Table ofContents

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 20-F**

 

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**(MarkOne)**

 

| **o**      | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934**                                    |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                            |
| **OR**     |
| ** ** | ** **                                                                                                                                            |
| **x**      | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2009** |
| ** ** | ** **                                                                                                                                            |
| **OR**     |
| ** ** | ** **                                                                                                                                            |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                               |
| ** ** | ** **                                                                                                                                            |
| **OR**     |
| ** ** | ** **                                                                                                                                            |
| **o**      | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                            |

 

Dateof event requiring this shell company report . . . . . . . . . . . . . . . . ... .

 

**For the transition period from                      to                        **

 

Commissionfile number 001-32692

 

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| **Patni Computer Systems Limited**                                                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                        |
|                                                                                                                                                                          |
| **Not applicable**                                                                                                                                                            |
| (Translation of Registrant’s name into English)                                                                                                                          |
|                                                                                                                                                                          |
| **Republic of India**                                                                                                                                                         |
| (Jurisdiction of incorporation or organization)                                                                                                                               |
|                                                                                                                                                                          |
| **Akruti Softech Park, MIDC Cross Road  No.21Andheri (E), Mumbai 400 093, India +91 22 6693 0500**                                                                            |
| (Address of principal executive offices)                                                                                                                                      |
|                                                                                                                                                                          |
| **Surjeet Singh, Chief Financial Officer, +91 22  6693 0500, surjeet.singh@patni.com**

**Akruti Softech Park, MIDC, Cross Road No. 21,  Andheri (E), Mumbai 400 093, India** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of  Company Contact Person)                                                                                      |

 

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Securitiesregistered or to be registered pursuant to Section 12(b) of the Act.

 

| Title of each  class                                                                                                                   |   | Name of each  exchange on which registered |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
| American Depositary Shares, each representing two equity shares, par  value Rs. 2 per share. Equity shares, par value Rs. 2 per share* |   | New York Stock Exchange                    |

 

* Not for trading but only in connection withRegistration of the ADSs

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act.

 
| **None**         |
|------------------|
| (Title of Class) |
|             |
| ** **       |
| (Title of Class) |

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act.

 
| **Not applicable** |
|--------------------|
| (Title of Class)   |

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report.
|   | Equity  shares:   129,126,032 |
|--------|-----------------------------------------|

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

o Yes   x No

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes   x No

 

Note— Checking the box above will not relieve any registrant required to filereports pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934 from their obligations under those Sections.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).

o Yes   o No

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 

| Large accelerated filer o |   | Accelerated filer x |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| U.S. GAAP x |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board o |   | Other o |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

If“Other” has been checked in response to the previous question, indicate bycheck mark which financial statement item the registrant has elected to follow.

o Item 17   x Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

(APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.

 

o Yes   o No

 

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**TABLE OFCONTENTS**

 
| PART - I |                                                                          |   |
|---------------|-------------------------------------------------------------------------------|--------|
|          |                                                                          |   |
| ITEM 1.       | IDENTITY OF DIRECTORS,  SENIOR MANAGEMENT AND ADVISERS                        | 4      |
| ITEM 2.       | OFFER STATISTICS AND EXPECTED  TIMETABLE                                      | 4      |
| ITEM 3.       | KEY INFORMATION                                                               | 4      |
| ITEM 4.       | INFORMATION ON THE  COMPANY                                                   | 18     |
| ITEM 4A.      | UNRESOLVED STAFF  COMMENTS                                                    | 35     |
| ITEM 5.       | OPERATING AND  FINANCIAL REVIEW AND PROSPECTS                                 | 35     |
| ITEM 6.       | DIRECTORS, SENIOR  MANAGEMENT AND EMPLOYEES                                   | 53     |
| ITEM 7.       | MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS                            | 65     |
| ITEM 8.       | FINANCIAL INFORMATION                                                         | 68     |
| ITEM 9.       | THE OFFER AND LISTING                                                         | 69     |
| ITEM 10.      | ADDITIONAL  INFORMATION                                                       | 72     |
| ITEM 11.      | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 90     |
| ITEM 12.      | DESCRIPTION OF  SECURITIES OTHER THAN EQUITY SECURITIES                       | 91     |
|          |                                                                          |   |
| PART II  |                                                                          |   |
|          |                                                                          |   |
| ITEM 13.      | DEFAULTS, DIVIDEND  ARREARAGES AND DELINQUENCIES                              | 91     |
| ITEM 14.      | MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 91     |
| ITEM 15.      | CONTROLS AND  PROCEDURES                                                      | 92     |
| ITEM 16A.     | AUDIT COMMITTEE  FINANCIAL EXPERT                                             | 94     |
| ITEM 16B.     | CODE OF ETHICS                                                                | 94     |
| ITEM 16C.     | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                       | 94     |
| ITEM 16D.     | EXEMPTIONS FROM  THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 94     |
| ITEM 16E.     | PURCHASES OF  EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASES        | 94     |
| ITEM 16F      | CHANGE IN  REGISTRANT’S CERTIFYING ACCOUNTANT                            | 95     |
| ITEM 16G      | CORPORATE GOVERNANCE                                                          | 95     |
|          |                                                                          |   |
| PART III |                                                                          |   |
|          |                                                                          |   |
| ITEM 17.      | FINANCIAL STATEMENTS                                                          | 100    |
| ITEM 18.      | FINANCIAL STATEMENTS                                                          | 100    |
| ITEM 19.      | EXHIBITS                                                                      | 101    |

 

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**CURRENCY OF PRESENTATION AND CERTAINDEFINED TERMS**

** **

Unless otherwise stated in this Annual Report orunless the context otherwise requires, references in this Annual Report on Form 20-F,or “Annual Report” to:

 

·       “we,”“us,”, “our”, “our company” and “Patni” are to Patni Computer Systems Limitedand its consolidated subsidiaries;

 

·       “India”are to the Republic of India;

 

·       “JapaneseYen” and “JPY” are to the legal currency of Japan; and all references to

 

·       “Euro” are to the legal currency of the European Union;

 

·       “AUD” are to the legal currency of the Commonwealthof Australia;

 

·       “GBP” are to the legal currency of the UnitedKingdom of Great Britain and Northern Ireland;

 

·       “Singapore Dollar” and “SGD” are to the legalcurrency of Singapore;

 

·       “Indianrupees,” “rupees” and “Rs.”are to the legal currency of India;

 

·          “U.S. dollars,”“dollars” or “US $” or “$” are to the legal currency of the United States;and

 

·       aparticular “fiscal” year are to our fiscal year ended December 31 of suchyear.

 

The financial statements have been preparedusing U.S. dollars as the reporting currency. In addition, for yourconvenience, this Annual Report contains translations of certain Indian rupeeamounts into U.S. dollars amounts which should not be construed as arepresentation that those Indian rupee or U.S. dollar amounts could have been,or could be, converted into U.S. dollaror Indian rupees, as the case may be, at any particular rate, the rate statedbelow, or at all.

 

Except as otherwise stated in this AnnualReport, all translations from Indian rupees to U.S. dollars contained in thisAnnual Report have been based on the noon buying rate published by the FederalReserve Board on December 31, 2009 in Indian rupees, which was Rs. 46.40per $ 1.00.

 

Information contained in our websites, includingour corporate website, www.patni.com, is not part of this Annual Report.

 

**SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS**

** **

This Annual Report contains forward-lookingstatements. The forward-looking statements are contained principally in thesections entitled “Key Information—Risk Factors,” “Information on the Company,”and “Operating and Financial Review and Prospects”. These statements involveknown and unknown risks, uncertainties and other factors which may cause ouractual results, performance or achievements to be materially different from anyfuture results, performance or achievements expressed or implied by theforward-looking statements. Forward-looking statements include statementsabout:

 

·       ourability to attract and retain clients;

 

·       theanticipated benefits and risks associated with our business strategy, includingthose relating to our current and future service offerings;

 

·       ourfuture operating results;

 

·       theanticipated benefits and risks of our strategic customer relationships andacquisitions;

 

·       theanticipated size or trends of the market segments in which we compete and theanticipated competition in those markets;

 

·       governmentregulation and the outcome of any tax, legal or regulatory review, action orlitigation; and

 

·       ourfuture capital requirements and our ability to satisfy our capital needs.

 

In some cases, you can identify forward-lookingstatements by terminology such as “may,” “will,” “could,” “should,” “expect,”“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential”or “continue,” the negative of such terms or other comparable terminology.These statements are only predictions. Actual events or results may differmaterially. In evaluating these statements, you should specifically considervarious factors, including the risks outlined in “Item 3.D. KeyInformation—Risk Factors”. These factors may cause our actual results to differmaterially from any forward-looking statement. Although we believe that theexpectations reflected in the forward-looking statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievement.

 

Forward-looking statements speak only as of thedate they are made. Other than required by law, we do not undertake anyobligation to update them in light of new information or future developments.

 

This Annual Report includes statistical dataabout the IT industry that comes from information published by sourcesincluding Gartner, Inc., orGartner, a provider of market information and strategic information for the ITindustry, and the National Association of Software and Service Companies, orNASSCOM, an industry trade group. This type of data represents only theestimates of Gartner, NASSCOM, and other sources of industry data. 

 

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In addition, although we believe that datafrom these sources is generally reliable, this type of data is inherentlyimprecise. We caution you not to place undue reliance on this data.

 

**PART I**

** **

**ITEM1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS**

** **

Not applicable.

 

**ITEM2. OFFER STATISTICS AND EXPECTED TIMETABLE**

** **

Not applicable.

 

**ITEM3. KEY INFORMATION**

** **

**3.A. Selected financial data**

** **

*The selected consolidated historical financial dataset forth below should be read in conjunction with our consolidated financialstatements, the notes to those statements and “Item 5. Operating and FinancialReview and Prospects” included elsewhere in this Annual Report. The selecteddata presented below under the captions “Statement of Income Data”, “BalanceSheet Data” and “Cash Flow Data” for, as of and for each of the years in thefive-year period ended December 31, 2009, are derived from our auditedconsolidated financial statements (except for cash dividend per equity share)and have been prepared and presented in accordance with U.S. GAAP.  The consolidated financial statements as of December 31,2008 and 2009, and for each of the years in the three-year period ended December 31,2009, and the report of our independent registered public accounting firm thereon,are included elsewhere in this Annual Report. Historical results are not necessarilyindicative of the results to be expected for any future period.*

 
| ** **                                                                     | ** ** | **Fiscal Year ended December 31,**                                 | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                                                                | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                                                     | ** ** | **(in thousands, except share data and per share)** |
| Statement of Income Data                                                       |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Net Revenues                                                                   |       | $                                                                       | 450,332    |   | $ | 578,851 |   | $ | 662,912 |   | $ | 718,884 |   | $ | 655,918 |   |
| Cost of revenues                                                               |       | 292,456                                                                 |       | 373,966 |   | 450,085 |   | 491,266 |   | 421,309 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Gross Profit                                                                   |       | $                                                                       | 157,876    |   | $ | 204,885 |   | $ | 212,827 |   | $ | 227,618 |   | $ | 234,609 |   |
| Selling, general and administrative                                            |       | 85,906                                                                  |       | 106,472 |   | 116,260 |   | 131,056 |   | 122,010 |   |
| Provision for doubtful debts and advances                                      |       | (152                                                                    | )          | 1,191 |   | 1,182 |   | 1,626 |   | 2,267 |   |
| Foreign exchange (gain) loss, net                                              |       | 1,693                                                                   |       | 2,748 |   | (23,351 | ) | 18,359 |   | 9,693 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Operating Income                                                               |       | $                                                                       | 70,429     |   | $ | 94,474 |   | $ | 118,736 |   | $ | 76,577 |   | $ | 100,639 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Other Income / (Expense)                                                       |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Interest and dividend income                                                   |       | 4,190                                                                   |       | 10,088 |   | 12,540 |   | 13,002 |   | 11,223 |   |
| Interest expense                                                               |       | (2,044                                                                  | )          | (2,840 | ) | (3,592 | ) | (1,744 | ) | (1,494 | ) |
| Interest expense reversed                                                      |       | —                                                                  |       | — |   | — |   | 6,497 |   | 2,808 |   |
| Gain on sale of investments, net                                               |       | 1,128                                                                   |       | 1,679 |   | 6,370 |   | 9,732 |   | 9,468 |   |
| Other income (expenses), net                                                   |       | 966                                                                     |       | 3,541 |   | 1,706 |   | 2,561 |   | 1,894 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Income before income taxes                                                     |       | $                                                                       | 74,669     |   | $ | 106,942 |   | $ | 135,760 |   | $ | 106,625 |   | $ | 124,538 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Income taxes                                                                   |       | 13,802                                                                  |       | 47,692 |   | 21,784 |   | 5,204 |   | 4,759 |   |
|                                                                           |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Net income                                                                     |       | $                                                                       | 60,867     |   | $ | 59,250 |   | $ | 113,976 |   | $ | 101,421 |   | $ | 119,779 |   |
| Earnings per share, basic & diluted                                   |       |                                                                    |       |   |   |   |   |   |   |   |   |
| Basic                                                                          |       | $                                                                       | 0.48       |   | $ | 0.43 |   | $ | 0.82 |   | $ | 0.75 |   | $ | 0.93 |   |
| Diluted                                                                        |       | $                                                                       | 0.48       |   | $ | 0.43 |   | $ | 0.82 |   | $ | 0.75 |   | $ | 0.92 |   |
| Weighted average number of common shares used in  computing earnings per share |       |                                                                    |       |   |   |   |   |   |   |   |   |
| —Basic                                                                    |       | 125,736,592                                                             |       | 137,957,477 |   | 138,660,785 |   | 135,590,677 |   | 128,254,916 |   |
| —Diluted                                                                  |       | 127,457,632                                                             |       | 138,904,860 |   | 139,569,933 |   | 135,760,422 |   | 130,241,085 |   |
| Cash dividend per equity share ($)                                             |       | $                                                                       | 0.046      |   | $ | 0.057 |   | $ | 0.086 |   | $ | 0.082 |   | $ | 0.072 |   |
| Cash dividend per equity share (Rs.)                                           |       | Rs 2.50                                                                 |       | Rs 3.00 |   | Rs 3.00 |   | Rs 3.00 |   | Rs 3.00 |   |

 

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| ** **                      | ** ** | **Fiscal Year ended December 31,** | ** ** |
|---------------------------------|------------|-----------------------------------------|------------|
| ** **                      | ** ** | **2005**                                | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|                            |       |                                    |       |   |   |   |   |   |   |   |   |
| Balance Sheet Data              |       |                                    |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents       |       | $                                       | 148,820    |   | $ | 46,510 |   | $ | 32,626 |   | $ | 60,138 |   | $ | 63,459 |   |
| Investments in securities       |       | 141,776                                 |       | 246,016 |   | 301,152 |   | 248,299 |   | 375,858 |   |
| Total assets                    |       | 553,886                                 |       | 640,341 |   | 856,226 |   | 765,342 |   | 901,181 |   |
| Capital lease obligations       |       | 706                                     |       | 692 |   | 604 |   | 360 |   | 203 |   |
| Total shareholders’ equity |       | 439,029                                 |       | 508,593 |   | 680,964 |   | 570,956 |   | 747,034 |   |
|                                 |            |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                              |   | **Fiscal Year ended December 31,** |       |
|-----------------------------------|--------|-----------------------------------------|------------|
|                              |   | **2005**                                | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** |   |
|                              |   | **(in thousands)**                 |       |
| Cash Flow Data                    |   |                                    |       |   |   |   |   |   |   |   |   |
| Net cash provided by / (used in): |   |                                    |       |   |   |   |   |   |   |   |   |
| Operating activities              |   | $                                       | 73,058     |   | $ | 59,091 |   | $ | 111,272 |   | $ | 149,343 |   | $ | 137,206 |   |
| Investing activities              |   | (111,750                                | )          | (155,426 | ) | (130,036 | ) | (35,531 | ) | (132,699 | ) |
| Financing activities              |   | 111,875                                 |       | (7,106 | ) | (8,682 | ) | (64,589 | ) | (3,150 | ) |
| Capital expenditures              |   | (53,282                                 | )          | (48,620 | ) | (61,891 | ) | (43,362 | ) | (18,983 | ) |
|                                   |        |                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Exchange rates**

** **

Fluctuations in the exchange rate between theIndian rupee and the U.S. dollar will affect the U.S. dollar equivalent of theIndian rupee price of our equity shares on the Indian Stock Exchanges and, as aresult, will likely affect the market price of the American Depository Shares,or ADSs, in the United States, and vice versa. Such fluctuations will alsoaffect the U.S. dollar conversion by the depositary of any cash dividends paidin Indian rupees on our equity shares represented by the ADSs.

 

The following table sets forth, for the fiscalyears indicated, information concerning the number of Indian rupees for whichone U.S. dollar could be exchanged based on the average rate published by theFederal Reserve Board of New York in Indian rupees.

 
| **Year**                              | ** ** | **Average** | ** ** | **High** | ** ** | **Low** | ** ** | **Period-End** | ** ** |
|---------------------------------------|------------|-------------|------------|----------|------------|---------|------------|----------------|------------|
| 2005                                  |       | 44.00       |       | 46.26    |       | 43.05   |       | 44.95          |       |
| 2006                                  |       | 45.19       |       | 46.83    |       | 43.89   |       | 44.11          |       |
| 2007                                  |       | 41.19       |       | 44.49    |       | 38.48   |       | 39.41          |       |
| 2008                                  |       | 43.39       |       | 50.12    |       | 39.12   |       | 48.58          |       |
| 2009                                  |       | 48.33       |       | 51.96    |       | 46.00   |       | 46.40          |       |
| 2010 (through February 22, 2010) |       | 46.08       |       | 46.79    |       | 45.35   |       | 46.21          |       |

 

The following table sets forth the high and lowexchange rates for the previous six months in Indian rupees based on the noonbuying rates published by the Federal Reserve Board:

 
| ** **                                          | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------------------------------------------------|------------|----------|------------|---------|------------|
| August 2009                                    |       | 48.90    |       | 47.27   |       |
| September 2009                                 |       | 49.05    |       | 47.75   |       |
| October 2009                                   |       | 47.72    |       | 46.00   |       |
| November 2009                                  |       | 47.37    |       | 46.06   |       |
| December 2009                                  |       | 46.85    |       | 46.00   |       |
| January 2010                                   |       | 46.35    |       | 45.35   |       |
| February 2010 (through February 22, 2010) |       | 46.79    |       | 45.97   |       |

 

On February 22, 2010 the noon buying ratepublished by the Federal Reserve Board was Rs.46.21 per $ 1.

 

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*** ***

**3.B.Capitalization and indebtedness**

** **

Not applicable.

 

**3.C. Reasons for the offer and use ofproceeds**

** **

Not applicable.

 

**3.D. Risk factors**

** **

*Investors shouldcarefully consider all of the information set forth in this Annual Report andthe following risk factors that affect us and our industry. The risks below arenot the only ones we face. Additional risks not currently known to us or thatwe presently deem immaterial may also affect our business operations. Ourbusiness, financial condition or results of operations could be materially oradversely affected by any of these risks. This Annual Report also containsforward-looking statements that involve risks and uncertainties. Our resultscould materially differ from those anticipated in these forward-lookingstatements as a result of certain factors, including the risks we face as describedbelow and elsewhere. See “Special Note Regarding Forward-Looking Statements.”*

* *

**Risks Related to our Operations**

** **

***Our revenues are highly dependent on a limitednumber of clients and the loss of any one of our major clients could adverselyaffect our revenues.***

*** ***

We derive a significant portion of our revenuesfrom a limited number of clients in a few select industries. In 2007, 2008 and2009 our top two clients, accounted for 20.9% 20.5% and 22.3% of our revenues, respectively.In 2007, 2008 and 2009 our top ten clients accounted for 47.6%, 45.6% and 49.7%of our revenues, respectively. As a result of our reliance on a limited numberof clients, we may face pricing and other competitive pressures. The volume ofwork performed for specific clients is likely to vary from year to year,especially since we are not the exclusive external service provider for ourclients. In addition, there are a number of factors, other than ourperformance, that could cause the loss of a client and that may not bepredictable. For example, our clients may decide to reduce spending on ITservices or sourcing from us due to a challenging economic environment andother factors, internal and external, relating to their business such asrestructuring or supplier rationalizations. The loss of any one of our majorclients, a decrease in the volume of work they outsource to us or a decrease inthe price at which we sell our services to them could adversely affect ourrevenues.

 

***Our client contracts, including those with ourtwo largest customers, typically can be terminated without cause and withlittle or no notice or penalty, which could negatively impact our revenues andprofitability.***

*** ***

Our clients typically retain us throughnon-exclusive master services agreements, or MSAs. Most of our client projectcontracts, including those that are on a fixed-price and fixed-price servicelevel agreement, or SLA, basis, can be terminated with or without cause, with 0to 90 days notice and without termination- related penalties. Our MSAstypically do not include any commitment by our clients to give us a specificvolume of business or future work. Additionally, certain of our MSAs do notrequire the client to make payments for any services or work product reasonablydeemed unacceptable to the client. Our business is dependent on the decisionsand actions of our clients, many of which are outside our control, which mightresult in the termination of a project or the loss of a client and we couldface liabilities as a result of such termination. Our clients may demand pricereductions, change their outsourcing strategy by limiting the number ofsuppliers they use, moving more work in-house or to our competitors orreplacing their existing software with packaged software supported bylicensors. Any of these decisions or actions could adversely affect ourrevenues and profitability.

 

***Our revenues are highly dependent on clientslocated in the United States and Europe. Economic slowdowns or factors thataffect the economic health of the United States and Europe may adversely affectour business.***

*** ***

In 2007, 2008 and 2009, approximately 77.9%,75.9% and 78.9% of our revenues, respectively were derived from clients locatedin the United States and 14.7%, 15.7% and 12.7% of our revenues, respectivelywere derived from clients located in Europe. The economic slowdown in theUnited States and Europe witnessed during the fourth quarter of 2008 and the entire year 2009, has resultedin our clients reducing or postponing their technology spending significantly,which in turn has had a negative impact on the revenues for the year 2009. Ifthe global economic conditions continue or worsen our business could benegatively affected in the future.

 

***Our clients operate in a limitednumber of industries. Factors that adversely affect these industries or ITspending by companies within these industries may adversely affect ourbusiness.***

 

We derive a large proportion of our revenuesfrom clients which operate in a limited number of industries. In 2007, 2008 and2009, we derived 23.6%, 24.7% and 29.7% of our revenues, respectively from theinsurance industry, 27.0%, 28.9% and 29.0% of our revenues, respectively fromthe manufacturing retail and distribution industry, 18.3%, 17.9% and 13.5% ofour revenues, respectively from the communications, media and utilitiesindustry, and 14.1%, 12.8% and 12.8% of our revenues, respectively from thefinancial services industry,. Theongoing crisis in the financial and credit markets, particularly, in the UnitedStates, has led to a significant change in the financial services industry,with the United States federal government and other national governments beingforced to take over or provide financial support to leading financialinstitutions and with leading investment

 

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banks going bankruptor being forced to sell themselves in distressed circumstances. Significantchanges in the financial services industry or any of the other industries onwhich we focus, or a significant consolidation in any such industry, may reducethe demand for our services and negatively affect our revenues andprofitability. Any significantdecrease in IT services spending by clients in these industries or otherindustries from which we derive significant revenues in the future may reducethe demand for our services. Further, any significant decrease in the growth ofthe insurance, manufacturing, retail and distribution, financial services orcommunications, media and utilities industries, or significant consolidation inthose industries, or any decrease in growth or consolidation in other industrysegments in which we operate, may reduce the demand for our services.

 

***The******ongoing************financial crisis has caused and could continue to negativelyaffect our business, results of operations and financial condition****.*

 

Global economic and political conditions affect ourclients’ businesses and the markets they serve. The global economic downturnseen in the fiscal 2009 had reduced, demand for our services and has alsocaused clients to request additional price concessions. For example our netrevenues decreased from $718.8 million in 2008 to $655.9 million in 2009. Ifcurrent global economic conditions continue or worsen, or if economiccontraction continues in the industries or geographies where we operate, ourbusiness could be adversely affected by our clients’ financial condition andthe levels of business activity in the industries we serve which could have amaterial adverse effect on our results of operations. Changes in globaleconomic conditions could also shift demand to services for which we do nothave competitive advantages, and this could negatively affect the amount ofbusiness that we are able to obtain. Negative or uncertain political climatesin countries or geographies where we operate could also adversely affect us. Inaddition, if we are unable to successfully anticipate changing economic andpolitical conditions, we may be unable to effectively plan for or respond tothose changes, and our business could be negatively affected.

 

***We face intense competition for employees in ourmarket. Our success depends in large part upon our highly skilled softwareprofessionals and our ability to attract and retain these personnel.***

*** ***

Our ability to execute projects and to obtainnew clients depends largely on our ability to attract, train, motivate andretain highly-skilled software professionals, particularly project managers andother mid-level professionals.Our attrition rates were, 26.5%, 20.0% and 15.4% in 2007, 2008 and 2009. Wedefine our attrition rate as the ratio of the number of employees who have leftus during a defined period to the average number of employees who are on ourpayroll during such period.

 

We invest in training the professionals whom wehire to perform the services we provide. These professionals are often targetedby the lateral recruitment efforts of our competitors. If we cannot hire andretain additional qualified personnel, our ability to bid on and obtain newprojects may be impaired and our revenues could decline. In addition, we maynot be able to expand our business effectively. We believe that there issignificant worldwide competition for software professionals with the skillsnecessary to perform the services we offer, including from non-Indian,international service providers such as Accenture Limited, or Accenture, andInternational Business Machines Corporation, or IBM. Additionally, we may notbe able to redeploy and retrain our software professionals to keep pace withcontinuing changes in technology, evolving standards and changing clientpreferences.

 

***Our revenues, expenses and profits are difficultto predict and can vary significantly from quarter to quarter. This could causethe market value of our equity shares and the ADSs to decline.***

*** ***

Our quarterly operating results may varysignificantly from quarter to quarter. Therefore, we believe thatperiod-to-period comparisons of our results of operations are not necessarilymeaningful and should not be relied upon as an indication of our futureperformance. It is possible that in the future some of our quarterly results ofoperations may be below the expectations of market analysts and our investors,which could lead to a significant decline of the market value of our equityshares and the ADSs.

 

As a large part of any quarter’s revenuesare derived from existing customers, revenue growth can vary due to projectstart and stops and customer-specific situations. Operating income variation isdue to various factors such as changes in compensation, which are typicallyeffected in the second quarter and reduce our operating margin in such quarter;changes in our use of onsite subcontractors, with higher usage in any quarterleading to lower operating income; changes in the ratio of onsite and offshoreservices, with higher offshore revenues enhancing the particular quarter’soperating income; changes in utilization of resources, with lower utilizationleading to reduction in operating income; and changes in foreign exchangerates. We also experience variations in immigration costs.

 

Factors which affect the fluctuation of ourrevenues, expenses and profits include:

 

·       variations,expected or unexpected, in the duration, size, timing and scope of ourprojects, particularly with our major clients;

 

·       changesin our pricing policies or those of our clients or competitors;

 

·       theproportion of services that we perform in our development centers in India asopposed to outside India;

 

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·       theeffect of seasonal hiring patterns, unanticipated attrition and the timerequired to train and productively utilize our new employees, particularlysoftware professionals;

 

·       annualincreases in compensation of our employees;

 

·       thesize and timing of expansion of our facilities;

 

·       unanticipatedcancellations, non-renewal of our contracts by our clients, contractterminations or deferrals of projects; and

 

·       changesin our employee utilization rate, which is affected by various factors.

 

A significant part of our expenses, particularlythose related to personnel and facilities, are fixed in advance of anyparticular quarter. As a result, unanticipated variations in the number andtiming of our projects or employee utilization rates may cause significantvariations in our operating results in any particular quarter. There are also anumber of factors other than our performance that are not within our controlthat could cause fluctuations in our operating results from quarter to quarter.These include:

 

·       theduration of tax holidays or exemptions and the availability of other Governmentof India incentives;

 

·       theoutcome of any tax, legal or regulatory review, action or litigation;

 

·       currencyexchange rate fluctuations, particularly when the rupee appreciates in valueagainst the U.S. dollar since the majority of our revenues are in U.S. dollarsand a significant part of our expenses are in rupees; and

 

·       othergeneral economic factors.

 

***Consolidation in the industries that we serve could adversely affectour business.***

*** ***

***Companies in the industriesthat we serve may seek to achieve economies of scale and other synergies bycombining with or acquiring other companies. If two or more of our currentclients merge or consolidate and combine their operations, it may decrease theamount of work that we perform for these clients. If one of our current clientsmerges or consolidates with a company that relies on another provider for itsconsulting, systems integration and technology, or outsourcing services, we maylose work from that client or lose the opportunity to gain additional work. Theincreased market power of larger companies could also increase pricing andcompetitive pressures on us. Any of these possible results of industryconsolidation could adversely affect our business.***

*** ***

***Our earnings may be adversely affected if wereceive an adverse determination resulting from a pending U.S. InternalRevenue Service tax review of our U.S. operations.***

*** ***

We face challenges fromdomestic and foreign tax authorities regarding the amount of current taxes due.These challenges include questions regarding the amount of deductions, transferpricing and the allocation of income among various tax jurisdictions. To theextent we are able to prevail in matters for which accruals have beenestablished or are required to pay amounts in excess of such accruals, oureffective tax rate in a given financial statement period may be materiallyaffected. Additionally, we operate in several countries and our failure tocomply with the local tax regime may result in additional taxes, penalties andenforcement actions. To the extent we do not comply with tax-relatedregulations, our profitability will be adversely affected.  See “Item 5A- Operating and Financial Reviewand Prospects - Operating Results — Taxes”.

 

***We operate in a highly competitive environmentand this competitive pressure on our business is likely to continue.***

*** ***

***We operatein a highly competitive environment and this competitive pressure on ourbusiness is likely to continue. The market for IT services is rapidly evolvingand highly competitive. We expect that competition will continue to intensify.We face competition or competitive pressure from:***

*** ***

·       IndianIT services companies, such as Tata Consultancy Services Limited, InfosysTechnologies Limited, Wipro Limited, HCL Technologies Limited and TechMahindra;

 

·       internationalIT services companies, such as Accenture, Cognizant Technology Solutions,Computer Sciences Corporation and Sapient Corporation;

 

·       divisionsof large multinational technology firms such as IBM, and Hewlett-PackardCompany, or Hewlett-Packard;

 

·       in-houseIT departments of large corporations;

 

·       otherinternational, national, regional and local firms from a variety of marketsegments, including major international accounting firms, systems consultingand implementation firms, applications software firms, service groups ofcomputer equipment companies, general management consulting firms, programmingcompanies and temporary staffing firms;

 

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·       offshoreservice providers in other countries with low wage costs such as China and thePhilippines, and countries in Eastern Europe and Latin America; and

 

·       involvementof third party intermediaries who negotiate IT services and outsourcingcontracts on behalf of their clients.

 

A number of our international competitors have set**upoperations in India. Further, a number of our international competitors withexisting operations in India haveramped up their presence as offshore operations in India have become animportant element of their delivery strategy.

 

Many of our competitors have significantlygreater financial, technical and marketing resources and generate greaterrevenues than we do. Clients may prefer vendors that have delivery centerslocated globally or are based in countries that are more cost-competitive thanIndia. Therefore, we cannot assure you that we will be able to retain ourclients while competing against such competitors. We believe that our abilityto compete also depends in part on a number of factors beyond our control,including the ability of our competitors to attract, train, motivate and retainhighly skilled technical employees, the price at which our competitors offercomparable services and the extent of our competitors’ responsiveness to clientneeds.

 

***Any inability to manage our growth could disruptour business and reduce our profitability.***

*** ***

Our revenues have grown at a compound annualgrowth rate, or CAGR, of 9.9% from $ 450.3 millionin 2005 to $ 655.9 millionin 2009. The total number of our employees has grown from 11,802 as of December 31,2005 to 13,995 as of December 31, 2009.

 

Our operations have also expanded through thedevelopment, enhancement and acquisition of new service offerings and industryexpertise, and the broadening of our geographic presence. Specifically, we:

 

·       augmentedour offerings in our service lines in business process outsourcing, productengineering, infrastructure management services and quality assurance;

 

·       gainedexpertise and operations in the provision of services to clients in thecommunications, media and utilities industry through our acquisition of PatniTelecom Solutions, Inc., orPatni Telecom (formerly Cymbal Corporation, or Cymbal) and Logan OrvissInternational, or Logan Orviss;

 

·       expandedour expertise and market specific services in the life sciences practicethrough our acquisition of Patni Life Sciences Inc. (formerly TaratecDevelopment Corporation, or Taratec);

 

·       expandedour expertise and operations in our product engineering technology practices;

 

·       enhancedour operations in Europe and Asia; and

 

·       expandedour facilities in India.

 

We expect our future growth to place significantdemands on both our management and our resources. This will require us tocontinuously evolve and improve our operational, financial and internalcontrols across the organization. In particular, continued expansion increasesthe challenges we face in:

 

·       recruiting,training and retaining sufficient skilled technical, sales and managementpersonnel;

 

·       adheringto our high quality and process execution standards;

 

·       maintaininghigh levels of client satisfaction;

 

·       creatingand managing economies of scale;

 

·       managinga larger number of clients in a greater number of industry sectors;

 

·       integratingexpanded operations while preserving our culture, values and entrepreneurialenvironment; and

 

·       developingand improving our internal administrative infrastructure, particularly ourfinancial, operational, communications and other internal systems.

 

Any inability to manage our growth may have anadverse effect on our business, results of operations and financial condition.

 

***We may face difficulties in providing serviceswithin our industry and technology practices, offering new and existing servicelines and managing increasingly large and complex projects, which could lead toclients discontinuing their work with us.***

*** ***

We have been expanding the nature and scope ofour engagements by extending the breadth of our practices and the services weoffer. The success of our new practices and service offerings is dependent, inpart, upon demand for such services by our existing and new clients and ourability to meet this demand in a cost-competitive and effective manner. Wecannot be certain that we will be able to attract existing and new clients forsuch new services or effectively meet our clients’ needs.

 

We intend for the increased breadth of ourpractices and service offerings to result in larger and more complex projectsfor our clients. To achieve this result, we need to establish closerrelationships with our clients and develop a thorough understanding of theiroperations. Our ability to establish such relationships will depend

 

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on the proficiency of our management personnel,software professionals and, if necessary subcontractors, as well as othercompetitive factors such as our performance and delivery capability. Larger andmore complex projects may involve multiple engagements or stages, and there isa risk that a client may choose not to retain us for additional stages or maycancel or delay additional planned engagements. Such cancellations or delaysmake it difficult to plan for project resource requirements, and failure toplan appropriately may have a negative impact on our business, results ofoperations and financial condition.

 

***Our business will suffer if we fail tokeep pace with the rapid changes in technology in the industries on which wefocus. We need to anticipate and develop new services and enhance existingservices in order to keep our clients satisfied.***

*** ***

The IT services market is characterized by rapidtechnological changes, evolving industry standards, changing client preferencesand new product and service introductions. Our future success will depend onour ability to anticipate these advances and develop new service offerings tomeet client needs. We may not be successful in anticipating or responding tothese advances on a timely basis or, if we do respond, the services ortechnologies we develop may not be successful in the marketplace. Furthermore,services or technologies that are developed by our competitors may render ourservices non-competitive or obsolete.

 

***We have undertaken and may continue to undertakestrategic acquisitions, which may prove to be difficult to integrate and manageor may not be successful, and may result in increased expenses or write-offs.***

*** ***

We have pursued and may continue to pursuestrategic acquisition opportunities to enhance our capabilities and addressgaps in industry expertise, technical expertise and geographic coverage. It ispossible that we may not identify suitable acquisition or investment candidatesor joint venture partners, or if we do identify suitable candidates orpartners, we may not complete those transactions on terms commerciallyacceptable to us or at all. The inability to identify suitable acquisitiontargets or investments or joint ventures or the inability to complete suchtransactions may adversely affect our competitiveness and our growth prospects.

 

If we acquire another company, we could havedifficulty in assimilating such company’s personnel, operations, products,services, technology and software into our operations. In addition, the keypersonnel of the acquired company may decide not to work with us. Thesedifficulties could disrupt our ongoing business, distract our management andemployees and increase our expenses. Further, any such acquisition, merger orjoint venture that we attempt, whether or not completed, or any media reportsor rumors with respect to any such transactions, may adversely affect the valueof our equity shares and the ADSs.

 

***We are investing substantial cash assets in newfacilities and physical infrastructure, and our profitability could be reducedif our business does not grow proportionately.***

*** ***

We expect to invest approximately $ 20million to $ 25 million incapital expenditures in 2010.Most of the new spending will be for construction of new facilities andphysical infrastructure. However, we may not receive the benefits that weexpect from our investment in these facilities. Further, we may encounter costoverruns or project delays in connection with new facilities. These expansionswill increase our fixed costs. If we are unable to grow our business andrevenues proportionately, our profitability will be reduced. See “Item 4.D.Information on the Company—Property,plant and equipment.”

 

***We aresubject to risks arising from exchange rate fluctuations.***

 

Although our functional currency is the Indianrupee, we transact a significant portion of our business in several othercurrencies, particularly the U.S. dollar. Our exchange rate risk primarilyarises from our foreign currency revenues, receivables, payables and otherforeign currency assets and liabilities. We expect that a majority of ourrevenues will continue to be generated in U.S. dollars for the foreseeablefuture. In 2007, 2008 and 2009  ourdollar denominated revenues represented 82.9%, 80.7% and 84.0%  ofour total revenues respectively.

 

A significant portion of our expenses,comprising the cost of revenues and selling, marketing and generaladministrative expenses, are and will continue to be denominated and incurredin Indian rupees. In 2007, 2008, and 2009 rupee costs represented 42%, 40.8%and 37.5% of these cost of revenues and selling, marketing and generaladministrative expenses. Therefore, changes in the exchange rate between therupee and other currencies, especially with respect to the U.S. dollar, mayhave a material adverse effect on our revenues, other income, cost of services,operating costs and net income, which may in turn have a negative impact on ourbusiness, operating results and financial condition. On December 31, 2009,the exchange rate per U.S. dollar was Rs. 46.40 compared to Rs. 48.58 on December 31,2008 and Rs. 39.41 on December 31, 2007. On February 22, 2010 the exchange rate per US $ was Rs.46.21. The exchange rate between the rupee and the dollar has changedsubstantially in recent years and may fluctuate substantially in the future.

 

We have sought to reduce the effect of exchangerate fluctuations on our operating results by purchasing derivative instrumentssuch as foreign exchange forward contracts, purchased options and net writtenoptions. As of December 31, 2009, we had outstanding forward contracts inthe amount of $ 309.6 million,JPY 875.0 million ($ 9.5million), and GBP 2.9 million ($ 4.8million) and outstanding currency purchased options in the amount of $10.0million. We have increased our foreign currency hedging activity given therecent volatility in the value of the Indian rupee against the U.S. dollar.However, we may not be able to purchase contracts to insulate ourselvesadequately from foreign currency exchange risks. In addition, any suchcontracts may not perform

 

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effectively as a hedging mechanism or we mayincur losses in such derivative instruments which may adversely affect ourprofits in a quarter or a financial year. In 2008 and 2009 we had a net foreign exchange loss $18.4 million and $9.7 million and in 2007 we had a net foreign exchange gain of $ 23.4million.  See “Item 11.Quantitative andQualitative Disclosures about Market Risk — Components of Market Risk -Exchange Rate Risk”.

 

***Our success depends in large partupon our senior management and key personnel and our ability to attract andretain them.***

 

We are highly dependent on our Chairman, ChiefExecutive Officer, Chief Financial Officer and other members of the executiveleadership team. Our futureperformance will be dependent upon the continued service of these persons. Wedo not maintain key man life insurance for any of the senior members of ourmanagement team or other key personnel. Competition for senior management inour industry is intense, and we may not be able to retain such senior managementpersonnel or attract and retain new senior management personnel in the future.The loss of any of the members of our senior management or other key personnelmay adversely affect our business.

 

***Our revenues could be significantly affected ifthe governments in the United States or other countries in which our customersare based restrict companies from outsourcing work to non-domesticcorporations.***

*** ***

Offshore outsourcing has become a politicallysensitive topic in the United States and Europe due to its perceivedassociation with the loss of jobs in such countries. In the United States, in particular, there has been increasing politicaland media attention on these issues following the growth of offshoreoutsourcing. Current or prospective clients may elect to performservices we offer themselves or may be discouraged from transferring theseservices to offshore providers to avoid any negative perception that may beassociated with using an offshore provider. These trends could harm our abilityto compete effectively with competitors that operate primarily out offacilities located in the United States. A variety of U.S. federal and statelegislation has been proposed that, if enacted, could restrict or discourageU.S. companies from outsourcing their services to companies outside the UnitedStates. In addition, it is possible that legislation could be adopted thatwould restrict U.S. private sector companies that have federal or stategovernment contracts from outsourcing their services to offshore serviceproviders. Because most of our clients are located in the United States, anyexpansion of existing laws or the enactment of new legislation restrictingoffshore outsourcing by U.S. companies could adversely impact our ability to dobusiness.

 

***Our inability to complete fixed-price contractswithin budget and at the required level of performance could reduce ourrevenues and profitability.***

*** ***

We derived 32.4%,36.0% and 40.6% of our revenuesfrom fixed-price contracts in 2007, 2008 and 2009. We bear the risk of costoverruns, completion delays and wage inflation in connection with allfixed-price projects, any of which may result in a decrease in our margins fromwork performed on fixed-price contracts. Our revenues from fixed-pricecontracts also include revenues from fixed-price SLAs, which are conditionedupon our meeting predetermined performance levels. Any failure to meet suchperformance levels could result in a reduction in our revenues. Any failure toaccurately estimate the resources and time required for a project or anyfailure to complete our contractual obligations at the committed performancelevel could adversely affect our revenues and profitability.

 

***Our ability to expand our business and procurenew contracts or enter into beneficial business arrangements may be affected bynon-competition clauses in our agreements with existing clients or businesspartners.***

*** ***

Certain of our existing MSAs and otheragreements have non-competition clauses, which restrict us from providingservices to competitors of our existing clients or entering new markets where abusiness partner may already have a presence. Many of our MSAs contain clausesthat restrict our employees working for a particular client from providingservices to a competitor of that client. Such clauses may restrict our abilityto offer services to clients in a specific industry in which we have acquiredexpertise and may adversely affect our business and growth.

 

***We may be liable to our clients for damagescaused by system failures or breaches of security obligations.***

*** ***

Many of our contracts involve projects that arecritical to the operations of our clients’ businesses. Further, our clientcontracts may require us to comply with certain security obligations includingmaintaining network security and back-up data, ensuring our network is virusfree and verifying the integrity of employees who work with our clients byconducting background checks. Any failure in a client’s system or breach ofsecurity relating to the services we provide to the client could damage ourreputation or result in a claim for substantial damages against us. We cannotassure you that any limitations of liability set forth in our service contractswill be enforceable in all instances or will otherwise protect us from liabilityfor damages in the event of a claim for breach of our obligations. Ourinsurance coverage may not be sufficient for all such claims or damages andadditional insurance coverage may not be available in the future on reasonableterms or in amounts sufficient to

 

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cover large claims. Successful assertions of oneor more large claims against us could have a significant adverse effect on ourbusiness, results of operations and financial condition.

 

***Our clients’ proprietary rights may bemisappropriated by our employees or subcontractors in violation of applicableconfidentiality agreements.***

*** ***

We require our employees and subcontractors toenter into non-disclosure arrangements to limit access to and distribution ofour clients’ intellectual property and other confidential information as wellas our own. We can give no assurance that the steps taken by us in this regardwill be adequate to enforce our clients’ intellectual property rights. If ourclients’ proprietary rights are misappropriated by our employees or oursubcontractors or their employees, in violation of any applicableconfidentiality agreements or otherwise, our clients may consider us liable forthat act and seek damages and compensation from us.

 

***We may be subject to third party claims ofintellectual property infringement.***

*** ***

Although there are currently no material pendingor threatened intellectual property claims against us, infringement claims maybe asserted against us in the future. Our contracts contain broad indemnityclauses, and under most of our contracts, we are required to provide specificindemnities relating to third party intellectual property rights infringement.In some instances, the amount of these indemnities may be greater than therevenues we receive from the client. If we become liable to third parties forinfringing their intellectual property rights, we could be required to pay asubstantial damage award and be forced to develop non-infringing technology,obtain a license or cease selling the applications or products that contain theinfringing technology. We may be unable to develop non-infringing technology orto obtain a license on commercially reasonable terms, or at all. We may also berequired to change our methodologies so as not to use the infringedintellectual property, which may not be technically or commercially feasibleand may cause us to expend significant resources. Any claims or litigation inthis area, irrespective of the outcome, could be time-consuming and costlyand/or injure our reputation.

 

As the number of patents, copyrights and otherintellectual property rights in our industry increases, we believe thatcompanies in our industry will face more frequent infringement claims.Defending against these claims, even if not meritorious, could be expensive anddivert our attention and resources from operating our Company.

 

***We have a limited ability to protect ourintellectual property rights, and unauthorized parties may infringe upon ormisappropriate our intellectual property.***

*** ***

We rely on a combination of copyright, trademarkand design laws, confidentiality procedures and contractual provisions toprotect our intellectual property, including our brand identity. However, thelaws of India may not protect intellectual property rights to the same extentas laws in the United States. Therefore, our efforts to protect ourintellectual property may not be adequate and we may not be able to detectunauthorized use or take appropriate and timely steps to enforce ourintellectual property rights. Our competitors may independently developproprietary methodologies similar to ours or duplicate our products orservices. Unauthorized parties may infringe upon or misappropriate our servicesor proprietary information. The misappropriation or duplication of ourintellectual property could disrupt our ongoing business, distract ourmanagement and employees, reduce our revenues and increase our expenses. We mayneed to litigate to enforce our intellectual property rights or to determinethe validity and scope of the proprietary rights of others. Any such litigationcould be time consuming and costly and the outcome of any such litigationcannot be guaranteed. For more information regarding our intellectual property,see “Item 4.B. Information on the Company — Business Overview - IntellectualProperty.”

 

**RisksRelated to Investments in Indian Companies and International OperationsGenerally.**

** **

We are incorporated in India and a substantialportion of our assets and our employees are located in India. Consequently, ourfinancial performance and the market price of our ADSs will be affected bychanges in exchange rates and controls, interest rates, Government of Indiapolicies, including taxation policies, as well as political, social andeconomic developments affecting India.

 

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***Immigration restrictions could limit our abilityto expand our operations in the United States. We derive a high proportion ofour revenues from clients located in the United States which may be affectedmaterially by such restrictions.***

*** ***

***Most of our employees areIndian nationals. The ability of our software professionals to work in theUnited States, Europe and in other countries depends on our ability to obtain necessaryvisas and work permits. At present, the majority of our software professionalsin the United States hold H-1B visas, a temporary visa which generally allowsthe employee to remain in the United States for up to six years while he or sheremains an employee of the sponsoring firm, and L-1 visas, an intra companytransfer visa allowing managers and executives or employees with specializedknowledge to stay temporarily in the United States so long as they have workedfor an affiliated company abroad for atleast one continuous year within thethree years preceding the L-1 filing.***

*** ***

***An H-1B visa may be granted tocertain categories of persons in several “specialty occupations” includingsoftware professionals such as our employees, so long as their compensationmeets annually adjusted minimums and the position being filled qualifies as aspecialty occupation. Those adjustments may force increases in the salaries wepay to our employees with H-1B visas, resulting in lower profit margins.Although there is currently no limit to new L-1 visas, there is a limit to theaggregate number of new H-1B visas that may be approved by the United Statesgovernment in any fiscal year. We believe that the demand for H-1B visas willcontinue to be high. Further, the United States government has increased thelevel of scrutiny in granting these visas. This may lead to limits on thenumber of L-1 visas granted. The U.S. immigration laws also require us tocomply with other legal requirements including those relating to displacementand secondary displacement of U.S. workers and recruiting and hiring of U.S.workers, as a condition to obtaining or maintaining work visas for our softwareprofessionals working in the United States.***

*** ***

***Immigration laws in the UnitedStates and in other countries are subject to legislative change, as well as tovariations in standards of application and enforcement due to political forcesand economic conditions. It is difficult to predict the political and economicevents that could affect immigration laws, or the restrictive impact they couldhave on obtaining or monitoring work visas for our software professionals. Ourreliance on work visas for a significant number of software professionals makesus particularly vulnerable to such changes and variations. As a result, we maynot be able to obtain a sufficient number of visas for our softwareprofessionals or may encounter delays or additional costs in obtaining ormaintaining such visas.***

*** ***

***Wage pressures in India may prevent us fromsustaining our competitive advantage and may reduce our profit margins.***

*** ***

Wage costs in India have historically beensignificantly lower than wage costs in the United States and Europe forcomparably skilled professionals, which has been one of our competitivestrengths. However, wage increases in India may prevent us from sustaining thiscompetitive advantage and may negatively affect our profit margins**.**

 

***Clients may seek to reduce their dependence onIndia for outsourced IT services or take advantage of the services provided incountries with labor costs similar to or lower than India.***

*** ***

Clients who presently outsource a significantproportion of their IT services requirements to vendors in India may, forvarious reasons, including to diversify geographic risk, seek to reduce theirdependence on one country. We expect that future competition will increasinglyinclude firms with operations in other countries, especially those countrieswith labor costs similar to or lower than India, such as China, the Philippinesand countries in Eastern Europe. Since wage costs in our industry in India areincreasing, our ability to compete effectively will become increasinglydependent on our reputation, the quality of our services and our expertise inspecific industries.

 

***Our net income would decrease ifthe Government of India reduces or withdraws tax benefits and other incentivesit currently provides to us or otherwise increases our effective tax rate.***

 

Presently, we benefit from the tax holidaysgiven by the Government of India for the export of IT services from speciallydesignated software technology parks (STP) and special economic zones (SEZs) inIndia. As a result of these incentives, which include a 10 year tax holidayfrom Indian corporate income taxes for the operation of most of our Indianfacilities, our operations have been subject to relatively low tax liabilities.The tax benefits available for some of our facilities have expired and certainothers will expire upon completion of 10 years from commencement of business ofthe eligible undertaking. Howeverthe tax holiday for the export of IT servicesfrom STP will expire on March 31, 2011.

 

In anticipation of the complete phase out of thetax holidays on March 31, 2011, we expect to continue to locate a portionof our new development centers in areas designated as SEZ’s. Developmentcenters operating in SEZs will be entitled to certain income tax incentives forperiods of up to 15 years. The Indian government has proposed certaininterpretive positions regarding the tax incentives applicable to SEZs. TheIndian government has discussed making further changes in the SEZ policieswhich could be adverse to our operations.

 

Further, provisions of the Indian Income Tax Act  are amended on an annual basis by enactmentof the Finance Act. In addition, we may also be subject to changes in taxationresulting from the actions of applicable income tax authorities in India orfrom Indian tax laws that may be enactedin the future. For example, we may incur increased tax liability as aresult of a determination by applicable income tax authorities that thetransfer price applied to transactions involving our subsidiaries and the Company was not appropriate.

 

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Any increases in our effective tax rate as a result of the expirationof tax benefits we currently enjoy, changes in applicable tax laws or theactions of applicable income tax or other regulatory authorities couldmaterially reduce our profitability. For more information, See “Item 5.A.Operating and Financial Review and Prospects—Operating Results — Taxes”.

 

***Any disruption in the supply of power, ITinfrastructure and telecommunications lines to our facilities could disrupt ourbusiness process or subject us to additional costs.***

*** ***

Any disruption in basic infrastructure,including the supply of power, could negatively impact our ability to providetimely or adequate services to our clients. We rely on a number oftelecommunications service and other infrastructure providers to maintaincommunications between our various facilities in India and our clients’operations in the United States and elsewhere. Telecommunications networks aresubject to failures and periods of service disruption which can adverselyaffect our ability to maintain active voice and data communications among ourfacilities and with our clients. Such disruptions may cause harm to our clients’business. We do not maintain business interruption insurance and may not becovered for any claims or damages if the supply of power, IT infrastructure ortelecommunications lines is disrupted. This could disrupt our business processor subject us to additional costs.

 

***Anti-takeover provisions under Indian law couldprevent or deter an entity from acquiring control of us.***

*** ***

Indian takeover regulations contain certainprovisions that may delay, deter or prevent a future takeover or change incontrol of us. These provisions may discourage a third party from attempting totake control of our Company,even if a change in control would result in the purchase of ADSs at a premiumto the market price or would otherwise be beneficial to our ADS holders. See “Item10. B. Additional Information —Takeover Code.”

 

***There are certain differences in shareholder rightsand protections between the laws of India and the United States and betweengovernance standards for a U.S. public company and a foreign private issuersuch as us.***

*** ***

We are incorporated in India and investorsshould be aware that there are certain differences in shareholder rights andprotections under the laws ofIndia and the United States. There are also certain differences in thegovernance standards for a U.S. company and those applicable to a foreignprivate issuer such as us. A U.S. investor should consider such differences inshareholder rights and governance.

 

***In certain circumstances, our ability to acquirecompanies organized outside India may require the approval of the Government ofIndia and/or the Reserve Bank of India and we may fail to obtain such approvalsin a timely manner or at all.***

*** ***

As part of our strategy, we intend to acquirecompanies, in India or abroad, which have a synergistic fit with ouroperations.

 

Subject to compliance with certain Indian lawsand regulations, including Indian exchange control laws and regulations, we arepermitted:

 

·       tomake overseas direct investments in a joint venture or wholly-owned subsidiaryoutside India of up to 400% of our net worth as of the date of our last auditedbalance sheet; and

 

·       tomake overseas direct investments, without limits on net worth, in any foreignsecurity from the proceeds of an international offering of American DepositoryReceipts, or ADRs or Global Depository Receipts, or GDRs, or from the accountbalances held in our exchange earner’s foreign currency bank accounts.

 

In certain other cases, we are required toobtain the approval of the Reserve Bank of India and / or Government ofIndia  to acquire shares of a foreigncompany for cash consideration or through a share swap transaction (subject tocertain exceptions for an exchange of ADRs or GDRs).

 

In certain circumstances, we may not beable to meet the Indian regulatory requirements with respect to certainacquisitions of foreign companies and may require the prior approval of theReserve Bank of India and/or the Government of India to consummate acquisitionsof such foreign companies. We may not be able to obtain some or all of theseapprovals in a timely manner or at all, and thereby may be impeded in ourefforts to acquire companies organized outside India. This inability may limit ourgrowth, render us uncompetitive relative to our competitors and adverselyaffect our business, revenues and profitability.

 

***You may have difficulty enforcing any judgmentobtained in the United States against us or our directors or executive officersin India***.

*** ***

We are incorporated under the laws of India and mostof our directors and executive officers reside outside the United States.Furthermore, most of our assets and the assets of our directors and executiveofficers are located outside the United States. As a result, you may be unableto:

 

·       effectservice of process upon us or our directors and executive officers; or

 

·       enforcejudgments obtained in the United States courts against us or such persons inthe United States, including judgments predicated upon the civil liabilityprovisions of the federal securities laws of the United States.

 

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The United States and India do not currentlyhave a treaty providing for reciprocal recognition and enforcement of judgmentsin civil and commercial matters.

 

***Incidents such as terrorist attacks and otheracts of violence or war involving India, the United States, and other countriescould adversely affect the financial markets, result in loss of clientconfidence, and adversely affect our business, results of operations andfinancial condition.***

*** ***

Incidents such as the terrorist attacks that have occurred in India, the United States, and othercountries and other acts of violence or war, including those involving India,the United States or other countries, may adversely affect global equitymarkets and economic growth. These acts may also result in a loss of businessconfidence and have other consequences that could adversely affect ourbusiness, results of operations and financial condition. Travel advisories,reluctance to travel and increased visa scrutiny for travelers as a result ofsuch attacks may have an adverse impact on our ability to operate effectively.Any of these events could adversely affect client confidence in India as anoutsourcing base.

 

***Regional conflicts in South Asia could adverselyaffect the Indian economy, disrupt our operations and cause our business tosuffer.***

*** ***

South Asia has, from time to time, experiencedinstances of civil unrest and hostilities among neighboring countries, such asbetween India and Pakistan and evenwithin India. There havebeen military confrontations along the India-Pakistan border from time to time. The potential forhostilities between the two countries is high due to past terrorist incidentsin India, troop mobilizationsalong the border, and the geopolitical situation in the region. Militaryactivity or terrorist attacks in the future could influence the Indian economyby disrupting communications and making travel more difficult. Politicaltensions could increase the perception that investments in Indian companiesinvolve a higher degree of risk than companies in other countries such as theUnited States. This, in turn, could have a material adverse effect on themarket for securities of Indian companies, including our equity shares and ourADSs, and on the market for our services.

 

***Our performance is linked to the stability ofpolicies and the political situation in India.***

*** ***

The role of the Indian central and stategovernments in the Indian economy and their effect on producers, consumers andregulators has remained significant over the years. Since 1991, successivegovernments of India have pursued policies of economic liberalization,including significantly relaxing restrictions on the private sector. Thepresent Government of India elected in May 2009 has taken initiatives thatcontinue to support the economic liberalization policies pursued by previousgovernments. We cannot assure you that these liberalization policies willcontinue in the future. The rate of economic liberalization could change, andspecific laws and policies affecting technology companies, foreign investment,currency exchange rates and other matters affecting investment in oursecurities could change as well. A significant change in India’s economicliberalization and deregulation policies could adversely affect business andeconomic conditions in India generally, and our business in particular.

 

***We are vulnerable to natural disasters thatcould severely disrupt the normal operation of our business and adverselyaffect our earnings.***

*** ***

India is susceptible to natural disasters,including tsunamis, floods and earthquakes. On December 26, 2004,southeast Asia, including the eastern coast of India, experienced a tsunamithat caused significant loss of life and property damage. While our facilitieswere not damaged, the tsunami struck Chennai and other areas in which weoperate. Substantially all of our facilities and IT professionals are locatedin India including Mumbai, which has also experienced heavy flooding in recentyears. If our facilities are damaged by a tsunami, flood, earthquake or othernatural disaster, our global delivery capability could be interrupted ordelayed significantly. Although we maintain comprehensive natural perilsinsurance up to policy limits our insurance coverage may not be sufficient tocover all of our potential losses. In addition, disaster management facilitiesin India may not be adequate to protect against potential losses. As a result,a natural disaster in India or in any other jurisdiction where we operate  could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

***Compliance with new and changing corporategovernance and public disclosure requirements adds uncertainty to ourcompliance policies and increases our costs of compliance.***

*** ***

Laws, regulations and standards relating to accounting,corporate governance and public disclosure, new SEC regulations, NYSE rules,Securities and Exchange Board of India rules, and Indian stock exchanges’ listing regulations aresubject to change and can create uncertainty for companies like ours. New orchanged laws, regulations and standards could lack specificity or be subject tovarying interpretations. Their application in practice may evolve over time asnew guidance is provided by regulatory and governing bodies. This could resultin continuing uncertainty regarding compliance matters and higher costs ofcompliance as a result of ongoing revisions to such governance standards.

 

In particular, continuing compliance with Section 404 of the Sarbanes-OxleyAct of 2002 and the related regulations regarding our required assessment ofour internal controls over financial reporting requires the commitment ofsignificant financial and managerial resources and our external auditors’independent assessment of the internal controls over financial reporting.

 

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We seekto maintain high standards of corporate governance and publicdisclosure, and our efforts to comply with evolving laws, regulations andstandards in this regard have resulted in, and are likely to continue to resultin, increased general and administrative expenses.

 

**Risks Relating to Our ADSs and our TradingMarket**

** **

***Sales and issuances of our equity shares or ADSsmay adversely affect the market price of the ADSs and our equity shares.***

*** ***

Sales of a substantial number of equity shares,including sales by our insiders, significant shareholders, directors orexecutive officers whether on the Indian stock exchanges or into the UnitedStates of ADSs or otherwise, or the perception that such sales may occur, couldadversely affect the market price of the ADSs and our equity shares or ourability to raise capital through an offering of our securities. In the future,we may also sponsor the sale of shares currently held by some of ourshareholders, or issue new shares. We can make no prediction as to the timingof any such sales or the effect, if any, that future sales of our equityshares, or the availability of our equity shares for future sale, will have onthe market price of our equity shares or ADSs prevailing from time to time. Inaddition, we have adopted an employee stock option plan as a means to rewardand motivate our employees. You may experience dilution of your shareholding tothe extent that we make future equity offerings or issue equity shares pursuantto the exercise of stock options under our employee stock option plan.

 

***We have controlling shareholders who have theability to exercise significant control over us, and whose interests mayconflict with the interests of our other shareholders.***

*** ***

Mr.Narendra K.Patni, Mr. Gajendra K. Patni and Mr. Ashok K. Patni, together withtheir families and entities controlled by them, and General Atlantic MauritiusLimited, or General Atlantic, own 16.01%, 14.99%, 15.51% and 17.73% of our outstanding equity shares,respectively, as of February 19,2010.

 

Our Articles of Association confer certainrights on our controlling shareholders relating to our governance, includingrepresentation on our Board of Directors and an ability to adjourn ashareholder or Board of Directors meeting for lack of quorum if theirrepresentative is not present at the first such meeting. In addition, ourArticles of Association can only be amended if members holding not less than75% of our equity shares (and who are entitled to vote) cast votes in favor ofsuch amendments and such votes include the favorable votes of each of thecontrolling shareholders, so long as the respective groups hold at least 10% ofour equity shares and vote on such amendment. Pursuant to the terms of ourArticles of Association, Mr. Narendra K. Patni is the permanent Chairmanof our Board, with a tie-breaking vote in the event of a tie.

 

Pursuant to an employment agreement between our U.S.subsidiary, Patni Americas, Inc., (formerly Patni Computer Systems, Inc.)and Mr. Narendra K. Patni, Mr. Narendra K. Patni served as the ChiefExecutive Officer of our U.S. subsidiary Patni Americas, Inc and pursuantto  the consultancy agreement between ourU.S. subsidiary and us, Mr. Narendra K. Patni was seconded as our ChiefExecutive Officer. The aforesaid employment agreement with Mr. Narendra K.Patni had an initial term expiring on December 31, 2008 which, now, hasbeen extended until December 31, 2013 unless terminated earlier pursuantto the Employment Agreement amendment dated February 20, 2009.  WhileMr. Narendra K. Patni has ceased to be our Chief Executive Officer since February 202009, he continues to be our Chairman. In addition, our Board of Directors hadapproved the extension of the Consultancy agreement to December 31, 2010.Pursuant to the Consultancy Agreement amendment dated February 20, 2009,the consultancy agreement with Patni Americas Inc can be terminated only  on or after December 31, 2010 (upongiving one month’s written notice to Patni Americas Inc) and such terminationwill take effect on the expiration of such period of notice.

 

Mr. Gajendra K. Patni and Mr. AshokK. Patni, together with their family members, have management control ofcertain companies, which include PCS Technology Limited, PCS InternationalLimited, PCS Cullinet Private Limited, PCS Finance Private Limited and AshokaComputer Systems Private Limited. We have not entered into any non-solicitationor non-compete agreements with any of these shareholders individually or withthese companies. While these companies currently are not competing with us to amaterial extent, we cannot assure you that in the future they may not competewith us, may not solicit our employees or otherwise have interests that may notconflict with ours.

 

Each of the four controlling shareholders hasthe right to appoint one director to our Board of Directors so long as suchcontrolling shareholder holds 5% or more of our equity shares.

 

Accordingly, our controlling shareholders havethe ability to exercise significant influence over our management, includingover matters requiring shareholder approval or approval by our Board ofDirectors. This could delay, defer or prevent a change in control, impede amerger, consolidation, take-over or other business combination involving us, ordiscourage a potential acquirer from making a tender offer or otherwiseattempting to obtain control of us.

 

Certain of our shareholders also have certainadditional rights with respect to SEC registration for resale of our equityshares. See “Item 7.B. Related partytransactions—Registration Rights Agreement.”

 

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***Trading suspensions and closures at the Indianstock exchanges may adversely affect the trading price of ADSs.***

*** ***

Our equity shares are listed and traded in Indiaon the Indian stock exchanges. The regulation and monitoring of Indiansecurities markets and the activities of investors, brokers and otherparticipants differ, in some cases significantly, from those in the UnitedStates. Indian stock exchanges have in the past experienced problems, includingtemporary exchange closures, broker defaults, settlement delays and strikes bybrokerage firm employees, which, if continuing or recurring, could affect themarket price and liquidity of the securities of Indian companies, including ourequity shares and ADSs, in both domestic and international markets.

 

The two Indian stock exchanges on which ourequity shares are listed, theBombay Stock Exchange Limited and the National Stock Exchange of India Limited,also have a specific price band for each security listed. When a pricefluctuation exceeds the specific limits of the price band, trading of thesecurity is stopped for that trading session. Such price volatility controlsand the specific price bands are decided by each individual exchange and maydiffer from exchange to exchange. A closure of or trading stoppage on theIndian Stock Exchanges could adversely affect the trading price of the ADSs.

 

***Exchange rate fluctuations between the dollarand the rupee will affect the value of the ADSs.***

*** ***

Fluctuations in the exchange rate between therupee and the dollar will affect the dollar value of any cash dividends paid inrupees on our equity shares represented by the ADSs. In addition, thesefluctuations will affect the dollar equivalent of the rupee price of our equityshares on the Indian Stock Exchanges and, as a result, the prices of our ADSsin the United States, as well as the dollar value of the proceeds a holderwould receive upon the sale in India of any equity shares withdrawn from thedepositary under the deposit agreement. Holders may not be able to convertrupee proceeds into dollars or any other currency, and there is no guarantee ofthe rate at which any such conversion will occur, if at all.

 

***Indian law imposes certain restrictions that limita holder’s ability to transfer the shares obtained upon surrender of ADSs andrepatriate the proceeds of such transfer, which may cause our ADSs to trade ata premium or a discount to the market price of our equity shares.***

*** ***

Under certain circumstances, the approval of theReserve Bank of India is required for sale of equity shares underlying ADSs bya non-resident of India to a resident of India. The Reserve Bank of India hasgiven general permission to effect sales of existing shares or convertible debenturesof an Indian company by a resident to a non-resident, subject to certainconditions, including the price at which the shares may be sold. Additionally,except under certain limited circumstances, if an investor seeks to convert therupee proceeds from a sale of equity shares in India into foreign currency,approval from the Reserve Bank of India will have to be obtained for each suchtransaction. Required approval from the Reserve Bank of India or any othergovernment agency may not be obtained on terms favorable to a non-residentinvestor or at all.

 

***An investor in our ADSs may not be able toexercise preemptive rights for additional equity shares and may thereby sufferdilution of its equity interest in us.***

*** ***

Under the Indian Companies Act, 1956, or the Indian Companies Act, a companyincorporated in India must offer its holders of equity shares preemptive rightsto subscribe and pay for a proportionate number of shares to maintain theirexisting ownership percentages prior to the issuance of any new shares, unlesssuch preemptive rights have been waived by holders of three-fourths of theshares voting on the resolution to waive such rights. A holder of ADSs may beunable to exercise preemptive rights for equity shares underlying ADSs unless aregistration statement under the Securities Act is effective with respect tosuch rights or an exemption from the registration requirements of theSecurities Act is available. We are not obligated to prepare and file such aregistration statement and our decision to do so will depend on the costs andpotential liabilities associated with any such registration statement, as wellas the perceived benefits of enabling the holders of ADSs to exercise theirpreemptive rights, and any other factors we consider appropriate at the time.We cannot assure you that we would file a registration statement underthese circumstances. If we issue any such securities in the future, suchsecurities may be issued to the depositary, which may sell such securities forthe benefit of the holders of the ADSs. There can be no assurance as to thevalue, if any, the depositary would receive upon the sale of such securities.To the extent that a holder of ADSsis unable to exercise preemptive rights granted in respect of the equity sharesrepresented by the ADSs, his proportional interest in us would be reduced.

 

***Holders of ADSs may be restricted in theirability to exercise voting rights.***

*** ***

At our request, the depositary will mail theholders of ADSs any notice of a shareholdermeeting received from us together with information explaining how to instructthe depositary to exercise the voting rights of our shares represented by theADSs. If the depositary receives voting instructions from the holders in time,relating to matters that have been forwarded to them, it will endeavor to votethe shares represented by the ADSs in accordance with such voting instructions.However, the ability of the depositary to carry out voting instructions may belimited by practical and legal limitations and the terms of the securities ondeposit. We cannot assure that the holders will receive voting materials intime to enable them to return voting instructions to the depositary in a timelymanner. Shares for which no voting instructions have been received will be votedby our management. There may be other communications, notices or offerings thatwe only make to holders of our shares, which will not be forwarded to holdersof ADSs. Accordingly, the holders of ADSs may not be able to participate in allofferings, transactions or votes that are made available to holders of ourshares.

 

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***An active or liquid trading market for our ADSsis not assured.***

*** ***

An active, liquid trading market for our ADSsmay not be maintained in the long term.  We cannot predict the extentto which an active, liquid public trading market for our ADSs willcontinue.  If there is no longer any active trading market for our ADSs,or if we fail to meet eligibility requirements, we may be required to delistfrom the NYSE, which could adversely affect the price of our ADSs and,potentially, our equity shares.  Although holders of ADSs are entitled to withdraw the equity shares underlying ourADSs from our Depositary at any time, there is no public market for our equityshares in the United States.

 

**ITEM 4. INFORMATION ON THE COMPANY**

 

**4.A.History and development of the Company**

** **

We were incorporated as Patni Computer SystemsPrivate Limited on February 10, 1978 under the Indian Companies Act. Weare registered with the Registrar of Companies, Pune, Maharashtra, India. Ourcompany registration number is 11-020127 (CIN L72200MH1978PLC020127). In 1988,since our turnover exceeded prescribed limits under the then-applicable Section 43Aof the Indian Companies Act, we became a deemed public company and subsequentlyon April 15, 1991 we were converted into a private limited company. In1995 we once again became a deemed public company and upon the deletion of Section 43Afrom the Indian Companies Act, we were converted to a private limited companyon June 27, 2002. We were again converted to a public limited company on September 18,2003 and changed our name to Patni Computer Systems Limited. Our registeredoffice is located at S-1A Irani Market Compound, Yerawada, Pune 411 006,Maharashtra, India and the telephone number of our registered office is +91 202669 3457.

 

The original activities of the Company werecomputer time rental, the resale of imported computer hardware, and softwareexports. In 1981, we promoted PCS Data Products (Private) Limited, or PCSDP,for the sale and marketing of computer equipment and hardware maintenance. In1987, we formed PCS Data General India, or PCSDG, a joint venture with The DataGeneral Corporation, U.S.A., forthe manufacture and maintenance of computer hardware. In 1994, the name ofPCSDP was changed to PCS Industries Limited, or PCSIL, and PCSDG was mergedinto PCSIL. Since 1994, we have been entirely focused on software exports. In1999, the shares of PCSIL held by us and other non-operating assets werede-merged into other group companies and our Company emerged as a focused ITservices company.

 

Our corporate headquarters are located at AkrutiSoftech Park, MIDC Cross Road No. 21, Andheri East, Mumbai 400 093, India,and our North American headquarters are located at One Broadway Cambridge, MA02142. General Atlantic made a significant investment in our company in 2002.To enhance our domain expertise in financial services and communications, mediaand utilities, we made selective acquisitions such as Patni Telecom(formerly  Cymbal), which we acquired in November 2004.We completed our initial public offering of equity shares in India in February 2004and our initial offering of ADSs listed on the New York Stock Exchange in December 2005.In 2007, we acquired LoganOrviss International, a Europeanbased telecommunicationsconsulting company, and Patni Life Sciences, Inc. (formerly TaratecDevelopment Corporation), a U.S. based life sciences consulting company to widen our telecommunicationsand life sciences expertise, respectively. In addition, we acquired from one of our majorcustomers  the world wide rights for asoftware proprietaryintellectual property right that enables communication service providers tooffer customer management, retail point-of- sales and billing services for a variety of products and services.

 

Our capital expenditures for 2007, 2008 and 2009 was  $59.8million,$40.0million and  $ 16.4 millionrespectively. These capitalexpenditures were primarily tofinance the expansion of our existing facilities as well as the construction /purchase of new facilities in India. We anticipate capital expenditures in therage of $ 20 million and $ 25 million in 2010, principallyto finance the construction of our new facilities in Noida, Pune, Hinjewadi, Airoli - Navi Mumbai, Gandhinagar and other facilities andphysical infrastructure in India*.*Weare obliged to make certain capitalexpenditures under a number of contracts relating to this expansion. Estimated amountsremaining to be executed on such contracts (net of advances), aggregatedapproximately $ 55.6 million at December 31,2009 to be spread over a 3 year period. We currently intend tofinance our planned capital expenditure entirely from existing cash and cashequivalents and funds generated from operations.

 

**4.B. Business overview**

** **

We are a leading Indian provider of informationtechnology services. We deliver a comprehensive range of IT services throughglobally integrated onsite and offshore delivery locations primarily in India,which we call our global delivery model. We offer our services to customersthrough industry-focused practices, including insurance, manufacturing retailand distribution, financial services and communications, media and utilities,and through technology-focused practices. Within these practices, our servicelines include application development, application maintenance and support, packagedsoftware implementation, infrastructure management services, productengineering services, business process outsourcing and quality assuranceservices.

 

We have in-depth knowledge in our industry andtechnology practices. Insurance, manufacturing retail and distribution,communications, media and utilities and financial services accounted for 23.6%,27.0%, 18.3% and 14.1% in 2007, respectively, 24.7%, 29.0%, 17.9% and 12.8% in 2008, respectively and 29.7%, 29.0%13.5%, and 12.8% in 2009, respectively.  Our technology practices offer research,design and development services for product engineering. Through our dedicatedsales and management teams in each of our industry and technology practices, webelieve we are able to provide better client service, effectively cross-sellservices to our existing clients and develop new client relationships.

 

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We have a track record of successfullydeveloping and managing large, long-term client relationships with some of theworld’s largest and best known companies. Our customer base has increased from199 clients as of December 31, 2005 to 272 clients as of December 31,2009. Several of our key executives are located in our client geographies tobetter develop and maintain client relationships at senior levels. Repeatbusiness accounted for 92.4% ,93.0% and 94.0% of our revenues in 2007, 2008 and2009.

 

Our revenues grew from $ 450.3 million in 2005 to $ 655.9 million in 2009, representing a CAGR of 9.9%. Our net income grew from $ 60.9 million in 2005 to $ 119.8 million in 2009,representing a CAGR of 18.4%. Our total number of employees was 11,802**as of December 31, 2005 and 13,995 as of December 31,2009. We are investing in new high-tech facilities, which we refer to as “knowledgeparks”, designed for expanding our operations and training our employees. We have 235 sales and marketing personnelsupported by dedicated industry specialists in 28sales offices around the globe, including North America, Europe, Japanand the rest of the Asia-Pacific region.

 

We have a highly qualified management team witha broad range of experience in the IT industry. Our Chairman   (previously also our Chief Executive Officer) is an entrepreneur and engineerwho has been in this industry for over 30 years and has led us from ourinception in 1978. Most of our senior management has worked as a team with usfor over 20 years. We use our competitive recruitment program to selectthe best talent from India’s premier engineering institutions.

 

***Industry Structure and Developments****(Source: Global Markets and IT outsourcing overview  from Dataquest Insight: 4Q09 Forecast UpdateShows Little Change in IT Spending Outlook( ID Number: G00173978) Report andIndian IT Industry overview from  NASSCOM  Strategic Review Report2010)*

 

***Global Markets Overview***

 

According to the Dataquest Insight: 4Q09 Forecast UpdateShows Little Change in IT Spending Outlook (*ID Number:G00173978)* report byGartner, the headline from this IT spending forecast update is thatincrementally improved global economic conditions should support a modestlylarger increase in overall IT spending in 2010 compared to 2009. Following anestimated decline of 4.6% in global IT spending in 2009, our forecast foroverall IT spending growth worldwide in 2010 has been increased to 4.6% thisquarter versus 3.3% last quarter.

 

However, the relativeweakness of the U.S. dollar in 2H09, which we project forward in our forecast,means that headline dollar growth in IT spending in 2010 will benefit from anexchange rate effect, which makes the growth forecast look more robust than theincrease in IT spending expressed in constant dollars. When expressed in constantdollars, which excludes the impact of exchange rate movements, we have actuallyreduced our forecast for global IT spending in 2010 from 1.7% last quarter to1.5% this quarter..

 

In addition according to the Dataquest Insight: 4Q09 ForecastUpdate Shows Little Change in IT Spending Outlook (*ID Number:G00173978)* report byGartner  , during the next two years ITvendors need to:

 

·      Prepare business and marketingplans for 2010 with multiple contingencies to mitigate potential down-side riskand capitalize on potential up-side opportunity, because the speed and breadthof the recovery expected in 2010 is still highly uncertain. Indicators ofeconomic and business health, underlying the IT market recovery, are stillmixed and the market environment is unstable.

 

·      Planmarketing campaigns, and sales and service engagements in 2010 with clearervalue propositions aimed at CFOs and strategic business unit (SBU) leaders.

 

·      Composeand train account teams to execute in the changed sales environment. This deepand prolonged recession is changing IT buying centers’ composition, values anddynamics

 

·      Develop and/or expand financial models forproject justification and sales training on selling to the financial buyer andbusiness leader.

 

·      Focusdelivery organizations on the “lean” delivery of IT, with accelerated time tovalue, to appeal to the cost optimization and business goals of the IT buyingcenter.

 

Theglobal economic outlook continues to improve and, along with that recovery,there are signs that business executive confidence is returning. However,consumer confidence will remain fragile for much of 2010 with unemployment setto rise further as job creation lags behind the economic recovery.

 

Inventoryre-stocking began in 2Q09 and will continue to provide positive impetus to ITspending growth in the first half of 2010. We expect end market demand to beginto gather pace from the second half of 2010 as the economic recovery takeshold, while delayed spending will be “switched back on” and pent up demand willbe released. Emerging economies, which suffered more moderate recessions thanmature countries and regions such as the U.S. and Western Europe, will lead therecovery. Later, as IT spending priorities shift from cost optimisation tosupporting business growth in a healthier global economy, spending on newtechnologies will accelerate.

 

*(Disclaimer The GartnerReport described herein,**Dataquest Insight: 4Q09 ForecastUpdate Shows Little Change in IT Spending Outloo*k (*IDNumber: G00173978) represent) data,research opinion or viewpoints published, as part of a syndicated subscriptionservice, by Gartner, Inc. (“Gartner”), and are not representations offact. Each Gartner Report speaks as of its original publication date (and notas of the date of this Prospectus) and the opinions expressed in the GartnerReport(s) are subject to change without notice)*

 

 

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***Indian IT Industry Outlook***

 

Nasscom Strategic Review 2010states that the year 2009 ushered turbulence, with countries around the worldplunging into the recession. The housing bubble burst, followed by thefinancial crisis creating a domino effect that, but, brought the world to astandstill. While robust fundamentals ensured that the recession impact onIndia was relatively moderate, in an increasingly globalised environment, itcould not escape declining GDP growth, rising unemployment and weakenedconsumer demand. However, prompt action by governments across the world andstimulus packages helped to contain this downfall and make way for revival bythe end of 2009.

 

The industry is estimated toaggregate revenues of $73.1 billion in FY2010, with the IT software andservices industry accounting for $ 63.7billion of revenues. During this period,direct employment is expected to reach nearly 2.3 million, an addition of90,000 employees, while indirect job creation is estimated at 8.2 million. As aproportion of national GDP, the sector revenues have grown from 1.2% in FY1998to an estimated 6.1% in FY2010. Its share of total Indian exports (merchandiseplus services) increased from less than 4 % in FY1998 to almost 26% in FY2010.

 

Export revenues are estimatedto gross  $ 50.1billion in FY2010,growingby 5.4%over FY2009, and contributing 69% of the total IT-BPO revenues. Softwareand services exports (including BPO) are expected to account for over 99% oftotal exports, employing around 1.8 million employees.

 

The industry’s verticalmarket mix is well balanced across several mature and emerging sectors. 2009saw increased adoption of outsourcing from not only our biggest segment i.e.,the Banking, Financial Services and Insurance (BFSI), but also new emergingverticals of retail healthcare and utilities.

 

According to the report ,thebeginning of the new decade heralds the slow, but steady end of the worstrecession in the past 60 years. Global GDP, after declining by 1.1%in 2009, isexpected to increase by 3.1%in 2010,and 4.2% in 2011,with developing economiesgrowing thrice as fast as the developed economies.  Improving economic conditions signifyingreturn of consumer confidence and renewal of business growth, is expected to driveIT spending going forward. IT services is expected to grow by 2.4% in 2010, and4.2% in 2011 as companies coming out of recession harness the need forinformation technology to create competitive advantage. Organizations nowrecognize IT’s contribution to economic performance extending beyond managingexpenditures. They expect IT to play a role in reducing enterprise costs, notmerely with cost cutting but by changing business processes, workforcepractices and information use. Movement toward SaaS and cloud computing, sharedservices, and more selective outsourcing will take firmer shape as near-termpriorities to address constrained IT budgets.

 

Government IT spendingcontinues to rise across the world, focusing on infrastructure, and security.Other areas of spending include BPM, data management, on demand ERP,virtualization, and efforts to increase and deliver enterprise managed serviceson IP networks. Business process outsourcing spending in 2010 is expected to beincreasingly driven by F&A segment and procurement, followed by HR outsourcing.Providers will increase their focus on developing platform BPO solutions acrossverticals and services.

 

Growth in outsourcing isexpected to supersede overall IT spend reaffirming its potential to not onlysupport short term, tactical goals of cost savings, but also long termadvantages of increased competitiveness, efficiencies and access to emergingmarkets. Within outsourcing, off shoring will see increased acceptance as offshore based providers grow and traditional service providers ramp up off shoredelivery capabilities. India’s technology and business services industry hasflourished in the last decade. A bright future lies ahead and the industry hasmuch to look forward to, with the potential to quadruple its revenues over thenext decade. Several macro-economic and social trends will support the rise ofthe IT-BPO sector in the future, in core and emerging markets.

 

***OurDelivery Model***

** **

We address our clients’ needs with our globaldelivery model, through which we allocate resources in a cost-efficient mannerusing a combination of onsite client locations in North America, Europe andAsia and offshore locations inIndia. We believe an integral part of our delivery is our industry knowledge,which we refer to as our domain expertise.

 

We refer to our own industry experts, businessanalysts and solutions architects who are located primarily onsite with theclient as our “domain wedge”. These experts are supported by additionalpersonnel who provide technical services onsite on a temporary basis, and byour trained professionals located normally at one or more of our nine offshorecenters in India. Typically, at the initial stage of a project, we provideservices through our onsite industry and technology experts and our transientonsite delivery personnel. By applying our domain wedge approach, we deliversolutions that can be structured to scale to suit our clients’ needs. Incertain cases we provide dedicated offshore development centers, set up for aparticular client. Through these offshore development centers we integrate ourclients’ processes and methodologies and believe we are better positioned toprovide comprehensive and long-term support. We maximize the cost efficiency ofour service offerings by increasing the offshore portion of the work as theclient relationship matures. To complement our domain wedge, we have aligned amajority of our sales and marketing teams to focus on specific industrysectors.

 

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***OurCompetitive Strengths***

** **

We believe our competitive strengths enable usto deliver high-quality, efficient and scalable services. These strengthsinclude:

 

***Focused Industry Expertise***

*** ***

We concentrate on industries where we believe wecan generate sustained revenue growth, such as insurance, manufacturing, retailand distribution, financial services and communications, media and utilities.Through our extensive experience in these industries, we provide solutions thatrespond to technological challenges faced by our clients. We also focus ontechnology practices, specifically in product engineering services.

 

***Successful Client Relationships***

*** ***

We have demonstrated the ability to build andmanage our client relationships.Our long-term relationships typically develop from performing discrete projectsto providing multiple service offerings spread across the client’s businesses.Through our flexible approach, we believe we offer services that respond to ourclients’ needs irrespective of their size. By leveraging our industryexperience with our project management capabilities and breadth of technicalexpertise, we solidify and expand our client relationships.

 

***Extensive Suite of IT Services***

*** ***

We provide a comprehensive range of IT services,including application development, application maintenance and support,packaged software implementation, infrastructure management services, productengineering, business process outsourcing and quality assurance services. Ourknowledge and experience span multiple computing platforms and technologies,which enable us to address a range of business needs and to function as avirtual extension of our clients’ IT departments. We offer a broad spectrum ofservices in select industry sectors, which we leverage to capitalize onopportunities throughout our clients’ organizations.

 

***Delivery and Operational Excellence***

*** ***

Through our mature global delivery model, wedeliver high quality and cost-effective IT services from multiple locations ina reduced timeframe. We vary the composition of our employee resource pool, interms of seniority and location, to maximize our productivity and efficiency.Our processes and methodologies have achieved Capability Maturity ModelIntegrated (CMMi) Level 5, the highest attainable certification. We use projectmanagement tools to deliver services to client specifications in a timely andreliable manner while maintaining a high level of client satisfaction.

 

***Highly-skilled Professionals***

*** ***

We have a highly qualified management team witha broad range of experience in the IT industry. Our Chairman (previouslyalso our Chief Executive Officer) is an entrepreneur and engineer whohas been in the IT industry for over 30 years and has led us from our inceptionin 1978. Most of our senior management team has worked as a team for over 20years. We use our competitive recruitment program to select the best talentfrom India’s premier engineering institutions.

 

**OurStrategy**

** **

We seek to further enhance our position as aleading Indian provider of integrated IT services and solutions through ourglobal delivery model. To achieve this we intend to:

 

***Penetrate and Grow Strategic ClientAccounts***

*** ***

We have achieved strong revenue growth byfocusing on select, long-term customer relationships which we call strategicaccounts. We aim to expand the scope of our client relationships by leveragingour focused industry sector expertise with delivery excellence, responsiveengagement models and breadth of services. We intend to focus on adding newstrategic clients and further penetrating our existing customer relationships.We address the needs of our larger strategic relationships through dedicatedaccount managers who have responsibility for increasing the size and scope ofour service offerings to such clients. We aim to strengthen our sales andmarketing teams, a majority of whichare aligned to focus on specific industries.

 

***Strengthen and Broaden our IndustryExpertise***

*** ***

We intend to strengthen our understanding of keyindustries by investing in a strong base of industry experts, business analystsand solutions architects as well as considering select from targeted acquisitions. We believe that we can add more valuethan a general service provider because we understand the specific industryrequirements of our clients.

 

***Strengthen and Broaden our Service Lines***

*** ***

We aim to deepen our existing clientrelationships through new and more comprehensive service lines. In recent yearswe have added new capabilities in line with our growth and customer needs. Wecontinually explore

 

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new initiatives through our internal centers ofexcellence, which focus on innovation in specific technology platforms orservices. For example, we added quality assurance services as a new serviceline, and developed increased capabilities such as business intelligence,database administration and legacy system modernization in other service lines.

 

***Optimize and Expand Delivery Capability***

*** ***

We are committed to enhancing our processes andmethodologies by investing in project management tools that improve ourefficiency. We aim to develop new productivity tools, refine our softwareengineering techniques and maximize reuse of our processes. For example, we useautomation testing to increase the efficiency of our project methodologies andfor process management, defect tracking, audit management and contract management.We also apply this commitment to our infrastructure and we are constructing newknowledge park campuses in India to provide world-class infrastructure, highstandards of quality and secure delivery.

 

***Build our Brand Globally***

*** ***

While our “Patni” brand is an established andrecognized brand in India, we intend to increase recognition of our brandelsewhere in our client markets. We seek to achieve this through targetedanalyst outreach programs, trade shows, white papers, sponsorships, workshops,road shows, speaking engagements and global public relations management. Webelieve that a stronger brand will facilitate our ability to gain new clientsand to attract and retain talented professionals.

 

***Pursue Strategic Acquisitions***

 

We seek to pursue selective strategicacquisitions to augment our capabilities and to address gaps in industryexpertise, technical expertise, service lines and geographic coverage. We willcontinue to consider and seek acquisition opportunities which considerablywiden our industry and technology practices.

 

**IndustryPractices, Technology Practices and Service Lines**

 

We offer our services to customers throughindustry practices in insurance, manufacturing, retail and distribution,financial services and communications, media and utilities, as well as in otherindustries. We also have technology practices that offer services in productengineering and for  Independent SoftwareVendors, or ISVs. Our industry practices and technology practices are complementedby our service lines, which we develop in response to client requirements andtechnology life cycles. Our service lines include application development,application maintenance and support, packaged software implementation,infrastructure management services, product engineering, business processoutsourcing and quality assurance services.

 

**Industry Practices**

 

***Insurance***

 

We offer a range of integrated services toglobal insurance companies. Our industry experts employ their knowledge in allstages of the insurance business cycle, from underwriting to compliance. Ourofferings include a broad spectrum of services to insurance carriers includinglife and health, property and casualty and reinsurance companies. The ITservices we provide span several functions, including sales and marketing,distribution, policy services, claims, compliance, accounting and reinsurance. In May 2008, we launched a customizablesolution framework for the development or modernization of insurance businessapplications. Our core services include:

 

·       systemsconsolidation and integration of mergers and acquisitions;

 

·       policyadministration conversions;

 

·       developmentof frameworks that reduce the cycle time and cost for policy issue and claimhandling;

 

·       newproduct (life and retirement) introductions;

 

·       batchsystem optimization;

 

·       datamining;

 

·       developmentof business intelligence applications; and

 

·       legacysupport of several applications.

 

We are a member of global insurance industryorganizations such as Life Office Management Association, or LOMA, theAssociation for Cooperative Research and Development, or ACORD, and theInsurance and Accounting Systems Association. Several of our business analystsare LOMA certified and certified by the American Institute for CharteredProperty and Casualty Underwriters.

 

***Manufacturing Retail and Distribution***

*** ***

Our manufacturing, retail and distributionpractice offers IT and business process outsourcing services that support thepurchase, sales, production, engineering, finance, human resources and legal functionsof a manufacturing company. Within the manufacturing industry, the sectors weservice include consumer goods and

 

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durables, electronics, engineering, food andbeverages, personal care products, paper, rubber products, life sciences andpharmaceuticals. To businesses in these sectors, we provide IT services in thefollowing areas:

 

·       supplychain management;

 

·       demandchain management;

 

·       manufacturingapplications and core manufacturing systems (including package implementation);

 

·       datawarehousing; and

 

·       businessintelligence.

 

Asignificant portion of the services we provide to our customers in ourmanufacturing practice include implementation, customization and support of ERPplatforms used by our customers

 

*Retail*

 

Our experience in the retail practiceincludes development, support and testing of applications for specialty and hi-tech retailers and grocery chains. We also offer services such as PCIcompliance, development of multi-channel retail solutions and solutions aroundpoint of sale systems.

 

*Logistics &Transportation*

 

We provide services to road, air and railtransportation companies covering operational applications such as fleetmanagement, revenue accounting, reservations and flight operations. Apart from these, we also providesolutions to the logistic companies in areas such as warehouse managementapplications, supply chain and route optimization.

 

FromJanuary 1, 2009, we haverenamed our manufacturing segment as manufacturing, retail and distribution.This practice now includes clients in the retail, logistics and transportationindustry.

 

***Financial Services***

 

Ourfinancial services business unit focuses on customers in the banking,diversified financial services and securities business segments. We provideconsulting and software services including BPO (business process outsourcing)for consumer and corporate banking, treasury and risk management, mutual funds,investment management and securities. Our services to these business areasinclude:

 

·                  architecture design;

 

·                  application integration and development;

 

·                  information security assessments;

 

·                  legacy system maintenance;

 

·                  business intelligence;

 

·                  customer relationship management;

 

·                  mutual funds and benefits administration;

 

·                  portfolio accounting and reporting;

 

·                  stock exchange and brokerage house solutions;and

 

***·***                  business process outsourcing.

*** ***

***Communications, Media and Utilities***

*** ***

Our communications,media and utilities practiceprovides domain expertise in a wide spectrum of IT operations and businesssupport systems used by telecommunications service providers across varioussegments including mobile, wireline, cable, broadband and media. We haveexpertise particularly in the newer business models that are emerging in thesemarkets such as mobile virtual network operations or integratedvoice/data/entertainment content services over broadband and 3G networks. In May 2008, we launched Patni atomsTM a market-ready offering forcommunications service providers to set up core customer- and partner-facingbusiness processes under one consolidated operational model.

 

Our telecommunications experts provide solutionsthat combine a wide variety of services including:

 

·       ITstrategy;

 

·       systemconsulting and design;

 

·       applicationdevelopment;

 

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·       implementationand maintenance;

 

·       qualityassurance;

 

·       newproduct development and launch;

 

·       infrastructuremanagement services;

 

·       businessprocess outsourcing; and

 

·       IToutsourcing.

 

The services we provide within the media andentertainment industry and television broadcasting include broadcast stationmanagement and automation applications, and traffic and billing systems. Ourservices for publishing companies cover content layout software and searchsystems. Our services for online gaming and casinos primarily involve accountsmanagement.

 

*Energy &Utilities*

 

Our experience in the energy and utilitiesindustry includes development, integration and testing of customer billing,meter process automation and smart meter programs for electric and waterutility customers. In addition, we also offer geographic information systemsand related services.

 

From January 1, 2009, we renamed our communications, media and entertainmentpractice as communications,media and utilities. It now includesclients in the energy and utilities industries.

 

**TechnologyPractice**

 

***Product Engineering***

 

***Our productengineering services practice provides services for product engineering,product life cycle support and research and development outsourcing space, witha specialized team of over***2,600 engineers focused to service a varietyof technology sectors,such as medical electronics and lifesciences, storage networks and computing, industrial automation, automotive,consumer electronics, mobile, wireless and telecom, enterprise platformsoftware (ISV) and semiconductors.

*** ***

Our product engineering practice services allthe segments from application software, embedded hardware, embedded softwareengineering to computer aided engineering (Electro-mechanical) areas. Ourproduct engineering services assist several fortune 500 product companies tobring new products quickly tothe market by providing high quality, robust, domain backed complexsoftware/hardware development services from offshore/nearshore.

 

Our services provide support to our clients inthe development of their products in the following areas:

 

·     *Software*

 

·            Shrinkwrapped and platform vendors

 

·            Systemsoftware

 

·            Applicationframework vendors

 

·            ASP(Active server pages),  Vertical ISV

 

·     *Electronics*

 

·            Embeddedsoftware

 

·            Hardwaredesign

 

·            Verylarge scale integration (VLSI) / Field programmable gate arrays (FPGA) design

 

·            Packaging(Computer Aided Design / Computer Aided Manufacturing)

 

·     *Mechanical/Electro-Mechanical*

 

·            Productlife cycle management / Product data management

 

·            Computeraided engineering/ Computer aided design / Computer aided manufacturing

 

**ServiceLines**

** **

***Application Development***

*** ***

We custom design, develop and implement softwaresolutions for a variety of client needs. We offer services across the softwaredevelopment lifecycle, including requirements analysis, design, implementation,integration and testing for our projects. We typically perform applicationdesign, implementation and testing primarily in our offshore delivery centerslocated in India, while requirements analysis, transition planning, usertraining and deployment are performed at our clients’ sites. In specificsituations, we may work jointly with our clients’ teams. Our projects rangefrom single-platform, single-site systems to multi-platform, multiple-sitesystems and typically include new development and/or significant functional enhancementsto existing software applications. We have 

 

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developed expertise in mainframe, client-serverand internet technologies and on emerging platforms such as .NET and J2EE.

 

***Application Maintenance and Support***

*** ***

Our application maintenance and support servicesinclude performance optimization and system modification, product and systemsupport, preventive maintenance and migration to newer technologies andplatforms. We perform most of our maintenance and re-engineering assignments atour offshore delivery centers located in India. In addition, we maintain smallteams at our clients’ premises to coordinate support functions. We performdiagnostics to assess offshore outsourcing potential and prepare a customizedoffshore road-map. We share the benefits of our continuous improvementinitiatives to reduce recurring maintenance costs for our clients. Ourapplication maintenance projects are typically long-term in nature.

 

***Packaged Software Implementation***

*** ***

We assess, evaluate, implement and maintainpackaged software developed by global vendors in the areas of enterpriseresource planning, customer relationship management or CRM, supply chainmanagement, business intelligence and enterprise application integration. Ourofferings comprise:

 

·       consultingservices, which include functional and technical assessment, architecture andtechnology consulting and training;

 

·       implementationservices, which include product implementation and rollout;

 

·       applicationcare services, which include post-implementation support, productcustomization, interface development and version upgrade; and

 

·  functionalextensions and integration of diverse enterprise applications.

 

***Infrastructure Management Services***

*** ***

We offer full support services of the ITinfrastructure and remote managed services of applications, network andhardware infrastructure for our clients. These services are delivered both atcustomer locations and from our offshore facilities located in India. Wespecialize in mainframe and client-server operating systems, a wide range ofdata and voice networks, enterprise management systems, infrastructure productsfrom well-known vendors, web-server products, network security products,disaster recovery and business continuity management. From our networkoperations center in India we have the facility, hardware and technology todeliver remote managed services to our customers. Our service offerings addressseveral managed services configurations such as traditional, integrated andautomated remote monitoring, and management and reporting for enterprise-wideinfrastructure environments including hardware, communications and softwareenvironments.

 

***Product Engineering Services***

 

Our product engineering services support thevarious industry requirements of multiple disciplines such as utilities,manufacturing, insurance, banking and finance. Our primary product engineeringservices include engineering design and modeling, electronic design, embeddedsoftware development, product lifecycle management which includesre-engineering, maintenance and sustenance of legacy products, testing andmigrations to new technologies. We offer these services to clients in industrysectors such as consumer electronics, automotive, medical electronics,industrial automation, office automation, handheld/mobile device manufacturingand semiconductor manufacturing. Our technology expertise spans multiple computinglanguages including assembly language for various micro-controllers andprocessors, real-time operating systems, various computer aided design andmanufacturing platforms, GIS platforms, communication protocols and digitalsignal processing. We also offer document conversion services and GIS servicesespecially to our customers in the utilities industry.

 

***Business Process Outsourcing***

 

We started offering business process outsourcingservices in 2002. Since then we have been enhancing our expertise andconcentrating on transaction processing for our insurance, financial servicesand telecommunication clients and administrative processes in the areas offinance and accounting, payment processing, human resource management andtechnical help-desks.

 

***Quality Assurance Services***

 

Our quality assurance services includefunctional testing, test automation, performance testing, remote testing andtest process consultancy. Apart from testing custom-built applications, we haveexperience in testing operating systems, utilities, specialized applicationservers and middleware products. With respect to automation, we havepartnerships with leading vendors and expertise in leading commercial and opensource tools.

 

**Qualityand Project Management**

** **

While quality always has been an integral partof our operations at Patni, we became formally certified and assessed forquality models in 1995. We started with ISO 9000-1994, underwent SEI-CMMlevel 4 and 5 assessments and as of today are ISO 9001-2000 certified andare assessed for P-CMM Level 3 and SEI-CMMi

 

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Level 5. ISO 9001 is an internationalstandard for quality management systems maintained by the InternationalOrganization forStandardization. The Capability Maturity Model (CMM) is a method for evaluatingthe quality of a company’s management and software engineering practices, withLevel 5 being the highest attainable certification. The CMM was developed bythe Software Engineering Institute (SEI) at Carnegie Mellon University. TheSoftware Engineering Institute subsequently released a revised version known asthe Capability Maturity Model Integration (CMMi). We have been using the SixSigma Program to implement process changes including the above. We continuouslystrive to better our quality management system with the help of industry bestpractices and research findings. Our quality management system involves thereview and continuous improvement of software development and relatedprocesses, testing of work products and regular internal and external qualityaudits. We apply sophisticated project management and solution deploymentmethodologies that we have developed to help ensure timely, consistent andaccurate delivery of IT solutions to our clients. In 2009 we have received thefollowing recognitions:

 

·                  Ranked40th amongst the ‘top technology providers for financial institutions’ in the ‘FinTech100 - 2009’ list.

 

·                  Listedin the ‘Global Services 100 — 2009’, instituted by Global Services and neoIT:

 

·                  Ranked7th among ‘Top 10 best performing IT Infrastructure Service Providers’

 

·                  Ranked8th among ‘Top 10 best performing IT Service Providers’.

 

·                  Nameda ‘Niche Player’ in Gartner’s Magic Quadrant for CRM Service Providers, NorthAmerica, 2009 Report.

 

·                  Nameda ‘Challenger’ in Gartner’s Magic Quadrant for Help Desk Outsourcing, NorthAmerica, 2009 Report.

 

·                  Listed amongthe Top 20 India-Centric BPO players in “Competitive Landscape: BusinessProcess Outsourcing, India - 2009, by Gartner.

 

·                  Listedin the ‘Black Book of Outsourcing — 2009’:

 

·                  Ranked# 1 ‘Life Sciences Information Technology Outsourcing’ Vendor

 

·                  Ranked# 1 ‘Product Development and Engineering Outsourcing’ Vendor

 

·                  Ranked# 2 ‘Property and Casualty: Automotive Insurance BPO’ Player

 

·                  Ranked# 4 ‘Health Insurance BPO’ Player

 

·                  Ranked# 8 HomeOwners BPO Player

 

·                  Listedamong the Top 10 ‘End-to-end Insurance BPO/ITO Services Providers’

 

·                  Ranked amongTop 15 ‘Best Managed Global Outsourcing Vendor of 2009’ in the Annual ClientExperience Survey.

 

·                  Rankedas ‘# 1 Green Innovative IT Vendor’ in the 2009 Black Book ‘Top GreenOutsourcing Vendors’ Survey.

 

·                  Namedthe 2009 ‘IT Supplier of the Year’ by Weyerhaeuser, a leading provider ofintegrated forest products.

 

·                  Rankedamong the Top 20 in DQ-IDC’s ‘Best Employer Survey 2009’; also ranked as the7th ‘Preferred Employer’.

 

·                  Listedas a regional level award winner at the ‘4th Employer Branding Awards 2009-10’ underthe ‘Innovative retention strategy’ and ‘Excellence in training’ categories.

 

***Centers of Excellence***

 

We have developed internal “centers ofexcellence” to create expertise in emerging technologies. We currently havecenters of excellence that focus on middleware integration, legacy systemsmodernization, business intelligence, Radio Frequency Identification (RFID),process consulting and service oriented architectures based on technologiessuch as J2EE and .NET. For example, we use our center of excellence on legacysystems modernization to develop solutions for our clients who want to maintaintheir current business-critical systems but at the same time want to utilizethe latest technologies for new systems. We partner with leading technologyvendors such as IBM and Microsoft to implement technology solutions soon afterthey are made available in the market.

 

**Sales and Marketing**

** **

Our sales teams use amulti-pronged approach to market our services. They target certain industriesand service lines through focused sales executives, geographies throughregional sales executives and large clients through dedicated account managers.We have aligned a majority of our sales and marketing teams to focus onspecific industries and geographies. In addition to our sales executives, wehave industry experts and solution architects who complement our sales effortsby providing specific industry and service line expertise. Our sales effortsare also supported by our marketing professionals, who assist in brand-buildingand tracking our expertise.

 

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Our senior management and dedicated accountmanagers are actively involved in managing client relationships and businessdevelopment through targeted interaction with multiple contacts throughout ourclients’ organizations. We aim to develop our client relationships intopartnerships by working closely with our clients’ managers and seniorexecutives to formulate and execute an offshore outsourcing strategy, implementengagement models that suit their particular challenges and explore new servicelines.

 

We undertake detailed periodic reviews toidentify existing and prospective clients that we believe can develop intolarge, strategic clients. We intend to focus on adding more strategic accounts,which we define as those who provide $ 5.0 millionor more in annual revenues or those with whom we believe we have the potentialto achieve such annual revenue amounts over a 24 to 30 month period. Foreach strategic client, a senior executive is identified and charged withmanaging the overall client relationship and leading periodic reviews with theclient.

 

We have 28sales offices across North America, Europe, Japan and the rest of the Asia-Pacific region and 235 sales and marketingpersonnel who are supported by dedicated industry specialists. We set targetsfor our sales personnel at the beginning of each year, which are subject toperiodic reviews. In addition to a base salary, our compensation package forsales personnel includes an incentive-based compensation plan driven byachievement of the prescribed sales targets.

 

Our sales and marketing professionals helppromote the “Patni” brand through targeted analyst outreach programs, tradeshows, white papers, sponsorships, workshops, road shows, speaking engagementsand global public relations management. We believe that a stronger brand willfacilitate our ability to gain new clients and to attract and retain talentedprofessionals.

 

**Clients**

** **

We market our services to clients located in theUnited States, Europe, India, Japan, Others. A significant proportion of ourrevenues is derived from clients located in the United States, as illustratedin the table below:

 
| ** **    | ** ** | **Fiscal year ended  December 31,** | ** ** |
|---------------|------------|----------------------------------------------------|------------|
| ** **    | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| United States |       | 77.9                                               | %          | 75.9 | % | 78.9 | % |
| Europe        |       | 14.7                                               | %          | 15.7 | % | 12.7 | % |
| India         |       | 0.8                                                | %          | 0.9 | % | 1.0 | % |
| Japan         |       | 3.0                                                | %          | 3.5 | % | 3.5 | % |
| Others        |       | 3.6                                                | %          | 4.0 | % | 3.9 | % |
| Total         |       | 100.0                                              | %          | 100.0 | % | 100 | % |

 

Further, a significant proportion of ourrevenues have been derived historically from the insurance, manufacturing,retail and distribution, financial services, communications, media andutilities industries and technology practice consisting of product engineeringservices, as illustrated in the table below.

 
| ** **                                 | ** ** | **Fiscal year ended  December 31,** | ** ** |
|--------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                 | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| Insurance                                  |       | 23.6                                               | %          | 24.7 | % | 29.7 | % |
| Manufacturing, retail and distribution (1) |       | 27.0                                               | %          | 28.9 | % | 29.0 | % |
| Financial Services                         |       | 14.1                                               | %          | 12.8 | % | 12.8 | % |
| Communications, media and utilities(2)     |       | 18.3                                               | %          | 17.9 | % | 13.5 | % |
| Product Engineering                        |       | 17.0                                               | %          | 15.7 | % | 15.0 | % |
| Total                                      |       | 100.0                                              | %          | 100.0 | % | 100 | % |

 

----

(1)      FromJanuary 1, 2009, we haverenamed our manufacturing segment industrypractice as manufacturing, retail and distribution.

 

(2)    From January 1, 2009, we have renamed our communications, media and entertainment practiceas communications, media andutilities.

 

Although we believe we have successfullydiversified our client base over the past three years, a significant proportionof our revenues are derived from a small number of clients, as illustrated inthe table below:

 
| ** **           | ** ** | **Fiscal year ended  December 31,** | ** ** |
|----------------------|------------|----------------------------------------------------|------------|
| ** **           | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| State Farm Insurance |       | 9.1                                                | %          | 9.8 | % | 11.9 | % |
| General Electric     |       | 11.8                                               | %          | 10.7 | % | 10.3 | % |
| Top 5 Clients        |       | 34.8                                               | %          | 32.7 | % | 36.5 | % |
| Top 10 Clients       |       | 47.6                                               | %          | 45.6 | % | 49.7 | % |

 

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The following table illustrates a breakdown ofour largest clients by revenue categories on a cumulative basis:

 
| ** **                              | ** ** | **Fiscal year ended December 31,** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                          | ** ** | **2008** | ** ** | **2009** | ** ** |
| No. of $ 1 million + clients  |       | 84                                                |       | 92 |   | 92 |   |
| No. of $ 5 million + clients  |       | 31                                                |       | 30 |   | 26 |   |
| No. of $ 10 million + clients |       | 14                                                |       | 19 |   | 15 |   |
| No. of $ 25 million + clients |       | 5                                                 |       | 5 |   | 4 |   |
| No. of $ 50 million + clients |       | 2                                                 |       | 2 |   | 2 |   |

 

***Contractual Arrangements***

 

We enter into non-exclusive MSAs with clientsthat typically have a specified term and contain general rights and obligationsgoverning our relationship with the client. The MSAs specify the broad scope ofwork and typically do not include any commitment by the client to give us aspecific volume of business or future work. For each work assignment, theclient and we enter into separate work orders with the client that specify the types of services we arerequired to provide to the client, the performance levels and the price terms.Although some of our MSAs contain the billing rates for time and materials workorders, for most of the services we provide, whether on a time and materialsbasis or on a fixed-price basis, the separately agreed work order contains thespecific pricing and other commercial terms.

 

Most of our MSAs, including the MSAs with ourtwo largest customers, State Farm Insurance and General Electric, can beterminated with or without cause, with 0 to 90 days notice and withouttermination-related penalties. The MSAs typically contain terms that:

 

·       requireus to provide various representations and warranties, including those relatingto the services we perform;

 

·       requireus to maintain confidentiality relating to the client and the contract, ****including compliance withvarious laws relating to privacy and data protection****;

 

·       requireus to protect the intellectual property of our clients;

 

·       requireus to comply with certain security obligations, including maintaining networksecurity and back-up data, ensuring our network is virus free and verifying theintegrity of employees who workwith our clients by conducting background checks;

 

·       requireus to indemnify the client, including for third party intellectual propertyinfringement;

 

·       limitthe liabilities of both parties under the contract; and

 

·       providefor reciprocal non-solicitation of employees by our clients and us.

 

The MSAs typically do not stipulate that we arethe preferred supplier for the customer and do not provide that we are entitledto any minimum amount of work or revenues from the customer.

 

**Competition**

** **

***The market for IT services is rapidlyevolving and highly competitive. We expect that competition will continue tointensify. We face competition or competitive pressure from:***

*** ***

·       IndianIT services companies, such as, Tata Consultancy Services Limited, InfosysTechnologies Limited, Wipro Limited, HCL Technologies Limited and TechMahindra;

 

·       internationalIT services companies, such as Accenture, Cognizant Technology Solutions, ComputerSciences Corporation Sapient Corporation;

 

·       divisionsof large multinational technology firms such as IBM, and Hewlett-Packard

 

·          in-houseIT departments of large corporations;

 

·       otherinternational, national, regional and local firms from a variety of marketsegments, including major international accounting firms, systems consultingand implementation firms, applications software firms, service groups ofcomputer equipment companies, general management consulting firms, programmingcompanies and temporary staffing firms;

 

·       offshoreservice providers in other countries with low wage costs such as China and thePhilippines, and countries in Eastern Europe and Latin America; and

 

·       involvementof third party intermediaries who negotiate IT services and outsourcingcontracts on behalf of their clients.

 

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A number of our international competitors aresetting or have set**up**operations in India.**Further, anumber of our international competitors with existing operations in India have ramped up**theirpresence as offshore operations in India have become an important element oftheir delivery strategy.

 

We believe that price alone is not a sustainablecompetitive advantage in an environment where IT solutions are becomingincreasingly critical to clients’ core corporate strategy. We have thereforebuilt our competitive position on our ability to leverage our industry specificknowledge and experience in a broad range of IT services, to manage andmaintain large client relationships, to continually monitor and improve ourdelivery excellence and to attract and retain highly-skilled softwareprofessionals.

 

**Innovation**

** **

We believe innovation should beinstitutionalized so as to ensure our ability to help clients meet emergingchallenges. We have two groups involved in our research and developmentactivity initiatives, the product and technology initiatives group and thedelivery innovation group. We also have a business analysis group that servesas a channel between our clients and our innovation groups to provide analysison the trends in client requirements and evolving needs.

 

***Service and Technology Initiatives***

*** ***

The product and technology initiatives group isfocused on applied research and development initiatives and employs emergingtechnologies to create new technology service offerings. The group hasestablished systems to harness talent among our employees by providing a sharedframework for idea generation. The group is responsible for identifying,evaluating and incubating new technology service offerings and later convertingrelevant technology offerings into centers of excellence. The current focusareas of the group include service oriented architectures and their usage inbuilding next generation applications, mobile computing and its applications,usage of RFID technologies and legacy systems modernization.

 

***Delivery Innovation***

*** ***

Our delivery innovation group is focused onproviding operational excellence and serving our customers in the mostefficient manner. This group’s activities include developing best practices andrefining our methodologies, tools and techniques used in the softwareengineering and project management activities, improving estimation processesand adopting new technologies for improving productivity. The deliveryinnovation group consists of professionals who are experts in processimprovement and automation and who also act as a resource center for ournascent service lines such as our quality assurance services.

 

**Human Resources**

 

Weemployed 14,945, 14,894 and 13,995 employees as of December 31, 2007, 2008and 2009, respectively.  Out of 13,995employees, 11,102 were software professionals. Of these software professionals, 2,372 employees werecategorized as onsite and 8,730 as offshore. The geographic breakdown for ouremployees as of December 31, 2009 wasas follows:

 
| **Geography**     | ** ** | **Number of Employees** | ** ** |
|-------------------|------------|-------------------------|------------|
| India             |       | 11,264                  |       |
| North America     |       | 2,203                   |       |
| Rest of the World |       | 528                     |       |
| Total             |       | 13,995                  |       |

 

We strongly believe that our ability tomaintain and continue our growth depends to a large extent on our strength inattracting, developing, motivating and retaining the talent. We operate inseven major cities in India, which enables us to recruit technologyprofessionals from different parts of the country. The key elements of ourhuman resource management strategy include recruitment, learning anddevelopment, compensation and retention.

 

***Recruitment***

 

Our hiring plan is driven by annualbudgets, business requirements and also based on business forecasting and business plans for next couple ofyears. Manning and wage billsare tracked on a regular basis through various MIS reports by management. Werecruit talent from premier universities, colleges and institutes in India,including the Indian Institutes of Technology, known as IITs, National Institutes of Technology or NITs (formerly, RECs), and Indian Institutesof Management (IIMs). For our offshore facilities located in India, ourcampus recruiting team visited over 130 campuses in 2009.  Software candidates are put through a seriesof tests and interviews such as Aptitude, Technical, Language Proficiency &Psychometrics Test followed by Technical & Behavioral Interview as apart of selection process. We have a similar competitive recruitment program inplace

 

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for our lateral hires. All new hires areinducted into our organization through a structured orientation program, whichinvolves extensive training as well as mentoring.  We have a strong competitive hiring processin place which is ably supported by a highlyskilled global hiring team to attract talent globally.

 

Our software employees are highly-skilledand have diverse educational backgrounds. As of December 31, 2009,graduate engineers comprised 67.03%, post graduate engineers comprised 4.67%,employees with master’s degrees in computer applications or computer managementcomprised 12.73% and employees with masters in business administration andequivalent qualifications comprised 3.80% of our software professionals. Otherdegrees comprised 11.77% of our software professionals.

 

We believe that we have a balanced mix ofexperience with approximately 28.6%, 33% and 38.4% of our softwareprofessionals with work experience of less than 3 years, 3 to 6 yearsand over 6 years, respectively, as of December 31, 2009.

 

***Learning and Development***

 

As a part of our strategy, we have technical,behavioral and role based training for our employees. These training coursesfacilitate the trainees to acquire required skills in a short span of time. Thecourses offered have been designed and developed by a pool of experiencedtrainers and technical leaders. We alsohave a transparent evaluation system for tracking performance and identifyingpotential that results in individual development plans or IDPs that help buildcapabilities and recognize preferences of our employees. These trainingprograms are customized to suit training needs of the customers. We also have arich set of eLearning Programs for self learning as well as blended learning.In addition we also provide Interactive online training through theInternet/Intranet in Virtual Classroom mode. In 2009 we have launched the PatniLeadership Academy which will focus on Leadership Development for building ourglobal leaders..Our training plans are personalized and address both technicaland soft-skill requirements. For each software professional, we plan a minimumof 10 working days of training per year. Such multiple avenue have beenlisted below:

 

·                  **eMEP (PGCPM) – Post Graduate Certificate Programin Management by IIM Kozhikode**, delivered indifferent cities using the satellite based e-class room facilities.

 

·                  **BITS:** This initiativewas started in March 2004, where in Patni had a tie up with BITS Pilanifor MS Software Engg and MS Embedded Systems. Totally about 39 people have gotthe masters degree

 

·                  **Technology Certifications for Developers**

 

A 4 level certification framework has beendefined for developers in various lines of technology. The certification levelsare defined as L1(entry), L2(intermediate), L3(advanced) and L4(expert). Eachcertification is backed with a comprehensive assessment.

 

·                  **Technology Certifications for Designers**

 

A similar 2-level framework has been rolled outfor the technical designers based on inputs from our technical architectcommunity.

 

·                  **New Managers Development Programme**

 

The challenges facedby a project manager have changed significantly over the last few years,interms of customer expectations, team dynamics, and service diversity. Acomprehensive program covering various areas connected with project managementhas been designed so that project managers become more effective in their role.

 

***Compensation***

 

Considering the demand-supply gap in the talentpool, we believe it is important to overall align our compensation strategy inline with market. We have a developed model to track our compensation to marketbenchmarks systematically and arrive at a competitive pay and benefitstructure. We believe that the salaries and benefits that we offer to oursoftware professionals’ are competitive in the industry. We revise ourcompensation packages annually based on industry benchmarks, role criticalityand individual performance. We seek to make our compensation more attractivefor both existing employees and prospective new hires by introducing specialproject incentives / skill / performance based incentives in addition to theregular salaries. We have introduced variable pay compensation across levels inorder to align the individual performance to our overall organisation businessobjectives.  We also grant stock optionsto our senior employees to nurture the spirit of ownership and commitmenttowards the company. For more information on the terms of the stock optionplan, see item “Item 6.E. Directors,Senior Management and Employees — Share Ownership — Employee Stock Option Plan.”

 

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***Retention***

 

We believe it is important to retain talent andcritical resources to stay competitive in our business. We seek to attract, nurture and retain employees with a strongfocus on skill development; role enhancement and higher employee interaction.Our human resources philosophyseeks to provide a comprehensive development “Employee Experience” to theemployees that begins when a new recruit joins the company until the time such person leaves.Some of our key human resourcesinitiatives aim to attract and retain the talent are Just Joined,FOUR, Fresh Eyes and E-inductionfor new employees and Patni Explorer, Knowledge Management, eDude, AssessmentCenters, Leadership excellence at Patni (LEAP), specialized development programs such as executive managementprograms and MS (collaborative) programmes in software engineering from BITS, Pilani for the existing employees.These initiatives have been well received andappreciated by our employeesacross levels. In addition, wehave also initiated activities, such ase-Care, skip level meets and communication meets with seniormanagement to promote two-way transparent communications between management andthe other employees. Some of our HR practices, include rewards such as theappreciation board, valuablecontribution awards, “pat on theback” awards and employee touchpoint, all of which form a part of our HR retention strategy. We have conducted an ‘EmployeeEngagement Survey’ launched by Hewitt to determine the engagement levels ofemployees. We seek to implement human resource practices and policies inline with the market best practices to make it more employee friendly and as astrong retention tool.

 

We have won recently two awards at the “WorldHRD Congress” in the regional round held at Pune under the “Employer BrandingCategory” for our Innovation Retention Strategy.

 

None of our employees are represented by aunion. We believe we have positive relations with our employees.

 

**Seasonality**

 

OurIT services business is not affected by seasonality.

 

**Government Regulation**

** **

**Regulation of our business bythe Indian government affects our business in several ways. Currently, webenefit from tax holidays given by the Government of India for the export of ITservices from specially designated software technology parks, or STPI’s, andspecial economic zones, or SEZs, in India. These tax incentives currentlyinclude a 10-year holiday from the payment of Indian corporate income tax forthe operations of most of our Indian facilities in STPI’s, and for units in SEZ’sthese benefits include 100% tax exemption for 5 years from date of commencementof operations and thereafter 50% tax exemption for another 10 years onfulfillment of certain conditions. As a result of this tax incentive, asubstantial portion of our pre-tax income has not been subject to significanttax in recent years.**

** **

**The aggregate benefit of these tax holidays and deductionswith respect to our net income was $28.9 million $27.3 million and $27.1million for 2007,2008 and 2009 respectively. Our current tax holidays for STPIunits expire in stages by 2011. The tax benefits available for some of ourfacilities have expired and certain others will expire upon completion of 10years or March 31, 2011.However the tax holiday for the export of ITservice from our SEZ unit will continue to get tax holidays for 15 years fromdate of commencement of operations as described above. Consequently, we expectour effective tax rate to increase.**

** **

**We are also subject to other government regulations,including those relating to acquisition of foreign securities, raising capitaloutside India and conversion of our equity shares into ADSs.**

** **

**Please see “Item 10. Additional Information”, as well as “Item 3. D. KeyInformation—Risk Factors” for additional information on the effects ofgovernmental regulation of our business.**

** **

**Intellectual Property**

** **

Werely on a combination of copyright, trademark and design laws, confidentialityprocedures and contractual provisions to protect our intellectual property,including our brand identity. We currently do not have any patents. We haveregistered our trademark and servicemark “Patni” in the U.S., U.K., Germany, Sweden, Japan, Singapore,Korea, Australia, Canada, the Netherlands and in Class 9, 16 and42 in India and have applied to register our trademark and/or service mark inChina . We also have 28 trademarks registered in India and one othertrademark registered in European Region. We also have 24 trademarks pending for registration in India and one anothertrademark pending registration in theU.S. Additionally, we have3 registered copyrights in India.

 

There can be no assurance that our applications willbe successful or that our efforts to protect our intellectual property will beadequate.

 

We require our employees and subcontractors toenter into non-disclosure arrangements to limit access to and distribution ofour clients’ proprietary and confidential information as well as our own. Generallywe are responsible to our clients for complying with certain securityobligations including maintaining network security, backing-up data, ensuringour network is virus free and verifying the integrity of those employees thatwork with our clients by conducting background checks. There can be no assurance that we will be able to comply with allsuch obligations without incurring any liability.

 

In addition, the terms of our client contractsoften impose particular confidentiality and security standards. We haveindependently established a system of security measures to protect our computersystems from security

 

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breaches and computer viruses that may attemptto gain access to our communications network. We have deployed advancedtechnology and process-based methods to ensure a high level of security and wecontinually monitor such technologies to ensure that we maintain such levelsconsistently. Some of these components include clustered and multilevelfirewalls, intrusion detection mechanisms, vulnerability assessments, contentfiltering, antivirus software and access control mechanisms. We use encryptiontechniques as required. We control and limit access to client-specific projectareas.

 

Although we believe that our intellectualproperty rights do not infringe on the intellectual property rights of anyother party, infringement claims may be asserted against us in the future.There are currently no material pending or threatened intellectual propertyclaims against us.

 

**4.C. Organizational structure**

** **

We have the following direct and indirectsubsidiaries as of December 31, 2009, all of which are wholly-owned:

 
| ** **                                   | ** ** | **Country of Incorporation** |
|----------------------------------------------|------------|----------------------------------------|
| Patni  Americas, Inc.                   |       | USA                                    |
| Patni Computer Systems (UK) Limited          |       | UK                                     |
| Patni  Computer Systems GmbH                 |       | Germany                                |
| Patni Computer Systems Brasil Ltda           |       | Brazil                                 |
| Patni (Singapore) Pte. Ltd. (1)              |       | Singapore                              |
| PCS Computer Systems Mexico, SA de CV        |       | Mexico                                 |
| Patni  Telecom Solutions, Inc.  (2)     |       | USA                                    |
| Patni  Telecom Solutions Private Limited (3) |       | India                                  |
| Patni  Telecom Solutions (UK) Limited (3)    |       | UK                                     |
| Patni  Life Sciences, Inc.  (2)         |       | USA                                    |
| Patni Computer Systems (Czech) s.r.o (4)     |       | Czech  Republic                        |

 

----

(1) Wholly-owned subsidiary of the Company —incorporated on June 30, 2009

(2) Ownedthrough Patni Americas, Inc.

(3) Wholly-ownedsubsidiary of Patni Telecom Solutions, Inc.

(4) Wholly -owned subsidiary of Patni Computer Systems (UK) Limited.

 

**4.D. Property, plant and equipment**

** **

A key component of our global delivery model isthe telecommunication linkages between client sites and our sites and betweenour distributed sites in India. We have designed a global network architecturewhich provides client connectivity, offshore development center connectivityand internet connectivity. This network provides seamless access and uses highavailability networks and advanced routing protocols for redundancy andavailability. Although we rely on third parties, such as telecommunicationsproviders and internet service providers to provide such services, we ensurethat we have multiple service providers using multiple routes and media toattain high levels of redundancy, availability and performance. We have dedicatedteams to monitor the operations of our network operations 24 hours a dayand seven days a week. We use encryption techniques for confidentiality of dataas required.

 

Our principal executive offices are located atMumbai, India. Our North American headquarters are located in Cambridge,Massachusetts. These facilities are used primarily for management functions andsupport functions such as sales, marketing and general administration.

 

We have state-of-the-art facilities in ninelocations in India where our technical staff is located and which serve as ourprimary delivery centers. We also have imaging centers and distribution centersin the United States and in the United Kingdom for handling the digitalprocessing of documents.

 

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Our locations in India are as follows as at December 31,2009:

 
| **No.** | ** ** | **Property**     | ** ** | **Square Feet** | ** ** | **Industry/Technology Practices Covered/Services Provided**                                                            | ** ** |
|---------|------------|------------------|------------|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| 1.      |       | Mumbai           |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 130,474              |       |                                                                                                                                  |       |
|    |       | Leased           |       | 53,174               |       |                                                                                                                                  |       |
|    |       | Total  Mumbai    |       | 183,648              |       | Manufacturing, Financial Services, Other, Product Engineering Services                                                                |       |
| 2.      |       | Pune             |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 75,477               |       |                                                                                                                                  |       |
|    |       | Leased           |       | 232,473              |       |                                                                                                                                  |       |
|    |       | Total  Pune      |       | 307,950              |       | Insurance, Manufacturing, Communications, media and utilities, Other,  Enterprise Application Systems, Enterprise Systems Development |       |
| 3.      |       | Gandhi  Nagar    |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 37,000               |       | Insurance, , Other                                                                                                                    |       |
| 4.      |       | Chennai          |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 148,000              |       | Financial Services, Manufacturing, retail and distribution                                                                            |       |
| 5.      |       | Noida            |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 460,000              |       |                                                                                                                                  |       |
|    |       | Leased           |       | 41,100               |       |                                                                                                                                  |       |
|    |       | Total  Noida     |       | 501,100              |       | Financial Services, BPO                                                                                                               |       |
| 6.      |       | Hyderabad        |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 8,497                |       |                                                                                                                                  |       |
|    |       | Leased           |       | 89,000               |       |                                                                                                                                  |       |
|    |       | Total  Hyderabad |       | 97,497               |       | Communications, media and utilities                                                                                                   |       |
| 7.      |       | Bangalore        |       |                 |       |                                                                                                                                  |       |
|    |       | Leased           |       | 114,300              |       | Manufacturing, retail and distribution, Product Engineering Services                                                                  |       |
| 8.      |       | Thane            |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 91,159               |       |                                                                                                                                  |       |
|    |       | Leased           |       | 176,252              |       |                                                                                                                                  |       |
|    |       | Total  Thane     |       | 267,411              |       | Insurance, Manufacturing, retail and distribution, Financial Services,  Enterprise Application Systems                                |       |
| 9.      |       | Airoli           |       |                 |       |                                                                                                                                  |       |
|    |       | Owned            |       | 462,845              |       | Enterprise Application Systems, Product Engineering Services,  Financial Services, Others                                             |       |
|    |       |             |       |                 |       |                                                                                                                                  |       |
|    |       | Total            |       | 2,119,751            |       |                                                                                                                                  |       |

 

We currently have capacity for approximately21,000 professionals at these facilities. As of December 31,2009, we had used approximately58 % of our existing office space in our operations.

 

Most of our global branch offices located outsideof India are used for sales and marketing.

 

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We have 28 sales and marketing offices locatedin the following locations:

 

 

In keeping with our plans for expansion, we haveconstructed new facilities in India, which includes three knowledge parks inChennai, Navi Mumbai and Noida. These knowledge parks have state-of-the-artinfrastructure with extensive workspace and training facilities and a modulardesign for ease of segregation of dedicated projects with ability to providescale and service to clients from one location.

 

The Navi Mumbai, and the Chennai facilities are expected to accommodate up to14,000 and 10,000 engineers, respectively, when fully completed. We estimatethat we may spend an aggregate of approximately $ 140 million to complete these two projects. Phase I of the Navi Mumbai facility, having a capacity of 4,300 seats,is complete and occupied. Phase I of the Chennai facility, having acapacity of 1,200 seats, is complete andpartially occupied.

 

Construction ofthe Noida SEZ facility is completed with capacity toaccommodate 3,200 Seats andis partially occupied.

 

As of December 31, 2009, we had spentapproximately $ 101.3 millionon the knowledge parks. The estimated amounts(net of advances) remaining to be executed on contracts in relation to capitalexpenditure for the construction of various facilities, aggregatedapproximately to $ 55.6 million as of December 31, 2009 which will beexecuted over 3 years. Weanticipate that expenditures for our expansion plans will total approximately $20 to $25 million in 2010.

 

In continuation of our policy to have our own campusoperations, we have acquired land in Pune, Hyderabad and Kolkata inaddition to our campuses in Mumbai Chennai and Noida. These facilities when fully built are expected to have a seatingcapacity for approximately 25,000 professionals.

 

For the Chennai facility, we have entered into alease dated September 30, 2004 with the State Industrial PromotionCorporation of Tamil Nadu, or SIPCOT. We have acquired 18.75 acres of land nearChennai for a lease term of 99 years to establish a project in connectionwith software development and support services. According to the terms of theagreement, we require SIPCOT’s prior approval for any change in the compositionof our Board of Directors that causes a change in ownership or management. Further, for the Mumbai facility wehave entered into license agreements dated February 10, 2005, with theMaharashtra Industrial Development Corporation, or MIDC. We have been grantedlicenses to construct facilities over 50 acres of land in a phased manner inNavi Mumbai. Our occupation of the land is subject to entering into a leaseagreement with a term of 95 years. We have entered into lease agreements for 15acres and will soon be entering into lease agreements for 35 acres. This land may only be used for activitiesrelated to the information technology industry.

 

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**ITEM4A.UNRESOLVED STAFF COMMENTS**

 

None

 

**ITEM5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

 

The following discussion of our financial condition and results ofoperations of our company should be read in conjunction with the financialstatements and the related notes included elsewhere in this document. Thisdiscussion contains forward-looking statements that involve risks anduncertainties. For additional information regarding these risks anduncertainties, please see “Item 3.D. Key Information—Risk Factors.”

 

**Overview**

 

We are a leading Indian provider of informationtechnology services. We deliver a comprehensive range of IT services throughglobally integrated onsite and offshore delivery locations primarily in India,which we call our global delivery model. We offer our services to customersthrough industry-focused practices, including insurance, manufacturing, retailand distribution, communications, media and utilities and financial services,and through technology focused practices. Within these practices, our servicelines include application development, application maintenance and support,packaged software implementation, infrastructure management services, productengineering services, business process outsourcing and quality assuranceservices.

 

Our revenues grew from $ 450.3 million in 2005 to $ 655.9 million in 2009, representing a CAGR of 9.9%. Our net income grew from $ 60.9 million in 2005 to $ 119.8 million in 2009,representing a CAGR of 18.4%. Our total number of employees was 11,802**as of December 31, 2005 and 13,995 as of December 31,2009 We are investing in new high-tech facilities, which we refer to as “knowledgeparks”, designed for expanding our operations and training our employees. As ofDecember 31, 2009, we had 235 salesand marketing personnel supported by dedicated industry specialists in 28 sales offices around the globe, includingNorth America, Europe, Japan and the rest of the Asia-Pacific region.

 

Our industry segments comprise of financialservices, insurance services, manufacturing, retail and distribution companies,communications, media and utilities and technology practice (comprising ofproduct engineering). We evaluate segment performance and allocate resourcesbased on revenue growth. We categorize revenue in relation to segments based onitems that are individually identifiable with that segment. Costs are notspecifically allocable to individual segments as the underlying resources andservices are used interchangeably. Fixed assets used in our business orliabilities contracted have not been identified with any of the reportablesegments, as the fixed assets and services are used interchangeably betweensegments.

 

Our management evaluates our results ofoperations by examining financial and operating data in a variety ofcategories, including our industry and technology practices, onsite andoffshore revenues, type of contract, type of customer and geographic region. Wemanage and market our business according to our industry and technologypractices.

 

We have also developed technology practices thatoffer research, design and development services for product engineering and toISVs. Our service lines support both our industry and technology practices. Wedo not, however, treat our service lines as separate components of our businessfor financial reporting purposes.

 

**5.A. Operating results**

** **

**Revenues**

** **

We discuss below the components of our ITservice revenues by onsite and offshore revenues, industry and technologypractice, contract type, customer type and customer geography.

 

***Onsite and Offshore Revenues***

** **

We derive revenues from the provision ofservices offshore and onsite. Offshore revenues consist of revenues from ITservices work conducted in India. Onsite revenues consist of revenues from ITservices work conducted at clients’ premises outside India or from our limitednumber of premises outside India. Although a substantial portion of oursoftware personnel are located at our offshore locations, our customersgenerally pay higher charges for onsite work, which is consistent with ourindustry practice.

 

The global economic downturn in fiscal 2009 waswidespread, leading to economic contraction in many industries and geographieswhere we operate. It also impacted the buying behavior of our clients and ourrevenue mix. In addition we have experienced pricing pressures as some of ourcustomers requested pricing changes through volume discounts or by reducingbase prices. In order to provide competitive pricing to our customers, we haveendeavored to shift the delivery of our services from onsite locations to lowcost offshore delivery centers at the same time managing the price softeningexpectations from our customers.

 

As of December 31, 2008,11,928 of 14,894total employees were located in India and as of December 31, 2009, 11,264of 13,995 total employees were located in India. We measure our service effortsthat can be billed to clients in units of billed person-months. The number ofoffshore billed person-months has increased as a percentage of total billedperson-months from 71.2% in 2008 to72.6% in 2009.

 

To some extent, the onsite/offshore breakdown bybilled person-month varies by industry and technology practices as isillustrated in the table below. For example, insurance and communications,media and utilities

 

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employ a higher level of onsite personnel thanother industry and technology practices. Within our industry and technologypractices, our offshore and onsite breakdown by billed person-month is asfollows:

 
| ** **                                 | ** ** | **Year ended December  31, 2008** | ** ** | ** **                            | ** ** | **Year ended December  31, 2009** | ** ** | ** **                          | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                 | ** ** | **Onsite  Billed  Person-**

**months**          | ** ** | **Offshore  Billed  Person-  months** | ** ** | **Total**                                        | ** ** | **Onsite  Billed  Person-  months** | ** ** | **Offshore  Billed  Person-  months** | ** ** | **Total** | ** ** |
| Financial Services                         |       | 4,008                                            |       | 15,637                                |       | 19,645                                           |       | 4,265                               |       | 11,660 |   | 15,925 |   |
| Insurance                                  |       | 9,962                                            |       | 19,726                                |       | 29,688                                           |       | 10,582                              |       | 24,512 |   | 35,094 |   |
| Manufacturing, retail and distribution (1) |       | 9,698                                            |       | 24,077                                |       | 33,775                                           |       | 8,682                               |       | 25,457 |   | 34,139 |   |
| Communications, media and utilities(2)     |       | 6,270                                            |       | 8,285                                 |       | 14,555                                           |       | 5,095                               |       | 7,938 |   | 13,033 |   |
| Product Engineering                        |       | 4,693                                            |       | 17,870                                |       | 22,563                                           |       | 3,738                               |       | 16,350 |   | 20,088 |   |
| Total                                      |       | 34,631                                           |       | 85,595                                |       | 120,226                                          |       | 32,362                              |       | 85,918 |   | 118,280 |   |

 

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(1)  From January 1, 2009, we have renamed ourmanufacturing segment industry practiceas manufacturing, retail and distribution.

 

(2) From January 1, 2009, we have renamed our communications, mediaand entertainment practice as communications,media and utilities.

 

Certain of our service lines, such as productengineering services and business process outsourcing, employ a greater levelof offshore personnel, whereas our packaged software implementation serviceline utilizes a larger portion of onsite work compared to most of our otherservice lines.

 

Since 2004, we have seen a trend towards greateruse of offshore services, which has positively affected our profitability.Services performed at a client site or our premises located outside Indiatypically generate higher revenues per employee, but at a lower gross margin,than the same services performed at our facilities in India. These differencesare attributable to the higher billing rates getting compensated by higheraverage cost of labor in the United States and other countries in which work isperformed as compared to India. Accordingly, although offshore work (measuredby billed person-months) is expected to increase, we do not expect that the mixof our onsite and offshore revenues will change significantly in the nearfuture.

 

The above measurement of work does not reflectthe actual revenues derived by us during the relevant period and you arecautioned not to estimate revenues in a particular period on the basis of theseoffshore and onsite billed person-months during such period.

 

***Revenues by Industry Segments***

*** ***

Our operations pertain to provision of ITservices and solutions to customers belonging to various industries such asinsurance, manufacturing, retail and distribution, communications, media andutilities and financial services and also to technology practices. Accordingly,revenues represented along industry classes comprise the principal basis ofsegmental information.

 

We derive a significant proportion of ourrevenues from clients in the insurance, manufacturing, retail and distribution,communications, media and utilities and financial services industries. Inaddition, we market our services to clients through our technology practices,comprising our product engineering practice. The following table indicates thebreakdown of our revenues by our industry and technology practices:

 
| ** **                                       | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| **Industry  Segments**                           | ** ** | **2007**                                   | ** ** | **2008** | ** ** | **2009** | ** ** |
| *Industry Practice*                              |       |                                       |       |   |   |   |   |
| Insurance                                        |       | 23.6                                       | %          | 24.7 | % | 29.7 | % |
| Manufacturing Retail & Distribution (1) |       | 27.0                                       | %          | 28.9 | % | 29.0 | % |
| Financial Services                               |       | 14.1                                       | %          | 12.8 | % | 12.8 | % |
| Communications, Media and Utilities(2)           |       | 18.3                                       | %          | 17.9 | % | 13.5 | % |
| *Technology Practice*                            |       |                                       |       |   |   |   |   |
| Product Engineering                              |       | 17.0                                       | %          | 15.7 | % | 15.0 | % |
| Total                                            |       | 100.0                                      | %          | 100.0 | % | 100.0 | % |

 

----

(1)  From January 1, 2009, we have renamed ourmanufacturing segment industry practiceas manufacturing, retail and distribution.

(2)  From January 1, 2009, we have renamed our communications, media and entertainment practiceas communications, media andutilities.

 

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***Revenues by Contract Type***

*** ***

Our revenues are recorded either on atime-and-material, or T&M, basis or a fixed-price basis. The followingtable shows our revenues by contract type:

 
| ** **        | ** ** | **Year  ended  December 31,** | ** ** |
|-------------------|------------|----------------------------------------------|------------|
| ** **        | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2009** | ** ** |
| Time-and-Material |       | 67.6                                         | %          | 64.0 | % | 59.4 | % |
| Fixed Price       |       | 32.4                                         | %          | 36.0 | % | 40.6 | % |
| Total             |       | 100.0                                        | %          | 100.0 | % | 100.0 | % |

 

Our fixed price business has increased from32.4% in 2007, 36.0% in 2008 to 40.6% in 2009, which is in line with ouroperating focus as we help clients optimize their cost structures.

 

Although we seek to use our software engineeringprocesses and past project experience to reduce the risks associated withestimating, planning and performing fixed-price projects, we bear the risk ofcost overruns and completion delays in connection with fixed-priced contracts.Accordingly, we believe that we bear a greater amount of risk from ourfixed-price contracts than from our T&M contracts.

 

A large proportion of our revenues fromfixed-price contracts are from fixed-price SLAs. A large proportion of ourfixed-price SLAs are application maintenance and support projects, as to whichwork and cost estimates have been fairly predictable. Our revenues fromfixed-price SLAs were 22.2% 22.7% and 29.5% in 2007, 2008 and 2009, respectively.

 

Revenue with respect to T&M contracts arerecognized in the period that the services are performed. Revenue with respectto fixed-price SLA contracts are recognized ratably over the term ofmaintenance. Revenue with respect to other fixed-price contracts is recognizedon a percentage of completion basis, measured by the percentage of costsincurred to date compared to the estimated total costs for each contract. See “CriticalAccounting Policies—Revenue Recognition” below.

 

***Revenues by Top Customers***

*** ***

As illustrated in the table below, a significantproportion of our revenues are derived from a small number of clients. Inrecent years, however, we have diversified our client revenues as a result ofvarious initiatives, including our addition of new strategic clients, our focuson additional industry practices, our development of technology practices andour expansion of the range of service lines we offer. As of December 31,2009 and 2008, we had 92 clients, each of whom generated revenues of $ 1.0 million or more, compared to84 in 2007.We expect that this trend toward greater client diversification willcontinue.

 
| ** **           | ** ** | **Fiscal year ended  December 31,** | ** ** |
|----------------------|------------|----------------------------------------------------|------------|
| ** **           | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| State Farm Insurance |       | 9.1                                                | %          | 9.8 | % | 11.9 | % |
| General Electric     |       | 11.8                                               | %          | 10.7 | % | 10.3 | % |
| Top 5 Clients        |       | 34.8                                               | %          | 32.7 | % | 36.5 | % |
| Top 10 Clients       |       | 47.6                                               | %          | 45.6 | % | 49.7 | % |

 

***Revenues by New and Existing Customers***

*** ***

Repeat business accounted for 92.4%, 93.0% and94.0% of our revenues in, 2007, 2008 and 2009. Each customer is treated as anew customer for the quarter in which itfirst starts business with us and continues to remain as a new customer for thefour succeeding quarters. The revenues in any quarter from customers other thannew customers are termed as repeat business.

 

The following table indicates the breakdown ofrevenues we derive from new customers and existing customers.

 
| ** **                                 | ** ** | **Year ended December 31, 2009** |
|--------------------------------------------|------------|------------------------------------------------------|
| ** **                                 | ** ** | **Existing  Customers**                              | ** ** | **New  Customers** | ** ** | **Total** | ** ** |
| ** **                                 | ** ** | **($ in millions)**                        | ** ** |
| Industry Practice                          |       |                                                 |   |   |   |   |   |
| Insurance                                  |       | 193.0                                                |   | 2.1 |   | 195.1 |   |
| Manufacturing, retail and distribution (1) |       | 177.9                                                |   | 12.3 |   | 190.2 |   |
| Financial Services                         |       | 70.5                                                 |   | 13.6 |   | 84.1 |   |
| Communications, media and utilities(2)     |       | 84.4                                                 |   | 4.0 |   | 88.4 |   |
| Technology Practice                        |       |                                                 |   |   |   |   |   |
| Product Engineering                        |       | 90.5                                                 |   | 7.6 |   | 98.1 |   |
| Total                                      |       | $                                                    | 616.3 |   | $ | 39.6 |   | $ | 655.9 |   |
|                                            |            |                                                      |  |  |  |  |  |  |  |  |

 

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----

(1) FromJanuary 1, 2009, we haverenamed our manufacturing segment industrypractice as manufacturing, retail and distribution.

 

(2) FromJanuary 1, 2009, we have renamed our communications, mediaand entertainment practice as communications,media and utilities.

 

Although we engage in one-time projects in someservice lines, the majority of our projects are recurring in nature. Work donein product engineering services and packaged software implementation services,however, tends to be more for non-recurring projects.

 

***Revenues by Geography***

*** ***

We record our revenue based on the location of our clients rather thanaccording to the location where our services are provided. We classify ourrevenues into five geographicsegments: the United States, Europe, India, Japan and Others. As the table below illustrates, a significantproportion of our revenues is derived from clients located in the UnitedStates. We expect that a substantial majority of our revenues will continue tobe derived from clients located in the United States. We categorize revenuesgeographically based on the location of the specific client entity for whichthe project has been executed, irrespective of the location at which theinvoice is rendered or whether the work for a specific client entity isperformed onsite or from our offshore delivery centers in India.

 
| ** **    | ** ** | **Fiscal year ended  December 31,** | ** ** |
|---------------|------------|----------------------------------------------------|------------|
| ** **    | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2009** | ** ** |
| United States |       | 77.9                                               | %          | 75.9 | % | 78.9 | % |
| Europe        |       | 14.7                                               | %          | 15.7 | % | 12.7 | % |
| India         |       | 0.8                                                | %          | 0.9 | % | 1.0 | % |
| Japan         |       | 3.0                                                | %          | 3.5 | % | 3.5 | % |
| Others        |       | 3.6                                                | %          | 4.0 | % | 3.9 | % |
| Total         |       | 100.0                                              | %          | 100.0 | % | 100 | % |

 

**Expenses**

 

***Cost of Revenues***

 

Cost of revenues represented 67.9% , 68.3% and64.2% of our revenues in 2007, 2008 and 2009. Our cost of revenues largelyconsists of costs relating to our software professionals, including salary andother compensation and benefits expenses, travel expenses, immigrationexpenses, data communications expenses, computer and software expenses anddepreciation. Cost of revenues also includes the cost of subcontractors.

 

The principal component of our cost of revenuesis the salary cost of our software professionals. A majority of our softwareprofessionals are located in India since the labor costs in the IT servicesindustry in India have historically been lower than in the United States andother countries where our customers are located. The majority of ourcompensation costs relate to salaries of software professionals located in theUnited States and those other countries, as we charge higher rates and incurhigher compensation cost for services rendered in countries where our customersare located We seek to maintain salary levels in accordance with prevailingtrends in our industry.

 

We hire subcontractors on a limited basis fromtime to time. We use subcontractors across our industry practices and servicelines. The use of subcontractors is more prevalent in service lines that have alarger onsite element, such as packaged software implementation andinfrastructure management services. We expect to continue to incursubcontractor costs principally to service specific technical requirements ofsome of our clients in a timely manner.

 

The utilization rates of our softwareprofessionals also affect our gross profits. We define employee utilization asthe proportion of total billed person-months to total available person-months,including employees in training and holiday and vacation time, and excludingsupport personnel. We manage utilization by monitoring project requirements andtimetables. The number of software professionals assigned to a project variesaccording to the size, complexity, duration, and demands of the project. Ourutilization rates for the years ended

 

December 31, 2007, 2008 and 2009 were72.4%, 72.1% and 74.9%. We try to minimize the cost impact of unutilizedcapacity by ensuring that a majority of our unutilized capacity is attributableto software professionals based in India.

 

We incur immigration costs due to the onsitecomponent of work performed on projects. We expect immigration expenses toincrease due to increases in visa filing costs generally commensurate with ourgrowth and increases in visa filing fees in the United States. We expense costsrelated to immigration as incurred.

 

The addition of planned new facilities andphysical infrastructure, including our knowledge parks in India, these newfacilities will increase our depreciation expenses. However, we expect that theincreased depreciation will largely be offset by reduced rental costs resultingfrom a shift from existing rental facilities to the new facilities. These newfacilities will provide a consolidated location for our existing employees andnew employees as we expand our service offerings.

 

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***Selling, General and Administrative Expenses***

*** ***

Selling, general and administrative expensesconsist primarily of costs relating to personnel other than softwareprofessionals, including salary and other compensation and benefits expense,depreciation, sales and marketing expenses, telecommunication expenses, officeexpenses and traveling expenses. Selling, general and administrative expensesalso includes legal and other professional fees and other miscellaneousadministrative costs.

 

Selling, general and administrative expensesrepresented 17.7%, 18.5% and 18.9% of our revenues in 2007,2008 and 2009, These expensescomprise an important element of our sales strategy, as we seek to ensure thatsenior management personnel are based in client locations and continue toinvest in developing our sales and marketing presence in key markets. We expectselling, general and administrative expenses to continue at current levels as aproportion of revenues. We continue to invest in sales and marketing and in buildingbrand awareness, leading to a slight increase in sales and marketing expensesas a proportion of revenues. We have started to transfer a larger part of ourgeneral and administrative expenses offshore to India as the scale of ouroperations increases. We expect to achieve improved efficiencies in general andadministrative expenses as a result of this transfer and economies of scaleresulting from our recent growth. Accordingly, we expect our increased sellingexpenses to be partially offset by a decrease in our general and administrativeexpenses.

 

**Foreign Currency Translation and ForeignExchange Regulations**

** **

Our consolidated financial statements arereported in U.S. dollars. Our functional currency is the rupee, though thefunctional currency of our subsidiaries is the currency of the country in whichthe subsidiary is located. A substantial portion of our revenues is generatedin dollars while a portion of our expenses are incurred in rupees and we expectthat this will continue for the foreseeable future. Consequently, our resultsof operations will be affected to the extent the rupee fluctuates against thedollar.

 

We seek to mitigate the effect of exchange ratefluctuation on our operating results by purchasing foreign exchange forward andoption contracts. However, these activities do not entirely mitigate theeffects of exchange rate fluctuations. Effective May 2004, we designatedcertain forward and option contracts as cash flow hedges .We defer changes infair value of designated cash flow hedges and record them as a component ofaccumulated other comprehensive income until the hedged transactions occur, atwhich time we recognize the gain/loss in our consolidated statements of income.For details on forward and options contracts outstanding as of December 31,2009 and 2008, see “Item 11.Quantitative and Qualitative Disclosures aboutMarket Risk — Exchange Rate Risk”.

 

The translation of the rupee, GBP and Euro into U.S. dollars isperformed for balance sheet accounts using the exchange rate in effect at thebalance sheet date and for revenues and expense accounts using the exchangerate prevailing on the date of those transactions.

 

Under the Foreign Exchange Management Act, 1999, or FEMA, as amended, an Indiancompany is required to take all reasonable steps to realize and repatriate intoIndia all foreign exchange earned by the company outside India, in accordancewith the rules specified by the Reserve Bank of India, or the RBI. The FEMA also imposes certain restrictions on capital accounttransactions by Indian companies. These regulations do not significantly affectour operations at present.

 

**Accounts Receivable andUnbilled Revenue**

** **

The key performance indicator used by us forcollecting cash from our customers is adjusted days of sales outstanding(ADSO). We analyze and compute our adjusted days of sales outstanding based onboth billed revenue (accounts receivable) and unbilled revenue for eachrelevant period. Unbilled revenue represents “cost and estimated earnings inexcess of billings on uncompleted contracts, net of billings in excess of costand estimated earnings on uncompleted projects”. We define our adjusted days ofsales outstanding as the ratio of accounts receivable plus unbilled revenue atyear-end to revenues in a year, multiplied by 365. The table below sets out thethree year trend of the days of sales outstanding along with unbilled revenue:

 
| ** **                | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------------|------------|-------------------------------|------------|----------|------------|----------|------------|
| ** **                | ** ** | **($ in millions)** | ** ** |
| Account Receivables       |       | 136.4                         |       | 111.8    |       | 109.4    |       |
| Unbilled Revenue (UBR)    |       | 28.9                          |       | 24.7     |       | 14.0     |       |
| ADSO including UBR (days) |       | 91                            |       | 69       |       | 69       |       |

 

The ADSO for the year ended December 31, 2009and 2008 has remained 69 days as compared to 91 days for the year ended December 31,2007, which is mainly due to the consistent efforts made by the management ontimely collections from the customers due to the credit crisis prevailing inthe global markets.  The following tablepresents a profile of our accounts receivable, net of reserves in terms of days for which accounts receivable have beenoutstanding:

 

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| ** **     | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2009** | ** ** |
|----------------|------------|-------------------------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **($ in millions)** | ** ** |
| Period in days |       |                          |       |     |       |     |       |
| 0-90           |       | 116.1                         |       | 102.7    |       | 104.9    |       |
| 91-180         |       | 17.2                          |       | 6.7      |       | 4.2      |       |
| More than 180  |       | 3.1                           |       | 2.4      |       | 0.3      |       |
| Total          |       | 136.4                         |       | 111.8    |       | 109.4    |       |

 

In 2007, 2008 and 2009, provision of doubtfuldebts was $ 1.2 million, $ 1.6million and $2.3 millionrespectively.

 

**Taxes**

** **

As an Indian company, we are a tax resident ofIndia and are therefore subject to Indian income taxes on our global income.Our net income earned from providing services outside India is subject to taxin the country where we perform the work. Most of our tax paid in countriesother than India can be applied as a credit against our Indian tax liability tothe extent that the same income is subject to tax in India.

 

Currently, we benefit from tax holidays given bythe Government of India for the export of IT services from specially designatedsoftware technology parks, or STPIs, and special economic zones, or SEZs, inIndia. As a result of these tax incentives, a substantial portion of ourpre-tax income has not been subject to significant tax in recent years. Theaggregate benefit of this tax holiday with respect to our net income was $ 28.9 million, $ 27.3 million and $27.1 million for2007, 2008 and 2009respectively. The tax benefits available for some of our facilities on accountof tax holidays have expired and certain others will expire upon completion of10 years or March 31, 2011. However the tax holiday for the export of ITservice from our SEZ unit will continue to get tax holidays for 15 years fromdate of commencement of operations as described above... Consequently, weexpect our effective tax rate to increase.

 

In December 2008, we received a demand ofapproximately Rs 458.7 million for the Assessment Year 2003-04 including aninterest demand of Rs 258.6 million ($9.9 million including an interest demandof approximately $5.6 million) and another demand in January 2009 of approximatelyRs 1,131.8 million for the Assessment Year 2005-06 including an interest demandof approximately Rs 422.0 million ($24.3 million including an interest demandof approximately $9.1 million). These new demands concern the same issue ofdisallowance of tax benefits under Section 10A of the Indian Income TaxAct, 1961(‘ACT’) as per earlier assessments. We have filed an appeal with thetax authorities and a stay of demand has been granted until February 28,2010 or settlement of appeal whichever is earlier.

 

As per stay of demand order, through December 2009,we have paid sum of Rs. 66.0 million ($1.4 million) for the Assessment Year2003-04 and Rs.171.0 million ($3.7 million) for the Assessment year 2005-06 asregards Indian income, the matter under appeal. We consider these demands asnot tenable against us and, therefore, no provision for this tax contingencyhas been established.

 

The tax department had earlier rejected ourclaim under section 10A of the Act and raised a demand of approximately Rs. 630.2million ($13.5 million including an interest demand of approximately $4.1million) for Assessment Year 2004-05 and Rs. 261.7 million ($5.6 millionincluding an interest demand of approximately $3.1 million) for Assessment Year2002-03 in December 2006 and December 2007, respectively. However onappeal, in 2008 the CIT (Appeal) had allowed the claim under section 10A of theAct. The Indian Income tax department has appealed against the CIT (Appeal’s)orders in respect of assessment year 2002-03 and 2004-05 in the tribunal.Management considers these demands as not tenable against the Company and,therefore, no provision for this tax contingency has been established.

 

In December 2009 the Indian Income taxdepartment has issued draft assessment order for Assessment Year .2006-07disallowing 10A deduction of the Indian Income Tax Act, 1961as per the earlierassessments, as well as making a Transfer Pricing Adjustment for our BPOoperations. The Company has filed the objections against the draft order beforethe Dispute Resolution Panel (“DRP”) newly set up under the Income Tax Act,1961. Management considers these disallowances as not tenable against theCompany, and, therefore, no provision for this tax contingency has beenestablished.

 

The provisions of the Indian Income Tax Act of India are amended on an annual basis byenactment of the Finance Act. The Finance Act, 2009 has not changed theeffective tax rate of 33.99%. The Finance Act, 2009 has increased the shortterm Capital Gain tax from 10% to 15%, as well as increased Minimum AlternativeTax (MAT) from 11.33 % to 16.995% (including surcharge and cess). In addition,we may also be subject to changes in taxation resulting from the actions ofapplicable income tax authorities in India or from Indian tax laws that may beenacted in the future. Forexample, we may incur increased tax liability as a result of a determination byapplicable income tax authorities that the transfer price applied totransactions involving our subsidiaries and the Company was not appropriate.

 

Any increases in our effective tax rate, as aresult of the expiration of tax benefits we currently enjoy, changes inapplicable tax laws or the actions of applicable income tax or other regulatoryauthorities could materially reduce our profitability.

 

During the year we received a favorableorder from the Income Tax Appellate Tribunal allowing the set off of losses of10A units against Business Income.Basedon this the Company has reversed the tax provisions amounting to $ 2,459,012relating to the above matter for all years up to tax fiscal year ended March 31,2006.

 

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The US Internal Revenue Service (“IRS”)completed its assessment of tax returns for the years ended 2003 and 2004 ofPatni Americas Inc. and for the years ended March 31, 2003, 2004 and 2005of our US branch in 2008 and during the year ended December 31, 2009,completed its assessment of tax returns for the years ended 2005 and 2006 ofPatni Americas Inc.

 

Based on the completion of assessment of theseyears, we reviewed the adequacy of the previously established tax exposurereserves with respect to these years and re-measured the established taxpositions for the latter years based on the experience gained from the taxexamination and accordingly, the following amounts have been included in theincome statement for the fiscal year ended December 31, 2008 and 2009 as achange in estimate:

 
| ** **                                  | ** ** | **December 31,2008** | ** **      | **December 31,  2009** | ** ** |
|---------------------------------------------|------------|---------------------------|-----------------|-----------------------------|------------|
| ** **                                  | ** ** | ** **                | ** **      | ** **                  | ** ** |
| Reduction  of accrual for payroll taxes (1) |       | $                         | (2,769,567      | )                           | $          | (1,157,726 | ) |
|                                        |       |                      |            |                        |       |
| Reduction  in interest expense (2)          |       | (6,497,329                | )               | (1,616,046                  | )          |
|                                        |       |                      |            |                        |       |
| Increase  in Interest expense               |       | 560,507                   |            | —                      |       |
|                                        |       |                      |            |                        |       |
| Reduction  in other expense (3)             |       | (1,092,687                | )               | (231,545                    | )          |
|                                        |       |                      |            |                        |       |
| Reduction  in income taxes – current   |       | (12,496,744               | )               | (9,423,496                  | )          |
|                                        |       |                      |            |                        |       |
| Increase  in income taxes – deferred   |       | 4,112,604                 |            | 1,109,509                   |       |
|                                        |       |                      |            |                        |       |
|                                        | ** ** | **$**                     | **(18,183,216** | **)**                       | **$**      | **(11,319,304** | **)** |

 

----

(1) Included undercost of revenues

(2) Included underInterest expense reversed

(3) Included underother income/expense

 

During the year ended December 31, 2009, thestatute of limitation period applicable to tax return of our US Branch, for theyear ended March 31, 2006,expired as on December 15, 2009 i.e onexpiry of 3 years from the date of filing, which was December 15, 2006. Wehave therefore reversed the tax exposure reserves for taxes and interestamounting to $7,185,539 and $1,191,530, respectively, pertaining our US Branchfor the year ended March 2006.

 

**Taratec Acquisition**

 

On July 23, 2007, we acquired a 100% equityinterest in Taratec which has been named as Patni Life Sciences Inc. Taratec isa leading consulting company in the life sciences industry providing integratedbusiness, information technology, and regulatory compliance products andservices. We paid an initial purchase price of approximately $ 15.7 million, including expenses, ofwhich $ 8.3 million has beenaccounted for as goodwill and $ 1.7 millionhas been accounted for as customer related intangibles. The terms of the purchase also provide for payment of contingentconsideration to all of the selling shareholders, payable over a three year period ending on June 30, 2010, and calculated based onthe achievement of specified revenue and margin targets. The contingentconsideration is payable in cash and cannot exceed $ 13.2 million.

 

Further, as a part of the acquisition, weinitiated an incentive plan linked to revenues and margins, for certain specificemployees of Taratec and Patni. The incentive payments under this plan will notexceed $3.5 million through June 2010. Since, the incentive payments arelinked to continuing employment; the payments under the plan are recognized ascompensation for post acquisition services. Based on the assessment of therevenue and margin targets achieved until the contractual year ended July 31,2008, and July 31, 2009 and expected to be achieved for the contractualyear ending July 31, 2010, we have concluded that no compensation cost isrequired to be accrued for these employees.

 

**Logan Orviss Acquisition**

 

On July 2, 2007, we acquired the businessand assets of Logan Orviss, an European telecommunications consulting servicescompany. We paid an initial purchase price of approximately $ 8.6 million, including expenses, ofwhich $ 6.5 million has beenaccounted for as goodwill and $ 2.1 millionhas been accounted for as customer related intangibles. Further, as a part of the business acquisition, we initiated anincentive plan linked to revenues for certain specific employees. We estimatedthat incentive payments under this plan will not exceed $13.1 million until June 2010.Since, the incentive payments are linked to continuing employment, the paymentsunder the plan are recognised as compensation costs for post acquisitionservices. Based on the assessment of the revenue targets achieved for thecontractual year ended June 30, 2008,and June 30, 2009 an amount of$0.1 million and $ 0.1 million respectively has been accrued as compensationcost for these employees. Further, based on the assessment of revenue targetsexpected to be achieved for the contractual year ending June 30,

 

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2010, an additional amount of $0.04 million hasbeen recorded as selling, general and administrative expenses for theseemployees during the year ended December 31, 2009.

 

**Purchased Intellectual Property**

 

In 2007,we acquiredfrom one of our major customers, the worldwide rights for a softwareproprietary intellectual property rights, or the IPR. The IPR enablescommunication service providers to offer customer management, retailpoint-of-sale and billing services for a variety of products and services. Thecost of acquisition of the IPR amounting to $ 20.3 million (GBP 10 million) hasbeen capitalized as an intangible asset and is being amortized over a period often years. We intend to use this intellectual property for the purposes ofsoftware licensing, provision of reusable IP-led IT services, managed servicesand provision of hosted or software-as-a-service solutions. A royalty of 5% ispayable to the seller on such sales.

 

, An impairment lossshall be recognized only if the carrying amount of a long-lived asset (assetgroup) is not recoverable and exceeds its fair value. The carrying amount of along-lived asset (asset group) is not recoverable if it exceeds the sum of theundiscounted cash flows expected to result from the use and eventualdisposition of the asset (asset group). If the carrying value exceeds theexpected undiscounted cash flows of the asset , then the impairment loss to berecognized is the amount by which the carrying value of the asset exceeds thefair value of the asset.

 

During the year 2009,due to adverse market conditions, we reviewed the recoverability of thecarrying amount of IPR in accordance with guidance as mentioned above at theend of June 2009. Based on the results of the recoverability test, the sumof the undiscounted cash flows of IPR expected to result from its use exceededthe carrying amount as a June 30, 2009. As per the accounting policy, wealso carried out the annual impairment testing by reviewing the recoverabilityof the carrying amount of IPR as at December 31, 2009 .Based on theresults of the recoverability test, the sum of the undiscounted cash flows ofIPR expected to result from its use exceeded the carrying amount as at December 31,2009.We estimated these undiscounted future cash flows that are directly associatedwith and are expected to arise as a direct result of using the IPR consideringcurrent prevailing economic conditions.

 

Based on therecoverability test, the undiscounted cash flows expected to be received fromthe continuing use of IPR of $ 26.4 million exceeded its carrying value of $15.8 million and hence a comparison of the carrying value to the fair value ofthe IPR was not required as at December 31, 2009.

 

We routinely carry outan internal and external validation of useful life of the asset which isdetermined to be as remaining 8 years and continue to amortize the carryingcost based on a 10 year amortization schedule. We plan to use the IPR for crossvertical services and have built in projections of revenues after consideringall facets or market conditions and vertical service offerings.  While we have not generated direct cash flowsfrom this IPR to date, we are actively engaged in a few prospects with activeproposals at the end of December 31, 2009. Results of these proposals willhave a bearing on our ability to realize projected cash flows in next period,failing which we may have to recognize an impairment loss of the asset based onthe tests as described above.

 

***Expansion Plans***

*** ***

We operate through our facilities located in variousparts of India. In the recent past we have acquired facilities to support ourgrowth. In keeping with our plans for expansion, we have constructed newfacilities in India, which includes three knowledge parks in Chennai, NaviMumbai and Noida. These knowledge parks will have state-of-the-artinfrastructure with extensive workspace and training facilities and a modulardesign for ease of segregation of dedicated projects with the ability toprovide scale and service to clients from one location.

 

Phase I of the Navi Mumbaifacility, with a capacity of 4,300 seats, is complete and occupied.Phase I of the Chennai facility, with a capacity of 1,200 seats, is complete and partially occupied. Construction of the Noida SEZ facilitywith capacity to accommodate 3,200seats is completed and ispartially occupied. The Navi Mumbai, Chennai and Noida facilities are expectedto accommodate up to 14,000,10,000 and 3,200engineers, respectively, when fully completed.

 

In continuation of our policy to have our own campusoperations, we have acquired land in Pune, Hyderabad and Kolkata inaddition to our campuses in Mumbai Chennai and Noida. These facilities when fully built, are expected to have a seatingcapacity for approximately 25,000 professionals.

 

See “Item 4.D. Information on the Company—Property, plant and equipment.”

 

**Buyback of Shares**

 

In 2008, our Board of Directors approved aproposal to repurchase fully paid equity shares to the extent of 10% of the paid up capital and freereserves, at a maximum price of Rs. 325 per equity share, for an aggregateamount of Rs. 2,370 million ($53million) in accordance with the provisions of Sections 77A, 77AA, 77B and other applicable provisions ofthe Indian Companies Act, 1956 and the provisions of Securities and ExchangeBoard of

 

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India (Buy-back of Securities) Regulations, 1998 the (“Buy Back Regulations”), forwhich necessary public announcements were made in April 2, 2008.

 

During 2008 we repurchased a total of 10,957,082equity shares through the Bombay Stock Exchange Limited and the National StockExchange  Limited for an aggregate considerationof Rs. 2,370 million ($ 53million) which was 100% of theamount authorized for such buy back. Subsequently, weextinguished the equity sharesso bought back by us as per therequirements of Section 77A of the IndianCompanies Act, 1956.

 

Our retainedearnings include profits aggregating Rs. 21.9 million ($ 0.4 million) set aside as Capital Redemption Reserve as requiredby the Indian Companies Act, 1956  pursuant to the repurchase which can beutilized by us only for thepurpose of issuing fully paid bonus shares.

 

***Results ofOperations***

 

***The following table sets forth certainfinancial information as a percentage of revenues, calculated from ourconsolidated financia******l******statements******:***

 
| *** ***                                        | *** *** | ***Year ended December 31******,*** | *** *** |
|-----------------------------------------------------|--------------|------------------------------------------|--------------|
| *** ***                                        | *** *** | ***2007***                               | *** *** | ***2008*** | *** *** | ***2009*** | *** *** |
| ***Revenues***                                      | *** *** | ***100***                                | ***%***      | ***100*** | ***%*** | ***100*** | ***%*** |
| ***Cost of revenues***                              | *** *** | ***67.9***                               | ***%***      | ***68.3*** | ***%*** | ***64.2*** | ***%*** |
| ***Gross  profit***                                 | *** *** | ***32.1***                               | ***%***      | ***31.7*** | ***%*** | ***35.8*** | ***%*** |
| ***Selling, general and administrative  expenses*** | *** *** | ***17.7***                               | ***%***      | ***18.5*** | ***%*** | ***18.9*** | ***%*** |
| ***Foreign exchange (gain)/loss, net***             | *** *** | ***(3.5***                               | ***)%***     | ***2.5*** | ***%*** | ***1.5*** | ***%*** |
| ***Operating  income***                             | *** *** | ***17.9***                               | ***%***      | ***10.7*** | ***%*** | ***15.4*** | ***%*** |
| ***Interest and dividend income***                  | *** *** | ***1.9***                                | ***%***      | ***1.8*** | ***%*** | ***1.7*** | ***%*** |
| ***Interest expense***                              | *** *** | ***(0.5***                               | ***)%***     | ***(0.2*** | ***)%*** | ***(0.2*** | ***)%*** |
| ***Interest expense reversed***                     | *** *** | ***—***                             | *** *** | ***0.9*** | ***%*** | ***0.4*** | ***%*** |
| ***Gain on sale of investments, net***              | *** *** | ***1s***                                 | ***%***      | ***1.******3*** | ***%*** | ***1.4*** | ***%*** |
| ***Other income (expense), net***                   | *** *** | ***0.3***                                | ***%***      | ***0.******3*** | ***%*** | ***0.3*** | ***%*** |
| ***Income  before income taxes***                   | *** *** | ***20.6***                               | ***%***      | ***14.8*** | ***%*** | ***19*** | ***%*** |
| ***Income taxes***                                  | *** *** | ***3.3***                                | ***%***      | ***0.7*** | ***%*** | ***0.7*** | ***%*** |
| ***Net  income***                                   | *** *** | ***17.3***                               | ***%***      | ***14.1*** | ***%*** | ***18.3*** | ***%*** |

 

***Year Ended December 31,2009 Compared to Year Ended December 31, 2008***

 

***Revenues***

 

***Ourrevenues were $ 655.9 million in 2009, representing a decrease of 8.8% fromrevenues of $ 718.9 million in 2008 which was mainly on account of overallvolume decline of 4.6 %, pricing decline of 2.2 % and foreign exchange impactof 1.8%. Revenues from existing customers contributed $616.3 million and newcustomers contributed $ 39.6 million to our revenues. This represented adecrease of 8.1% in revenues from existing customers and decrease of 17.6% inrevenues from new customers compared to 2008. Reduction in revenues from ourexisting operations was attributable to a decrease of 1.6 % in the total billedperson-months from work performed at both our offshore and onsite locations. Onsitework measured in billed-person months decreased by 6.6 % in 2009 compared to2008, while offshore work increased 0.4% over the same period. Our activeclient base is at 272 as of December 31, 2009 as compared to 331 as of December 31,2008. In addition, the total number of clients that individually accounted forover $ 1.0 million in annual revenues continued to be 92 as of December 31,2009 and as of December 31, 2008.***

 

***During 2009,our revenues from T&M projects decreased by 7.3% over revenues in 2008,while revenues from fixed price contracts increased by 12.8% over the sameperiod.  T&M projects accounted for 59.4% of our revenues in 2009,compared to 64.0% in 2008 and 62.2% of our new business was billed on a T&Mbasis.***

 

***Ourclient concentration, as measured by the proportion of revenue generated fromour top ten clients, increased to 49.7% in 2009 from 45.6% in 2008.  Our largest client contributed 11.9% of ourrevenues in 2009, compared to 10.7% in 2008.***

 

***During 2009, clients in theinsurance, manufacturing, retail and distribution, financial services andproduct engineering services industries continued to contribute a largeproportion of our revenues. Revenues from clients in these industriescontributed 29.7%, 29.0%, 12.8% and 15% to overall revenues respectively in2009 as compared to 24.7%, 28.9%, 12.8% and 15.7% respectively in 2008. Ourclients in the communications, media and utilities industry contributed to13.5% of our revenues in 2009 as compared to 17.9% in 2008.***

 

***During 2009, we continued to derivea significant proportion of our revenues from clients located in the UnitedStates. In 2009 and 2008, we derived 78.9% and 75.9% of our revenues fromclients located in the United States.***

 

***Cost of revenues***

 

***Our cost of revenues was $************421.3 million in 2009, representing a decrease of 14.2******% from $ 491.3 million in 2008.Cost of revenues represented 64.2% and 68.3% of our revenues in 2009 and 2008.Out of the net***

*** ***

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*** ***

***decrease of $ 69.9 million in cost of revenues, $32.5 million was attributable to salary expenses***andthe remaining decrease was mainlydue to a*** $19.9million decrease in subcontractor costs. The salary decrease is mainly onaccount of reduction in headcount onsite and positive impact of rupeedepreciation on offshore salaries.The average exchange rate for 2008 wasRs.43.39 as compared to average exchange rate of Rs.48.33 in 2009 resulting in arupee depreciation of 11.4% which had a positive impact in reducing the cost ofrevenues in 2009 as compared to 2008 as 39% of our cost of revenues is incurredin Indian rupees.***

 

***Gross profit***

 

***Our gross profit for 2009 was $234.6 million, representing an increase of 3.1% from $ 227.6 million in 2008.Gross profit as a percentage of our revenues increased to 35.8% in 2009 from31.7% in 2008. The increase in gross profit is attributed to various factorsincluding currency exchange rates, operating efficiencies in terms of variousmeasures such as utilization, reduction and rationalization in operating anddiscretionary expenses. These measures led to the increase in gross profit by3.1% over 2008 despite the decline in revenues over 2008 by 8.8%.***

 

***Selling, general and administrative expenses***

 

***During2009, our selling, general and administrative expenses were $ 122.0 million,representing a decrease of 6.9% from $ 131.1 million in 2008 and our selling,general and administrative expenses as a percentage of our revenues increasedto 18.9% in 2009 from 18.3% in 2008.***

 

***During 2009, our sales and marketing expenses were $ 53.8million, representing an increase of 2.5% from $ 52.5 million in 2008.Personnel costs increased by $ 2.5 million due to the addition to sales andmarketing personnel mainly in Japan and Singapore region to strengthen our AsiaPacific footprint. Other selling and marketing costs mainly comprising offoreign travel and conference expenses decreased by $ 1.8 million.***

 

***Our general and administrative expenses were $ 68.2 millionin 2009, representing a decrease of 13.1% from $ 78.5 million in 2008.Personnel costs decreased in 2009 by $ 3.6 million due to the reduction inheadcount of general and administrative personnel. Other general and administrativecharges mainly comprising of professional fees, recruitment cost andestablishment cost decreased by $ 6.9 million as part of operatingefficiency measures as such as reduction and rationalization in operating anddiscretionary expenses.***

 

***Foreign exchange gain/loss***

 

***In 2009, we had a foreign exchange loss of $ 9.7 million as against aloss of $ 18.4 million in 2008. The year-end exchange rate in rupees perU.S dollar for 2009 was Rs .46.4 as compared to Rs.48.58 in 2008 resulting in a4.5% appreciation during the year - end in percentage terms. The averagerealization rate for rupee per US dollar for 2009 was Rs.46.2 as againstRs.42.3 for 2008. Also in 2008 we had a revaluation loss on tax liabilityamounting to $4 million as compared to gain of $1.8 million in 2009. This wasmainly on account rupee appreciation in 2009 from Rs.48.58 as of December 31,2008 to Rs.46.40 as of December 31,2009 as compared to rupee depreciationfrom Rs.39.41 as of December 31, 2007 to Rs.48.58 as of December 31,2008.  Our dollar-denominated receivablescontinued to be hedged. Revaluation of foreign exchange exposures mainly m***ark-to-market of foreign exchange contracts andrevaluation of debtors result in a net foreign exchange loss.

 

***Operating income***

 

***As apercentage of revenues, operating income increased to 15.4% in 2009 from 10.7%in 2008. Our operating income was $ 100.6 million in 2009, representing anincrease of 31.4% from $ 76.6 million in 2008 which is mainly due to alesser foreign exchange loss of $ 9.7 million in 2009 as compared to aforeign exchange loss of $ 18.4 million in 2008 and other operating efficiencymeasures such as utilization, reduction and rationalization in operating anddiscretionary expenses.  The exchangerate between the rupee and dollar has fluctuated substantially in recent yearsand may continue to do so in future. We are unable to predict the impact thatfuture fluctuations may have on our operating margins.***

 

***Other income (expense)***

 

***Other income(expense), reflects interest and dividend income, interest expense, interestexpense reversed, net gain on sale of investments and other income or expense,net. In 2009, our gain on sale of investments was $ 9.5 million ascompared to $9.7 million in 2008. In 2009, our interest and dividend incomewere $ 11.2 million as compared to $ 13.0 million in 2008. In 2009 we hadan interest expense reversal of $2.8 million as a result of the completion ofassessment by the IRS for years 2005 and 2006 with regard to Patni AmericasInc. amounting to $1.6 million and $1.2 million on account of expiry of statuteof limitation for year ending March 2006 with regard to US Branch and in2008 we had an interest expense reversal of $6.5 million as a result of thecompletion of assessment by the IRS for years 2003 and 2004 with regard toPatni Americas Inc. and March 2003, 2004 and 2005 with regard to USBranch.***Our other income (expense), net was $ 1.9 million in 2009, as comparedto $ 2.6 million in 2008 resulting in a decrease of $ 0.7 million.

 

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***Income taxes***

 

***We made a tax provision of $ 4.7 million for income taxes in the year2009 which included, reversal of $8.3 million on account of completion of IRSassessment with regard to Patni Americas Inc. for years 2005 and 2006, reversalof $7.0 million on account of expiry of statute of limitation with regard toyear ended March 2006 of our US branch and also included a reversal of$2.5 million on account of favourable order received by us from Indian Incometax Appellate Tribunal allowing a set off of section 10A losses against thetaxable business income . (See “Item 5.A Operating Results -Taxes”). In 2008 wemade a provision of $5.2 million which included a reversal of $8.4 million onaccount of completion of assessment by IRS for yearend 2003, 2004 for PatniAmericas Inc and for year ended March 2003, 2004 and 2005 of our USbranch. Hence our reported tax rate for the year 2009 was 3.8% as against 4.9%for the year 2008. Our normalized effective tax rate (excluding tax reversals)was 18.8%***as ***compared to 14.0%. for the year 2008, which wasmainly due to the expiry of income tax benefit for some of our STPI units inIndia.***

 

***Net income***

 

***Our net income was $119.8million in 2009, representing an increase of 18.1% from$ 101.4 million in 2008. As a percentage of our revenues, net incomeincreased to 18.3% in 2009 from 14.1% in 2008. The increase in the net incomeis mainly due to the reasons explained above.***

 

***Year Ended December 31, 2008 Compared to Year Ended December 31,2007***

 

***Revenues***

 

***Ourrevenues were $ 718.9 million in 2008, representing an increase of 8.4% fromrevenues of $ 662.9 million in 2007. Revenues from existing customerscontributed $668.5 million and new customers contributed $ 50.4 million toour revenues. This represented an increase of 9.1% in revenues from existingcustomers and increase of 0.1% in revenues from new customers compared to 2007.Growth in revenues from our existing operations was attributable to an increaseof 5.9 % in the total billed person-months from work performed at both ouroffshore and onsite locations. Onsite work measured in billed-person monthsincreased by 0.3 % in 2008 compared to 2007, while offshore work increased 8.4%over the same period. We increased our client relationships to 331 as of December 31,2008 from 318 as of December 31, 2007. In addition, the total number ofclients that individually accounted for over $ 1.0 million in annual revenuesincreased to 92 as of December 31, 2008 from 84 as of December 31,2007.***

 

***During 2008, our revenues from T&M projects increased by 2.7% over revenues in2007, while revenues from fixed price contracts increased by 20.5% over thesame period.  T&M projects accounted for 64.0% of our revenues in2008, compared to 67.6% in 2007,and 48.7% of our new business was billed on aT&M basis.***

 

***Ourclient concentration, as measured by the proportion of revenue generated fromour top ten clients, decreased to 45.6% in 2008 from 47.6% in 2007. GeneralElectric, our largest client, contributed 10.7% of our revenues in 2008,compared to 11.8% in 2007.***

 

***During 2008, clients in theinsurance, manufacturing, retail and distribution, product engineering servicesand financial services industries continued to contribute a large proportion ofour revenues. Revenues from clients in these industries in 2008 increased by13.2%, 16.2%, 0.3% and decreased by 2.2% as compared to 2007 and contributed24.7%, 28.9%, 15.8% and 12.8% to overall revenues, respectively. Our otherindustry practices including communications, media and utilities contributed17.9% and 18.3% of our revenues in 2008 and 2007.***

 

***During 2008, we continued to derivea significant proportion of our revenues from clients located in the UnitedStates. In 2008 and 2007, we derived 75.9% and 77.9% of our revenues fromclients located in the United States.***

 

***Cost of revenues***

 

***Our cost of revenues was $************491.3 million in 2008, representing an increase of******9.18% from $ 450 million in 2007.Cost of revenues represented 68.3% and 67.9% of our revenues in 2008 and 2007.Out of the net increase of $ 41.3 million in cost of revenues, $ 26.4 millionwas attributable to salary expenses*** which was partly compensated by reversalof $ 2.7 million on payroll andrelated taxes as a result of thecompletion of assessment by the IRS and the remaining increase was mainly due to a ***$13.35 million increase insubcontractor costs.  Rupee depreciationalso had a positive impact leading to reduction in the cost of revenues in 2008as compared to 2007******.***

 

***Gross profit***

 

***Our gross profit for 2008 was $227.6 million, representing an increase of 6.9% from $ 212.8 million in 2007.Gross profit as a percentage of our revenues decreased to 31.7% in 2008 from32.1% in 2007.***

 

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***Selling, general and administrative expenses***

 

***During2008, our selling, general and administrative expenses were $ 131.1 million,representing an increase of 12.7% from $ 116.3 million in 2007 and our selling,general and administrative expenses as a percentage of our revenues increasedto 18.3% in 2008 from 17.5% in 2007.***

 

***During 2008, our sales and marketing expenses were $ 52.5million, representing an increase of 14.7% from $ 45.8 million in 2007.Personnel costs increased by $ 4.7 million due to the addition to sales andmarketing personnel mainly in the European region to strengthen our Europeanbusiness operations and higher compensation costs resulting from salaryincreases. Other selling and marketing costs increased by $ 2.19 million. Webelieve that our investment in selling and marketing expenses has contributedto the growth and diversification of our client revenues.***

 

***Our general and administrative expenses were $ 78.5 millionin 2008, representing an increase of 11.5% from $ 70.5 million in 2007.Personnel costs increased in 2008 by $ 4.6 million due to the addition ofgeneral and administrative personnel and annual salary revisions. Other generaland administrative charges increased by $ 4.2 million.***

 

***Foreign exchange gain/loss***

 

***In 2008, we had a foreign exchange loss of $ 18.4 million as against again of $ 23.4 million in 2007. The year-end exchange rate in rupees perU.S dollar for 2007 was 39.41 as compared to 48.58 in 2008 resulting in a 23%depreciation during the year - end in percentage terms. Our dollar-denominatedreceivables continued to be hedged.***Mark-to-market of foreign exchange contracts andrevaluation of debtors resulted in a net foreign exchange loss.

 

***Operating income***

 

***As apercentage of revenues, operating income decreased to 10.7% in 2008 from 17.9%in 2007. Our operating income was $ 76.58 million in 2008, representing adecrease of 35.5% from $ 118.7 million in 2007 which is mainly due to aforeign exchange loss of $ 18.4 million on account of rupee depreciationas mentioned above as compared to a foreign exchange gain of $ 23.4 million in2007. For the year ended December 31, 2008 every percentage point changein the exchange rate between the rupee and U.S. dollar, has affected ouroperating margins by approximately 0.3% to 0.35%. The exchange rate between therupee and dollar has fluctuated substantially in the recent years and maycontinue to do so in future. We are unable to predict the impact that futurefluctuations may have on our operating margins.***

 

***Other income (expense)***

 

***Other income(expense), reflects interest and dividend income, interest expense, interestexpense reversed, net gain on sale of investments and other income or expense,net. In 2008, our gain on sale of investments was $ 9.7 million ascompared to $6.4 million in 2007. In 2008, our interest and dividend incomewere $ 13.0 million as compared to $ 12.5 million in 2007. In 2008 we hadan interest expense reversal of $ 6.5 million as a result of the completion ofassessment by the IRS.***Our other income (expense), net was $ 2.6 million in 2008, as comparedto $ 1.75 million in 2007 resulting in net increase of $ 0.9 million.

 

***Income taxes***

 

***We made a provision of $ 5.2 million for income taxes in 2008,representing a decrease of 76.1% from $ 21.8 million in 2007 due to reversal of$ 8.4 million on account of as a result of the completion of assessment by theIRS for previous tax periods (See “Taxes” above). Our effective tax rate was14.0%***excluding the impact of change in estimates asa result of the ***completionof assessment by the IRS***) *** in 2008 compared to 16.0%. in 2007.***

 

***Net income***

 

***Our net income was $ 101.4million in 2008, representing a decrease of 11% from $ 114 million in2007. As a percentage of our revenues, net income decreased to 14.1% in 2008from 17.2% in 2007. The decrease in the net income is mainly due to the reasonsexplained above.***

 

**5.B. Liquidity and Capital Resources**

** **

Our operations and ourgrowth have been financed by cash generated from operations and from theproceeds of sales of equity shares.

 

We invest in units ofmutual funds either in ‘open ended’ schemes or in ‘fixed maturity plans’. Whilethe investments in ‘open ended’ mutual fund units can be sold any time withoutexit fees, the investments in units of ‘fixed maturity plan’ can be soldsubject to an exit fee of approximately 1%- to 2%. We have categorized our investments in units of mutualfund schemes as ‘liquid mutualfund units’ and ‘fixed maturity plans’classified as ‘available for sale’ investments in our consolidatedfinancial statements.

 

As of December 31, 2009,we had $ 63.4 million in cashand cash equivalents, $ 357.2million invested in units of liquid mutual funds, $ 8.0 million invested in units of mutual fund (fixed maturity plans) and $ 10.7 million invested inother investments.. As of December 31, 2008, we had $ 60.1 million in cash and cash equivalents,$ 152.9 million invested inunits of liquid mutual funds, $ 90.6million invested in units of mutual fund (fixed maturity plans) and $ 2.1 million invested inother investments. As of December 31, 2009 and 2008, we have not incurredany exit fees on investments in mutual fund units of fixed maturity plans. Theinvestments portfolio mainly consist of investment in various debt mutual fundsand certificate of deposits with banks in India .

 

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Our working capital (comprising current assetsexcluding cash and cash equivalents and investments less current liabilities) as at December 31, 2009 and at December 31,2008 was $ 53.4 million and $ 18.4 million, respectively. Ourworking capital is sufficient to meet our present business and operationalrequirements. We had no outstanding bank borrowings or long-term debt as ofsuch date. Net cash provided by operating activities was $137 million, $ 149.3 million and $ 111.3 million in the years endedDecember 31, 2009, 2008 and 2007,respectively. The adjustments for the year ended December 31, 2009, toreconcile the $ 119.8 millionnet income to net cash provided by operating activities, consisted primarily ofdepreciation and amortization of intangible expense of $ 26.2 million and deferred tax credit of $ 8.9 million and gain from sale ofinvestments of $ 9.5 million. The adjustments for the year ended December 31,2008, to reconcile the $ 101million net income to net cash provided by operating activities, consistedprimarily of depreciation and amortization of intangible expense of $ 27.7 million and deferred taxcredit of $ 9.2 million and gainfrom sale of investments of $ 9.7 million. The adjustments for the year ended December 31,2007, to reconcile the $ 114million net income to net cash provided by operating activities, consistedprimarily of depreciation expense of $ 25.0million and deferred tax credit of $ 10.1million and gain from sale of investments of $ 6.4 million.  The increase in depreciation was due to anincrease in investment in property, plant and equipment to develop and expandour existing as well as new facilities.**The net assetbase was $147.6 million, $ 150.9million, and $ 171.0 million inthe years ended December 31, 2009, 2008 and 2007, respectively. Provision for bad debts was $ 2.3 million, $ 1.6 million and $ 1.2 million for the year ended December 31,2009, 2008 and 2007, respectively.

 

Adjusted days of sales outstanding remained at69 days for the year ended December 31, 2009 and 2008 respectively ascompared to 91 days in the year ended December 31, 2007. Net accountsreceivable and unbilled revenue decreased by $15million and $ 6.7 million forthe year ended December 31, 2009 and December 31, 2008 respectivelywhich is mainly due to the consistent efforts made by the management on timelycollections from the customers due to the credit crisis prevailing in theglobal markets and increased by $ 21.8million in 2007.

 

Current assets and other assets increased by$4.6 million during the year ended December 31, 2009 and decreased by $ 19.3 million for the year ended December 31,2008 and increased by $ 20.4million for the year ended December 31, 2007. Cash outflows for the yearended December 31, 2009 were mainly on account of payment of $ 5.3 million in respect ofdeposit with tax authorities, and $ 2.3million on account of derivative contracts. Cash inflows for the year ended December 31,2008 were mainly on account of refund of $ 6.8 million in respect of depositwith tax authorities, and $ 13.2million on account of settlement of derivative contracts. Cash outflows for theyear ended December 31, 2007 were $ 6.8 million in respect of depositplaced with tax authorities in India, $ 10.2 million in derivative contracts and cash inflows for the year endedDecember 31, 2007 was mainly on account of the $ 0.9 million in gratuity asset.

 

Accounts payable andaccrued expenses decreased by $1.3 million for the year ended December 31,2009 and increased by $ 8.5million for the year ended December 31, 2008, compared to an increase of $ 6.3 million in 2007. The decrease in2009,is on account of reduction of $0.5 million in trade accounts payable and reductionof $0.8 million accrued expenses. The reduction in accrued expenses of $0.8million is mainly on account of reduction of 1.2 million in sub-contractorcost, reduction of $1.0 million in data link, reduction of $3.7 million infacility related cost which is offset to some extent by increase in accrualspertaining to employee related expenses of $ 5.2 million..

 

Our billings in excessof costs and estimated earnings on uncompleted contracts, which representbillings in excess of revenues that are recognized, decreased by $0.5 millionin the year ended December 31, 2009 and increased by $ 3.1 million and $ 0.06 million in the year ended December 31,2008 and 2007, respectively.

 

Taxes paid were $ 29.5 million, $ 17.0million and $23.3million as against a tax provision of $ 31.9 million, $ 14.4million and $13.6 million for the years ended December 31, 2007, 2008 and2009, respectively.

 

Other current liabilities and other liabilitiesdecreased by $5.3 million during the year ended December 31, 2009. Thedecrease in the year ended December 31, 2009 resulted from decrease of $ 6.3 million in derivative liabilitiesand accrual vacation by $2.3 million, while increase in provision for volumediscounts by $4.9 million. Other current liabilities and other liabilitiesincreased by $ 4.4 million and$8.2 million during the year ended December 31, 2008 and 2007respectively.  The increase in the yearended December 31, 2008 resulted from increase of $ 7.0 million in derivative liabilities, $ 2.8 million increase in leave encashment provision, $ 1.9 million increase in salesdiscounts,$ 2.6 million increase in statutory liabilities for tax deducted atsource on payroll and Value Added Tax (VAT) payments,  $ 1.4million increase in provision for pension and reduction of $ 11.2 million inother liabilities on account of reversal of payroll and related taxes, interest and penalty due tocompletion of assessment by the IRS for years 2003 and 2004.The increase duringthe year ended December 31, 2007 resulted from increase of $ 2.1 million in leave encashmentprovision, $ 2.2 millionincrease in deferred revenue, $ 2.7million increase in other liabilities on account of advance received on sale offurniture at India (Vashi) location, $ 1.0million increase in advance from customer and $ 1.9 million decrease in other current liabilities.

 

Net cash used in investing activities was $ 132.7 million for the year ended December 31,2009, $ 35.5 million for 2008and $ 130.0 million for 2007.Net cash used in the acquisition of property, plant and equipment for the yearsended December 31, 2009, 2008 and 2007 was $19.0 million, $ 43.4 million and $ 61.9 million, respectively on account of the purchases of new facilities andexpansion of our existing facilities. Net purchases of investment securitiesamounted to $114.0 million and $14.8 million for the year ended December 31,2009 and December 31, 2007 respectively as against net sale of investmentsecurities of $ 4.0 million forthe year ended December 31, 2008. Net cash used in investing activities in2007 included $ 21.4 million forthe acquisition of Logan Orviss and Taratec, net of cash acquired, $ 20.4 million for acquisition oftechnology related intangibles

 

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from one of our major customers andadditional purchase consideration to Cymbal shareholders amounted to $ 12.4 million for the year ended December 31,2007.

 

Net cash used in financing activities was $3.1million, $ 64.6 million and $ 8.7 million for the years ended December 31,2009, 2008 and 2007, respectively. We paid $ 9.3 million as dividends, including dividend tax, on our equityshares in the year ended December 31, 2009. We received proceeds of $ 5.5 million from our employee stockoption plan during the year ended December 31, 2009. We spent $ 53.1 million on purchase of commonstock and paid $ 11.4 million asdividends, including dividend tax, on our equity shares in the year ended December 31,2008. We received proceeds of $ 0.2million from our employee stock option plan during the year ended December 31,2008. We paid $ 11.9 million individends, including dividend tax, on our equity shares in the year ended December 31,2007. We received proceeds of $ 3.2million from our employee stock option plan during the year ended December 31,2007.

 

.We anticipate capital expenditures of betweenapproximately $ 20 million to $ 25 million in 2010, principally tofinance the construction of our new knowledge park facilities in Pune, Phase IIof Navi Mumbai, Chennai and other facilities and physical infrastructure inIndia. Estimated amounts remaining to beexecuted on such contracts (net of advances), aggregated approximately to $ 55.6 million at December 31,2009 to be spent over a three year period. See ‘‘Item 4.D. Informationon the Company—Property, plant and equipment.’’ We believe that existing cashand cash equivalents and funds generated from operations will be sufficient tomeet these requirements. However, we may significantly alter our proposedcapital expenditures plans and, accordingly, may require additional financingto meet our requirements. We believe that a sustained reduction in IT spending,a longer sales cycle or an economic downturn in any of the various industrysegments in which we operate, or a combination of these events, could result ina decline in our revenues and adversely affect our liquidity and capitalresources.

 

**Critical Accounting Policies**

 

We consider thepolicies discussed below to be critical to an understanding of our financialstatements as their application places the most significant demands onmanagement’s judgment, with financial reporting results relying on estimatesabout the effect of matters that are inherently uncertain. Specific risks forthese critical accounting policies are described in the following paragraphs.For these policies, future events may not develop as forecast, and estimatesmay require revision.

 

***Accounting Estimates***

 

We prepare financialstatements in conformity with U.S. GAAP, which requires us to make estimatesand assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities on the date of the financialstatements and the reported amounts of revenues and expenses during thefinancial reporting period. We primarily make estimates related to contractcosts expected to be incurred to complete development of software, allowancesfor doubtful accounts receivable, our future obligations under employeeretirement and benefit plans, useful lives of property, plant and equipment andintangible assets, estimate of future cash flows used in assessing forimpairment of assets, deferred tax assets and liabilities and provisions forcontingencies and litigation.

 

We continuallyevaluate these estimates and assumptions based on the most recently availableinformation, our own historical experience and on various other assumptionsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actualresults may differ from those estimates. Changes in estimates are reflected in thefinancial statements in the period in which changes are made and, if material,their effects are disclosed in the notes to the consolidated financialstatements.

 

***Revenue Recognition***

 

We recognize revenuesby following specific and applicable accounting guidelines for measuringrevenue. These guidelines require us to make certain judgments that affectrecognized and unrecognized revenue. Judgments involve the method ofrecognizing revenue, costs and time required to complete projects for ourclients etc.

 

We are in the softwareservices business and, to a lesser extent, in business process outsourcing. Ourrevenues from software services are derived by providing the followingservices:

 

·     custom application development;

 

·     application maintenance and support;

 

·     packaged software implementation;

 

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·     infrastructure management services;

 

·     product engineering;

 

·     business process outsourcing; and

 

·     quality assurance services.

 

***Software Services***

 

We derive our revenuesprimarily from software services. Revenue is recognized when there ispersuasive evidence of a contractual arrangement with customers, the salesprice is fixed or determinable and collectibility is reasonably assured. Oursoftware services contracts are either on a fixed-price, fixed time frame or ona time and material basis. Currently a majority of revenues are derived on timeand material contracts. Revenues earned from services performed on a time andmaterial basis are recognized as the related services are performed. Ourfixed-price contracts include application maintenance and support services, onwhich revenue is recognized ratably over the term of maintenance. Our otherfixed-price contracts are recognized on a percentage of completion basis. Theinput method has been used because management considers this to be the bestavailable measure of progress on these contracts as there is a direct relationshipbetween input and productivity.

 

We review theestimated revenues and estimated costs on each project at the end of eachreporting period. Any revisions to existing estimates are made when required bymanagement having the relevant authority. As part of the review process,management regularly compares and analyzes the actual costs and the estimate ofcosts to complete the projects to the original estimated costs and the totalcontract price with revisions to estimates reflected in the period in which changesbecome known. As a policy, provisions for estimated losses on such engagementswill be made during the period in which a loss becomes probable and can bereasonably estimated.

 

We charge direct andincremental contract origination and set up costs incurred in connection withapplication maintenance and support services to expense as incurred. We deferthese costs only in situations where there is a contractual arrangementestablishing a customer relationship for a specific period. The costs to be deferredare limited to the extent of future contractual revenues. Further, we defer andrecognize revenue attributable to set up activities over the periods that therelated fees are earned, as services performed during such periods do notresult in separate earnings process.

 

We generally provideour clients with a one- to three-month warranty as post-sale support. Costsassociated with such services are accrued based on management’s estimates andhistorical data at the time related revenues are recorded. We use our pastexperience relating to actual warranty costs incurred on similar kinds ofprojects in order to estimate future warranty costs.

 

We grant volumediscounts to certain customers, which are computed based on a pre-determinedpercentage of the total revenues from those customers during a specifiedperiod, pursuant to the terms of the contract. These discounts are earned onlyafter the customer has generated a specified cumulative level of revenues inthe specified period. We report revenue net of discounts offered to thecustomers.

 

We estimate the totalnumber of customers that will ultimately earn these discounts, based on which aportion of the revenue on the related transactions is allocated to the servicesthat will be delivered in the future.

 

Historically, changesin estimates of warranty costs and volume discounts have not had a materialimpact on our financial statements.

 

We includereimbursement of out-of-pocket expenses received from customers as part ofrevenues.

 

We report taxes assessedby governmental authorities directly imposed on revenue producing transactionson a net basis.

 

***Business Process Outsourcing***

 

Revenues from businessprocess outsourcing services are derived from both time-based andtransaction-priced contracts. Revenue is recognized as the related services areperformed, in accordance with the specific terms of the contracts with thecustomer.

 

***Business Combinations, Goodwilland Intangible Assets***

 

We account forbusiness combinations using the purchase method of accounting for all businesscombinations. Intangible assets acquired in a business combination arerecognized and reported separately from goodwill. Accounting for contingentconsideration based on earnings or other performance measures is a matter

 

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of judgment thatdepends on the relevant facts and circumstances. If the substance of thecontingent consideration is to provide compensation for services, use ofproperty, or profit sharing, we account for the additional consideration as anexpense of the appropriate period. Otherwise, the additional consideration paidis recorded as an additional cost of the acquired business.

 

Goodwill representsthe cost of the acquired businesses in excess of the fair value of identifiabletangible and intangible net assets purchased. We generally seek the assistanceof independent valuation experts in determining the fair value of the identifiabletangible and intangible net assets of the acquired business. We assign all theassets and liabilities of the acquired business, including goodwill, toreporting units.

 

We test goodwill forimpairment at least on an annual basis. In this process, we rely on a number offactors including operating results, business plans and future cash flows.Recoverability of goodwill is evaluated using a two-step process. The firststep involves a comparison of the fair value of a reporting unit with itscarrying value.  The fair value of areporting unit is determined using the income approach. If the carrying valueof the reporting unit exceeds its fair value, the second step of the processinvolves a comparison of the implied fair value and carrying value of thegoodwill of that reporting unit. The implied fair value of goodwill isdetermined in the same manner as the amount of goodwill recognized in abusiness combination. If the carrying value of the goodwill of a reporting unitexceeds the fair value of that goodwill, an impairment loss is recognized in anamount equal to the excess. Goodwill of a reporting unit will be tested forimpairment between annual tests if an event occurs or circumstances change thatwould more likely than not reduce the fair value of the reporting unit belowits carrying amount.

 

We amortize intangibleassets over their respective individual estimated useful lives in proportion tothe economic benefits consumed in each period. Our estimates of the usefullives of identified intangible assets are based on a number of factorsincluding the effects of obsolescence, demand, competition, and other economicfactors (such as the stability of the industry, and known technologicaladvances), and the level of maintenance expenditures required to obtain theexpected future cash flows from the asset.

 

We evaluate intangibleassets for recoverability whenever events or changes in circumstances indicatethat their carrying amounts may not be recoverable. Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto future undiscounted net cash flows expected to be generated by the asset. Ifsuch assets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying value of the assets exceeds thefair value of the assets.

 

In evaluating goodwilland intangible assets for impairment, we may seek the assistance of independentvaluation experts, perform internal valuation analyses and consider otherinformation that is publicly available. The results of our evaluation may bedependent on a number of factors including estimates of future market growthand trends, forecasted revenue and costs, discount rates and other variables.While we use assumptions which we believe are fair and reasonable, futureresults may differ from the estimates arrived at using the assumptions.

 

We perform our annualimpairment review of goodwill at December 31, and when a triggering eventoccurs between annual impairment tests. Based on the results of its annualimpairment tests, we determined that no impairment of goodwill existed as thefair value of the goodwill substantially exceeds the carrying value as of December 31,2009 or December 31, 2008.

 

***Income Taxes***

 

As part of our financialreporting process, we are required to estimate our liability for income taxesin each of the tax jurisdictions in which we operate. This process requires usto estimate our actual current tax exposure together with an assessment oftemporary differences resulting from differing treatment of items, such asdepreciation on property, plant and equipment, for tax and accounting purposes.These differences result in deferred tax assets and liabilities, which areincluded within our balance sheet.

 

Income taxes areaccounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted taxrates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred taxassets and liabilities of changes in tax rates is recognized in results ofoperations in the period that includes the enactment date. We must then assessthe likelihood that our deferred tax assets will be recovered from futuretaxable income and to the extent we believe that recovery is not likely, wemust establish a valuation allowance. To the extent we establish a valuationallowance or increase this allowance in a period, we must include an expensewithin the tax provision in the statement of operations.

 

Our deferred taxliabilities mainly arise from taxable basis differences in intangible assetsand undistributed earnings of branch, property, plant and equipment,unrecognized gain in available for sale securities and costs and estimatedearnings in excess of billings on completed contracts. Our deferred tax assetscomprise assets arising from our accrued expenses, provisions for doubtfulaccounts receivable and from ultimate realization of the tax asset that may bedependent on the availability of future capital gains. We assess the likelihoodthat our

 

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deferred tax assetswill be recovered from future taxable income. This assessment takes intoconsideration tax planning strategies, including levels of historical taxableincome and assumptions regarding the availability and character of futuretaxable income over the periods in which the deferred tax assets aredeductible. We believe it is more likely than not that we will realize thebenefits of those deductible differences as of December 31, 2009 in thefuture. The ultimate amount of deferred tax assets realized may be materiallydifferent from those recorded, as influenced by potential changes in income taxlaws in the tax jurisdictions where we operate, or future changes in operatingresults.

 

To the extent webelieve that realization of a deferred tax asset is not likely, we establish avaluation allowance or increase this allowance in an accounting period andinclude an expense within the tax provision in our statements of income. Thenet change in valuation allowance in the year 2009 is mainly on account ofcreation of valuation allowance against deferred tax asset recorded on businessloss carry forwards for subsidiaries in UK, Mexico and Singapore amounting to $2.5 million, $0.2 million and $ 0.2 million respectively. Additionally we hasset up a valuation allowance on deferred tax asset recorded on long termcapital loss arising on investment in available for sale securities amountingto $0.7 million.

 

From January 1,2007, we recognize the effect of income tax positions only if those positionsare more likely than not of being sustained. Recognized income tax positionsare measured at the largest amount that is greater than 50% likely of beingrealized. Changes in recognition or measurement are reflected in the period inwhich the change in judgment occurs.

 

Tax exposures can involve complex issues and mayrequire an extended period to resolve. Although we believe we have adequatelyreserved for our uncertain tax positions, no assurance can be given that thefinal tax outcome of these matters will not be different. We adjust thesereserves in light of changing facts and circumstances, such as the closing of atax audit or the refinement of an estimate. To the extent that the final taxoutcome of these matters is different than the amounts recorded, suchdifferences will impact the provision for income taxes in the period in whichsuch determination is made. The provision for income taxes includes the impactof reserve provisions and changes to reserves that are considered appropriate,as well as the related net interest.

 

***Stock-based compensation***

 

Effective January 1,2006, we recognize compensation expense relating to share-based payments to berecognized in net income using a fair value measurement method. Under the fairvalue method, the estimated fair value of awards is charged to income on anaccelerated basis over the requisite service period, which is generally the vestingperiod. We implemented this fair value model using the modified prospectivemethod and, therefore, prior periods were not restated. Under the modifiedprospective method, the fair value accounting was applied to new awards grantedafter the time of adoption, as well as to the unvested portion of previouslygranted equity-based awards for which the requisite service had not beenrendered as of January 1, 2006. We granted stock options under the ‘PatniESOP 2003’ -Revised 2006.

 

The fair value of each option is estimated on thedate of grant using the Black-Scholes model. We use the simplified method toestimate the expected term of the instruments in the option valuation modelwhich is based on the vesting term and contractual term of the option as we donot have sufficient historical data on option exercise.

 

Expected volatility during the expected term of theoption is based on historical volatility, during a period equivalent to theexpected term of the option, of the observed market prices of the company’spublicly traded equity shares. Expected dividends during the expected term ofthe option are based on recent dividend activity. Risk-free interest rates arebased on the government securities yield in effect at the time of the grant.

 

Prior to the adoptionof fair value accounting, we were required to record benefits associated withthe tax deductions in excess of recognized compensation cost as an operatingcash flow. However SFAS 123R requires that such benefits be recorded as afinancing cash inflow.

 

Effective April 1,2007, an amendment has been made to Income Tax Act subjecting specifiedsecurities allotted or transferred by an employer to its employees to FringeBenefit Tax (FBT). The liability to pay FBT by the employer arises at the timeof allotment of the securities, consequent to exercise of option by theemployees and is calculated on the difference between the fair value of theunderlying share on the date of vesting and the exercise price paid by theemployee based on the corporate tax rate. The FBT arising from such allotmentof specified option is collectible from employees, which is considered as akinto a reset in the terms of the ESOP Plan as it would reduce the ultimatebenefit to the employee, by way of increase in exercise price and hence isrecognized as additional paid-in-capital.

 

On August 18,2009, a further amendment was made to the Indian Income Tax Act, withretroactive effect from April 1, 2009, abolishing the provisions of FBT.Thus, for any exercises of stock options by the employee on or after April 1,2009, the shares issued, or allocated and transferred by the Company, are nolonger subject to FBT.

 

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Since the abolition ofthe provisions of FBT, such deemed increase to the stock option exercise priceis no longer necessary. This change has been accounted for as a modification inthe exercise price of the existing share-based compensation plans. Accordingly,the difference in the fair value of the unvested outstanding optionsimmediately before the modification and after the modification will berecognized as incremental share-based compensation over the remaining vestingperiod. For the options vested and outstanding as on the date of modification,the incremental cost has been recognized immediately on the date ofmodification.

 

***Derivatives and Hedge Accounting***

 

We enter into forwardforeign exchange contracts/option contracts (derivatives) to mitigate therisk of changes in foreign exchange rates on inter company and end customeraccounts receivable and forecasted sales transactions denominated in foreigncurrencies. The strategy also includes entering into short — term foreignforward foreign exchange contracts which are replaced with successive newcontracts up to the period in which the forecasted transactions are expected tooccur (roll —over hedging). Upon completion of the formal documentation andtesting for effectiveness, we designate the forward and option contracts whichmeet the hedging criteria, as cash flows hedges. Changes in the derivative fairvalues that are designated, effective and qualify as cash flow hedges, aredeferred and recorded as a component of accumulated other comprehensive incomeuntil the hedged transactions occur and are then recognized in the consolidatedstatements of income. Changes in fair value for derivatives not designated ashedging instruments and ineffective portion of the hedging instruments arerecognized in consolidated statements of income in the current period.

 

In respect ofderivatives designated as hedges, we formally document all relationshipsbetween hedging instruments and hedged items, as well as its risk managementobjective and strategy for undertaking various hedge transactions. We alsoformally assesses, both at the inception of the hedge and on an ongoing basis,whether each derivative is highly effective in offsetting changes in fairvalues or cash flows of the hedged item. If it is determined that a derivativeis not highly effective as a hedge, or if a derivative ceases to be a highlyeffective hedge, we will, prospectively, discontinue hedge accounting withrespect to that derivative. The derivatives, which do not qualify for hedgeaccounting, are accordingly, recognized at fair value with gains or lossesincluded in foreign exchange (gain)/loss in the consolidated statements ofincome.

 

Hedge ineffectivenesscould result from forecasted transactions not happening in the same amounts orin the same periods as forecasted or changes in the counterparty credit rating.Further, change in the basis of designating forward contracts as hedges offorecasted transactions could alter the proportion of forward contracts whichare ineffective as hedges. Hedge ineffectiveness increases volatility of theconsolidated statements of income since the changes in fair value of anineffective portion of forward contracts is immediately recognized in theconsolidated statements of income.

 

As of December 31,2009, there were no gains or losses on derivative transactions or portionsthereof that were either ineffective as hedges, or associated with anunderlying exposure that did not occur.

 

***Commitments and Contingencies***

 

Liabilities for losscontingencies arising from claims, assessments, litigations, fines andpenalties and other sources are recorded when it is probable that a liabilityhas been incurred and the amount of the assessment and/or remediation can bereasonably estimated.

 

***RecentlyAdopted and Issued Accounting Pronouncements under U.S.GAAP***

 

Please refer note 2.39 to 2.48 to ourconsolidated financial statements for the full description of the recentaccounting pronouncements, including the respective dates of adoption and theeffects on our results of operations and our financial condition.

 

**5.C. Research and development, patents andlicenses, etc.**

** **

Research and development expenditures for theyears ended December 31, 2007,2008 and 2009 were $2.1 million, $1.7 million and $1.2 millionrespectively . For a description of our research and development initiatives,see “Item 4.B. Information on the Company—Business Overview - Innovation.”

 

**5.D. Trend information**

** **

Other than as described in “Item 3.D. Keyinformation—Risk Factors”, “Item 4. Information on the Company” and “Item 5Operating and Financial Review and Prospects” and elsewhere in this AnnualReport, to our knowledge there are no known trends or uncertainties that haveor had or are expected to have a material adverse impact on our revenues orincome from continuing operations or profitability or liquidity or capitalresources, or that could cause reported financial information not necessarilyindicative of future operating results or financial condition.

 

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**5.E. Off-balance sheet arrangements**

 

We currently do not engage in any off- balancesheet arrangements.

 

**5.F. Tabular disclosure of contractualobligations**

 

The following table sets forth our contractualobligations and commercial commitments to make future payments as of December 31,2009. The following table excludes our accounts payable, accrued operatingexpenses and other current liabilities which are payable in the normal courseof operations.

 
| ** **                       | ** ** | **Payments due as of December 31, 2009** | ** ** |
|----------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Total**                                                              | ** ** | **Within  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| ** **                       | ** ** | **(in millions)**                                                 | ** ** |
| Capital (Finance) Leases         |       | $                                                                      | 0.2        |   | $ | 0.1 |   | $ | 0.1 |   | $ | 0.0 |   | — |   |
| Operating Leases                 |       | $                                                                      | 18.4       |   | $ | 6.5 |   | $ | 8.2 |   | $ | 3.7 |   | $ | 0.0 |   |
| Capital Commitment               |       | $                                                                      | 55.6       |   | $ | 10.0 |   | $ | 45.6 |   | — |   | — |   |
| Total Contractual Obligations(1) |       | $                                                                      | 74.2       |   | $ | 16.6 |   | $ | 53.9 |   | $ | 3.7 |   | $ | 0.0 |   |

 

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(1)In addition,pursuant to our agreement with Patni Life Sciences Inc. (formerly Taratec), weagreed to pay up to $ 13.2 millionas contingent consideration over a three year period ending on June 30,2010.

 

**5.G. Safe Harbor**

 

This Annual Report contains forward-lookingstatements. See the section entitled “Special Note regarding Forward LookingStatements.”

 

**ITEM6. DIRECTORS, SENIOR MANAGEMENTAND EMPLOYEES**

 

**6.A. Directors and senior management**

 

The following table sets forth details regardingour Board of Directors and executive officers:

 
| **Name**                                       | ** ** | **Age** | ** ** | **Position**                                                                                  |
|------------------------------------------------|------------|---------|------------|-----------------------------------------------------------------------------------------------|
| Mr. Narendra  K. Patni(1)(2)(3)(12)       |       | 67      |       | Director  (Chairman)                                                                          |
| Mr. Jeya  Kumar (4)                       |       | 55      |       | Director  (Chief Executive Officer)                                                           |
| Mr. Louis T. van den Boog (5)(6)          |       | 56      |       | Director                                                                                      |
| Mr. Gajendra  K. Patni(1)(7)              |       | 68      |       | Director                                                                                      |
| Mr. Ashok  K. Patni(1)(8)(12)             |       | 58      |       | Director                                                                                      |
| Mr. William  O. Grabe(6)(9)(10)           |       | 71      |       | Director                                                                                      |
| Mr. Pradip  Baijal (6) (11) (12)(13) |       | 66      |       | Director                                                                                      |
| Dr. Michael  A. Cusumano(12)(13)          |       | 55      |       | Director                                                                                      |
| Mr. Arun  Duggal(14)                      |       | 63      |       | Director                                                                                      |
| Mr. Pradip  Shah(14)                      |       | 57      |       | Director                                                                                      |
| Mr. Ramesh  Venkateswaran(12)(13)         |       | 57      |       | Director                                                                                      |
| Mr. Vimal  Bhandari (14)(15)              |       | 51      |       | Director                                                                                      |
| Mr. Arun  Maira (16)                      |       | 66      |       | Director                                                                                      |
| Mr. Abhay  Havaldar (10)                  |       | 48      |       | Alternate  Director                                                                           |
| Mr. Surjeet  Singh                        |       | 41      |       | Chief  Financial Officer                                                                      |
| Mr. Ajay  Chamania                        |       | 47      |       | Executive  Vice-President and Global Head of the Product Engineering Services                 |
| Mr. Sunil  Chitale                        |       | 46      |       | Executive  Vice President and Global Head —  Enterprise Software and Systems Integration |
| Dr. Anil  Gupta (17)                      |       | 51      |       | Executive  Vice President - Global Head — Business Operations                            |
| Mr. Satish  M. Joshi                      |       | 54      |       | Executive  Vice President - Global Head —  Technology & Innovation              |
| Mr. Sanjiv  Kapur                         |       | 50      |       | Senior  Vice President - Global Head - BPO & CIS                                     |
| Mr. Derek  Kemp (25)                      |       | 49      |       | Executive  Vice President - President — EMEA                                             |
| Mr. Vijay  P. Khare                       |       | 52      |       | Executive  Vice President and***Global Head of AD & AM***                            |
| Mr. Deepak  Khosla                        |       | 44      |       | Senior  Vice President — (President — SAARC)                                        |
| Mr. Naresh  Lakahanpal (18)               |       | 45      |       | Executive  Vice President — (President — Patni Americas)                            |
| Mr. Vijay  Mehra (19)                     |       | 42      |       | Executive  Vice President -Global Head — Industry Verticals                              |
| Mr. Rajesh  Padmanabhan                   |       | 47      |       | Executive  Vice President and Global Head of Human Resources                                  |
| Mr. V  Mathivanan (20)                    |       | 54      |       | Executive  Vice President - President — APAC                                             |
| Mr. Anirudh  Patni (21)                   |       | 33      |       | Senior  Vice — President Strategy & Corporate Development                       |
| Mr. Ajit  Yadav (22)                      |       | 55      |       | Executive  Vice — President and General Counsel                                          |
| Mr. Manish  Soman (23)                    |       | 41      |       | Executive  Vice President and Chief of Operations                                             |
| Mr. Brian  Stones (24)                    |       | 58      |       | Executive  Vice President — President EMEA                                               |

 

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(1)    Mr. NarendraK. Patni, Mr. Gajendra K. Patni and Mr. Ashok K. Patni are brothers.  Mr. Anirudh K. Patni is the son of Mr. NarendraK. Patni.

 

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(2)    Mr. NarendraK. Patni ceased to be our Chief Executive Officer with effect from February 20,2009 and continues to be the Chairman of the Board/Company. He is also theChairman of the Nominating and Corporate Governance committee.

(3)    Mr. NarendraK. Patni is the nominee of the NKP Group.

(4)    Mr. JeyaKumar was appointed as Chief Executive Officer of the Company with effect from February 20,2009 and he was also appointed as a Director of the Company with effect from June 25,2009. He was also appointed as the permanent invitee of the Compensation andRemuneration committee with effect from July 28, 2009.

(5)    Mr.  LouisT. van den Boog resigned as Executive Director with effect from February 20,2009 and continues to be a Non-Executive Director on the Board of the Company.

(6)    Member of theShareholder /Investor Grievances committee.

(7)    Mr. GajendraK. Patni is the nominee of the GKP Group.

(8)    Mr. AshokK. Patni is the nominee of the AKP Group.

(9)    Mr. WilliamGrabe is the nominee for General Atlantic.

(10)  Our Articles ofAssociation provide that the board can appoint an alternate director pursuantto the provisions of the Indian Companies Act. Mr. Abhay Havaldar ispresently the alternate director to Mr. William O. Grabe.

(11)  Mr. PradipBaijal was appointed as Director of the Company with effect from June 25,2009.

(12)  Member of theNominating and Corporate Governance committee.

(13)  Member of theCompensation and Remuneration committee.

(14)  Member of theAudit committee.

(15)  Mr. VimalBhandari was appointed as Director of the Company with effect from January 15,2010.

(16)  Mr. ArunMaira resigned as a Director of the Company with effect from July 22,2009.

(17)  Dr. AnilGupta was appointed as Executive Vice President - Global Head — BusinessOperations with effect from January 18, 2010.

18)   Mr. NareshLakhanpal was appointed as Executive Vice President - President — PatniAmericas with effect from August 10, 2009.

(19)  Mr. VijayMehra was appointed as Executive Vice President -Global Head — IndustryVerticals with effect from October 5, 2009.

(20)  Mr. VMathivanan was appointed as Executive Vice President - President — APAC witheffect from August 3, 2009.

(21)  Mr. AnirudhPatni resigned as a Senior Vice President - Strategy & CorporateDevelopment with effect from December 15, 2009.

(22)  Mr. AjitYadav resigned as Executive Vice President and General Counsel of the Companywith effect from August 31, 2009.

(23)  Mr. ManishSoman resigned as Executive Vice President and Chief of Operations with effectfrom January 18, 2010.

**(24)**  Mr. Brian Stones has beenseparated as an Executive Vice President — President EMEA with effect from January 7,2010.

***(25)***  MrDerek Kemp was appointed as Executive Vice President — President EMEA witheffect from January 7, 2010.

 

**Board of Directors**

 

***Mr. Narendra K. Patni,***Chairman, is one of the founders of our company. Mr. Patni has a Master’sdegree in Electrical Engineering from the Massachusetts Institute ofTechnology, or MIT, and a Master’s degree in Management from the Sloan Schoolof Management at MIT. He also has a Bachelor’s degree in Electrical Engineeringfrom IIT, Roorkee. As an entrepreneur, he has played an integral role in thedevelopment of the Indian IT industry through his various ventures. Mr. Patniwas instrumental in initiating the offshore outsourcing business model for thesoftware industry. Prior to founding his first company, DataConversion Inc. (now our U.S. subsidiary Patni Americas, Inc.) in1972, he was President and Director of the Forrester Consulting Group and waspreviously with the U.S. Trust Company of New York and was a consultant toArthur D. Little, Inc.

 

Mr. Patni ceased to be Chief Executive Officerof the Company with effect from February 20, 2009 and continues to be theChairman of the Board/Company. Mr. Patni as a nominee of the NKP Group, isnot required to retire by rotation fromthe Board.

 

***Mr. Jeya Kumar******, isour Chief Executive Officer with effect from February 20, 2009. Mr. Kumarwas also appointed as a Director of the Company, not liable to retire byrotation with effect from June 25, 2009. He***has a Masters of Business degree from Curtin University, Australia; Bachelorsof Business degree from the Royal 

 

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Melbourne Institute of Technology, Australia;and postgraduate diplomas in Computer Science, Management Studies and MarketingManagement. He has also attended the Advanced Management Program at OxfordUniversity. His responsibilities mainly include driving the company’s globaloperations; and defining and executing the company’s long-term strategy focusedon growth, profitability, and customer & operational excellencethroughout Patni’s value chain. Mr. Kumar was the CEO of MphasiS Limitedand has more than 25 years of global experience spanning several geographies.Prior to MphasiS, he was Senior Vice-President of Sun Microsystems and a memberof Sun’s Executive Management Group (EMG). Notably, he was the firstAsia-Pacific employee in the company’s history to become a member of Sun’s EMG.At Sun, as head of a $ 5billion-a-year Services business, Mr. Kumar was responsible for thebusiness unit’s financial performance, strategy, marketing, portfoliomanagement, in-market management, product engineering, technology development,M&A and channels in more than 120 countries. He has also held variousmanagement and executive positions with global firms including Apple ComputersInc. and National Semi-Conductor Corporation. During the course of hisextensive career, he has undertaken assignments in Singapore, Japan, Australia,United States, Mexico, Holland and the United Kingdom.

 

***Mr. Louis T. van denBoog,*** has been a director since March, 2005.  Mr. van den Boog was appointed as anExecutive Director with effect from April 29, 2008 and said appointmentwas approved by the shareholders at their meeting and also by the CentralGovernment as required under Section 269 of the Indian Companies Act, andother applicable provisions. Mr. van den Boog resigned as an ExecutiveDirector with effect from February 20, 2009 and continues to be a Non-Executive Director on the Boardof the Company, liable to retire by rotation.

 

Mr. vanden Boog has a Master’s degree in Business Economics and in Public Accountingfrom the Free University in Amsterdam. Mr. van den Boog is an IT industryveteran with approximately 20 years experience in the software industry,as well as extensive experience in mergers and acquisitions, public offeringsand private equity and venture capital fundings. Mr. van den Boog hassupported a series of European and U.S. portfolio companies, in particular as adirector of Global Collect B. V., Human inference B. V., Vallstein Beheer B.V.and Purple Labs S. A. . Mr. van den Boog was previously with OracleCorporation where he helped to build the European operations of the company. Mrvan den Boog’s term of office expires in 2011, but he is eligible forreappointment.

 

***Mr. Gajendra K. Patni,***Director is one of the founders of our company. Mr. Patni has a ChemicalEngineering background and has over 35 years of experience in finance,banking, legal and personnel functions. He has contributed significantly in thepast to the growth of the computer rental business of our company, which led tothe formation of PCS Data Products (PCSDP) in 1981, and PCS Data General(PCSDG) in 1987. These companies were merged to form what is now PCS TechnologyLimited in 1994. Mr. Patni is a Chairman of PCS Technology Limited.Previously he was the Managing Director of Industrial Oxygen Company Limited. Mr. Patnias a nominee of the GKP Group, is not required to retire by rotation from theBoard.

 

***Mr. Ashok K. Patni******,***  Director, is one of the founders of ourcompany. Mr. Patni is a Mechanical Engineer from IIT, Mumbai. Mr. Patnihas over 22 years of experience in computer hardware and systems software.Mr. Patni has contributed significantly in the past to the growth of thehardware business of our company which led to the formation of PCSDP in 1981,and PCSDG in 1987. These companies were merged to form what is now PCSTechnology Limited in 1994. He is a Vice Chairman of PCS Technology Limited. Mr. Patnias a nominee of the AKP Group, is not required to retire by rotation from theBoard.

 

***Mr. William O. Grabe***has been a director since September, 2002. Mr. Grabe has a BS degree inEngineering from New York University and an MBA from the University ofCalifornia, Los Angeles. Since 1992, Mr. Grabe has been a managingdirector at General Atlantic LLC, a worldwide private equity firm. Prior tothat, he was a Vice President of IBM and held various positions, the last ofwhich was head, North America Sales and Marketing. He is a Director of variouscompanies including Compuware Corporation, Gartner, Infotech EnterprisesLimited, AKQA, Actinium Pharmaceuticals Inc. and Lenovo Group Company. GeneralAtlantic is one of our principal shareholders, with a shareholding of 17.73%.See “Item 7. Major Shareholders and Related Party Transactions” and “Relationshipwith General Atlantic” below. Mr. Grabe’s term of office expires in 2011,but he is eligible for reappointment.

 

***Mr. Pradip Baijal*** was appointedas a Director of the Company with effect from June 25, 2009. Mr. Baijalis a Mechanical Engineer from IIT, Roorkee, and was a visiting fellow at QueenElizabeth House, Oxford University during 1987-88 on privatization and reforms.He is an author and commentator on various subjects — economic reforms, steelsand mines, telecommunications and privatization. He has published a book ‘DisinvestmentIn India — I Lose & You Gain’ has been widely acclaimed. His papersand articles have been published in several noted journals and newspapers.Mr. Baijal is a retiredIndian Administrative Services (IAS) Officer of the 1966 batch. In his careerof approximately four decades, he has held a diverse set of portfolios in boththe Central and State Governments in India. He was the Chairman of the TelecomRegulatory Authority of India (TRAI) from 2003 to 2006. His previousassignments include: Secretary of the Ministry of Disinvestment, seniorpositions in the Ministry of Power, Steel and Agriculture (Fertilizer); and inthe Madhya Pradesh State Government, Principal Secretary, Industries andChairman of nine industrial corporations including OPTEL, the first optic fibreplant in India and Secretary, Finance and Commercial Taxes. Mr. Baijal isa Whole-time Director in NOESIS Strategic Consulting Services (Pvt.) Limitedand an Independent Director in Nestle India Limited and GVK Power andInfrastructure Limited. He has trained telecommunications regulators in othercountries and has advised on 

 

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restructuringtelecommunications and IT sectors in many countries for World Bank andInternational Telecommunication Union. Mr. Baijal’s term of office expiresin 2011, but he is eligible for reappointment.

 

***Dr. Michael A. Cusumano***has been a director since April, 2004. Dr. Cusumano has a B.A. degree fromPrinceton University and a PhD from Harvard University. Dr. Cusumanocompleted a postdoctoral fellowship in Production and Operations Management atthe Harvard Business School. He has twice been a Fulbright Fellow as well as aJapan Foundation Fellow at the University of Tokyo, and is recipient of theClarendon Lectures in Management award at Oxford University. Dr. Cusumanois the Sloan Management Review Distinguished Professor at MIT’s Sloan School ofManagement. He is also a director of Eliza Corporation, a specialist in speechrecognition software applications, focused on healthcare. He serves on theadvisory boards of FixStars Corp. , a Japanese developer of high-performancecomputing applications, and H-5 Technologies, a specialist in digital searchtechnology. He has consulted for more than 50 major companies around the worldand advises several other startup software companies. He is the author orco-author of eight books. Dr. Cusumano’s term of office expires in 2010but he is eligible for reappointment.

 

***Mr. Arun Duggal***has been a director since November, 2003. Mr. Duggal has a Bachelor’sdegree in Mechanical Engineering from IIT, Delhi, and a post graduate diplomain management from IIM, Ahmedabad. Mr. Duggal is an experiencedinternational Banker advising Corporations on Financial Strategy, M&A andCapital Raising areas.  He has been anInternational Advisor to a number of Corporations, major Financial Institutionsand Private Equity firms.

 

Heis Chairman of Board of Directors of Shriram Transport Finance Company, ShriramProperties Ltd, Shriram City Union Finance Ltd., and Shriram EPC Limited. He isa Chairman and CEO of Tanglewood Financial Advisors (P) Limited andBlackstone Investment Company (P) Limited. He is on the Board of Directorsof various Public Limited Companies which include Mortice Limited, ManipalAcunova Limited, Zuari Industries, Info Edge (India), Dish TV India Limited.,Mundra Port & SEZ Limited. Mr. Duggal’s term of office expires in2011, but he is eligible for reappointment.

 

***Mr. Pradip Shah***has been a director since November, 2003. Mr. Shah is a CharteredAccountant, has an MBA from the Harvard Graduate School of Business and adegree from The Institute of Cost and Works Accountants of India. Mr. Shahwas responsible for introducing credit ratings in India and is a founder ofCRISIL Limited.

 

Mr. Shahis currently the Chairman of the Board at IndAsia Fund Advisors Private Limitedand Sonata Software Limited. His directorships in other companies include AMPIndAsia Fund Advisors (Mauritius) Limited, Asset Reconstruction Company (India)Limited, BASF India Limited,  Godrej &Boyce Mfg Limited, Hardy Oil & Gas Limited, Kansai Nerolac PaintsLimited, KSB Pumps Limited, Mukand Limited, Panasonic Energy India Co. Limited,Pfizer Limited, Shah Foods Limited, Supra Advisors (BVI) Limited (BritishVirgin Islands),  Tata InvestmentCorporation Limited, Wartsila India Limited and Grindwell Norton Limited . Mr. Shah’sterm of office expires in 2012 but he is eligible for reappointment.

 

***Mr. Ramesh Venkateswaran***has been a director since November, 2003. Mr. Venkateswaran has a Bachelor’sdegree in Mechanical Engineering from IIT, Mumbai and a post graduate diplomain management from IIM, Bangalore. Mr. Venkateswaran is a ManagementConsultant and is currently the Managing Director of Almak Management ServicesPrivate Limited. He is a visiting professor of Marketing at the IndianInstitute of Management, Bangalore. He is also a founder member of a non profitorganization, “Vishwas.” Mr. Venkateswaran’s term of office expires in2010, but he is eligible for reappointment.

 

***Mr. VimalBhandari***was appointed asa Director of the Company with effect from January 15, 2010. Mr. Bhandariis a Chartered Accountant and has studied at the Bombay University. He has alsoattended advanced management programs at the International Institute ofManagement, Lausanne, Switzerland as a part of his continuing professionaleducation. Mr. Bhandari is currently the Country Head of AEGON N.V., alargeDutch financial services player. He is a management professional withapproximately 25 years of experience in a range of businesses in the financialservices industry.Priorto joining AEGON in mid-2004, he spent 17 years with IL&FS Ltd. , theIndian infrastructure financing and financial services behemoth, of which 12years were spent as the Executive Director and a member of the Board ofDirectors with responsibility of the financial services business .Additionally, functioned was also a Non-Executive Director on IL&FS Groupentities in stock broking, private equity, infrastructure project development,and healthcare management services and was a Director-In-Charge of the assetmanagement and merchant banking subsidiaries.Aspart of his social commitments, Mr. Bhandari is a Trustee of Pratham , aNGO engaged in education of slum children; he is also on the governing councilof a well known management institute affiliated to University of Mumbai. Mr. Bhandari’sterm of office expires in 2012, but he is eligible for reappointment.

 

***Mr. Abhay Havaldar*** has been acting as an Alternate Director to Mr. William O. Grabe since 2002. Mr.. William Grabe is the Nominee Director of GeneralAtlantic, one of our largest shareholders. Mr Grabe is not a full time residentof India and therefore would not be able to attend all the board meetings ofthe Company which are held in India. Hence, on the request of Mr. Grabe, Mr. AbhayHavaldar has been appointed as an Alternate Director to act for Mr. Grabeduring his absence at the board meetings of the Company.  Mr. Havaldar holds a Bachelors degree inelectrical engineering from the University of Bombay and a Masters in Management degree from the Sloan Fellow program at the LondonBusiness School.

 

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Mr. Havaldaris the Managing Director at General Atlantic LLC, a worldwide private equityfirm, where he has worked since 2002. Mr. Havaldar established GeneralAtlantic’s India office in 2002 and remains based in Mumbai, India where heleads General Atlantic’s South East Asia investment initiatives with a focus onFinancial Services and Enterprise Solutions. He currently serves as a Directoron the board of Jubilant Organosys Limitedand IBS Software Services PrivateLimited..Prior to this, Mr. Havaldar started his career with TATAand held operating management responsibilities at TATA Infotech and HCLInfosystems.

 

Mr. Havaldarhas been an investor in Indian businesses since 1996, as a partner at DraperInternational and Connect Capital. He is a Charter Member of The IndusEntrepreneurs (TIE) and a Board member of Society for Innovation andEntrepreneurship (SINE). General Atlantic is one of our principal shareholders,with a shareholding of 17.73%.  See “Relationship with General Atlantic” below and “Item 7 Major Shareholders and Related Party Transactions”.

 

**Former Director**

 

***Mr. ArunMaira*** has resigned asa director with effect from July 22, 2009. He had been a director since June 2006.Mr. Maira received his bachelors and masters degrees in Physics from St.Stephen’s College, Delhi University. He worked for 25 years in several seniorpositions in the Tata Group, India’s premier industrial conglomerate. Hisdirectorships in other companies include Tata Chemicals Limited, Aditya BirlaNuvo Limited, Hero Honda Motors Limited, Mahindra Ugine Steel Company Limitedand Godrej Industries Limited. Prior to joining Boston Consulting Group in India,he worked in the USA with Arthur D. Little, the international consultingcompany, for 10 years where he served as Leader of its Global OrganisationPractice and Managing Director of Innovation Associates, its subsidiary.

 

For more information on our Board of Directors,please see “Item 10.B. Additional Information—Board of Directors.”

 

***Executive Officers***

 

***Mr. Surjeet******Singh*****is our ChiefFinancial Officer since July 2006.  Mr. Singhis a graduate from Harvard Business School (Advanced Management Program), holdsa B.S. in Finance and Accounting from the University of Pune and is a fellow ofthe Institute of Costs and Works Accountants, India and AICPA, USA. He isresponsible for overall financial strategy, financial operations &compliances of the Company on a global basis. He is chartered with managing theongoing business planning and review process, ensuring a balanced portfolio forfinancial and other resource allocation (s), and maintaining the highest levelof integrity and transparency in the company operations to help maximizesustainable long-term shareholder value. Earlier, and in addition, he hasmanaged and provided oversight to M&A and global business operationsfunctions. During this time, he led various initiatives to help streamline theoperational parameters and drive operational excellence in many areas,including internal systems, supply chain, overall cost . Prior to joiningPatni,, he was the CFO at Cymbal which he co-founded and which has since beenacquired by Patni. In all, Mr. Singh has around two decades ofmulti-industry global experience holding senior management positions in leadingfinance, business planning and global supply chain functions. He has asuccessful track record of building finance as a key business enabler, andfostering collaboration in large and mid-sized culturally diverse, global and matrixed organizations.

 

***Mr. Ajay Chamania*** is ourExecutive Vice-President and Global Head of the Product Engineering Servicesbusiness at Patni. Mr. Chamania is a graduate of Harvard Business School’sAdvanced Management Program and has a Bachelor’s degree in Electronics &Telecommunication from the National Institute of Technology, Bhopal, India. Heis responsible for the organization’s footprint in Product Engineeringpractices catering to Storage, Automotives, Medical Devices, IndustrialAutomation, Consumer Electronics and ISV product domains. Mr. Chamaniabegan his career with Patni in 1986 and over the last two decades has beeninstrumental in establishing and managing some large engineering engagementsfor leading global technology companies. Since 2001, he has been activelyinvolved in Patni’s R&D and embedded technology business and has played aninstrumental role in building and transforming it into a robust and successfulProduct Engineering Services business unit for the company.

 

***Mr. Sunil Chitale*** is ourExecutive Vice-President and Global Head — Enterprise Software and SystemsIntegration (ES & SI). Mr. Chitale has a Bachelor’s degree fromthe Institute of Technology, Banaras Hindu University, India. He is responsiblefor strengthening and growing Patni’s capabilities in ERP, BusinessIntelligence, CRM and allied packaged software applications. He overseesdelivery of business value to Patni’s customers globally by offering fulllife-cycle solutions that leverage enterprise software platforms. He is alsoaccountable for Patni’s services delivery to customers in the EMEA and SAARCregions. In addition, he oversees the Patni Academy for Competency Enhancement(PACE) and the Global Resources in Technology (GRiT) functions. Mr. Chitalebegan his career with Patni in 1985 and has experience in managing largerelationship portfolios. He has helped several customers in leveraging theglobal delivery model through effective use of domain, consulting andtechnology in a managed services mode.

 

***Dr. Anil Gupta*** is our Executive VicePresident and Global Head — Business Operations, with a focus on managing grossmargins and cost structure. Dr. Gupta holds a B. Tech in MechanicalEngineering from IIT Delhi; a Master’s in Mechanical and Aerospace Engineeringfrom University of Delaware, US; and a Ph. D. in Industrial Engineering andOperations Research from University of California, Berkeley. Hisresponsibilities include Sales Operations, Enterprise Resource Planning,Business Continuity, Enterprise Risk Management, Global Travel, IT, Procurementand Facilities. Dr. Gupta has diverse experience of over 28 years with astrong emphasis towards 

 

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driving businessefficiencies. Prior to joining Patni, he was the Chief Operating Officer atAditi Technologies Pvt. Ltd. Prior to Aditi, he was with Sun Microsystems foreleven years in various executive roles in IT, Sourcing, M&A, and SoftwareEngineering; and for over six years with AT&T in Marketing & BellLaboratories. Dr. Gupta brings significant experience around leadershipdevelopment, operational efficiency, process improvement using Six Sigmamethodologies, and change management.

 

***Mr. SatishJoshi******is our Executive Vice President andGlobal Head — Technology & Innovation. Mr. Joshi holds a Bachelor’sdegree in Electrical Engineering and a Master’s degree in Computer Science fromIIT, Mumbai. He is responsible for rendering specialized enterprise-widetechnology services, besides developing, nurturing and managing innovation. Heis also responsible for developing and driving R&D initiatives to providecutting-edge business solutions using new and emerging technologies. Mr. Joshihas been with the company since 1983. Prior to Patni, he worked with the TataInstitute of Fundamental Research in areas such as concurrent programminglanguages, storage techniques for large databases, compiler optimization anddata communication networks.***

 

***Mr. Sanjiv Kapur***is our Senior Vice President and Global Head - BPO & CIS. He hasresponsibility of defining and executing the growth strategy for Patni’sBusiness Process Outsourcing (BPO) and Customer Interaction Services (CIS)business globally. In his role, he manages business operations, financialperformance, operational excellence, delivery capability and customerleadership for Patni’s BPO & CIS business.  Mr. Kapur established BPO operations forPatni from ground up and played an instrumental role in expanding and growingthe business over the last several years, by adopting an integrated IT-BPO-KPOframework. Under his leadership, Patni has helped several large companies leveragethe global sourcing model for business growth and competitive advantage. MR.Kapur has over 20 years of experience spanning strategy, operations, and salesin global BPO and the IT industry. Prior to Patni, he was ExecutiveVice-President at HCL BPO with responsibility of international sales andstrategy. He has also held various positions at leading Telecom-IT-ITEScompanies.

 

***Mr. Derek Kemp******is our Executive Vice President,President of Europe, Middle East & Africa (EMEA). Mr. Kemp has aBachelor’s degree in Mathematical Sciences from the Robert Gordon University,Scotland. He is responsible for business across all Industry Verticals in EMEA.Mr. Kemp joined Patni in 2008 and prior to being appointed in this role hewas the Global Industry Head for Communications, Media and Utilities. Mr. Kempstarted his career in 1981, has extensive experience in consulting, managingdiverse service lines, systems integration, outsourcing, operating inTelecommunications, Energy & Utilities and Financial Services marketsglobally. Mr. Kemp spent 17 years working for LogicaCMG where he waslatterly a member of the UK board. He was also the Practice Head for FinancialServices & Media at Charteris and prior to joining Patni he was theManaging Director of Polestar Applied Solutions.***

 

***Mr. Vijay Khare******is our Executive Vice President andGlobal Head of Application Development (AD) and Application Maintenance (AM) —which has been the mainstay of Patni’s business. Mr. Khare has a Bachelor’sdegree in Engineering from the Regional Engineering College, Nagpur and aMaster’s degree in Computer Science from the Indian Institute of Technology,Powai. He is responsible for the overall consolidation of AD, AM, EnterpriseApplication Integration (EAI) and Verification & Validation (V&V)services with the objective of augmenting the Company’s service line andfocused capabilities, thus increasing the value proposition for the Company’scustomers. He oversees all AD & AM Delivery globally, and isaccountable for all Delivery for the Americas and the APAC region. Mr. Kharebegan his career with Patni in 1980 as a software developer and has grown overthe years to hold various leadership positions in the Company. He has overseenlarge engagements, and headed the HR function, besides the ‘Operational &Service Delivery Excellence’ portfolio. In his previous role, Mr. Kharewas responsible for putting together the next-generation Patni Platform forservice delivery, besides developing newer engagement models and servicesaround IT Transformation. He is a thought leader in the area of Global Deliveryand has been a speaker as well as a panelist in several conferences around thistheme, its evolution and future.***

 

***Mr. Deepak Khosla******is President for the SAARC region atPatni.  Mr. Khosla has a mechanicalengineering degree and an MBA from Bajaj Institute of Management. He isresponsible for the development and growth of the region with a keen focus onthe India market. Mr. Khosla drives the operations for the region,including defining and executing sales initiatives aimed at strategic businessacquisitions. In his earlier roles at Patni, Mr. Khosla has managed theAPAC and Japan regions, in addition to holding the Company’s Global Marketingportfolio. Mr. Khosla has widespread global experience spanning 22 yearsin the IT industry. A conceptual seller, Mr. Khosla has spent severalyears in global markets including Europe, Japan, Far East and the US. Highlyskilled in developing emerging markets, he has played a pivotal role in openingup the Japan market for Patni. He is now set to bring this strategic experienceinto the growing SAARC region. Prior to joining Patni, Mr. Khosla was aDirector of Sales at SAS Inc. His other experience includes setting up of theIndia operations for Dun & Bradstreet. He has also worked with DigitalEquipment Corporation, HCL Corporation and Zensar Technologies.***

 

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***Mr. Naresh Lakhanpal*** is President of PatniAmericas, wholly owned subsidiary of the Company. Mr. Lakhanpal has aBachelors of Science, Business Administration degree from the University ofTexas-Dallas, and a Masters of Business Administration degree from AmberUniversity. He is responsible for operational excellence, strategy, customerleadership, growth and execution of the Americas region. Mr. Lakhanpal hasover 23 years of diverse business experience, and his background includesoperations, sales, engineering, new venture formation, product development andstrategy. Prior to joining Patni, he was Global Practice Director of theTechnology, Media and Telecommunication Practice for Deloitte; CEO ofNavigational Sciences and held management positions with Tandem Computers andEricsson.

 

***Mr. Vijay Mehra***is our Executive VicePresident and Global Head of Industry Verticals. Mr. Mehra holds an MBA, aMasters in Systems Engineering from MIT, a Bachelors of Science (OperationsResearch and Industrial Engineering), and a Bachelors of Arts (Economics) fromCornell University. He is an eminent speaker at global and regional conferencesand has been awarded ‘Best CIO, Large Corporate’ (by 9.9 Media, a corporationco-founded by an ex McKinsey partner and founding dean of the ISB). With hisstrong track record of leveraging information technology to create competitiveadvantage and his global experience, Mr. Mehra is responsible for definingand boosting Patni’s micro-verticals strategy, structure, systems and skills.Under his guidance, the industry verticals will take ownership of pre-sales andsolutioning, build deep domain industry capabilities and widen themicro-verticals coverage to forge strategic relationships with customers.Before joining Patni, Mr. Mehra was Global CIO at the Essar Group ofCompanies where he led the turn-around of the IT function at Essar and also ledthe IT-enabled business transformation of the Group across all businesses.Vijay comes with over 20 years of global management and consulting experienceacross six countries and has worked with leading corporations includingMcKinsey & Co, CSC Consulting, Syntel Inc. and Motorola Inc. 

 

***Mr. Rajesh Padmanabhan*** is our ExecutiveVice-President and Global Head Human Resources. Mr. Padmanabhan has aMaster’s degree in management specializing in human resources and finance. Hisresponsibilities include spearheading Patni’s human capital initiativesglobally including the strategic direction and focus for employee management. Mr. Padmanabhanhas over 24 years of diverse industry experience in systems, finance, businessand global human resources in IT, hospitality, financial services andmanufacturing, retail and distribution. He is well-versed with global HRoperations and has managed multi-cultural work forces in a few countries. Priorto joining Patni, Mr. Padmanabhan was Executive Vice-President with theOberoi group responsible for group human resources and the Oberoi Centre forlearning and development. He has also worked as Global Head of Human Capitalfor Essel Propack and with the ICICI group in different roles in systems,corporate banking, leasing and human resources.

 

***Mr. V. Mathivanan*** is our ExecutiveVice-President and President for Patni’s APAC operations which he leads fromSingapore, the company’s new regional headquarters. Mr. Mathivanan bringswith him over 30 years of experience specializing in IT with companies such asPSA Corp, Singapore Network Services (SNS) and CrimsonLogic. Mr. Mathivananserved as Managing Director of Singapore Network Services (SNS) and transformedthe Singapore-based EDI company into CrimsonLogic, a global IT solutions andservices provider expanding into operations in the Americas, Asia Pacific andthe Middle East. Mr. Mathivanan has had a successful track record in largescale nationwide IT implementations. In Port of Singapore Authority and PSACorp, he led the automation and computerization of port operations for which hewas awarded the coveted Public Administration Award from the President ofSingapore.

 

**Former Executive Officers**

 

***Mr. Anirudh Patni***has resigned as a Senior Vice-President —Strategy & Corporate Development with effect from December 15,2009.  Mr. Patni has an MBA inFinance, Strategy and Entrepreneurial Management from the Wharton School at theUniversity of Pennsylvania; and Bachelor’s degrees in Electrical Engineering,Computer Science and Management Science — all from the Massachusetts Instituteof Technology. He was responsible for Strategy & CorporateDevelopment. He has been intimately involved in the growth and development ofthe company, including its private equity placements, IPO, and M&Atransactions. Prior to his resignation his responsibilities include definingoverall corporate strategy and working with business units to define andexecute strategic initiatives, both organic and inorganic. He has over 10 yearsof leadership experience, and his background includes strategy consulting,private equity and M&A. Prior to joining Patni, Mr. Patni was aconsultant at McKinsey and Company in New York, London and New Delhi. AtMcKinsey, he worked in the area of long-term corporate strategy for some of theworld’s largest companies, and in new business formation across a number of keyindustry verticals.

 

***Mr. Ajit Yadav***has resigned as Executive Vice-President &General Counsel with effect from August 31, 2009. Mr. Yadav is anIndian Attorney, Company Secretary and a Solicitor of England & Wales.His responsibilities included responsibilities for handling legal andcompliance issues for all businesses of Patni on a global basis. Mr. Yadavcarries with him varied and vast experience in the areas of Corporate Laws,M&A, indirect taxes and IPRs, having worked in senior positions atHindustan Lever Ltd. (Unilever, India) for many years, followed by Ranbaxy LabsLtd. for five years where he supported Ranbaxy’s aggressively growinginternational business for all legal services with specific focus on M&A,IPRs and Corporate Governance issues. Prior to Patni, Mr. Yadav had workedfor six years with PepsiCo, South Asia as Executive Director (Legal) and amember of its Management Committee. Mr. Yadav has thus held seniorleadership positions in large businesses 

 

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and has helped companiesdrive their businesses using law as an enabler for providing efficient businesssolutions. He started his professional career by joining the Government ofIndia through IAS (Allied) services and worked for the Government for sometimebefore moving to the private sector.

 

***Mr. Manish Soman******has resigned as************Executive Vice — President andChief of Operations with effect from January 18, 2010.  Mr. Soman is a graduate in ComputerScience and has a master’s degree in Business Administration from the PuneUniversity. He was responsible for overseeing Sales Operations, Administration,Real Estate, Travel, Security, Location Management, Enterprise ResourcePlanning, Enterprise Risk Management, Business Continuity Planning, and the CIOfunction.  Mr. Soman has 18 years ofvaried industry experience. Prior to joining Patni, he was SeniorVice-President & Business Leader (Software) at Genpact, where he wasresponsible for IT delivery integrated with BPO offerings and ProfessionalServices across six industry verticals. Prior to Genpact, he was withorganizations like 3DI Systems, Washington Mutual, Software ManagementConsultants Inc, Tata Unisys Ltd., and Deloitte — where he was CEO &MD of the India operations.***

 

***Mr. Brian Stones*******has left the Company witheffect from January 7, 2010.Mr. Stones has honours degrees inEconomics and Business Science. He was responsible for Patni’s operations inthe Europe, Middle East and Africa (EMEA). He has over 28 years international businessexperience and has held leadership positions in organizations in the UnitedStates and Europe. Prior to joining Patni, Mr. Stones was responsible for ACS Inc.’s business operation in Europe, andwas formerly a Senior Partner at Ernst & Young, most notably as theLeader of the Global Client Consulting business in Europe. Mr. Stoneshas a very successful track record in direct and indirect sales, global accountmanagement and general business management in IT services, consulting andoutsourcing.

 

**6B Compensation**

 

During fiscal 2009, the aggregate annualcompensation paid or payable by us and our subsidiaries to our executivedirectors and executive officers was approximately $ 8,889,408 as described in table below:

 
| **Name**           | ** ** | **Amount in  U.S.$** | ** ** | **Equivalent  amount in Other  currencies** | ** ** |
|--------------------|------------|----------------------|------------|---------------------------------------------|------------|
| Narendra K Patni   |       | 1,699,379            |       |                                        |       |
| Jeya Kumar         |       | 2,048,320            |       | Rs.                                         | 99,625,963 |   |
| Surjeet Singh      |       | 1,260,940            |       |                                        |       |   |
| Vijay Khare        |       | 312,080              |       | Rs.                                         | 15,089,050 |   |
| Satish Joshi       |       | 297,015              |       | Rs.                                         | 14,360,652 |   |
| Ajay Chamania      |       | 176,406              |       | Rs.                                         | 8,529,245  |   |
| Sunil Chitale      |       | 207,611              |       | Rs.                                         | 10,037,989 |   |
| Rajesh Padmanabhan |       | 310,009              |       | Rs.                                         | 14,988,956 |   |
| Manish Soman*      |       | 192,559              |       | Rs.                                         | 9,310,232  |   |
| Vijay Mehra        |       | 183,252              |       | Rs.                                         | 8,860,245  |   |
| Ajit Yadav*        |       | 217,299              |       | Rs.                                         | 10,506,406 |   |
| Deepak Khosla      |       | 181,249              |       | Rs.                                         | 8,763,389  |   |
| Sanjiv Kapur       |       | 189,317              |       | Rs                                          | 9,153,480  |   |
| Brian Stones*      |       | 634,471              |       | GBP                                         | 405,078    |   |
| V Mathivanan       |       | 236,280              |       | SGD                                         | 329,242    |   |
| Naresh Lakhanpal   |       | 317,944              |       |                                        |       |
| Anirudh Patni*     |       | 425,277              |       |                                        |       |
| **Grand  Total**   | ** ** | **8,889,408**        | ** ** | ** **                                  | ** ** |

 

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* Resigned

 

Our independentdirectors on the board are each entitled to $ 40,000 annually in addition to actual boarding and lodgingexpenses and sitting fees for attending board and committee meetings.

 

In addition toabovementioned commission, following are entitled for an annual commission asunder:

a) The Chairman of theAudit Committee: $ 10,000 perannum

b) Members of the AuditCommittee: $ 5,000 per annum

c) The Chairman ofCompensation & Remuneration Committee: $ 5,000 per annum

d) The Chairman ofShareholders’/Investors’ Grievance Committee: $ 5,000 per annum.

 

The Board of Directors of the Company, at itsmeeting held on February 11 2009, had appointed Mr. Jeya Kumar as ‘ChiefExecutive Officer’ with effect from February 20 2009 for the period offive years pursuant to the provisions of the Companies Act, 1956. The saidappointment was further approved by the Members at the Annual General Meetingheld on June 25, 2009.

 

The Company has entered into an agreement dated September 8,2009 with Mr. Jeya Kumar that provides for, inter alia, monthly salary,annual variable compensation, one time joining bonus, equity compensation and 

 

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other benefits as described below..The saidagreement may be terminated by three months’ notice from either side. However,the Company, at its discretion, may choose to terminate it earlier bysubstituting the notice period by payment of salary in lieu of the noticeperiod.

 

Jeya Kumar is eligible for an annual base(fixed) salary in Indian Rupees equivalent to SGD1,252,000 per annumpayable monthly. He will also be eligible for annual variablecompensation up to a maximum target amount being the Indian Rupee equivalent ofSGD 2,000,000 subject to Mr. Jeya Kumar meeting certain corporate andindividual performance goals / targets / Management by Objectives (MBO) as setand approved by the Compensation and Remuneration Committee and/or the Board.Other benefits / expenses, inter alia, include a housing allowance ofmaximum of Rupees equivalent of SGD 14,700 per month upon Mr. Jeya Kumar’srelocation to the Company, a suitable car in accordance with Company’s rules andpolicies; all maintenance costs, fuel, cost of employing a personal driver,road tax and insurance will be borne by the Company, membership of club atMumbai and the Company will pay the requisite fees, first class air travel andaccommodation costs incurred for business purpose, in accordance with Company’srules and policy and other benefits as per rules of the Company . Thestock options granted to Mr. Jeya Kumar are described in “Item 6B : “Compensation- Options”.

 

**Service Agreements**

 

Mr. Narendra K. Patni is our Chairman.Formerly, he was appointed as the President and Chief Executive Officer ofPatni Americas Inc. (formerly Patni Computer Systems, Inc.), pursuant toan employment agreement between the Company and Patni Computer Systems, Inc.dated December 1, 2000, and as amended on August 29, 2003 and September 24,2008. The aforesaid employment agreement with Mr. Narendra K. Patnihad an initial term expiring on December 31, 2008.  However, pursuant to the third Amendment tothe employment Agreement dated February 20, 2009, the said term has beenextended until December 31,2013 unless terminated earlier in pursuance to the agreement. He ceased to beour Chief Executive Officer (CEO).witheffect from February 20, 2009.However, he continues to be our Chairman. Mr. Patni’s annual base salaryunder the agreement is $ 974,358(less applicable taxes and withholdings) for the first year of the term, afterwhich time it is increased by 10% of the then current annual base salary peryear. Mr. Patni does not receive a separate fee for attending boardmeetings. The agreement can beterminated by the Board of Directors at any time after January 1, 2009,effective no less than thirty (30) days following written notice of suchtermination.  In the event oftermination, Mr. Patni is entitled to a lump sum severance payment equalto amount of Base Salary (at the rate in effect as of the date of separationfrom service) he would have earned had he remained employed by the Companyunder this Agreement through December 31, 2013 .

 

We had entered into a consultancy agreement withPatni Americas, Inc. (formerly Patni Computer Systems, Inc.) dated October 24,2000, and as amended on August 19, 2003, pursuant to which Mr. NarendraK. Patni was seconded to us to act as our CEO. Pursuant to an amendment to theConsultancy Agreement dated February 20, 2009, the consultancy agreementwith Patni Americas Inc can be terminated only on or after December 31,2010 (upon giving one month’s written notice to Patni Americas Inc) and suchtermination will take effect on the expiration of such period of notice.

 

**Relationship with General Atlantic**

 

Ourlargest shareholder is General Atlantic Mauritius Limited, a Mauritius companyformed by General Atlantic LLC, or General Atlantic, for purposes of thissection. General Atlantic is a private equity firm that focuses on theinformation technology, process outsourcing and communications industries.

 

Oneof our directors, Mr. William O.Grabe, has been a managing director of General Atlantic since 1992. In addition,Mr. Arun Duggal and Mr. Louis T. van den Boog were theformer special advisors to General Atlantic. Special advisors are persons withindustry and/or geographic expertise thatprovide, on a part-time basis, a range of advisory services to General Atlanticin different parts of the world. These services range from identifying newinvestment opportunities to assisting in the preparation of investmentproposals, serving on the boards of portfolio companies and providing strategicadvice to such portfolio companies. Special advisors are not directors,managing directors, general partners, executive officers or employees ofGeneral Atlantic or any of its affiliates, and do not have any other formalassociation with General Atlantic, except that they enter into consultingagreements with General Atlantic under which they receive a cash retainerand/or are granted the right to co-invest in one or more of the GeneralAtlantic investment vehicles.

 

**Provident Fund**

 

Allof our eligible employees receive provident fund benefits through a definedcontribution plan in which both the employee and employer make monthlycontributions to the plan at the rate of 12% each of the covered employee’sdefined portion of salary. We have no further obligations under the plan beyondthe monthly contribution. We contribute to the Provident Fund Plan maintainedby the Government of India. We contributed $ 4.1million, $ 4.3 million and $ 4.2 million tothe Provident Fund Plan in 2007, 2008 and 2009.

 

**Benefits**

 

In2009 and in 2008, we provided approximately $ 0.7 million forpension, retirement or similar benefits to our directors and executiveofficers.

 

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**Options**

 

Set forth below is information concerningoptions granted to directors and executive officers. The term of stock optionsgranted to our directors and executive officers will expire on completion offive years from the date of vesting. As of February 19, 2010, our presentdirectors and executive officers as a group were granted options under ourEmployee Stock Option Plan to exercise 2,851,300 Equity linked options,1,176,520 Restricted Stock Units (RSU’s) and 122,500 ADR linked options on thefollowing terms:

 
| **Name**                   | ** ** | **Exercise  Price Per Share** | ** ** | **Number of Shares under Option** | ** ** | **Expiration Date**      | ** ** |
|----------------------------|------------|-------------------------------|------------|-------------------------------------------------------|------------|-------------------------------|------------|
| Dr. M.  Cusumano      |       | Rs.  254/381/458/455/$20.78   |       | 20,000/5,000/5,000/5,000/2,500                        | #(1)       | 2010/2011/2012/2013/2016      | (1)        |
| Mr. A.  Duggal        |       | Rs. 254/381/458/455/471       |       | 20,000/5,000/5,000/5,000/5,000                        | (1)        | 2010/2011/2012/2013/2016      | (1)        |
| Mr. P.  Shah          |       | Rs. 254/381/458/455/471       |       | 20,000/5,000/5,000/5,000/5,000                        | (1)        | 2010/2011/2012/2013/2016      | (1)        |
| Mr. L. van den Boog   |       | Rs. 381/ 458/455/2            |       | 20,000/5,000/5,000/96,000                             | (2)        | 2011/2012/2013/2014           | (2)        |
| Mr. R.  Venkateswaran |       | Rs. 254/381/458/455           |       | 20,000/5,000/5,000/5,000                              | (1)        | 2010/2011/2012/2013           | (1)        |
| Mr. P.  Baijal        |       | Rs 471                        |       | 20,000                                                | (2A)       | 2016                          | (2A)       |
| Mr. V.  Bhandari      |       | Rs 471                        |       | 20,000                                                | (2A)       | 2016                          | (2A)       |
| Mr. J.  Kumar         |       | Rs. 106/2                     |       | 1,500,000/350,000                                     | (3)        | 2015/2015                     | (3)        |
| Mr. S.  Singh         |       | Rs. 451/493/336/112/2/2       |       | 11,000/11,000/150,000/300,000/500,000/63,640          | (4)        | 2011/2012/2012/2014/2014/2015 | (4)        |
| Mr. A.  Chamania      |       | Rs. 145/338/2                 |       | 34,700/55,000/21,710                                  | (5)        | 2009/2010/2015                | (5)        |
| Mr. S.  Chitale       |       | Rs. 145/338/2                 |       | 37,200/61,000/26,020                                  | (5)        | 2009/2010/2015                | (5)        |
| Mr. S.  Joshi         |       | Rs. 145/338/2                 |       | 62,000/100,000/53,360                                 | (5)        | 2009/2010/2015                | (5)        |
| Mr. S.  Kapur         |       | Rs. 145/Rs. 2                 |       | 20,000/1,850                                          | (6)        | 2009/2015                     | (6)        |
| Mr. D.  Kemp          |       | $ 18.40                  |       | 20,000                                                | #(7)       | 2015                          | (7)        |
| Mr. V.  Khare         |       | Rs. 145/338/2                 |       | 63,300/100,000/42,860                                 | (5)        | 2009/2010/2015                | (5)        |
| Mr. D.  Khosla        |       | Rs. 145/338/2                 |       | 16,200/54,900/21,080                                  | (5)        | 2009/2010/2015                | (5)        |
| Mr. N.  Lakhanpal     |       | $ 18.40                  |       | 50,000                                                | #(7)       | 2015                          | (7)        |
| Mr. R.  Padmanabhan   |       | Rs. 112                       |       | 50,000                                                | (8)        | 2014                          | (8)        |
| Mr. V.  Mathivanan    |       | $ 18.40                  |       | 50,000                                                | #(7)       | 2015                          | (7)        |

 

----

#ADRlinked Options

 

(1)    Options willvest in four equal installments, i.e. 25% each year, and expiry date in respectof said four grants will be from 2010 to 2013, 2011 to 2014, 2012 to 2015, 2013to 2016 and 2016 to 2019, respectively.

 

(2)    Options willvest in four equal installments, i.e. 25% each year, and expiry date in respectof said four grants will be from 2011 to 2014, 2012 to 2015, 2013 to 2016 and2014 to 2017*, respectively.

 

*The Compensation and Remuneration Committee, inits absolute discretion, has been empowered to accelerate the vesting ofunvested RSUs.

 

(2A)Options willvest in four equal installments, i.e. 25% each year, and expiry date in respectof said grant will be from 2016 to 2019

 

(3)    In respect offirst grant, options will vest in four equal installments, i.e. 25% each year,and expiry date in respect of the said grant will be from 2015 to 2018. Inrespect of second grant, the RSUs will vest in two equal installments i.e. 50%each year and expiry date in respect of the said grant will be from 2015 to2016*.

 

*As per the terms of his appointment, vesting ofunvested RSUs and equity linked options can be accelerated on happening ofcertain circumstances.

 

(4)    In respect offirst five grants, options will vest in four equal installments, i.e. 25% eachyear, and expiry date in respect of the first three grants will be from 2011 to2014, 2012 to 2015, 2012 to 2015, and expiry date in respect of forth and fifthgrant will be from 2014 to 2017*.

 

In respect of sixth grant, options will vest intwo equal installments i.e. 50% each year and expiry date in respect of saidgrant will be from 2015 to 2016.

 

*The Compensation and Remuneration Committee, inits absolute discretion, has been empowered to accelerate the vesting ofunvested RSUs and equity linked options in certain circumstances.

 

(5)    In respect offirst grant, options will vest in four equal installments, i.e. 25% each year,and expiry date in respect of the said grant will be from 2009 to 2012.However, first vesting i.e. 25% of said grant has expired in 2009.In respect ofsecond grant, options will vest in four equal installments, i.e. 25% each year,and expiry date in respect of the said grant will be from 2010 to 2013.Inrespect of third grant, options will vest in two equal installments, i.e. 50%each year and expiry date in respect of said grant will be from 2015 to 2016.

 

(6)    In respect offirst grant, options will vest in four equal installments, i.e. 25% each year,and expiry date in respect of the said grant will be from 2009 to 2012.However, first vesting i.e. 25% of said grant has expired in 2009.In respect ofsecond grant, options will vest in two equal installments, i.e. 50% each yearand expiry date in respect of said grant will be from 2015 to 2016.

 

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(7)    Options willvest in four equal installments, i.e. 25% each year, and expiry date in respectof the said grant will be from 2015 to 2018 respectively.

 

(8)    Options willvest in four equal installments, i.e. 25% each year, and expiry date in respectof the said grant will be from 2014 to 2017.

 

**6.C. Board Practices**

 

**Board Composition**

 

As per the provisions of the Articles ofAssociation of the Company, our Board shall be comprised of not less than threedirectors and not more than twelve directors, Our current strength of the Boardis twelve directors. Further our Articles of Association also provides that Mr. NarendraK. Patni, Mr. Gajendra K. Patni and Mr. Ashok K. Patni, beingnominees of the NKP Group, GKP Group and AKP Group respectively, are permanentdirectors of the Company.

 

Pursuant to the provisions of the Articlesof Association, two thirds of the total Board of Directors of the Company willretire by rotation but being eligible for reappointment. Out of thistwo-thirds, one-third will be retiring at every Annual General Meeting but eligiblefor re-election can be reappointed at such AGM. Accordingly, Dr. MichaelA. Cusumano’s term of office expires in 2010, but he is eligible forreappointment. Mr. Arun Duggal’s term of office expires in 2011, but he is eligible forreappointment. Mr. William O. Grabe’s term of office expires in 2011, buthe is eligible for reappointment. Mr. Pradip Shah’s term of office expiresin 2012, but he is eligible forreappointment. Mr. Ramesh Venkateswaran’s term of office expires in 2010,but he is eligible for reappointment. Mr. Louis T. van den Boog ceased tobe an Executive Director with effect from February 20, 2009 but hecontinues to be Non-Executive Director on the Board of the Company, liable toretire by rotation. Mr. van den Boog’s term of office expires in 2010, buthe is eligible for reappointment. Mr. Pradip Baijal was appointed as aDirector of the Company with effect from June 25, 2009 and his term ofoffice expires in 2011, but he is eligible for reappointment. Mr. VimalBhandari was appointed as a Director of the Company with effect from January 15,2010 and his term of office expires in 2012, but he is eligible forreappointment. For information regarding our board, see “Item 6.B.—Compensation - “Service Agreements” above and “Item 10.B. AdditionalInformation—Board of Directors

 

**Board Committees**

 

***Audit Committee***

 

TheAudit Committee members are Mr. PradipShah (Chairman), Mr. Arun Duggal, and Mr. Vimal Bhandari. The primaryobjective of the Audit Committee is to monitor and provide effective supervisionof our financial reporting process with a view towards ensuring accurate,timely and proper disclosures and the transparency, integrity and quality offinancial reporting. Our Audit Committee oversees the work carried out in thefinancial reporting process by our management, including the internal auditorsand reviews the processes and safeguards employed by each. In addition ourAudit Committee has the responsibility of oversight and supervision over oursystem of internal control over financial reporting, audit process, and processfor monitoring the compliance with related laws and regulations. The AuditCommittee recommends to our Board of Directors the appointment, reappointmentand if required the replacement or removal of our independent auditors andfixation of audit and non-audit fees.

 

***Compensation and RemunerationCommittee***

 

TheCompensation and Remuneration Committee members are Mr. RameshVenkateswaran (Chairman), Dr. Michael Cusumano (Member), Mr. PardipBaijal (Member) and Mr. Jeya Kumar (Permanent invitee). The Committee hasoverall responsibility for approving and evaluating compensation plans,policies and programs of the CEO and senior management of the Company. The Committee shall make recommendations to the Board on Stock Optionplans for all employees. The Committeeshall also facilitate the recommendation of compensation for Board members.

 

***Shareholders’/ Investors’ Grievances Committee***

 

The Shareholders’/ Investors’ GrievancesCommittee members are Mr. Pradip Baijal (Chairman), Mr. Louis T. vanden Boog and Mr. William O. Grabe (Mr. Abhay Havaldar being theAlternate Director to him ). The Shareholders’/ Investors’ GrievancesCommittee, inter alia, looks into redressal of shareholders’ and investors’complaints, issue of duplicate/split/consolidated share certificates, if any.

 

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***Nominating &Governance Committee***

 

**The**Nominating & GovernanceCommittee members are Mr. NarendraK Patni (Chairman), Mr. Ramesh Venkateswaran, Dr. Michael Cusumano, Mr. PradipBaijal and Mr Ashok K Patni. Mr. Narendra K Patni was appointed as theChairman of the Nominating & Governance Committee with effect from February 11, 2009.The Committee was constituted, inter alia, to develop and recommend to theBoard a set of corporate governance guidelines applicable to the Company and tofacilitate the evaluation of the Board and its committees.

** **

**6.D. Employees**

 

For a description of our employees, see “Item 4.B.Information on the Company—Business Overview - Human Resources.”

 

**6.E. Share ownership**

 

***For the total number of equity shares,ADSs and options to purchase equity shares and ADSs for each director andexecutive officer as of February 19, 2010, see “Item 7. Major Shareholdersand Related Party Transactions” and “Item 6.B. Directors, Senior Management andEmployees - Compensation—Options”.***

 

**Employee Stock Option Plan**

 

On June 30, 2003, our shareholders approvedan employee stock option plan, which was later ratified after our initialpublic offering in India by our shareholders at the annual general meeting on June 29,2004. Under the plan, we may issue up to 11,142,085 equity shares of Rs. 2 each to our eligible employees anddirectors and those of our subsidiaries. The plan is administered by theCompensation and Remuneration Committee of our Board of Directors

 

As of February 19, 2010, options topurchase 8,226,673 equity shares were outstanding.

 

Details regarding variousgrants to employees and directors are set out below**:**

** **
| **Description of  Grant**                                                      | ** ** | **No. of options  granted  (including  ADR)** | ** ** | **No. of  options  Vested** | ** ** | **Shares  allotted up to  February 19,  2010  pursuant to  exercise of  options** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| Grant as on September 1, 2003 to  employees                               |       | 2,743,400                                          |       | 2,743,400                        |       | 1,893,805                                                                              |       |
| Grant as on July 1, 2004 to  certain of our directors                     |       | 100,000                                            |       | 100,000                          |       | 15,000                                                                                 |       |
| Grant as on October 1, 2004 to  employees                                 |       | 2,758,232                                          |       | 2,758,232                        |       | 416,357                                                                                |       |
| Grant as on April 1, 2005 to  employees and directors                     |       | 190,000                                            |       | 1,90,000                         |       | 500                                                                                    |       |
| Grant as on October 1, 2005 to  employees                                 |       | 670,710                                            |       | 670,710                          |       | 3,242                                                                                  |       |
| Grant as on January 2, 2006 to  employees                                 |       | 288,000                                            |       | 288,000                          |       | —                                                                                 |       |
| Grant as on April 1, 2006 to  employees and directors                     |       | 345,000                                            |       | 258,750                          |       | —                                                                                 |       |
| Grant as on May 5, 2006 to employee                                       |       | 350,000                                            | (1)        | 350,000                          |       | 350,000                                                                                |       |
| Grant as on Ju1y 1, 2006 to employees  and directors                           |       | 170,000                                            |       | 127,500                          |       | 117,500                                                                                |       |
| Grant as on October 3, 2006 to  employees                                 |       | 840,750                                            |       | 630,563                          |       | 4,050                                                                                  |       |
| Grant as on April 2, 2007 to  employees                                   |       | 320,000                                            | (2)        | 160,000                          |       | —                                                                                 |       |
| Grant as on April 24, 2007 to  directors                                  |       | 30,000                                             |       | 15,000                           |       | —                                                                                 |       |
| Grant as on November 26, 2007 to  employees                               |       | 25,000                                             | (3)        | 12500                            |       | —                                                                                 |       |
| Grant as on January 2, 2008 to  employees                                 |       | 657,000                                            |       | 492,750                          |       | 68,125                                                                                 |       |
| Grant as on January 2, 2008 to  employees                                 |       | 152,950                                            | (3)        | 45,388                           |       | —                                                                                 |       |
| Grant as on November 25, 2008 to  employees & Executive Director |       | 946,000                                            | (4)        | 236,500-                         |       | 125000@  Rs. 2 and 87,500 @112/-                                                       |       |
| Grant as on January 8, 2009 to  employees                                 |       | 20,000                                             | (3)        | —                           |       | —                                                                                 |       |
| Grant as on March 10, 2009 to  employees                                  |       | 1,850,000                                          | (5)        | —                           |       | —                                                                                 |       |
| Grant as on July 6, 2009 to  employees                                    |       | 1,276,795                                          | (6)        | —                           |       | —                                                                                 |       |
| Grant as on August 26, 2009 to  employees                                 |       | 294,600                                            | (7)        | —                           |       | —                                                                                 |       |
| Grant as on November 03, 2009 to  employees                               |       | 15,000                                             | (3)        | —                           |       | —                                                                                 |       |
| Grant as on February 10, 2010 to  directors                               |       | 57500                                              | (8)        |                             |       |                                                                                   |       |

 

----

(1)   Includes 200,000performance linked options granted to Mr. Mrinal Sattawala. 70,000 performance linked options werevested as of December 31, 2007.

(2)   Includes 129,000ADR Linked Options.

(3)   ADR LinkedOptions.

(4)   Includes 596,000RSUs and 350,000 Equity linked Options.

(5)   Includes1,500,000 Equity linked Options and 350,000 RSUs.

(6)   Includes2,03,905 ADR Linked Options and 1,072,890 RSUs.

 

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(7)   Includes 119,600Equity Linked Options and 175,000 ADR Linked Options

(8)   Includes 55,000Equity Linked Options and 2,500 ADR Linked Options

 

The shareholders of the Company at the annualgeneral meeting held on June 21, 2006 had approved anamendment to the Patni ESOP 2003 to enable the Company to issue up to 2,000,000ADR linked options to the employees of the Company as well as its subsidiaries.Accordingly, the amended plan, i.e., “Patni ESOP 2003- Revised 2006” came into force with effect from June 21,2006.

 

All options have been granted with an exerciseprice equal to the fair market value of the equity shares on the date of grantof the options. All of theoptions we have granted vest in four equal annual installments beginning oneyear from the date of grant. The options have a term of five years from thedate of vesting during which they can be exercised.

 

As the abovementioned options were issued onmarket prices, due to the recent fall in the market prices in general and the informationtechnology companies shares in particular, our Board of Directors on April 29,2008 approved the proposal to modify the option terms of Patni ESOP 2003-Revised 2006 plan by reducing the number of options granted as well as theexercise price to Rs. 2/- per share. This proposal required the approval of theshareholders through a special resolution in the Annual General Meeting of theCompany. Shareholders approved the modification at the Annual General Meetingheld on June 26, 2008 enabling the managementto modify the terms of Patni ESOP 2003- Revised 2006 plan. The modification was deferredinitially to comply with the Indian stock exchange regulations which prohibitedsuch modifications during the time when a share buy-back offer was in effect.The plan to modify the terms was eventually withdrawn due to prevailing marketconditions..

 

Pursuant to the Patni ESOP Plan, the Company hasbeen granting options to the employees and Directors (excluding promoters) ofthe Company and its subsidiaries from time to time. The limit of 11,142,085equity shares, as approved earlier by the Members of the Company, is almostexhausted due to grant of options from time to time. In view of the same, theshareholders of the Company, at the 31st Annual General Meeting held on June 25,2009, had approved the resolution in which the Board of Directors of theCompany are authorized on behalf of the Company to issue and allot additional8,000,000 Equity Shares of nominal value of Rs. 2/- (Two) each to the permanentemployees of the Company (including Executive and Non-Executive Directors butexcluding the Promoter Directors) under the ‘Patni ESOP 2003 (Revised 2009)Plan’ created by the Company for the benefit of the employees, inter alia, onthe terms and conditions as set out in the said Patni ESOP Plan.

 

It was also resolved by the shareholders thatoptions granted to Non-Executive Directors, including Independent Directors,shall not exceed 150,000 options in a financial year and in aggregate shall notbe more than 1,500,000 under the said Patni ESOP Plan.

 

**ITEM7. MAJOR SHAREHOLDERS AND RELATED PARTYTRANSACTIONS**

 

**7.A. Major shareholders**

 

The following table provides informationrelating to the beneficial ownership of our equity shares (directly or in theform of ADSs) as of February 19, 2010 by: ·

 

each of our directors and executive officers;

 

·     all of ourdirectors and executive officers as a group; and

 

·     each person orgroup of affiliated persons who is known by us to own beneficially 5% or moreof our equity shares.

 

Beneficial ownership is determined in accordancewith the rules of the U.S. Securities and Exchange Commission. Incomputing the number of shares beneficially owned by a person and thepercentage ownership of that person, equity shares subject to options orwarrants held by that person that are currently exercisable, or will becomeexercisable within 60 days are deemed outstanding, while the shares are notdeemed outstanding for purposed of computing percentage ownership of any otherperson. Unless otherwise indicated in the footnotes below, the persons andentities named in the table have sole voting or investment power with respectto all shares beneficially owned, subject to community property laws whereapplicable.

 

The number and percentage of shares beneficiallyowned are based on 129,272,546 equity shares outstanding as of February 19,2010.

 

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| **Directors  and Executive Officers**           | ** ** | **Number of  Equity Shares** | ** ** | **% of  outstanding  equity shares** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|--------------------------------------|------------|
| Mr. Narendra K. Patni(1)                   |       | 20,697,998                   |       | 16.01                                |       |
| Mr. Gajendra K. Patni(2)                   |       | 19,345,102                   |       | 14.99                                |       |
| Mr. Ashok K. Patni(3)                      |       | 20,048,102                   |       | 15.51                                |       |
| Mr. Louis T. van  den Boog(5)              |       | 48,002                       |       | 0.04                                 |       |
| Mr. Ramesh Venkateswaran                   |       | 7,700                        |       | 0.01                                 |       |
| Mr. Satish M. Joshi                        |       | 19,900                       |       | 0.02                                 |       |
| Mr. Vijay Khare                            |       | 26,750                       |       | 0.01                                 |       |
| Mr. Ajay Chamania                          |       | 5.975                        |       | 0.01                                 |       |
| Mr. Sunil Chitale                          |       | 7,301                        |       | 0.00                                 |       |
| Mr. Rajesh Padmanabhan                     |       | 12,350                       |       | 0.01                                 |       |
| Mr. Deepak Khosla                          |       | 5,615                        |       | 0.00                                 |       |
|                                            |       |                         |       |                                 |       |
| All Directors and Executive Officers as a Group |       |                         |       |                                 |       |
| 5% Shareholders                                 |       |                         |       |                                 |       |
| General Atlantic Mauritius Limited(4)           |       | 22,913,949                   |       | 17.73                                |       |
|                                            |       |                         |       |                                 |       |
| Total                                           |       | 83,138,744                   |       | 64.33                                |       |

 

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(1)  Includes equityshares held by Mr. Narendra K. Patni and his relatives and entitiescontrolled by them including iSolutions Inc., a Massachusetts corporationwholly-owned by Mrs. Poonam Patni, Mr. Narendra K. Patni’s wife, and Mr. AnirudhPatni, Mr. Narendra K. Patni’s son.

 

(2)  Includes equityshares held by Mr. Gajendra K. Patni and his family members and entitiescontrolled by them.

 

(3)  Includes equityshares held by Mr. Ashok K. Patni and his family members and entitiescontrolled by them.

 

(4)  Includes20,161,868 ADSs representing 20,161,868 equity shares held by The Bank of NewYork as depositary. General Atlantic Mauritius Limited, or General Atlantic,owns 2,752,081 our equity shares directly (after the ADS offering) and20,161,868 ADSs, each one of which represents one equity share. GeneralAtlantic (Mauritius) Limited, or GenPar, controls the management of GeneralAtlantic by virtue of ownership of a majority of its voting shares. GeneralAtlantic LLC owns all the shares of GenPar.

 

(5)  Mr. van denBoog’s shareholding was acquired through previous co-investment rights in whichMr. van den Boog invested in various General Atlantic LLC investmentvehicles, including one that is an investor in General Atlantic MauritiusLimited, as a result of which he has an approximate 0.2% ownership interest inGeneral Atlantic Mauritius Limited.

 

Except, asotherwise stated above and to the best of our knowledge, we are not owned orcontrolled directly or indirectly by any government or by any other corporationor by any other natural or legal persons. We are not aware of any arrangement,the consummation of which may at a subsequent date, result in a change in ourcontrol.

 

As of February 19,2010, approximately 99.95% of our equity shares were held in the namesof 35,013 record holders with registered addresses in India.  As of February 19, 2010, therewere 4 U.S. holders of record with registered addresses in the U.S. whoaccounted for less than 1% of our equity shares.

 

**7.B. Related partytransactions**

 

**PatniFamily Companies**

** **

We enter into various transactions from time totime in the ordinary course of our business with several companies in whichcertain of our directors, Mr. Narendra K. Patni, Mr. Gajendra K.Patni and Mr. Ashok K. Patni, are directors and in which they and membersof their families have substantial shareholdings. Such transactions wereconsummated on terms we believe are equivalent to those that prevail in arm’s-lengthtransactions.  Mr. Narendra K. Patnidoes not have any management responsibilities in any of these companies. Thesecompanies are:

 

·  PCS TechnologyLimited, or PCSTL, which manufactures computer hardware products and alsooffers hardware maintenance services.

 

·  PCS CullinetPrivate Limited, which owns and manages listed and unlisted shares and unitsand real estate.

 

·  PCS FinancePrivate Limited, which owns and manages listed and unlisted shares and unitsand real estate.

 

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·  Ashoka ComputerSystems Private Limited, which owns and manages listed and unlisted shares andunits and real estate.

 

·   Ravi and AshokEnterprises which holds investmentsand also are engaged in assembling computers, integrating computer systems,providing total software solutions and act as a service provider.

 

These transactions have comprised the following**:**

 

·  operating lease payments for residentialand commercial property from these companies and the relatives of our founders,amounting to $ 93,725, $ 82,036and $75,061  for the years ended December 31,2007, 2008 and 2009; and

 

·  security deposits paid by us for operatingleases, with amounts outstanding totaling $ 120,478, $ 35,857 and $37,576 forthe years ended December 31, 2007, 2008 and 2009.

 

Additionally, we enter into various servicesagreement from time to time in the ordinary course of our business with GeneralAtlantic who is our largest shareholder. Such transactions were consummated onterms we believe are equivalent to those that prevail in arm’s-lengthtransactions.

 

These transactions comprise of sales transactionamounting to $ 100,726, $ 456,729 and $ 417,220 for the year ended December 31,2007, 2008 and 2009 respectively. The amount outstanding as of December 31,2008 and 2009 is $98,131 and $ 67,842 respectively.

 

We do not believe that any of thesetransactions, individually or in the aggregate, have a material effect on ourbusiness as a whole.

 

In addition, our Audit Committee, on an ongoingbasis, reviews the terms of these transactions entered into between us and therelated parties mentioned above, and inform management whether or not all suchtransactions and related arrangements, including payment of security deposits,are for bona fide business purposes and at prevailing market rates; andmanagement will take all steps to ensure that such transactions are for bonafide business purposes and at prevailing market rates.

 

***Consultancy Agreement***

*** ***

We have entered into a consultancy agreementwith Patni Americas, Inc.(formerly known as Patni Computer Systems, Inc.), our U.S. subsidiary, for, among other things, the secondment ofMr. Narendra K. Patni. See “Item 6. B. Directors, Senior Managementand Employees—Service Agreements.”

 

**Deposit Agreements**

** **

We have entered into a deposit agreement withThe Bank of New York, or the depositary, and the owners of and beneficialowners of ADSs dated July 15, 2002, pursuant to which we have deposited20,161,868 equity shares with the depositary. The depositary has executed anddelivered to General Atlantic 20,161,868 ADSs representing such equity shares.The holders of ADSs can, at any time, convert their ADSs into equity shares.Under the deposit agreement, we have agreed to pay the fees, reasonableexpenses and out-of-pocket charges of the depositary in accordance withagreements entered into in writing between us and the depositary from time totime. ADSs issued under this deposit agreement may, when General Atlanticwishes to sell ADSs, be exchanged, subject to applicable laws, for ADSs underthe deposit agreement, which ADSs may be sold subject to applicable securitieslaws.

 

We have also entered into a deposit agreementwith The Bank of New York, or the depositary, and the owners and holders ofADRs dated December 7, 2005 for deposit of equity shares of the Companyfrom time to time with the depositary or with the Custodian as agent of thedepositary for the purposes set forth in this Deposit Agreement, for thecreation of ADSs representing the equity shares so deposited and for theexecution and delivery of ADRs evidencing the ADSs.  Each ADS represents two (2) equityshares.

 

**Registration Rights Agreement**

** **

We have entered into a registration rightsagreement with General Atlantic, certain General Electric entities, Mr. AshokK. Patni, Mr. Gajendra K. Patni and certain of their relatives, Mr. NarendraK. Patni and iSolutions Inc. dated July 15, 2002.From 2007 GeneralElectric has no shareholding in the Company. This agreement grants rights withrespect to registration of our equity shares under the Securities Act, certainprovisions of which are summarized below. Subject to limitations provided inthe registration rights agreement and in lock-up agreements that certain ofthese shareholders have signed, these shareholders have demand registrationrights and may also require us to file an unlimited number of registrationstatements on Form F-3 (or the equivalent) under the Securities Act whensuch form is available for our use.

 

If we propose to register our securities underthe Securities Act, these shareholders will be entitled to notice of theregistration and to include their shares in the registration provided that theunderwriters of that offering will have the right to limit the number of theirshares included in the registration. We are required to pay all expensesarising from or incident to our performance of, or compliance with, theregistration rights agreement, other than any underwriters’ discounts andcommissions. In addition, we are required to bear the fees, disbursements and 

 

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other charges of one counsel to theseshareholders in connection with any registration in an amount not exceeding$50,000 for the first such registration and $15,000 for any subsequentregistration.

 

**Loans**

 

We grant personal loans and advances toemployees who are not executive officers to meet initial conveyance and living expenses while on travel. Theseloans and advances are repayable in equal installments over periods rangingfrom one to 60 months. Interest on these loans and advances is charged at 0% to9%. Loans and advances outstanding as of December 31, 2007, 2008 and 2009 were $ 3.4 million, $ 1.6million and $ 0.8 million . Thereare no outstanding loans to any of our directors or executive officers.

 

**7.C. Interests of experts and counsel**

** **

Not applicable.

 

**ITEM8. FINANCIAL INFORMATION**

** **

**8.A. Consolidated Statements And OtherFinancial Information**

** **

The following financial statements and auditors’report for fiscal 2009 appear under Item 18 in this Annual Report:

 

·  Report ofIndependent Registered Public Accounting Firm

 

·  ConsolidatedBalance sheets as of December 31, 2008 and 2009

 

·  ConsolidatedStatements of Income for the years ended December 31, 2007, 2008 and 2009

 

·  ConsolidatedStatements of Shareholders’ Equity and Comprehensive Income for the years endedDecember 31, 2007, 2008 and 2009

 

·  ConsolidatedStatements of Cash Flows for the years ended December 31, 2007, 2008 and2009

 

·  Notes to theConsolidated financial statements

 

**Amount of Export Sales**

** **

For the year ended December 31,2009, we generated $ 645.6 million,or 99.04% of our total revenuesof $ 655.9 million,from the export of services out of India.

 

**Legal Proceedings**

** **

Certain income tax related legal proceedings arepending against us. We are also involved in lawsuits and claims whicharise in ordinary course of business. Please see the description of various taxproceedings in the U.S. and India under the section entitled “Taxes” underItem 5. of this Annual Report. Other than as disclosed herein, there areno such matters pending that we expect to be material in relation to ourbusiness.

 

**Dividends**

** **

We do not have a stated dividend policy anddetermine the amount of dividends to be recommended for approval by theshareholders on a year-by-year basis by reference to our earnings, cash flow,financial condition and other factors prevailing at the time. We have paiddividends in the past. Although we have no current intention to discontinuedividend payments, we cannot assure you that any future dividends will bedeclared or paid or that the amount thereof will not be decreased.

 

Owners of ADSs will be entitled to receivedividend payable in respect of the equity shares represented by such ADSs. Cashdividends in respect of the equity shares represented by the ADSs will be paidto the depositary in rupees and, will generally be converted by the depositaryinto U.S. dollars and distributed, net of depositary fees and expenses, to theholders of such ADSs.

 

Our Board of Directors at its meeting held on February 11, 2010recommended a dividend of 150% of par value, i.e. Rs. 3 per share(approximately $ 0.06) forfiscal 2009, subject to approval of our shareholders in the ensuing AnnualGeneral Meeting.

 

**8.B Significant Changes**

 

There has been no significant subsequent eventfollowing the close of the last financial year up to the date of this annualreport that are known to us and require disclosure in this annual report forwhich disclosure was not made in this annual report.

 

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**ITEM 9. THE OFFER AND LISTING**

 

**9.A. Offer and listing details**

** **

Our equity shares have been listed and traded onthe Bombay Stock Exchange Limited, or BSE, and the National Stock Exchange ofIndia Limited, or NSE, since February 25, 2004. The prices for equityshares as quoted in the official list of each of the Indian Stock Exchanges areexpressed in rupees. Our ADSs evidenced by American Depositary Receipts, or ADRs,are traded in the United States on the New York Stock Exchange, or NYSE. OurADSs commenced trading on the NYSE on December 8, 2005. Each ADSrepresents two equity shares. The number of our outstanding equity shares(including the underlying shares for ADSs) as of February 19, 2010, was129,272,546.. As of February 19,2010, there were 20,161,868 privately placed ADSs (representing 20,161,868equity shares) and 7,991,817  ADSsoutstanding (representing 15,983,634 equity shares).

 

The table below sets forth, for the periodsindicated, the reported high and low quoted prices of our shares on the BSE,NSE and the NYSE*: (source www.bseindia.com,www.nse-india.com, www.nyse.com ,www.federalreserve.gov)*

* *
| ** **                                           | ** ** | **BSE**         | ** ** | **NSE**        | ** ** | **NYSE**        | ** ** |
|------------------------------------------------------|------------|-----------------|------------|----------------|------------|-----------------|------------|
| ** **                                           | ** ** | **High $** | ** ** | **Low $** | ** ** | **High $** | ** ** | **Low $** | ** ** | **High $** | ** ** | **Low $** | ** ** |
|                                                 |       |            |       |           |       |            |       |   |   |   |   |   |   |
| Year ended                                           |       |            |       |           |       |            |       |   |   |   |   |   |   |
| 2009                                                 |       | 10.82           |       | 1.94           |       | 10.74           |       | 1.94 |   | 21.93 |   | 4.25 |   |
| 2008                                                 |       | 8.55            |       | 2.28           |       | 8.52            |       | 2.28 |   | 16.94 |   | 4.58 |   |
| 2007                                                 |       | 13.96           |       | 7.62           |       | 14.59           |       | 7.55 |   | 28.30 |   | 14.59 |   |
| 2006                                                 |       | 11.13           |       | 5.92           |       | 11.12           |       | 5.90 |   | 25.10 |   | 11.81 |   |
| 2005                                                 |       | 11.59           |       | 7.05           |       | 11.50           |       | 6.98 |   | — |   | — |   |
|                                                 |       |            |       |           |       |            |       |   |   |   |   |   |   |
| 2009                                                 |       |            |       |           |       |            |       |   |   |   |   |   |   |
| First Quarter                                        |       | 2.96            |       | 1.94           |       | 2.94            |       | 1.94 |   | 6.10 |   | 4.25 |   |
| Second Quarter                                       |       | 5.78            |       | 2.63           |       | 5.78            |       | 2.59 |   | 11.94 |   | 5.20 |   |
| Third Quarter                                        |       | 10.10           |       | 4.97           |       | 10.11           |       | 4.96 |   | 19.00 |   | 9.89 |   |
| Fourth Quarter                                       |       | 10.82           |       | 8.09           |       | 10.74           |       | 1.94 |   | 21.93 |   | 17.50 |   |
| 2008                                                 |       |            |       |           |       |            |       |   |   |   |   |   |   |
| First Quarter                                        |       | 8.55            |       | 4.65           |       | 8.52            |       | 4.27 |   | 16.94 |   | 9.84 |   |
| Second Quarter                                       |       | 6.97            |       | 5.14           |       | 6.96            |       | 5.41 |   | 16.94 |   | 9.84 |   |
| Third Quarter                                        |       | 5.87            |       | 3.95           |       | 6.15            |       | 3.87 |   | 11.71 |   | 7.10 |   |
| Fourth Quarter                                       |       | 4.18            |       | 2.28           |       | 4.18            |       | 2.28 |   | 8.09 |   | 4.58 |   |
|                                                 |       |            |       |           |       |            |       |   |   |   |   |   |   |
| Month ended                                          |       |            |       |           |       |            |       |   |   |   |   |   |   |
| August 2009                                     |       | 9.60            |       | 6.94           |       | 9.63            |       | 6.97 |   | 18.80 |   | 14.28 |   |
| September 2009                                  |       | 10.09           |       | 8.09           |       | 10.11           |       | 7.24 |   | 19.00 |   | 16.06 |   |
| October 2009                                    |       | 10.82           |       | 8.09           |       | 9.87            |       | 8.05 |   | 19.95 |   | 17.50 |   |
| November 2009                                   |       | 10.66           |       | 8.65           |       | 10.74           |       | 8.60 |   | 21.93 |   | 18.52 |   |
| December 2009                                   |       | 10.26           |       | 9.11           |       | 10.25           |       | 9.10 |   | 21.06 |   | 19.17 |   |
| January 2010                                    |       | 11.48           |       | 9.52           |       | 11.55           |       | 9.50 |   | 22.64 |   | 18.88 |   |
| February 2010  (through February 19, 2010) |       | 10.80           |       | 9.46           |       | 10.74           |       | 9.46 |   | 21.28 |   | 18.49 |   |

 

**9.B. Plan of distribution**

 

Not applicable.

 

**9.C. Markets**

** **

***Trading Practices and Procedureson the Indian Stock Exchanges***

* *

***Stock Exchange Regulation***

* *

The stock exchanges in India are regulated bythe Securities and Exchange Board of India, or the SEBI, and the CapitalMarkets Division, Department of Economic Affairs, Ministry ofFinance,  the Government of India underthe Securities Contracts (Regulation) Act, 1956, as amended, or the SCRA, andthe Securities Contracts (Regulation) Rules, 1957, as amended, or the SCRR. The SCRA and the SCRR, together with therules, bye-laws and regulations of the respective stock exchanges, regulate therecognition of stock exchanges, the qualifications for membership thereof andthe manner in which contracts are entered into and enforced between members ofsuch stock exchanges.

 

The main objective of the SEBI, pursuant to the Securities and Exchange Board of IndiaAct, 1992, as amended, or the SEBI Act, is to promote the development of andregulate the Indian securities markets and protect the interests ofinvestors.  The SEBI Act granted the SEBI the powers to regulate thebusiness of the Indian securities markets, including stock exchanges and otherfinancial intermediaries, promote and monitor self-regulatory organizations,prohibit fraudulent and unfair trade practices and insider trading, andregulate substantial acquisitions of shares and takeovers of companies. The SEBI has also issued regulationsconcerning 

 

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minimum disclosure requirements by publiccompanies, rules and regulations concerning investor protection, buybacksof securities, employee stock option schemes, stockbrokers, merchant bankers,underwriters, mutual funds, foreign institutional investors, credit ratingagencies and other capital market participants.

 

The SCRA has been amended to include derivativesof securities and units or any other instruments issued by any collectiveinvestment scheme to the investors in such schemes, in the definition of “securities”.Trading in index-linked futures, index-linked options, options on individualsecurities and futures on individual securities takes place on the Indian StockExchanges. SEBI has also set up a committee for the review of Indian securitieslaws, which has proposed a draft Securities Bill. The draft Securities Bill, ifenacted in its present form may result in a substantial revision in the lawsrelating to securities in India.

 

The Companies (Amendment) Act of 2000 amendedthe Indian Companies Act and incorporated significant provisions relating tosecurities, options in securities and equity shares with differential rights.Further, the Indian Companies Act, as amended, has empowered the SEBI to administer provisions inso far as they relate to the issue and transfer of securities, non payment ofdividends in the case of listed public companies and public companies proposingto get their securities listed and to conduct inspection of a company’s recordsin respect of matters relating to the issue and transfer of securities. Thepower to prosecute the defaulting companies in compliance connection with the said matter hasalso been vested with the SEBI.The Indian Companies Act has been amended to introduce significant changes suchas allowing book building for public offerings of securities, buy back ofsecurities, compulsory dematerialization of shares in an initial publicoffering of securities for a sum of Rs. 100 million or more, issue of sweat equity shares, provisions relatingto corporate governance, making accounting standards issued by the Institute ofChartered Accountants of India mandatory and relaxing restrictions oninter-corporate investment and loans.

 

***Public Issue of Securities and Listing***

 

Under the Indian Companies Act, a publicoffering of securities in India must be made by means of a prospectus, whichmust contain information specified in the Indian Companies Act and the SEBI(Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended,or the SEBI Regulations, and be filed with the Registrar of Companies havingjurisdiction over the place where a company’s registered office is situated. Acompany’s directors and promoters are subject to civil and criminal liabilityfor misstatements in a prospectus. The Indian Companies Act also sets forthprocedures for the acceptance of subscriptions and the allotment of securitiesamong subscribers and establishes maximum commission rates for the sale ofsecurities.

 

SEBI has issued detailed regulations concerningdisclosures by publiccompanies making a public offering of securities and investor protection.Previously, the Controller of Capital Issues of the Government of Indiaregulated the prices at which companies could issue securities. The SEBI Regulationsnow permit companies to freely price their issues of securities in an initialpubic offering.

 

The listing of securities on recognized Indianstock exchanges is regulated by the Indian Companies Act, the SCRA, the SCRR,the SEBI Act and the listing agreements of the respective stock exchanges.Under the standard terms of stock exchange listing agreements, the governingbody of each stock exchange is empowered to suspend trading of or dealing in alisted security for breach of an issuer’s obligations under such agreement,however the exchange must give prior notice to the issuer of the intension todelist the securities under the SEBI (Delisting of Equity Shares) Regulations,2009 as amended. The provisions of SEBI (Delisting of Equity Shares) Regulations,2009 as amended, which govern voluntary and compulsory delisting of shares ofIndian companies from the stock exchanges. The SEBI has the power to amend listing agreements and bye-lawsof stock exchanges in India.

 

ListedIndian companies are required to ensure that the minimum level of publicshareholding, on a continuous basis, is 25% of the total issued shares of aparticular class, for every such class that is listed. However, companies which(i) have offered less than 25% (but at least 10%) of the total number ofissued shares of a particular class to the public under Rule 19(2)(b) ofthe SCRR, or (ii) have at least 20 million shares of a particular classlisted and a market capitalization of Rs. 10,000 million, are permitted to maintain their minimum publicshareholding at 10%. Where the public shareholding in a company is less than25% or 10%, as the case may be, the company is only permitted to dilute itspublic shareholding pursuant to certain extraordinary events with the priorapproval of the concerned stock exchanges. “Public shareholding” excludesshares held by promoters and the promoter group as well as shares held bycustodians against which depository receipts have been issued overseas.

 

The standard listing agreements require anacquirer of a listed company’s shares to comply with the disclosure and tenderoffer requirements under the SEBI (Substantial Acquisition of Shares andTakeovers) Regulations, 1997, as amended, or the Takeover Code. For a briefdiscussion on the disclosure and tender offer requirements under the TakeoverCode, see “Item 10. Additional Information-Takeover Code” below.

 

In addition, a listed company is subject tocontinuing disclosure requirements pursuant to the terms of its listingagreement with the relevant stock exchange, including the requirement topublish unaudited financial statements on a quarterly basis and to inform stockexchanges immediately of any price sensitive information.

 

The shareholders of a listed company and thecompany itself are also subject to certain disclosure requirements pursuant tothe terms of the Securities and Exchange Board of India (Prohibition of InsiderTrading) Regulations, 1992, as amended. Pursuant to such requirements, anyperson holding more than 5% equity shares or voting rights in any listedcompany must disclose to the company the number of equity shares or votingrights held by such person, on becoming such a holder, within two working days of (a) thereceipt of intimation of allotment of equity shares or (b) the acquisitionor sale of equity shares or voting rights. Additionally, any change in suchshareholding or voting rights in excess of 2% (even if such change results inthe shareholding or voting 

 

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rights falling below 5%) is required to bedisclosed to the company within twoworking days of (a) the receipt of intimation of allotment of equityshares or (b) the acquisition or sale of equity shares or voting rights,as the case may be. The company is also required to disclose such informationreceived from its shareholders within twodays of the receipt of such information to the stock exchanges on which thecompany’s equity shares are listed.

 

***Indian Stock Exchanges***

* *

The major stock exchanges in India are the BSEand the NSE, which together account for a majority of trading volumes ofsecurities in India. The BSE and theNSE together dominate the stock exchanges in India in terms of the number oflisted companies, market capitalization and trading volumes of securities.

 

Beginning April 1, 2003, the stockexchanges in India operate on a trading day plus two, or T+2, rollingsettlement system. At the end of the T+2 period, obligations are settled withbuyers of securities paying for and receiving securities, while sellerstransfer and receive payment for securities. For example, trades executed on aMonday would typically be settled on a Wednesday. In order to contain the riskarising out of the transactions entered into by the members of various stockexchanges either on their own account or on behalf of their clients, the stockexchanges have designed risk management procedures, which include compulsoryprescribed margins on the individual broker members, based on their outstandingexposure in the market, as well as stock-specific margins from the members.

 

To restrict abnormal price volatility, SEBI hasinstructed stock exchanges to apply the following price bands calculated at theprevious day’s closing price (there are no restrictions on price movements ofindex stocks):

 

*MarketWide Circuit Breakers:*Market widecircuit breakers are applied to the market for movement by 10%, 15% and 20% fortwo prescribed market indices, whichever is breached earlier: the BSE Sensexfor the BSE, or the BSE Sensex, and the Nifty for the NSE, or the NSE Nifty. Ifany of these circuit breaker thresholds are reached, trading in all equity andequity derivatives markets nationwide is halted.

 

*PriceBands:***Price bands are circuit filters of up to20% movements either up or down, and are applied to most securities traded inthe markets, excluding securities included in the BSE Sensex and the NSE Niftyand derivatives products.

 

***The National Stock Exchange of India Limited***

* *

The NSE was established by financialinstitutions and banks to provide nationwide on-line satellite linkedscreen-based trading facilities with market makers and electronic clearing andsettlement for securities, including Government of India securities,debentures, public sector notes and units. Deliveries for trades executed “on-market”are exchanged through the National Securities Clearing Corporation Limited. TheNSE commenced operations in the wholesale debt market and capital markets in1994 and in derivatives in 2000. As of January 31,2010, there were, 1,457 listedcompanies trading on the capital markets (equities) segment of the NSE. As of January 31, 2010,  the market capitalization of the NSE wasapproximately Rs. 57,829.65 billion.

 

**The Bombay Stock Exchange Limited**

 

The BSE, established in 1875, is the oldeststock exchange in India and has evolved over the years into its present statusas the premier stock exchange of India. BSE On-line Trading (BOLT) facilitateson-line screen based trading in securities. BOLT is currently operating in25,000 Trader Workstations located across over 359 cities in India..Derivatives trading commenced on the BSE in 2000. Retail trading in governmentsecurities commenced in January 2003.As of December 31,, 2009,the BSE had 1,007 members, comprising 173 individual members, 811 Indiancompanies and 23 Foreign Institutional Investors, or FIIs. Pursuant to theBSE (Corporatization and Demutualization) Scheme 2005 of SEBI, on August 19,2005 the BSE was incorporated as a company under the Indian Companies Act. Onlya member of the BSE has the right to trade in the stocks listed on the BSE. Asof January 31, 2010 therewere 4, 962 listed companies trading on the BSE with an estimated total marketcapitalization of Rs 59,243.40   billion.

 

Trading on both the NSE and the BSE occursMonday through Friday between 9:00 a.m. and 3:30 p.m.

 

***Derivatives (Future and Options***)

* *

Trading in derivatives is governed by the SCRAand the SEBI Act. The SCRA was amended in February 2000 and derivativecontracts were included within the term “securities”, as defined by the SCRA.Trading in derivatives in India takes place either on separate and independentderivatives exchanges or a separate segment of an existing stock exchange. Thederivative exchange or a derivative segment of a stock exchange functions as aself regulatory organization under the supervision of the SEBI. Derivatives products have been introduced in a phasedmanner in India.

 

***Depositories***

* *

The Depositories Act, 1996, as amended, or the Depositories Act, provides thelegal framework for the establishment of depositories to record ownershipdetails and effectuate transfers in book-entry form. SEBI framed the Securitiesand Exchange Board of India (Depositories and Participants) Regulations, 1996, as amended, or the Depositories andParticipants Regulations, which, among other things, provide for the 

 

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formulation of such depositories and theregulation of participants, as well as the *inter se* rightsand obligations of the depositories, participants, beneficial owners andissuers.

 

The National Securities Depository Limited andCentral Depository Services (India) Limited are the two depositories thatprovide electronic depositories facilities for trading in equity and debtsecurities in India. SEBI mandates a company making a public or rights issue oran offer for sale to enter into an agreement with a depositary fordematerialization of securities already issued or proposed to be issued to thepublic or existing shareholders. SEBI has also provided that the issue andallotment of shares in initial public offerings, rights offerings or offers forsale shall only be in electronic form.

 

***Securities Transaction Tax***

 

The rates applicable on taxable securitiestransactions are specified below:

 
| **Taxable Securities Transaction**                                                                                                                                                                                                                                                                                   | ** ** | **Rate** | ** ** | **Payable by** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|---------------------|------------|
| Purchase of an equity share  in a company or a unit of an equity oriented fund, where: (i) the  transaction of such purchase is entered into on a recognized stock exchange;  and (ii) the contract for the purchase of such share or unit is  settled by the actual delivery or transfer of such share or unit |       | 0.125    | %          | Purchaser           |       |
| Sale of an equity share in  a company or a unit of an equity oriented fund, where: (i) the  transaction of such sale is entered into on a recognized stock exchange; and  (ii) the contract for the sale of such share or unit is settled by the  actual delivery or transfer of such share or unit                  |       | 0.125    | %          | Seller              |       |
| Sale of an equity share in  a company or a unit of an equity oriented fund, where; (i) the  transaction of such sale is entered into on a recognized stock exchange; and  (ii) the contract for the sale of such share or unit is settled  otherwise than by the actual delivery or transfer of such share or unit   |       | 0.025    | %          | Seller              |       |
| Sale of derivatives where  the transaction of such sale is entered into on a recognized stock exchange                                                                                                                                                                                                                         |       | 0.017    | %          | Seller              |       |
| Sale of a unit of an equity  oriented fund to the Mutual Fund                                                                                                                                                                                                                                                                  |       | 0.25     | %          | Seller              |       |

 

The responsibility for collection of thesecurities transaction tax lies with the stock exchange where the purchase ofsecurities takes place. The rates were applicable with effect from June 1,2006.

 

From April 1, 2008,Securities Transaction Tax has been prescribed for followingtransactions:

 
| **Taxable Securities Transaction**                                   | ** ** | **Rate** | ** ** | **Payable by** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|---------------------|------------|
| Sale of an option in  Securities (payable on Option premium)                   |       | 0.017    | %          | Seller              |       |
| Sale of option in  securities , where option is  exercised on settlement price |       | 0.125    | %          | Purchaser           |       |
| Sale of futures in  securities                                                 |       | 0.017    | %          | Seller              |       |

 

**9.D. Selling Shareholders**

** **

**Not applicable.**

 

**9.E. Dilution**

** **

Not applicable.

 

**9.F. Expenses of the Issue**

** **

Not applicable.

 

**ITEM10. ADDITIONAL INFORMATION**

** **

**10.A. ShareCapital**

** **

Not applicable.

 

**10.B.Memorandum and articles of association**

** **

**None**

** **

**General**

** **

The following description of our equity sharesand the material provisions of our Articles of Association, or Articles, isonly a summary and is qualified in its entirety by our Articles and Memorandumand by the provisions of the Indian Companies Act which governs our affairs,and other applicable provisions of Indian law.

 

Our authorized share capital consists of250,000,000 equity shares with a par value of Rs. 2 each. As of February 19,2010, 129,272,546 equity shares were issued and outstanding and fully paid. On August 30,2003 

 

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we effected a one for two stock split in theform of a stock dividend. The equity shares are our only class of sharecapital. We currently have no convertible debentures or warrants outstanding.Substantially all of our equity shares are in non-physical form.

 

We use the following terms in our Articles:

 

·  NKP Group means Mr. NarendraK. Patni, certain of his family members, iSolutions Inc. and certain oftheir named entities and their respective permitted transferees and thedepository bank;

 

·  GKP Group means Mr. GajendraK. Patni, certain of his family members and their respective permittedtransferees and the depository bank;

 

·  AKP Group means Mr. AshokK. Patni, certain of his family members and their respective permittedtransferees and the depository bank;

 

·  General Atlanticmeans General Atlantic Mauritius Limited, its successors and permitted assignsand General Atlantic Group means General Atlantic and its permitted transfereesand the depositary bank; and

 

·  For the purposesof this document, Significant Shareholder means each of these groups.

 

**Registration number and theobjects of the Company**

** **

Our companyregistration number is 11-020127 (CIN L72200MH1978PLC020127). Under our Memorandumof Association, our main objects include, but are not limited to the following:

 

1.      To manufacture, purchase, sell or otherwisetransfer, lease, import, export, hire, license, use, dispose off, operate,fabricate, construct, distribute, assemble, design, charter, acquire, market,recondition, work upon or otherwise, generally deal in any electronic,electrical, mechanical and electromechanical product, machine, apparatus,appliance, custom products, merchandise, systems, software procedures, peripheralproducts, computers, tabulators, data processing machines and systems andcomponents thereof, electronic calculators, electric and electromechanicalaccounting systems, terminal products and systems, machines for registeringdata preparation, recording, perforating, tabulating, sorting, printing,typewriting products which possess an internal intelligence for recognizing andco-relating any type of data or information to be processed recognition andmemory systems, optical scanning machine transmission lines, transmissionequipment, terminals, copying, reproducing and distributing machines, checksigning, protecting and disbursing equipment machines for facsimilereproduction, facsimile transmission and word processions facilities andaccessories and devices of all kinds, and for all purposes and any products andcomponent parts thereof or materials or articles used in connection therewith,and any-all other machinery, appliance, apparatus, devices, materials,substances, business firms and supplies, articles or things of a charactersimilar or analogous to the foregoing, or any of them or connected therewith.

 

2.      To establish, maintain and conduct trainingschools, courses and programmes in connection with the use, purchase, sale,import, export, license, distribution, design, manufacture or rental of theaforesaid types of machines, apparatus, appliances, systems and merchandise andof the articles required in the use thereof or used in connection therewith.

 

3.      To carry on the business of developing, improving,designing, marketing, selling and licensing software and program-products ofany and all description.

 

4.      To carry on the business of electricians,electrical, electronic engineers and manufacturers of and dealers inelectrical, mechanical, chemical, optical and electronic machines, appliancesand apparatus of every description.

 

5.      To carry on the business of consultants incomputers, computer-oriented systems all branches of computer science, civil,electrical, electronic, mechanical, chemical, optical, metallurgical and allother branches of engineering.

 

6.      To carry on the business of consultancyservices related to the preparation and maintenance of accounting, statistical,scientific or mathematical, information and reports, data conversion, dataprocessing, programming, collecting, storing, processing and transmittinginformation and data of every kind and description, systems analysis andmachine services for solving or aiding commercial, industrial, scientific andresearch problems and for all other related business.

 

7.      To carry on the business of advisers andconsultants and collaborators on all matters and problems relating to theadministration, organization, finance management, personnel, commencement orexpansion of industry and business (including construction of plants andbuildings production, purchases, sales marketing, advertisement, publicity,personnel export and import) and of institutions, concerns, bodies,associations (incorporated and unincorporated), departments and services of thegovernment, public or local authorities, trusts, scientific research anddevelopment centers.

 

8.      To supply and provide, maintain and operate,design any engineering consultancy services applicable over the whole range ofindustry, trade, commerce and agriculture.

 

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**Board ofDirectors**

** **

*Election*

* *

The Articles ofAssociation provide that our Board of Directors shall be comprised of not lessthan three directors and not more than twelve directors. Eight directors on theBoard shall be appointed as follows:

 

·  three permanent directors nominated by each ofthe AKP Group, the GKP Group and the NKP Group so long as the relevant Groupholds 5% or more of the equity shares;

 

·  one rotating director nominated by GeneralAtlantic, so long as General Atlantic holds 5% or more of the equity shares;and

 

·  four non-permanent independent directors whowill be appointed in accordance with our Articles for a term of three years andeligible for re-election by the shareholders at the annual general meeting.

 

Each directornominated by a Significant Shareholder shall hold office and may only beremoved by that Significant Shareholder. Except in the event of the removal ofa director for a breach of duty, fraud, bankruptcy or unless contrary to law,all the Significant Shareholders have agreed in the Articles that theindependent directors shall not be removed except at a general meeting by thevotes of shareholders (present and voting) holding not less than 51% of theequity shares, which includes the votes of at least three SignificantShareholders in a general meeting and except by a majority of the directors,which includes at least three nominee directors appointed by the SignificantShareholders.

 

General Atlanticis also entitled to nominate one of the members to each committee of the Boardof Directors, including the Audit Committee, the Compensation Committee andsuch other committees, so long as General Atlantic holds 5% or more of theequity shares.

 

*Notice andQuorum*

* *

Under theArticles, subject to Section 287 of the Indian Companies Act, the quorumfor a meeting of the Board of Directors shall be the presence of at least fourdirectors which must include at least one nominee director (or his or heralternate) of each of the AKP Group, the GKP Group, the NKP Group, and GeneralAtlantic (unless the absent nominee director consents in writing to a quorumrequirement being satisfied despite his or her absence). Provided that where atany time the number of interested directors exceeds or is equal to two-thirdsof the total strength, the number of remaining directors, that is to say, thenumber of directors who are not interested, present at the meeting being notless than two, shall be the quorum during such time.

 

If a quorum isnot present on the date the board meeting is convened, it shall automaticallystand adjourned to a date 7 days after the original board meeting. The adjournedboard meeting may be held on such other date and such other place as may beunanimously agreed by a nominee director of each of the AKP Group, the GKPGroup, the NKP Group and General Atlantic. In the event of a quorum once againnot being available at such an adjourned board meeting, the directors presentshall constitute the quorum.

 

The Articlesrequire that at least 15 clear days notice be provided for any board meetingunless a shorter notice period is agreed by a majority of the directors.

 

Under ourArticles, Mr. Narendra K. Patni shall be the permanent Chairman of theBoard. The Chairman shall preside at all board and shareholder meetings. In theabsence of Mr. Narendra K. Patni at any meeting of the board, a GeneralAtlantic nominee shall preside as Chairman. The Chairman has a casting vote incase of a tie. If for any reason Mr. Narendra K. Patni is unable tocontinue as the Chairman, the board shall appoint the Chairman.

 

*InterestedDirectors*

* *

Pursuant to Section 300of the Indian Companies Act, interested directors are not allowed to take partin the discussion of, or vote on, any contract or arrangement entered into orto be entered into by or on behalf of the Company if the director is in anyway, directly or indirectly, concerned with or interested in the contract orarrangement. In addition, a director is required to disclose, at a meeting of the board, thenature of his concern or interest under Section 299 of the IndianCompanies Act.

 

Under Section 297of the Indian Companies Act, the consent of the Board of Directors is requiredwhere a director of the company or his relative, a firm in which such adirector or relative is a partner, any other partner in such a firm, or aprivate company of which the director is a member or director, is entering intocertain contracts with the company.

 

*QualifyingShares*

* *

Our directors arenot required to hold any of our equity shares to be qualified to serve on theBoard of Directors.

 

*BorrowingPowers*

* *

Our directorsshall not, except with the consent of the shareholders in a general meeting,borrow moneys, where the moneys to be borrowed together with the moneys alreadyborrowed by the company (apart from 

 

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temporary loansobtained from the company’s bankers in the ordinary course of business) willexceed the aggregate of our paid up capital and the aggregate of all freereserves.

 

*DirectorCompensation*

* *

The Board ofDirectors is entitled to set its remuneration subject to maximum limitsprescribed by Indian law and our Articles. If the number of interesteddirectors exceeds the quorum requirement for board meetings, then theresolution to be passed would be subject to the approval of the shareholders ata general meeting. Normally any resolution of the board regarding an increasein director’s fees is subject to shareholder approval in a general meeting.

 

*Rotationand Retirement*

* *

There is no agelimit for retirement of our directors. Our Articles require two-thirds of ourdirectors to retire by rotation, but they are eligible for re-election.One-third of the directors who are subject to retirement by rotation mustretire at each annual general meeting but can be re -appointed at such annualgeneral meeting. Mr. Narendra K. Patni, Mr. Gajendra K. Patni and Mr. AshokK. Patni as the respective nominees of the NKP Group, GKP Group and AKP Groupare permanent directors according to our Articles and in that capacity they are not required to retire by rotationlike our other directors.

 

***Dividends***

** **

Under the Indian Companies Act, the Board ofDirectors first recommends the payment of a dividend which is then declared byshareholders in a general meeting. However, the Board of Directors is notobliged to recommend a dividend. Under our Articles and the Indian CompaniesAct, our shareholders may, at the annual general meeting, declare a dividend inan amount less than that recommended by the Board of Directors, but they cannotincrease the amount of the dividendrecommend by the Board of Directors.

 

In India,,listed companies arerequired to declare and disclose their dividends on per share basis only.The dividend recommended by the directors, if any, and subject to the limitationsdescribed above, is required to be distributed and paid to shareholders inproportion to the paid up value of their shares as on the record date for whichsuch dividend is payable within 30 days of the approval by theshareholders at the annual general meeting. Pursuant to the Articles, thedirectors have discretion to declare and pay interim dividends withoutshareholder approval. Under the Indian Companies Act, dividends can only bepaid in cash to the registered shareholder at a record date fixed on or priorto the annual general meeting or to his order or his banker’s order. Noshareholder is entitled to a dividend while any lien in respect of unpaid callson any of such shareholder’s shares is outstanding.

 

The Indian Companies Act provides that anydividends that remain unpaid or unclaimed after the 30-day period referred toabove must be transferred to a special bank account. We transfer any dividendsthat remain unclaimed for seven years from the date of such transfer to anInvestor Education and Protection Fund created by the Indian Government. Theproceeds of such funds are utilized to promote investor’s awareness andprotection of investors’ interests. Following such transfer, such unclaimeddividends cannot be claimed. Neither we nor such fund shall be liable inrespect of amounts transferred to such fund.

 

Under the Indian Companies Act, dividends may bepaid out of profits of a company in the year in which the dividend is declaredor out of the undistributed profits of the previous fiscal years, in eithercase after providing for depreciation. Before declaring a dividend on itsshares, a company is required under the Indian Companies Act to transfer to itsreserves, a certain percentage of its profits for that year, ranging from 2.5% to10% depending upon the dividend proposed to be declared in such year. TheCompanies (Declaration of Dividend out of Reserves) Rules, 1975 provide that,in the event of inadequacy or absence of profits in any year, a dividend may bedeclared for such year out of the company’s accumulated profits, subject to thefollowing conditions:

 

·  the rate ofdividend to be declared may not exceed 10% of the company’s paid up capital orthe average of the rate at which dividends were declared by the company in theprior five years, whichever is less;

 

·  the total amountto be drawn from the accumulated profits earned in the previous years andtransferred to the reserves may not exceed an amount equivalent to one-tenth ofthe sum of its paid up share capital and free reserves, and the amount so drawnis to be used first to set off the losses incurred in the fiscal year beforeany dividends in respect of preference or equity shares are declared; and

 

·  the balance ofthe reserves after withdrawal shall not fall below 15% of its paid up capital.

 

**Bonus Shares**

** **

In addition to permitting dividends to be paidout of current or retained earnings as described above, the Indian CompaniesAct and our Articles permit us to distribute an amount transferred from thegeneral reserve or surplus in our profit and loss account to shareholders inthe form of bonus shares, which are similar to a stock dividend. The IndianCompanies Act also permits the issue of bonus shares from a securities premiumaccount. Bonus shares are distributed to shareholders in the proportionrecommended by the Board of Directors. Shareholders of record on a fixed recorddate are entitled to receive such bonus shares. Any issue of bonus shares issubject to regulations issued by the SEBI.

 

The SEBI Regulations prescribe that no companyshall, pending conversion of convertible securities, issue any shares by way ofbonus unless a similar benefit is extended to the holders of such convertiblesecurities, through reservation of shares in proportion to the convertible partof such convertible securities. The bonus issue 

 

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shall be made out of free reserves built out ofthe genuine profits or share premium collected in cash only. The bonus issue cannotbe made unless partly paid-up shares, if any, are made fully paid-up. Further,for the issue of such bonus shares a company should not have defaulted in thepayment of interest or principal in respect of fixed deposits and interest onexisting debentures or principal on redemption of such debentures. Further, acompany should have sufficient reason to believe that it has not defaulted inrespect of the payment of statutory dues of the employees such as contributionto a provident fund, gratuity and bonus. The issue of bonus shares must beimplemented within two months from the date of approval by the Board ofDirectors where the decision to issue bonus shares was taken subject toshareholders’ approval. Where approval of the shareholders for capitalizationof profits or reserves for making bonus issues is not required as per theArticles of Association, the bonus issue must be implemented within 15 daysfrom the date of approval by the Board of Directors.

 

**Consolidation and Subdivision of Shares**

** **

The Indian Companies Act and our Articles permitus to split or combine the par value of our shares, provided such split orcombination is not made in fractions. Shareholders of record on a fixed recorddate are entitled to receive a split or combination.

 

**Pre-emptive Rights and Issue of AdditionalShares**

** **

The Indian Companies Act and our Articles giveshareholders the pre-emptive right to subscribe for new shares in proportion totheir respective existing shareholdings unless otherwise determined by aspecial resolution passed by a general meeting of the shareholders. Thisspecial resolution must be approved by a number of votes which is not less thanthree times the number of votes against the special resolution. The offer mustinclude: (a) the right, exercisable by the shareholders of record, torenounce all the shares offered or any of them in favor of any person; and (b) thenumber of shares offered and the period of the offer, which may not be lessthan 15 days from the date of offer. If the offer is not accepted withinthis period, it is deemed to have been declined. The Board of Directors isauthorized to distribute any new shares not purchased by the pre-emptive rightsholders in the manner that it deems most beneficial to the company.

 

**Annual General Meeting of Shareholders**

** **

We must convene an annual general meeting ofshareholders within 15 months of the previous annual general meeting orsix months after the end of each fiscal year, whichever is earlier, and mayconvene an extraordinary general meeting of shareholders when necessary or atthe request of a shareholder or shareholders holding at least 10% of our paid upcapital carrying voting rights. Written notice setting out the agenda ofmeeting must be given at least 21 clear days prior to the date of a general meeting to the shareholdersof record. A general meeting may be called after providing a shorter notice ifconsent is received from all shareholders entitled to vote, in the case of anannual general meeting, and from shareholders holding not less than 95% of thepaid-up capital of the company in case of any other general meeting.Shareholders who are registered as such on the date of the general meeting areentitled to attend and vote at the meeting.

 

The annual general meeting of shareholders mustbe held at our registered office or at another place within the city in whichour registered office is situated. Meetings other than annual general meetingsmay be held at any other place if so determined by the Board of Directors.

 

**Quorum**

** **

Our Articles provide that a quorum of a generalmeeting is at least five members present in person who shall include at least oneof the duly authorized representatives of General Atlantic, the NKP Group, theGKP Group and the AKP Group. If a quorum is not present on the date the generalmeeting is convened, it shall be adjourned to a date 15 days after theoriginal meeting and theshareholders who are present at the adjourned meeting shall constitute thequorum.

 

**Voting Rights**

** **

At any general meeting, voting is by show ofhands unless a poll is demanded by a shareholder or shareholders present inperson or by proxy holding at least 10% of the total shares entitled to vote onthe resolution or by those holding shares with an aggregate paid up capital ofat least Rs. 50,000. Upon a show of hands, every shareholder entitled to voteand present in person has one vote and, on a poll, every shareholder entitledto vote and present in person or by proxy has voting rights in proportion tothe paid up capital held by such shareholders.

 

Any shareholder may appoint a proxy. Theinstrument appointing a proxy must be delivered to us at least 48 hoursprior to the meeting. A proxy may not vote except on a poll. A corporateshareholder may appoint an authorized representative who can vote on behalf ofthe shareholder, both upon a show of hands and upon a poll.

 

Ordinary resolutions may be passed by a simplemajority of those present and voting at any general meeting for which therequired period of notice has been given. However, specified resolutions suchas amendments to the Articles and the Memorandum, commencement of a new line ofbusiness, the waiver of the pre-emptive rights for the issue of any new sharesand a reduction of share capital, require that votes cast in favor of theresolution, whether by show of hands or poll, are not less than three times thenumber of votes, if any, cast against the resolution by members so entitled andvoting.

 

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Further, the Indian Companies Act requirescertain resolutions such as those listed below to be voted on only by a postalballot:

 

·  amendments ofthe memorandum of association to alter the objects of the company;

 

·  change in the registered office of thecompany under Section 146 of the Indian Companies Act;

 

·  alteration ofthe articles of association in relation to insertion of provisions definingprivate company;

 

·  the issue ofshares with differential rights with respect to voting, dividend or otherwise;

 

·  the sale of thewhole or substantially the whole of an undertaking of the company;

 

·  providing loans,extending guarantees or providing a security in excess of the limits prescribedunder Section 372A of the Indian Companies Act;

 

·  varying therights of the holders of any class of shares or debentures or other securities;

 

·  the election ofa director by minority shareholders; and

 

·  the buy-back ofshares.

 

While the Indian Companies Act permits a companyto issue shares with differential rights as to dividend, voting or otherwise,it may do so subject to certain conditions specified under the Companies (Issueof Share Capital with Differential Voting Rights) Rules, 2001, some of whichare:

 

·  the companyshould have distributable profits (in terms of Section 205 of the IndianCompanies Act) for a period of three financial years immediately preceding theyear in which it was decided to issue such shares;

 

·  the shares withdifferential voting rights shall not be in excess of 25% of the total issuedshare capital; and

 

·  the votingrights of existing shares cannot be altered.

 

Our Articles permit the issue of shares withdifferential voting rights. Under the listing agreements entered into with theIndian stock exchanges, a listed company cannot issue shares in any mannerwhich may confer on any person, superior rights as to voting or dividendvis-à-vis the rights on equity shares that are already listed

 

Our Articles require that certain shareholdersensure that they do not vote for any resolution to vary or modify the terms ofappointment of Mr. Ashok K. Patni and Mr. Gajendra K. Patni. Theshareholders referred to in this provision are limited to General Atlantic, theAKP Group, the GKP Group and the NKP Group and any of theirpermitted transferees, permitted assigns or affiliates (as such terms aredefined in the Articles).

 

**Register of Shareholders; Record Dates**

** **

We are required to maintain a register ofshareholders at our registered office. The register and index of beneficialowners maintained by a depository under the Depositories Act, 1996 is deemed tobe an index of members and register and index of debenture holders. We recognizeas shareholders only those persons who appear on our register of shareholdersand do not recognize any person holding any share or part of it upon any trust,express, implied or constructive, except as permitted by law. In the case ofshares held in physical form, we register transfer of shares on the register ofshareholders upon receiving the share transfer form duly complete in allrespects accompanied by a share certificate or if there is no certificate, theletter of allotment in respect of shares to be transferred together with dulystamped transfer forms. In respect of electronic transfers, the depositarytransfers shares by entering the name of the purchaser in its books as thebeneficial owner of the shares. We then enter the name of the depositary in ourrecords as the registered owner of the shares. The beneficial owner is entitledto all the rights and benefits as well as the liabilities with respect to theshares that are held by the depositary.

 

**For the purposes of determiningthe shareholders, the register may be closed for periods not exceeding45 days in any one year or 30 days at any one time. Under the listingagreements of the Indian Stock Exchanges, we may, upon at least seven days’or of as many days as may be prescribed from time to time by stock exchangesadvance notice to such stock exchanges, set a record date and/or close theregister of shareholders**

** **

**Transfer of Shares**

 

Shares held through depositories are transferredin the form of book entries or in electronic form in accordance with theSecurities and Exchange Board of India (Depositories and Participants)Regulations, 1996. These regulations provide the regime for the functioning ofthe depositories and the participants and set forth the manner in which therecords are to be kept and maintained and the safeguards to be followed in thissystem. Transfers of beneficial ownerships of shares held through a depositaryare exempt from stamp duty. We have entered into an agreement for suchdepositary services with National Securities Depository Limited and the CentralDepository Services (India) Limited.

 

The shares of an Indian public company arefreely transferable, subject to the provisions of the Indian Companies Actpursuant to which if a transfer of shares contravenes the SEBI Act, orregulations made thereunder, or the Sick Industrial Companies (SpecialProvisions) Act, 1985 or any other similar law, the Company Law Board (which isexpected to be replaced by the National Company Law Tribunal) may, on an 

 

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application made by the company, a depositary, aparticipant, an investor or SEBI, direct a rectification of the register ofrecords. If a company without sufficient cause refuses to register a transferof shares within two months from the date on which the instrument of transferis delivered to the company, the transferee may appeal to the Company Law Boardseeking to register the transfer of shares.

 

Pursuant to listing agreements with the IndianStock Exchanges, in the event a company has not effected the transfer of shareswithin one month or where the company has failed to communicate to thetransferee any valid objection to the transfer within the stipulated timeperiod of one month, the company is required to compensate the aggrieved partyfor the opportunity losses caused during the period of delay.

 

Our Articles provide for certain restrictions onthe transfer of shares, including granting power to the Board of Directors torefuse to register or acknowledge transfer of shares or other securities issuedby the Company. However, to theextent that the provisions of the Articles are in conflict with any of theprovisions of the Indian Companies Act, the Indian Companies Act shall prevail.

 

**Disclosure of Ownership Interest**

 

Section 187C of the Indian Companies Actrequires beneficial owners of shares of Indian companies who are not holders ofrecord to declare to the company details of the holder of record and the holderof record to declare details of the beneficial owner. Any charge, promissorynote or other collateral agreement created, executed or entered into withrespect to any equity share by its registered owner or any hypothecation by theregistered owner of any equity share shall not be enforceable by the beneficialowner or any person claiming through the beneficial owner if such declarationis not made. Failure by a person to comply with Section 187C will notaffect the company’s obligation to register a transfer of shares or to pay anydividends to the registered holder of any shares in respect of which thedeclaration has not been made. While it is unclear under Indian law whether Section 187Capplies to holders of ADSs, investors who exchange ADSs for underlying equityshares will be subject to the requirements of Section 187C. Additionally,holders of ADSs may be required to comply with the notification and disclosureobligations pursuant to the provisions of the deposit agreement entered into bysuch holders, the company and the depositary.

 

Any investor who fails to comply with therequirement to make a declaration under Section 187C may be liable for afine up to Rs. 1,000 for each day such failure continues. Additionally, ifwe fail to comply with the provisions of Section 187C, then we may beliable for a fine of up to Rs. 100 for each day the default continues.

 

**Audit and Annual Report**

 

A public limited company’s audited financialstatements, the directors’ report and the auditors’ report must be approved atthe annual general meeting. These documents also include certain otherfinancial information, a report on corporate governance and a section onmanagement’s discussion and analysis. These documents need to be made availablefor inspection at the company’s registered office during normal working hoursfor 21 days prior to the annual general meeting.

 

Under the Indian Companies Act, a company mustfile the above documents with the Registrar of Companies within six months from theclose of the accounting year or within 30 daysafter the date of the annual general meeting, whichever is earlier. Under thelisting agreement, copies of the statutory and director’s annual reports,balance sheets and profit and loss accounts and other special reports arerequired to be sent to the stock exchanges as soon as they are issued. A companyis also required to file with the stock exchanges a compliance report on aquarterly basis, within 21 days from the end of the quarter incorporating,*inter alia*, the shareholdingpattern. The listing agreement also requires companies to furnish to the stockexchange unaudited quarterly and semi-annual financial results of operationsand publish such information in at least one English language newspaper.

 

**Liquidation Rights**

** **

Subject to the rights of creditors, employeesand the holders of any shares entitled by their terms to preferential repaymentover the equity shares, if any, in the event of our winding-up, the holders ofthe equity shares are entitled to be repaid the amount of paid up capital orcredited as paid up on those equity shares. All surplus assets after paymentsto the employees, statutory creditors, secured and unsecured creditors andholders of any preference shares shall be paid to holders of equity shares inproportion to the amount paid up on such shares at the commencement of thewinding-up.

 

**Buy-back**

** **

Pursuant to Section 77A of the IndianCompanies Act and the SEBI (Buy Backof Securities) Regulations, 1998, as amended, a listed company may buy itsequity shares out of its free reserves or securities premium account or theproceeds of any fresh issue of equityshares or other specified securities if so authorized by the articles ofassociation. No buy-back of any kind of shares or other specified securitiescan be made out of the proceeds of an earlier issue of the same kind of securities.If such buy-back constitutes more than 10% of the total paid-up equity capitaland free reserves of the company, it shall require the approval of at least 75%of the shareholders present and voting at a general meeting of shareholders ofsuch company. A board resolution will constitute sufficient corporateauthorization for a buy-back within the above limit. A company may buy-back upto 25% of its paid-up equity capital and free reserves provided that thebuy-back of equity shares in any financial year shall not exceed 25% of thepaid-up equity capital of a company in that financial year.

 

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A company is not permitted to make any furtherissue (including a rights issue) of the same kind of shares or other specifiedsecurities within a period of six months of such buy-back, except by way of abonus issue or in discharge of its existing obligations such as conversion ofwarrants, stock option schemes, sweat equity or conversion of preference sharesor debentures into equity.

 

The buy-back may be (a) from the existingsecurity holders on a proportionate basis through a tender offer; (b) fromthe open market through (i) a book-building process or (ii) the stockexchange; (c) from odd-lot holders or (d) by purchasing thesecurities issued to the employees pursuant to a stock option plan or similarscheme. Buy-backs through negotiated deals, whether on a stock exchange orthrough spot transactions or through any other private arrangements, are notpermitted.

 

Any ADS holder may participate in a company’spurchase of its own shares by withdrawing its ADSs from the depositaryfacility, acquiring equity shares upon the withdrawal and selling such sharesback to the company. We cannot guarantee that equity shares offered by an ADSinvestor in any buy-back of shares by us will be accepted by us. The regulatoryapprovals required for ADS holders to participate in a buy-back are notentirely clear, and ADS investors are advised to consult their legal advisorsprior to participating in any buy-back of shares by us, including advicerelated to any related regulatory approvals and tax issues.

 

**Alteration of Shareholder Rights**

** **

Under the Indian Companies Act, and subject tothe provisions of the articles of association of a company and the relevant rules asissued by the Department of Company Affairs, the rights of any class ofshareholders can be altered or varied (i) with the consent in writing ofthe holders of not less than three-fourths of the issued shares of that class;or (ii) by the special resolution passed at a separate meeting of theholders of the issued shares of that class. In the absence of any suchprovision in the articles, such alteration or variation is permitted as long asit is not prohibited by the agreement governing the issue of the shares of thatclass. Under the Indian Companies Act, the articles may be amended by a specialresolution of the shareholders.

 

Our Articles can be amended if shareholdersholding not less than 75% of the equity shares (who are entitled to vote) castvotes in favor of each such amendment of the Articles and which shall includethe favorable votes of each of the AKP Group, the GKP Group, the NKP Group andGeneral Atlantic, so long as each of the respective groups hold at least 10% ofthe equity shares and vote on each amendment(s).

 

**Limitation on the Rights to Own Securities**

** **

The limitation on the rights to own securitiesof Indian companies, including the rights of non-resident or foreignshareholders to hold securities, are discussed below in “Item 10.D. AdditionalInformation—Exchange Controls”.

 

**TakeoverCode**

** **

The SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997, asamended, or the Takeover Code, prescribes certain thresholds of securitiesownership or trigger points that give rise to certain obligations thereunder.The Takeover Code requires disclosure of the aggregate shareholding or votingrights in a listed company by any acquirer who acquires shares or voting rightswhich (taken together with shares or voting rights, if any, already held by suchacquirer) entitle him to more than 5%, 10%, 14%, 54% or 74% of the shares orvoting rights in that company.

 

The SEBI has amended the Takeover Code to make it mandatory for thepromoters and promoter group of listed companies to disclose the creation and enforcementof a pledge on the equity shares held by such persons.

 

The Takeover Codealso requires (unless specifically exempted) the making of an open offer toacquire an additional 20% of the voting capital of a company in the followingcircumstances:

 

(a)   anyacquirer, who together with persons acting in concert with such acquirer,acquires or agrees to acquire 15% or more of the equity shares or voting rightsin the company;

 

(b)   anyacquirer who, together with persons acting in concert with such acquirer, hasacquired 15% or more, but less than 55%, of the equity shares or voting rightsin the shares of the company and who acquires additional shares or votingrights entitling such acquirer to exercise more than 5% of the voting rights (the post acquisitionshareholding of such acquirer together with persons acting in concert notexceeding 55%) in any financial yearending March 31;

 

(c)   anyacquirer who, together with persons acting in concert with such acquirer, hasacquired 55% or more, but less than 75%, of the shares or voting rights in theshares of the company (or, where the company concerned had obtained the initiallisting of its shares by making an offer of at least 10% of the issue size tothe public pursuant to Rule 19(2)(b) of the SCRR, less than 90% ofthe shares or voting rights in the company) and who acquires any additional shares entitling him to exercise votingrights; provided that an acquirer together with persons acting in concert mayacquire additional shares or voting rights entitling him to up to 5% votingrights in a company without making a public announcement if (i) theacquisition is made through open market purchase on the stock exchanges and (ii) thepost acquisition shareholding of the acquirer and persons acting in concert doesnot exceed 75%.

 

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(d)   anyacquirer who, together with persons acting in concert with such acquirer, holds55% or more, but less than 75%, of the shares or voting rights of the company(or, where the company concerned had obtained the initial listing of its sharesby making an offer of at least 10% of the issue size to the public pursuant to Rule 19(2)(b) ofthe SCRR, less than 90% of the shares or voting rights in the company), intendsto consolidate its holdings while ensuring that the public shareholding in thetarget company does not fall below the minimum level permitted by the listingagreement with the stock exchanges; or

 

(e)   anyacquirer who acquires control over the company (directly or indirectly),irrespective of whether there has been any acquisition of shares or votingrights in the company.

 

However, inthe event a public offer is made pursuant to paragraph (d) above, theminimum size of the public offer to acquire the voting capital of the targetcompany is required to be the lesser of (i) 20% of the voting capital ofthe company; or (ii) such other lesser percentage of the voting capital ofthe company as would, assuming full subscription of the offer, enable theacquirer, together with persons acting in concert with him, to increase hisholding to the maximum level possible, which is consistent with the targetcompany meeting the requirements of minimum public shareholding as set forth inthe listing agreement.

 

Further, if theacquisition of voting capital of a target company made by an acquirer pursuantto a public offer results in the public shareholding in the target companybeing reduced below the minimum level required in the listing agreements withthe stock exchanges for the purpose of continuous listing, the acquirer isrequired to take necessary steps to facilitate compliance of the target companywith the relevant provisions of the listing agreement within the time periodmentioned in the listing agreements.

 

The Takeover Codesets out the contents of the required public announcements as well as theminimum offer price. The minimum offer price depends on whether the shares ofthe company are “frequently” or “infrequently” traded (as defined in theTakeover Code). In case the shares of the company are frequently traded, theoffer price shall be the higher of:

 

·      thenegotiated price under the agreement for the acquisition of shares in thecompany;

 

·      thehighest price paid by the acquirer or persons acting in concert with him forany acquisitions, including through an allotment in a public, preferential orrights issue, during the 26-week period prior to the date of publicannouncement; and

 

·      the average of the weekly high and low of theclosing prices of the shares of the company quoted on the stock exchange wherethe shares of the company are most frequently traded during the 26-week periodprior to the date of public announcement, or the average of the daily high andlow of the prices of the shares as quoted on the stock exchange where theshares of the company are most frequently traded during the two weeks precedingthe date of public announcement, whichever is higher.

 

Specificobligations of the acquirer and the Board of Directors of the target company inthe offer process have also been specified. Acquirers making a public offeralso must deposit in an escrow account a percentage of the total considerationpayable under the public offer, which will be forfeited in the event that theacquirer does not fulfill its obligations.

 

The TakeoverCode, subject to certain conditions specified in the Takeover Code, exemptscertain specified acquisitions from the requirement of making a public offer,including, among others, the acquisition of shares (1) by allotment in apublic issue or a rights issue; (2) by underwriters pursuant to anunderwriting agreement; (3) by registered stockbrokers in the ordinarycourse of business on behalf of clients; (4) in unlisted companies; (5) pursuantto a scheme of reconstruction or amalgamation; (6) pursuant to a schemeunder Section 18 of the Sick Industries Companies (Special Provisions)Act, 1985; (7) resulting from, inter se transfers between companiesbelonging to the same group of companies as defined in the Monopolies andRestrictive Trade Practices Act, 1969, as amended or between relatives orbetween “qualifying promoters” of a publicly listed company or betweenqualifying Indian promoters and foreign collaborators who are shareholders; (8) byway of transmission through inheritance or succession; (9) resulting fromtransfers by Indian venture capital funds or foreign venture capital investorsregistered with SEBI, to promoters of a venture capital undertaking or venturecapital undertaking pursuant to an agreement between such venture capital fundsor foreign venture capital investors with such promoters or venture capital undertaking;(10) by the Government controlled companies, unless such acquisition ismade pursuant to a disinvestment process undertaken by the Government or astate government; (11) change in control by takeover/restoration of themanagement of the borrower company by the secured creditor in terms of theSecuritisation and Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002; (12) acquisition of shares by a person in exchangeof equity shares received under a public offer made under the Takeover Code;and (13) in terms of guidelines and regulations relating to delisting ofsecurities as specified by SEBI. The Takeover Code does not apply toacquisitions in the ordinary course of business by public financialinstitutions either on their own account or as a pledgee. An application mayalso be filed with the takeover panel seeking exception from the open offerrequirements of the Takeover Code.Pursuant to a amendment, a listed company can apply to the SEBI to waiverequirements under the Takeover Code in relation to an acquisition of a listedcompany in circumstances where the board of the listed company has been 

 

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taken over by the Government of India and there is a plan for atransparent and competitive process for the operations of the listed company.

 

In addition, the provisions of the Takeover Coderelating to making of a public offer do not apply to the acquisition ofAmerican Depository Receipts or Global Depository Receipts unless the holderthereof is entitled to exercise voting rights on the underlying shares or such AmericanDepository Receipts or Global Depository Receipts are exchanged for sharescarrying voting rights. In case theacquisition of American Depository Receipts or Global Depository Receiptsentitles then holder thereof to exercise voting rights in excess of thespecified percentages on the underlying shares, the public announcement for thetender offer is required to be made within four working days of acquisition ofsuch depositary receipts.

 

**Provisions on Changes in Capital**

** **

Our authorized capital can be altered by anordinary resolution of the shareholders in a general meeting. The additionalissue of equity shares is subject to the pre-emptive rights of theshareholders. In addition, a company may increase its share capital,consolidate its share capital into shares of larger face value than itsexisting shares or sub-divided its shares by reducing their par value, subjectto an ordinary resolution of the shareholders in a general meeting.

 

**Discriminatory Provisions in the Articles**

** **

Other than as stated herein, there are noprovisions in our Articles discriminating against any existing or prospectiveshareholder as a result of such shareholder owning a substantial number ofshares.

 

**10.C.Material Contracts**

** **

Other than described elsewhere in the documentherein, we have not entered into any material contracts in the two yearspreceding the date of this Annual Report, other than contracts entered into inthe ordinary course of business.

 

**10.D.Exchange Controls**

** **

The subscription,purchase and sale of shares of an Indian company are governed by various Indianlaws restricting the issuance of shares by the company to non-residents orsubsequent transfer of shares by or to non-residents. These restrictions havebeen relaxed in recent years. Set forth below is a summary of various forms ofinvestment, and the restrictions applicable to each, including the requirementsunder Indian law applicable to the issue of ADSs.

 

**ForeignDirect Investment**

** **

*Issues bythe Company*

* *

Over a period oftime, the Government of India has relaxed the restrictions on foreigninvestment. Subject to certain conditions, under current regulations, foreigndirect investment in most industry sectors does not require prior approval ofthe Foreign Investment Promotion Board or the Reserve Bank of India, if thepercentage of equity holding by all foreign investors does not exceed specifiedindustry-specific thresholds. These conditions include certain minimum pricingrequirements and ownership restrictions based on the nature of the foreigninvestor. Purchases by foreign investors of ADSs are treated as direct foreigninvestment in the equity issued by Indian companies for such offerings. Foreigninvestment of up to 100% of our share capital is currently permitted in the ITindustry.

 

*SubsequentTransfers*

* *

Restrictions forsubsequent transfers of shares of Indian companies between residents andnon-residents were relaxed significantly as of October 2004. The RBI hasgranted general permission to persons resident outside India to transfer sharesand convertible debentures held by them to an Indian resident, subject tocompliance with certain terms and conditions and reporting requirements. As aresult, for a transfer between a resident and a non-resident of securities ofan Indian company in the IT sector, such as ours, no prior approval of eitherthe RBI or the Government of India is required, as long as certain conditionsare met. These conditions include compliance, as applicable, with pricingguidelines, the Takeover Code, and the ownership restrictions based on thenature of the foreign investor. If a sale or purchase is conducted on a stockexchange at prevailing market prices, the pricing guidelines will be deemedsatisfied. For off-market, negotiated transactions, the guidelines require atransaction price based on the prevailing market price.

 

Transfers betweentwo non-residents by way of sale or gifts are not subject to RBI approvals orpricing restrictions.

 

*Calculation of Total ForeignInvestment in Indian Companies*

 

In 2009, the IndianGovernment issued two press notes setting out guidelines for foreign investmentin India. Press Note 2 of 2009 prescribes the guidelines for the calculation oftotal foreign investment (direct and indirect) in Indian companies. Press Note3 of 2009 prescribes the transfer of ownership or control of Indian companiesin 

 

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sectors with caps from resident Indian citizensto non-resident entities. Additionally, Press Note 4 of 2009 clarifies theguidelines on downstream investments by Indian companies.

 

**PortfolioInvestment by Non-Resident Indians**

** **

Investments bypersons of Indian nationality or origin residing outside of India, or NonResident Indians (NRIs), or registered Foreign Institutional Investors, orFIIs, made through a stock exchange are known as portfolio investments, orPortfolio Investments.

 

NRIs arepermitted to make Portfolio Investments on favorable tax and other terms underIndia’s Portfolio Investment Scheme. Under the scheme, an NRI can purchase upto 5% of the paid up share capital of an Indian company, subject to thecondition that the aggregate paid up share capital purchased by all NRIsthrough Portfolio Investments does not exceed 10% of the paid up capital of thecompany. This limit may be increased up to 24% by passing a special resolutionof its members. We have not obtained shareholder approval for an increase inthe aforesaid 10% limit. In addition to Portfolio Investments in Indiancompanies, NRIs may also make foreign direct investments in Indian companiespursuant to the foreign direct investment route discussed above.

 

Overseascorporate bodies, or OCBs, i.e., entities in which at least 60% is owned byNRIs, were previously permitted to invest on favorable terms under thePortfolio Investment Scheme. With effect from September 16, 2003, OCBs that have availed benefits are nolonger recognized by the RBI as an eligible class of investors in India.  Accordingly, such OCBs will not be eligible to subscribe for ADSs.

 

**Investmentby Foreign Institutional Investors**

** **

Currently, FIIssuch as pension funds, investment trusts, insurance or reinsurance companies,international or multilateral organizations and asset management companies, areeligible to make Portfolio Investments on favorable terms in all the securitiestraded on the primary and secondary markets in India. Investment by FIIs incertain sectors is prohibited.

 

The Securitiesand Exchange Board of India (Foreign Institutional Investors) Regulations, 1995provide that no single FII may hold more than 10% of a company’s total issuedcapital in its own name, and where an FII is investing on behalf of asub-account, the investment on behalf of such sub-account is not permitted toexceed 10% of the total issued capital of the Company.

 

The total holding in an Indian company of allFIIs together with their sub-accounts is subject to a cap of 24% of the totalissued capital of the company, which may be increased up to the percentage ofsectoral cap on FDI in respect of the said company pursuant to a resolution ofthe Board of Directors of the company and the approval of the shareholders ofthe company by a special resolution. For arriving at the ceiling on holdings ofFIIs, investments made by FIIs through ADRs are not included. We have not obtained shareholder approval foran increase in the aforesaid 24% limit.

 

There isuncertainty under Indian law about the tax regime applicable to FIIs that holdand trade ADSs. FIIs are urged to consult with their Indian legal and taxadvisers about the relationship between the FII guidelines and the ADSs and anyequity shares withdrawn upon surrender of the ADSs.

 

**ADSs**

** **

*Issue ofADSs*

* *

Subject to thefulfillment of certain conditions, including compliance with the Issue ofForeign Currency Convertible Bonds and Ordinary Shares (Through DepositoryReceipt Mechanism) Scheme, 1993 as amended from time to time, or the 1993Regulations,  Indian companies issuingADSs are not required to obtain the prior approval of the Ministry of Financeor the Reserve Bank of India (RBI),except in certain cases. An Indian company issuing ADSs must comply withcertain reporting requirements specified by the RBI.

 

The Governmentof India has amended the 1993Regulations to provide a pricing floor for Global Depositary Receipt (whichincludes ADSs) and Foreign Currency Convertible Bond issues. Under the revisedregulations, the offer price of the GDSs/ADSs cannot be less than the averageof the weekly high and low of the closing prices of the shares as quoted on theBSE or the NSE during the two weeks immediately preceding the date of the meeting of the board of directors (ora duly authorized committee of the board) that decides to open the proposedissue.

 

*Fungibilityof ADSs*

 

Asper the directions issued by the RBI on the two-way fungibility of ADSs, aperson resident outside India is permitted to purchase, through a registeredstock broker in India, shares of an Indian company for the purposes ofconverting the same into ADSs, subject, *inter alia*, tothe following conditions:

 

·      the shares of the Indiancompany are purchased on a recognized stock exchange in India;

·      the shares of the Indiancompany are purchased on a recognized stock exchange with the permission of thedomestic custodian for the ADSs issued by the Indian company and such sharesare deposited with the custodian after purchase;

 

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·      the Indian company hasauthorized the custodian to accept shares from non-resident investors forreissuance of ADSs;

·      the number of shares of theIndian company so purchased does not exceed the ADSs converted into underlyingshares and shall be subject to sectoral caps, as applicable; and

·      compliance with theprovisions of the 1993 Regulations.

 

*SponsoredADS Facilities*

 

By notification dated November 23,2002, the RBI has permitted existing shareholders of Indian companies to selltheir shares through the issue of ADSs against the block of existing shares ofan Indian company, subject to the following conditions:

 

·      the facility to sell theshares will be available *pari passu*toall categories of shareholders;

·      the sponsoring company whoseshareholders propose to divest existing shares in the overseas market throughthe issue of ADSs will give an option to all its shareholders indicating thenumber of shares to be divested and the mechanism of determining the priceunder the applicable ADS norms. If the shares offered for divestment are morethan the pre-specified number to be divested, shares would be accepted from theexisting shareholders in proportion to their existing shareholdings;

·      the proposal for divestmentof the shares will have to be approved by a special resolution of theshareholders of the Indian company in a general meeting;

·      the proceeds of the ADS issueraised abroad shall be repatriated to India within a period of one month fromthe closing of the issue. However, the proceeds of the ADS offering can also beretained abroad to meet the future foreign exchange requirements of thecompany; and

·      the issue-related expenses inrelation to the public issue of ADSs under this scheme will be subject to aceiling for public issues and private placements of GDSs/ ADSs. Issue-relatedexpenses will include underwriting commissions and charges, legal expenses andreimbursable expenses. Issue-related expenses shall be passed on to shareholdersparticipating in the sponsored issue on a pro-rata basis. Issue-relatedexpenses beyond the ceiling will require the approval of the RBI.

 

The issuer isalso required to furnish a report to the RBI specifying the details of theoffering, including the amount raised through the offering, the number of ADSsissued, the underlying shares offered, the percentage of foreign equity in theissuer represented by the ADSs, details of issue parameters and details ofrepatriation within 30 days of such issue.

 

*Transfer ofADSs and Surrender of ADSs*

* *

***A person resident outside India may transfer the ADSs heldin Indian companies to another person resident outside India without priorapproval of Government of India or the RBI. Other than mutual funds that may purchaseADSs subject to terms and conditions specified by the RBI, a person resident inIndia is not permitted to hold ADSs of an Indian company, except in connectionwith the exercise of stock options. An ADS holder is permitted to surrender theADSs held by him in an Indian company and to receive the underlying equityshares under the terms of the deposit agreement.***

*** ***

**10.E.Taxation**

** **

**IndianTaxation**

** **

*General*

* *

The followingsummary is not intended to constitute a complete analysis of the individual taxconsequences to non-resident holders or employees under Indian law for theacquisition, ownership and sale of ADSs and equity shares. This summary isbased on the law and practice of the Indian Income-tax Act, 1961, or Income-TaxAct, including the special tax regime contained in Sections 115AC and115ACA of the Income-tax Act read with the 1993 Regulations. The Income-tax Act is amended every year by theFinance Act of the relevant year. Some or all of the tax consequences ofSections 115AC and 115ACA may be amended or changed by future amendments to theIncome-tax Act.

 

**EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITSOWN TAX ADVISORS WITH RESPECT TO INDIAN AND LOCAL TAX CONSEQUENCES OFACQUIRING, OWNING OR DISPOSING OF EQUITY SHARES OR ADSs.**

** **

***Levy of Income Tax***

 

In India, tax is charged on the basis of theresidential status of a person (under terms of the provisions of the IndianIncome Tax Act) on his/her total income in the previous year, at the rates asspecified in the Finance Act as applicable in the relevant assessment year. Aperiod of 12 months commencing on the first day of April every year isreferred to as an Assessment Year. Generally, the Previous Year means thefinancial year immediately preceding the Assessment Year. Tax is paid in the AssessmentYear on income earned in the Previous Year. In general, in the case of a personwho is “resident” in India in a previous year, his/her global income is subjectto tax in India. In the case of a person who is “non-resident” in India, onlythe income that is received or deemed to be received in India or the incomethat accrues or arises or is deemed to accrue or arise to such person in Indiais subject to tax in India. In the case of a person who is “not ordinarilyresident” in India, the income chargeable to 

 

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tax is the same as persons who are resident andordinarily resident except that the income which accrues or arises outsideIndia is not included in his total income unless it is derived from a businesscontrolled from India.

 

***Residence***

*** ***

For purposes of the Income-tax Act, anindividual is considered to be a resident of India during any previous year if heor she is in India in that year for:

 

182 days or more in a previous year

 

OR

 

60 days or more in that previous year if theperson has been present in India for 365 days or more in the preceding fouryears.

 

However, where the person concerned is a personof Indian origin, or a person who has left India for employment outside India,the person will be considered a resident of India only when present in Indiafor a period of 182 days in the previous year, even though the person has beenpresent in India for 365 days or more in the preceding four years.

 

An Individual would be considered “notordinarily resident” if he / she is resident in India in a particular PreviousYear but has been a non-resident in India for a period of 9 out of 10 yearsbefore that year, OR has been present in India for 729 days or less in the 7years previous to that year.

 

A company is a resident of India if it isincorporated in India or the control and the management of its affairs issituated wholly in India. Individuals and companies that are not residents ofIndia would be treated as non-residents for purposes of the Income-tax Act.

 

***Taxation ofDistributions***

*** ***

Currently dividend income is exempt from tax forall shareholders (whether resident in India or not). However, the companydeclaring/distributing dividends is required to pay, in addition to corporatetax, a tax on dividends distributed, called dividend distribution tax at therate of 16.995% including a surcharge of 10% on the total amounts distributedas dividend and an education and a Higher education cess at the rate of 2% and1%, respectively of such tax andsurcharge.

 

Any distributions of additional ADSs or equityshares to resident or non-resident holders will not be subject to Indian tax.

 

***Taxation of CapitalGains***

*** ***

The following is a brief summary of capitalgains taxation of non-resident holders and resident employees relating to thesale of ADSs and equity shares received upon conversion of ADSs. The relevantprovisions are contained mainly in sections 45, 47(vii)(a), 115AC and 115ACA,of the Income-tax Act, in conjunction with the Issue of Foreign CurrencyConvertible Bonds and Ordinary Shares Scheme.

 

Under the Income-tax Act, capital gains can beof two types, “long term capital gain” or “short term capital gain”. Normally,gains arising on the sale of capital assets held for more than 36 months areconsidered long term capital gains and gains arising on the sale of capitalassets held for 36 months or less, are considered short term capital gains.However, gains arising from the sale of a capital asset, being shares held in acompany for more than 12 months (measured from the date of advice by adepositary to a Custodian of the delivery of the shares in exchange for ADS)are considered long term capital gains. Gains arising from the sale of sharesheld for a period of twelve months or less are considered as short term capitalgains.

 

Capital gains are taxed as follows:

 

·  Gains from asale of ADSs outside India, by a non-resident to another non-resident are not taxablein India.

 

·  Conversion ofthe ADS into the underlying shares is not taxable in India.

 

Pursuant to Section 115AC of the Income-taxAct read with the provisions of the 1993 Regulations, long term capital gainsrealized on sale of ADSs (not covered above) will be subject to tax at the rateof 10% excluding the applicable general surcharge and education surcharge.Where the beneficial holder of the ADS is an individual the tax shall beincreased by education cess of 2% and Higher education cess 1% on tax andgeneral surcharge. Where the beneficial holder is a non-resident company, theabove amount of tax shall be increased by a 2.5% general surcharge and 2% and1% education cess and Higher education cess respectively. This tax is levied inIndia by withholding the tax at the above rates.

 

Any income arising from the transfer of equityshares held as long term capital asset that is subject to securitiestransaction tax, which is effective from October 1, 2004, shall be exemptfrom long term capital gains tax. Any income arising from the transfer ofequity shares held as a short term capital asset, that is subject to securitiestransaction tax (effective from October 1, 2004), shall be taxed at a rateof 15 % (effective 1April 1, 2008)plus a 2.5% surcharge in case of foreign companies, and an additional 2% and 1%education cess and Higher education cess respectively on tax and surchargeamount.

 

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The aforesaid tax rates with respect to capitalgains may be reduced as per the provisions of the double tax avoidanceagreements that India has signed with the home jurisdictions of thenon-resident holders.

 

***Taxation of Business Income***

** **

The income from the transfer of shares held inan Indian company may be characterized as trading income, on the basis ofvarious factors, including the purpose of the holding by the investor, periodof holding, the manner and method of investment and transfer, etc. Where sharesare held under an employee stock option scheme, it is unlikely that the incomefrom transfer of these shares will be characterized as trading income.

 

Where the income is classified as trading orbusiness income, and is found liable to tax in India, non-resident companieswill be taxed in India on the net income at the rate of 40% increased by 2.5%surcharge and 2% and 1% education and Higher education cess respectively.Further, MAT will apply in such cases. Non-residents other than companies orresidents will be taxed at 30% increased by 2% and 1% education and Highereducation cess respectively, on trading or business income.

 

***Minimum Alternate Tax (MAT)***

 

Pursuant to the changes introduced by theFinance Bill, 2009, the corporate shareholders may be subject to a MinimumAlternate Tax (“MAT”). As per the Income-tax Act, if the tax payable by anycompany (including a foreign company) is less than 15 % of its book profits, itwill be required to pay MAT which will be deemed to be 16.995% of such bookprofits, in case of a foreign company.

 

Further, the provisions of MAT will also beapplicable to corporates from the tax year beginning April 1, 2007claiming deduction under section 10A and 10B of the Indian Income Tax Act. (whichmainly includes IT companies) and based on the provisions, corporates will beliable to pay MAT at the rate of 16.995% (including a surcharge of 10% and aneducation cess and a Higher education cess at the rate of 2% and 1%, respectively of such tax andsurcharge) or tax computed as per normal provisions, whichever is higher.

 

***Securities Transaction Tax***

*** ***

The Finance Act, 2004 has introduced certain newprovisions with regard to taxes on the sale and purchase of securities,including equity shares. On and after October 1, 2004, in respect of asale and purchase of equity shares entered into on a recognized stock exchange,(i) both the buyer and seller are required to pay each a SecuritiesTransaction Tax, or STT at the rate of 0.125% of the transaction value of thesecurities, if a transaction is a delivery based transaction i.e. thetransaction involves actual delivery or transfer of shares; (ii) theseller of the shares is required to pay a STT at the rate of 0.025% of thetransaction value of the securities, if the transaction is a non-delivery basedtransaction, i.e. a transaction settled without taking delivery of the shares.The Finance Bill, 2008 proposes to impose STT, effective from April 12008, with respect to a sale and purchase of a derivative in a recognized stockexchange as follows: (i) in case of sale of an option in securities, theseller is required to pay an STT at the rate of 0.017% of the option premium;(ii)in case of a sale of an option in securities, where the option isexercised, the buyer is required to pay a STT at the rate of 0.125% of thesettlement price; and (iii) in case of sale of futures in securities, theseller is required to pay STT at 0.017%.The STT can be set-off against businessincome tax, in accordance with the provisions of the Income-tax Act, providedthe gains on the transactions are taxed as business income and not as capitalgains.

 

***Mode of Computation ofCapital Gain***

*** ***

Capital gains tax is computed by applying theappropriate tax rate on the difference between the sale price and the purchaseprice of the capital asset. For the purpose of determining the amount ofcapital gains arising from the sale of shares, converted on surrender of theADS, the cost of acquisition of such shares shall be prevailing price of sharesat the Indian Stock Exchanges, on the date on which the depositary advises theCustodian of the release of such shares on such surrender of the ADS and notthe acquisition cost of the ADS being exchanged*.*According to the 1993 Regulations, a non-resident holder’s holding period forthe purpose of determining the applicable Indian capital gains tax raterelating to equity shares received in exchange for ADSs commences on the dateof the notice of the redemption by the Depositary to the custodian. However,the 1993 Regulations does not address this issue in the case of residentemployees, and it is therefore unclear as to when the holding period for thepurposes of determining capital gains tax commences for such a residentemployee.

 

The 1993 Regulations provides that if the equityshares are sold on a recognized stock exchange in India against payment inIndian rupees, they will no longer be eligible for preferential tax treatment.It is unclear as to whether section 115AC and the 1993 Regulations are applicableto a non-resident who acquires equity shares outside India from a non-residentholder of equity shares after receipt of the equity shares upon conversion ofthe ADSs. It is unclear as to whether capital gains derived from the sale ofsubscription rights or other rights by a non-resident holder not entitled to anexemption under a tax treaty will be subject to Indian capital gains tax. Ifsuch subscription rights or other rights are deemed by the Indian taxauthorities to be situated within India, the gains realized on the sale of suchsubscription rights or other rights will be subject to Indian taxation. Thecapital gains realized on the sale of such subscription rights or other rights,which will generally be in the nature of short term capital gains, will besubject to tax at variable rates with a maximum rate of 40% excluding theapplicable general surcharge of 2.5% and education of 2% and Higher educationcess of 1% in case of a foreign company, and 30%, excluding the applicablegeneral surcharge and education and Higher education cess, in case of residentand non-resident employees at the applicable slab rate (10%, 20% or 30%, as thecase may be) plus 2% and 1% education and Higher education cess respectively ontax and general surcharge. In case of persons other 

 

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than individuals and companies, the rate of taxwould be 30% and increased by a 2% and 1% education and Higher education cessrespectively.

 

***Withholding tax oncapital gains***

*** ***

Any taxable gain realized by a non-resident onthe sale of ADSs or equity shares is to be withheld at the source by the buyer.However, as per the provisions of section 196D(2) of the Income-tax Act,no withholding tax is required to be deducted from any income by way of capitalgains arising to Foreign Institutional Investors as defined in section 115AD ofthe Income-tax Act on the transfer of securities defined therein, where theinvestment is made under the FII regime.

 

***Buy-back of securities***

*** ***

Indian companies are not subject to any tax onthe buy-back of their shares from its shareholders in accordance with theprovisions of Section 77A of the IndianCompanies Act, 1956. However, the shareholders will be taxed on anyresulting gains. We would be required to deduct tax at source according to thecapital gains tax liability of a non-resident shareholder.

 

***Stamp Duty and TransferTax***

*** ***

Upon issuance of the equity shares underlyingour ADSs, we will be required to pay a stamp duty of 0.1% per share of theissue price of the underlying equity shares. A transfer of ADSs is not subjectto Indian stamp duty. However, in the event that a holder of ADS wishes toenforce its rights under the ADS, and bring the instrument into India for thispurpose, the holder of ADS may be required to pay stamp duty on the ADS at theapplicable rate. Shares must be traded in dematerialized form and the transferof shares in dematerialized form is currently not subject to stamp duty.

 

***Wealth Tax***

*** ***

The holding of the ADSs and the holding ofunderlying equity shares by resident and non-resident holders is not subject toIndian wealth tax. Non-resident holders are advised to consult their own taxadvisors regarding this issue.

 

***Gift Tax and EstateDuty***

*** ***

Currently, there are no gift taxes or estateduties applicable to the gifting or inheritance of ADSs or equity shares.Shares/ADS gifted to the donee by his relative and for values less than Rs50,000 from non-relatives are not taxable. In all other cases, the fair marketvalue of such shares/ADS in excess of Rs 50,000 would be subject to tax atapplicable rates as other income . However, these taxes and duties could berestored in the future. Non-resident holders are advised to consult their owntax advisors regarding this issue.

 

***Service tax***

*** ***

Brokerage or commission paid to stock brokers inconnection with the sale or purchase of shares is subject to a service tax of10%, plus education cess of 2% and Higher education cess of 1% on tax. Thestock broker is responsible for collecting the service tax from the shareholderand paying it to the government account.

 

**U.S.Federal Income Tax Considerations**

** **

The following isa discussion of certain material U.S. Federal income tax consequences ofpurchasing, owning and disposing of equity shares and ADSs. This discussiondoes not purport to be a comprehensive description of all of the U.S. taxconsiderations that may be relevant to a particular person’s decision to acquirethe equity shares or ADSs including any state, local or non-U.S. taxconsequences of the ownership of the equity shares or ADSs.

 

**EACH HOLDER OF ADSs SHOULDCONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE U.S. FEDERAL, STATE, LOCALAND FOREIGN TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF EQUITYSHARES AND ADSs IN HIS OR HER PARTICULAR SITUATION.**

** **

This discussionapplies to only to those investors that hold equity shares or ADSs as capitalassets for U.S. tax purposes (generally, for investment). This section does notapply to holders that may be subject to special tax rules, including but notlimited to:

 

·  a dealer in securities or currencies;

 

·  a trader in securities that elects to use amark-to-market method of accounting for your securities holdings;

 

·  a bank, insurance company or other financialinstitution;

 

·  a regulated investment company or real estateinvestment trust;

 

·  atax-exempt organization;

 

·  a holder liable for alternative minimum tax;

 

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·  a holder that actually or constructively owns10% or more by voting power or value of our stock;

 

·  a holder that holds equity shares or ADSs aspart of a straddle, hedging or conversion transaction; or

 

·  a U.S. holder whose functional currency is notthe U.S. Dollar.

 

·  a U.S. expatriate;

 

·  a holder that purchases or otherwiseacquires equity shares or ADSs other than through this offering; or

 

·  aholder that acquired equity shares or ADSs pursuant to the exercise of anyemployee share option or otherwise as compensation

 

This section isbased on the U.S. Internal Revenue Code of 1986, as amended, or the Code, itslegislative history, existing and proposed U.S. Treasury regulations, publishedrulings and other administrative guidance of the U.S. Internal Revenue Serviceand court decisions, all as in effect on the date hereof. These laws aresubject to change or different interpretation by the U.S. Internal RevenueService or a court, possibly on a retroactive basis.

 

You are a “U.S.holder” if you are a beneficial owner of equity shares or ADSs and you are:

 

·  a citizen or resident individual of the UnitedStates;

 

·  a U.S. domestic corporation, or other entitytreated as a domestic corporation for U.S. Federal income tax purposes;

 

·  an estate whose income is subject to U.S.Federal income tax regardless of its source; or

 

·  a trust if a U.S. court can exercise primarysupervision over the trust’s administration and one or more U.S. persons areauthorized to control all substantial decisions of the trust.

 

In addition, thisdiscussion is limited to U.S. holders who are not resident in India forpurposes of the DTAT between the United States and India.

 

If a partnership(including for this purpose any entity treated as a partnership for U.S. taxpurposes) is a beneficial owner of the equity shares or ADSs, the U.S. taxtreatment of a partner in the partnership generally will depend on the statusof the partner and the activities of the partnership. A holder of the equityshares or ADSs that is a partnership and partners in such a partnership shouldconsult their own tax advisors about the U.S. Federal income tax consequencesof holding and disposing of the equity shares or ADSs.

 

A “non-U.S.holder” is a beneficial owner of equity shares or ADSs that is not a U.S.person for U.S. Federal income tax purposes.

 

For U.S. Federalincome tax purposes, holders of ADSs will be treated as the owners of equityshares represented by such ADSs. Accordingly, nogain or loss will be recognized upon the exchange of an ADS for equity shares.A U.S. holder’s tax basis in the equity shares will be the same as the taxbasis in the ADS surrendered therefor, and the holding period in the equityshares will include the period during which the holder held the surrenderedADS.

 

We believe thatwe will not be a passive foreign investment company, or PFIC, for U.S. Federalincome tax purposes for the current taxable year. However, we cannot assure youthat we will not be considered a PFIC in the current or future years. Thedetermination whether or not we are a PFIC is a factual determination that isbased on the types of income we earn and the value of our assets and cannot bemade until the close of the applicable tax year. If we were currently or wereto become a PFIC, U.S. holders of equity shares or ADSs would be subject tospecial rules and a variety of potentially adverse tax consequences underthe Code.

 

*Taxation ofDividends*

* *

*U.S. Holders.***Subject to the PFIC rules referred tobelow, under the U.S. Federal income tax laws, if you are a U.S. holder, youmust include in your gross income the gross amount of any dividend paid by usout of our current or accumulated earnings and profits (as determined for U.S.Federal income tax purposes). You must include the amount of any Indian tax withheldfrom the dividend payment in this gross amount even though you do not in factreceive it. The dividend is ordinary income that you must include in incomewhen you receive the dividend, actually or constructively. Dividends receivedby an individual taxpayer during taxable years beginning before January 1,  2011 will be taxed at a maximum rate of 15%,where certain holding period and other requirements are satisfied, if suchdividends constitute qualified dividend income. Qualified dividend income includesdividends paid by a Qualified Foreign Corporation, and we believe that we are,and will continue to be, a Qualified Foreign Corporation. Holders of ADSs andequity shares should consult their own tax advisors regarding the availabilityof the reduced dividend tax rate in light of their own particularcircumstances. Dividends will not be eligible for the dividends-receiveddeduction generally allowed to U.S. corporations in respect of dividendsreceived from other U.S. corporations.

 

The amount of thedividend distribution that you must include in your income as a U.S. holderwill be the U.S. Dollar value of the Indian rupee payments made, determined atthe spot Indian rupee/U.S. Dollar exchange rate on the date the dividenddistribution is includible in your income, regardless of whether the payment isin fact converted into U.S. Dollars. If the foreign currency received as adividend is not converted into U.S. dollars on the 

 

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date of receipt,a U.S. holder will have a basis in the foreign currency equal to its U.S.dollar value on the date of receipt. Generally, any gain or loss resulting fromcurrency exchange fluctuations during the period from the date you include thedividend payment in income to the date you convert the payment into U.S.Dollars will be treated as ordinary income or loss. The gain or loss generallywill be income or loss from sources within the United States for foreign taxcredit limitation purposes. If we distribute non-cash property as a dividend,you generally will include in income an amount equal to the fair market valueof the property, in U.S. Dollars, on the date that it is distributed. Subjectto certain limitations, a U.S. holder may be entitled to a credit or deductionagainst its U.S. Federal income taxes for the amount of any Indian taxes thatare withheld from dividend distributions made to such U.S. holders. Thedecision to claim either a credit or deduction must be made annually, and willapply to all foreign taxes paid by the U.S. holder to any foreign country orU.S. possession with respect to the applicable tax year.

 

Dividends paid on equity shares or ADSs willgenerally be treated as foreign source income for U.S. foreign tax credit purposes underspecial U.S. Federal income tax rules, subject to various classifications andother limitations. The rules relating to computing foreign tax credits arecomplex. You should consult your own tax advisor to determine the foreign taxcredit implications of owning equity shares or ADSs.

 

Distributions inexcess of current and accumulated earnings and profits, as determined for U.S.Federal income tax purposes, will be treated as a non-taxable return of capitalto the extent of your basis in the equity shares and ADSs and thereafter ascapital gain.

 

*Non-U.S. Holders.***Dividends paid to non-U.S. holders generallywill not be subject to U.S. income tax unless the dividends are “effectivelyconnected” with your conduct of a trade or business within the United States,and the dividends are attributable to a permanent establishment (or in the caseof an individual, a fixed place of business) that you maintain in the UnitedStates if that is required by an applicable income tax treaty as a conditionfor subjecting you to U.S. taxation on a net income basis. In such cases yougenerally will be taxed in the same manner as a U.S. holder, and will not besubject to U.S. Federal withholding tax. If you are a corporate non-U.S.holder, “effectively connected” dividends may, under certain circumstances, besubject to an additional “branch profits tax” at a 30% rate or a lower rate ifyou are eligible for the benefits of an income tax treaty that provides for alower rate.

 

*Taxation ofCapital Gains*

* *

*U.S. Holders.***Subject to the PFIC rules referred tobelow, if you are a U.S. holder and you sell or otherwise dispose of yourequity shares or ADSs, you will recognize capital gain or loss for U.S. Federalincome tax purposes equal to the difference between the U.S. Dollar value ofthe amount that you realize and your tax basis, determined in U.S. Dollars, inyour equity shares or ADSs. Prior to January 1,  2011, capital gains of a non-corporate U.S.holder are generally taxed at a maximum rate of 15% where the property is heldfor more than one year. The gain or loss will generally be income or loss fromsources within the United States for foreign tax credit limitation purposes,unless it is attributable to an office or other fixed place of business outsidethe United States and certain other conditions are met. Your ability to deductcapital losses is subject to limitations.

 

For cash-basis U.S. holderswho receive foreign currency in connection with a sale or other taxabledisposition of equity shares or ADSs, the amount realized will be based uponthe United States dollar value of the foreign currency received with respect tosuch equity shares or ADSs as determined on the settlement date of such sale orother taxable disposition.

 

Accrual-basis U.S. holdersmay elect the same treatment required of cash-basis taxpayers with respect to asale or other taxable disposition of equity shares or ADSs, provided that theelection is applied consistently from year to year. Such election cannot bechanged without the consent of the United States IRS. Accrual-basis U.S.holders that do not elect to be treated as cash-basis taxpayers (pursuant tothe Treasury Regulations applicable to foreign currency transactions) for thispurpose may have a foreign currency gain or loss for United States Federalincome tax purposes because of differences between the United States dollarvalue of the foreign currency received prevailing on the date of such sale orother taxable disposition and the value prevailing on the date of payment. Anysuch currency gain or loss will generally be treated as ordinary income or lossthat is United States source, in addition to the gain or loss, if any,recognized on the sale or other taxable disposition of equity shares or ADSs.

 

*Non-U.S. Holders.***If you are a non-U.S. holder, you will not besubject to U.S. Federal income tax on gain recognized on the sale or otherdisposition of your equity shares or ADSs unless:

 

·  the gain is “effectively connected” with yourconduct of a trade or business in the United States, and the gain isattributable to a permanent establishment (or in the case of an individual, afixed place of business) that you maintain in the United States if that isrequired by an applicable income tax treaty as a condition for subjecting youto U.S. taxation on a net income basis; or

 

·  you are an individual, you are present in theUnited States for 183 or more days in the taxable year of the sale and certainother conditions exist.

 

In the firstcase, the non-U.S. holder will be taxed in the same manner as a U.S. holder. Inthe second case, the non-U.S. holder will be subject to U.S. Federal income taxat a rate of 30% on the amount by which such the non-U.S. holder’s U.S.-sourcecapital gains exceed such non-U.S. holder’s U.S.-source capital losses.

 

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If you are acorporate non-U.S. holder, “effectively connected” gains that you recognize mayalso, under certain circumstances, be subject to an additional “branch profitstax” at a 30% rate or at a lower rate if you are eligible for the benefits ofan income tax treaty that provides for a lower rate.

 

*PFIC Rules*

* *

We believe thatour equity shares and ADSs will not be treated as stock of a PFIC for U.S.Federal income tax purposes for the current tax year. The determination ofwhether or not we are a PFIC is a factual determination that cannot be madeuntil the close of the applicable tax year and that is based on the types ofincome we earn and the value of our assets (including goodwill), both of whichare subject to change. In calculating goodwill for this purpose, we will valueour total assets based on the total market value, determined with reference tothe then market price of the equity shares and ADSs, and will makedeterminations regarding the amount of this value allocable to goodwill.Because the determination of goodwill will be based on the market price of theequity shares and ADSs, it is subject to change. It is possible that the U.S.Internal Revenue Service may challenge our valuation of our assets (includinggoodwill), which may result in our being classified as a PFIC. Thus, it ispossible that we may be or become a PFIC in the current or any future taxableyear and we cannot assure you that we will not be considered a PFIC in any suchtax year.

 

In general, ifyou are a U.S. holder, we will be a PFIC with respect to you if for any taxableyear in which you held the equity shares or ADSs:

 

·  at least 75% of our gross income for thetaxable year is passive income; or

 

·  at least 50% of the value, determined on thebasis of a quarterly average, of our assets is attributable to assets thatproduce or are held for the production of passive income.

 

Passive incomegenerally includes dividends, interest, royalties, rents (other than certainrents and royalties derived in the active conduct of a trade or business), theexcess of gains over losses from certain types of transactions in commodities,annuities and gains from assets that produce passive income. If a foreigncorporation owns at least 25% by value of the stock of another corporation, theforeign corporation is treated for purposes of the PFIC tests as owning itsproportionate share of the assets of the other corporation, as receivingdirectly its proportionate share of the other corporation’s income.

 

If we are treatedas a PFIC, and you are a U.S. holder that did not make a mark-to-marketelection, as described below, you will be subject to special rules withrespect to:

 

·  any gain you realize on the sale or otherdisposition of your equity shares or ADSs; and

 

·  any excess distribution that we make to you(generally, any distributions to you during a single taxable year that aregreater than 125% of the average annual distributions received by you inrespect of the equity shares or ADSs during the three preceding taxable yearsor, if shorter, your holding period for the equity shares or ADSs).

 

Under theserules:

 

·  the gain or excess distribution will beallocated ratably over your holding period for the equity shares and ADSs;

 

·  the amount allocated to the taxable year inwhich you realized the gain or excess distribution will be taxed as ordinaryincome;

 

·  the amount allocated to each prior year, withcertain exceptions, will be taxed at the highest tax rate in effect for thatyear; and

 

·  the interest charge generally applicable tounderpayments of tax will be imposed in respect of the tax attributable to eachsuch year.

 

Special rules applyfor calculating the amount of the foreign tax credit with respect to excessdistributions by a PFIC.

 

If you own sharesin a PFIC that are treated as marketable stock, you may make a mark-to-marketelection. If you make this election in a timely fashion, you will not besubject to the PFIC rules described above. Instead, in general, you willinclude as ordinary income each year the excess, if any, of the fair marketvalue of your equity shares and ADSs at the end of the taxable year over youradjusted basis in your equity shares and ADSs. You will also be allowed to takean ordinary loss in respect of the excess, if any, of the adjusted basis ofyour equity shares and ADSs over the fair market value at the end of thetaxable year (but only to the extent of the net amount of previously includedincome as a result of the mark-to-market election). Your basis in the equityshares and ADSs will be adjusted to reflect any such income or loss amounts.

 

We do not intendto furnish you with the information that you would need in order to make a “qualifiedelecting fund” election to include your share of its income on a current basis.

 

If you own equityshares or ADSs during any year that we are a PFIC, you must file U.S. InternalRevenue Service Form 8621 that describes the distribution received on theequity shares or ADSs and the gain realized on the disposition of the equityshares or ADSs. The reduced tax rate for dividend income, discussed in “Taxationof Dividends,” is not applicable to dividends paid by a PFIC.

 

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*InformationReporting and Backup Withholding*

* *

In general,information reporting requirements will apply to dividends in respect of equityshares or ADSs or the proceeds received on the sale, exchange or redemption ofequity shares or ADSs paid within the United States (and, in certain cases,outside the United States) to U.S. holders other than certain exemptrecipients, such as corporations, and backup withholding tax at the rate of 28%may apply to such amounts if the U.S. holder fails to provide an accuratetaxpayer identification number (or otherwise establishes, in the mannerprovided by law, an exemption from backup withholding) or to report dividendsrequired to be shown on the U.S. holder’s U.S. Federal income tax returns.

 

Backupwithholding is not an additional income tax, and the amount of any backupwithholding from a payment to a U.S. holder will be allowed as credit againstthe U.S. holder’s U.S. Federal income tax liability provided that theappropriate returns are filed.

 

A Non-U.S. holdergenerally may eliminate the requirement for information reporting and backupwithholding by providing certification of its foreign status to the payer,under penalties of perjury, on IRS Form W-8BEN.

 

**10.F.Dividends and paying agents**

** **

**Not applicable**

** **

**10.G.Statement by experts**

** **

Not applicable

 

**10.H.Documents on display**

** **

This report and other information filed or to befiled by us can be inspected and copied at prescribed rates at the publicreference facilities maintained by the SEC at:

 

**Judiciary Plaza100 F Street, N.E.Public Reference RoomWashington, D.C. 20459**

** **

The SEC maintainsa website at www.sec.gov that contains reports, proxy and informationstatements, and other information regarding registrants that make electronicfilings with the SEC using its EDGAR system.

 

Our periodicreports and other information may also be inspected at the offices of the NewYork Stock Exchange located at 20 Broad Street, New York, New York 10005.

 

Additionally,documents referred to in this Form 20-F may be inspected at our corporateoffice which is located at Akruti Softech Park, MIDC Cross Road No. 21,Andheri (E), Mumbai-400 093, India.

 

**10.I.Subsidiary information**

** **

Not applicable

 

**ITEM11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

** **

***General***

*** ***

Market risk is the loss of future earnings, orreduction in fair value or future cash flows that may result from a change inthe price of a financial instrument. The value of a financial instrument maychange as a result of changes in interest rates, foreign currency exchangerates, equity prices and other market changes that affect market risk sensitiveinstruments. Market risk is attributable to all market sensitive financialinstruments including foreign currency receivables and payables.

 

Our exposure to market risk is a function of ourrevenue and expense generating activities in foreign currency, the activity ofinvestment in securities and liquid mutual fund units and the results of ourhedging strategies for foreign currency exposures. The objective of market riskmanagement is to avoid excessive exposure of our earnings and equity to loss.

 

***Risk ManagementProcedures***

*** ***

We manage market risk through treasuryoperations. Our market risk objectives and policies are approved by our seniormanagement and Board of Directors. The activities of treasury operationsinclude management of cash resources and investment in securities and liquidmutual fund units, implementing hedging strategies for foreign currencyexposures, borrowing strategies, and ensuring compliance with market risklimits and policies.

 

***Components of MarketRisk***

*** ***

*ExchangeRate Risk.***Our exposure to market risk arisesprincipally from exchange rate risk. We transact a major portion of ourbusiness in foreign currencies, particularly the U.S. dollar. The exchange ratebetween the 

 

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rupee and the dollar has changed substantiallyin recent years and may fluctuate substantially in the future. The results ofour operations can be adversely affected as the rupee fluctuates against thedollar. Our exchange rate risk primarily arises from our foreign currencyrevenues, receivables, payables and other foreign currency assets andliabilities.

 

We have sought to reduce the effect of exchangerate fluctuations on our operating results by entering into foreign exchangeforward and options contracts. As of December 31, 2009 we had outstandingforward contracts in the amount of $ 309.6million, JPY 875.0 million ($ 9.5million), and GBP 2.9 million ($ 4.8million) and outstanding currency purchased options in the amount of  $ 10.0million.   As of December 31, 2008,we had outstanding forward contracts in the amount of $ 285.4 million, JPY 400.0 million ($ 4.4 million), AUD 1.0 million ($ 0.7 million) and GBP 1.5 million ($2.2 million), outstanding  written options of  GBP 0.9 million ($ 1.3 million),  Euro1.6 million ($ 2.2 million)and JPY 150 million ($ 1.7million ), outstanding currency purchased options in the amount of  $ 27.0  million, outstanding currency purchasedoptions, net sell in the amount of $ 61.3million and outstanding currency written options in the amount of $ 21.0 million. These contracts typically mature within 1-41 months, must besettled on the day of maturity and may be cancelled subject to the payment ofany gains or losses in the difference between the contract exchange rate andthe market exchange rate on the date of cancellation. We use these instrumentsonly for hedging purposes. We may not purchase contracts adequate to insulateourselves from all foreign exchange currency risks. The policies of the ReserveBank of India may change from time to time which may limit our ability to hedgeour foreign currency exposures adequately. In addition, any such contracts maynot perform adequately as a hedging mechanism. We may, in the future, adoptmore active hedging policies.

 

*InterestRate Risk.***Our surplus cash resources are typicallyinvested in liquid mutual fund units, units in other debt mutual funds inIndia, and sweep funds. These investments are exposed to interest rate riskwhereby any increase in interest rates may decrease the fair value of theinvestments. We attempt to reduce this risk by investing in funds with shorterdurations and by adequately diversifying our investments.

 

*FairValue.***Thefair value of our market rate risk sensitive instruments, other than forwardcontracts and option contracts, closely approximates their carrying value.

 

**ITEM12. DESCRIPTION OF SECURITIES OTHERTHAN EQUITY SECURITIES**

** **

Not applicable

 

**PART II**

** **

**ITEM13. DEFAULTS, DIVIDEND ARREARAGESAND DELINQUENCIES**

** **

None

 

**ITEM14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERSAND USE OF PROCEEDS**

** **

**Modification in the rights of securityholders**

** **

During 2007 there were no modifications to the rights of the security holders.

 

Further, at the annual general meeting held on June 26,2008, the shareholders of the Company had approved modification/repricing ofthe terms of options to enable the Company to issue Restricted Stock Units (“RSUs”).Accordingly, the amended plan, i.e., “Patni ESOP 2003 (Revised 2008) came intoforce with effect from June 26, 2008.

 

At the annual general meeting held on June 25, 2009, the shareholders ofthe Company approved a resolution by which the Board of Directors of theCompany is authorized on behalf of the Company to issue and allot  an additional 8,000,000 Equity Shares ofnominal value of Rs. 2/- (Two) each to the permanent employees of the Company(including Executive and Non-Executive Directors but excluding the PromoterDirectors) under the ‘Patni ESOP 2003 (Revised 2009)’ Plan created by the Companyfor the benefit of the employees, on the terms and conditions as set out insuch ESOP Plan.

 

It was also resolved by the shareholders thatoptions granted to Non-Executive Directors, including Independent Directors,shall not exceed 150,000 options in a financial year and in aggregate shall notbe more than 1,500,000 under the said Patni ESOP 2003 (Revised 2009) Plan.

 

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**Use of proceeds**

** **

**In our initial offering of our ADSs, completed on December 8, 2005,we issued 6,156,250 ADSs, representing 12,312,500 equity shares of Rs. 2 each,to an underwriting syndicate (including the underwriters’ over-allotment optionof 1,031,250 ADSs representing 2,062,500 equity shares) at an initial offeringprice of $ 20.34 per ADS pursuant to a registration statement filed on Form F-1(File No.333-129771) with the SEC. The managing underwriters were Goldman Sachs(Asia) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and ABNAMRO Rothschild LLC. We received approximately $ 117 million in net proceedsfrom the offering (after adjusting for direct expenses relating to the offeringof ADSs of approximately $ 8.2 million, out of which $ 7.6 million waspaid as underwriting and management consulting fees and $ 0.6 million was paidfor other expenses).**

** **

**As of December 31, 2009, US$ 95.2 million had been utilized for capital expenditure for office facilitiesand the balance $ 21.8 million remained as cash and cash equivalents pendingutilization.**

** **

**ITEM15. CONTROLS AND PROCEDURES**

** **

**Disclosure controls andprocedures**

** **

As of the end of the period covered by this Annual Report on Form 20-F,we carried out an evaluation, under the supervision and with the participationof our management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended).Based on this evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures are effective as of December 31, 2009,to provide reasonable assurance that the information required to be disclosedin filings and submissions under the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized, and reported within the timeperiods specified by the SEC’s rules and forms, and that materialinformation related to us and our consolidated subsidiaries is accumulated andcommunicated to management, including the Chief Executive Officer and ChiefFinancial Officer, as appropriate to allow timely decisions about requireddisclosure.

 

**Management’sReport on Internal Controls over Financial Reporting**

 

***Internal controls over financial reporting***

 

Our management is responsiblefor establishing and maintaining adequate internal control over financialreporting. Internal control over financial reporting is defined in Rule 13a-15(f) and15d-15(f) under the U.S.Securities and Exchange Act of 1934, as amended.

 

The internal control overfinancial reporting was designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples in the United States of America and includes those policies andprocedures that:

 

·   Pertain to themaintenance of records that in reasonable detail accurately and fairly reflectthe transactions and dispositions of the assets of the Company;

 

·   Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles in the United States of America, and that receipts andexpenditures of the Company are being made only in accordance withauthorizations of management and directors of the Company; and

 

·   Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company’s assets that could have amaterial effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Our management, including ourChief Executive Officer and Chief Financial Officer assessed the effectivenessof our internal control over financial reporting as of December 31,2009.In making this assessment, our management used the criteria set forth by theCommittee of Sponsoring Organizations (COSO)  of the Treadway Commissionin “Internal Control-Integrated Framework”. This assessment included anevaluation of the design and operation of internal controls over financialreporting. Based on this assessment, the management concluded that, as of December 31,2009, the Company has maintained effective internal controls overfinancial reporting.

 

Our independent registeredpublic accounting firm, KPMG, has issued their report, included herein, on theeffectiveness of our internal control over financial reporting as of December 31,2009.

 

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**Report of Independent RegisteredPublic Accounting Firm**

 

The Board ofDirectors and Stockholders

 

Patni ComputerSystems Limited

 

We have audited PatniComputer Systems Limited’s internal control over financial reporting as of December 31,2009, based on criteria established in Internal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO)”). Patni Computer Systems Limited’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Report on Internal Controls overFinancial Reporting. Our responsibility is to express an opinion on the Company’sinternal control over financial reporting based on our audit.

 

We conducted ouraudit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal controlover financial reporting, assessing the risk that a material weakness exists,and testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk. Our audit also included performing suchother procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

In our opinion, PatniComputer Systems Limited maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009, basedon criteria established in Internal Control — Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission.

 

We also have audited,in accordance with the standards of the Public Company Accounting OversightBoard (United States), the consolidated balance sheets of Patni ComputerSystems Limited and subsidiaries as of December 31, 2009 and 2008, and therelated consolidated statements of income, shareholders’ equity andcomprehensive income/(loss), and cash flows for each of the years in thethree-year period ended December 31, 2009, and our report dated February 26,2010 expressed an unqualified opinion on those consolidated financialstatements.

 

**/s/KPMG**

 

Mumbai, India

 

**February 26,2010**

 

 

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**Changes in internal controlover financial reporting**

 

During the period covered by this Annual Report,there were no changes in our internal control over financial reportingthat have materially affected or are reasonably likely to materially affect ourinternal control over financial reporting.

 

**ITEM16A. AUDIT COMMITTEE FINANCIAL EXPERT**

** **

Our Audit Committee members are Mr.Pradip Shah(Chairman), Mr. Arun Duggal and Mr. Vimal Bhandari, each of whom isan independent director pursuant to the applicable rules of the SecuritiesExchange Commission and the NYSE. See “Item 6. Directors, SeniorManagement and Employees” for the experience and qualifications of the membersof the Audit Committee. Our Board of Directors has determined that Mr. ArunDuggal is an Audit Committee Financial Expert as defined in item 401(h) ofRegulation S-K.

 

**ITEM16B. CODE OF ETHICS**

** **

We have adopted a code of business ethicsapplicable to our executive officers, directors and all other employees. Wewill make available a copy of the code of ethics to any person, without charge,if a written request is made to our Company Secretary at our corporate office at Akruti Softech Park, MIDC CrossRoad No.21 Andheri (E), Mumbai 400 093, India. The code is also available onour corporate website, www.patni.com.

 

**ITEM16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

** **

The following table sets forth the fees forprofessional audit services rendered by KPMG for the audit of the Company’sannual financial statements for 2008 and 2009, and fees billed for otherservices rendered by KPMG.

 
| **Fiscal  Year Ended December 31,** | ** ** | **Audit Fees** | ** ** | **Tax Fees** | ** ** | **All Other Fees**    | ** ** | **Total Fees** | ** ** |
|------------------------------------------|------------|----------------|------------|--------------|------------|-----------------------|------------|----------------|------------|
| ** **                               | ** ** | ** **     | ** ** | ** **   | ** ** | **(Amounts in US $)** | ** ** |
| 2008                                     |       | 679,880        |       | 153,227      |       | 184,781               |       | 1,017,888      |       |
| 2009                                     |       | 600,000        |       | 164,366      |       | 201,646               |       | 966,012        |       |

 

**Audit fees**

** **

Audit fees represents fees for professionalservices in connection with the audit of Company’s annual consolidatedfinancial statements and reviews of interim financial statements prepared inaccordance with U.S. GAAP,report concerning internal control over financial reporting, as well as auditsof standalone and consolidated financial statements of the Company and itssubsidiaries prepared in accordance with Indian GAAP.

 

**Tax fees**

 

Services provided primarily consist of taxcompliance, assistance with tax examinations and corporate tax advisoryservices.

 

**All other fees**

** **

Services provided primarily consist of transferpricing study and quality review in respect of IT applications of the company.

 

We obtain prior approval of our audit committeein connection with the nature of services that are provided and the fees to bepaid for the services.

 

**ITEM16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDITCOMMITTEES**

** **

We have not sought any exemption from thelisting standards for audit committees applicable to us as a foreign privateissuer.

 

**ITEM16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER ANDAFFILIATED PURCHASES**

** **

During fiscal 2008,we repurchased a total of 10,957,082 equity shares through theBombay Stock Exchange Limited and the National Stock Exchange of India Limited for an aggregate considerationof Rs. 2,370 million ($ 53.1 million), which was 100% of theamount authorized for such buy back. Subsequently, weextinguished the equity shares bought back by us as per therequirement of Section 77A of the Indian Companies Act, 1956.

 

Our retainedearnings include profits aggregating Rs. 21,914,164 ($ 449,521) set aside as Capital Redemption Reserve  as required by the Indian Companies Act, 1956pursuant to the repurchase which can be utilizedonly for the purpose of issuing fully paid bonus shares of the Company.

 

During fiscal 2009, there were no purchases madeby or on behalf of us or any affiliated purchaser of shares of any class of oursecurities that are registered pursuant to Section 12 of the U.S. Securities and Exchange Act, 1934, as amended.

 

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**ITEM 16F. CHANGE IN REGISTRANT’SCERTIFYING ACCOUNTANT**

 

Not Applicable

 

**ITEM16G.  CORPORATE GOVERANCE**

 

**Governance Standards for Listed Companies**

 

Many of the corporate governance standards setout in the NYSE Listed Company Manual do not apply to us as a “foreign privateissuer.” Under the NYSE corporate governance standards, we need only (i) establishan independent audit committee that satisfies the requirements of Rule 303A.06of the NYSE Listed Company Manual described in the following table; (ii) provideprompt certification by our chief executive officer of any materialnon-compliance with any corporate governance rules of the NYSE; (iii) provideannual written affirmations to the NYSE with respect to our corporategovernance practices (and provide interim written affirmations ****each time a change occursto the board or any of our committees)****; and (iv) providea brief description of significant differences between our corporate governancepractices and those followed by U.S. companies listed on the NYSE as requiredby Rule 303A.11 of the NYSE Listed Company Manual. Indian corporategovernance requirements for listed companies are contained in Clause 49 of thelisting agreement that companies enter into with Indian stock exchanges. Thefollowing table sets out a brief, general summary of the significant differencesbetween the corporate governance standards applicable to us under our listingagreements with the Indian Stock Exchanges and the requirements of standardsrelating to U.S. domestic companies listed on the NYSE.

 

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| **Standard NYSE**** Practices**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **Our Practice**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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| **Director  Independence**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| A majority of  the board must consist of independent directors. Independence is defined by various  criteria including the absence of a material relationship between the  director and the listed company. For example, directors who are employees,  are immediate family of an executive officer of the company or receive over  $100,000 per year in direct compensation from the listed company are not  independent. Directors who are employees of or otherwise affiliated through  immediate family with the listed company’s independent auditor are also not  independent. Determinations of independence are made by the board. |       | Six of our twelve directors  are “independent directors” as defined by the NYSE.  As an Indian Company we adhere to Clause 49  of the Indian Listing Agreements, which states that if the  Chairman of the Board is an executive director then not less than 50 per cent  of the Board of Directors should comprise of independent directors

 

Clause  49 of the Indian listing agreements define an “independent director” to mean  a non-executive director who (i) is receiving director’s remuneration  and does not have any other material pecuniary relationship or transaction  with the company, its promoters, its directors, its senior management or its  holding company or its subsidiaries or its associates, which may affect the  independence of the director; (ii) is not related to promoters or  management at the board level or at one level below the board; (iii) has  not been an executive of the company in the immediately preceding three  financial years; (iv) is not a partner or an executive and has not been  a partner or executive during the preceding three financial years, of the  statutory audit firm or the internal audit firm or the legal firm and  consulting firm of the company; (v) is not a material supplier, service  provider, customer, lessee, or lessor of the company; (vi) is not a  shareholder, owning 2% or more of the voting shares of the company; and  (vii) is not less than 21 years of age |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| The  non-management directors must meet at regularly scheduled executive sessions  without management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | We comply with this standard as our  non-management directors meet periodically without management at scheduled  executive sessions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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| **Audit  Committee**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ·     The audit  committee must (i) be comprised entirely of independent directors;  (ii) be directly responsible for the appointment, compensation,  retention and oversight of any registered public accounting firm engaged  (including resolution of disagreements between management and the auditor  regarding financial reporting) for the purpose of preparing or issuing an  audit report or performing other audit, review or attest services for the  listed issuer, and each such registered public accounting firm must report  directly to the audit committee; (iii) establish procedures for the  receipt, retention and treatment of complaints with respect to accounting and  auditing issues; (iv) establish procedures for the confidential,  anonymous submission by employees of the listed issuer of concerns regarding  questionable accounting or auditing matters (v) be authorized to engage  independent counsel and other advisers it deems necessary in performing its  duties; and (vi) be given sufficient funding by the Board of Directors  to compensate the independent auditors and other advisors as well as for the  payment of ordinary administrative expenses incurred by the committee that  are necessary or appropriate in carrying out its duties.

 

The  audit committee must consist of at least three members, and each member must  be independent within the meaning established by the NYSE and Rule 10A-3  under the Securities Exchange Act of 1934.

 

·     The audit committee members must be  financially literate or become financially literate within a reasonable  period of their appointment to the audit committee.

 

·     Each  listed company must have disclosed whether their Board of Directors has  identified an audit committee financial expert (as defined under applicable  rules of the SEC), and if not the reasons why the board has not done so |   | We comply with this  standard. Our Audit Committee is comprised of three members all being  “independent directors” within the meaning established by the NYSE.  All the Committee members are financially  literate and the Audit Committee has identified Mr. Arun Duggal as a financial  expert (as defined under applicable rules of the SEC) The Committee has  a written charter that addresses the Committee’s purpose and  responsibilities. The charter and Clause 49 of the Indian Listing Agreements  address the duties, role and responsibilities of the Audit Committee.

 

The Audit Committee  also meets separately, quarterly, with management, with internal auditors and  with independent auditors and reviews with the independent auditors any audit  problems or difficulties and management’s response, if any.

 

The Audit Committee reports regularly to the  Board of  Directors. |

 

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| **Standard NYSE Practices**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **Our Practice**                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | ** **                                                          |
| ·     The audit  committee must  have a written charter that addresses the committee’s purpose and  responsibilities.

 

·     At a minimum, the committee’s purpose must be to assist the board in the oversight of the integrity of  the company’s financial statements, the company’s compliance with legal and  regulatory requirements, the independent auditor’s qualifications and  independence and the performance of the company’s internal audit function and  independent auditors.

 

·     The duties and responsibilities of the audit committee include conducting a review of the independent  auditing firm’s annual report describing the firm’s internal quality control  procedures, any material issues raised by the most recent internal quality  control review or peer review of the firm and any steps taken to address such  issues.

 

The audit committee is also to assess the auditor’s independence by  reviewing all relationships between the company and its auditor. It must  establish the company’s hiring guidelines for employees and former employees  of the independent auditor.

 

The committee must also discuss the company’s annual audited  financial statements and quarterly financial statements with management and  the independent auditors, the company’s earnings press releases, as well as  financial information and earnings guidance provided to analysts and rating  agencies, and policies with respect to risk assessment and risk management.

 

The committee must also meet separately, periodically, with  management, with internal auditors (or other personnel responsible for the  internal audit function) and with independent auditors and review with the  independent auditor any audit problems or difficulties and management’s  response. The committee must report regularly to the board |       |                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                                                |
| Each listed company must have an  internal audit function.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | We comply with this standard as we have an internal audit function. |

 

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| **Compensation Committee**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ·     Listed companies must have a compensation  committee composed entirely of independent board members as defined by the  NYSE listing standards.

 

·     The committee must have a written charter  that addresses its purpose and responsibilities.

 

·     These responsibilities include  (i) reviewing and approving corporate goals and objectives relevant to  CEO compensation; (ii) evaluating CEO performance and compensation in  light of such goals and objectives for the CEO; (iii) based on such  evaluation, reviewing and approving CEO compensation levels;  (iv) recommending to the board non-CEO compensation, incentive  compensation plans and equity-based plans; and (v) producing a report on  executive compensation as required by the Securities and Exchange Commission  to be included in the company’s annual proxy statement or annual report. The  committee must also conduct an annual performance self-evaluation. |       | We comply with this  standard as our Compensation and Remuneration committee is composed entirely  of “Independent directors” as defined by the NYSE listed standards. This  Committee has a written charter which addresses its purpose and  responsibilities.                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Standard NYSE****Practices**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **Our Practice**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Nominating/ Corporate Governance****Committee**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ·     Listed  companies must have a nominating/ corporate governance committee composed entirely  of independent board members.

 

·     The  committee must have a written charter that addresses its purpose and  responsibilities, which include (i) identifying individuals qualified to become board  members; (ii) selecting, or recommending that the board select, the director  nominees for the next annual meeting of shareholders; (iii) developing and recommending  to the board a  set of corporate governance principles applicable to the company;  (iv) overseeing the evaluation of the board and management; and  (v) conducting  an annual performance evaluation of the committee.                                                                                                                                                                                                                                                                                          |       | As a Foreign  Private Issuer, we follow home country practice in lieu of NYSE Corporate  Governance Standards as permitted. There is no comparable provision under  Clause 49 of the Indian Corporate Governance norms with respect to a  “Nominating and Corporate Governance Committee”. However, as matter good  governance practice, we have established a “Nominating and Governance  Committee” which comprises of majority of Independent Directors and the  Committee has a written charter which addresses its purpose and  responsibilities |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Equity-Compensation Plans**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Shareholders  must be given the opportunity to vote on all equity-compensation plans and  material revisions thereto, with certain limited exceptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | We comply with this  standard. Our Employee Stock Option Plan was approved by our Shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Corporate Governance Guidelines**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Listed  companies must adopt and disclose corporate governance guidelines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | We have adopted  corporate governance guidelines as prescribed in Clause 49 of  the Indian Listing  Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Code of Business Conduct and Ethics**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| All  listed companies must adopt and disclose a code of business conduct and  ethics for directors, officers and employees, and promptly disclose any  waivers of the code for directors or executive officers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | We comply with this  standard. The Company has adopted a Code of Business Conduct and Ethics for its  directors, officers and employees. This code is posted on the website of the  Company.                                                                                                                                                                                                                                                                                                                                                                              |

 

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**ITEM 17. FINANCIALSTATEMENTS**

** **

See Item 18.

 

**ITEM18. FINANCIAL STATEMENTS**

** **

The following financial statement and auditorsreport for fiscal 2009 are incorporated herein by reference and are included inthis Item 18 of this report on Form 20-F:

 

·  Report ofIndependent Registered Public Accounting Firm.

 

·  ConsolidatedBalance Sheets as of December 31, 2008 and 2009.

 

·  ConsolidatedStatements of Income for the years ended December 31,  2007, 2008 and 2009

 

·  ConsolidatedStatements of Stockholders Equity and Comprehensive Income for the years ended December 31,2007, 2008 and 2009.

 

·  ConsolidatedStatements of Cash Flows for the years ended December 31, 2007, 2008 and2009.

 

·  Notes to theConsolidated Financial Statements

 

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**ITEM 19. EXHIBITS**

 
| *1.1   |   | Articles of Association of Patni Computer Systems Limited, as amended                                                                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *1.2   |   | Memorandum of Association of Patni Computer Systems Limited, as  amended                                                                                        |
| *1.3   |   | Certificate of Incorporation of Patni Computer Systems Limited, as  amended                                                                                     |
| *2.1   |   | Form of Deposit Agreement                                                                                                                                  |
| *2.2   |   | Patni’s specimen certificate for equity shares                                                                                                             |
| *2.3   |   | Form of American Depositary Receipt                                                                                                                        |
| *2.4   |   | Patni ESOP 2003-Revised 2006 #                                                                                                                                  |
| *4.2   |   | Registration Rights Agreement                                                                                                                                   |
| *4.3   |   | Purchase Agreement between Patni Computer Systems Limited and Cymbal  Corporation dated November 3, 2004                                                   |
| *4.4   |   | Lease Deed entered into between the Company and State Industrial  Promotion Corporation of Tamil Nadu Limited (SIPCOT), dated  September 30, 2004          |
| *4.5   |   | Service Agreement between Patni Computer Systems Inc. and  Mr. Narendra K. Patni dated December 1, 2000, as amended                                   |
| *4.6   |   | Consultancy Agreement between Patni Computer Systems Limited and Patni  Americas Inc. (formally Patni Computer Systems Inc) dated October 27,  2000        |
| *4.7   |   | Terms of employment for Mr. Gajendra K. Patni and  Mr. Ashok K. Patni                                                                       |
| *4.8   |   | Information Technology Services Agreement between General Electric  International Inc. and Patni Computer Systems Inc. dated November 12,  2003            |
| ** 4.9 |   | Amendment to Information Technology Services Agreement between General  Electric International Inc. and Patni Computer Systems Inc. dated  August 03, 2006 |
| 8.1    |   | List of subsidiaries of the Registrant, see “Item 4. Information on  the Company—Organizational Structure”                                       |
| 12.1   |   | Certification of Chief Executive Officer under Section 302 of the  Sarbanes Oxley Act                                                                      |
| 12.2   |   | Certification of Chief Financial Officer under Section 302 of the  Sarbanes Oxley Act                                                                      |
| 13.1   |   | Certification of Chief Executive Officer under Section 906 of the  Sarbanes Oxley Act                                                                      |
| 13.2   |   | Certification of Chief Financial Officer under Section 906 of the  Sarbanes Oxley Act                                                                      |

 

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| *  | Previously filed on November 17, 2005 with the SEC on  Form F-1 (File Number 333-129771)   |
|----|------------------------------------------------------------------------------------------------------|
| #  | Incorporated by reference from Form S - 8 (file number 33-137306)                               |
| ** | Previously filed on March, 5, 2008 with the  SEC on Form 20F/A (File Number 001-32692 08666713) |

 

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**SIGNATURES**

** **

The registrant hereby certifies that it meetsall of the requirements for filing on Form 20-F and that it has dulycaused and authorized the undersigned to sign this annual report on its behalf.

 
|                         | For Patni Computer Systems Limited |
|------------------------------|------------------------------------|
|                         |                               |
|                         | By:                                | /s/ Jeya Kumar |
|                         |                               | Jeya Kumar |
| * *                     | * *                           | *Chief Executive Officer* |
| * *                     | * *                           | * * |
|                         | For Patni Computer Systems Limited |
|                         |                               |
|                         | By:                                | /s/ Surjeet Singh |
|                         |                               | Surjeet Singh |
| * *                     | * *                           | *Chief Financial Officer* |
| * *                     | * *                           | * * |
| Mumbai, India                |                               |   |
| Date: February 26, 2010 |                               |   |

 

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** **

**PatniComputer Systems Limited and subsidiariesConsolidated financial statementsContents**

 
| Report of Independent Registered Public Accounting  Firm                                                                                  | F-2          |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------------|
| Consolidated  Balance Sheets as of December 31, 2008 and 2009                                                                        | F-3          |
| Consolidated  Statements of Income for the years ended December 31, 2007, 2008 and  2009                                             | F-4          |
| Consolidated Statements of Shareholders’  Equity and Comprehensive Income for the years ended December 31, 2007,  2008 and 2009 | F-5 to F-7   |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2007, 2008 and  2009                                         | F-8 to F-9   |
| Notes to the Consolidated Financial Statements                                                                                            | F-10 to F-57 |

 

F-1

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Table of Contents

 

Patni Computer Systems Limited and subsidiaries

 

**Report of Independent Registered Public Accounting Firm**

 

TheBoard of Directors and Shareholders

PatniComputer Systems Limited:

 

Wehave audited the accompanying consolidated balance sheets of Patni ComputerSystems Limited and subsidiaries (‘the Company’)  as of December 31, 2009 and 2008, andthe related consolidated statements of income, shareholders’ equity andcomprehensive income/(loss), and cash flows for each of the years in thethree-year period ended December 31, 2009. These consolidated financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Patni ComputerSystems Limited and subsidiaries as of December 31, 2009 and 2008, and theresults of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2009, in conformity withU.S. generally accepted accounting principles.

 

Asdiscussed in Note 15 to the consolidated financial statements, the Companyadopted FASB Statement No. 157 “Fair Value Measurements” (included in FASBASC Topic 820, Fair Value Measurements and Disclosures), which establishes acommon definition for fair value, framework for measuring fair value andexpands disclosure about such fair value measurements, as of January 1,2008.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), Patni Computer Systems Limited’sinternal control over financial reporting as of December 31, 2009, basedon criteria established in Internal Control — Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO),and our report dated February 26,2010 expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting.

 

 

/s/ KPMG

 

Mumbai,India

February 26,2010

 

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Patni ComputerSystems Limited and subsidiaries

 

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                                              | ** ** | **As of**                   | ** **      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-----------------|
| ** **                                                                                                                                                                              | ** ** | **December 31,  2008** | ** **      | **December 31,  2009** | ** ** |
| **Assets**                                                                                                                                                                              | ** ** | ** **                  | ** **      | ** ** | ** ** |
| *Current  assets*                                                                                                                                                                       | ** ** | ** **                  | ** **      | ** ** | ** ** |
| Cash and cash equivalents                                                                                                                                                               |       | $                           | 60,138,457      |   | $ | 63,459,115 |   |
| Investments                                                                                                                                                                             |       | 245,529,769                 |            | 375,858,138 |   |
| Accounts receivable, net                                                                                                                                                                |       | 111,813,743                 |            | 109,409,586 |   |
| Unbilled revenue                                                                                                                                                                        |       | 30,663,367                  |            | 19,737,311 |   |
| Advance income taxes                                                                                                                                                                    |       | 8,922,311                   |            | 5,548,939 |   |
| Deferred income taxes                                                                                                                                                                   |       | 9,796,021                   |            | 9,418,969 |   |
| Prepaid Expenses                                                                                                                                                                        |       | 2,586,241                   |            | 2,837,972 |   |
| Other current assets                                                                                                                                                                    |       | 6,934,944                   |            | 16,695,605 |   |
| **Total  current assets**                                                                                                                                                               | ** ** | **$**                       | **476,384,853** | ** ** | **$** | **602,965,635** | ** ** |
| Advance income taxes                                                                                                                                                                    |       | $                           | 3,093,606       |   | $ | 3,827,873 |   |
| Deferred income taxes                                                                                                                                                                   |       | 19,825,211                  |            | 28,732,581 |   |
| Investments                                                                                                                                                                             |       | 2,769,231                   |            | 8,340,628 |   |
| Other assets                                                                                                                                                                            |       | 19,956,864                  |            | 20,948,736 |   |
| Property, plant and  equipment, net                                                                                                                                                     |       | 150,930,327                 |            | 147,631,897 |   |
| Intangible assets, net                                                                                                                                                                  |       | 27,073,168                  |            | 22,894,791 |   |
| Goodwill                                                                                                                                                                                |       | 65,309,045                  |            | 65,838,531 |   |
| **Total  assets**                                                                                                                                                                       | ** ** | **$**                       | **765,342,305** | ** ** | **$** | **901,180,672** | ** ** |
| **Liabilities  and shareholders’ equity**                                                                                                                                          | ** ** | ** **                  | ** **      | ** ** | ** ** |
| *Current  liabilities*                                                                                                                                                                  | ** ** | ** **                  | ** **      | ** ** | ** ** |
| Capital lease obligation                                                                                                                                                                |       | $                           | 175,741         |   | $ | 112,399 |   |
| Trade accounts payable                                                                                                                                                                  |       | 8,938,743                   |            | 5,789,789 |   |
| Billings in excess of costs  and estimated earnings on uncompleted contracts                                                                                                            |       | 6,000,383                   |            | 5,717,820 |   |
| Income taxes payable                                                                                                                                                                    |       | 22,402,386                  |            | 6,366,552 |   |
| Accrued expenses                                                                                                                                                                        |       | 56,167,097                  |            | 56,284,760 |   |
| Other current liabilities                                                                                                                                                               |       | 59,689,464                  |            | 35,982,086 |   |
| **Total  current liabilities**                                                                                                                                                          | ** ** | **$**                       | **153,373,814** | ** ** | **$** | **110,253,406** | ** ** |
| Capital lease obligations  excluding current portion                                                                                                                                    |       | $                           | 184,214         |   | $ | 90,681 |   |
| Other liabilities                                                                                                                                                                       |       | 24,486,301                  |            | 21,212,169 |   |
| Income taxes payable                                                                                                                                                                    |       | 13,482,925                  |            | 21,485,864 |   |
| Deferred income taxes                                                                                                                                                                   |       | 2,858,796                   |            | 1,104,920 |   |
| **Total  liabilities**                                                                                                                                                                  | ** ** | **$**                       | **194,386,050** | ** ** | **$** | **154,147,040** | ** ** |
| Commitments and  contingencies                                                                                                                                                          | ** ** | ** **                  | ** **      | ** ** | ** ** |
| **Shareholders’  Equity**                                                                                                                                                          | ** ** | ** **                  | ** **      | ** ** | ** ** |
| Common shares Rs. 2 par  value; Authorized 250,000,000 shares (Issued and outstanding; 128,105,007  shares and 129,126,032 shares as of December 31, 2008 and 2009  respectively). |       | $                           | 5,672,130       |   | $ | 5,715,509 |   |
| Additional paid-in capital                                                                                                                                                              |       | 264,878,177                 |            | 276,475,303 |   |
| Retained earnings                                                                                                                                                                       |       | 375,215,818                 |            | 485,732,388 |   |
| Accumulated other  comprehensive income /(loss)                                                                                                                                         |       | (74,809,870                 | )               | (20,889,568 | ) |
| **Total  shareholders’ equity**                                                                                                                                                    | ** ** | **$**                       | **570,956,255** | ** ** | **$** | **747,033,632** | ** ** |
| **Total  liabilities and shareholders’ equity**                                                                                                                                    | ** ** | **$**                       | **765,342,305** | ** ** | **$** | **901,180,672** | ** ** |

 

See accompanying notes to the consolidated financialstatements

 

F-3

----

Table of Contents

 

Patni ComputerSystems Limited and subsidiaries

 

**ConsolidatedStatements of Income**

 
| ** **                                                                         | ** ** | **Year ended December 31,** | ** **      |
|------------------------------------------------------------------------------------|------------|----------------------------------|-----------------|
| ** **                                                                         | ** ** | **2007**                         | ** **      | **2008** | ** ** | **2009** | ** ** |
| Net Revenues                                                                       |       | $                                | 662,911,669     |   | $ | 718,884,103 |   | $ | 655,918,121 |   |
| Cost of revenues                                                                   |       | 450,085,130                      |            | 491,266,302 |   | 421,309,231 |   |
| **Gross  profit**                                                                  | ** ** | **212,826,539**                  | ** **      | **227,617,801** | ** ** | **234,608,890** | ** ** |
|                                                                               |       |                             | ** **      | ** ** | ** ** | ** ** | ** ** |
| Selling, general and  administrative expenses                                      |       | 116,260,200                      |            | 131,056,061 |   | 122,010,352 |   |
| Provision for doubtful  debts and advances                                         |       | 1,181,753                        |            | 1,625,595 |   | 2,266,983 |   |
| Foreign exchange (gain)/loss,  net                                                 |       | (23,350,920                      | )               | 18,358,897 |   | 9,692,857 |   |
| ** **                                                                         | ** ** | ** **                       | ** **      | ** ** | ** ** | ** ** | ** ** |
| **Operating  income**                                                              | ** ** | **118,735,506**                  | ** **      | **76,577,248** | ** ** | **100,638,698** | ** ** |
|                                                                               |       |                             | ** **      | ** ** | ** ** | ** ** | ** ** |
| Other income/(expense)                                                             |       |                             | ** **      | ** ** | ** ** | ** ** | ** ** |
| Interest and dividend  income                                                      |       | 12,540,158                       |            | 13,001,582 |   | 11,223,406 |   |
| Interest expense                                                                   |       | (3,592,436                       | )               | (1,744,367 | ) | (1,494,179 | ) |
| Interest expense reversed  (refer note 11)                                         |       | —                           |            | 6,497,329 |   | 2,807,576 |   |
| Gain on sale of  investments, net                                                  |       | 6,370,002                        |            | 9,731,648 |   | 9,468,467 |   |
| Other (expense)/income, net                                                        |       | 1,706,227                        |            | 2,561,206 |   | 1,894,684 |   |
| ** **                                                                         | ** ** | ** **                       | ** **      | ** ** | ** ** | ** ** | ** ** |
| **Income  before income taxes**                                                    | ** ** | **135,759,457**                  | ** **      | **106,624,646** | ** ** | **124,538,652** | ** ** |
| Income taxes                                                                       |       | 21,783,963                       |            | 5,203,401 |   | 4,758,887 |   |
|                                                                               |       |                             | ** **      | ** ** | ** ** | ** ** | ** ** |
| **Net income**                                                                     | ** ** | **$**                            | **113,975,494** | ** ** | **$** | **101,421,245** | ** ** | **$** | **119,779,765** | ** ** |
| **Earnings  per share**                                                            |       |                             | ** **      | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                              |       | $                                | 0.82            |   | $ | 0.75 |   | $ | 0.93 |   |
| Diluted                                                                            |       | $                                | 0.82            |   | $ | 0.75 |   | $ | 0.92 |   |
| **Weighted  average number of common shares used in computing earnings per share** | ** ** | ** **                       |            |   |   |   |   |
| Basic                                                                              |       | 138,660,785                      |            | 135,590,677 |   | 128,254,916 |   |
| Diluted                                                                            |       | 139,569,933                      |            | 135,760,422 |   | 130,241,085 |   |

 

See accompanying notes to the consolidated financialstatements.

 

F-4

----

Table ofContents

 

Patni Computer SystemsLimited and subsidiaries

 

**Consolidated Statements ofShareholders’ Equity and Comprehensive Income/(Loss) for the years ended December 31,2007, 2008 and 2009**

 

*(in $ except share data)*

 
| ** **                                                                                    | ** ** | **Common shares** | ** ** | **Additional Paid-** | ** **    | **Retained**   | ** ** | **Comprehensive** | ** ** | **Accumulated   Other   Comprehensive** | ** **      | **Shareholders**   | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|---------------|----------------|------------|-------------------|------------|-----------------------------------------|-----------------|--------------------|------------|
| ** **                                                                                    | ** ** | **Shares**        | ** ** | **Par value**        | ** **    | **In-Capital** | ** ** | **Earnings**      | ** ** | **Income/ (loss)**                      | ** **      | **Income/ (loss)** | ** ** | **Equity** | ** ** |
| ** **                                                                                    | ** ** | ** **        | ** ** | ** **           | ** **    | ** **     | ** ** | ** **        | ** ** | ** **                              | ** **      | ** **         | ** ** | ** ** | ** ** |
| **Balance as of January 1, 2007**                                                        | ** ** | **138,281,853**   | ** ** | **$**                | **6,122,960** | ** **     | **$**      | **305,030,981**   | ** ** | **$**                                   | **183,197,559** | ** **         | ** ** | ** ** | **$** | **14,241,716** | ** ** | **$** | **508,593,216** | ** ** |
| Issuance of equity shares on exercise of options                                              |       | 727,556           |       | 35,084               |          | 3,203,887      |       |              |       |                                    |            |               |       | 3,238,971 |   |
| Tax benefit arising on exercise of stock options                                              |       |              |       |                 |          | 442,165        |       |              |       |                                    |            |               |       | 442,165 |   |
| Compensation cost related to employee stock option  plan                                      |       |              |       |                 |          | 4,673,281      |       |              |       |                                    |            |               |       | 4,673,281 |   |
| Cash dividend on common shares (including corporate  dividend tax)                            |       |              |       |                 |          |           |       | (11,934,467       | )          |                                    |            |               |       | (11,934,467 | ) |
| Comprehensive income                                                                          |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Net income                                                                                    |       |              |       |                 |          |           |       | 113,975,494       |       | 113,975,494                             |            |               |       | 113,975,494 |   |
| Other comprehensive income:                                                                   |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Translation adjustment                                                                        |       |              |       |                 |          |           |       |              |       | 58,571,590                              |            |               |       | 58,571,590 |   |
| Unrealised gain on investments, net of tax benefit of  $424,845                               |       |              |       |                 |          |           |       |              |       | 4,870,285                               |            |               |       | 4,870,285 |   |
| Unrealised losses on derivative instruments:                                                  |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Unrealised holding gains (losses) arising during the  year                                    |       |              |       |                 |          |           |       |              |       | 10,750,148                              |            |               |       | 10,750,148 |   |
| Less: Reclassification adjustment included in net  income                                     |       |              |       |                 |          |           |       |              |       | (11,792,707                             | )               |               |       | (11,792,707 | ) |
| Actuarial losses related to pension and other  postretirement benefits, net of tax of $47,185 |       |              |       |                 |          |           |       |              |       | (423,876                                | )               |               |       | (423,876 | ) |
| Comprehensive income/(loss)                                                                   |       |              |       |                 |          |           |       |              |       | 176,374,810                             |            | 61,975,440         |       |   |   |
|                                                                                               |            |                   |            |                      |               |                |            |                   |            |                                         |                 |                    |            |  |  |  |  |  |  |  |

 

F-5

----

Tableof Contents

 

Patni ComputerSystems Limited and subsidiaries

 

**Consolidated Statements ofShareholders’ Equity and Comprehensive Income/(Loss) for the years ended December 31,2007, 2008 and 2009**

*(in $ except share data)*

 
| ** **                                                                                    | ** ** | **Common shares** | ** ** | **Additional Paid-** | ** **    | **Retained**   | ** ** | **Comprehensive** | ** ** | **Accumulated   Other   Comprehensive** | ** **      | **Shareholders**   | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|---------------|----------------|------------|-------------------|------------|-----------------------------------------|-----------------|--------------------|------------|
| ** **                                                                                    | ** ** | **Shares**        | ** ** | **Par value**        | ** **    | **In-Capital** | ** ** | **Earnings**      | ** ** | **Income/ (loss)**                      | ** **      | **Income/ (loss)** | ** ** | **Equity** | ** ** |
| ** **                                                                                    | ** ** | ** **        | ** ** | ** **           | ** **    | ** **     | ** ** | ** **        | ** ** | ** **                              | ** **      | ** **         | ** ** | ** ** | ** ** |
| **Balance as of December 31, 2007**                                                      | ** ** | **139,009,409**   | ** ** | **$**                | **6,158,044** | ** **     | **$**      | **313,350,315**   | ** ** | **$**                                   | **285,238,586** | ** **         | ** ** | ** ** | **$** | **76,217,156** | ** ** | **$** | **680,964,101** | ** ** |
| Issuance of equity shares on exercise of options                                              |       | 52,680            |       | 2,634                |          | 188,325        |       |              |       |                                    |            |               |       | 190,959 |   |
| Purchase of Common Stock                                                                      |       | (10,957,082       | )          | (488,548             | )             | (52,573,794    | )          |              |       |                                    |            |               |       | (53,062,342 | ) |
| Tax benefit arising on exercise of stock options                                              |       |              |       |                 |          | 16,121         |       |              |       |                                    |            |               |       | 16,121 |   |
| Compensation cost related to employee stock option  plan                                      |       |              |       |                 |          | 3,897,210      |       |              |       |                                    |            |               |       | 3,897,210 |   |
| Cash dividend on common shares (including corporate  dividend tax)                            |       |              |       |                 |          |           |       | (11,444,013       | )          |                                    |            |               |       | (11,444,013 | ) |
| Comprehensive income                                                                          |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Net income                                                                                    |       |              |       |                 |          |           |       | 101,421,245       |       | 101,421,245                             |            |               |       | 101,421,245 |   |
| Other comprehensive income:                                                                   |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Translation adjustment                                                                        |       |              |       |                 |          |           |       |              |       | (119,927,020                            | )               |               |       | (119,927,020 | ) |
| Unrealised gain on investments, net of tax expense of  $ 257,690                         |       |              |       |                 |          |           |       |              |       | (1,828,525                              | )               |               |       | (1,828,525 | ) |
| Unrealised losses on derivative instruments:                                                  |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Unrealized holding gains (losses) arising during the  year, net of tax credit of ($2,201,998) |       |              |       |                 |          |           |       |              |       | (42,542,853                             | )               |               |       | (42,542,853 | ) |
| Less: Reclassification adjustment included in net  income                                     |       |              |       |                 |          |           |       |              |       | 12,068,379                              |            |               |       | 12,068,379 |   |
| Actuarial gain related to pension and other  postretirement benefits, net of tax of $195,797  |       |              |       |                 |          |           |       |              |       | 1,202,993                               |            |               |       | 1,202,993 |   |
| Comprehensive income/(loss)                                                                   |       |              |       |                 |          |           |       |              |       | (49,605,781                             | )               | (151,027,026       | )          | — |   |
| **Balance as of December 31, 2008**                                                      | ** ** | **128,105,007**   | ** ** | **$**                | **5,672,130** | ** **     | **$**      | **264,878,177**   | ** ** | **$**                                   | **375,215,818** | ** **         | ** ** | ** ** | **$** | **(74,809,870** | **)** | **$** | **570,956,255** | ** ** |

 

See accompanying notes tothe consolidated financial statements.

 

F-6

----

Table ofContents

 

Patni ComputerSystems Limited and subsidiaries

 

**Consolidated Statements ofShareholders’ Equity and Comprehensive Income/(Loss) for the years ended December 31,2006, 2007 and 2008 *(Continued)***

 

*(in $ except share data)*

 
| ** **                                                                                             | ** ** | **Common shares** | ** ** | **Additional Paid-** | ** **    | **Retained**   | ** ** | **Comprehensive** | ** ** | **Accumulated   Other   Comprehensive** | ** **      | **Shareholders**   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|---------------|----------------|------------|-------------------|------------|-----------------------------------------|-----------------|--------------------|------------|
| ** **                                                                                             | ** ** | **Shares**        | ** ** | **Par value**        | ** **    | **In-Capital** | ** ** | **Earnings**      | ** ** | **Income/ (loss)**                      | ** **      | **Income/ (loss)** | ** ** | **Equity** | ** ** |
| **Balance as of January 1, 2009**                                                                 | ** ** | **128,105,007**   | ** ** | **$**                | **5,672,130** | ** **     | **$**      | **264,878,177**   | ** ** | **$**                                   | **375,215,818** | ** **         | ** ** | ** ** | **$** | **(74,809,870** | **)** | **$** | **570,956,255** | ** ** |
| Issuance of equity shares on exercise of options                                                       |       | 1,021,025         |       | 43,379               |          | 5,473,984      |       |              |       |                                    |            |               |       | 5,517,363 |   |
| Tax benefit arising on exercise of stock options                                                       |       |              |       |                 |          | 814,537        |       |              |       |                                    |            |               |       | 814,537 |   |
| Compensation cost related to employee stock option  plan                                               |       |              |       |                 |          | 5,308,605      |       |              |       |                                    |            |               |       | 5,308,605 |   |
| Cash dividend on common shares (including corporate  dividend tax)                                     |       |              |       |                 |          |           |       | (9,263,195        | )          |                                    |            |               |       | (9,263,195 | ) |
| Net income                                                                                             |       |              |       |                 |          |           |       | 119,779,765       |       | 119,779,765                             |            |               |       | 119,779,765 |   |
| Other comprehensive income:                                                                            |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Translation adjustment                                                                                 |       |              |       |                 |          |           |       |              |       | 27,702,545                              |            |               |       | 27,702,545 |   |
| Reclassification of unrealised gain on investments,  net of tax expense of $301,521 to net income      |       |              |       |                 |          |           |       |              |       | (3,944,229                              | )               |               |       | (3,944,229 | ) |
| Unrealized losses on derivative instruments:                                                           |       |              |       |                 |          |           |       |              |       |                                    |            |               |       |   |   |
| Unrealized holding gains (losses) arising during the  year, net of tax benefit of $20,446              |       |              |       |                 |          |           |       |              |       | 12,330,273                              |            |               |       | 12,330,273 |   |
| Less: Reclassification adjustment included in net  income                                              |       |              |       |                 |          |           |       |              |       | 18,199,724                              |            |               |       | 18,199,724 |   |
| Actuarial losses related to pension and other  postretirement benefits, net of tax benefit of $167,523 |       |              |       |                 |          |           |       |              |       | (368,011                                | )               |               |       | (368,011 | ) |
| Comprehensive income/(loss)                                                                            | ** ** | ** **        | ** ** | ** **           | ** **    | ** **     | ** ** | ** **        |       | 53,920,302                              |            | 53,920,302         | ** ** | ** ** | ** ** |
| **Balance as of December 31, 2009**                                                               | ** ** | **129,126,032**   | ** ** | **$**                | **5,715,509** | ** **     | **$**      | **276,475,303**   | ** ** | **$**                                   | **485,732,388** | ** **         | ** ** | ** ** | **$** | **(20,889,568** | **)** | **$** | **747,033,632** | ** ** |

 

See accompanying notes to the consolidated financialstatement

 

F-7

----

Table ofContents

 

Patni ComputerSystems Limited and subsidiaries

 

**ConsolidatedStatements of Cash Flows**

 
| ** **                                                                        | ** ** | **Year ended  December 31,** | ** **       |
|-----------------------------------------------------------------------------------|------------|-----------------------------------|------------------|
| ** **                                                                        | ** ** | **2007**                          | ** **       | **2008** | ** ** | **2009** | ** ** |
| **Operating  activities**                                                         |       |                              |             | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                        |       | $                                 | 113,975,494      |   | $ | 101,421,245 |   | $ | 119,779,765 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities |       |                              |             | ** ** | ** ** | ** ** | ** ** |
| Depreciation and  amortization of fixed assets and intangible assets              |       | 25,053,060                        |             | 27,711,972 |   | 26,251,592 |   |
| Deferred taxes                                                                    |       | (10,130,035                       | )                | (9,215,965 | ) | (8,865,238 | ) |
| Provision for doubtful  debts and advances                                        |       | 1,181,753                         |             | 1,625,595 |   | 2,266,983 |   |
| (Gain)/loss on sale of  property, plant and equipment, net                        |       | (265,426                          | )                | (371,526 | ) | 252,091 |   |
| Gain on sale of investments                                                       |       | (6,370,002                        | )                | (9,731,648 | ) | (9,468,467 | ) |
| Compensation cost related  to employee stock option plan                          |       | 4,673,281                         |             | 3,897,210 |   | 5,308,605 |   |
| Deferred roll-over gains  relating to cash flow hedges                            |       | —                            |             | — |   | 4,192,350 |   |
| Changes in assets and  liabilities:                                               |       |                              |             |   |   |   |   |
| Accounts receivable                                                               |       | (13,492,304                       | )                | 9,987,054 |   | 3,397,331 |   |
| Unbilled revenue                                                                  |       | (8,300,239                        | )                | (3,289,128 | ) | 12,087,746 |   |
| Other current assets                                                              |       | (21,663,190                       | )                | 21,015,540 |   | (7,703,814 | ) |
| Other assets                                                                      |       | 1,252,142                         |             | (1,675,575 | ) | 3,150,343 |   |
| Trade accounts payable  others                                                    |       | (1,804,558                        | )                | (958,041 | ) | (484,602 | ) |
| Billings in excess of costs  and estimated earnings onuncompleted contracts       |       | 59,255                            |             | 3,081,643 |   | (460,188 | ) |
| Taxes payable                                                                     |       | 11,218,123                        |             | (8,427,949 | ) | (5,983,096 | ) |
| Excess tax benefit arising  on exercise of stock options                          |       | (442,165                          | )                | (16,121 | ) | (814,537 | ) |
| Tax benefit on exercise of  stock options                                         |       | 47,841                            |             | 14,739 |   | 451,624 |   |
| Accrued expenses                                                                  |       | 8,104,178                         |             | 9,463,589 |   | (864,618 | ) |
| Other current liabilities                                                         |       | 4,222,173                         |             | 14,263,756 |   | (4,380,795 | ) |
| Other liabilities                                                                 |       | 3,952,833                         |             | (9,453,334 | ) | (906,891 | ) |
| **Net cash  provided by operating activities**                                    | ** ** | **$**                             | **111,272,214**  | ** ** | **$** | **149,343,056** | ** ** | **$** | **137,206,185** | ** ** |
| **Investing  activities**                                                         |       |                              |             | ** ** | ** ** | ** ** | ** ** |
| Purchase of property, plant  and equipment                                        |       | (61,891,010                       | )                | (43,362,388 | ) | (18,983,035 | ) |
| Proceeds from sales of  property, plant and equipment                             |       | 557,761                           |             | 3,841,641 |   | 271,783 |   |
| Purchase of investments                                                           |       | (1,149,342,754                    | )                | (973,062,275 | ) | (1,118,436,952 | ) |
| Proceeds from sale of  investments                                                |       | 1,134,569,183                     |             | 977,051,287 |   | 1,004,449,630 |   |
| Payments for acquisition,  net of cash acquired                                   |       | (33,795,203                       | )                | — |   | — |   |
| Payments for acquisition of  technology related intangibles                       |       | (20,368,599                       | )                | — |   | — |   |
| Tax benefit on incentive  stock option of Patni Telecom                           |       | 235,057                           |             | — |   | — |   |
| **Net cash  used in investing activities**                                        | ** ** | **$**                             | **(130,035,565** | **)** | **$** | **(35,531,735** | **)** | **$** | **(132,698,574** | **)** |

 

See accompanying notes to the consolidated financialstatements.

 

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Patni ComputerSystems Limited and subsidiaries

 

**Consolidated Statements of CashFlows *(Continued)***

 
| ** **                                                                            | ** ** | **Year ended  December 31,** | ** **     |
|---------------------------------------------------------------------------------------|------------|-----------------------------------|----------------|
| ** **                                                                            | ** ** | **2007**                          | ** **     | **2008** | ** ** | **2009** | ** ** |
| **Financing  activities:**                                                            |       |                              |           | ** ** | ** ** | ** ** | ** ** |
| Payment of capital lease  obligations                                                 |       | (429,987                          | )              | (293,418 | ) | (225,174 | ) |
| Dividend on common shares                                                             |       | (10,199,781                       | )              | (9,778,450 | ) | (7,911,016 | ) |
| Corporate Dividend tax paid                                                           |       | (1,733,620                        | )              | (1,662,387 | ) | (1,345,596 | ) |
| Proceeds from common shares  issued                                                   |       | 3,238,971                         |           | 190,958 |   | 5,517,363 |   |
| Purchase of Common Stock                                                              |       | —                            |           | (53,062,342 | ) | — |   |
| Excess tax benefit arising  on exercise of stock options                              |       | 442,165                           |           | 16,121 |   | 814,537 |   |
| **Net cash  used in financing activities**                                            | ** ** | **$**                             | **(8,682,252** | **)** | **$** | **(64,589,518** | **)** | **$** | **(3,149,886** | **)** |
| Effect of exchange rates  changes on cash and cash equivalents                        |       | 13,561,572                        |           | (21,709,325 | ) | 1,962,932 |   |
| **Net  increase in cash and cash equivalents**                                        | ** ** | **(27,445,603**                   | **)**          | **49,221,803** | ** ** | **1,357,726** | ** ** |
| Cash and cash equivalents  at the beginning of the year                               |       | 46,510,010                        |           | 32,625,979 |   | 60,138,457 |   |
| Cash and cash equivalents  at the end of the year                                     | ** ** | **$**                             | **32,625,979** | ** ** | **$** | **60,138,457** | ** ** | **$** | **63,459,115** | ** ** |
| Supplemental disclosure of  cash flow information:                                    |       |                              |           | ** ** | ** ** | ** ** | ** ** |
| Interest paid                                                                         |       | $                                 | 26,764         |   | $ | 50,302 |   | $ | 41,757 |   |
| Income taxes paid                                                                     |       | $                                 | 29,532,237     |   | $ | 16,993,377 |   | $ | 23,303,213 |   |
| Non cash investing and  financing activities:                                         |       |                              |           |   |   |   |   |
| Additions to property,  plant and equipment, represented by capital lease obligations |       | $                                 | 264,138        |   | $ | 149,745 |   | $ | 57,624 |   |
| Property, plant and  equipment acquired on credit                                     |       | $                                 | 558,012        |   | $ | (3,158,568 | ) | $ | (3,348,904 | ) |

 

Seeaccompanying notes to the consolidated financial statements.

 

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** **

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**1****             ****Organizationand nature of business**

 

1.1**          **Patni Computer SystemsLimited (“Patni”) is a company incorporated in India under the Indian CompaniesAct,   1956. In February 2004, Patnicompleted an initial public offering of its equity shares in India.  In December 2005, Patni also completedan initial public offering of American Depositary Shares in the United Statesof America (USA).

 

1.2           Patni Computers Systems (UK) Limited (“Patni UK”), a company incorporatedin the United Kingdom (UK), Patni Computer Systems GmbH (“Patni GmbH”), acompany incorporated in Germany, Patni Americas, Inc. (“Patni USA”)formerly known as Patni Computer Systems, Inc., a company incorporated inMassachusetts, USA and Patni Computer Systems Brasil, Ltda a companyincorporated in Brazil are 100% owned subsidiaries of Patni. On November 3,2004, Patni USA, acquired 100% equity in Patni Telecom Solutions Inc.  (formerly known as Cymbal Corporation), acompany incorporated in California, USA, together with its subsidiaries inIndia, UK & Thailand, for consideration in cash.CymbalInformation Services (Thailand) Ltd., subsidiary of Patni Telecom SolutionsInc. was dissolved and the liquidation was completed in May, 2006. In July,2007, Patni USA, acquired 100% equity in Patni Life Sciences Inc. (formerlyknown as Taratec Development Corporation), a company incorporated in NewJersey, USA, for consideration in cash. Further, Patni also has foreign branchoffices in the USA, Japan, Sweden, Finland, Korea, Netherland, Australia, UAE,South Africa, Canada, Turkey, Ireland, Romania and Switzerland. In March 2008,Patni through it’s wholly owned subsidiary Patni UK incorporated a subsidiaryin Czech Republic named Patni Computer Systems (Czech) s.r.o. In December 2008,Patni has set up a subsidiary in Mexico named PCS Computer Systems Mexico, SAde CV.  In June 2009, Patni has setup a subsidiary in Singapore named Patni (Singapore) Pte Ltd.

 

1.3           Patni together with its subsidiaries (collectively, “Patni Group” or “theCompany”) is engaged in IT consulting, software development and BusinessProcess Outsourcing (“BPO”).  The Companyprovides multiple service offerings to its clients across various industriescomprising financial services, insurance services, manufacturing, retail anddistribution, communications, media and utilities and technology practice.(comprisingof product engineering). The various service offerings comprise applicationdevelopment, application maintenance and support, packaged softwareimplementation, infrastructure management services, product engineeringservices, quality assurance services and BPO services.

 

1.4           These financial statements are prepared on a consolidated basis for allthe years presented.

 

**2****             ****Summary ofsignificant accounting policies**

 

***Basis ofpreparation of financial statements***

 

2.1           Theaccompanying consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of America (“USGAAP”).

 

***Principlesof consolidation***

 

2.2           Theconsolidated financial statements include the financial statements of Patni andall of its subsidiaries, which are all more than 50% owned and controlled. Allinter-company accounts and transactions are eliminated on consolidation.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Accountingestimates***

 

2.3           The preparation of consolidated financial statements in conformity withUS GAAP requires management to make estimates and assumptions that affect thereported amount of assets and liabilities and disclosures of contingent assetsand liabilities as of the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. The mostsignificant estimates relate to contract costs expected to be incurred tocomplete development of software, allowances for doubtful accounts receivable,our future obligations under employee retirement and benefit plans, usefullives of property, plant and equipment and intangible assets, estimate offuture cash flows used in assessing impairment, deferred tax assets andliabilities and provisions for contingencies and litigation.

 

The Management bases itsestimates on historical experience and on various other assumptions that arebelieved to be reasonable. The actual amounts may vary from the estimates usedin the preparation of the accompanying consolidated financial statements.Appropriate changes in estimates are made as management become aware of changesin circumstances surrounding the estimates. Changes in estimates are reflectedin the financial statements in the period in which changes are made and, ifmaterial, their effects are disclosed in the notes to consolidated financialstatements.

 

***Revenue and costrecognition***

 

2.4           TheCompany derives its revenues primarily from software services and to a lesserextent from BPO services. Revenue is recognized when there is persuasiveevidence of a contractual arrangement with customers, delivery has occured, thesales price is fixed or determinable and collectibility is probable. Softwareservices are provided either on a fixed price, fixed time frame or on a timeand material basis. Revenue with respect to time-and-material contracts arerecognized as related services are performed. The Company’s fixed pricecontracts include application maintenance and support services, on whichrevenue is recognized ratably over the term of maintenance. Revenue withrespect to other fixed price contracts is recognized on a percentage ofcompletion basis. The input (cost expended) method has been usedbecause management considers this to be the best available measure of progresson these contracts as there is a direct relationship between input andproductivity. Provisions for estimated losses, if any, on uncompleted contractsare recorded in the period in which such losses become probable based on thecurrent contract estimates.

 

2.5           The asset, “Costs andestimated earnings in excess of billings on uncompleted contracts”, representsrevenues recognized in excess of amounts billed.  These amounts are billed after the milestonesspecified in the agreement are achieved. The liability, “Billings in excess of costs and estimated earnings onuncompleted contracts”, represents billings in excess of revenues recognized.With effect from January 1, 2009 “Costs and estimated earnings in excessof billings on uncompleted contracts” has been disclosed as Unbilled revenue.

 

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Tableof Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Revenue and costrecognition (Continued)***

 

2.6           Direct and incrementalcontract origination and set up costs incurred in connection withsupport/maintenance service arrangements are charged to expense asincurred.  These costs are deferred onlyin situations where there is a contractual arrangement establishing a customerrelationship for a specified period.  Thecosts to be deferred are limited to the extent of future contractual revenues.  Further, revenue attributable to set upactivities is deferred and recognised systematically over the periods that therelated fees are earned, as services performed during such period do not resultin the culmination of a separate earnings process.

 

Costs that are incurred for a specific anticipatedcontract and that will result in no future benefits unless the contract isobtained, are not included in contract costs before the receipt of thecontract. However, such costs are deferred, subject to the evaluation of theirprobable recoverability.

 

2.7           Warranty costs on sale ofservices are accrued based on managements’ estimates and historical data at thetime related revenues are recorded.

 

2.8           The Company grants volumediscounts to certain customers, which are computed based on a pre-determinedpercentage of the total revenues from those customers during a specifiedperiod, as per the terms of the contract. These discounts are earned only afterthe customer has provided a specified cumulative level of revenues in thespecified period. The Company reports revenues net of discounts offered tocustomers.

 

The Company estimates the total number of customersthat will ultimately earn these discounts, based on which a portion of therevenue on the related transactions is allocated to the services that will bedelivered in the future.

 

Reimbursements of out of pocket expenses receivedfrom customers have been included as a component of revenues.

 

2.9           Revenues from BPO Servicesare derived from both time-based and transaction-priced contracts. Revenue isrecognized as the related services are performed, in accordance with thespecific terms of the contracts with the customer.

 

2.10         The Company reports taxesassessed by governmental authorities which are directly imposed on revenueproducing transactions on a net basis.

 

***Advertising cost***

 

2.11           Advertisingcosts incurred during the year have been expensed. The total amount ofadvertising costs expensed was $0.9 million, $1.6 million and $1.34 million forthe years ended December, 31, 2007, 2008 and 2009, respectively.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Cash and cash equivalents***

 

2.12         The Company considersinvestments in highly liquid investments with an original maturity of threemonths or less to be cash equivalents. Cash and cash equivalents comprise cash,deposits with banks and money market accounts.

 

***Investments***

 

2.13         Management determines the appropriate classificationof investment securities at the time of purchase and re-evaluates suchdesignation at each balance sheet date. At December 31, 2008 and 2009, investment securities wereclassified as available-for-sale or held to maturity. The investment securitiesclassified as available-for-sale consists of units of mutual funds and otherinvestments. Other investments consists primarily of certificate of depositwith banks, which are carried at fair value based on the prices obtained fromindependent third party dealers. Held to maturity securities consist ofinvestment made by the Company in term deposits issued by the Government. Theseterm deposits mature in two years from the time of deposit.

 

2.14         Available-for-salesecurities are carried at fair market value with unrealized gains and losses,net of deferred income taxes, reported as a separate component of othercomprehensive income in the statement of shareholders’ equity and comprehensiveincome/(loss). The fair values represent either the quoted market prices forthe investments at balance sheet date where available or Net Asset Value (“NAV”)as stated by the issuers of these mutual fund units in the publishedstatements.  NAVs represent the price atwhich the issuer will issue further units in the mutual fund and the price atwhich the issuer will redeem such units from the investors. Accordingly, suchNAV are analogous to fair market value with respect to these investments astransactions of these mutual funds are carried out at such prices betweeninvestors and the issuers of these units of mutual funds.

 

Realized gains and losses, and decline in valuejudged to be other than temporary on available-for-sale securities are includedin the consolidated statements of income. The cost of securities sold or disposed is determined on average costbasis.

 

***Trade accounts receivable***

 

2.15         Trade accounts receivableare recorded at the invoiced amount and do not bear interest. Amounts collectedon trade accounts receivable are included in net cash provided by operatingactivities in the consolidated statements of cash flows. The Company maintainsan allowance for doubtful accounts for estimated losses resulting from theinability of our customers to make required payments. The allowance fordoubtful accounts is determined by evaluating the relative credit-worthiness ofeach customer, historical collections experience and other information,including the aging of the receivables. Account balances are charged offagainst the allowance after all means of collection have been exhausted and thepotential for recovery is considered remote.

 

***Business combinations, goodwilland intangible assets***

 

2.16         The Company accounts for itsbusiness combinations under the purchase method of accounting. Intangibleassets acquired in a business combination are recognized and reportedseparately from goodwill. All assets and liabilities of the acquiredbusinesses, including goodwill, are assigned to reporting units.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Business combinations, goodwilland intangible assets (Continued)***

 

2.17         Goodwill represents the costof the acquired businesses in excess of the fair value of identifiable tangibleand intangible net assets purchased. Goodwill is not amortized but is testedfor impairment at least on an annual basis at year end, relying on a number offactors including operating results, business plans and future cash flows.Recoverability of goodwill is evaluated using a two-step process. Under thefirst step, the fair value of the reporting unit is compared with its carryingvalue (including goodwill). If the fair value of the reporting unit is lessthan its carrying value, an indication of goodwill impairment exists for thereporting unit and the step two of the impairment test (measurement) isperformed. Under step two, an impairment loss is recognized for any excess ofthe carrying amount of the reporting unit’s goodwill over the implied fairvalue of that goodwill. The implied fair value of goodwill is determined byallocating the fair value of the reporting unit in a manner similar to apurchase price allocation, in a business combination. The residual fair valueafter this allocation is the implied fair value of the reporting unit goodwill.Fair value of the reporting unit is determined using a discounted cash flowanalysis. If the fair value of the reporting unit exceeds its carrying value,step two does not need to be performed. The Company performs its annualimpairment review of goodwill at December 31, and when a triggering eventoccurs between annual impairment tests. Based on the results of its annualimpairment tests, the Company determined that no impairment of goodwill existedas of December 31, 2009 or December 31, 2008.

 

2.18         Intangible assets acquiredeither through a business combination or individually are amortized over theirrespective individual estimated useful lives in proportion to the economicbenefits consumed in each period. Intangible assets comprise customer andtechnology related intangible assets and are being amortized over a period of3-10 years. The estimated useful life of an identifiable intangible asset is basedon a number of factors including the effects of obsolescence, demand,competition and other economic factors (such as the stability of the industry,and known technological advances) and the level of maintenance expendituresrequired to obtain the expected future cash flows from the asset.

 

2.19         Intangible assets are evaluated for recoverabilitywhenever events or changes in circumstances indicate that their carryingamounts may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to futureundiscounted net cash flows expected to be generated by the asset. If suchassets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying value of the assets exceeds thefair value of the assets.

 

***Property, plant and equipment***

 

2.20         Property, plant andequipment are stated at cost less accumulated depreciation and amortization.Gains and losses on disposals are included in the consolidated statements ofincome at amounts equal to the difference between the net book value of thedisposed assets and the net proceeds received upon disposal.  Expenditures for replacements andimprovements are capitalized, whereas the cost of maintenance and repairs ischarged to income when incurred.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Property, plant and equipment(Continued)***

 

2.21         Property, plant andequipment are depreciated over the estimated useful life of the asset using thestraight-line method, once the asset is put to its intended use. The cost ofsoftware obtained for internal use is capitalized and amortized over theestimated useful life of the software. The estimated useful lives of assets areas follows:

 
| Buildings                                                          |   | 40 years                                                                       |
|--------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|
| Leasehold improvements                                             |   | Over the lease period or the useful lives of the assets, whichever is  shorter |
| Computer – Hardware and software and other service equipments |   | 3 years                                                                        |
| Furniture and fixtures                                             |   | 3-8 years                                                                      |
| Other equipment                                                    |   | 3-8 years                                                                      |
| Vehicles                                                           |   | 4-5 years                                                                      |

 

***Impairment of long-lived assetsand long-lived assets to be disposed***

 

2.22         Long-lived assets andcertain identifiable intangible assets are reviewed for impairment whenever anevent or changes in circumstances indicate that the carrying amount of suchassets may not be recoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to future net undiscounted cash flowsexpected to be generated by the asset. If the carrying value exceeds the expected undiscounted cash flows ofthe asset, the impairment to be recognized is measured by the amount by whichthe carrying amount of the assets exceeds the fair value of assets.  Assets to be disposed of are reported at thelower of the carrying amount or fair value less cost to sell.

 

***Functional and Foreign currencytranslation***

 

2.23         The functional currency ofPatni and its branches in the USA, Japan, Sweden, Finland, UAE, South Africa,Australia, Korea, Netherland, Canada, Turkey, Ireland, Romania and Switzerlandis the Indian Rupee. The functional currencies of Patni’s subsidiaries are theapplicable local currencies.

 

2.24         The accompanyingconsolidated financial statements are reported in US Dollars.  The translation is performed for balancesheet accounts using the exchange rate in effect at the balance sheet date andfor statements of income accounts using the exchange rate prevailing on thedate of those transactions. In respect of subsidiaries, the respectivefunctional currencies are first translated into Indian Rupees and then into USDollars. The gains or losses resulting from such translation are reported inother comprehensive income/ (loss) in the statement of shareholders’ equity andcomprehensive income/ (loss).

 

***Foreign currency transactions***

 

2.25         Transactions in foreigncurrencies are translated into the functional currency at the rates of exchangeprevailing at the date of the transaction. Resulting gains or losses from settlement of such foreign currencytransactions are included in the consolidated statements of income. Unsettledmonetary assets and liabilities denominated in foreign currencies aretranslated into the functional currency at the rates of exchange prevailing atthe balance sheet date. A transaction gain or loss arising from a change in exchangerates between the date of a transaction and the year end exchange rates isincluded in the consolidated statements of income.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies *(Continued)***

 

***Income taxes***

 

2.26         Income taxes are accountedfor under the asset and liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled.  The effect on deferred tax assets andliabilities of changes in tax rates is recognized in results of operations inthe period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by avaluation allowance if it is more likely than not that some portion or all ofthe assets will not be realised.

 

From January 1,2007, the Company recognizes the effect of income tax positions only if thosepositions are more likely than not of being sustained. Recognized income taxpositions are measured at the largest amount that is greater than 50% likely ofbeing realized. Changes in recognition or measurement are reflected in theperiod in which the change in judgment occurs.

 

***Concentration of credit risk***

 

2.27         Financial instruments thatpotentially subject the Company to concentration of credit risks consistprincipally of cash equivalents, investments and accounts receivables. Cashequivalents are invested with banks with investment grade credit ratings. Toreduce credit risk, investments are made in a diversified portfolio of mutualfunds, government bonds, which are periodically reviewed. To reduce its creditrisk on accounts receivables, the Company performs ongoing credit evaluationsof customers.

 

***Retirement benefits to employees***

 

2.28         Contributions to definedcontribution plans are charged to income in the period in which they accrue.Current services costs for defined benefit plans are accrued in the period towhich they relate. The liability in respect of defined benefit plans iscalculated annually by a qualified actuary using the projected unit creditmethod.  The Company recognises the netfunded position of its plans as an asset or liability in the consolidatedbalance sheets.

 

In measuring the defined benefit obligations, theCompany uses discount rates based on yields of high quality fixed incomeinstruments (i.e. yields on high quality corporate bonds) prevailing as at thebalance sheet date for the corresponding tenure of the obligations.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies*(Continued)***

 

***Stock-based compensation***

 

2.29         Effective January 1,2006, the Company recognizes compensation expense relating to share-basedpayments granted after this date in net income using a fair value measurementmethod. Under the fair value method, the estimated fair value of awards ischarged to income on a accelerated basis over the requisite service period,which is generally the vesting period. The Company implemented this fair valuemodel using the modified prospective method and therefore, prior periods werenot restated. Under the modified prospective method, fair value accounting wasapplied to new awards granted after the time of adoption, as well as to theunvested portion of previously granted equity-based awards for which therequisite service had not been rendered as of January 1, 2006. The Companygranted stock options under the ‘Patni ESOP 2003 Revised 2006’ plan (‘the plan’).See Note 18 for further discussion.

 

2.30         Prior to the adoption offair value accounting, the Company recorded benefits associated with the taxdeductions in excess of recognized compensation cost as an operating cash flow.Subsequent to the adoption of fair value accounting such benefits have beenrecorded as a financing cash inflow. In the accompanying consolidatedstatements of cash flows for year ended December 31, 2007, 2008 and 2009,tax benefit of $ 442,165, $16,121 and $814,537, respectively has beenclassified as financing cash flows.

 

2.31         Effective April 1,2007, an amendment has been made to Indian Income Tax Act 1961 subjecting specifiedsecurities allotted or transferred by an employer to its employees to FringeBenefit Tax (FBT). The liability to pay FBT by the employer arose at the timeof allotment of the securities, consequent to exercise of option by theemployees and is calculated on the difference between the fair value of theunderlying share on the date of vesting and the exercise price paid by theemployee based on the corporate tax rate. The FBT arising from such allotmentof a specified option is collectible from employees, which is considered asadditional exercise price of the option as this would reduce the ultimatebenefit to the employee and therefore is recognized as additionalpaid-in-capital.

 

On August 18, 2009, a further amendment wasmade to the Indian Income Tax Act, with retroactive effect from April 1,2009, abolishing the provisions of FBT. Thus, for any exercises of stockoptions by the employee on or after April 1, 2009, the shares issued, orallotted and transferred by the Company, are no longer subject to FBT.

 

Since the abolition of the provisions of FBT, suchdeemed increase to the stock option exercise price is no longer necessary. Thischange has been accounted for as a modification in the exercise price of theexisting outstanding options. Accordingly, the difference in the fair value ofthe unvested outstanding options immediately before the modification and afterthe modification will be recognized as incremental share-based compensationover the remaining vesting period. For the options vested and outstanding as onthe date of modification, the incremental cost has been recognized in thestatement of income immediately on the date of modification.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies*(Continued)***

 

***Dividends***

 

2.32         Dividends on common sharesare recorded as a liability on the date of declaration by the shareholders atthe Annual General Meeting.

 

***Derivatives and hedge accounting***

 

2.33         The Company enters intoforward foreign exchange contracts/option contracts (derivatives) to manage therisk of changes in foreign exchange rates on inter company and end customeraccounts receivable and forecasted sales transactions denominated in foreigncurrencies. The strategy also includes entering into short-term forward foreignexchange contracts which are replaced with successive new contracts up to theperiod in which the forecasted transactions are expected to occur (roll-overhedging). Upon completion of the formal documentation and testing foreffectiveness, the Company designates forward and option contracts, which meetthe hedging criteria, as cash flow hedges.

 

2.34         Changes in fair values ofdesignated cash flow hedges are deferred and recorded as a component ofaccumulated other comprehensive income/(loss) until the hedged transactionsoccur and are then recognised in the consolidated statements of income. Inrespect of derivatives acquired pursuant to roll-over hedging strategy, theforward premium/discount points are excluded from assessing hedgeeffectiveness. Changes in fair value for derivatives not designated as hedginginstruments and ineffective portion of the hedging instruments are recognizedin consolidated statements of income in the current period.

 

2.35         In respect of derivativesdesignated as hedges, the Company formally documents all relationships betweenhedging instruments and hedged items, as well as its risk management objectiveand strategy for undertaking various hedge transactions. The Company alsoformally assesses, both at the inception of the hedge and on an ongoing basis,whether each derivative is highly effective in offsetting changes in fairvalues or cash flows of the hedged item. If it is determined that a derivativeis not highly effective as a hedge, or if a derivative ceases to be a highlyeffective hedge, the Company will, prospectively, discontinue hedge accountingwith respect to that derivative. The derivatives, which do not qualify forhedge accounting, are recognised at fair value with gains or losses included inforeign exchange (gain)/loss in the consolidated statements of income.

 

***Earnings per share***

 

2.36         Basic earnings per share is computed using theweighted average number of common outstanding during the year.  Diluted earnings per share is computed usingthe weighted average number of common and dilutive common equivalent sharesoutstanding during the year using the treasury stock method for options exceptwhere the result would be anti-dilutive.

 

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Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies*(Continued)***

 

***Commitments and Contingencies***

 

2.37         Liabilities for losscontingencies arising from claims, assessments, litigations, fines andpenalties and other sources are recorded when it is probable that a liabilityhas been incurred and the amount of the assessment and/or remediation can bereasonably estimated.

 

***Reclassifications***

 

2.38         Certain reclassificationshave been made in the financial statements of prior years to conform toclassifications used in the current year.

 

***Recently Issued AccountingStandards***

 

2.39         In August 2009, theFASB issued revised authoritative guidance ASU 2009-05 (previously FSP FAS157-f) regarding the measurement of liabilities at fair value which providesclarification that in circumstances where a quoted market price in an activemarket for an identical liability is not available, a reporting entity mustmeasure fair value of the liability using one of the following techniques: 1)the quoted price of the identical liability when traded as an asset; 2) quotedprices for similar liabilities or similar liabilities when traded as assets; or3) another valuation technique, such as a present value technique or the amountthat the reporting entity would pay to transfer the identical liability orwould receive to enter into the identical liability. This statement becomeseffective for the first reporting period (including interim periods) beginningafter issuance, which is the first quarter of fiscal 2010 for the Company. TheCompany believes that this guidance will not have any impact on the Company’s consolidatedfinancial position, results of operations or cash flows.

 

2.40         In June 2009, the FASB issued authoritativeguidance ASC 810 (previously SFAS 167 “Consolidation of variable interestentities”) which revises the approach to determining when an entity that isinsufficiently capitalized or not controlled through voting rights (referred toas a variable interest entity or “VIE”) should be consolidated. The newconsolidation model for VIEs considers whether the enterprise has the power todirect the activities that most significantly impact the VIE’s economicperformance and shares in the significant risks and rewards of the entity. Thisguidance requires companies to continually reassess their involvement with VIEsto determine if consolidation is appropriate and provide additional disclosuresabout their involvement with them. This guidance is effective for the Company’s2010 fiscal year and the Company believes that this guidance will not have anyimpact on the Company’s consolidated financial position, results of operationsor cash flows.

 

***Recently Adopted AccountingStandards***

 

2.41         Effective July 1, 2009,the Company adopted the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) 105-10 (previously SFAS No 168), GenerallyAccepted Accounting Principles — Overall (“ASC 105-10”). ASC 105-10 establishesthe FASB Accounting Standards Codification (the “Codification”) as the sourceof authoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with U.S. GAAP. Rules and interpretive releases of the SECunder authority of federal securities laws are also sources of authoritativeU.S. GAAP for SEC registrants. All guidance contained in the Codificationcarries an equal level of authority. The Codification superseded all existingnon-SEC accounting and reporting standards. All other non-grandfathered,non-SEC accounting literature not included in the Codification is non-authoritative.The FASB will not issue new standards in the form of Statements, FASB StaffPositions or Emerging Issues Task Force Abstracts. Instead, it will issueAccounting Standards Updates (“ASUs”).

 

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies*(Continued)***

 

***Recently Adopted AccountingStandards (Continued)***

 

The FASB will not consider ASUs as authoritative intheir own right. ASUs will serve only to update the Codification, providebackground information about the guidance and provide the basis for conclusionson the change(s) in the Codification. References made to FASB guidancethroughout this document have been updated for the Codification. The adoptionof this standard did not have any impact on the Company’s consolidatedfinancial position, results of operations and cash flows.

 

2.42         In December 2007, theFASB issued ASC No. 805 (previously SFAS No 141R), Business Combinationsand ASC No. 810 (previously FAS Statement No. 160), NoncontrollingInterests in Consolidated Financial Statements — an amendment to ASC No. 810(“ASC No. 810-10-65”). ASC 805 and 810 require most identifiable assets,liabilities, noncontrolling interests, and goodwill acquired in a businesscombination to be recorded at “full fair value” and require noncontrollinginterests (previously referred to as minority interests) to be reported as acomponent of equity, which changes the accounting for transactions withnoncontrolling interest holders. The Company adopted ASC 805 January 1,2009 and will apply this standard to business combinations from this dateonwards. The adoption of ASC 805 and ASC 810 did not have any impact on theCompany’s consolidated financial position, results of operations, cash flows orits disclosures.

 

2.43         In April 2008, the FASBissued ASC No. 350-30 (previously FSP SFAS No 142-3 “Determination of theUseful Life of Intangible Assets”). ASC No. 350-30 amends the factors anentity should consider in developing renewal or extension assumptions used indetermining the useful life of recognized intangible assets under ASC No. 350,Goodwill and Other Intangible Assets. This new guidance applies prospectivelyto intangible assets that are acquired individually or with a group of otherassets in business combinations and asset acquisitions after the effectivedate. The Company adopted ASC No. 350-30 January 1, 2009 which didnot have any impact on the Company’s consolidated financial position, resultsof operations, cash flows or its disclosures.

 

2.44         In December 2008, theFASB issued ASC 715-20-05 (previously FSP FAS 132(R)-1), “Employer’sDisclosures about Postretirement Benefit Plan Assets”).  The ASC requires enhanced disclosures aboutplan assets currently required by ASC 715, Employer’s Disclosures aboutPensions and Other Postretirement Benefits. ASC 715-20-05 requires more detailed disclosures about employers’ planassets, including employers’ investment strategies, major categories of planassets, concentrations of risk within plan assets, and valuation techniquesused to measure the fair value of plan assets. The Company adopted thesedisclosure requirements in these consolidated financial statements. See Note20.

 

2.45         On January 1, 2009, theCompany adopted ASC No. 820-10 (previously FSP SFAS No 157-2), EffectiveDate of ASC No. 820 (“ASC No. 820-10”), which delays the effectivedate of ASC No. 820 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis to fiscal years beginning after November 15,2008. The adoption of ASC No. 820-10, did not have any impact on theCompany’s consolidated financial position, results of operations and cashflows.

 

F-20

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**2****             ****Summary ofsignificant accounting policies*(Continued)***

 

***Recently Adopted AccountingStandards (Continued)***

 

2.46         On January 1, 2009, theCompany adopted ASC No. 815 (previously SFAS No 161 “Disclosures aboutDerivative Instruments and Hedging Activities”). This standard requiresenhanced disclosures about (a) how and why an entity uses derivativeinstruments (b) how derivative instruments and related hedged items areaccounted and (c) how derivative instruments and related hedged itemsaffect an entity’s financial positions, financial performance and cash flows.The Company adopted these disclosures requirements in these consolidated financialstatements. See Note 16.

 

2.47         On April 9, 2009 theFinancial Accounting Standards Board (‘FASB’) issued three ASC’s to provideadditional application guidance and enhance disclosures regarding fair valuemeasurements and impairments of securities. ASC 820-10-65 (previously FSP FAS157-4), Determining Fair Value When the Volume and Level of Activity for theAsset or Liability Have Significantly Decreased and Identifying TransactionsThat Are Not Orderly, provides guidelines for making fair value measurementsmore consistent with the principles presented in ASC No. 820, Fair ValueMeasurements. ASC 820-10-50, Interim Disclosures about Fair Value of FinancialInstruments, enhances consistency in financial reporting by increasing thefrequency of fair value disclosures.

 

ASC 320-10-65 (previously FSP FAS 115-2 and FAS124-2), Recognition and Presentation of Other-Than-Temporary Impairments,provides additional guidance designed to create greater clarity and consistencyin accounting for and presenting impairment losses on securities. The Companybegan providing the related disclosures starting with our interim financialstatements as of June 30, 2009. The adoption of these ASC did not have anyimpact on the Company’s consolidated financial position, results of operationsand cash flows.

 

2.48         In May 2009, theFinancial Accounting Standards Board (FASB) issued ASC No. 855 (previouslySFAS No 165), Subsequent Events (“ASC 855”). ASC 855 is intended to establish general standards of accounting for anddisclosure of events that occur after the balance sheet date but beforefinancial statements are issued or are available to be issued.  It requires the disclosure of the datethrough which an entity has evaluated subsequent events and the basis for thatdate that is, whether that date represents the date the financial statementswere issued or were available to be issued.

 

This disclosure should alert all users of financialstatements that an entity has not evaluated subsequent events after that datein the set of financial statements being presented.  ASC 855 (previously SFAS No 165) is effectivefor interim and annual periods ending after June 15, 2009. The Companyevaluated all events or transactions that occured after December 31, 2009through February 26, 2010 the date the Company issued these financialstatements. During this period the Company did not have any materialrecognizable subsequent events.

 

F-21

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**3****             ****Acquisitions**

 

***3.1******         ******Acquisition of business andassets of Logan-Orviss International Associates BV (‘LOI’)***

 

On July 2, 2007, the Company acquired 100% ofthe business and assets of LOI, a European telecommunications consultingservices Company. The Company believes that through this acquisition it willstrengthen its presence in communication and media practice through consultancyservices on IT initiatives. The purchase price of $8,613,938 (including directacquisition related expenses of $863,938) was paid in cash.

 

This transaction has been accounted using thepurchase method. The purchase price has been allocated to the acquired assetsas per management’s estimates and independent valuation of fair values assummarized below:

 
| **Intangible assets**                                            |       |       |       |      |          |
|------------------------------------------------------------------|------------|------------|------------|-----------|---------------|
| - Customer contracts and  non contractual customer relationships |       | 1,370,000  |       |      |          |
| - Intellectual property  rights                                  |       | 790,000    |       | 2,160,000 |          |
| Goodwill                                                         |       |       |       | 6,453,938 |          |
| **Total  purchase price**                                        | ** ** | ** ** | ** ** | **$**     | **8,613,938** | ** ** |
|                                                                  |            |            |            |           |               |  |

 

Goodwill generated from the above acquisition wasallocated to “Communications, Media and Utilities” segment.

 

Further, as a part of the business acquisition, theCompany initiated an incentive plan linked to revenues for certain specificemployees. Management estimates that incentive payments under this plan willnot exceed $13,080,000 through June 2010. Since, the incentive paymentsare linked to continuing employment, the payments under the plan are recognisedas compensation costs for post acquisition services. Based on the assessment ofthe revenue targets achieved for the contractual year ended June 30, 2008,and June 30, 2009 an amount of $117,108 and $ 123,810 respectively has beenaccrued as compensation cost for these employees. Further, based on theassessment of revenue targets expected to be achieved for the contractual yearending June 30, 2010, an additional amount of $41,504 has been recorded asselling, general and administrative expenses for these employees for the yearended December 31, 2009.

 

F-22

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**3****            ****Acquisitions*(Continued)***

 

***3.2******         ******Acquisition of TaratecDevelopment Corporation (Taratec)***

 

On July 23, 2007, Patni USA acquired 100%equity interest in Taratec Development Corporation (subsequently named as PatniLife Sciences Inc), which is a leading consulting company in the life sciencesindustry providing integrated business, information technology, and regulatorycompliance products and services.

 

The primary purpose for the acquisition was toenhance Patni’s market specific services and provide additional capability tosupport the growing and diverse requirements of the life sciences market, frompharmacovigilance to demand-driven supply chains. The purchase price of$15,680,226 (including direct acquisition related expenses of $435,008), waspaid in cash on July 23, 2007.

 

The terms of the purchase also provide for paymentof contingent consideration to all the selling shareholders, payable over threeyears, and calculated based on the achievement of specified revenue and margintargets. The contingent consideration is payable in cash and cannot exceed$13,200,000.

 

The Company accounts for the contingent payments,other than payments to certain employees under the incentive plan described below,as goodwill in the periods in which the contingency is resolved.

 

Further, as a part of the acquisition, the Companyinitiated an incentive plan linked to revenues and margins, for certainspecific employees of Taratec and Patni. The incentive payments under this planwill not exceed $3,500,000 through June 2010. Since, the incentivepayments are linked to continuing employment, the payments under the plan arerecognized as compensation for post acquisition services. Based on theassessment of the revenue and margin targets achieved through the contractualyear ended July 31, 2008, and July 31, 2009, the management hasconcluded that no compensation cost is required to be accrued for theseemployees. Further based on the assessment for the revenue and margin targetsexpected to be achieved for the contractual year ending July 31, 2010, themanagement has concluded that no compensation cost is required to be accruedfor these employees during the year ended December 31, 2009.

 

This transaction has been accounted using thepurchase method of accounting. The purchase price, net of cash acquired of$2,843,782, has been allocated to the acquired assets and assumed liabilitiesas per management’s estimates and independent valuation as summarized below:

 
| Net current assets                                               |       |       |       | $         | 2,528,948      |       |
|------------------------------------------------------------------|------------|------------|------------|-----------|----------------|------------|
| Deferred tax asset                                               |       |       |       | 920,600   |           |
| Property, plant and  equipment                                   |       |       |       | 84,538    |           |
| Deferred tax liability                                           |       |       |       | (696,000  | )              |
| Intangible assets                                                | ** ** | ** ** |       |      |           |
| - Customer contracts and  non contractual customer Relationships |       | 1,550,000  |       |      |           |
| - Intellectual property  rights                                  |       | 190,000    |       | 1,740,000 |           |
| Goodwill                                                         |       |       |       | 8,258,358 |           |
| **Total  purchase price**                                        |       |       | ** ** | **$**     | **12,836,444** | ** ** |

 

Goodwill generated from the above acquisition wasallocated to “Manufacturing, Retail and Distribution” segment.

 

F-23

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**4****             ****Cash andCash Equivalents**

 

Cash and cash equivalents held by the Companyaccount wise are as follows:

 
| **As of**        | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| Bank Accounts    |       | $                           | 58,033,968     |                        | $          | 63,337,520 |   |
| Money In Transit |       | 982,397                     |           | 58,084                      |       |
| Term Deposits    |       | 1,026,777                   |           | —                      |       |
| Cash in Hand     |       | 95,315                      |           | 63,511                      |       |
| **Total**        | ** ** | **$**                       | **60,138,457** | ** **                  | **$**      | **63,459,115** | ** ** |

 

Cash and cash equivalents as of December 31,2008 and 2009 include restricted cash balance of $9,755 and $16,557,respectively. Restrictions are primarily on account of unclaimed dividends.

 

The following table sets out the break-up of cashand cash equivalents held in banks:

 
| **As of**                                      | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| ** **                                     |       |                        |           |                        |       |
| **Bank  Accounts**                             |       | ** **                  | ** **     | ** **                  | ** ** |
| Bank of America , USA                          |       | $                           | 31,804,624     |                        | $          | 26,147,543 |   |
| Handelsbanken, Finland.                        |       | 2,038,103                   |           | 1,949,616                   |       |
| Standard Bank of S Africa,  South Africa       |       | 1,840,823                   |           | 2,777,323                   |       |
| ABN Amro Bank N.V, India                       |       | 1,780,079                   |           | 447,070                     |       |
| Commerce Bank, USA                             |       | 1,637,792                   |           | —                      |       |
| Standard Chartered Bank,  India                |       | 1,350,050                   |           | 318,551                     |       |
| Citibank N.A., India                           |       | 1,317,536                   |           | 2,042,601                   |       |
| Natwest Bank , UK                              |       | 1,282,157                   |           | 10,697,690                  |       |
| Bank of Tokyo, Japan                           |       | 1,270,163                   |           | 1,269,330                   |       |
| Deutsche Bank ,Germany                         |       | 1,254,592                   |           | 926,481                     |       |
| ANZ Bank, Australia                            |       | 1,052,805                   |           | 2,040,269                   |       |
| AK Bank, Turkey                                |       | —                      |           | 2,364,193                   |       |
| Citibank EEFC Bank  accounts, India            |       | 3,423,021                   |           | 2,811,973                   |       |
| Standard Chartered Bank-  EEFC accounts, India |       | 1,231,418                   |           | 6,452,547                   |       |
| Others *                                       |       | 6,750,804                   |           | 3,092,333                   |       |
|                                           | ** ** | **58,033,968**              | ** **     | **63,337,520**              | ** ** |
| ** **                                     | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| **Money in  transit**                          | ** ** | **$**                       | **982,397**    | ** **                  | **$**      | **58,084** | ** ** |
| ** **                                     | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| **Term  Deposits**                             | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Merrill Lynch, USA                             |       | 1,137                       |           | —                      |       |
| Yes Bank, India                                |       | 1,025,640                   |           | —                      |       |
| **Total**                                      | ** ** | **$**                       | **1,026,777**  | ** **                  | **—** | ** ** |
| ** **                                     | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| **Cash in  Hand**                              | ** ** | **$**                       | **95,315**     | ** **                  | **$**      | **63,511** | ** ** |
| ** **                                     | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| **Cash and  Cash Equivalents**                 | ** ** | **$**                       | **60,138,457** | ** **                  | **$**      | **63,459,115** | ** ** |

 

----

* Others include bank balances in various accountswith banks spread across various locations in which the Company held balancesof less than $1 million individually.

 

F-24

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**5****             ****Investments**

 

5.1           Investment securities consist of the following:

 
| ** **                                     | ** **   | **As of  December 31, 2008** | ** **      |
|------------------------------------------------|--------------|------------------------------|-----------------|
| ** **                                     | ** **   | **Cost of   Purchase**       | ** **      | **Gross  unrealized   holding gains** | ** ** | **Gross  unrealized   holding losses** | ** ** | **Fair value** | ** ** |
| **Available  for sale:**                       | *** *** | *** ***                 | *** ***    | *** *** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Mutual  Fund Units:**                        | *** *** | *** ***                 | *** ***    | *** *** | ** ** | ** ** | ** ** | ** ** | ** ** |
| - Liquid                                       |         | $                            | 151,126,457     |   | $ | 1,788,582 |   | $ | (10,307 | ) | $ | 152,904,732 |   |
| - Fixed Maturity                               |         | 85,569,637                   |            | 4,980,890 |   | (6 | ) | $ | 90,550,521 |   |
| Other Investments                              |         | 2,008,240                    |            | 66,276 |   | — |   | $ | 2,074,516 |   |
| Amount reported as  investments – current | ** **   | **$**                        | **238,704,334** | ** ** | **$** | **6,835,748** | ** ** | **$** | **(10,313** | **)** | **$** | **245,529,769** | ** ** |
| **Held to  maturity:**                         |         |                         |            |   |   | ** ** | ** ** | ** ** | ** ** |
| Bonds                                          |         | $                            | 2,769,231       |   |   |   |   |   |   |   |
| Amount reported as  investments- non current   | ** **   | **$**                        | **2,769,231**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |

 
| ** **                                     | ** ** | **As of  December 31, 2009** | ** **      |
|------------------------------------------------|------------|------------------------------|-----------------|
| ** **                                     | ** ** | **Cost of   Purchase**       | ** **      | **Gross  unrealized   holding gains** | ** ** | **Gross  unrealized   holding losses** | ** ** | **Fair value** | ** ** |
| **Available  for sale:**                       | ** ** | ** **                   | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Mutual  Fund Units:**                        | ** ** | ** **                   | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| - Liquid                                       |       | $                            | 355,745,005     |   | $ | 1,444,038 |   | $ | (10,774 | ) | $ | 357,178,269 |   |
| - Fixed Maturity                               |       | 7,523,646                    |            | 486,318 |   | — |   | 8,009,964 |   |
| Other Investments                              |       | 10,009,802                   |            | 660,103 |   | — |   | 10,669,905 |   |
| Amount reported as  investments – current | ** ** | **$**                        | **373,278,453** | ** ** | **$** | **2,590,459** | ** ** | **$** | **(10,774** | **)** | **$** | **375,858,138** | ** ** |
| **Held to  maturity:**                         | ** ** | ** **                   | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Term deposit                                   |       | $                            | 2,966,595       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Non-Convertible Debentures                     |       | $                            | 5,374,033       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Amount reported as  investments- non current   | ** ** | **$**                        | **8,340,628**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |

 

5.2           Dividends from securities available for sale andgross realised gains and losses on sale of securities available for sale are asfollows:

 
| ** **                                                      | ** ** | **Year ended   December 31, 2007** | ** ** | **Year ended   December 31, 2008** | ** ** | **Year ended   December 31, 2009** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Dividends from securities  available for sale                   |       | $                                       | 9,946,965  |                                    | $          | 11,510,937                              |       | $ | 10,425,493 |   |
| Gross realised gains on  sale of securities available for sale  |       | 6,401,863                               |       | 10,477,436                              |       | 9,703,109                               |       |
| Gross realised losses on  sale of securities available for sale |       | 31,861                                  |       | 745,788                                 |       | 234,642                                 |       |
|                                                                 |            |                                         |            |                                         |            |                                         |            |  |  |  |

 

F-25

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**5****             ****Investments*(Continued)***

 

5.3           Maturity profile of investment securities classifiedas available-for-sale and held-to-maturity are as follows as of December 31,2009:

 
| ** **                                                        | ** ** | **Cost of  Purchase** | ** **    | **Fair Value** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|---------------|----------------|------------|
| **Available  for Sale :**                                         |       |                  |          |           |       |
| Mutual Fund Units (Fixed  Maturity)                               |       |                  |          |           |       |
| - Within one year                                                 |       | $                     | 7,523,646     |           | $          | 8,009,964 |   |
|                                                              |       |                  |          |           |       |
|                                                              | ** ** | **$**                 | **7,523,646** | ** **     | **$**      | **8,009,964** | ** ** |
| **Held to  Maturity :****-Due after one year through five years** |       |                  |          |           |       |
| Term deposit                                                      |       | $                     | 2,966,595     |           |       |   |
| Non-Convertible Debentures                                        |       | $                     | 5,374,033     |           |       |   |
|                                                              |       |                  |          |           |       |
| ** **                                                        | ** ** | **$**                 | **8,340,628** | ** **     | ** ** | ** ** |

 

5.4           Investment securities are held in the followingmutual fund and other investment schemes:

 
| **As of**                                             | ** ** | **December 31,  2008** | ** **      | **December 31,  2009** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|-----------------|-----------------------------|------------|
| **Available  for Sale Securities**                    | ** ** | ** **                  | ** **      | ** **                  | ** ** |
| IDFC Mutual Fund                                      |       | $                           | 18,441,673      |                        | $          | 68,953,565 |   |
| ICICI Prudential Mutual  Fund                         |       | 42,692,251                  |            | 34,643,289                  |       |
| Reliance Mutual Fund                                  |       | 34,918,630                  |            | 36,770,299                  |       |
| Kotak Mutual Fund                                     |       | 25,128,363                  |            | 31,139,138                  |       |
| HDFC Mutual Fund                                      |       | 2,647,146                   |            | 34,385,614                  |       |
| Birla Sunlife Mutual Fund                             |       | 32,007,002                  |            | 41,763,517                  |       |
| Tata Mutual Fund                                      |       | 30,461,581                  |            | 40,274,464                  |       |
| Religare Mutual Fund                                  |       | 7,237,046                   |            | 14,045,079                  |       |
| Deutsche Mutual Fund                                  |       | 7,952,685                   |            | 43,321,081                  |       |
| Fortis Mutual Fund                                    |       | 5,739,249                   |            | 13,019,007                  |       |
| JM Financial Mutual Fund                              |       | 13,991,066                  |            | 1,051,789                   |       |
| DSP BlackRock Mutual Fund                             |       | 12,123,623                  |            | —                      |       |
| HSBC Mutual Fund                                      |       | 3,956,269                   |            | 4,153,983                   |       |
| Franklin Templeton Mutual  Fund                       |       | 6,158,668                   |            | 1,667,407                   |       |
| Global Treasury Fund                                  |       | 5,916                       | ** **      | **—**                  | ** ** |
|                                                  | ** ** | **$**                       | **243,461,168** | ** **                  | **$**      | **365,188,233** | ** ** |
| **Other  Investments:**                               |       | ** **                  | ** **      | ** **                  | ** ** |
| **Investment  in Certificates of Deposit with Banks** |       | ** **                  | ** **      | ** **                  | ** ** |
| Canara Bank                                           |       | 2,024,878                   |            | 10,659,695                  |       |
| **Total**                                             | ** ** | **2,024,878**               | ** **      | **10,659,695**              | ** ** |
| ** **                                            | ** ** | ** **                  | ** **      | ** **                  | ** ** |
| **Others**                                            |       | 43,723                      |            | 10,211                      |       |
| ** **                                            | ** ** | **43,723**                  | ** **      | **10,211**                  | ** ** |
| ** **                                            | ** ** | ** **                  | ** **      | ** **                  | ** ** |
| **Total**                                             | ** ** | **245,529,769**             | ** **      | **375,858,138**             | ** ** |
| **Held to  Maturity**                                 |       | ** **                  | ** **      | ** **                  | ** ** |
| NABARD Capital Gains Bonds                            |       | 2,769,231                   | ** **      | **—**                  | ** ** |
| Non-Convertible Debentures                            |       | —                      |            | 5,374,033                   |       |
| NABARD Term Deposit                                   |       | —                      |            | 2,966,595                   |       |
| **Total**                                             | ** ** | **2,769,231**               | ** **      | **8,340,628**               | ** ** |

 

F-26

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**6****             ****Accountsreceivable**

 

6.1           Accounts receivable consist of the following:

 
| **As of**                               | ** ** | **December 31,  2008** | ** **      | **December 31,  2009** | ** ** |
|-----------------------------------------|------------|-----------------------------|-----------------|-----------------------------|------------|
| Receivables                             |       | $                           | 114,736,385     |                        | $          | 112,296,848 |   |
| Less: Allowances for  doubtful accounts |       | (2,922,642                  | )               | (2,887,262                  | )          |
|                                    |       |                        |            |                        |       |
|                                    | ** ** | **$**                       | **111,813,743** | ** **                  | **$**      | **109,409,586** | ** ** |

 

6.2           The activity in the allowance for doubtful accountsreceivable for the years ended December 31, 2007, 2008 and 2009 is asfollows:

 
| **As of**                                                              | ** ** | **December********31, 2007** | ** **    | **December******** 31, 2008** | ** ** | **December********31, 2009** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------|---------------|------------------------------------|------------|------------------------------|------------|
| Allowance for doubtful  accounts as of the beginning of the year       |       | $                            | 3,105,764     |                               | $          | 2,327,490                    |       | $ | 2,922,642 |   |
| Additional provision (net  of recoveries) made during the year         |       | 1,050,245                    |          | 1,561,630                          |       | 2,269,998                    |       |
| Accounts receivable written  off against the allowance during the year |       | (1,828,519                   | )             | (966,478                           | )          | (2,305,379                   | )          |
| Allowance for doubtful  accounts as of the end of the year             | ** ** | **$**                        | **2,327,490** | ** **                         | **$**      | **2,922,642**                | ** ** | **$** | **2,887,262** | ** ** |

 

**7****             ****Unbilledrevenue and billings in excess of costs and estimated earnings on uncompletedcontracts**

 
| **As of**                                                                    | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| Cost incurred on uncompleted  contracts                                      |       | $                           | 62,885,237     |                        | $          | 60,800,956 |   |
| Estimated earnings                                                           |       | 38,889,183                  |           | 34,211,471                  |       |
|                                                                         |       | 101,774,420                 |           | 95,012,426                  |       |
| Less: Billings to date                                                       |       | (77,111,436                 | )              | (80,992,935                 | )          |
|                                                                         |       | $                           | 24,662,984     |                        | $          | 14,019,491 |   |
| Included in the  accompanying balance sheet under the following captions:    |       |                        |           |                        |       |
| Unbilled revenue                                                             |       | 30,663,367                  |           | 19,737,311                  |       |
| Billings in excess of costs  and estimated earnings on uncompleted contracts |       | (6,000,383                  | )              | (5,717,820                  | )          |
|                                                                         | ** ** | **$**                       | **24,662,984** | ** **                  | **$**      | **14,019,491** | ** ** |

 

F-27

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**8****             ****Otherassets**

 

Other assets consist of the following:

 
| **As of**                                         | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|---------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| Advances to vendors                               |       | $                           | 1,317,240      |                        | $          | 984,491 |   |
| Refundable security deposit                       |       | 6,457,639                   |           | 6,247,167                   |       |
| Deferred cost in respect of  revenue arrangements |       | 1,689,331                   |           | 3,341,877                   |       |
| Due from employees                                |       | 1,646,155                   |           | 803,557                     |       |
| Derivative contracts                              |       | 75,424                      |           | 2,400,791                   |       |
| Leasehold Land                                    |       | 13,833,378                  |           | 17,815,804                  |       |
| Deposit with tax  authorities                     |       | —                      |           | 5,464,456                   |       |
| Others                                            |       | 1,872,641                   |           | 586,198                     |       |
|                                              | ** ** | **$**                       | **26,891,808** | ** **                  | **$**      | **37,644,341** | ** ** |
| Less : Other current assets                       |       | ** **                  | ** **     | ** **                  | ** ** |
| Advances to vendors                               |       | (1,317,240                  | )              | (984,491                    | )          |
| Refundable security deposit                       |       | (353,433                    | )              | (3,137,830                  | )          |
| Deferred cost in respect of  revenue arrangements |       | (1,689,331                  | )              | (3,341,877                  | )          |
| Due from employees                                |       | (1,626,875                  | )              | (779,962                    | )          |
| Derivative contracts                              |       | (75,424                     | )              | (2,400,791                  | )          |
| Deposit with tax authorities                      |       | —                      |           | (5,464,456                  | )          |
| Others                                            |       | (1,872,641                  | )              | (586,198                    | )          |
|                                              |       | (6,934,944                  | )              | (16,695,605                 | )          |
| Other assets                                      | ** ** | **$**                       | **19,956,864** | ** **                  | **$**      | **20,948,736** | ** ** |

 

**9****             ****Property,plant and equipment**

 

9.1           Property, plant and equipment consists of thefollowing:

 
| **As of**                                             | ** ** | **December 31,  2008** | ** **      | **December 31,  2009** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|-----------------|-----------------------------|------------|
| ** **                                            |       | ** **                  | ** **      | ** **                  | ** ** |
| Land                                                  |       | $                           | 3,508           |                        | $          | 3,676 |   |
| Building                                              |       | 56,885,137                  |            | 78,456,910                  |       |
| Leasehold improvements                                |       | 6,960,380                   |            | 7,875,532                   |       |
| Computer – Hardware and  other service equipment |       | 49,981,070                  |            | 52,152,209                  |       |
| Computer – Software                              |       | 28,665,685                  |            | 35,554,632                  |       |
| Furniture and fixtures                                |       | 19,153,158                  |            | 22,185,317                  |       |
| Other equipment                                       |       | 38,046,505                  |            | 42,671,510                  |       |
| Vehicles                                              |       | 1,579,933                   |            | 1,389,021                   |       |
| Capital work-in-progress                              |       | 39,515,267                  |            | 19,210,742                  |       |
| Capital advances                                      |       | 11,759,987                  |            | 9,523,487                   |       |
|                                                  |       | 252,550,630                 |            | 269,023,036                 |       |
| Less: Accumulated depreciation  and amortization      |       | (101,620,303                | )               | (121,391,139                | )          |
|                                                  | ** ** | **$**                       | **150,930,327** | ** **                  | **$**      | **147,631,897** | ** ** |

 

F-28

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**9****             ****Property, plant and equipment *(Continued)***

 

9.2           Depreciation and amortization on property, plant andequipment and amortization of computer software included in depreciation andamortization of property, plant and equipment is as follows:

 
| ** **                         | ** ** | **Year ended   December 31, 2007** | ** ** | **Year ended   December 31, 2008** | ** ** | **Year ended   December 31, 2009** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| Depreciation and  amortization     |       | $                                       | 22,965,130 |                                    | $          | 23,254,443                              |       | $ | 22,004,791 |   |
| Amortization of computer  software |       | 4,796,933                               |       | 4,432,496                               |       | 4,246,801                               |       |
|                                    |            |                                         |            |                                         |            |                                         |            |  |  |  |

 

Unamortized computer software cost as at December 31,2008 and 2009 amounted to $5,071,501 and $7,999,468, respectively.

 

**10****          ****Goodwilland intangible assets**

 

10.1         Intangible assets as at December 31,2008 and 2009 consist of the following:

 
| **As of**                                | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| Customer related  intangibles            |       | $                           | 14,037,795     |                        | $          | 14,037,795 |   |
| Technology related  intangibles          |       | 497,879                     |           | 497,879                     |       |
| Intellectual property  rights            |       | 21,448,600                  |           | 21,448,600                  |       |
| Foreign currency  translation adjustment |       | (378,795                    | )              | (310,371                    | )          |
|                                     | ** ** | **35,605,479**              | ** **     | **35,673,903**              | ** ** |
| Less: Accumulated  amortization          |       | (8,532,311                  | )              | (12,779,112                 | )          |
|                                     | ** ** | **$**                       | **27,073,168** | ** **                  | **$**      | **22,894,791** | ** ** |

 

During 2007, Patni, through its wholly ownedsubsidiary, Patni USA, acquired from one of its major customer, the worldwiderights for a software Proprietary Intellectual Property Rights (“IPR”) thatenables communication service providers to offer customer management, retailpoint-of-sale and billing services for a variety of products and services. Costof acquisition of the IPR amounting to $20,368,600 has been capitalized as anintangible asset and is being amortized over a period of ten years. The Companyintends to use this intellectual property for the purposes of softwarelicensing, provision of reusable IP-led IT services, managed services andprovision of hosted or software-as-a-service solutions. A royalty of 5% ispayable to seller on such sales.

 

During 2009, due to adverse market conditions, theCompany reviewed the recoverability of the carrying amount of the IPR. Based onthe results of the recoverability test, the sum of the undiscounted cash flowsof IPR expected to result from its use exceeded the carrying amount as at December 31,2009. These undiscounted future cash flows were revised from previous periodsto reflect current prevailing economic conditions. The Company concluded thatas the undiscounted cash flows expected to be received from the continuing useof IPR exceeded its carrying value a comparison of the carrying value of theasset to its fair value was not required.

 

F-29

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**10****          ****Goodwilland intangible assets *(Continued)***

 

10.2         Amortization for the yearsended December 31, 2007, 2008 and 2009 amounted to $2,087,930, $4,457,529and $4,246,801 respectively.  Theestimated amortization for the intangible assets, for the next five years willbe as follows:

 
| ** **   | ** ** | **2010** | ** ** | **2011** | ** ** | **2012**  | ** ** | **2013** | ** ** | **2014** | ** ** |
|--------------|------------|----------|------------|----------|------------|-----------|------------|----------|------------|----------|------------|
| Amortization |       | $        | 3,890,902  |     | $          | 3,380,405 |       | $        | 3,241,855  |     | $          | 3,150,936 |   | $ | 3,105,490 |   |
|              |            |          |            |          |            |           |            |          |            |          |            |  |  |  |  |  |

 

10.3         The movement in goodwill balance is given below:

 
| ** **                                                                                    | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| ** **                                                                                    | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Balance at beginning of the  year                                                             |       | $                           | 66,713,170     |                        | $          | 65,309,045 |   |
| Add : Tax paid upon final  settlement with tax authority pertaining to pre-acquisition period |       | 350,310                     |           | —                      |       |
| (Less)/ Add: Exchange  Difference                                                             |       | (1,754,435                  | )              | 529,486                     |       |
| Balance at end of the year                                                                    | ** ** | **$**                       | **65,309,045** | ** **                  | **$**      | **65,838,531** | ** ** |

 

Goodwill as of December 31, 2008 and 2009includes $4,701,731 and $5,231,218 respectively, which is deductible for taxpurposes as per local taxation laws in the United Kingdom.

 

10.4         Goodwill as of December 31, 2008 and 2009 hasbeen allocated to the following reportable segments:

 
| **Segment**                             | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|-----------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| ** **                              | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Financial services                      |       | $                           | 2,594,374      |                        | $          | 2,594,374 |   |
| Communication, Media and  Utilities     |       | 54,456,313                  |           | 54,985,799                  |       |
| Manufacturing, Retail and  Distribution |       | 8,258,358                   |           | 8,258,358                   |       |
| **Total**                               | ** ** | **$**                       | **65,309,045** | ** **                  | **$**      | **65,838,531** | ** ** |

 

**11****          ****Changein estimate**

 

11.1         The US Internal RevenueService (“IRS”) completed its assessment of tax returns for the years ended2003 and 2004 of Patni Americas Inc. and for the years ended March 31,2003, 2004 and 2005 of the US branch of the Company in 2008, and completed itsassessment of tax returns for the years ended 2005 and 2006 of Patni AmericasInc in 2009.

 

F-30

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**11****          ****Changein estimate *(Continued)***

 

Based on the completion of assessment of theseyears, the Company reviewed the adequacy of the previously established taxexposure reserves with respect to these years and re-measured the establishedtax positions for the latter years based on the experience gained from the taxexamination. Accordingly, the following amounts have been included in theincome statement for the fiscal year ended December 31, 2008 and 2009 as achange in estimate:

 
| ** **                                  | ** ** | **December 31,2008** | ** **      | **December 31, 2009** | ** ** |
|---------------------------------------------|------------|---------------------------|-----------------|----------------------------|------------|
| Reduction of accrual for  payroll taxes (1) |       | $                         | (2,769,567      | )                          | $          | (1,157,726 | ) |
| Reduction in interest  expense (2)          |       | (6,497,329                | )               | (1,616,046                 | )          |
| Increase in Interest  expense               |       | 560,507                   |            | —                     |       |
| Reduction in other expense  (3)             |       | (1,092,687                | )               | (231,545                   | )          |
| Reduction in income taxes –  current   |       | (12,496,744               | )               | (9,423,496                 | )          |
| Increase in income taxes –  deferred   |       | 4,112,604                 |            | 1,109,509                  |       |
|                                        | ** ** | **$**                     | **(18,183,216** | **)**                      | **$**      | **(11,319,304** | **)** |

 

----

(1) Included under costof revenues

(2) Included underInterest expense reversed

(3) Included under otherincome/expense

 

11.2         During the year, the Company received a favorableorder from the Indian Income Tax Appellate Tribunal allowing the set off ofcertain losses against business income. Based on this order the Company hasreversed the tax provisions amounting to $ 2,459,012.

 

**12****          ****Accruedexpenses consist of the following:**

 
| **As of**                 | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|---------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| Employee costs            |       | $                           | 32,214,120     |                        | 36,989,133 |   |
| Subcontractor accruals    |       | 5,502,961                   |           | 4,548,981                   |       |
| Professional fees payable |       | 2,432,067                   |           | 2,240,854                   |       |
| Others                    |       | 16,017,949                  |           | 12,505,792                  |       |
|                      |       | ** **                  | ** **     | ** **                  | ** ** |
|                      | ** ** | **$**                       | **56,167,097** | ** **                  | **$**      | **56,284,760** | ** ** |
|                           |            |                             |                |                             |            |  |  |

 

F-31

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**13****          ****Otherliabilities**

 

Other liabilities consist of the following:

 
| **As of**                                               | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| ** **                                              | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Deferred revenue                                        |       | $                           | 3,387,715      |                        | $          | 4,708,171 |   |
| Provision for leave pay  obligation                     |       | 15,975,135                  |           | 13,918,720                  |       |
| Provision for retirement  benefits                      |       | 9,930,835                   |           | 11,037,384                  |       |
| Capital expenditure payable                             |       | 1,596,090                   |           | 1,294,675                   |       |
| Provision for payroll tax  matters                      |       | 1,520,559                   |           | 362,833                     |       |
| Interest on corporate taxes  and other related expenses |       | 2,337,601                   |           | 1,862,782                   |       |
| Provision for volume  discounts                         |       | 3,684,948                   |           | 8,465,731                   |       |
| Advance from customers                                  |       | 1,335,869                   |           | 1,173,682                   |       |
| Derivative liabilities                                  |       | 38,493,027                  |           | 7,692,381                   |       |
| Others                                                  |       | 5,913,986                   |           | 6,677,986                   |       |
|                                                    | ** ** | **$**                       | **84,175,765** | ** **                  | **$**      | **57,194,255** | ** ** |
| Less : Other Current  liabilities                       |       | ** **                  | ** **     | ** **                  | ** ** |
| Deferred revenue                                        |       | (3,387,715                  | )              | (4,708,171                  | )          |
| Provision for leave pay  obligation                     |       | (15,975,135                 | )              | (13,918,720                 | )          |
| Provision for retirement  benefits                      |       | (178,808                    | )              | (177,706                    | )          |
| Capital expenditure payable                             |       | (1,596,090                  | )              | (1,294,675                  | )          |
| Provision for volume  discounts                         |       | (3,684,948                  | )              | (8,465,731                  | )          |
| Advance from customers                                  |       | (1,335,869                  | )              | (1,173,682                  | )          |
| Derivative liabilities                                  |       | (27,695,752                 | )              | —                      |       |
| Others                                                  |       | (5,835,147                  | )              | (6,243,402                  | )          |
|                                                    |       | (59,689,464                 | )              | (35,982,086                 | )          |
| Other liabilities                                       | ** ** | **$**                       | **24,486,301** | ** **                  | **$**      | **21,212,169** | ** ** |

 

**14****          ****Leases**

 

14.1         Patni acquires certainvehicles under capital lease for a non-cancelable period of 4 years. The grossamount recorded in property, plant and equipment for such capital leases andthe related accumulated depreciation amounted to $896,255 and $539,392 as at December 31,2008 and $590,972 and $385,563 as at December 31, 2009, respectively. Thedepreciation expense in respect of these assets aggregated $347,542, $326,267and $ 178,897 for the year ended December 31, 2007, 2008 and 2009,respectively.

 

14.2         Patni USA has operatinglease agreements, primarily for leasing office space, that expire over the next1-7 years. These leases generally require Patni USA to pay certain executorycosts such as taxes, maintenance and insurance. Patni UK has operating leaseagreement,  for leasing office space,that expire over the next 9 years.

 

14.3         Patni has operating leaseagreements, primarily for leasing office and residential premises. Theseagreements provide for cancellation by either party with a notice periodranging from 30 days to 120 days, after the initial lock-in period, if any.Some leases contain a clause for renewal of the lease agreements. Some leasesprovide for annual renewal of the lease payments.

 

14.4         Patni Telecom and itssubsidiaries have operating leases for office space, that expire over the next1-3 years. These agreements provide for cancellation by either party with anotice period ranging from 30 days to 180 days, after the initial lock-inperiod, if any.

 

F-32

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Table of Contents

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the Consolidated FinancialStatements**

 

**14****          ****Leases *(Continued)***

 

14.5         Future minimum leasepayments under non-cancelable operating leases (with initial or remaining leaseterms in excess of one year) and future capital lease payments as of December 31,2009 are as follows:

 
| ** **                                                        | ** ** | **Capital  leases** | ** ** | **Operating  leases** | ** ** |
|-------------------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| 2010                                                              |       | $                   | 124,225    |                  | $          | 6,517,952 |   |
| 2011                                                              |       | 72,532              |       | 3,613,773             |       |
| 2012                                                              |       | 21,139              |       | 2,396,909             |       |
| 2013                                                              |       | 3,227               |       | 2,201,019             |       |
| beyond 2013                                                       |       | —              |       | 3,642,262             |       |
| Total minimum lease  payments                                     |       | $                   | 221,123    |                  | $          | 18,371,915 |   |
| Less: Amount representing  interest                               |       | (18,043             | )          |                  |       |
| Present value of net  minimum capital lease payments              |       | 203,081             |       |                  |       |
| Less: Current installments  of obligations under capital leases   |       | (112,399            | )          |                  |       |
| Obligations under capital  leases, excluding current installments |       | $                   | 90,681     |                  |       |   |

 

14.6         Rental expenseforalloperatingleasesfortheyearsended December 31,2007, 2008and2009 was$14,291,084, $14,777,332 and $12,377,644,respectively.

 

**15****          ****FairValue Measurement**

 

On January 1, 2008, the Company adopted ASC 820(previously FASB Statement No. 157 “Fair Value Measurements”). As aresult, the Company now classifies its inputs used to measure fair value intothe following hierarchy:

 

**Level 1:** Unadjusted quoted market prices in active market.

 

**Level 2:**Unadjustedquoted prices in active markets for similar assets or liabilities or Unadjustedquoted prices for identical or similar assets or liabilities in markets thatare not active or inputs other than quoted prices that are observable for theasset or liability.

 

**Level 3:** Unobservable inputs for the assets or liability.

 

On January 1, 2008 the Company adopted theprovisions of ASC 825 (previously FASB Statement No. 159 “*The Fair Value Option for Financial Assets and Financial Liabilities”)*.Statement 159 gives the Company the irrevocable option to report most financialassets and financial liabilities at fair value on an instrument-by-instrumentbasis, with changes in fair value reported in earnings. The Company has notelected the irrevocable option to report its financial assets and financialliabilities at fair value.

 

As of December 31, 2009, the fair value of theCompany’s financial assets and liabilities that are measured at fair value onrecurring basis, for each hierarchy level, is summarized in the followingtable:

 
| ** **                             | ** ** | **Level 1** | ** ** | **Level 2** | ** **  | **Level 3** | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|-------------|-------------|------------|
| **Assets :**                           |       |        |       |        |        |        |       |
| Liquid mutual funds                    |       | —      |       | $           | 357,178,269 |        | —     |   |
| Fixed maturity plan                    |       | —      |       | 8,009,964   |        | —      |       |
| Other investments                      |       | 10,669,905  |       | —      |        | —      |       |
| Foreign currency exchange  derivatives |       | —      |       | 2,400,791   |        | —      |       |
| **Liabilities  :**                     |       |        |       |        |        |        |       |
| Foreign currency exchange  derivatives |       | —      |       | 7,692,381   |        | —      |       |
|                                        |            |             |            |             |             |             |            |  |

 

F-33

----

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the ConsolidatedFinancial Statements**

 

**15****                                 ****FairValue Measurement *(Continued)***

 

***Investments***

 

The Company’s investments consist primarily ofinvestment in debt linked mutual funds and certificates of deposit with banks.Fair values for debt linked mutual funds are based on prices as stated by theissuer’s of mutual funds and are classified as Level 2. Fair values forcertificates of deposit with banks is based on prices obtained from independentthird-party pricing services and are classified as Level 1.

 

***Derivative Financial Instruments***

 

The Company’s derivative financial instrumentsconsist of foreign currency forward exchange and option contracts. Fair valuesfor derivative financial instruments are based on prices as provided by thebanks and are classified as Level 2. The prices are also obtained fromindependent third party dealers. All of the significant inputs to thethird-party valuation models are observable in active markets. Inputs include currentmarket-based parameters such as forward rates, yield curves and credit defaultswap pricing.

 

***Assets and liabilities notmeasured at fair value***

 

The fair value of Company’s current assets andcurrent liabilities approximate their carrying values because of theirshort-term maturity.  Such financialinstruments are classified as current and are expected to be liquidated withinthe next twelve months.  The fair valueof capital lease obligations has been estimated by discounting cash flows basedon current rate available to the Company for similar types of borrowingarrangements.  The fair value andcarrying value of capital lease obligations is set out below:

 
| **Capital lease obligations** | ** ** | **Fair Value** | ** ** | **Carrying  value** | ** ** |
|-------------------------------|------------|----------------|------------|---------------------|------------|
| At December 31, 2008     |       | $              | 351,650    |                | $          | 359,955 |   |
| At December 31, 2009     |       | 202,512        |       | 203,081             |       |
|                               |            |                |            |                     |            |  |  |

 

**16****                                 ****Derivativesfinancial instruments**

 

16.1                           The Companyfrequently enters into foreign currency forward and option contracts to hedgeinter company and end customer receivables, both anticipated and firm commitments.These contracts are entered into to mitigate foreign currency risk caused bychanges in exchange rates and are used to hedge these inter company and endcustomer receivables.

 

At December 31, 2009, the Company’s foreigncurrency contracts mature within one month upto forty one months.

 

Since there is a direct relationship between theforward contracts and the currency denomination of the underlying transaction,the forward contracts are highly effective in hedging the cash flows of theCompany’s inter-company and end customer receivables. These forward contractsalso meet the criteria for cash flow hedge accounting treatment and,accordingly, part of revaluation gains or losses on these forward contracts areincluded in other comprehensive income/(loss) and are recognized in theconsolidated statement of income based on occurrence of the underlying hedgedtransaction.

 

F-34

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**16****                                 ****Derivativesfinancial instruments *(Continued)***

 

For forward contracts designated as a cash flowhedge, the hedge effectiveness is assessed based on changes in fair valueattributable to changes in spot prices and accordingly, the changes in the fairvalue of the contract related to the changes in the difference between the spotprice and the forward or futures price would be excluded from assessment ofhedge effectiveness and recognised in consolidated statements of incometogether with any ineffective portion of the hedge.

 

For range forward contracts and contracts maturingbeyond 18 month period and designated against forecasted transactions, thehedge effectiveness is assessed based on overall changes in fair value, and therevaluation gains and losses are recognised in Other Comprehensive Income,being effective hedges. If it is determined that a derivative is not highlyeffective as a hedge, or if a derivative ceases to be a highly effective hedge,the Company, prospectively, discontinues hedge accounting with respect to thatderivative.

 

At December 31, 2008 and 2009, the Company had$30,012,023 of net losses related to cash flow hedges deferred in accumulatedother comprehensive income/(loss) and $517,975 of net gains related to cashflow hedges deferred in accumulated other comprehensive income/(loss).

 

At December 31, 2009, $5,987,912 of deferredgains on derivative instruments accumulated in other comprehensive income areexpected to be reclassified to earnings during the next 12 months. There wereno cash flow hedges which were discontinued during the period because ofnon-occurrence of the forecasted transaction.

 

16.2                           The followingtable presents the aggregate contracted principal amounts of the Company’s derivativecontracts outstanding:

 
| ** **                                  | ** ** | **Currency** | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------------|------------|
| Forward contracts, sell                     |       | USD          |       | 285,436,000                 |       | 309,584,551                 |       |
| Forward contracts, sell                     |       | JPY          |       | 400,000,000                 |       | 875,000,000                 |       |
| Forward contracts, sell                     |       | AUD          |       | 1,000,000                   |       | —                      |       |
| Forward contracts, sell                     |       | GBP          |       | 1,500,000                   |       | 2,938,000                   |       |
| Foreign currency written  options, sell     |       | GBP          |       | 900,000                     |       | —                      |       |
| Foreign currency written  options, sell     |       | EURO         |       | 1,600,000                   |       | —                      |       |
| Foreign currency written  options, sell     |       | JPY          |       | 150,000,000                 |       | —                      |       |
| Foreign currency purchased  options, sell   |       | USD          |       | 88,250,000                  |       | 10,000,000                  |       |
| Foreign currency written  options, net sell |       | USD          |       | 21,000,000                  |       | —                      |       |

 

F-35

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**16****                                 ****Derivativesfinancial instruments *(Continued)***

 

The following table summarizes the location andamounts of our outstanding derivative instruments fair values in theconsolidated balance sheets segregated by type of contract, by assets andliabilities and by designation as of December 31, 2009:

 
| **Derivatives designated as hedging instrument**      | ** ** | **Location in  Balance sheet** | ** ** | **Fair value** | ** ** |
|-------------------------------------------------------|------------|--------------------------------|------------|----------------|------------|
|                                                  |       |                           |       |           |       |
| Foreign currency exchange  contracts                  |       | Other Current assets           |       | $              | 2,199,892  |   |
| Foreign currency exchange  contracts                  |       | Other liabilities              |       | 7,692,381      |       |
|                                                  |       |                           |       |           |       |
| **Derivatives  not designated as hedging instrument** |       |                           |       |           |       |
| Foreign currency exchange  contracts                  |       | Other Current assets           |       | $              | 200,899    |   |

 

**Derivatives not designated as hedging instrument**

 
| ** **                                    | ** ** | **Location of  (Gain)/ Loss  Recognised in Statement of  Income** | ** ** | **Amount of (Gain)/  Loss Recognised  in income** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------------------------|------------|
|                                          |       |                                                              |       |                                                   |       |
| Foreign currency exchange  contracts (Note a) |       | Foreign exchange  (gain)/loss, net                                |       | $                                                 | (1,445,738 | ) |
|                                               |            |                                                                   |            |                                                   |            |  |

 

a)                                      These foreigncurrency exchange contracts were entered into to hedge the fluctuations inforeign exchange rates for recognized balance sheet items such as inter companyand end customer receivables, and were not originally designated as hedges.Realized (gains)/ losses and changes in the fair value of these derivatives arerecorded in foreign exchange (gains) losses, net in the consolidated statementsof income.

 

The following table summarizes the location andamount of gains and losses on derivative instrument in the consolidatedstatements of income segregated by type of contract and designation for theyear ended December 31, 2009:

 
| **Derivatives in Cash  Flow Hedging  Relationship** | ** ** | **Amount of  (Gains)/ Loss  Recognised in  OCI on  Derivative  (Effective  portion)** | ** **  | **Location of  (Gain)/  Loss Reclassified  from Accumulated  OCI into Income  (Effective portion)** | ** **                          | **Amount of  (Gain)/ Loss  Reclassified  from  Accumulated  OCI into  Income  (Effective  portion)** | ** ** | **Location of  (Gain)/ Loss  Recognised in  Income on  Derivatives  (Ineffective  portion and  Amount  Excluded from  Effectiveness  Testing)** | ** ** | **Amount of  (Gain)/ Loss  Recognised  in income on  Derivative  (Ineffective  portion and  Amount  Excluded  from  Effectiveness  Testing)** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------------------------------|-------------|-----------------------------------------------------------------------------------------------------|-------------------------------------|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Foreign currency exchange  contracts                |       | $                                                                                     | (12,330,273 | )                                                                                                   | Foreign exchange (gain)/  loss, net |                                                                                                 | $          | 18,199,724                                                                                                                                      |       | Foreign exchange  (gain)/loss, net                                                                                                            |       | $ | 1,006,930 |   |
|                                                     |            |                                                                                       |             |                                                                                                     |                                     |                                                                                                      |            |                                                                                                                                                 |            |                                                                                                                                               |            |  |  |  |

 

The Company utilizes standard counterparty masteragreements containing provisions for the netting of certain foreign currencytransaction obligations. The Company also mitigates the credit risk of thesederivatives by transacting with highly rated counterparties in India which aremajor banks. As of December 31, 2009, the Company has evaluated the creditand non-performance risks associated with it’s derivative counterparties, andbelieves that the impact of the credit risk associated with the outstandingderivatives was insignificant.

 

F-36

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**17****                                 ****Shareholders’equity**

 

***Common shares***

 

17.1                           The Company hasonly one class of equity shares. For all matters submitted to vote in theshareholders’ meeting, every holder of equity shares (except holders ofAmerican Depository Shares - ADSs), as reflected in the records of the Companyshall have one vote in respect of each share held. In the event of liquidationof the affairs of the Company, all preferential amounts, if any, shall bedischarged by the Company. The remaining assets of the Company after suchdischarge shall be distributed to the holders of equity shares in proportion tothe number of shares held by them.

 

17.2                           In December 2005,pursuant to an Initial Public Offering of American Depositary Shares, theCompany issued 6,156,250 ADSs (12,312,500 common shares) for a net proceeds of $117,021,852(after adjusting for direct expenses relating to ADSs of $8,196,274). Thecommon shares represented by the ADSs are similar to other common shares exceptfor voting rights. Under the depository agreement, the depository of ADSs shallvote as directed by the Board of Directors of the Company.

 

17.3                           In February 2008,the Board of Directors of the Company approved a proposal to repurchase fullypaid equity shares upto 10% of the paid up capital and free reserves, at amaximum price of Rs. 325 per equity share, for an aggregate amount upto Rs.2,370,000,000. In April 2008, necessary public announcements were made forbuyback proposal which had been approved in accordance with the provisions of Section 77A,77AA, 77B and other applicable provisions of the Indian Companies Act, 1956 andthe provisions of Securities and Exchange Board of India (Buy-back ofSecurities) Regulations, 1998 (“Buy Back Regulations”).

 

17.4                           In 2008, theCompany repurchased a total of 10,957,082 equity shares through the BombayStock Exchange and the National Stock Exchange for an aggregate considerationof Rs. 2,370,000,000 ($53,062,342) being 100% of the amount authorised for buyback. Subsequently, the Company extinguished such equity shares as per therequirements of Section 77A of the Companies Act, 1956.

 

Retained earnings include profits aggregating Rs.21,914,164 ($449,521) set aside as Capital Redemption Reserve  as required by the Indian Companies Act, 1956pursuant to the repurchase which can be utilised only for the purpose ofissuing fully paid bonus shares of the Company.

 

17.5                           Retainedearnings as of December 31, 2008 and 2009 include profits aggregating$7,949,095 and $ 8,365,300, respectively, which are not distributable asdividends under Indian Companies Act, 1956 (Companies Act).

 

F-37

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**17****                                 ****Shareholders’equity *(Continued)***

 

***Retaine******d******earnings anddividends***

 

17.6                           The ability ofPatni to declare and pay dividend under the Companies Act, is determined by itsdistributable profits as shown by its statutory accounts prepared in accordancewith Indian GAAP. When Patni wishes to declare dividends, it is required as perthe Companies Act, to transfer upto 10% of its net income (after the deductionof any accumulated deficit) computed in accordance with Companies Act to ageneral reserve before a dividend can be declared. Also, Indian law on foreignexchange governs the remittance of dividends outside India.

 

17.7                           At December 31,2008, the currency translation adjustment loss included in other comprehensiveincome/(loss) amounted to $50,737,505. At December 31, 2009 the currencytranslation adjustment loss included in other comprehensive income/(loss)amounted to $23,034,979.

 

**18****                                 ****Employeestock compensation plans**

 

18.1                           On June 302003, Patni established the ‘Patni ESOP 2003’ plan (‘the plan’).  Under the plan, the Company is authorized toissue up to 11,142,085 equity shares to eligible employees. Employees coveredby the Plan are granted an option, which may be based on service or performancecriteria, to purchase shares of the Company subject to the requirements ofvesting. The options vest in a graded manner over four years with 25% of theoptions vesting at the end of each year and expire at the end of five yearsfrom the date of vesting. The Stock based compensation expense is recognizedover the vesting term of each separately vesting portion of an award. Acompensation committee constituted by the Board of Directors of the Companyadministers the plan. The plan has been amended to enable the Company to issueup to 2,000,000 ADR linked options (wherein one ADR linked option is equal totwo equity shares) to the employees of the Company as well as its subsidiariesand hence “Patni ESOP 2003- Revised 2006” has come into force with effect from June 21,2006.

 

In June 2009, at the Annual General Meeting the shareholders authorised theCompany  to issue additional 8,000,000equity shares to eligible employees under the “Patni ESOP 2003 - Revised 2008”plan.

 

18.2                           The weightedaverage grant date fair values of options granted during the year ended December 31,2009 was $2.42 for equity linked options and $8.18 for ADR linked options. Theweighted average grant date fair values of options granted during the yearended December 31, 2008 was $2.29 for equity linked options and $6.51 forADR linked options. The weighted average grant date fair values of optionsgranted during the year ended December 31, 2007 was $ 3.58 for equitylinked options and $ 4.39 for ADR linked options.

 

F-38

----

 

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the ConsolidatedFinancial Statements**

 

**18****                                 ****Employeestock compensation plans*****(Continued)***

 

18.3                        Stock optionsactivity under the plan is as follows:

 
| ** **                                                        | ** ** | **Year ended  December 31, 2008** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                        | ** ** | **Shares  arising  out of options**    | ** ** | **Exercise  price** | ** ** | **Weighted  average  remaining  contractual life  (months)** | ** ** |
|                                                              | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outstanding at the  beginning of the year                         |       | 583,826                                |       | $3.16 |   | 47 |   |
|                                                              |       | 2,085,869                              |       | $5.51-$7.35 |   | 53 |   |
|                                                              |       | 2,466,055                              |       | $7.55 - $11.18 |   | 71 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Granted during the period  (including 152,950 ADR linked options) |       | 596,000                                |       | $0.04 |   | 90 |   |
|                                                              |       | 350,000                                |       | $2.25 |   | 90 |   |
|                                                              |       | 962,900                                |       | $7.55-$11.18 |   | 90 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Forfeited during the year                                         |       | (16,051                                | )          | $3.16 |   | — |   |
|                                                              |       | (115,593                               | )          | $5.51-$7.35 |   | — |   |
|                                                              |       | (569,929                               | )          | $7.55-$11.18 |   | — |   |
|                                                              |       |                                   |       |   |   |   |   |
| Exercised during the year                                         |       | (42,250                                | )          | $3.16 |   | — |   |
|                                                              |       |                                   |       |   |   |   |   |
| Outstanding at the end of  the year                               |       | 596,000                                |       | $0.04 |   | 89 |   |
|                                                              |       | 350,000                                |       | $2.25 |   | 89 |   |
|                                                              |       | 525,525                                |       | $3.16 |   | 35 |   |
|                                                              |       | 1,970,276                              |       | $5.51-$7.35 |   | 41 |   |
|                                                              |       | 2,859,026                              |       | $7.55-$11.18 |   | 59 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Exercisable at the end of  the year                               |       | 525,525                                |       | $3.16 |   | 35 |   |
|                                                              |       | 1,885,276                              |       | $5.51-$7.35 |   | 40 |   |
|                                                              |       | 1,261,219                              |       | $7.55-$10.93 |   | 37 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Vested and expected to vest                                       |       | 596,000                                |       | $0.04 |   | 89 |   |
|                                                              |       | 350,000                                |       | $2.25 |   | 89 |   |
|                                                              |       | 525,525                                |       | $3.16 |   | 35 |   |
|                                                              |       | 1,970,276                              |       | $5.51-$7.35 |   | 41 |   |
|                                                              |       | 2,819,546                              |       | $7.55-$11.18 |   | 58 |   |

 

F-39

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**18****                                 ****Employeestock compensation plans*****(Continued)***

 

18.3                        Stock optionsactivity under the plan is as follows: *(Continued)*

 
| ** **                                                        | ** ** | **Year ended  December 31, 2009** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                        | ** ** | **Shares  arising  out of options**    | ** ** | **Exercise  price** | ** ** | **Weighted  average  remaining  contractual life  (months)** | ** ** |
|                                                              | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outstanding at the  beginning of the year                         |       | 596,000                                |       | $0.04 |   | 89 |   |
|                                                              |       | 350,000                                |       | $2.25 |   | 89 |   |
|                                                              |       | 525,525                                |       | $3.16 |   | 35 |   |
|                                                              |       | 1,970,276                              |       | $5.51-$7.35 |   | 41 |   |
|                                                              |       | 2,859,026                              |       | $7.55-$11.18 |   | 59 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Granted during the period  (including 413,905 ADR linked options) |       | 1,830,700                              |       | $0.04 |   | 76 |   |
|                                                              |       | 1,540,000                              |       | $2.05-$2.75 |   | 90 |   |
|                                                              |       | 499,600                                |       | $7.55-$11.18 |   | 90 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Forfeited during the year                                         |       | (54,800                                | )          | $0.04 |   | — |   |
|                                                              |       | (35,145                                | )          | $3.16 |   | — |   |
|                                                              |       | (146,100                               | )          | $5.51-$7.35 |   | — |   |
|                                                              |       | (40,000                                | )          | $2.05-$2.75 |   | — |   |
|                                                              |       | (450,900                               | )          | $7.55-$11.18 |   | — |   |
|                                                              |       |                                   |       |   |   |   |   |
| Exercised during the year*                                        |       | (125,000                               | )          | $0.04 |   |   |   |
|                                                              |       | (76,000                                | )          | $2.05-$2.75 |   |   |   |
|                                                              |       | (212,705                               | )          | $3.16 |   | — |   |
|                                                              |       | (258,275                               | )          | $5.51-$7.35 |   | — |   |
|                                                              |       | (387,625                               | )          | $7.55-$11.18 |   | — |   |
|                                                              |       |                                   |       |   |   |   |   |
| Outstanding at the end of  the year                               |       | 2,246,900                              |       | $0.04 |   | 72 |   |
|                                                              |       | 1,774,000                              |       | $2.05 -$2.75 |   | 80 |   |
|                                                              |       | 277,675                                |       | $3.16 |   | 24 |   |
|                                                              |       | 1,565,901                              |       | $5.51-$7.35 |   | 29 |   |
|                                                              |       | 2,520,101                              |       | $7.55-$11.18 |   | 60 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Exercisable at the end of  the year                               |       | 24,000                                 |       | $0.04 |   | 59 |   |
|                                                              |       | 11,500                                 |       | $2.05 -$2.75 |   | 59 |   |
|                                                              |       | 277,675                                |       | $3.16 |   | 24 |   |
|                                                              |       | 1,523,401                              |       | $5.51-$7.35 |   | 27 |   |
|                                                              |       | 1,232,519                              |       | $7.55-$11.18 |   | 42 |   |
|                                                              |       |                                   |       |   |   |   |   |
| Vested and expected to Vest                                       |       | 2,153,630                              |       | $0.04 |   | 72 |   |
|                                                              |       | 1,774,000                              |       | $2.05- $2.75 |   | 80 |   |
|                                                              |       | 277,675                                |       | $3.16 |   | 24 |   |
|                                                              |       | 1,565,901                              |       | $5.51-$7.35 |   | 29 |   |
|                                                              |       | 2,520,101                              |       | $7.55-$11.18 |   | 60 |   |

 

----

* Includes 38,580 options exercised in December 2009for which shares have not yet been allotted.

 

F-40

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**18****                                 ****Employeestock compensation plans*****(Continued)***

 

18.4                        The fair valueof each option is estimated on the date of grant using the Black-Scholes modelwith the following assumptions for the equity linked options.

 
| ** **                       | ** ** | **Year ended  December 31, 2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Dividend yield                   |       | 0.78                                   | %          | 0.68%-1.09                             | %          | 1.37% - 1.78                           | %          |
| Weighted average dividend  yield |       | 0.78                                   | %          | 0.93                                   | %          | 1.53                                   | %          |
| Expected life                    |       | 3.5-6.5 years                          |       | 3.5-6.5 years                          |       | 3.5 - 6.5 years                        |       |
| Risk free interest rates         |       | 8.00% - 8.22                           | %          | 7.10%-7.37                             | %          | 5.94% - 7.21                           | %          |
| Volatility                       |       | 32.84% - 42.32                         | %          | 33.01%-39.45                           | %          | 37.01% - 44.16                         | %          |
| Weighted Average Volatality      |       | 36.68                                  | %          | 37.35                                  | %          | 39.42                                  | %          |

 

18.5                        The fair valueof each option is estimated on the date of grant using the Black-Scholes modelwith the following assumptions for ADR linked options.

 
| ** **                       | ** ** | **Year ended  December 31, 2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Dividend yield                   |       | 0.65% - 0.79                           | %          | 0.68                                   | %          | 1.18%- 1.64                            | %          |
| Weighted average dividend  yield |       | 0.76                                   | %          | 0.68                                   | %          | 1.61                                   | %          |
| Expected life                    |       | 3.5-6.5 years                          |       | 3.5 - 6.5 years                        |       | 1.0 - 6.5 years                        |       |
| Risk free interest rates         |       | 4.25%-4.75                             | %          | 3.04% - 3.51                           | %          | 0.52% - 2.96                           | %          |
| Volatility                       |       | 34.32% - 44.07                         | %          | 41.36% - 44.76                         | %          | 42.41% - 50.79                         | %          |
| Weighted average volatility      |       | 39                                     | %          | 43                                     | %          | 46.65                                  | %          |

 

18.6                        The aggregateintrinsic value of options exercised and fair value of options vested is asfollows:

 
| **As of**                             | ** ** | **December 31,  2007** | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Intrinsic value of options  exercised |       | $                           | 4,160,153  |                        | $          | 119,815                     |       | $ | 4,160,884 |   |
| Fair value of options  vested         |       | 4,850,500                   |       | 5,267,840                   |       | 2,827,133                   |       |
|                                       |            |                             |            |                             |            |                             |            |  |  |  |

 

18.7                        The intrinsicvalue of options outstanding, exercisable and expected to vest is as follows:

 
| **As of**                            | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Options outstanding                  |       | $                           | 1,681,499  |                        | $          | 53,366,201 |   |
| Options exercisable                  |       | —                      |       | 9,179,611                   |       |
| Options vested and expected  to vest |       | 1,681,499                   |       | 52,351,739                  |       |
|                                      |            |                             |            |                             |            |  |  |

 

18.8                        Thecompensation expense recognized as cost of revenues and selling, general andadministrative expense is as follows :

 
| ** **                                    | ** ** | **Year ended  December 31, 2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Cost of Revenues                              |       | $                                      | 1,832,101  |                                   | $          | 1,526,983                              |       | $ | 1,571,630 |   |
| Selling, general and  administrative expenses |       | 2,841,180                              |       | 2,370,227                              |       | 3,736,975                              |       |
|                                               |            |                                        |            |                                        |            |                                        |            |  |  |  |

 

F-41

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**18****                                 ****Employeestock compensation plans*****(Continued)***

 

18.9                        The simplifiedmethod is used to estimate the expected term of the instruments in the optionvaluation model which is based on the vesting term and contractual term of theoption as the Company does not have sufficient historical data on optionexercise.

 

18.10                 As on December 31,2009, the total compensation cost related to non-vested awards not yetrecognized is $7,803,286 and the weighted average period over which it isexpected to be recognized is 17 months.

 

**19****                                 ****IncomeTax**

 

19.1                        Total incometax expense for the year ended December 31, 2007, 2008 and 2009 wereallocated as follows:

 
| ** **                                               | ** ** | **Year ended  December 31, 2007** | ** **     | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|----------------|----------------------------------------|------------|----------------------------------------|------------|
| Income from operations                                   |       | $                                      | 21,783,963     |                                   | $          | 5,203,401                              |       | $ | 4,758,887 |   |
| Shareholders’ equity, for                           |       |                                   |           |                                   |       |                                   |       |
| - unrealized holding  gain/loss on investment securities |       | (424,845                               | )              | (257,690                               | )          | (301,521                               | )          |
| - unrealized losses on  derivative instruments           |       | —                                 |           | (2,201,998                             | )          | (20,446                                | )          |
| - pension                                                |       | 118,638                                |           | 107,142                                |       | (181,797                               | )          |
| - gratuity                                               |       | (71,454                                | )              | 88,655                                 |       | 14,274                                 |       |
| - tax benefit arising on exercise  of stock options      |       | (442,165                               | )              | (16,121                                | )          | (814,537                               | )          |
| Goodwill and intangible  assets                          |       | (235,057                               | )              | 350,310                                |       | —                                 |       |
| **Total**                                                | ** ** | **$**                                  | **20,729,081** | ** **                             | **$**      | **3,273,698**                          | ** ** | **$** | **3,454,860** | ** ** |

 

19.2                        Income taxexpense attributable to income from continuing operations consists of the following:

 
| ** **          | ** ** | **Year ended  December 31, 2007** | ** **     | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|---------------------|------------|----------------------------------------|----------------|----------------------------------------|------------|----------------------------------------|------------|
| **Current  taxes**  | ** ** | ** **                             | ** **     | ** **                             | ** ** | ** **                             | ** ** |
| Domestic            |       | $                                      | 9,186,360      |                                   | $          | 10,376,924                             |       | $ | 14,091,575 |   |
| Foreign             |       | 22,727,637                             |           | 4,042,442                              |       | (467,451                               | )          |
|                |       | 31,913,997                             |           | 14,419,366                             |       | 13,624,124                             |       |
| **Deferred  taxes** |       |                                   | ** **     |                                   |       |                                   |       |
| Domestic            |       | (5,731,246                             | )              | (9,562,995                             | )          | (9,063,137                             | )          |
| Foreign             |       | (4,398,789                             | )              | 347,030                                |       | 197,900                                |       |
|                |       | (10,130,035                            | )              | (9,215,965                             | )          | (8,865,237                             | )          |
|                |       |                                   | ** **     | ** **                             | ** ** | ** **                             | ** ** |
| **Total**           | ** ** | **$**                                  | **21,783,963** | ** **                             | **$**      | **5,203,401**                          | ** ** | **$** | **4,758,887** | ** ** |

 

Pre-tax income from domestic and foreign operationsis set out below:

 
| ** **          | ** ** | **Year ended  December 31, 2007** | ** **      | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|---------------------|------------|----------------------------------------|-----------------|----------------------------------------|------------|----------------------------------------|------------|
| **Pre-tax  income** | ** ** | ** **                             | ** **      | ** **                             | ** ** | ** **                             | ** ** |
| Domestic            |       | $                                      | 94,707,850      |                                   | $          | 79,583,951                             |       | $ | 98,086,457 |   |
| Foreign             |       | 41,051,607                             |            | 27,040,695                             |       | 26,452,194                             |       |
| **Total**           | ** ** | **$**                                  | **135,759,457** | ** **                             | **$**      | **106,624,646**                        | ** ** | **$** | **124,538,652** | ** ** |

 

F-42

----

 

 

Patni Computer SystemsLimited and subsidiaries 

**Notes to the ConsolidatedFinancial Statements**

 

**19****                                 ****IncomeTax *(Continued)***

 

19.3                           The tax effectof temporary differences that give rise to significant portion of deferred taxassets and liabilities are presented below:

 
| ** **                                                                                         | ** ** | **December 31,  2008** | ** **     | **December 31,  2009** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| **Deferred  tax assets:**                                                                          | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Leave pay obligation,  Accrued Incentives, Pension obligations, etc                                |       | $                           | 13,007,057     |                        | $          | 12,534,005 |   |
| Accounts receivable                                                                                |       | 577,542                     |           | 988,216                     |       |
| Deferred revenue                                                                                   |       | 183,890                     |           | 506,774                     |       |
| Carry forward business and  other losses                                                           |       | 2,822,999                   |           | 4,862,055                   |       |
| Payroll taxes and interest  on payroll and corporate taxes                                         |       | 2,026,936                   |           | 931,668                     |       |
| ESOP compensation costs                                                                            |       | 2,095,365                   |           | 2,193,300                   |       |
| Others                                                                                             |       | 107,091                     |           | 205,000                     |       |
| Unrealised loss on  derivatives                                                                    |       | 2,201,998                   |           | 2,222,444                   |       |
| Billings in excess of costs  and estimated earnings in excess of billings on uncompleted contracts |       | 121,440                     |           | 59,059                      |       |
| Mat Credit Entitlement (1)                                                                         |       | 12,962,034                  |           | 23,023,086                  |       |
| Gross deferred assets                                                                              |       | 36,106,352                  |           | 47,525,607                  |       |
| Less: Valuation allowance                                                                          |       | —                      |           | (3,600,737                  | )          |
| **Total deferred tax assets**                                                                      | ** ** | **$**                       | **36,106,352** | ** **                  | **$**      | **43,924,870** | ** ** |
| Deferred tax liabilities:                                                                          |       |                        |           |                        |       |
| Property, plant and  equipment                                                                     |       | (1,124,579                  | )              | (1,363,190                  | )          |
| Undistributed earnings of  US branch                                                               |       | (3,517,525                  | )              | (1,809,554                  | )          |
| Unrealised gain on available  for sale securities                                                  |       | (847,410                    | )              | (542,884                    | )          |
| Intangible assets                                                                                  |       | (2,877,255                  | )              | (1,930,391                  | )          |
| Tax deduction available for  notional interest deduction                                           |       | (499,851                    | )              | (499,850                    | )          |
| Tax deductible Goodwill                                                                            |       | (477,296                    | )              | (732,371                    | )          |
| **Total deferred tax liabilities**                                                                 | ** ** | **(9,343,916**              | **)**          | **(6,878,240**              | **)**      |
| **Net Deferred tax assets**                                                                        | ** ** | **$**                       | **26,762,436** | ** **                  | **$**      | **37,046,630** | ** ** |
| **Classified  as**                                                                                 | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| **Deferred  tax assets**                                                                           | ** ** | ** **                  | ** **     | ** **                  | ** ** |
| Current                                                                                            |       | $                           | 9,796,021      |                        | $          | 9,418,969 |   |
| Non current                                                                                        |       | 19,825,211                  |           | 28,732,581                  |       |
| **Deferred  tax liabilities**                                                                      | ** ** |                        |           |                        |       |
| Non current                                                                                        |       | 2,858,796                   |           | 1,104,920                   |       |
| Net Deferred tax assets                                                                            | ** ** | **$**                       | **26,762,436** | ** **                  | **$**      | **37,046,630** | ** ** |

 

----

(1)Pursuant to the changes in the Indian income taxlaws, Minimum Alternate Tax (MAT) has been extended to income in respect ofwhich deduction is claimed under section 10A. Consequently, the Company havecalculated the tax liability for current domestic taxes after considering MAT.The excess tax paid under MAT provisions over and above normal tax liabilitycan be carried forward and set-off against future tax liabilities computedunder normal tax provisions. The Company was required to pay MAT during fiscal2007, 2008 and 2009, accordingly, a deferred tax asset of $5,984,362,$7,475,743 and $9,439,700 has been recognized during fiscal year December 31,2007, 2008 and 2009 respectively, which can be carried forward for a period of10 years.

 

F-43

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**19****                                 ****IncomeTax *(Continued)***

 

19.4                           In assessing therealisability of deferred tax assets, management considers whether it is morelikely than not, that some portion, or all, of the deferred tax assets will notbe realised. The ultimate realisation of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which thetemporary differences and loss carryforwards are deductible. Managementconsiders the reversal of taxable temporary differences, the projected futuretaxable income, tax planning strategies and impact of tax exemptions currentlyavailable to the Company, in making this assessment. Based on the level ofexpected taxable incomes over the periods in which the deferred tax assets aredeductible, management believes that it is more likely than not, the Companywill realise the benefits of those deductible differences, net of existingvaluation allowances. Taxable income for the years 2007, 2008 and 2009aggregated $ 34,905,541, $35,969,214 and $57,279,749, respectively.

 

The operating loss of the subsidiaries in the UKamounting to $11,521,259 can be carried forward for an indefinite period andthe operating loss of the subsidiaries in the US amounting to $ 1,023,204 willexpire at various dates through December 31, 2029. The loss pertaining tosubsidiary in Mexico amounting to $762,999 can be carried forward for ten yearsand pertaining to subsidiary in Singapore amounting to $1,026,647 can becarried forward for indefinite period.

 

19.5                           Deferred taxliability in respect of undistributed earnings of Patni’s foreign subsidiariesas of 2009 aggregating $19,682,206 has not been recognised in the financialstatements, as such earnings are considered to be indefinitely re-invested. Asof December 31, 2009, the undistributed earnings of these subsidiarieswere approximately $ 57,905,875.

 

19.6                           The net changein valuation allowance in the year 2009 is mainly on account of creation ofvaluation allowance against deferred tax asset recorded on business losscarryforwards for subsidiaries in UK, Mexico and Singapore amounting to $2,493,581, $218,551 and $185,248, respectively. Additionally, the Company hasset up a valuation allowance on deferred tax asset recorded on long termcapital loss arising on investment in available for sale securities amountingto $703,357.

 

F-44

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**19****                                 ****IncomeTax *(Continued)***

 

19.7                           The reportedincome tax expense attributable to income from continuing operations differedfrom amounts computed by applying the enacted tax rate to income fromcontinuing operations before income-taxes as a result of the following:

 
| ** **                                                                                  | ** ** | **December 31,  2007** | ** **     | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|-----------------------------|------------|
| Income before income taxes                                                                  |       | $                           | 135,759,457    |                        | $          | 106,624,646                 |       | $ | 124,538,652 |   |
| Weighted average enacted  tax rate in India                                                 |       | 33.91                       | %              | 33.99                       | %          | 33.99                       | %          |
| Computed expected income  tax expense                                                       |       | $                           | 46,032,638     |                        | $          | 36,241,717                  |       | $ | 42,330,688 |   |
| Effect of:                                                                                  |       |                        |           |                        |       |                        |       |
| Income exempt from tax                                                                      |       | (32,290,707                 | )              | (31,274,645                 | )          | (30,673,751                 | )          |
| Changes in valuation  allowance                                                             |       | 370,305                     |           | (501,719                    | )          | 3,600,737                   |       |
| Carry forward losses on  long term capital loss                                             |       | —                      |           | —                      |       | (411,810                    | )          |
| Non deductible expenses                                                                     |       | 792,881                     |           | 2,837,440                   |       | 2,002,506                   |       |
| US State taxes, net of  federal tax benefit                                                 |       | 1,407,693                   |           | 761,085                     |       | 1,021,285                   |       |
| Branch taxes                                                                                |       | 8,162,897                   |           | 10,393,012                  |       | 9,733,131                   |       |
| Reversal of the uncertain  tax positions due to the expiration of the statute of limitation |       | —                      |           | —                      |       | (7,629,429                  | )          |
| Foreign income taxed at  different rates                                                    |       | 194,339                     |           | 921,930                     |       | 649,042                     |       |
| Change in statutory tax  rate on deferred taxes                                             |       | (22,301                     | )              | —                      |       | —                      |       |
| Profit on sale of  investments taxed at other than statutory rate                           |       | (2,047,266                  | )              | (3,076,104                  | )          | (3,092,519                  | )          |
| Change to prior year tax  expense estimates                                                 |       | —                      |           | (12,496,744                 | )          | (9,423,496                  | )          |
| Reversal of prior year tax                                                                  |       | —                      |           | —                      |       | (3,452,757                  | )          |
| Others                                                                                      |       | (816,516                    | )              | 1,397,430                   |       | 105,260                     |       |
| **Reported  income tax expenses**                                                           | ** ** | **$**                       | **21,783,963** | ** **                  | **$**      | **5,203,401**               | ** ** | **$** | **4,758,887** | ** ** |

 

19.8                           The FinanceAct,2009 has extended the availability of the 10-year income tax holiday by aperiod of one year such that the tax holiday will be available until theearlier of fiscal year ending March 31, 2011 or 10 years after thecommencement of a Company’s undertaking.

 

19.9                           A substantialportion of profits of the group’s India operations is exempt from Indian incometax, being profit from undertakings situated at Software Technology Parks.Under the tax holiday, the tax payer can utilize exemption of profits fromincome taxes for a period of ten consecutive years. The Company has opted forthis exemption for undertakings situated in Software Technology Parks and theseexemptions expire on various dates between years 2005 and 2011. The aggregateeffect on net income of the tax holiday and export incentive scheme were$28,931,047, $27,312,225 and $27,145,852 for 2007, 2008 and 2009 respectively.Further, the per share effect of this exemption on net income was $0.20, $0.20,$0.21 for 2007, 2008 and 2009 respectively.

 

19.10                     The Company conducts itsbusiness globally, and, as a result, the Company and some of its subsidiariesfile income tax returns in India, the U.S., and various foreign jurisdictions.The tax years ended March 31, 2000 to March 31, 2009 remain open toexamination by the Indian tax authorities. With few exceptions, the Company isno longer subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities for years before 2005 with regard to theCompany’s US branch and before 2007, with regard to Patni Americas Inc. TheInternal Revenue Service (IRS) concluded an examination of the Company’s U.S.income tax returns of Patni Americas Inc for 2005 and 2006 in the third quarterof 2009.

 

F-45

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**19****                                 ****IncomeTax *(Continued)***

 

. A reconciliation of the beginning and endingamount of unrecognized tax benefits is as follows:

 
| ** **                                                          | ** ** | **December 31, 2007** | ** ** | **December 31, 2008** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Beginning Balance                                                   |       | 41,701,814                 |       | 49,333,633                 |       | 45,871,569                 |       |
| Additions based on tax positions related to 2009                    |       | 7,631,819                  |       | 9,076,827                  |       | 8,355,426                  |       |
| Additions for tax positions of prior years                          |       | —                     |       | 6,251,572                  |       | —                     |       |
| (Settlement)/Refund                                                 |       | —                     |       | 1,211,383                  |       | (201,516                   | )          |
| Reductions for tax positions of prior years                         |       | —                     |       | (19,049,718                | )          | (13,675,197                | )          |
| Reductions for tax positions due to lapse of statute of  limitation |       | —                     |       | —                     |       | (8,222,392                 | )          |
| Exchange difference                                                 |       | —                     |       | (952,128                   | )          | 243,524                    |       |
| Ending Balance                                                      |       | 49,333,633                 |       | 45,871,569                 |       | 32,371,414                 |       |

 

The Company recognizes interest and penaltiesrelated to uncertain tax positions in other (expense)/ income.  During year ended December 31, 2009, theCompany reversed  interest and penaltiesof $1,974,745 mainly on account of reversal of $1,847,592 arising on account ofcompletion of assessment with IRS for years 2005 and 2006 for Patni AmericasInc and $1,191,530 on account of expiry of statute of limitation with regard toit’s US Branch for the year ended March 2006.  During the year ended December 31, 2008,the Company recognized a reversal of previously recognized interest expense of$5,448,920 mainly on account of a credit of $7,590,016 arising on account ofsettlement with IRS for years 2003 and 2004 for Patni Inc and for the yearsended March 2003, 2004 and 2005 for US Branch.  As of December 31, 2009 and 2008, theCompany has $1,797,349 and $3,815,375, respectively as accrued interest andpenalties related to uncertain tax positions.

 

As of December 31, 2009 the Company had$29,894,680 of net unrecognized tax benefits arising out of tax positions whichwould affect the effective tax rate if recognized. Although it is difficult toanticipate the final outcome on timing of resolution of any particularuncertain tax position, the Company believes that the total amount ofunrecognized tax benefits will be decreased by $6,735,221 during the next 12months due to expiry of statute of limitation.

 

**20****                                 ****Retirementbenefits to employees**

 

***Gratuity benefits***

 

20.1                           In accordancewith the Payment of Gratuity Act, 1972, Patni provides for gratuity, a definedretirement plan covering all employees. The plan provides a lump sum payment tovested employees at retirement or termination of employment based on therespective employee’s defined portion of last salary and the years ofemployment with the Company.

 

20.2                           Patni contributeseach year to a gratuity fund based upon actuarial valuations performed by anactuary. The fund is administered by Patni through a trust set up for thepurpose. All assets of the plan are owned by the trust and comprise ofinvestment in government securities, government securities based mutual fundsand other securities.

 

F-46

----

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**20           Retirement benefitsto employees *(Continued)***

 

***Gratuity benefits (Continued)***

 

20.3                           With regard toPatni India and Patni Telecom India’s (formerly known as Cymbal InformationServices Pvt. Ltd.) Gratuity Plan, the following table sets forth the plan’sfunded status and amounts recognized in the Company’s consolidated balancesheets. Measurement dates used to measure fair value of plan assets and benefitobligation is December 31.

 
| **As at,**                                                                  |       | **December 31,  2008** | ** **  | **December 31,  2009** |   |
|-----------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|--------|
| **Change in benefit obligation**                                            |       |                        |        |                        |   |   |   |
| Projected benefit obligation  (“PBO”) at January 1,          |       | $                           | 6,308,260   |                        | $      | 5,312,302 |   |
| Service cost                                                                |       | 1,094,495                   |        | 953,489                     |   |
| Interest cost                                                               |       | 552,411                     |        | 503,480                     |   |
| Translation loss/(gain)                                                     |       | (1,382,756                  | )           | 311,964                     |   |
| Actuarial loss/(gain)                                                       |       | (678,102                    | )           | (62,898                     | )      |
| Benefits paid                                                               |       | (582,006                    | )           | (525,304                    | )      |
| PBO at December 31,                                                    |       | 5,312,302                   |        | 6,493,033                   |   |
| Fair value of plan assets  as at January 1,                            |       | 5,798,553                   |        | 4,577,156                   |   |
| Actual return on plan  assets                                               |       | 468,515                     |        | 301,786                     |   |
| Employer contributions                                                      |       | 3,037                       |        | 1,251,963                   |   |
| Benefits paid                                                               |       | (582,005                    | )           | (525,304                    | )      |
| Translation gain/(loss)                                                     |       | (1,110,944                  | )           | 268,569                     |   |
| Plan assets at  December 31,                                           |       | 4,577,156                   |        | 5,874,171                   |   |
| Funded status                                                               |       | (735,146                    | )           | (618,862                    | )      |
| Accumulated benefit  obligation                                             |       | 4,132,787                   |        | 5,268,278                   |   |
| Amounts recognized in the  consolidated balance sheets consists of:         |       |                        |        |                        |   |
| Provision for Gratuity  (included in ‘other current liabilities’) |       | 25,395                      |        | 46,324                      |   |
| Provision for Gratuity  (included in ‘other liabilities’)         |       | 709,751                     |        | 572,538                     |   |
|                                                                        | ** ** | **$**                       | **735,146** | ** **                  | **$**  | **618,862** | ** ** |

 

F-47

----

 

Patni Computer SystemsLimited and subsidiaries 

**Notes tothe Consolidated Financial Statements**

 

**20           Retirement benefitsto employees *(Continued)***

 

***Gratuity benefits (Continued)***

 

20.4                           Key weightedaverage assumptions used to determine the benefit obligation were as follows:

 
| ** **                                                                                                                                                                                                                                                                                                   | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate                                                                                                                                                                                                                                                                                                |       | 9.00                        | %          | 7.45                        | %          |
| For the actuarial valuation  at December 31, 2008 compensation levels have been assumed to increase  at 8% per annum for the first three years, and 7% per annum thereafter. For  the actuarial valuation at December 31, 2009 compensation levels have  been assumed to increase at 6% per annum. |       |                        |       |                        |       |

 

The expected rate of return on assets in future isconsidered to be 7.5%. This is based on the expectation of the averagelong-term rate of return to prevail over the next 15 to 20 years on the type ofinvestments prescribed as per the statutory pattern of investments.

 

20.5         The composition of plan assets isdetailed below:

 
| **As of ,**                                           | ** ** | **December 31,  2008** | ** ** | **%**   | ** ** | **December 31,  2009** | ** ** | **%**   | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|---------|------------|-----------------------------|------------|---------|------------|
| Central Government Securities                         |       | 126,000                     |       | 3       | %          | 65,380                      |       | 1       | %          |
| Investment in Government  Securities based funds      |       | 3,364,745                   |       | 73      | %          | 4,316,604                   |       | 73      | %          |
| Public Sector / Financials  Institutions / Bank bonds |       | 1,086,411                   |       | 24      | %          | 1,492,186                   |       | 25      | %          |
| **Total**                                             | ** ** | **4,577,156**               | ** ** | **100** | ** ** | **5,874,171**               | ** ** | **100** | ** ** |

 

Fair values for government securities linked mutualfunds are based on prices as stated by the issuer’s of mutual funds and areclassified as Level 2. Fair values for investment in central governmentsecurities is based on prices obtained from independent third-party pricingservices and are classified as Level 2.

 

20.6         Net periodic gratuity cost included thefollowing components:

 
| ** **                             | ** ** | **Year ended  December 31, 2007** | ** **    | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|----------------------------------------|------------|----------------------------------------|---------------|----------------------------------------|------------|----------------------------------------|------------|
| Service cost                           |       | $                                      | 1,091,201     |                                   | $          | 1,094,495                              |       | $ | 953,489 |   |
| Interest cost                          |       | 401,351                                |          | 552,411                                |       | 503,480                                |       |
| Expected return on assets              |       | (416,245                               | )             | (365,565                               | )          | (332,202                               | )          |
| Amortization of actuarial  (gain)/loss |       | (920                                   | )             | 137,128                                |       | (10,711                                | )          |
| **Net  periodic gratuity cost**        | ** ** | **$**                                  | **1,075,387** | ** **                             | **$**      | **1,418,469**                          | ** ** | **$** | **1,114,055** | ** ** |

 

F-48

----

 

Tableof Contents

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

** **

**20**           **Retirement benefits to employees *(Continued)***

 

***Gratuity benefits (Continued)***

 

20.7        Key weighted averageassumptions used to determine the net periodic gratuity cost were as follows:

 
| ** **                | ** ** | **December 31,  2007** | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|---------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate             |       | 8.85                        | %          | 9.00                        | %          | 7.45                        | %          |
| Expected return on assets |       | 7.50                        | %          | 7.50                        | %          | 7.50                        | %          |

 

For the actuarial valuationat December 31, 2009 compensation levels have been assumed to increase at6% per annum. For the actuarial valuation at December 31, 2008compensation levels have been assumed to increase at 8% per annum for the firstthree years, and 7% per annum thereafter.

 

20.8        Patni’s expectedcontribution to gratuity fund for the calendar year 2010 is $1,121,131. Theexpected benefit payments for next ten years are as follows:

 
| ** **                | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **2015 -2019** | ** ** |
|---------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|
| ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** |
| Expected benefit payments |       | $          | 1,655,439  |       | $          | 1,674,613  |       | $          | 1,725,795  |       | $          | 1,687,640      |       | $ | 1,541,595 |   | $ | 5,048,517 |   |
|                           |            |            |            |            |            |            |            |            |            |            |            |                |            |  |  |  |  |  |  |

 

At December 31, 2008 and 2009, the pre taxamounts in accumulated other comprehensive income / (loss), not yet recognizedas a component of net periodic gratuity costs consists of actuarial gainof  $23,977 and $33,407, respectively..The estimated actuarial gain that will be amortized from other comprehensiveincome /(loss) in  net periodic gratuitycost in fiscal 2010 is $Nil.

 

***Pension benefits***

 

20.9        Founder directors of PatniIndia and Executive director in employment with Patni USA are entitled toreceive pension benefits upon retirement or on termination from employment atthe rate of 50% of their last drawn monthly salary. The pension is payable fromthe time the eligible director reaches the age of sixty five in respect ofFounder directors of Patni India and seventy one in respect of Executivedirector in employment with Patni USA, and is payable to the directors or the surviving spouse. The liabilitiesfor these pension plans are actuarially determined and periodically recognized.These plans are not funded.

 

20.10      With regard to Patni Indiapension plans, the following table sets forth the plan’s funded status andamounts recognised in the Company’s consolidated balance sheet. Measurementdates used to measure benefit obligation is December 31 for each fiscalyear.

 
| **As at,**                       | ** ** | **December 31,  2008** | ** **    | **December 31,  2009** | ** ** |
|----------------------------------|------------|-----------------------------|---------------|-----------------------------|------------|
| **Change in benefit obligation** |       | ** **                  | ** **    | ** **                  |       |
| PBO at January 1,           |       | $                           | 2,310,023     |                        | $          | 1,922,687 |   |
| Service cost                     |       | —                      |          | —                      |       |
| Interest cost                    |       | 181,491                     |          | 168,928                     |       |
| Translation loss/(gain)          |       | (446,918                    | )             | 93,799                      |       |
| Actuarial loss/(gain)            |       | 18,133                      |          | 352,623                     |       |
| Benefits paid                    |       | (140,042                    | )             | (126,515                    | )          |
| PBO at December 31,         |       | 1,922,687                   |          | 2,411,522                   |       |
| Funded status                    |       | (1,922,687                  | )             | (2,411,522                  | )          |
| Accumulated benefit  obligation  | ** ** | **$**                       | **1,922,687** | ** **                  | **$**      | **2,411,522** | ** ** |

 

F-49

----

Tableof Contents

 

Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**20**           **Retirement benefits to employees *(Continued)***

 

***Pension benefits (Continued)***

 

20.11      Key weighted averageassumptions used to determine benefit obligation for Patni India pension planwere as follows:

 
| ** **                       | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate                    |       | 9.00                        | %          | 7.45                        | %          |
| Increase in compensation  levels |       | 0                           | %          | 0                           | %          |

 

20.12      Net periodic pension cost ofPatni India pension plan included the following components:

 
| ** **                | ** ** | **Year ended  December 31, 2007** | ** **  | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|---------------------------|------------|----------------------------------------|-------------|----------------------------------------|------------|----------------------------------------|------------|
|                      | ** ** | ** **                             | ** **  | ** **                             | ** ** | ** **                             | ** ** |
| Service cost              |       | $                                      | 71,175      |                                   | —     |                                   | —     |   |
| Interest cost             |       | 181,987                                |        | 181,491                                |       | 168,928                                |       |
| Amortization              |       | —                                 |        | —                                 |       | —                                 |       |
|                      |       |                                   | ** **  | ** **                             | ** ** | ** **                             | ** ** |
| Net periodic pension cost | ** ** | **$**                                  | **253,162** | ** **                             | **$**      | **181,491**                            | ** ** | **$** | **168,928** | ** ** |
|                           |            |                                        |             |                                        |            |                                        |            |  |  |  |

 

20.13      Key weighted averageassumptions used to determine net periodic pension cost for the Patni Indiapension plan were as follows:

 
| ** **                     | ** ** | **Year ended  December 31, 2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
|                           | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **                             | ** ** |
| Discount rate                  |       | 8.85                                   | %          | 9.00                                   | %          | 7.45                                   | %          |
| Rate of compensation  increase |       | 10.00                                  | %          | 0.00                                   | %          | 0.00                                   | %          |

 

20.14      Patni’s expected payment forthe calendar year 2010 is $131,384. The expected benefit payments for next tenyears are as follows:

 
| ** **                | ** ** | **2010** | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **2015-2019** | ** ** |
|---------------------------|------------|----------|------------|------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|
| ** **                |       |     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **    | ** ** |
| Expected benefit payments |       | $        | 131,384    |       | $          | 131,384    |       | $          | 131,384    |       | $          | 131,384       |       | 131,384 |   | $ | 1,116,767 |   |
|                           |            |          |            |            |            |            |            |            |            |            |            |               |            |  |  |  |  |  |

 

20.15      With regard to Patni USApension plan, the following table sets forth the plan’s funded status andamounts recognized in the Company’s consolidated balance sheet. Measurementdates used to make up benefit obligation is December 31 for each fiscalyear.

 
| **As at,**                        | ** ** | **December 31,  2008** | ** **    | **December 31,  2009** | ** ** |
|-----------------------------------|------------|-----------------------------|---------------|-----------------------------|------------|
| **Change  in benefit obligation** | ** ** | ** **                  | ** **    | ** **                  | ** ** |
| PBO at January 1,            |       | $                           | 7,093,885     |                        | $          | 7,273,000 |   |
| Service cost                      |       | 200,000                     |          | 201,000                     |       |
| Interest cost                     |       | 318,000                     |          | 336,000                     |       |
| Actuarial loss/ (Gain)            |       | (338,885                    | )             | 197,000                     |       |
| PBO at December 31,          |       | 7,273,000                   |          | 8,007,000                   |       |
| Funded status                     |       | (7,273,000                  | )             | (8,007,000                  | )          |
| Accumulated benefit  obligation   | ** ** | **$**                       | **4,516,000** | ** **                  | **$**      | **5,469,000** | ** ** |

 

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Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**20**           **Retirement benefits to employees *(Continued)***

 

***Pension benefits (Continued)***

 

20.16      Key weighted averageassumptions used to determine benefit obligation for Patni USA pension planwere as follows:

 
| ** **                       | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Discount rate                    |       | 4.5                         | %          | 4.50                        | %          |
| Increase in compensation  levels |       | 10                          | %          | 10                          | %          |

 

20.17      Net periodic pension cost ofPatni USA pension plan included the following components:

 
| ** **       | ** ** | **Year ended  December 31, 2007** | ** **  | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|------------------|------------|----------------------------------------|-------------|----------------------------------------|------------|----------------------------------------|------------|
|             |       |                                   |        |                                   |       |                                   |       |
| Service cost     |       | $                                      | 191,148     |                                   | $          | 200,000                                |       | $ | 201,000 |   |
| Interest cost    |       | 327,036                                |        | 318,000                                |       | 336,000                                |       |
| Amortization     |       | 44,169                                 |        | —                                 | ** ** | **—**                             | ** ** |
|             |       |                                   |        | ** **                             | ** ** | ** **                             | ** ** |
| Net pension cost | ** ** | **$**                                  | **562,353** | ** **                             | **$**      | **518,000**                            | ** ** | **$** | **537,000** | ** ** |

 

20.18      Key weighted averageassumptions used to determine net periodic pension cost for the Patni USApension plan were as follows:

 
| ** **                     | ** ** | **Year ended  December 31, 2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|--------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Discount rate                  |       | 5% per annum                           |       | 4.5% per annum                         |       | 4.5% per annum                         |       |
| Rate of compensation  increase |       | 10% per annum                          |       | 10% per annum                          |       | 10% per annum                          |       |

 

20.19      At December 31, 2008and 2009, the pre tax amounts in accumulated other comprehensive income /(loss), not yet recognized as a component of net periodic pension costsconsists of actuarial loss of ($168,616) and ($713,580) respectively Theestimated actuarial gain that will be amortized from other comprehensive income/(loss) in  net periodic pension cost infiscal 2010 is $Nil.

 

***Provident Fund***

 

20.20      All employees of Patni Indiaand Patni Telecom India receive provident fund benefits through a definedcontribution plan in which both the employee and employer make monthlycontributions to the plan at 12% each of the covered employee’s defined portionof salary. The Company has no further obligations under the plan beyond monthlycontribution. Patni contributes to the Provident Fund Plan maintained by theGovernment of India.

 

20.21      Patni contributed $4,145,932, $ 4,251,292 and $4,151,565 to the Provident Fund Plan in 2007, 2008and 2009, respectively.

 

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Patni Computer Systems Limited and subsidiaries 

**Notes to the Consolidated Financial Statements**

 

**21**           **Segment Information**

 

21.1        The Company’s operationsrelate to providing IT services and solutions, delivered to customers operatingin various industry segments. Accordingly, revenues represented along industry classes comprise theprincipal basis of segmental information set out in these condensedconsolidated financial statements. Secondary segmental reporting is performed on the basis of thegeographical location of the customers. The accounting policies consistently used in the preparation of theconsolidated financial statements are also consistently applied to individualsegment information.

 

21.2        Industry segments of theCompany comprise financial services, insurance services, manufacturing, retailand distribution companies, communications, media and utilities, and technologypractice (comprising of product engineering). The Company evaluates segmentperformance and allocates resources based on revenue growth. Revenue inrelation to segments is categorized based on items that are individuallyidentifiable to that segment. Costs are not specifically allocable to individualsegment as the underlying resources and services are used interchangeably.Property, plant and equipment used in the Company’s business or liabilitiescontracted have not been identified to any of the reportable segments, as theproperty, plant and equipment and services are used interchangeably betweensegments.

 

21.3        From January 1, 2009,retail, logistics and transportation segment (previously included under “Others”in the Company’s segment information disclosures) has been merged with  the manufacturing industry practice (nowrenamed as Manufacturing, Retail and Distribution). This integration ofindustry practices is mainly due to similar service offerings, as both requirelarge ERP (Enterprise Resource Planning) implementation with significant worktowards supply chain management. Further, energy and utilities segment(previously included under “Others” in the Company’s segment informationdisclosures) has been merged with the Communications, Media and Entertainmentindustry practice (now renamed as Communications, Media and Utilities) as theBSS (Business Support Systems) platform is commonly used in case of theseindustry practices.

 

21.4        Patni’s geographicsegmentation is based on location of customers and comprises United States ofAmerica (‘USA’), Europe, Japan, India and Others. Revenue in relation togeographic segments is categorized based on the location of the specificcustomer entity for which services are performed irrespective of the customerentity that is billed for the services and whether the services are deliveredonsite or offshore. Categorization of customer related assets and liabilitiesin relation to geographic segments is based on the location of the specificcustomer entity which is billed for the services.

 

21.5        Substantial portion of Patni’slong lived assets are located in India.

 

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Table of Contents

 

Patni Computer Systems Limited and subsidiaries

**Notes tothe Consolidated Financial Statements**

 

**21**                                  **SegmentInformation *(Continued)***

 

***21.6***        ***Industry segments***

 
| **Particulars**                                                             | ** ** | **Financial  services**    | ** ** | **Insurance** | ** ** | **Manufacturing,  Retail and  Distribution** | ** ** | **Communication,  Media & Utilities** | ** **  | **Product  Engineering** | ** ** | **Total**   | ** **      |
|-----------------------------------------------------------------------------|------------|----------------------------|------------|---------------|------------|----------------------------------------------|------------|------------------------------------------------|-------------|--------------------------|------------|-------------|-----------------|
| ** **                                                                  | ** ** | ** **                 | ** ** | ** **    | ** ** | ** **                                   | ** ** | ** **                                     | ** **  | ** **               | ** ** | ** **  |
| ** **                                                                  | ** ** | **December 31, 2007** | ** ** |
| ** **                                                                  | ** ** | ** **                 | ** ** |
| Net revenues                                                                |       | $                          | 93,725,976 |          | $          | 156,608,255                                  |       | $                                              | 178,640,176 |                     | $          | 121,066,028 |            | $ | 112,871,234 | ** ** | **$** | **662,911,669** | ** ** |
| Accounts receivables, net                                                   |       | 19,075,343                 |       | 27,515,894    |       | 41,706,192                                   |       | 26,135,278                                     |        | 21,938,976               | ** ** | **$**       | **136,371,683** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (322,417                   | )          | (337,306      | )          | (1,563,771                                   | )          | (559,047                                       | )           | (772,704                 | )          | **$**       | **(3,555,245**  | **)** |
| Advance from customers                                                      |       | (189,649                   | )          | (400,875      | )          | (274,449                                     | )          | (83,909                                        | )           | (288,355                 | )          | **$**       | **(1,237,237**  | **)** |
| Unbilled revenue                                                            |       | 3,644,377                  |       | 1,907,851     |       | 10,657,806                                   |       | 9,932,670                                      |        | 6,274,687                | ** ** | **$**       | **32,417,391**  | ** ** |
|                                                                        |       |                       |       |          |       |                                         |       |                                           |        |                     | ** ** | ** **  | ** **      |
|                                                                        |       | **December 31, 2008** | ** ** |
|                                                                        |       |                       |       |          |       |                                         |       | ** **                                     |        |                     | ** ** | ** **  | ** **      |
| Net revenues                                                                |       | $                          | 91,673,353 |          | $          | 177,274,553                                  |       | $                                              | 207,659,685 |                     | $          | 129,030,389 |            | $ | 113,246,123 | ** ** | **$** | **718,884,103** | ** ** |
| Accounts receivables, net                                                   |       | 14,749,219                 |       | 25,412,923    |       | 33,085,786                                   |       | 22,658,292                                     |        | 15,907,523               | ** ** | **$**       | **111,813,743** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (1,043,777                 | )          | (223,984      | )          | (2,030,463                                   | )          | (1,008,800                                     | )           | (1,693,359               | )          | **$**       | **(6,000,383**  | **)** |
| Advance from customers                                                      |       | (85,646                    | )          | (50,311       | )          | (455,801                                     | )          | (58,780                                        | )           | (685,331                 | )          | **$**       | **(1,335,869**  | **)** |
| Unbilled revenue                                                            |       | 3,110,598                  |       | 2,162,504     |       | 8,127,184                                    |       | 12,711,210                                     |        | 4,551,871                | ** ** | **$**       | **30,663,367**  | ** ** |
|                                                                        |       |                       |       |          |       |                                         |       |                                           |        |                     | ** ** | ** **  | ** **      |
|                                                                        |       | **December 31, 2009** | ** ** |
|                                                                        |       |                       |       |          |       | ** **                                   |       |                                           |        |                     | ** ** | ** **  | ** **      |
| Net revenues                                                                |       | $                          | 84,151,975 |          | $          | 195,114,394                                  |       | $                                              | 190,215,320 |                     | $          | 88,347,870  |            | $ | 98,088,562 | ** ** | **$** | **655,918,121** | ** ** |
| Accounts receivables, net                                                   |       | 13,477,359                 |       | 25,223,137    |       | 39,713,407                                   |       | 17,034,240                                     |        | 13,961,443               | ** ** | **$**       | **109,409,586** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (263,957                   | )          | (301,076      | )          | (2,467,272                                   | )          | (999,385                                       | )           | (1,686,130               | )          | **$**       | **(5,717,820**  | **)** |
| Advance from customers                                                      |       | (327,657                   | )          | (55,428       | )          | (463,250                                     | )          | (246,895                                       | )           | (80,452                  | )          | **$**       | **(1,173,682**  | **)** |
| Unbilled revenue                                                            |       | 2,250,394                  |       | 2,577,881     |       | 6,975,234                                    |       | 5,422,872                                      |        | 2,510,930                | ** ** | **$**       | **19,737,311**  | ** ** |

 

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Table of Contents

 

Patni Computer Systems Limited and subsidiaries

**Notes tothe Consolidated Financial Statements**

 

**21**                                  **SegmentInformation *(Continued)***

 

***21.7***                        ***Geographicsegments***

 
| **Particulars**                                                             | ** ** | **USA**                    | ** **  | **Europe** | ** ** | **Japan**   | ** ** | **India**  | ** ** | **Others** | ** ** | **Total**  | ** **      |
|-----------------------------------------------------------------------------|------------|----------------------------|-------------|------------|------------|-------------|------------|------------|------------|------------|------------|------------|-----------------|
| ** **                                                                  | ** ** | ** **                 | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **      |
| ** **                                                                  | ** ** | **December 31, 2007** | ** **  |
| ** **                                                                  | ** ** | ** **                 | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **      |
| Net revenues                                                                |       | $                          | 516,438,299 |       | $          | 97,712,926  |       | $          | 20,044,614 |       | $          | 5,376,202  |            | $ | 23,339,628 | ** ** | **$** | **662,911,669** | ** ** |
| Accounts receivables, net                                                   |       | 100,096,293                |        | 28,257,749 |       | 2,915,162   |       | 1,245,098  |       | 3,857,381  | ** ** | **$**      | **136,371,683** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (1,833,086                 | )           | (624,628   | )          | (839,150    | )          | (172,146   | )          | (86,235    | )          | **$**      | **(3,555,245**  | **)** |
| Advance from customers                                                      |       | (1,054,657                 | )           | (98,860    | )          | (73,768     | )          | (9,952     | )          | —     | ** ** | **$**      | **(1,237,237**  | **)** |
| Unbilled revenue                                                            |       | 19,824,710                 |        | 8,047,805  |       | 1,894,379   |       | 268,574    |       | 2,381,923  | ** ** | **$**      | **32,417,391**  | ** ** |
|                                                                        |       |                       |        |       |       |        |       |       |       |       | ** ** | ** ** | ** **      |
|                                                                        |       | **December 31, 2008** | ** **  |
|                                                                        |       |                       |        |       | ** ** | ** **  |       |       |       |       | ** ** | ** ** | ** **      |
| Net revenues                                                                |       | $                          | 545,440,929 |       | $          | 112,640,874 |       | $          | 25,039,034 |       | $          | 6,426,537  |            | $ | 29,336,729 | ** ** | **$** | **718,884,103** | ** ** |
| Accounts receivables, net                                                   |       | 84,479,242                 |        | 18,910,013 |       | 3,289,297   |       | 1,962,387  |       | 3,172,804  | ** ** | **$**      | **111,813,743** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (3,122,673                 | )           | (186,880   | )          | (1,528,806  | )          | (55,839    | )          | (1,106,185 | )          | **$**      | **(6,000,383**  | **)** |
| Advance from customers                                                      |       | (687,186                   | )           | (71,776    | )          | (507,529    | )          | (8,242     | )          | (61,136    | )          | **$**      | **(1,335,869**  | **)** |
| Unbilled revenue                                                            |       | 14,773,659                 |        | 11,387,849 |       | 1,144,701   |       | 858,273    |       | 2,498,885  | ** ** | **$**      | **30,663,367**  | ** ** |
|                                                                        |       |                       |        |       |       |        |       |       |       |       | ** ** | ** ** | ** **      |
|                                                                        |       | **December 31, 2009** | ** **  |
|                                                                        |       |                       |        |       | ** ** | ** **  |       |       |       |       | ** ** | ** ** | ** **      |
| Net revenues                                                                |       | $                          | 517,254,514 |       | $          | 83,476,935  |       | $          | 23,205,669 |       | $          | 6,760,695  |            | $ | 25,220,308 | ** ** | **$** | **655,918,121** | ** ** |
| Accounts receivables, net                                                   |       | 89,143,096                 |        | 14,287,050 |       | 1,898,097   |       | 1,566,291  |       | 2,515,052  | ** ** | **$**      | **109,409,586** | ** ** |
| Billings in excess of cost and estimated earnings on  uncompleted contracts |       | (2,861,588                 | )           | (826,062   | )          | (1,588,626  | )          | (52,070    | )          | (389,474   | )          | **$**      | **(5,717,820**  | **)** |
| Advance from customers                                                      |       | (756,813                   | )           | (321,255   | )          | (47,010     | )          | (12,213    | )          | (36,391    | )          | **$**      | **(1,173,682**  | **)** |
| Unbilled revenue                                                            |       | 11,362,487                 |        | 4,910,420  |       | 464,171     |       | 524,069    |       | 2,476,164  | ** ** | **$**      | **19,737,311**  | ** ** |

 

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Tableof Contents

 

Patni Computer Systems Limited and subsidiaries

**Notes to the Consolidated FinancialStatements**

 

**21**                                  **SegmentInformation *(Continued)***

 

21.8                         One customeraccounted for 12%, 11% and 10% of the total revenues for the year ended December 31,2007, 2008 and 2009, respectively. Net receivables from this customer as at December 31,2008 and 2009, amounted to 8% and 15% of the total net receivables,respectively. The revenues from this customer were across all the industrysegments of the Company. Another customer in the Insurance industry segmentaccounted for 9%, 10% and 12% of the total revenues for the years ended December 31,2007, 2008 and 2009, respectively. Net receivables for this customer as at December 31,2008 and 2009, amounted to 6% and 6% of the total net receivables,respectively.

 

**22**                                  **Earnings per share**

 

A reconciliation of the common shares used in thecomputation of basic and diluted earnings per share is set out below:

 
| ** **                                                                           | ** ** | **Year ended**

**December 31,  2007** | ** ** | **Year ended  December 31, 2008** | ** ** | **Year ended  December 31, 2009** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                           | ** ** | ** **                                  | ** ** | ** **                             | ** ** | ** **                             | ** ** |
| **Common  shares**                                                                   |       |                                        |       |                                   |       |                                   |       |
| ** **                                                                           |       |                                        |       |                                   |       |                                   |       |
| Weighted average number of  shares outstanding                                       |       | 138,660,785                                 |       | 135,590,677                            | ** ** | **128,254,916**                        | ** ** |
|                                                                                 |       |                                        |       |                                   | ** ** | ** **                             | ** ** |
| Effect of dilutive  equivalent shares-stock options outstanding                      |       | 909,148                                     |       | 169,745                                | ** ** | **1,986,169**                          | ** ** |
|                                                                                 |       |                                        |       |                                   | ** ** | ** **                             | ** ** |
| Weighted average number of  equity shares and dilutive equivalent shares outstanding |       | 139,569,933                                 |       | 135,760,422                            | ** ** | **130,241,085**                        | ** ** |

 

Options to purchase 1,992,055,  5,704,527 and 9,80,600 equity shares were outstandingduring the year ended December 31, 2007, 2008 and 2009, respectively, butwere not included in the computation of diluted earnings per share because theexercise price of the options was greater than the average market price of theequity shares.

 

**23**                                  **Related party transactions**

 

23.1                         Patni entersinto various transactions with related parties, such as PCS Technology Ltd. (‘PCSTL’),formerly known as PCS Industries Ltd., General Atlantic Mauritius Limited, PCSCullinet, PCS Finance, Ravi and Ashok Enterprises, Ashoka Computers - allaffiliates, directors of Patni and their relatives.

 

The Company’s executive directors, Mr G.K.Patni andMr A.K.Patni, under contract of employment until October 22, 2010, ceasedto be executive directors effective October 1, 2007 but will continue asdirectors on the Board. Termination benefit payments as provided in thecontract of employment are in compliance with the Indian Companies Act andamounted to $2,220,139, which have been recorded as selling, general and administrativeexpenses in the consolidated statement of income for the year ended December 31,2007.

 

Further, an amount of $457,436 and $359,523 has beenrecorded as commissions for these two directors (included in selling, generaland administrative expenses) for the year ended December 31, 2008 and2009, respectively.

 

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Patni Computer Systems Limited and subsidiaries

**Notes tothe Consolidated Financial Statements**

 

**23**                                  **Related party transactions *(Continued******)***

 

The Company has recorded sales transactions withGeneral Atlantic Mauritius Limited (GAML). Revenues of $ 100,726, $456,729 and$417,220, were recorded, for the year ended December 31,2007, 2008 and2009 respectively. Accounts receivable due from GAML at December 31, 2008and 2009  were $98,131 and $67,842respectively***.***

 

***Expenses***

 

23.2                         Patni has takencertain residential properties under operating leases from certain affiliatesand the Patni family.  The rentals andother incidental charges incurred were $93,725, $82,036 and $75,061 for theyears ended December 31, 2007, 2008 and 2009, respectively. Amountspayable with respect to these obligations as at December 31, 2008 and 2009were $24,909 and $48,616, respectively. Outstanding security deposits under theoperating leases placed by Patni with affiliates and the Patni family at December 31,2008 and 2009 were $35,857 and $37,576, respectively.

 

***Due from employees***

 

23.3                         Patni grantspersonal loans to eligible employees, either for housing or personal purposesand advances to meet initial conveyance and living expenses while ontravel.  Personal loans include loans forvehicle purchase and other individual employee needs.  Such loans and advances are repayable inequal installments over periods ranging from 1—60 months. Interest on theseloans and advances is charged at 0- 9%. Loans outstanding at December 31,2008 and 2009 were $ $450,472 and $ 108,383, respectively.

 

23.4                         Patni USA,Patni UK, Patni GmbH, Patni Telecom and its subsidiaries grant personal loansto employees as well as advances to meet initial conveyance and living expenseswhile on travel. Such loans and advances are repayable over a period of 6 months.Interest charged on these loans and advances ranged from 0% to 10%.  Balance outstanding of such loans andadvances at December 31, 2008 and 2009 were and $1,195,683 and $695,173,respectively.

 

Employees execute promissory notes for the amountadvanced along with a guarantor’s agreement as collateral. In the case of longterm housing loan, the original house deed is sought to be deposited with theCompany as collateral, in addition to the guarantor’s agreement.

 

**24**                                  **Line of Credit**

 

The Company has an overall Line of Credit ofRs.610,000,000 ($12,681,912) and Rs.610,000,000 ($13,112,639) as of December 31,2008 and 2009, respectively, from its bankers for various requirements such aspre and post shipment loan, Export Bill Discounting, Overdrafts, Working capitaldemand loan, Financial Guarantees, Guarantees - Bid Bond / Performance, etc.These facilities bear interest as negotiated with the bank from time to time.The facilities are secured by accounts receivables of the Company. Patni Incand Patni Telecom have a line of credit of $2,000,000 as of December 31,2008, each for meeting the working capital requirements bearing interest atBank Prime rate less 1% and as of December 31, 2009, there is no line ofcredit facility available for both the entities. There was no outstandingbalances under this facility as of December 31, 2008 and 2009. In additionPatni Inc has a facility for issuance of Letters of credit to the extent of $500,000 as of December 31, 2008 and as of December 31, 2009.

 

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Patni Computer Systems Limited and subsidiaries

**Notes tothe Consolidated Financial Statements**

 

**25**                                  **Commitments and Contingencies**

 

25.1                         The Company isobligated under a number of contracts relating to capital expenditure.Estimated amounts remaining to be executed on such contracts (net of advances),aggregated $50,108,878 and $55,578,368 at December 31, 2008 and 2009,respectively.

 

25.2                         Guaranteesgiven by a bank on behalf of Patni amounted $1,319,911 and $1,732,404 as at December 31,2008 and 2009, respectively and letter of credit issued by bank was $Nil and$365,112  as at December 31, 2008and 2009, respectively.

 

25.3                         In December 2008,the Company received a Demand of approximately Rs 458.66 million for theAssessment Year 2003-04 including an interest demand of Rs 258.64 million($9,859,521 including an interest demand of approximately $5,559,849) andanother Demand in January 2009 of approximately Rs 1,131.76 million forthe Assessment Year 2005-06 including an interest demand of approximately Rs421.97 million ($24,328,461 including an interest demand of approximately$9,070,722). These new demands concerns the same issue of disallowance of taxbenefits under Section 10A of the Indian Income Tax Act, 1961(‘ACT’) asper earlier assessments. The Company has filed an appeal with the taxauthorities and stay of demand has been granted till February 28, 2010 orsettlement of appeal whichever is earlier.

 

As per stay of demand order, through December 2009,the Company has paid sum of Rs. 66 million ($1,418,744) for the Assessment Year2003-04 and Rs.171 million ($3,675,838) for the Assessment year 2005-06 asregards the matter under appeal. Management considers these demands as nottenable against the Company and, therefore, no provision for this taxcontingency has been established.

 

The tax department had earlier rejected the Company’sclaim under section 10A of the Act and raised a demand of approximately Rs.630.17 million ($13,546,217 including an interest demand of approximately$4,016,552) for Assessment Year 2004-05 and Rs. 261.70 million ($ 5,625,537including an interest demand of approximately $ 3,006,822) for Assessment Year(‘A.Y.’) 2002-03 in December 2006 and December 2007, respectively.However on appeal, in 2008 the CIT (Appeal) had allowed the claim under section10A of the Act. The Indian Income tax department has appealed against the CIT(Appeal’s) orders in respect of assessment year 2002-03 and 2004-05 in thetribunal. Management considers these demands as not tenable against the Companyand, therefore, no provision for this tax contingency has been established.

 

In December 2009 the Income tax department hasissued draft assessment order for A.Y.2006-07 disallowing 10A deduction of theIndian Income Tax Act, 1961 as per the earlier assessments, as well as making aTransfer Pricing Adjustment for the Company’s BPO operations. The company hasfiled the objections against the draft order before the Dispute ResolutionPanel (“DRP”) newly set up under the Income Tax Act, 1961. Management considersthese disallowances as not tenable against the Company, and therefore noprovision is required for this tax contingency has been established.

 

Certain other income tax related legal proceedingsare pending against the Company. Potential liabilities, if any, have beenadequately provided for, and the Company does not currently estimate anyincremental liability in respect of these proceedings. Additionally, theCompany is also involved in lawsuits and claims which arise in ordinary courseof business. There are no such matters pending that Patni expects to bematerial in relation to its business.

 

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