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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended March 31, 2006.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 For the transition period from  to
 o
    
    SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 Date
of event requiring this shell company report _____________
 Commission file number 000-27663
 Sify Limited
      
       o þ
 15(d)
 þ o
 15(d)
 þ o
  o þ o
  o þ
  o þ




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##### 



Table of Contents
 Item
    
    
    
    PageCurrency of Presentation and Certain Defined Terms
    
    
    1Forward-Looking Statements May Prove Inaccurate
    
    
    2PART I
    
    
    
    
    3Item 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    3Item 3.
    
    Key Information
    
    
    3Item 4.
    
    Information on the Company
    
    
    20Item 4A.
    
    Unresolved Staff Comments
    
    
    34Item 5.
    
    Operating and Financial Review and Prospects
    
    
    34Item 6.
    
    Directors, Senior Management and Employees
    
    
    46Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    50Item 8.
    
    Financial Information
    
    
    52Item 9.
    
    The Offer and Listing
    
    
    53Item 10.
    
    Additional Information
    
    
    54Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    67Item 12.
    
    Description of Securities Other Than Equity Securities
    
    
    67PART II
    
    
    
    
    67Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    67Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    67Item 15.
    
    Controls and Procedures
    
    
    67Item 16A.
    
    Audit Committee Financial Expert
    
    
    68Item 16B.
    
    Code of Ethics
    
    
    68Item 16C.
    
    Principal Accountant Fees and Services
    
    
    68Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    68Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    68PART III
    
    
    
    
    68Item 17.
    
    Financial Statements
    
    
    68Item 18.
    
    Financial Statements
    
    
    68Item 19.
    
    Exhibits
    
    
    99EXHIBIT 4.3EXHIBIT 8.1EXHIBIT 12.1EXHIBIT 12.2EXHIBIT 13.1EXHIBIT 13.2EXHIBIT 15.1




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Currency of Presentation and Certain Defined Terms
 Online
   www.sifycorp.com
 1




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Forward-Looking Statements May Prove Inaccurate
 WWW.SEC.GOV
 2




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers.
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 Selected Financial Data
  Goodwill and other Intangible Assets
 3




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Fiscal year ended March 312002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006Indian Rupees(1)
    
    
    
    
    
    
    
    
    
    
    U.S. Dollars(2)(In thousands, except share and per share data)Statement of Operations Data:Revenues
    
    
    1,560,288
    
    
    
    1,959,855
    
    
    
    2,751,623
    
    
    
    3,554,237
    
    
    
    4,606,409
    
    
    
    103,561Revenue from related parties
    
    
    17,200
    
    
    
    34,345
    
    
    
    49,561
    
    
    
    59,220
    
    
    
    75,398
    
    
    
    1,695Total Revenue
    
    
    1,577,488
    
    
    
    1,994,200
    
    
    
    2,801,184
    
    
    
    3,613,457
    
    
    
    4,681,807
    
    
    
    105,256Cost of revenues (excluding
depreciation and amortization)
    
    
    1,192,671
    
    
    
    1,264,101
    
    
    
    1,476,714
    
    
    
    2,023,942
    
    
    
    2,534,723
    
    
    
    56,985Selling, general and
administrative expenses
    
    
    1,256,763
    
    
    
    1,090,935
    
    
    
    1,208,884
    
    
    
    1,418,757
    
    
    
    1,852,296
    
    
    
    41,643Provision for doubtful debts,
receivables and advances
    
    
    101,500
    
    
    
    156,233
    
    
    
    76,487
    
    
    
    57,579
    
    
    
    90,670
    
    
    
    2,038Impairment of assets
    
    
    
    
    
    
    246,999
    
    
    
    22,251
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    574,867
    
    
    
    474,261
    
    
    
    432,684
    
    
    
    472,400
    
    
    
    395,018
    
    
    
    8,881Amortization of intangible assets
    
    
    29,337
    
    
    
    69,907
    
    
    
    99,350
    
    
    
    84,387
    
    
    
    68,759
    
    
    
    1,546Acquisition expenses
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization/impairment of goodwill
    
    
    4,420,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock
compensation expense
    
    
    9,686
    
    
    
    57,729
    
    
    
    27,946
    
    
    
    10,639
    
    
    
    12,749
    
    
    
    287Foreign exchange (gain)/loss
    
    
    (44,520
    )
    
    
    18
    
    
    
    52,148
    
    
    
    (2,595
    )
    
    
    (23,221
    )
    
    
    (522
    )Total operating expenses
    
    
    7,560,948
    
    
    
    3,360,183
    
    
    
    3,396,764
    
    
    
    4,065,109
    
    
    
    4,930,994
    
    
    
    110,858Operating loss
    
    
    (5,983,460
    )
    
    
    (1,365,983
    )
    
    
    (595,580
    )
    
    
    (451,652
    )
    
    
    (249,187
    )
    
    
    (5,602
    )Other (expense)/income, net
    
    
    32,711
    
    
    
    52,948
    
    
    
    144,147
    
    
    
    93,324
    
    
    
    59,239
    
    
    
    1,332Loss before equity in losses of
affiliates, income taxes and
minority interest
    
    
    (5,950,749
    )
    
    
    (1,313,035
    )
    
    
    (451,433
    )
    
    
    (358,328
    )
    
    
    (189,948
    )
    
    
    (4,270
    )Equity in profits/(losses) of
affiliates (including gain on sale
of investments in affiliates)
    
    
    (1,225,444
    )
    
    
    (26,061
    )
    
    
    80,142
    
    
    
    50,752
    
    
    
    40,703
    
    
    
    915Loss before income taxes and
minority interest
    
    
    (7,176,193
    )
    
    
    (1,339,096
    )
    
    
    (371,291
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Income taxes
    
    
    
    
    
    
    (2,856
    )
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    17,928
    
    
    
    12,564
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (7,158,265
    )
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Discontinued operationsIncome/(loss) from discontinued
operations (3)
    
    
    (125,373
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit on sale of discontinued
operations, net of direct costs
    
    
    81,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (7,202,517
    )
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Net profit/ (loss) per equity
share  continuing operations
    
    
    (308.59
    )
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    (0.09
    )Discontinued operations
    
    
    (1.91
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss per share (4)
    
    
    (310.50
    )
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    (0.09
    )Weighted average equity shares
used in computing net loss per
equity share
    
    
    23,196,428
    
    
    
    25,988,095
    
    
    
    34,519,545
    
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    36,811,476
 4




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Fiscal year ended March 312002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006Indian Rupees(1)
    
    
    U.S. Dollars(2)(In thousands, except share and per share data)Transitional disclosures
pertaining to 
adoption of SFAS
142 Goodwill 
and other
Intangible
AssetsReported net loss
    
    
    (7,202,517
    )
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Less: Goodwill amortization
    
    
    292,964
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Less: Equity goodwill amortization
    
    
    75,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net loss
    
    
    (6,834,343
    )
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3.355
    )Reported net loss per share
    
    
    (310.50
    )
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    (0.09
    )Less: Goodwill amortization
    
    
    12.63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Less: Equity goodwill amortization
    
    
    3.24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted net loss per share
    
    
    (294.63
    )
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    (0.09
    )Balance Sheet Data:Cash and cash equivalents
    
    
    658,111
    
    
    
    897,596
    
    
    
    1,325,803
    
    
    
    1,323,912
    
    
    
    2,822,501
    
    
    
    63,456Total assets
    
    
    4,146,274
    
    
    
    3,700,387
    
    
    
    3,799,073
    
    
    
    4,020,782
    
    
    
    5,951,771
    
    
    
    133,808Long-term debt, including current
installments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity
    
    
    3,394,113
    
    
    
    2,888,696
    
    
    
    2,715,668
    
    
    
    2,498,589
    
    
    
    4,054,509
    
    
    
    91,153Other Financial Data:EBITDA from continuing operations (5)
    
    
    (6,589,135
    )
    
    
    (755,394
    )
    
    
    142,707
    
    
    
    209,029
    
    
    
    268,057
    
    
    
    6,026Add: Interest and income tax
    
    
    49,540
    
    
    
    31,999
    
    
    
    48,187
    
    
    
    52,760
    
    
    
    70,314
    
    
    
    1,581Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit on sale of discontinued operations
    
    
    81,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,661
    
    
    
    31,999
    
    
    
    48,187
    
    
    
    52,760
    
    
    
    70,314
    
    
    
    1,581Less: Depreciation and amortization
    
    
    613,890
    
    
    
    601,897
    
    
    
    559,980
    
    
    
    567,426
    
    
    
    476,526
    
    
    
    10,714Interest and income tax
    
    
    4,780
    
    
    
    4,096
    
    
    
    2,198
    
    
    
    1,939
    
    
    
    11,090
    
    
    
    248Loss from discontinued operations
    
    
    125,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    744,043
    
    
    
    605,993
    
    
    
    562,178
    
    
    
    569,365
    
    
    
    487,616
    
    
    
    10,962Net loss
    
    
    (7,202,517
    )
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3.355
    )
 Notes
 
 1.
    
    Certain prior-year data has been reclassified to conform to the current year
presentation.2.
    
    Convenience translation to U.S. Dollars done at the noon buying rate on March 31, 2006 of
Rs.44.48 per $1.00, which should not be construed as a representation that those Indian rupee
or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Indian
rupees, as the case may be, at this rate or at all.3.
    
    There is no goodwill associated with discontinued operations.4.
    
    Reference to shares and per share amounts refer to our equity shares. Our outstanding
equity shares include equity shares held by a depositary underlying our ADSs. Effective
September 24, 2002, one ADS represented one equity share. Our
1-for-4 reverse stock split on
September 24, 2002 did not have any effect on our equity shares or per equity share amounts, as
the underlying shares representing ADSs were unchanged.5.
    
    EBITDA from continuing operations represents earnings (loss) from continuing operations
before interest, taxes, depreciation and amortization, and income or gain on sale of
discontinued operations. 5




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Exchange Rates
  Month
    
    High
    
    LowRs.
    
    Rs.December 2005
    
    
    46.26
    
    
    
    44.94January 2006
    
    
    44.92
    
    
    
    43.89February 2006
    
    
    44.54
    
    
    
    44.10March 2006
    
    
    44.58
    
    
    
    44.09April 2006
    
    
    45.09
    
    
    
    44.39May 2006
    
    
    46.22
    
    
    
    44.69
  Fiscal Year EndedMarch 31
    
    Period end
    
    Average
    
    High
    
    LowRs.
    
    Rs.
    
    Rs.
    
    Rs.2002
    
    
    48.83
    
    
    
    47.71
    
    
    
    48.91
    
    
    
    46.582003
    
    
    47.53
    
    
    
    48.49
    
    
    
    49.14
    
    
    
    47.392004
    
    
    43.40
    
    
    
    43.46
    
    
    
    47.46
    
    
    
    43.402005
    
    
    43.62
    
    
    
    44.86
    
    
    
    46.45
    
    
    
    43.272006
    
    
    44.48
    
    
    
    44.34
    
    
    
    44.58
    
    
    
    44.09
  Capitalization and indebtedness
  Reasons for the offer and use of proceeds
  Risk Factors
 Any investment in our ADSs involves a high degree of risk. You should consider carefully the
following information about these risks, together with the other information contained in this
annual report for the year ended March 31, 2006, before you make an investment decision regarding
our ADSs. If any of the following risks actually occurs, our company could be seriously harmed.
In any such case, the market price of our ADSs could decline, and you may lose all or part of the
money you paid to buy our ADSs.
 Risks Related to Sify Limited
 Although we commenced operation of our private data network business in April
1998, launched our Internet portal website in October 1998 and Internet service
provider operations in November 1998, we have added a number of new lines of
business in the last five years, including the operation and licensing of
public Internet cafés, as well as the provision of broadband services, security
services and managed network services. It is therefore difficult to evaluate
our company based on our historical results of operations.
  6




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
    
    continue to develop and upgrade our technology;
    
    maintain and develop strategic relationships with business partners;
    
    offer compelling online services and content; and
    
    promptly address the challenges faced by early stage companies, which
do not have an experience or performance base to draw on.
  For the fiscal year ended March 31, 2005 and 2006, we incurred net losses of Rs.307.6 million
and Rs.149.2 million ($3.4 million), respectively. As of March 31, 2006, we had an
accumulated deficit of approximately Rs.12,565.9 million ($282.5 million). We may incur
additional losses in the future because our business plan, which is unproven, calls for
additional corporate customers and subscribers to maintain profitability.
  We may be required to further modify the rates we charge for our services in response to new
pricing models introduced by new and existing competition which would significantly affect
our revenues.
  The Indian Department of Telecommunications, or DOT, has imposed a license fee for ISPs,
including our company, for providing Virtual Private Network, or VPN, services. In November
2005, DOT withdrew the VPN license and announced new guidelines whereby ISPs need to have
National Long Distance/International Long Distance or NLD/ILD licenses to provide VPN
services and eased the eligibility criteria for the provision of NLD/ILD services.
  7




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Our marketing campaign to establish brand recognition and loyalty for the Sify Broadband,
Sify Max , Sify and iway brands could be unsuccessful.
 iway
 If our efforts to retain our customers through past investment in network infrastructure and
ongoing investment in online content offerings and customer and technical support are
unsuccessful, our revenues will decrease without a corresponding reduction in costs.
  Despite cost-reduction measures, our future operating results could fluctuate
in part because our expenses are relatively fixed in the short term while
future revenues are uncertain, and any adverse fluctuations could negatively
impact the price of our ADSs.
  
    
    the range of corporate network/data services provided by us
and the usage thereof by our customers; and
 8




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
    
    the number of subscribers to our ISP services and
the prevailing prices charged.
 
    
    advertising revenue generated by our online portal services.
  
    
    the timing and nature of any agreements we enter into with strategic
partners of our corporate network/data services division;
    
    services, products or pricing policies introduced by our competitors;
    
    capital expenditure and other costs relating to our operations;
    
    the timing and nature of our marketing efforts;
    
    our ability to successfully integrate operations and technologies from
any acquisitions, joint ventures or other business combinations or
investments;
    
    the introduction of alternative technologies; and
    
    technical difficulties or system failures affecting the
telecommunication infrastructure in India, the Internet generally or
the operation of our websites.
   Because we lack full redundancy for our computer systems, a systems failure
could prevent us from operating our business.
   Security breaches could damage our reputation or result in liability to us.
  9




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Over the past several years we have experienced significant growth, and
continuing this pace of growth could put excessive strain on our resources,
which in turn could adversely affect our results of operations.
  We face a competitive labor market for skilled personnel and therefore are
highly dependent on our existing key personnel and on our ability to hire
additional skilled employees.
  The failure to keep our technical knowledge confidential could erode our competitive
advantage.
  Compliance with new and changing corporate governance and public disclosure requirements
adds uncertainty to our compliance policies and increases our costs of compliance.
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We may not comply with local laws of other countries.
  If there is an adverse outcome in the class action litigation that has been
filed against us, our business may be harmed.
 In re Satyam Infoway Ltd
 We face risks associated with potential acquisitions, investments, strategic
partnerships or other ventures, including whether any such transactions can be
identified, completed and the other party integrated with our business on
favorable terms.
  11




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Our financial results are impacted by the financial results of entities that we do not control.
   Our inter-city network is leased from other service providers and is dependent on their
quality and availability.
  A significant majority of the iway cybercafés are franchised operations that we do not
operate or control. We also provide Internet access services through a network of Cable
Television Operators, or CTOs, whom we do not control.
 iway
 The legal system in India does not protect intellectual property rights to the
same extent as the legal system of the United States, and we may be
unsuccessful in protecting our intellectual property rights.
   12




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Our current infrastructure and its scalability may not accommodate increased
use while maintaining acceptable overall performance.
  We do not plan to pay dividends in the foreseeable future.
  Risks Related to the ADSs and Our Trading Market
 The interests of our significant shareholder, Infinity Capital Ventures, L.P., may differ from your interests.
  
    
    altering our Articles of Association;
    
    issuing additional shares of capital stock, except for pro rata issuances to existing shareholders;
    
    commencing any new line of business; and
    
    commencing a liquidation.
  Holders of ADSs are restricted in their ability to exercise preemptive rights
under Indian law and thereby may suffer future dilution of their ownership
position.
  13




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Holders of ADSs may be restricted in their ability to exercise voting rights
and the information provided with respect to shareholder meetings.
    The market price of our ADSs has been and may continue to be highly volatile.
  
    
    perception of the level of political and economic stability in India;
    
    actual or anticipated variations in our quarterly operating results;
    
    announcement of technological innovations;
    
    conditions or trends in the corporate network/data services, Internet and electronic commerce industries;
    
    the competitive and pricing environment for corporate network/data services and Internet access services
in India and the related cost and availability of bandwidth;
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
    
    the perceived attractiveness of investment in Indian companies;
    
    acquisitions and alliances by us or others in the industry;
    
    changes in estimates of our performance or recommendations by financial analysts;
    
    market conditions in the industry and the economy as a whole;
    
    introduction of new services by us or our competitors;
    
    changes in the market valuations of other Internet service companies;
    
    announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
    
    our failure to integrate successfully our operations with those of any acquired companies;
    
    additions or departures of key personnel; and
    
    other events or factors, many of which are beyond our control.
  We may not be able to maintain our Nasdaq National Market listing.
  An active or liquid market for the ADSs is not assured.
  The future sales of securities by our company or existing shareholders may reduce the price of our ADSs.
  Forward-looking statements contained in this report may not be realized.
  15




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Risks Related to Investments in Indian Companies
  Political instability in India and around the world could halt or delay the
liberalization of the Indian economy and adversely affect business and
economic conditions in India generally and our business in particular.
  Conflicts in South Asia and terrorist attacks in the United States, South Asia
and around the world could adversely affect the economy and cause our business
to suffer.
  We are subject to foreign investment restrictions under Indian law that limit
our ability to attract foreign investors which, together with the lack of a
public market for our equity shares, may adversely impact the value of our
ADSs.
   Because we operate our business in India, exchange rate fluctuations may affect
the value of our ADSs independent of our operating results.
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The Government of India may change its regulation of our business or the terms
of our license to provide Internet access services, VoIP and VPN services
without our consent, and any such change could decrease our revenues and/or
increase our costs, which would adversely affect our operating results.
  
    
    Our Internet service provider
license has a term of 15 years and was
originally issued in 1998. Our Internet service
provider license was reissued in 2002 enabling
us to offer telephony services over the
Internet. We have no assurance that the license
will be renewed in the future. If we are unable
to renew our Internet service provider license
for any reason, we will be unable to operate as
an Internet service provider in India and will
lose one of our primary sources of revenue.
    
    In December 2004, the
Government of India issued licensing guidelines to offer
VPN services by ISPs. Consequently, we applied
for the license, and the Government of India
issued a letter of intent to our company on
December 30, 2004 for amendment of our existing
ISP license to include provision of VPN
services. In January 2005, we paid Rs.100
million as a one-time entry fee and submitted a
financial bank guarantee of Rs.10 million as
required by the letter of intent.
    
    On January 11, 2005, we
received provisional permission from the DOT, to
offer VPN service in accordance with the new
guidelines. Final permission to offer VPN
service will be effective only after we sign the
amendment to the license agreement. However,
the provisional permission does not carry any
terms and conditions relating to the license.
    
    The DOT also required the ISP
licensees to pay an annual fee of 8% of the
adjusted gross revenues generated under the ISP
license.
    
    The Internet Service Provider
Association of India, or ISPAI, had filed an
appeal against this license with the Telecom
Disputes Settlement and Arbitration Tribunal, or
TDSAT. TDSAT directed the Government of India to
consult with TRAI before finalizing the license
conditions.
    
    Pending a revised guideline
from DOT, we had reserved Rs.24.6 million
towards the 8% annual fee on VPN revenue as per
the provisional IP  VPN license for the period
April 1, 2005 to December 31, 2005 and Rs.12.7
million for the period January 1, 2006 to March
31, 2006 towards the 6% annual fee on adjusted gross revenue, or AGR, as per
the ILD/NLD license requirement and Rs.5.6
million for the year ended March 31, 2005
towards the annual license fee.
    
    In December 2005, DOT issued
new guidelines for NLD/ILD licenses, which did
away with the VPN license and permitted existing
provisional VPN license holders to migrate to
NLD/ILD licenses. The license fee payable is
adjustable from the license fee paid for VPN
license and the
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
    
    The Government of India maintains
the right to take over our entire operations or
revoke, terminate or suspend our license for
national security and similar reasons without
compensation to us. If the Government of India
were to take any of these actions, we would be
prevented from conducting all or part of our
business.
    
    In view of the increasing
concerns and instances of cyber threats and
attacks, the government may ask the telecom
licensees (including the ISPs) to provide
monitoring facility at the licensees costs
across its network as well as may ask for
capture and retention of data in terms of
traffic flow, usage details, etc. These may
significantly increase the costs and result in
lesser usage due to perceived violation of
privacy by customers.
    
    A network service provider
acting as an intermediary is liable for
third-party misuse / crimes under the Section 79
of the Information Technology Act, 2000 unless
it can establish that it had no knowledge or
that it had undertaken due diligence. While an
expert committee has recommended that this
clause be modified and the network service
provider be made liable only if there is a
direct role, as per the current stipulation a
company may be held liable for any third party
misuse.
    
    There have been recent queries
from certain government offices whether use of Session Initiation Protocol, or SIP, terminal to make calls to phones
abroad is permissible within the ISP license.
While we believe that it is
permissible as the SIP terminal is a computer
defined in the Information Technology Act, 2000.
In case this view is not sustained, we may have to make significant investment in the
SIP terminals to make it a PC-equivalent. This
may entail substantial capital expenditure.
 Changes in Indian income taxes will increase our tax liability and
decrease any profits we might have in the future.
  Risks Related to the Internet Market in India
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The success of our business depends on the acceptance of the Internet
in India, which may be slowed or halted by high bandwidth costs and
other technical obstacles in India.
  The limited installed personal computer base in India limits our pool of
potential customers and restricts the amount of revenues that our Internet
access services division may generate.
 iway iway iway
 The high cost of accessing the Internet in India limits our pool of potential
customers and restricts the amount of revenues that our Internet access
services division might generate.
  The success of our business depends on the acceptance and growth of electronic
commerce in India, which is uncertain, and, to a large extent, beyond our
control.
  
    
    inconsistent quality of service;
    
    the need to deal with multiple and frequently incompatible vendors;
    
    inadequate legal infrastructure relating to electronic commerce in India;
    
    a lack of security of commercial data, such as credit card numbers; and
    
    low number of Indian companies accepting credit card numbers over the Internet.
  Risks Related to the Internet
 We may be liable to third parties for information retrieved from the Internet.
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The success of our strategy depends on our ability to keep pace with technological changes.
  Our business may not be compatible with delivery methods of Internet access services developed in the future.
  Our service offerings may not be compatible with industry standards developed in the future.
  
 Item 4 . Information on the Company
 History and Development
   www.sify.com
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Online Online Online Online
 iways iways
   Initial Public Offering and Subsequent Financing Transactions
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Investment Strategy
  Sify Networks Private Limited (formerly E Alcatraz Consulting Private Limited)
  Business Overview
  
    
    Corporate Network/Data Services. We offer a suite of technology and
network-based services that provide our corporate customers with comprehensive
Internet and private network access. Our services enable our corporate customers to
offer a full range of business-to-business and electronic commerce related services.
    
    Internet Access Services. We offer dial-up Internet access, e-mail and web page
hosting to consumers in India through convenient online registration and
user-friendly software. In addition, we offer public Internet access to consumers
through a retail chain of iwaycybercafés. We also have tie-ups with certain cable
television operators through which we offer Internet access through cable. As of
March 31, 2006, we had approximately 890,000 retail Internet access subscribers.
    
    Online Portal Services. We operate online portals, such as
www.sify.com, www.samachar.com and www.sifymax.in, that function as
principal entry points and gateway for accessing the Internet by providing useful
web-related services and links. We also offer related content sites specifically
tailored to Indian interests worldwide.
    
    Other.We facilitate web based learning for various organizations by
digitizing and uploading content to facilitate the same .
 www.sify.com www.sifymax.in www.samachar.com Sify.com
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Industry Overview
 Development of the Internet
 Special Communications Needs of Businesses
 The Opportunity in India
    Sify Business Model
  
    
    End-to-end network solutions for business customers.We provide our business
customers with a comprehensive range of Internet, connectivity, security and
consulting, hosting and managed service solutions complemented by a broad base of
web-based business applications. Our corporate services range from dial-up and
dedicated Internet access, virtual private networks, security, web implementation,
electronic commerce solutions and web hosting. Our end-to-end solutions enable our
corporate customers to address their networking and data communication needs
efficiently without having to assemble products and services from different
value-added resellers, Internet service providers and information technology firms.
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
    
    National private Internet protocol network backbone and Wireless delivery on the
last mile. We operate a large national Internet protocol data network in India. As
of March 31, 2006, we owned and operated 171 points of presence serving more than 250
cities across India, which we believe represents an estimated 95% of the installed
personal computer base in India. Our network provides the platform for the national
delivery of Internet access to consumers as well as the backbone for our full range of
corporate network/data services. A significant portion of our last mile delivery for
corporates, and almost the entire iWay cybercafe network
and hispeed / broadband delivery to homes, is on the wireless mode, thereby enabling
us to implement and deliver superior services compared to the wireline medium.
    
    Internet content and electronic commerce websites customized for the Indian market.
We view the Indian market as a series of specific market segments with unique
cultural and topical interests, rather than an extension of a homogeneous, worldwide
Internet market. We have assembled a team of India-based employees familiar with the
local culture, language and business environments in our markets to develop Internet
content and electronic commerce websites tailored for the Indian market. We regularly
incorporate new and original third-party content suited to our local and regional
audiences to enhance our customers online experience and to attract new users both
within India and abroad. As a result of our local market knowledge, we have been able
to increase traffic flow to our websites and to create brand awareness for our
SifyOnlineaccess service.
    
    Managed Infrastructure services and Managed Security Services. We have customer
engagements in all aspects of infrastructure services, networks security and hosting,
with digital certificates based authentication service. We have extensive experience
in providing information assurance and compliance certification, following frameworks
such as COSO/COBIT and standards such as BS7799 and SAS 70. Our managed infrastructure
and security services leverages on our rich experience and skill sets to provide
constant value to our customers  namely better service levels and reduced costs. We
constantly look at ways to efficiently manage customer assets remotely thus providing
focused superior service at lower cost.
 Strategy
  
    
    Invest in the continued enhancement and expansion of our network infrastructure to
support customer growth, enter new markets and accommodate increased customer usage.
We intend to continue to increase the capacity and geographic reach of our network in
order to support subscriber growth, enter new markets and accommodate increased
customer usage. We are committed to using proven technologies and equipment and to
providing superior network performance. We have deployed asynchronous transfer mode,
or ATM, switches on nine points of presence along our network. The rest of our
network is based on Internet Protocol, or IP, and we are the first Indian service
provider to have made our network Multi Protocol Label Switching (MPLS) compliant. We
plan to procure international bandwidth by leasing capacity of multiple oceanic
systems. As of March 31, 2006, we had leased one
STM  1 from UNSL landing at Mumbai and two Chennai on
the Tata Indicom cable, in addition to an STM  1 on
the FLAG cable, landing at Mumbai from Reliance. We have also leased multiple links from Bharti on the i2i cable,We have also
leased intercity links from multiple suppliers including BSNL, Bharti, Reliance and
Power Grid corporation, in such a way that each one of our nodes are accessible from
at least two other nodes, if not by two long distance operators. We believe that as
the size and capacity of our network infrastructure grows, its large scale and
national coverage will create economies of scale.
    
    Increase penetration in our existing markets by expanding awareness of the Sify
brand name to capitalize on our first mover advantage in India.We intend to
capitalize on our first-to-market advantage in India to establish national service and
a brand name in advance of other private competitors. As of March 31, 2006, we had
approximately 890,000 retail Internet subscribers and 3,307 cybercafés, of which 34
were owned and 3,273 were franchised. Approximately 99% of these iwaysare on
broadband, which provides the user with significantly faster access speeds. Our
marketing strategy includes print, television and radio advertising, direct mailing
campaigns targeting personal computer owners and operating cybercafés. We are also
actively promoting our broadband services to homes through cable television operators.
As of March 31, 2006, we had tie-ups with more than 1,500 cable television operators
across 91 cities. We believe that increased focus on delivery of broadband services by
the Government of India, availability of broadband content, reduced cost of personal
computers and increased purchasing capacity of the middle class in India will drive
this business forward in the future.
    
    Expand our services with new technologies to enable our customers to use the
Internet more effectively.We continually seek to expand the breadth of our service
offerings with new technologies. Our cybercafés prominently display the Sify and
SifyOnlinebrands and offer a full range of our Internet connectivity services. We
also introduced a number of other services, including VoIP in April 2002, video
conferencing, e-mail designed for regional Indian dialects, a user customized portal
site and micro-payments.
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
    
    Provide more value added services by leveraging on the rapid growth of wireless
Internet and mobile services in India and strengthen our Internet portal with more
content tailored to Indian interests worldwide.Our portals www.sify.comand
www.samachar.com, function as initial gateways to the Internet, the users starting
point for web browsing and other Internet services, for our consumer Internet service
provider subscribers and cybercafé users. Our portals are media rich, user friendly,
interactive websites offering hyperlinks to a wide variety of websites and services,
including our own websites. Our websites cater to a
variety of Indian interests within and outside of India. To achieve our goal of
developing the premier Internet portal focused on the Indian market, we intend to
continue to expand and improve the quality of www.sify.com, and are developing
additional content oriented towards topical and cultural interests of Indians
worldwide.During the course of 2004-05, we also developed a broadband channel, Sify Max,
that provides audio visual content to Sify subscribers. We also created a short code
4545 for downloading ringtones and sending SMS to tap the growing mobile user market.
To expand our short code product offering, we are also forming business alliances with
copyright owners and mobile service providers. In addition, we are forming strategic
alliances with several offline media partners to deliver content to our users. As the
availability of Internet access expands in India, we believe that increasing numbers of
Internet users will be attracted to our high quality websites and online content
designed specifically for the Indian consumer. We will seek to attract advertisers,
electronic commerce merchants and third-party content providers trying to reach our
users in order to generate additional revenues for sify.com.
    
    Expand our customer distribution channels through strategic alliances to take
advantage of the sales and marketing capabilities of our strategic partners.We
intend to continue to expand our customer acquisition channels, for both our consumer
Internet access and corporate network/data services. We have arrangements with leading
personal computer manufacturers to bundle our SifyOnlineInternet access service with
the sale of their personal computers in India.
    
    Pursue selective strategic investments, alliances and acquisitions to expand our
customer base, increase utilization of our network and add new technologies to our
service mix.We believe that our growth can be supplemented by selective acquisitions
of complementary businesses. We may seek to expand our market presence in our
corporate network business through the acquisition of web hosting, data center, web
implementation and/or systems integration companies serving India, the United States
or other markets. We will also consider acquisitions of Internet service providers
that have a significant or growing customer base in our current or targeted markets.
    
    Expand into international markets for providing managed network services.Our
network and application level support can be provided remotely with a minimum of
on-site presence. We are seeking to provide these services to international markets.
The tools utilized to provide these services were developed in-house on Linux/open
source platforms, and we plan to upgrade these tools in the future to meet customer
requirements. We expect our expertise in network management, to enable us to perform
these services to international customers at lower costs. We also intend to provide
managed security solutions, including monitoring and vulnerability assessment, in
addition to managed firewall and intrusion detection services.
    
    Superior end-user performance and customer support.We provide a high level of
customer service, network performance and technical support to maximize customer
satisfaction. A significant number of our employees are engaged in our customer
service or technical support departments, which operate 24-hours-a-day,
seven-days-a-week. Our network engineers continually monitor network traffic and
congestion points to deliver consistent, high quality network performance. Our
backend processes are ISO 9001:2000 compliant for network operations, data center
operations and customer care. Our strategy of providing superior network performance
and customer service is designed to result in significant customer growth from
referrals and industry recognition.
 Service Offerings
 Corporate network/data services.
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
    
    SiteConnect, which offers site-to-site managed MPLS-enabled IPVPN
solutions, ideal for securely connecting regional and large branch
offices within India to the corporate Intranet.
    
    GlobalSiteConnect which is an international site-to-site managed
MPLS-enabled IPVPN solution, ideal for securely connecting
international branch offices to the corporate Intranet. It
provides connectivity anywhere in the world through Sifys
alliances and partnerships with global overseas service providers
such as Global Crossing (GC), Asia Net Com (ANC), and BtNA to name
a few.
    
    ExpressConnect, which offers a premium range of high-performance
Internet bandwidth solutions for connecting regional
offices, branch offices and remote locations to the corporate
network. These solutions complement our SiteConnectrange
of MPLS enabled IPVPN solutions, provide high-speed bandwidth in
those situations where basic connectivity and cost are the top
concerns
    
    RoamConnect is our national and international remote access VPN,
ideal for securely connecting employees, while they are traveling,
to the corporate intranet; features single number access to
SifyNet from anywhere in the country and provides access from
anywhere in the world through Sifys alliances with overseas
service providers such as MCI, GRIC, IPASS and Fiberlink.
    
    PartnerConnect is our remote access VPN offering, for
providing secure and restricted dial-up access to business
partners such as dealers, distributors and suppliers to the
corporate extranet.
   Application Services iway
 Security
and Assurance Services.
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Data Centers
 Digital Certification
 Remote
Management Services
  Internet access services
 iway
 Public Internet Access. iway iway iways
 iways iway
 
    
    conducting a market survey and deciding on the best location for the cybercafé;
    
    installing the broadband receiver equipment on the roof of the cybercafé and linking it to one of our broadcasting
towers;
    
    obtaining the regulatory approvals for wireless transmission at the allotted frequency range;
    
    installing the wiring from the receiver unit to the individual personal computers;
    
    assistance in obtaining facilities, including computers and furnishings; and
    
    providing an operations manual with instructions and guidelines for running the cybercafé.
 iway iways iways iways iways
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Voice Over Internet Protocol iways iways
 Broadband/high-speed Internet Access
  Dial-up access.
   Online
Portal Services
 www.sifymax.in www.sify.com www.samachar.com www.sifmax.in sify.com Online iway
  www.walletwatch.com
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www.samachar.com
    Strategic Vendor Partnerships
  Corporate Customers
  Customer Service and Technical Support
  Sales and Marketing
 Corporate Offerings
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Consumer Offerings
 iway
 Technology and Network Infrastructure
  Geographic Coverage
 Network Architecture
   Network Operations Center
 Competition
 General
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Corporate Network/Data Services
 Internet Access Services
 iways
 Online
Portal Services
   
    
    larger production and technical staff;
    
    greater name recognition and larger marketing budgets and resources; and
    
    substantially greater financial, technical and other resources.
  Intellectual Property
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Government Regulation
    
    
    make recommendations on (i) the need and timing for the introduction of new service
providers, (ii) the terms and conditions of licenses granted to service providers,
(iii) the revocation of licenses for non-compliance, (iv) measures to facilitate
competition and promote efficiency in the operation of telecommunications services so
as to facilitate growth in such services, (v) technological improvements in the
services provided by service providers, (vi) the type of equipment to be used by
service providers, (vii) measures for the development of telecommunications technology
and the telecommunications industry and (viii) the efficient management of the
available spectrum;
    
    discharge the following functions: (i) ensure compliance of the terms and
conditions of licenses, (ii) fix the terms and conditions of interconnectivity between
service providers, (iii) ensure technical compatibility and effective interconnection
between service providers, (iv) regulate revenue sharing arrangements between service
providers, (v) establish standards of quality of service, (vi) establish time periods
for providing local and long distance telecommunications circuits between service
providers, (vii) maintain and keep for public inspection a register of interconnect
agreements and (viii) ensure effective compliance of universal service obligations;
    
    levy fees and other charges at such rates and in respect of such services as may be
determined by regulation; and
    
    perform such other functions as may be entrusted to it by the Government of India
or as may be necessary to carry out the provisions of the Telecom Regulatory Authority
of India Act.
  
    
    to call on service providers to furnish information relating to their operations;
    
    to appoint persons to make official inquiries;
    
    to inspect the books of service providers; and
    
    to issue directives to service providers to ensure their proper functioning.
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Seasonality
  Organization Structure
  Property, Plant and Equipment
  
 Item 4A. Unresolved Staff Comments
 None.
 
 Item 5. Operating and Financial Review and Prospects
 Investors are cautioned that this discussion contains forward-looking statements that involve
risks and uncertainties. When used in this discussion, the words believe, estimate, intend,
will and expect and other similar expressions as they relate to our company or its business are
intended to identify such forward-looking statements. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. Actual results, performance or achievements could differ materially from those expressed
or implied in such forward-looking statements. Factors that could cause or contribute to such
differences include those described under the heading Risk Factors in this report. Readers are
cautioned not to place undue reliance on these forward-looking statements that speak only as of
their dates. The following discussion and analysis should be read in conjunction with our financial
statements included herein and the notes thereto.
 Overview
  Operating Results
  
    
    corporate network/data services, which include private network services,
messaging services, security services, remote management services and web hosting
for businesses;
    
    Internet access services;
    
    online portal services and content offerings; and
    
    other services, such as development of content for e-learning.
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Revenues
 Corporate network/data services
  Internet access services
  Online
portal services and content offerings
 www.sifymall.com
 Other services
   Expenses
 Cost of revenues
 Corporate network/data services
  Internet access services
 iways
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Online
portal services and content offerings
  Selling, general and administrative expenses
  Depreciation
and amortization
 Goodwill and Other Intangible Assets
 Amortization
of deferred stock compensation expense
  pro rata
 Results of Operations
 Year ended March 31, 2006 compared to year ended March 31, 2005
 Revenues
   36




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iways
   Cost of Revenues
 Selling, general and administrative expenses
 Provision for doubtful receivables and advances.
 Depreciation.
 Amortization of intangible assets.
 Amortization of deferred stock compensation expenses.
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Foreign exchange (gain)/loss.
 Other income (net)
 Equity in profit of affiliates.
 Net Loss
 Year ended March 31, 2005 compared to year ended March 31, 2004
 Revenues
  iways
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Cost of Revenues
 Selling, general and administrative expenses
 Provision for doubtful receivables and advances.
 Depreciation.
 Amortization of intangible assets.
 Amortization of deferred stock compensation expenses.
 Equity in profit of affiliates. Accounting For Sales Of Stock By A
Subsidiary (SAB 51)
 Foreign exchange (gain)/loss.
 Other income (net)
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Net Loss
 Liquidity and Capital Resources
    Fiscal year ended, and as of March 31,2004
    
    2005
    
    2006
    
    2006Indian Rupees
    
    U.S. Dollars(in thousands)Net loss
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Net decrease (increase) in working capital
    
    
    57,288
    
    
    
    198,707
    
    
    
    (128,119
    )
    
    
    (2,880
    )Other adjustments for non-cash items
    
    
    587,981
    
    
    
    559,821
    
    
    
    500,478
    
    
    
    11,251Net cash provided by (used in) operating activities
    
    
    273,985
    
    
    
    450,952
    
    
    
    223,114
    
    
    
    5,016Net cash provided by (used in) investing activities
    
    
    11,327
    
    
    
    (523,504
    )
    
    
    (429,138
    )
    
    
    (9,648
    )Net cash provided by (used in) financing activities
    
    
    189,958
    
    
    
    69,182
    
    
    
    1,684,055
    
    
    
    37,861Effect of exchange rate changes on cash and cash equivalents
    
    
    (47,063
    )
    
    
    1,479
    
    
    
    20,558
    
    
    
    463Net increase (decrease) in cash and cash equivalents
    
    
    428,207
    
    
    
    (1,891
    )
    
    
    1,498,589
    
    
    
    33,692
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Payments Due by Period
    
    Rs.MillionMoreContractual
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    than 5Obligations
    
    Total
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsCapital Lease Obligations
    
    
    5.6
    
    
    
    2.9
    
    
    
    2.7
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    5.6
    
    
    
    2.9
    
    
    
    2.7
    
    
    
    
    
    
    
    
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Amount of Commitment Expiration Per Period
    
    Rs.millionTotal Amounts
    
    Less than 1
    
    
    
    
    
    
    
    
    
    Over 5Other Commercial Commitments
    
    Committed
    
    year
    
    1-3 years
    
    4-5 years
    
    yearsStandby Letters of Credit
    
    
    247.9
    
    
    
    247.9
    
    
    
    
    
    
    
    
    
    
    
    Guarantees
    
    
    174.7
    
    
    
    24.5
    
    
    
    148.7
    
    
    
    1.5
    
    
    
    Other Commercial Commitments
    
    
    162.3
    
    
    
    162.3
    
    
    
    
    
    
    
    
    
    
    
    Total Commercial Commitments
    
    
    584.9
    
    
    
    434.7
    
    
    
    148.7
    
    
    
    1.5
    
    
    
    
  SFAS No. 123(R)
 Share Based Payment
 SFAS No. 154
 Accounting Changes and Error Corrections
 Critical Accounting Policies
  Revenue recognition
 Revenue
Arrangements with Multiple Deliverables
 
    
    the revenue recognition criteria applicable to the unit of accounting is met;
    
    the delivered element has value to the customer on a standalone basis (the
delivered unit will have value on a standalone basis if it is being sold
separately by other vendors or the customer could resell the deliverable on a
standalone basis);
    
    there is objective and reliable evidence of the fair value of the undelivered
item(s); and
    
    if the arrangement includes a general right of return relative to the delivered
item, delivery or performance of the undelivered item(s) is considered probable
and substantially in our control.
  43




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##### Table of Contents



Corporate network/data services
    Internet access services
  Accounting
for Franchisee Fee Revenue
 44




---



##### Table of Contents



Online portal services
  Other services
 Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
 Impairment of long-lived assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 Deferred stock compensation
 Accounting for Stock Issued to Employees Accounting for Certain Transactions involving Stock
Compensation Accounting for Stock-Based Compensation , Accounting for Stock-Based Compensation  Transition and Disclosure
 Accounting estimates
   45




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 Board of Directors and Senior Management Executives
  Name
    
    Age
    
    DesignationR. Ramaraj
    
    56
    
    Chief Executive Officer and Managing DirectorDurgesh Mehta
    
    53
    
    Chief Financial OfficerShrikant Joshi
    
    49
    
    President - Access MediaRahul Swarup
    
    46
    
    President, Enterprise SolutionsRustom Irani
    
    43
    
    Chief Technology OfficerAjit Abraham
    
    46
    
    Chief Human Resources OfficerSurya Mantha
    
    43
    
    Senior Vice President - Interactive ServicesRaju Vegesna (4)
    
    46
    
    Chairman of the Board of DirectorsC.B.Mouli (1)
    
    59
    
    Director & Financial Expert of Audit CommitteeS.K.Rao (1) (2) (3)
    
    62
    
    Director & Chairman of Audit CommitteeT.H. Chowdary (2) (3)
    
    73
    
    Director & Chairman of Compensation & Nomination CommitteesR.D.Thulasiraj (1) (2) (3)
    
    54
    
    DirectorP.S.Raju (4)
    
    52
    
    Director
 
 (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Compensation Committee.(3)
    
    Member of the Nominating Committee.(4)
    
    Appointed as Directors and Mr. Vegesna as Chairman pursuant
to Subscription Agreement dated November 10, 2005 between Sify and Infinity
Capital Ventures, LP.       46




---



##### Table of Contents



.
  .
  Director Compensation
  47




---



##### Table of Contents



Officer Compensation
  Summary Compensation Table(Rs. Million)StockName
    
    Salary
    
    Bonus
    
    CompensationR. Ramaraj
    
    
    7.50
    
    
    Nil
    
    
    
    3.45Shrikant Joshi
    
    
    5.10
    
    
    
    1.35
    
    
    
    0.48Rahul Swarup
    
    
    4.75
    
    
    
    2.15
    
    
    
    0.51J. Avinash
    
    
    2.24
    
    
    Nil
    
    
    
    0.03Rustom Irani
    
    
    4.58
    
    
    
    1.9
    
    
    
    0.45Ajit Abraham
    
    
    4.33
    
    
    
    1.85
    
    
    
    0.45Part of the yearAnil Ahuja
    
    
    4.17
    
    
    Nil
    
    
    
    (0.28
    )George Zacharias
    
    
    5.42
    
    
    
    1.5
    
    
    
    (0.02
    )John Devasahayam
    
    
    2.53
    
    
    Nil
    
    
    
    (0.002
    )Surya Mantha
    
    
    3.03
    
    
    Nil
    
    
    
    0.24Durgesh Mehta
    
    
    2.39
    
    
    Nil
    
    
    
    0.70
  Equity Shares UnderlyingName
    
    Option Grant
    
    Exercise Price (Rs.)
    
    Expiration DateR. Ramaraj
    
    
    450,000
    *
    
    
    238.32
    
    
    February 24, 2009Durgesh Mehta
    
    
    100,000
    
    
    
    481.74
    
    

May 9, 2009Shrikant Joshi
    
    
    55,000
    
    
    
    238.32
    
    
    February 24, 2009Rahul Swarup
    
    
    55,000
    
    
    
    238.32
    
    
    February 24, 2009Rustom Irani
    
    
    50,000
    
    
    
    238.32
    
    
    February 24, 2009Ajit Abraham
    
    
    50,000
    
    
    
    238.32
    
    
    February 24, 2009Surya Mantha
    
    
    35,000
    
    
    
    238.32
    
    
    February 24, 2009C. B. Mouli
    
    
    5,000
    
    
    
    238.32
    
    
    February 24, 2009S. K. Rao
    
    
    5,000
    
    
    
    238.32
    
    
    February 24, 2009T. H. Chowdary
    
    
    5,000
    
    
    
    238.32
    
    
    February 24, 2009R. D. Thulasiraj
    
    
    5,000
    
    
    
    238.32
    
    
    February 24, 2009
 
 *
    
    In addition to the above, Mr Ramaraj holds another 50 equity shares and hence effectively holds
450,050 equity shares on the total share capital of the company.  Name
    
    No. of shares
    
    Exercise PriceRs.1. R. Ramaraj
    
    
    
    
    
    
    2. George Zacharias
    
    
    78,125
    
    
    
    163.43. Anil Ahuja
    
    
    20,313
    
    
    
    228.744. Rahul Swarup
    
    
    16,000
    
    
    
    163.45. Ajit Abraham
    
    
    15,000
    
    
    
    163.46. Shrikant Joshi
    
    
    12,550
    
    
    
    140.357. J. Avinash
    
    
    7,813
    
    
    
    163.48. Rustom Irani
    
    
    16,000
    
    
    
    163.49. John Devasahayam
    
    
    10,416
    
    
    
    163.4
   48




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##### Table of Contents



Board Composition
  
    
    at least two-thirds of our directors shall be subject to re-election by our
shareholders; and
    
    at least one-third of our directors who are subject to re-election shall be up for
re-election at each annual meeting of our shareholders.
     Board Committees
    49




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##### Table of Contents



Employees
  Stock Ownership
  Equity SharesBeneficially OwnedBeneficial Owner
    
    Number
    
    PercentR. Ramaraj
    
    
    50
    
    
    
    0 -Raju Vegesna
    
    
    17,902,860
    
    
    
    42.23T. H. Chowdary
    
    
    
    
    
    
    C B Mouli
    
    
    
    
    
    
    P S Raju
    
    
    
    
    
    
    S K Rao
    
    
    
    
    
    
    R D Thulasiraj
    
    
    
    
    
    
    Durgesh Mehta
    
    
    
    
    
    
    Rahul Swarup
    
    
    
    
    
    
    Rustom Irani
    
    
    
    
    
    
    Ajit Abraham
    
    
    
    
    
    
    Surya Mantha
    
    
    
    
    
    
    
 Employee Stock Option Plan
    
 Item 7. Major Shareholders and Related Party Transactions
 Principal Shareholders
  50




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##### Table of Contents



Equity SharesBeneficially ownedBeneficial Owner
    
    Number
    
    PercentInfinity
Capital Ventures, LP, 11601
Wilshire Boulevard, Suite 1900, Los
Angeles, CA 90025
    
    
    17,902,860
    
    
    
    42.23
 Details of significant change in the percentage ownership held by the major shareholders:
 Name of the shareholder
    
    2003-04
    
    2004-05
    
    2005-06No. of shares
    
    %
    
    No. of shares
    
    %
    
    No. of shares
    
    %Satyam Computer Services Ltd.
    
    
    11,182,600
    
    
    
    32.0
    
    
    
    11,182,600
    
    
    
    31.61
    
    
    
    
    
    
    
    Venture Tech Solutions Pvt. Ltd.
    
    
    3,533,326
    
    
    
    10.1
    
    
    
    2,750,000
    
    
    
    7.77
    
    
    
    
    
    
    
    SAIF Investment Company Ltd.
    
    
    2,808,140
    
    
    
    8.0
    
    
    
    2,008,140
    
    
    
    5.68
    
    
    
    
    
    
    
    Infinity Capital Ventures, LP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,902,860
    
    
    
    42.23
  United States Shareholders
  Host country Shareholders
  Control of Registrant
   
    
    altering our Articles of Association;
    
    issuing additional shares of capital stock, except for pro rataissuances to existing shareholders;
    
    commencing any new line of business; and
    
    commencing a liquidation.
 51




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##### Table of Contents



Related Party Transactions
     
 Item 8 . Financial Information
 Financial Statements
  Legal Proceedings
 In re Satyam Infoway Ltd.
  Dividends
  52




---



##### Table of Contents



Item 9 . The Offer and Listing
 Trading Markets
  Price History
  Prior Fiscal Years
 High
    
    LowFiscal year ended
    
    $
    
    $March 31, 2002
    
    
    
    17.60
    
    
    
    2.88March 31, 2003
    
    
    
    6.44
    
    
    
    0.88March 31, 2004
    
    
    
    9.25
    
    
    
    3.75March 31, 2005
    
    
    
    8.62
    
    
    
    3.82March 31, 2006
    
    
    
    14.58
    
    
    
    3.81
 Quarters of Prior Fiscal Years
 High
    
    LowFiscal year ended March 31, 2005
    
    $
    
    $First Quarter
    
    
    
    8.62
    
    
    
    5.61Second Quarter
    
    
    
    6.23
    
    
    
    3.82Third Quarter
    
    
    
    7.13
    
    
    
    5.48Fourth Quarter
    
    
    
    6.10
    
    
    
    4.34
 High
    
    LowFiscal year ended March 31, 2006
    
    $
    
    $First Quarter
    
    
    
    5.78
    
    
    
    3.81Second Quarter
    
    
    
    5.95
    
    
    
    4.35Third Quarter
    
    
    
    11.85
    
    
    
    4.75Fourth Quarter
    
    
    
    14.58
    
    
    
    8.77
 Prior Six months
 Price rangeHigh
    
    LowMonth
    
    $
    
    $December 2005
    
    
    
    11.85
    
    
    
    7.22January 2006
    
    
    
    12.35
    
    
    
    8.77February 2006
    
    
    
    14.50
    
    
    
    10.02March 2006
    
    
    
    13.97
    
    
    
    12.08April 2006
    
    
    
    14.99
    
    
    
    10.75May 2006
    
    
    
    13.20
    
    
    
    9.50
  53




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##### Table of Contents



Item 10. Additional Information
          Memorandum and Articles of Association
   
    
    developing, servicing and selling or leasing data through direct or electronic
media, developing a wide area of communications network and providing value-added
services on the network for the development, service, purchase or sale of computers,
software and related products in order to provide marketing services; and
    
    designing and developing systems and application software for sale in and outside
of India, and designing and developing systems and applications software for or on
behalf of manufacturers, owners and users of computer systems and digital or
electronic equipment.
 54




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##### Table of Contents



Board of Directors
  (a)
    
    no director of the company can vote on a proposal, arrangement or
contract in which he is materially interested;(b)
    
    the directors of the company can not vote on a proposal in the
absence of an independent quorum for compensation to themselves or their body;(c)
    
    each of our directors is entitled to receive a sitting fee not
exceeding Rs.20,000 for every meeting of the Board of Directors and
each meeting of a Committee
of the Board of Directors, as well as all traveling and out-of-pocket expenses
incurred in attending such meetings;(d)
    
    the directors are empowered to borrow moneys through board meetings
up to the prescribed limit and beyond that with the approval of the shareholders
through a General Meeting;(e)
    
    retirement of directors are determined by rotation and not based on
age limit; and(f)
    
    no director is required to hold any qualification shares.
 For additional information, please see Item 6. Director, Senior Management and Employees 
Board Composition, -Board Committees and -Director Compensation, and -Officer Compensation.
 Dividends
   
 
 
 55




---



##### Table of Contents



For additional information, please see Item 8. Financial InformationDividends.
 Voting Rights
    Bonus Shares
  Preemptive Rights and Issue of Additional Shares
  Annual General Meetings of Shareholders
  56




---



##### Table of Contents



nd
  2006 Annual General Meeting
 nd
 Limitations on the Rights to Own Securities
  Register of Shareholders; Record Dates; Transfer of Shares
     Audit and Annual Report
 www.sifycorp.com
 57




---



##### Table of Contents



Company Acquisition of Equity Shares
  Liquidation Rights
  Redemption of Equity Shares
  Material Contracts
 You should read the following description of our material contracts in conjunction with the
descriptions of our acquisitions and investments and our relationships with strategic partners as
described under Item 4.Information on the Company.
 Internet Service Provider License.
    58




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##### Table of Contents



Sponsored ADR Program
   Subscription Agreement
  Standstill
Agreement
  Shareholders Agreement
  Exchange Controls
 General
  59




---



##### Table of Contents



ADR Guidelines
       Foreign Direct Investment
  
    
    foreign investment in industries that require an industrial license;
    
    foreign investment being more than 24% in the equity capital of manufacturing items
reserved for small scale industries;
 60




---



##### Table of Contents




    
    all proposals in which the foreign collaboration has a previous venture/tie-up in
India in the relevant sector;
    
    all proposals relating to acquisition of shares in an existing company by a foreign investor;
    
    all proposals for investment in the industries specified by the Government of India; and
    
    all proposals for investment in specified industries where the proposed investment
is in excess of the sectoral caps specified therein.
      Investment by Non-Resident Indians and Overseas Corporate Bodies
    Investment by Foreign Institutional Investors
  61




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##### Table of Contents



Ownership Restrictions
     62




---



##### Table of Contents



Voting Rights of Deposited Equity Shares Represented by ADSs
      Taxation
 Indian Taxation
 General
  Residence
 
    
    a period or periods amounting to 182 days or more; or
    
    60 days or more and, in case of a citizen of India or a person of Indian origin,
who, being outside India, comes on a visit to India, is in India for 182 days or more
effective April 1, 1995 and in each case within the four preceding years has been in India
for a period or periods amounting to 365 days or more.
   63




---



##### Table of Contents



Taxation of Distributions
 Taxation of Capital Gains
    Buy-back of Securities
 Stamp Duty and Transfer Tax
 64




---



##### Table of Contents



Wealth Tax
 Gift Tax and Estate Duty
 Service Tax
 Income Tax Matters
   United States Federal Taxation
 i.e.,
  Ownership of ADSs
 Dividends
 65




---



##### Table of Contents



Sale or Exchange of equity shares or ADSs
 Estate Taxes
 Passive Foreign Investment Company
 
    
    75% or more of its gross income for the taxable year is passive income; or
    
    on a quarterly average for the taxable year by value (or, if it is not a publicly
traded corporation and so elects, by adjusted basis) 50% or more of its assets produce or
are held for the production of passive income.
  
    
    pay an interest charge together with tax calculated at maximum ordinary income
rates on excess distributions, which is defined to include gain on a sale or other
disposition of equity shares;
    
    if a qualified electing fund election is made, include in their taxable income
their pro rata share of undistributed amounts of our income; or
    
    if the equity shares are marketable and a mark-to-market election is made,
mark-to-market the equity shares each taxable year and recognize ordinary gain and, to the
extent of prior ordinary gain, ordinary loss for the increase or decrease in market value
for such taxable year.
 Backup Withholding Tax and Information Reporting Requirements
  66




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##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 12. Description of Securities Other Than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and procedures
 Evaluation of disclosure controls and procedures
  67




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##### Table of Contents



Managements annual report on internal control over financial reporting
  Changes in internal controls
  
 Item 16A. Audit Committee financial expert
  
 Item 16B. Code of Ethics
 www.sifycorp.com
 
 Item 16C. Principal Accountant Fees and Services
  Type of Service
    
    Fiscal year endedmarch 31, 2005
    
    march 31, 2006(a) Audit Fees
    
    Rs.7.4 million
    
    Rs.7.8 million(b) Audit Related Fees
    
    Nil
    
    Nil(c) Tax Fees
    
    Nil
    
    Nil(d) All Other Fees
    
    Nil
    
    Nil
   
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
 68




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    .
  /s/
KPMGKPMGIndia  69




---



##### Table of Contents



SIFY LIMITED and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and as otherwise stated)
 As at March 31,
    
    
    As at March 31,2005
    
    
    2006
    
    
    2006Rs.
    
    
    Rs.
    
    
    $ASSETSCurrent assets:Cash and cash equivalents
    
    Rs.  1,323,912
        
    Rs.  2,822,501
        
    $
    63,456Cash restricted
    
    
    24,904
    
    
    
    
    
    
    
    Accounts receivable
    
    
    615,286
    
    
    
    838,433
    
    
    
    18,850Due from employees
    
    
    2,063
    
    
    
    23,818
    
    
    
    535Due from related parties
    
    
    33,524
    
    
    
    
    
    
    
    Inventories
    
    
    29,194
    
    
    
    30,462
    
    
    
    685Prepaid expenses
    
    
    87,162
    
    
    
    91,158
    
    
    
    2,049Net
investment in sales-type leases, current portion
    
    
    9,430
    
    
    
    10,776
    
    
    
    242Other current assets
    
    
    140,285
    
    
    
    212,696
    
    
    
    4,782Total current assets
    
    
    2,265,760
    
    
    
    4,029,844
    
    
    
    90,599Cash restricted
    
    
    7,336
    
    
    
    1,000
    
    
    
    22Net
investment in sales-type leases
    
    
    19,735
    
    
    
    10,842
    
    
    
    244Property, plant and equipment-net
    
    
    1,233,628
    
    
    
    1,423,246
    
    
    
    31,997Goodwill and other intangible assets
    
    
    208,725
    
    
    
    62,436
    
    
    
    1,404Investments in affiliated companies
    
    
    192,357
    
    
    
    233,060
    
    
    
    5,240Other assets
    
    
    93,241
    
    
    
    191,343
    
    
    
    4,302Total assets
    
    Rs.  4,020,782
        
    Rs.  5,951,771
        
    $
    133,808LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current installments of capital lease obligations
    
    
    6,089
    
    
    
    2,759
    
    
    
    62Trade accounts payable
    
    
    454,466
    
    
    
    440,841
    
    
    
    9,911Accrued liabilities
    
    
    393,727
    
    
    
    584,264
    
    
    
    13,136Deferred revenue
    
    
    409,244
    
    
    
    444,333
    
    
    
    9,990Due to employees
    
    
    2,326
    
    
    
    1,300
    
    
    
    29Advances from customers
    
    
    69,429
    
    
    
    112,512
    
    
    
    2,529Other current liabilities
    
    
    117,876
    
    
    
    74,174
    
    
    
    1,668Total current liabilities
    
    
    1,453,157
    
    
    
    1,660,183
    
    
    
    37,325Capital lease obligations, excluding current installments
    
    
    3,814
    
    
    
    2,546
    
    
    
    57Other liabilities
    
    
    63,627
    
    
    
    234,533
    
    
    
    5,273Total liabilities
    
    
    1,520,598
    
    
    
    1,897,262
    
    
    
    42,655Minority interest
    
    
    1,595
    
    
    
    
    
    
    
    Shareholders equityCommon stock, Rs 10 par value; 50,000,000 equity shares
authorized (2005  37,500,000); Issued
and outstanding: 42,389,514 shares as of March
31,2006 and 35,380,278
shares as of March 31, 2005
    
    
    353,803
    
    
    
    423,895
    
    
    
    9,530Additional paid-in capital
    
    
    14,564,831
    
    
    
    16,238,413
    
    
    
    365,073Deferred compensation  employee stock offer plan
    
    
    (3,416
    )
    
    
    (41,925
    )
    
    
    (944
    )Accumulated deficit
    
    
    (12,416,624
    )
    
    
    (12,565,874
    )
    
    
    (282,506
    )Total shareholders equity
    
    
    2,498,589
    
    
    
    4,054,509
    
    
    
    91,153Total liabilities and shareholders equity
    
    Rs.  4,020,782
        
    Rs.  5,951,771
        
    $
    133,808
  70




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##### Table of Contents



SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data and as otherwise stated)
 Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    $RevenueProducts
    
    Rs.  238,226
        
    Rs.  402,391
        
    Rs.  343,712
        
    $
    7,727Services
    
    
    2,513,397
    
    
    
    3,151,846
    
    
    
    4,262,697
    
    
    
    95,834Rs.  2,751,623
        
    Rs.  3,554,237
        
    Rs.  4,606,409
        
    $
    103,561Revenue from related partiesProducts
    
    
    6,175
    
    
    
    8,532
    
    
    
    43,879
    
    
    
    986Services
    
    
    43,386
    
    
    
    50,688
    
    
    
    31,519
    
    
    
    70949,561
    
    
    
    59,220
    
    
    
    75,398
    
    
    
    1,695Total Revenue
    
    
    2,801,184
    
    
    
    3,613,457
    
    
    
    4,681,807
    
    
    
    105,256Cost of revenueProducts
    
    
    213,957
    
    
    
    357,753
    
    
    
    324,411
    
    
    
    7,293Services
    
    
    1,262,757
    
    
    
    1,666,189
    
    
    
    2,210,312
    
    
    
    49,6921,476,714
    
    
    
    2,023,942
    
    
    
    2,534,723
    
    
    
    56,985Selling, general and administrative expenses
    
    
    1,208,884
    
    
    
    1,418,757
    
    
    
    1,852,296
    
    
    
    41,643Provision for doubtful receivables and advances
    
    
    76,487
    
    
    
    57,579
    
    
    
    90,670
    
    
    
    2,038Impairment of assets
    
    
    22,551
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    432,684
    
    
    
    472,400
    
    
    
    395,018
    
    
    
    8,881Amortisation of intangible assets
    
    
    99,350
    
    
    
    84,387
    
    
    
    68,759
    
    
    
    1,546Amortisation of deferred stock compensation expense
    
    
    27,946
    
    
    
    10,639
    
    
    
    12,749
    
    
    
    287Foreign exchange (gain) / loss
    
    
    52,148
    
    
    
    (2,595
    )
    
    
    (23,221
    )
    
    
    (522
    )Total operating expenses
    
    
    3,396,764
    
    
    
    4,065,109
    
    
    
    4,930,994
    
    
    
    110,858Operating loss
    
    
    (595,580
    )
    
    
    (451,652
    )
    
    
    (249,187
    )
    
    
    (5,602
    )Other income, net
    
    
    144,147
    
    
    
    93,324
    
    
    
    59,239
    
    
    
    1,332Loss before taxes and equity in profits of affiliates
    
    
    (451,433
    )
    
    
    (358,328
    )
    
    
    (189,948
    )
    
    
    (4,270
    )Equity in profit of affiliate
    
    
    17,083
    
    
    
    50,752
    
    
    
    40,703
    
    
    
    915Gain on sale of investment in affiliates
    
    
    63,059
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    Loss before income taxes
    
    
    (371,212
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    (3,355
    )Income taxes
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    Rs.(371,284
    )    
    Rs.(307,576
    )    
    Rs.(149,245
    )
    
    $
    (3,355
    )Net loss
per equity share (basic and diluted)
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    (0.09
    )Basic and diluted weighted average equity shares
used in computing loss per equity share
    
    
    34,519,545
    
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    36,811,476
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SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share data and as stated otherwise)
 DeferredAccumulated
    
    
    Compensation -Common Stock
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    EmployeeShares
    
    
    Par Value
    
    
    Paid InCapital
    
    
    ComprehensiveIncome
    
    
    ComprehensiveIncome
    
    
    Stock Offer Plan
    
    
    AccumulatedDeficit
    
    
    Total StockholdersNos.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    EquityBalance as of March 31, 2003
    
    
    32,795,200
    
    
    
    327,952
    
    
    
    14,326,742
    
    
    
    
    
    
    
    (3,390
    )
    
    
    (24,839
    )
    
    
    (11,737,769
    )
    
    
    2,888,696Issue of common stock
    
    
    2,105,793
    
    
    
    21,058
    
    
    
    145,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,920Compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    21,497
    
    
    
    
    
    
    
    
    
    
    
    (21,497
    )
    
    
    
    
    
    
    Amortization of compensation related to
stock option grants
    
    
    
    
    
    
    
    
    
    
    (4,064
    )
    
    
    
    
    
    
    
    
    
    
    32,010
    
    
    
    
    
    
    
    27,946Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371,284
    )
    
    
    
    
    
    
    
    
    
    
    (371,284
    )
    
    
    (371,284
    )Other comprehensive incomeUnrealized loss on investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,129
    
    
    
    2,129
    
    
    
    
    
    
    
    
    
    
    
    2,129Foreign exchange translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,261
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    1,261Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (367,894
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of March 31, 2004
    
    
    34,900,993
    
    
    
    349,010
    
    
    
    14,490,037
    
    
    
    
    
    
    
    
    
    
    
    (14,326
    )
    
    
    (12,109,053
    )
    
    
    2,715,668Issue of common stock
    
    
    479,285
    
    
    
    4,793
    
    
    
    73,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,761Compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    2,287
    
    
    
    
    
    
    
    
    
    
    
    (2,287
    )
    
    
    
    
    
    
    Amortization of compensation related to
stock option grants
    
    
    
    
    
    
    
    
    
    
    (2,558
    )
    
    
    
    
    
    
    
    
    
    
    13,197
    
    
    
    
    
    
    
    10,639SAB 51 gain
    
    
    
    
    
    
    
    
    
    
    1,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307,576
    )
    
    
    
    
    
    
    
    
    
    
    (307,576
    )
    
    
    (307,576
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307,576
    )Balance as of March 31, 2005
    
    
    35,380,278
    
    
    
    353,803
    
    
    
    14,564,831
    
    
    
    
    
    
    
    
    
    
    
    (3,416
    )
    
    
    (12,416,629
    )
    
    
    2,498,589Issue of common stock
    
    
    7,009,236
    
    
    
    70,092
    
    
    
    1,622,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,692,416Compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    55,143
    
    
    
    
    
    
    
    
    
    
    
    (55,143
    )
    
    
    
    
    
    
    Amortization of compensation related to
stock option grants
    
    
    
    
    
    
    
    
    
    
    (3,885
    )
    
    
    
    
    
    
    
    
    
    
    16,634
    
    
    
    
    
    
    
    12,749Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,245
    )
    
    
    
    
    
    
    
    
    
    
    (149,245
    )
    
    
    (149,245
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,245
    )Balance as of March 31, 2006
    
    
    42,389,514
    
    
    
    423,895
    
    
    
    16,238,413
    
    
    
    
    
    
    
    
    
    
    
    (41,925
    )
    
    
    (12,565,874
    )
    
    
    4,054,509Balance
as of March 31, 2006 (in US$)
    
    
    42,389,514
    
    
    
    9,530
    
    
    
    365,073
    
    
    
    
    
    
    
    
    
    
    
    (944
    )
    
    
    (282,506
    )
    
    
    91,153
 See accompanying notes to
consolidated financial statements.


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SIFY LIMITED and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands, except share data and as otherwise stated)
 Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    $Cash Flows from operating activities:Net loss
    
    Rs.
    (371,284
    )
    
    Rs.
    (307,576
    )
    
    Rs.
    (149,245
    )
    
    $
    (3,355
    )Adjustments to reconcile net loss to net cash provided by operating
activities:Depreciation, impairment and amortization of intangible assets and
deferred stock compensation
    
    
    582,531
    
    
    
    567,426
    
    
    
    471,711
    
    
    
    10,608Equity in profit of affiliate
    
    
    (17,083
    )
    
    
    (50,752
    )
    
    
    (40,703
    )
    
    
    (915
    )Gain on sale of investment
    
    
    (98,948
    )
    
    
    (15,710
    )
    
    
    
    
    
    
    Gain on sale of investment in affiliates
    
    
    (63,059
    )
    
    
    
    
    
    
    
    
    
    
    Loss / (gain) on sale of property, plant and equipment
    
    
    (1,990
    )
    
    
    2,757
    
    
    
    1,662
    
    
    
    37Provision for doubtful receivables and advances
    
    
    76,487
    
    
    
    57,579
    
    
    
    90,670
    
    
    
    2,038Minority interest
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    Unrealized (gain) / loss on account of exchange differences
    
    
    
    
    
    
    )
    
    
    
    (709
    )
    
    
    (16
    )Translation (gain) / loss on cash and cash equivalents
    
    
    47,063
    
    
    
    (1,479
    )
    
    
    (20,558
    )
    
    
    (462
    )Gain on disposal of subsidiary
    
    
    
    
    
    
    
    
    
    
    (1,595
    )
    
    
    (36
    )Changes in assets and liabilities:Accounts receivable
    
    
    (223,074
    )
    
    
    (178,885
    )
    
    
    (279,853
    )
    
    
    (6,292
    )Due from employees
    
    
    4,870
    
    
    
    4,250
    
    
    
    (23,952
    )
    
    
    (537
    )Due from related parties
    
    
    2,986
    
    
    
    (20,494
    )
    
    
    
    
    
    
    Inventories
    
    
    22,894
    
    
    
    (8,435
    )
    
    
    (1,268
    )
    
    
    (29
    )Prepaid expenses
    
    
    17,828
    
    
    
    19,795
    
    
    
    (3,996
    )
    
    
    (90
    )Other assets
    
    
    43,034
    
    
    
    (26,246
    )
    
    
    (69,335
    )
    
    
    (1,559
    )Net investment in sales-type leases
    
    
    
    
    
    
    (29,165
    )
    
    
    7,547
    
    
    
    170Trade accounts payable and accrued liabilities
    
    
    120,621
    
    
    
    310,643
    
    
    
    177,185
    
    
    
    3,983Deferred revenue
    
    
    52,656
    
    
    
    67,291
    
    
    
    35,089
    
    
    
    789Advances from customers
    
    
    57,499
    
    
    
    (14,241
    )
    
    
    43,070
    
    
    
    968Other liabilities
    
    
    (42,026
    )
    
    
    74,194
    
    
    
    (12,606
    )
    
    
    (283
    )Net cash provided by operating activities
    
    Rs.
    210,926
    
    
    Rs.
    450,952
    
    
    Rs.
    223,114
    
    
    $
    5,016Cash flows from investing activities:Expenditure on property, plant and equipment
    
    
    (342,584
    )
    
    
    (533,197
    )
    
    
    (587,455
    )
    
    
    (13,207
    )Proceeds from sale of property, plant and equipment
    
    
    12,955
    
    
    
    15,200
    
    
    
    4,922
    
    
    
    111Expenditure on intangible assets
    
    
    (2,331
    )
    
    
    (100,000
    )
    
    
    (17,655
    )
    
    
    (397
    )Proceeds from sale of investment in affiliates
    
    
    56,737
    
    
    
    
    
    
    
    
    
    
    
    Expenditure on acquisition of minority interest
    
    
    (940
    )
    
    
    
    
    
    
    
    
    
    
    Net movement in cash  restricted
    
    
    62,889
    
    
    
    79,493
    
    
    
    31,240
    
    
    
    702Purchase consideration for acquisition, net of cash acquired
    
    
    (32,755
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of investments
    
    
    320,415
    
    
    
    15,000
    
    
    
    
    
    
    
    Advances towards sale of investments
    
    
    
    
    
    
    
    
    
    
    139,810
    
    
    
    3,143Net cash provided by / (used in) investing activities
    
    Rs.
    74,386
    
    
    Rs.
    (523,504
    )
    
    Rs.
    (429,138
    )
    
    $
    (9,648
    )Cash flows from financing activities:Acquisition related debt
    
    
    30,355
    
    
    
    
    
    
    
    
    
    
    
    Principal payments under capital lease obligations
    
    
    (7,317
    )
    
    
    (9,579
    )
    
    
    (8,361
    )
    
    
    (188
    )Net proceeds from issuance of common stock
    
    
    166,920
    
    
    
    78,761
    
    
    
    1,692,416
    
    
    
    38,049Net cash provided by financing activities
    
    Rs.
    189,958
    
    
    Rs.
    69,182
    
    
    Rs.
    1,684,055
    
    
    $
    37,861Effect of exchange rate changes on cash and cash equivalents
    
    
    (47,063
    )
    
    
    1,479
    
    
    
    20,558
    
    
    
    462Net increase / (decrease) in cash and cash equivalents
    
    
    428,207
    
    
    
    (1,891
    )
    
    
    1,498,589
    
    
    
    33,692Cash and cash equivalents at the beginning of the year
    
    
    897,596
    
    
    
    1,325,803
    
    
    
    1,323,912
    
    
    
    29,764Cash and cash equivalents at the end of the year
    
    Rs.
    1,325,803
    
    
    Rs.
    1,323,912
    
    
    Rs.
    2,822,501
    
    
    $
    63,456Supplementary InformationCash paid towards interest
    
    
    2,126
    
    
    
    832
    
    
    
    11,090
    
    
    
    249Cash paid / (refund received) towards income taxes
    
    
    (29,468
    )
    
    
    12,698
    
    
    
    (11,643
    )
    
    
    (262
    )Additions to property, plant and equipment represented by
capital lease obligations
    
    
    9,737
    
    
    
    7,272
    
    
    
    3,637
    
    
    
    82Reversal of minority interest pursuant to disposal of subsidiary.
    
    
    
    
    
    
    
    
    
    
    1,595
    
    
    
    
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SIFY LIMITED and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data and as as stated otherwise)
 1.
    
    Description of businessSify Limited (Sify) together with its subsidiaries (the Company) and its affiliates is
engaged in providing various services, such as Corporate Network and Data Services, Internet
Access Services, Online Portal and Content Offerings and selling products related to such
services.2.
    
    Summary of significant accounting policiesBasis of preparation of financials statementsThe accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) in Indian Rupees (Rs.), the
national currency of India. Solely for the convenience of the reader, the financial
statements as of and for the year ended March 31, 2006 have been translated into United
States dollars at the noon buying rate in New York City on March 31, 2006 for cable
transfers in Indian rupees, as certified for customs purposes by the Federal Reserve Bank of
New York of U.S. $1 = Rs.44.48. No representation is made that the Indian rupee amounts have
been, could have been or could be converted into United States dollars at such a rate or at
any other rate on March 31, 2006 or at any other date.Use of estimatesIn conformity with U.S. GAAP, management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the
disclosure of contingent assets and liabilities to prepare these consolidated financial
statements. Some of the more significant estimates include allowances for doubtful accounts,
depreciation and amortization of long-lived assets and the valuation allowance for deferred
tax assets. Actual results could differ from those estimates.Principles of consolidationThe consolidated financial statements of Sify include financial statements of its
majority-owned subsidiaries, which are more than 50% owned and where Sify is able to
exercise control over the operating and financial policies of the investees. All
inter-company accounts and transactions are eliminated on consolidation.Investments in affiliatesThe Company accounts for investments between 20% and 50% or where it would be otherwise able
to exercise significant influence over the operating and financial policies of the investees
under the equity method. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets(SFAS No. 142), the excess of cost of
the stock of those affiliates over the Companys share of their net assets at the
acquisition date is recognized as goodwill, which is tested for impairment periodically and
diminuition in value, if any, is provided for through a charge in the statement of
operations. In accordance with Accounting Principles Board (APB)
Opinion No. 18, The Equity Method of Accounting for Investments
in Common Stock, the Company recognizes a loss when there is a loss in value in the equity
method investment, which is other than a temporary decline.Cash and cash equivalentsCash and cash equivalents currently consist of cash and cash on deposit with banks,
which are unrestricted as to its use.Revenue recognitionThe operating segments of the Company are:
 
    
    Corporate network/data services, which provides Internet,connectivity,security and
consulting,hosting and managed service solutions;
    
    Internet access services, from homes and through cybercafes;
    
    Online portal services and content offerings; and
    
    Other services, such as development of e-learning software.
 74




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##### Table of Contents



Corporate network/data services
 Revenue
Arrangements with Multiple Deliverables ,
    Internet access services
   iway iway
 75




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##### Table of Contents



Internet access at homes and businesses through cable networks is provided through a
franchised network of cable operators in India. Customers buy user accounts for a
specified usage or volume of data transfer or for a specified period of time all within a
contracted period. Revenues is recognized on actual usage by customer (where access is for a
specified quantum of usage) or based on time (where access is for a specified period of
time). Any unused hours at the end of the contracted period are recognized as revenue.In the case of franchised cybercafé operators, the Company enters into an agreement
with the franchisee that establishes the rights and obligations of each party and grants
each franchisee a non-exclusive license to operate the cybercafés using the Companys logo,
brand and trade names. The cybercafés are owned and operated by the franchisees. The
franchisee procures the retail space, invests in furniture, interior decor, personal
computers and point of sale signage and employs and trains the franchisee staff. The
franchisee is responsible for the maintenance of the premises and interface with customers.
The Company provides the complete backend support, including bandwidth, the
authentication/usage engine and the billing and collection system.In the case of franchised cable network operators and franchised cybercafé operators,
the Company enters into a standard arrangement with franchisees that provides for the
payment of an initial non-refundable franchisee fee in consideration for establishing the
franchisee relationship and providing certain initial services. The fee covers the following
upfront services rendered by the Company:o
    
    conducting a market survey and deciding on the best location for the cybercafé or
cable head end;o
    
    installing the broadband receiver equipment on the roof top of the cybercafé or the
cable head end and connecting it to one of Sifys broadcasting towers;o
    
    obtaining the regulatory approvals for clearance of the site for wireless transmission
at the allotted frequency range;o
    
    installing the wiring from the receiver unit to the individual personal computers in
the cybercafé or the transmitting equipment in the cable head end;o
    
    assisting in obtaining facilities, including computers and interiors for the
cybercafés; ando
    
    providing the operations manual with instructions and guidelines for running the
cybercafé or distributing Internet access through cable network.The initial franchisee fee revenue is recognized at the time of commencement of operations
by the franchisee, in accordance with SFAS 45, Accounting for Franchisee Fee Revenue.
Internet access revenue and VoIP revenues are recognized based on usage by the customerAs of March 31, 2006, Sify owned 34 of the 3,307 cybercafés.The amount of initial franchise fee revenue recognized during the years ended March
31, 2004, March 31, 2005 and March 31, 2006 were Rs.102,130, Rs.107,960 and Rs.104,085, respectively.Online portal servicesThe Company enters into contracts with customers to serve advertisements in the portal and
the Company is paid on the basis of impressions, click-throughs or leads and in each case
the revenue is recognized based on actual impressions/click-throughs/leads delivered. There
are no performance obligations or minimum guarantees. Revenues from commissions earned on
electronic commerce transactions are recognized when the transactions
are completed. Revenues
from value-added services that are rendered using Sifys mobile telephone short code, 4545
are recognized upon delivery of the content/ring tones to the end subscriber and
confirmation by the mobile phone service provider.Other servicesThe Company provides e-learning software development services to facilitate web-based
learning in various organizations. These customized services vary in size from customer to
customer and relate to computer based and web based training in accordance with the customer
specification. These services include information presentation, structured, content
delivery, content digitization and simulation based training. These services are generally
provided on a fixed price basis. The Company believes that the deliverables provided by the
Company to its customers in connection with e-learning software development services are of
the same nature as the services provided in an arrangement to deliver software that entail
significant production, modification or customization of software. The Companys fixed price
contracts to provide these services are also similar to contracts for services performed by
architects, engineers or architectural engineering design forms as stated in paragraph 13
of SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Accordingly, the Company recognizes revenue based on the percentage of completion
method from fixed price contracts relating to e-learning software development services.Cost of revenuesCost of revenues represents direct operating expenses incurred in earning the revenues
consisting of bandwidth cost, salaries, and other direct expenses but excludes depreciation
and amortization.
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Inventories
  Sales-type
leases
  Property, plant and equipment
  Buildings
    
    28 yearsPlant and machinery
    
    5 yearsComputer equipment
    
    5 yearsOffice equipment
    
    5 yearsFurniture and fixtures
    
    5 yearsVehicles
    
    5 years
   Goodwill and intangible assets
 Accounting for Impairment or Disposal
of Long-Lived Assets
  Foreign currency translations
  Foreign currency transactions
  Earnings per share
 Earnings per Share
 77




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##### Table of Contents



Income taxes
  Retirement benefits to employees
 Provident fund
  Gratuity
 Employers Accounting for Pensions.
 Stock-based compensation
 Accounting for Stock Issued to Employees Accounting for Certain Transactions
involving Stock Compensation an interpretation of APB Opinion No. 25 Accounting for
Stock-Based Compensation  Transition and Disclosure.
  Year ended March 31,2004
    
    
    2005
    
    
    2006Net Loss  As reported
    
    Rs.
    (371,284
    )
    

    Rs.
    (307,576
    )
    
    Rs.
    (149,245
    )Add: Stock based compensation
expense included in reported
net loss
    
    
    27,946
    
    
    
    10,639
    
    
    
    12,749Less: Total stock based
employee compensation expense
determined under fair value
based method for all awards
    
    
    65,461
    
    
    
    55,025
    
    
    
    66,538Pro forma net loss
    
    
    (408,799
    )
    
    
    (351,962
    )
    
    
    (203,034
    )Loss Per Share:Basic and Diluted  as reported
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )Basic and Diluted  pro forma
    
    
    (11.84
    )
    
    
    (10.01
    )
    
    
    (5.52
    )
 78




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##### Table of Contents







Year ended March 31,2004
    
    
    2005
    
    
    2006Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    131% to 157.3
    %
    

    103.4% to 116.6
    %
    

    58.13% to 116.6
    %Risk-free interest rate
    
    4.5% to 5.25
    %
    
    4.5% to 7.50
    %
    
    4.5% to 7.5%Expected term
    
    12-36 months
    
    
    12-36 months
    
    
    12-40 months


Impairment of long-lived assets and long-lived assets to be disposed of


Accounting for the Impairment or Disposal of Long-Lived
Assets


Gain
/ Loss on sale of investments




Fair value of financial instruments




Recent Accounting Pronouncements


SFAS No. 123(R)






79




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##### Table of Contents



ReclassificationsCertain prior-years amounts have been reclassified to conform to the current years
presentation.3.
    
    Change in Accounting EstimateDuring the year, the Company assessed the actual and expected  benefits from the use
of computers and servers as compared to previous estimates. Based on this assessment, the
Company revised the estimated life for these assets from 2 years to 5 years. In accordance
with Accounting Principles Board Opinion 20, Accounting Changes, the revisions to the
estimated life of these fixed assets are considered to be a change in the accounting
estimate and, accordingly, are accounted for during the current period. The change in
estimated life has resulted in a decrease in depreciation charge and net loss for the year
ended March 31, 2006 by Rs. 32,715. Consequently, the net loss per share for the year ended
March 31, 2006 is lower by Re.0.894.
    
    IP / VPN LicenseIn December 2004, the Government of India (GOI) issued guidelines on offering Virtual
Private Network(IP-VPN) services by Internet Service Providers (ISPs). As per the
guidelines, the Company paid Rs.100,000 as a one-time entry fee and submitted a financial
bank guarantee of Rs.10,000. In addition, the ISP licensees were required to pay an annual
fee of 8% of the adjusted gross revenues generated under the ISP license for IP-VPN
services. The Company amortized the one-time entry fee over a period of 15 years, up to
September 30, 2005 and provided for the annual fee up to December 31, 2005.On November 10, 2005, the GOI issued guidelines for obtaining National Long
Distance (NLD) and International Long Distance (ILD) licenses including the terms
and conditions for the licenses. These guidelines eliminated the
IP-VPN license entitling the Company to a full refund of the $100,000
entry fee, and
permitting existing IP-VPN license holders to migrate to the NLD and ILD
service licenses effective January 1, 2006. The Company has
applied for these licenses and discontinued amortization of the
IP-VPN licenses effective November 10, 2005. The Company has
accounted for the gain arising from the refund of the IP-VPN license
fee as an offset to the amortization charge recorded previously.As per the ILD and NLD license guidelines, the Company will
be required to pay Rs. 50,000 as an
entry fee for the ILD and NLD licenses when approval is obtained and submit a bank guarantee of Rs. 25,000 for the
ILD license and Rs. 20,000 for the NLD license. This
entry fee will be evenly amortized over the
license period of 20 years. In addition to the one time entry fee, the Company has to
pay an annual license fee of 6% on the Adjusted Gross Revenue
generated (AGR) as defined under
the ILD and NLD licenses for IP-VPN services effective January 1, 2006.
 80




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##### Table of Contents



5.
    
    Sale of 26% holding in Sify Communications LimitedThe new guidelines issued by the GOI for ILD/NLD licenses limit foreign direct
investment (FDI) for the telecom sector to 74% of the equity shares outstanding. As the
foreign shareholding in Sify is more than the threshold limit, Sify would
not be eligible for the NLD/ILD licenses. Accordingly, the Company determined to
provide the IP-VPN services through Sify Communications Limited (formerly Safescrypt
Limited), a subsidiary of Sify. On December 19, 2005 Sify infused Rs.700,000 as additional
equity in Sify Communication Limited to make positive the net worth of Sify Communications Limited. On December 20, 2005, the Company divested 26% of its
holding in Sify Communications Limited, or 4,680,000 shares, to M/s Infinity Satcom
Universal (P) Ltd for a sale consideration of Rs.139,810. This was a related party
transaction because Mr. Raju Vegesna, a member of the Companys Board of Directors, is the
brother of Mr Ananda Raju, the owner of Infinity Satcom Universal (P) Ltd. Sify
Communications Limited has applied for the ILD/NLD license to provide IP-VPN services.The Company would be transferring the IP VPN business from Sify Limited to Sify
Communications Limited on receipt of ILD / NLD license. Pending transfer of business the
Company has not recognized share of profit / loss incurred by Sify Communications Limited
attributable to the minority share holders and gain on sale of 26% holding. The amount
received against the sale proceeds has been disclosed under the other liabilities.
Further, Sify will carry on the IP-VPN business, until the business
is transferred to Sify Communications, Limited.6.
    
    Cash and cash equivalentsCash and cash equivalents as on March 31, 2006 amounted to Rs. 2,822,501 (Rs. 1,323,912 as
on March 31, 2005). This excludes cash-restricted included in current assets of Rs.Nil (Rs.
24,904 as on March 31, 2005) and cash-restricted included in non-current assets of Rs.1,000
(Rs. 7,336 as on March 31, 2005), representing deposits held under lien against bank
guarantees given by the Company towards future performance obligations and letters of credit
given to suppliers of the Company against purchase obligations.Cash Restricted  Current
 As at March 31,2005
    
    
    2006Against Letter of Credit
    
    Rs.12,409
    
    
    Against future performance obligation
    
    
    12,495
    
    
    
    Rs.24,904
    
    
    
 Cash Restricted  Non current
 As at March 31,2005
    
    
    2006Against future performance obligation
    
    Rs.7,336
    
    Rs.1,000Rs.7,336
    
    Rs.1,000
 The fair values of cash and cash equivalents approximate their carrying values.7.
    
    Accounts receivableAccounts receivable as of March 31, 2005 and 2006 are stated net of allowance for doubtful
receivables. The Company maintains an allowance for doubtful receivables based on its age and collectability. Accounts receivable are not collateralised except to the extent of refundable deposits
received from cybercafes franchisees and from cable television operators (CTO).Accounts receivables consist of:
 As at March 31,2005
    
    

    2006Rs.
    
    
    Rs.Due from customers
    
    
    724,663
    
    
    
    1,038,480Less: Allowance for doubtful debts
    
    
    109,377
    
    
    
    200,047Balance at the end of the year
    
    
    615,286
    
    
    
    838,433
 81




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##### Table of Contents



Years ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Balance at the beginning of the year
    
    
    165,879
    
    
    
    52,533
    
    
    
    109,377Add : Additional provision
    
    
    76,487
    
    
    
    57,579
    
    
    
    90,670Less : Bad debts written off
    
    
    189,833
    
    
    
    735
    
    
    
    Balance at the end of the year
    
    
    52,533
    
    
    
    109,377
    
    
    
    200,047
 8.
    
    InventoriesInventories consist of:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Communication hardware
    
    
    26,600
    
    
    
    18,454Application software
    
    
    1,696
    
    
    
    2,041Others
    
    
    898
    
    
    
    9,96729,194
    
    
    
    30,462
 9.
    
    Sales-Type LeasesThe Companys leasing arrangement consist of leasing various types of routers, modems and
other equipment for establishing virtual private networks and providing bandwidth to its
customers in its corporate connectivity business. The leases are classified as sales-type
leases and expire after a period of three years.The following lists the components of the net investment in sales-type leases:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Minimum lease payments receivable
    
    
    31,930
    
    
    
    22,987Less: Unearned income
    
    
    2,765
    
    
    
    1,339Net investment in sales-type leases
    
    
    29,165
    
    
    
    21,618
  For the year endingMarch 31,2007
    
    Rs.11,8052008
    
    
    10,8512009
    
    
    331Total
    
    
    22,987
 82




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##### Table of Contents



10.
    
    Other current assetsOther current assets consist of:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Vendor advances and deposits
    
    
    40,898
    
    
    
    98,008Advances for expenses
    
    
    26,040
    
    
    
    2,744Accrued income
    
    
    2,284
    
    
    
    29,284Accrued interest
    
    
    12,491
    
    
    
    35,731Tax deposits
    
    
    58,572
    
    
    
    46,929140,285
    
    
    
    212,696
 Tax deposits represent taxes deducted at source by the customer and paid to the Government
of India, which is refundable to the Company.11.
    
    Investments in affiliatesMan Financial-Sify Securities India Private Limited(Formerly Refco-Sify Securities India
Private Limited)Prior to the fiscal year ended March 31, 2004, the Company held 40% of the outstanding
equity share capital of Refco-Sify Securities India Private Limited (Refco-Sify). During the
year ended March 31, 2005, Refco-Sify completed a rights issue, in which the Company chose
not to participate. As a result, the Companys equity ownership in Refco-Sify was reduced
from 40% to 29.85%. In accordance with the Companys accounting policy, during the year
ended March 31, 2005 the Company accounted for a gain on dilution through shareholders
equity amounting to Rs.1,097. The
Company accounted its proportionate share of profit in accordance with its applicable equity
ownership in Refco-Sify.In October 2005, Refco Group US (Refco), the 70.15% shareholder of Refco-Sify Securities
India Private Limited (Refco-Sify), sought bankruptcy protection through a Chapter 11
filing at the New York Courts. Consequent to this, the businesses of Refco were under
auction process and the auction bid was won by M/s Man Financial Inc. (Man Financial). As
per the bid, Refco-Sify shares are to be held by Refco. In connection with the purchase of
Refco-Sify shares by Man Financial, Man Financial and the Company executed a Shareholders
Agreement on November 25, 2005 (the Shareholders Agreement), pursuant to which, the name
of Refco-Sify was changed to Man-Sify Securities India Private Limited (Man-Sify).The carrying value of the
investment in Man-Sify as of March 31, 2005 and 2006 was Rs. 192,357 and Rs. 233,060
respectively. Sifys equity in the profit of Man-Sify for the years ended March 31, 2005
and March 31, 2006 was Rs.50,752 and Rs. 40,703 respectively.The summarised unaudited financial information as to assets, liabilities and results of
operations of Man-Sify and its subsidiaries is presented below:Balance Sheet
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Current assets
    
    
    1,760,432
    
    
    
    3,431,296Non-current assets
    
    
    69,847
    
    
    
    82,656Total assets
    
    
    1,830,279
    
    
    
    3,513,952Current liabilities
    
    
    1,185,618
    
    
    
    2,733,183Other liabilities
    
    
    3,471
    
    
    
    Shareholders equity
    
    
    641,190
    
    
    
    780,769Total liabilities and Shareholders equity
    
    
    1,830,279
    
    
    
    3,415,952
 83




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##### Table of Contents



Statement of Operations
 For the year ended March 31,2005
    
    
    2006Rs.
    
    
    Rs.Revenues
    
    
    507,105
    
    
    
    806,198Net Profit
    
    
    99,785
    
    
    
    140,683
 Cricinfo Limited and Wisden Cricinfo LimitedDuring the year ended March 31, 2004, the Company sold its entire investments in Wisden
Cricinfo Limited and recognized a gain of Rs.63,059, representing the aggregate of the
difference between the proceeds received of Rs.61,218 and the net carrying value of the
investment of Rs.21,110 and the reversal of an allowance of
Rs.22,951 (relating to an
advance to Wisden Cricinfo that had been fully provided for). The Companys equity in the
losses of Wisden Cricinfo Limited for the year ended March 31, 2004 was Rs.21,632.12.
    
    Property, plant and equipmentProperty, plant and equipment consist of:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Land
    
    
    5,132
    
    
    
    5,132Building
    
    
    485,156
    
    
    
    485,156Leasehold improvements
    
    
    133,937
    
    
    
    162,139Plant and machinery
    
    
    2,433,759
    
    
    
    2,835,478Computer equipment
    
    
    194,266
    
    
    
    286,170Office equipment
    
    
    80,606
    
    
    
    95,104Furniture and fixtures
    
    
    127,690
    
    
    
    152,059Vehicles
    
    
    20,487
    
    
    
    14,214Construction-in-progress
    
    
    20,809
    
    
    
    19,3683,501,842
    
    
    
    4,054,820Accumulated depreciation
    
    
    (2,268,214
    )
    
    
    (2,631,574
    )1,223,628
    
    
    
    1,423,246
 84




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##### Table of Contents



13.
    
    Goodwill and other intangible assets, netGoodwill and other intangible assets consist of:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Goodwill
    
    
    14,596
    
    
    
    14,596Other Intangible assetsTechnical know-how
    
    
    85,633
    
    
    
    82,753Portals and web content
    
    
    100,360
    
    
    
    52,730Customer contracts and others
    
    
    56,084
    
    
    
    56,084Software
    
    
    204,464
    
    
    
    222,119IPVPN Licence fee
    
    
    100,000
    
    
    
    Total
    
    
    546,541
    
    
    
    413,686Less: Accumulated amortization and impairment
    
    
    352,412
    
    
    
    365,846Other Intangible assets, net
    
    
    194,129
    
    
    
    47,840Total
    
    
    208,725
    
    
    
    62,436
 Business Combinations Goodwill and Other Intangible Assets
  Acquired and amortized intangible assets
 As at March 31, 2006Weighted average life
    
    
    Gross carrying amount
    
    
    Accumulated amortizationTechnical know-how
    
    
    5.00
    
    
    Rs.82,753
        
    Rs.79,240Portals and web content
    
    
    4.91
    
    
    
    52,730
    
    
    
    50,065Customer contracts and
others
    
    
    4.04
    
    
    
    56,084
    
    
    
    39,119Systems Software
    
    
    2.90
    
    
    
    222,119
    
    
    
    197,422Rs. 413,686
        
    Rs. 365,846
  For the year endedMarch 31,2007
    
    Rs.29,6862008
    
    
    11,9732009
    
    
    6,181
 85




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##### Table of Contents



14.
    
    Other assetsOther assets consist of:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Deposits
    
    
    92,843
    
    
    
    89,768Staff advances recoverable
    
    
    398
    
    
    
    1,575Deposit with Department of Telecommunication towards License Fees
    
    
    
    
    
    
    100,00093,241
    
    
    
    191,343
  15.
    
    Deferred revenueDeferred revenue includes the amount of unearned income for the following segments:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Corporate network/data services
    
    
    234,496
    
    
    
    305,028Internet access services
    
    
    161,765
    
    
    
    133,613Online portal services
    
    
    1,073
    
    
    
    623Other services
    
    
    11,910
    
    
    
    5,069409,244
    
    
    
    444,333
 16.
    
    Capital lease obligationsThe gross amounts and related accumulated depreciation recorded for assets acquired under
capital leases are as follows:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Vehicles
    
    
    20,485
    
    
    
    14,212Less: Accumulated depreciation
    
    
    6,396
    
    
    
    8,16814,089
    
    
    
    6,044
  Due for the year ended March 31,
    
    Rs.2007
    
    
    2,9942008
    
    
    1,7752009
    
    
    903Total minimum lease payments
    
    
    5,672Less: Interest
    
    
    367Present value of net minimum capital leases payments
    
    
    5,305Less: Current installments of obligations under capital leases
    
    
    2,759Obligations under capital leases, excluding current installments
    
    
    2,546
 86




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##### Table of Contents



17.
    
    Accrued Liabilities and Other liabilitiesAccrued liabilities principally comprise of provisions for expenses amounting to Rs. 311,247
and Rs.507,006 as at March 31, 2005 and 2006, respectively. Other liabilities primarily
comprise of advances received towards net sale consideration of Rs.139,460 received during
the year on account of sale of 26% stake in Sify Communications Limited and deposits
received from sales partners amounting to Rs. 63,376 and Rs. 94,822 as at March 31, 2005
and 2006, respectively.18.
    
    Income taxThe provision for income taxes consists of:
 Year ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Current tax
    
    
    (72
    )
    
    
    
    
    
    
    Deferred tax
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    
  Year ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Net loss from operations before taxes
    
    
    (371,212
    )
    
    
    (307,576
    )
    
    
    (149,245
    )Enacted tax rates in India
    
    
    35.88
    %
    
    
    36.59
    %
    
    
    33.66
    %Computed expected tax benefit
    
    
    (133,191
    )
    
    
    (112,550
    )
    
    
    (50,236
    )Differences not deductible for tax purposes
    
    
    11,225
    
    
    
    15,357
    
    
    
    55,519Change in valuation allowance
    
    
    (152,719
    )
    
    
    142,777
    
    
    
    (165,488
    )Tax rate change of investment in affiliates
    
    
    201,170
    
    
    
    7,310
    
    
    
    15,652Others
    
    
    24,230
    
    
    
    (5,440
    )
    
    
    4,478Effect of tax rate change
    
    
    49,357
    
    
    
    (47,454
    )
    
    
    140,075Total income tax expense
    
    
    72
    
    
    
    
    
    
    
    
  87




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##### Table of Contents



Year endingMarch 31,
    
    Rs.2007
    
    
    101,2372008
    
    
    139,0022009
    
    
    119,9272010
    
    
    528,1582011
    
    
    616,0242012
    
    
    255,8152013 and thereafter
    
    
    356,121
  As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Deferred tax assets:Carry forward business loss
    
    
    1,637,693
    
    
    
    1,470,841Property, plant and equipment
    
    
    22,736
    
    
    
    35,447Accruals and expenses currently not allowed for tax purposes
    
    
    14,161
    
    
    
    Investment in affiliates
    
    
    343,985
    
    
    
    335,474Carry forward capital loss
    
    
    15,279
    
    
    
    31,169Provision for doubtful accounts receivables
    
    
    40,108
    
    
    
    30,416Total deferred tax assets
    
    
    2,073,962
    
    
    
    1,908,473Less: valuation allowance
    
    
    (2,073,962
    )
    
    
    (1,908,473
    )Net deferred tax assets
    
    
    
    
    
    
    
 19.
    
    Shareholders equityThe Company has only one class of capital stock referred to as equity shares. All references
in these financial statements to the number of shares and per share amounts of the Companys
equity shares have been retroactively restated to reflect stock splits made by the Company.The shareholders of the Company, in the annual general meeting held on October 25,
2005, approved an increase in authorized share capital of the Company from 37,500,000 Equity
Shares of Rs.10/- each to 38,100,000 Equity Shares of Rs.10/- each. Further, the
shareholders of the Company in an extraordinary general meeting held on December 23, 2005
approved the increase in the authorized share capital of the Company from 38,100,000 Equity
Shares of Rs.10/- each to 50,000,000 Equity Shares of Rs.10/-.20.
    
    Common stockVotingEach holder of equity shares is entitled to one vote per share. The equity shares
represented by American Depositary Shares (ADS) carry similar rights to voting and
dividends as the other equity shares. One ADS represents one underlying equity share.Share holding agreementSify, Satyam Computers Services Limited (Satyam), SAIF Investment Company Limited
(SAIF) and Venture Tech entered into a subscription agreement dated October 7, 2002 and
entered into an investor rights agreement dated October 7, 2002 reserving certain rights of
consultation and veto for SAIF Investment Company Limited and Venture Tech.
 88




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##### Table of Contents



Effective July 7, 2005 Sify entered into a Termination and Amendment Agreement with Satyam
Computer Services Limited , SAIF Investment Company Limited and Venture Tech Solutions
Private Limited ,pursuant to which SAIF irrevocably terminated all of its rights and
obligations pursuant to the Investor Rights Agreement.Effective July 21, 2005 Sify entered into a Termination and Amendment Agreement with Satyam
Computer Services Limited and Venture Tech Solutions Private Limited ,pursuant to which
Venture Tech irrevocably terminated all of its rights and obligations pursuant to the
Investor Rights Agreement.Effective September 20, 2005 Sify entered into a Termination and Amendment Agreement with
Satyam Computer Services Limited ,pursuant to which Satyam irrevocably terminated all of its
rights and obligations pursuant to the Investor Rights Agreement.On November 10, 2005, Infinity Capital Ventures, LP (Infinity Capital), a Delaware limited
partnership, acquired 11,182,600 Sify American Depositary Shares (ADSs) from Satyam
Computer Services Limited (Satyam) for US $5.60 per share
representing the market price of the share on such date. The total purchase price for
the Satyam shares was US $62,623. Upon this acquisition, the entire holding of Satyam in
Sify has been divested.On November 10, 2005, Sify and Infinity Capital entered into a Subscription Agreement
pursuant to which Infinity Capital agreed to purchase from Sify 6,720,260 newly-issued
equity shares (ADSs) at a price of US $5.60 per share. The total issue price for the newly
issued shares was Rs. 1,691,624 (equivalent of US $37,633). The closing of this transaction
occurred in January 2006.DividendsShould the Company declare and pay dividends, such dividends will be paid in Indian Rupees.
Indian law mandates that any dividend be declared out of distributable profits only after
the transfer of a specified percentage of net income computed in accordance with current
regulations to a general reserve. Moreover, the remittance of dividends outside India is
governed by Indian law on foreign exchange and is subject to applicable taxes.LiquidationIn the event of liquidation of the Company, the holders of common stock shall be entitled to
receive any of the remaining assets of the Company, after distribution of all preferential
amounts. The amounts will be in proportion to the number of equity shares held by the
shareholders.Stock OptionsThere are no voting, dividend or liquidation rights to the holders of warrants issued under
the Companys stock option plan.21.
    
    Other income, netOther income consists of:
 For the year ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Interest expense
    
    
    (2,126
    )
    
    
    (1,938
    )
    
    
    (11,090
    )Other finance charges
    
    
    (8,882
    )
    
    
    (11,281
    )
    
    
    (13,773
    )Interest income
    
    
    48,187
    
    
    
    52,759
    
    
    
    70,314Gain on sale of investments
    
    
    82,758
    
    
    
    15,710
    
    
    
    Others
    
    
    24,210
    
    
    
    38,074
    
    
    
    13,788Other (expense)/income, net
    
    
    144,147
    
    
    
    93,324
    
    
    
    59,239
 89




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22.
    
    Employee benefitGratuityThe following table sets out the funded status of the Gratuity Plan and the amounts
recognized in the Companys balance sheet.
 As of March 31,2005
    
    
    2006Rs.
    
    
    Rs.Accumulated benefit obligation
    
    
    10,600
    
    
    
    12,799Change in projected benefit obligationProjected benefit obligation at the beginning of the year
    
    
    16,093
    
    
    
    18,140Service cost
    
    
    5,688
    
    
    
    6,806Interest cost
    
    
    1,100
    
    
    
    1,392Actuarial (gain)/loss
    
    
    (4,057
    )
    
    
    (2,217
    )Benefits paid
    
    
    (684
    )
    
    
    (2,506
    )Projected benefit obligation at the end of the year
    
    
    18,140
    
    
    
    21,615Change in plan assetsFair value of plan assets at the beginning of the year
    
    
    4,436
    
    
    
    4,716Actual return on plan assets
    
    
    267
    
    
    
    (492
    )Employer contributions
    
    
    697
    
    
    
    Benefits paid
    
    
    (684
    )
    
    
    (2,506
    )Fair value of plan assets at the end of the year
    
    
    4,716
    
    
    
    1,718Funded status of the plans
    
    
    13,424
    
    
    
    19,897Unrecognized net actuarial gain/(loss)
    
    
    6,698
    
    
    
    7,395Accrued benefit cost
    
    
    20,122
    
    
    
    27,292
 As of March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.The components of net gratuity costs are reflected below:Service cost
    
    
    4,593
    
    
    
    5,688
    
    
    
    6,806Interest cost
    
    
    929
    
    
    
    1,100
    
    
    
    1,392Expected returns on plan assets
    
    
    (351
    )
    
    
    (543
    )
    
    
    (538
    )Recognized net actuarial (gain)/ loss
    
    
    (57
    )
    
    
    (130
    )
    
    
    (490
    )Net gratuity costs
    
    
    5,114
    
    
    
    6,115
    
    
    
    7,170Principal
weighted average actuarial assumptions:Discount rate
    
    
    7
    %
    
    
    8
    %
    
    
    8
    %Long-term rate of compensation increase
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %Rate of return on plan assets
    
    
    6
    %
    
    
    6
    %
    
    
    7.50
    %
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The Company assesses these assumptions with the projected long-term plans of growth and
prevalent industry standards. Unrecognised actuarial loss is amortised over the average
remaining service period of the active employees to receive benefits under the plans.The Company provides the gratuity benefit through annual contributions to a fund managed by
the Life Insurance Corporation of India (LIC). The Company estimates the long-term return on
plan assets at 7.5% based on the average long-term rate of return expected to prevail over
the next 15 to 20 years on the types of investments held with LIC. The Trustees administer
contributions made to the trust and contributions are invested in specific designated
instruments as permitted by
Indian law and investments are also made in mutual funds that invest in the specific
designated instruments. As of March 31, 2006, all of the plan assets are invested in debt
securities.The employers best estimate of contributions expected to be paid to the plan during the year
20062007 amounts to Rs.2,500. Further, the benefits expected to be paid in each of the next
five fiscal years, and in the aggregate for the five fiscal years thereafter are as follows:
 For the year endedMarch 31,2007
    
    Rs. 1,5842008
    
    
    1,9552009
    
    
    2,5272010
    
    
    3,8472011
    
    
    6,0752012 to 2016
    
    
    35,950
  The expected benefits are based on the same assumptions need to measure the Companys
benefit obligations as of March 31, 2006.23.
    
    Provident fundThe Company contributed Rs. 23,137, Rs. 28,242 and Rs.36,572 towards the provident fund
during the years ended March 31, 2004, 2005 and 2006 respectively.
 24.
    
    Related Party TransactionsThe Company has entered into transactions with the following related parties:
 
    
    Satyam Computer Services Limited (formerly the Companys parent company), where the
Company provided connectivity services and software development services for certain
e-learning projects until November 10, 2005;
    
    Affiliated companies; and
    
    Employees of the Company.
    
    Directors of the Company
 Given below is an analysis of transactions with Satyam Computer Services Limited:
 April 01,2005 toAs
at March 31,

    
    
    November2004
    
    
    2005
    
    
    10, 2005Rs.
    
    
    Rs.
    
    
    Rs.Due (to)/from Satyam Computer Services Limited at
beginning of the year
    
    
    16,016
    
    
    
    13,030
    
    
    
    33,524Allocation of facilities costs
    
    
    (4,408
    )
    
    
    (1,647
    )
    
    
    Capital expenses incurred on behalf of the Company
    
    
    (5,376
    )
    
    
    
    
    
    
    Billings to Satyam Computer Services Limited
    
    
    51,455
    
    
    
    48,713
    
    
    
    121,132Collections from Satyam Computer Services Limited
    
    
    (44,657
    )
    
    
    (36,005
    )
    
    
    (101,958
    )Payment to Satyam Computer Services Limited
    
    
    
    
    
    
    9,433
    
    
    
    Due (to)/from Satyam Computer Services Limited
    
    
    13,030
    
    
    
    33,524
    
    
    
    52,698
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The following is a summary of significant transactions with other related parties:
 Year ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Interest on loans
    
    
    1,411
    
    
    
    
    
    
    
    Sale of equity in Sify Communications Limited
    
    
    
    
    
    
    
    
    
    
    139,810
 Employee loansThe Company has the following amounts due with respect to employee loans:
 As at March 31,2005
    
    
    2006Rs.
    
    
    Rs.Due from employees
    
    
    2,461
    
    
    
    
    25,393
 The estimated fair value amounts of other employee loans were Rs.2,235 and Rs. 23,519 as of
March 31, 2005 and 2006, respectively. Considerable judgment is required to
develop the estimates of fair value. Thus, the estimates provided herein are not necessarily
indicative of the amounts the Company could realize in the market.Repayable in the year ending March 31:
 Fair value
    
    
    Gross value2007
    
    Rs. 22,156
    
    Rs.23,8182008
    
    
    1,363
    
    
    
    1,575
 25.
    
    Stock based compensation plansEmployee Stock Offer Plan 1999Under the Employee Stock Offer Plan, 1999, the Company
provided for the issuance of 825,000 warrants to eligible employees. The warrants were issued to an
employee welfare trust (the Trust) at Re.1 each on September 28, 1999. The Trust holds the
warrants and transfers them to eligible employees over a period of three years. The
warrants, which are to be transferred to eligible employees at Re. 1 each, entitles the
holder to purchase one equity share at an exercise price determined by the Compensation
Committee. The warrants and the equity shares received upon the exercise of warrants are
subject to progressive vesting over a three-year period from the date of issue of warrants
to employees. Deferred compensation is recorded in the event that the exercise price of the
warrant is determined to be less than the fair market value of the underlying shares on the
date of the grant. Deferred compensation is amortized over the vesting period of the
warrants. The warrants allotted and the underlying equity shares are not subject to any
repurchase obligations by the Company.The warrants are to be exercised within a period of one month from the date of the last
vesting.
 Weighted average exercise priceShares arising out of option
    
    
    
    
    
    
    (in Rupees)Year ended March 31,
    
    
    
    
    
    Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006Outstanding at beginning of the year
    
    
    2,700
    
    
    
    
    
    
    
    
    
    
    
    350.00
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    2,700
    
    
    
    
    
    
    
    
    
    
    
    350.00
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercisable at the end of the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair value of
grants during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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Associate Stock Option Plan 2000In fiscal 2000, the Company established the Associate Stock Option Plan 2000 (the ASOP 2000
Plan), which provides for the issuance of warrants to eligible employees. The warrants were
issued to an employee welfare trust on May 22, 2000. The Trust transfers these warrants to
the eligible employees at Re. 1 each and each warrant entitles the holder to purchase one
ADS at an exercise price determined by the Compensation committee.The warrants vest in a graded manner over a period of 3 years as follows:
 One sixth of the warrants:
    
    At the end of one year from the date of the grantTwo sixths of the warrants:
    
    At the end of two years from the date of the grantThree sixths of the warrants:
    
    At the end of three years from the date of the grant.
 The warrants are to be exercised within a period of one month from the date of the last
vesting.As the number of warrants that an individual employee is entitled to receive and the price
of the warrants are known at the grant date, the ASOP 2000 Plan is considered as a fixed
grant. Deferred compensation is recorded in the event that exercise price of the warrant is
determined to be less than the fair market value of the underlying shares on the date of the
grant. Deferred compensation is amortized over the vesting period of the warrants.The terms of 5,080 stock options with a weighted average exercise price of Rs.169.30 have
been modified. These options are accounted in accordance with EITF Issue 00-23, Issues
Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB
Interpretation No. 44, as a variable plan. The Company has not recorded any additional
compensation charge under variable accounting, as the exercise price has been higher than
the market price.Stock option activity under the ASOP 2000 Plan is as follows:
 Weighted average exercise priceShares arising out of option
    
    
    
    
    
    
    (in Rupees)Year ended March 31,
    
    
    
    

    
    Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006Outstanding at beginning of the year
    
    
    396,500
    
    
    
    151,500
    
    
    
    7,770
    
    
    
    1,385.88
    
    
    
    214.20
    
    
    
    105.91Granted
    
    
    8,520
    
    
    
    
    
    
    
    
    
    
    
    182.47
    
    
    
    Forfeited
    
    
    29,320
    
    
    
    10,391
    
    
    
    720
    
    
    
    386.23
    
    
    
    171.40
    
    
    
    165.91Expired
    
    
    153,290
    
    
    
    19,396
    
    
    
    1090
    
    
    
    3,265.89
    
    
    
    281.26
    
    
    
    107.11Exercised
    
    
    70,910
    
    
    
    113,943
    
    
    
    3920
    
    
    
    93.83
    
    
    
    167.36
    
    
    
    54.71Outstanding at the end of the year
    
    
    151,500
    
    
    
    7,770
    
    
    
    2040
    
    
    
    214.20
    
    
    
    105.91
    
    
    
    182.47Exercisable at the end of the year
    
    
    37,270
    
    
    
    990
    
    
    
    960
    
    
    
    224.01
    
    
    
    107.52
    
    
    
    182.47Weighted-average grant date fair
value of grants during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122.95
    
    
    
    
    
    
    
    
 Associate Stock Option Plan 2002In fiscal 2002, the Company established the Associate Stock Option Plan 2002 (the ASOP 2002
Plan), which provides for the issuance of warrants to eligible employees. On December 9,
2002, the Company issued warrants to the eligible employees at Re. 1 each and each warrant
entitles the holder to purchase one ADS at an exercise price determined by the Compensation
Committee.The warrants vest in a graded manner over a period of 3 years as follows:
 One sixth of the warrant quantity:
    
    At the end of one year from the date of the grantFive sixths of the warrant quantity:
    
    At the end of each quarter during the second and third year from the date of the grant in eight equal installments.
 The warrants are to be exercised within a period of one month from the date of the last
vesting.
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As the number of warrants that an individual employee is entitled to receive and the price
of the warrants are known at the grant date, the ASOP 2002 Plan is considered as a fixed
grant. Deferred compensation is recorded in the event that exercise price of the warrant is
determined to be less than the fair market value of the underlying shares on the date of the
grant. Deferred compensation is amortized over the vesting period of the warrants.Stock option activity under the ASOP 2002 Plan is as follows:
 Weighted average exercise priceShares arising out of option
    
    
    
    
    
    
    (in Rupees)Year ended March 31,
    
    
    
    
    

    Year ended March 31,2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006Outstanding at beginning of the year
    
    
    
    
    
    
    1,108,000
    
    
    
    757,473
    
    
    
    
    
    
    
    170.25
    
    
    
    178.35Granted
    
    
    1,128,060
    
    
    
    90,000
    
    
    
    
    
    
    
    170.13
    
    
    
    254.16
    
    
    
    Forfeited
    
    
    20,060
    
    
    
    69,458
    
    
    
    85,479
    
    
    
    163.69
    
    
    
    189.66
    
    
    
    214.74Expired
    
    
    
    
    
    
    5,727
    
    
    
    10,081
    
    
    
    
    
    
    
    281.26
    
    
    
    239.35Exercised
    
    
    
    
    
    
    365,342
    
    
    
    285,056
    
    
    
    
    
    
    
    163.39
    
    
    
    172.60Outstanding at the end of the year
    
    
    1,108,000
    
    
    
    757,473
    
    
    
    376,857
    
    
    
    170.25
    
    
    
    178.35
    
    
    
    172.83Exercisable at the end of the year
    
    
    
    
    
    
    131,589
    
    
    
    357,482
    
    
    
    
    
    
    
    174.61
    
    
    
    168.58Weighted-average grant date fair
value of grants during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79.79
    
    
    
    157.78
 Associate Stock Option Plan 2005In October 2005, the Company established the Associate Stock Option Plan 2005 (the ASOP 2005
Plan), which provides for the issuance of 1,900,000 ADRs/shares to eligible employees. The
Company cancelled any balance available for issue under previous plans.Accordingly,any
unissued options available under previous plans or any options surrendered or lapsed are
cancelled. During the period October 2005 to March 2006, the Company granted options to the
eligible employees at a weighted average exercise price of Rs 285.98 per option.The options vest in a graded manner over a period of 3 years as follows:
 One sixth of the option quantity:
    
    At the end of one year from the date of the grantFive sixths of the option quantity:
    
    At the end of each quarter during the second and third year from the date of the grant in eight equal installments.
 The options can be exercised only after they vest but before the expiry date of forty months
from the date of the grant.As the number of ADRs/shares that an individual employee is entitled to receive and the
price of the option are known at the grant date, the ASOP 2005 Plan is considered as a
fixed grant. Deferred compensation is recorded in the event that exercise price of the
option is determined to be less than the fair market value of the underlying shares on the
date of the grant. Deferred compensation is amortized over the vesting period of the
options.Stock option activity under the ASOP 2005 Plan is as follows:
 Shares arising out of option

    
    
    Weighted average exercise price(in Rupees)Year ended March 31, 2006
    
    
    Year ended March 31, 2006Outstanding at beginning of the year
    
    
    
    
    
    
    Granted
    
    
    1,735,400
    
    
    
    285.98Forfeited
    
    
    59,000
    
    
    
    279.57Expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding at the end of the year
    
    
    1,676,400
    
    
    
    286.20Exercisable at the end of the year
    
    
    
    
    
    
    Weighted-average grant date fair
value of grants during the year
    
    
    
    
    
    
    126.37
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The following table summarizes information about fixed price options outstanding at March
31, 2006:
 Number
    
    
    
    
    
    
    Weighted
    
    
    Number
    
    
    Weightedoutstanding at
    
    
    Weighted
    
    
    average
    
    
    exercisable at
    
    
    averageRange of
    
    
    March 31,
    
    
    average
    
    
    remaining
    
    
    March 31,
    
    
    exerciseexercise price
    
    
    2006
    
    
    exercise price
    
    
    contractual life
    
    
    2006
    
    
    priceASOP 2000
    
    Rs. 163-265
        
    
    2,040
    
    
    Rs.182.47
        
    0.13 years
        
    
    960
    
    
    Rs.182.47ASOP 2002
    
    Rs.163-265
        
    
    376,857
    
    
    
    172.83
    
    
    
    0.16
    
    
    
    357,482
    
    
    
    168.58ASOP 2005
    
    Rs.163-265
        
    
    1,346,600
    
    
    
    238.32
    
    
    
    2.90
    
    
    
    
    
    
    
    ASOP 2005
    
    Rs.266-482
        
    
    329,800
    
    
    
    481.74
    
    
    
    3.11
    
    
    
    
    
    
    
    Rs. 163-482
        
    
    2,055,297
    
    
    
    265.31
    
    
    
    
    
    
    
    358,442
    
    
    
    168.62
 26.
    
    Commitments and contingenciesa) During the year Sify has received a notice from the Income-Tax Department of India for
the financial years 2002 and 2003 for a sum of Rs.103,000 stating that no withholding tax
has been deducted in respect of international bandwidth and leased line payments made by the
Company to international bandwidth / lease line service providers.Based on the opinion of our counsel, withholding taxes need not be deducted if the service provider
did not have any permanent establishment in India and has not installed any equipment at the
Companys premises. The Company is able to demonstrate that international service providers
have neither had a permanent establishment in India nor has installed any equipment at the
Companys premises. Accordingly, the likelihood of the loss contingency is remote and no
provision for the loss contingency is considered necessary.b) The company has outstanding financial and performance guarantees for various statutory
purposes and letters of credit totalling Rs. 279,865 and Rs. 422,683 as of March 31, 2005
and 2006, respectively. These guarantees are generally provided to governmental agenciesc) Provident Fund contribution not provided for on leave encashment in respect of periods
prior to April 01, 2005 is estimated at Rs.4,326.
 27.
    
    Products and servicesBreakup of revenues against products and services are as follows:
 Year ended March 31,2004
    
    
    2005
    
    
    2006Rs.
    
    
    Rs.
    
    
    Rs.Service revenue
    
    
    2,323,033
    
    
    
    2,858,070
    
    
    
    3,928,072Initial franchise fee
    
    
    102,138
    
    
    
    107,956
    
    
    
    104,085Installation service revenue
    
    
    131,612
    
    
    
    236,508
    
    
    
    262,0592,556,783
    
    
    
    3,202,534
    
    
    
    4,294,216Product revenue
    
    
    244,401
    
    
    
    410,923
    
    
    
    387,5912,801,184
    
    
    
    3,613,457
    
    
    
    4,681,807
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28.
    
    Segment reportingSFAS No 131, Disclosures about Segments of an Enterprise and Related Information,
establishes standards for the way that public business enterprises report information about
operating segments and related disclosures about products and services, geographic areas and
major customers. The Companys operations predominantly relate to connectivity to
enterprises and providing Internet access to retail subscribers (both home access and public
access). The Company also operates portals, Sify.com. , Samachar.com and SifyMax.in,
that provide a variety of India-related content to audiences both in India and abroad, and
which generates revenue from advertisements and other value added services.The primary operating segments of the Company are:
 
    
    Corporate network/data services, which provides Internet, connectivity,
security and consulting, hosting and managed service solutions;
    
    Retail Internet access services, from homes and through cybercafés;
    
    Online portal and content offerings; and
    
    Other services, such as development of e-learning software.
 The Chief Operating Decision Maker (CODM) evaluates the Companys performance and
allocates resources to various strategic business units that are identified based on the
products and services that they offer and on the basis of the market served. The measure of
loss reviewed by the CODM was Earnings/loss before interest, taxes, depreciation and
amortization.Revenue in relation to segments is categorized based on items that are individually
identifiable to that segment. Bandwidth costs, which form a significant part of the total
expenses, are allocated primarily between the corporate network/data services and Internet
access services businesses as described below:International bandwidth refers to bandwidth that is required for access to sites and offices
outside the country. For all these businesses, bandwidth is allocated based on actual
utilization captured by monitoring traffic per IP pool assigned at the egress points. The
Company has packet shapers in the main locations to monitor bandwidth use by each of the
above categories of users. This information is used in determining norms like bandwidth per
port and bandwidth per personal computer. The actual utilization is cross validated against
assumptions / norms for each business.National bandwidth refers to the inter-city link bandwidth implemented within
the country. Inter-city link bandwidth was allocated based on the number of subscribers or
iway cybercafés at non gateway points and the bandwidth sold to and used by business
enterprises (determined using packet shapers). However, in order to strengthen its corporate
business, the Company enhanced its national backbone to carry Internet traffic to the
international fibre gateways, shifting from hybrid satellite and fibre gateways to fibre
only gateways for international bandwidth. National bandwidth costs are now allocated based
on international bandwidth allocation ratios because most of the traffic carried on the
national backbone is directed towards the international gateways. The Company believes that
the resulting allocations are reasonable.Last mile costs related to dial-up access (E1/R2 costs) that can be directly identified
to businesses are allocated directly. Spectrum charges that are paid to the WPERSONAL
COMPUTER for the license that has been provided to enable Sify to operate on the 5.7 ghz
wireless spectrum are allocated based on the bandwidth that is used by the various
businesses that use this spectrum. Certain expenses, such as depreciation, technology and
administrative overheads, which form a significant component of total expenses, are not
allocable to specific segments as the underlying services are used interchangeably.
Management believes that it is not practical to provide segment disclosure of these expenses
and, accordingly, they are separately disclosed as unallocated and adjusted only against
the total income of the Company.A significant part of the fixed assets used in the Companys business are not identifiable
to any of the reportable segments and can be used interchangeably between segments.
Management believes that it is not practicable to provide segment disclosures relating to
total assets since a meaningful segregation of the available data is onerous.
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The Companys operating segment information for the years ended March 31, 2004, 2005 and
2006 are presented below:
 Year ended March 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (all in Rupees)CorporateNetwork / Data
    
    
    Retail Internet
    
    
    Online PortalServices
    
    
    Access Services
    
    
    Services
    
    
    Other Services
    
    
    TotalRevenues
    
    Rs.2,531,094
        
    Rs.1,814,115
        
    Rs.178,986
        
    Rs. 157,612
        
    Rs.4,681,807Allocated expenses
    
    
    (1,512,832
    )
    
    
    (1,798,963
    )
    
    
    (187,941
    )
    
    
    (141,567
    )
    
    
    (3,641,303
    )Equity in profit of affiliates
    
    
    
    
    
    
    
    
    
    
    40,703
    
    
    
    
    
    
    
    40,703Segment operating income
    
    Rs.1,018,262
        
    Rs.15,152
        
    Rs.31,748
        
    Rs.16,045
        
    Rs.1,081,207Unallocated corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (843,599
    )Foreign exchange gain, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,221Other income / (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,835Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (476,526
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,617Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rs.(149,245)
 Year ended March 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (all in Rupees)RetailCorporate
    
    
    InternetNetwork/Data
    
    
    Access
    
    
    Online Portal
    
    
    OtherServices
    
    
    Services
    
    
    Services
    
    
    Services
    
    
    TotalRevenues
    
    
    2,023,412
    
    
    
    1,404,876
    
    
    
    103,053
    
    
    
    82,116
    
    
    
    3,613,457Allocated expenses
    
    
    (1,345,254
    )
    
    
    (1,361,140
    )
    
    
    (99,303
    )
    
    
    (74,346
    )
    
    
    (2,880,043
    )Equity in profit of affiliates
    
    
    
    
    
    
    
    
    
    
    50,752
    
    
    
    
    
    
    
    50,752Segment operating income
    
    
    678,158
    
    
    
    43,736
    
    
    
    54,502
    
    
    
    7,770
    
    
    
    784,166Unallocated corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620,235
    )Foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,595Other income/(expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,503Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (567,426
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,821Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307,576
    )
 Year ended March 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (all in Rupees)RetailCorporate
    
    
    InternetNetwork/Data
    
    
    Access
    
    
    Online Portal
    
    
    OtherServices
    
    
    Services
    
    
    Services
    
    
    Services
    
    
    TotalRevenues
    
    
    1,395,498
    
    
    
    1,088,440
    
    
    
    84,233
    
    
    
    233,013
    
    
    
    2,801,184Allocated expenses
    
    
    (846,526
    )
    
    
    (1,188,366
    )
    
    
    (100,935
    )
    
    
    (85,277
    )
    
    
    (2,221,104
    )Equity in profit of affiliates
    
    
    
    
    
    
    
    
    
    
    17,083
    
    
    
    
    
    
    
    17,083Minority interest
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    79Segment operating income/(loss)
    
    
    548,972
    
    
    
    (99,926
    )
    
    
    460
    
    
    
    147,736
    
    
    
    597,242Unallocated corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (540,981
    )Foreign exchange loss, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,148
    )Other income/(expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,541Profit from sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,059Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (559,980
    )Impairment of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,551
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,606Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (371,284
    )
 97




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##### Table of Contents



29.
    
    Legal proceedings
     30.
    
    Subsequent Events
   98




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##### Table of Contents



Item 19. Exhibits
 Number
    
    Description1.1
    
    Amended Articles of Association of Sify Limited. (1)1.2
    
    Memorandum of Association of Sify Limited. (2)1.3
    
    Amendment of Memorandum of Association. (3)2.1
    
    Deposit Agreement, dated as of October 18, 1999, among Sify
Limited, Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depositary Receipt). (4)2.2
    
    Amendment No. 1 to Deposit Agreement among Sify Limited,
Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depository Receipt). (4)2.3
    
    Amendment No. 2 to Deposit Agreement among Sify Limited,
Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depository Receipt). (5)2.4
    
    Subscription Agreement dated November 10, 2005 between Sify
Limited and Infinity Capital Ventures, LP. (9)2.5
    
    Standstill Agreement dated November 10, 2005 by and among Sify
Limited, Infinity Capital Ventures, LP and Mr Raju Vegesna. (9)2.6
    
    Shareholders Agreement dated December 20, 2005 between Sify
Limited, Infinity Satcom Universal (P) Limited, and Sify
Communications Limited. (10)2.7
    
    Shareholders Agreement dated November 25, 2005 between Sify
Limited and Man Financial. (11)4.1
    
    Associate Stock Option Plan 2000 (6)4.2
    
    Associate Stock Option Plan 2002 (6)4.3
    
    Associate Stock Option Plan 20054.4
    
    Form of Indemnification Agreement.
(7)4.5
    
    License Agreement for Provision of Internet Service, including
Internet Telephony dated as of April 1, 2002 by and between Sify
Limited and the Government of India, Ministry of Communications
and Information Technology, Department of Telecommunications,
Telecom Commission. (3)4.6
    
    Bank Guarantee, dated as of November 4, 1998. (2)4.7
    
    Agreement, dated November 10, 2004, between Sify Limited, Satyam
Computer Services Limited, SAIF Investment Company Limited and
Venture Tech Solutions Pvt. Ltd. (8)8.1
    
    List of Subsidiaries.11.1
    
    Code of Conduct and Conflict of
Interest Policy (6)12.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer12.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer13.1
    
    Section 1350 Certification of Chief Executive Officer13.2
    
    Section 1350 Certification of Chief Financial Officer15.1
    
    Consent of KPMG
 
 (1)
    
    Previously filed as an exhibit to to the Report on Form 6-K filed with the Commission on
February 17, 2005 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to Amendment No. 1 to the Registration Statement on Form
F-1 filed with the Commission on October 4, 1999 and incorporated herein by reference.(3)
    
    Previously filed as an exhibit to the Annual Report on Form 20-F filed with the Commission
on July 1, 2002 and incorporated herein by reference.(4)
    
    Previously filed as an exhibit to the Post-Effective Amendment No. 1 to Form F-6 filed
with the Commission on January 5, 2000 and incorporated herein by reference.(5)
    
    Previously filed as an exhibit to the Registration Statement on Form S-8 (File No.
333-101322) filed with Commission on November 20, 2002 and incorporated herein by reference.(6)
    
    Previously filed as an exhibit to the Annual Report on Form 20-F filed with the Commission
on June 29, 2004 and incorporated herein by reference.(7)
    
    Previously filed as an exhibit to Amendment No. 2 to the Registration Statement on Form
F-2 filed with the Commission on October 13, 1999 and incorporated herein by reference.(8)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
November 30, 2004 and incorporated herein by reference.(9)
    
    Previously filed as an exhibit to the Report on Form 6-K
filed with the Commission on November 21, 2005 and incorporated herein
by reference.(10)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
December 7, 2005 and incorporated herein by reference.(11)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
December 23, 2005 and incorporated herein by reference. 99




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##### Table of Contents



SIGNATURES
  SIFY LIMITEDBy:
    
    /s/ R. RamarajName:
    
    R. RamarajTitle:
    
    Chief Executive Officer & Managing DirectorBy:
    
    /s/ Durgesh MehtaName:
    
    Durgesh MehtaTitle:
    
    Chief Financial Officer
  100




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##### Table of Contents

s

Exhibit Index
 Number
    
    Description1.1
    
    Amended Articles of Association of Sify Limited. (1)1.2
    
    Memorandum of Association of Sify Limited. (2)1.3
    
    Amendment of Memorandum of Association. (3)2.1
    
    Deposit Agreement, dated as of October 18, 1999, among Sify
Limited, Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depositary Receipt). (4)2.2
    
    Amendment No. 1 to Deposit Agreement among Sify Limited,
Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depository Receipt). (4)2.3
    
    Amendment No. 2 to Deposit Agreement among Sify Limited,
Citibank, N.A. and holders from time to time of American
Depositary Receipts issued thereunder (including, as an exhibit,
the form of American Depository Receipt). (5)2.4
    
    Subscription Agreement dated November 10, 2005 between Sify
Limited and Infinity Capital Ventures, LP.  (9)2.5
    
    Standstill Agreement dated November 10, 2005 by and among Sify
Limited, Infinity Capital Ventures, LP and Mr Raju Vegesna. (9)2.6
    
    Shareholders Agreement dated December 20, 2005 between Sify
Limited, Infinity Satcom Universal (P) Limited, and Sify
Communications Limited. (10)2.7
    
    Shareholders Agreement dated November 25, 2005 between Sify
Limited and Man Financial. (11)4.1
    
    Associate Stock Option Plan 2000 (6)4.2
    
    Associate Stock Option Plan 2002 (6)4.3
    
    Associate Stock Option Plan 20054.4
    
    Form of Indemnification Agreement.
(7)4.5
    
    License Agreement for Provision of Internet Service, including
Internet Telephony dated as of April 1, 2002 by and between Sify
Limited and the Government of India, Ministry of Communications
and Information Technology, Department of Telecommunications,
Telecom Commission. (3)4.6
    
    Bank Guarantee, dated as of November 4, 1998. (2)4.7
    
    Agreement, dated November 10, 2004, between Sify Limited, Satyam
Computer Services Limited, SAIF Investment Company Limited and
Venture Tech Solutions Pvt. Ltd. (8)8.1
    
    List of Subsidiaries.11.1
    
    Code of Conduct and Conflict of
Interest Policy (6)12.1
    
    Rule 13a-14(a) Certification of Chief Executive Officer12.2
    
    Rule 13a-14(a) Certification of Chief Financial Officer13.1
    
    Section 1350 Certification of Chief Executive Officer13.2
    
    Section 1350 Certification of Chief Financial Officer15.1
    
    Consent of KPMG
 
 (1)
    
    Previously filed as an exhibit to to the Report on Form 6-K filed with the Commission on
February 17, 2005 and incorporated herein by reference.(2)
    
    Previously filed as an exhibit to Amendment No. 1 to the Registration Statement on Form
F-1 filed with the Commission on October 4, 1999 and incorporated herein by reference.(3)
    
    Previously filed as an exhibit to the Annual Report on Form 20-F filed with the Commission
on July 1, 2002 and incorporated herein by reference.(4)
    
    Previously filed as an exhibit to the Post-Effective Amendment No. 1 to Form F-6 filed
with the Commission on January 5, 2000 and incorporated herein by reference.(5)
    
    Previously filed as an exhibit to the Registration Statement on Form S-8 (File No.
333-101322) filed with Commission on November 20, 2002 and incorporated herein by reference.(6)
    
    Previously filed as an exhibit to the Annual Report on Form 20-F filed with the Commission
on June 29, 2004 and incorporated herein by reference.(7)
    
    Previously filed as an exhibit to Amendment No. 2 to the Registration Statement on Form
F-2 filed with the Commission on October 13, 1999 and incorporated herein by reference.(8)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
November 30, 2004 and incorporated herein by reference.(9)
    
    Previously filed as an exhibit to the Report on Form 6-K
filed with the Commission on November 21, 2005 at incorporated herein
by reference.(10)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
December 7, 2005 and incorporated herein by reference.(11)
    
    Previously filed as an exhibit to the Report on Form 6-K filed with the Commission on
December 23, 2005 and incorporated herein by reference. 101