From Hon'ble High Court Of Bombay And Filed With The Registrar Of Companies. Thereafter, The Scheme Will Be Given Effect To In The Books Of Accounts Of The Company. 7. The Company Has A Combrhensive System Of Maintenance Of Information And Documents As Required By The Transfer Pricing Legislation Under Sections 92-92F Of The Income Tax Act, 1961. Since The Law Requires Existence Of Such Information And Documentation To Be Contemporaneous In Nature, The Company Appoints Independent Consultants For Conducting A Transfer Pricing Study To Determine Whether The Transactions With Associate Enterprises Are Undertaken, During The Financial Year, On An "Arm's Length Basis". Adjustments, If Any, Arising From The Transfer Pricing Study In The Respective Jurisdictions Shall Be Accounted For As And When The Study Is Completed For The Current Financial Year. However The Management Is Of The Opinion That Its International Transactions Are At Arms' Length So That The Aforesaid Legislation Will Not Have Any Impact On The Financial Statements. 8. Previous Year Figures Have Been Regrouped/Reclassified Wherever Necessary To Conform With The Current Year's Presentation. As Per Our Report Of Even Date For And On Behalf Of The Board Of Directors Of Eclerx Services Limited For S. R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per Amit Majmudar Partner Membership Number: 36656 V.K. Mundhra Chairman PD Mundhra Executive Director Anjan Malik Director Biren Gabhawala Director Rohitash Gupta Chief Financial Officer Gaurav Tongia Company Secretary Place : Mumbai Date : May 20, 2016 |