##### 



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, 2007.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For
the transition period fromto
 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
 þ o
  þ o
  o þ o
  o þ
  o þ




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Table of Contents
 Item
    
    PageCurrency of Presentation and Certain Defined Terms
  
    
    3Forward-Looking Statements May Prove Inaccurate
  
    
    4PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    5Item 2. Offer Statistics and Expected Timetable
    
    
    5Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    23Item 4A. Unresolved Staff Comments
    
    
    38Item 5. Operating and Financial Review and Prospects
    
    
    39Item 6. Directors, Senior Management and Employees
    
    
    50Item 7. Major Shareholders and Related Party Transactions
    
    
    56Item 8. Financial Information
    
    
    58Item 9. The Offer and Listing
    
    
    59Item 10. Additional Information
    
    
    60Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    74Item 12. Description of Securities Other Than Equity Securities
    
    
    74PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    74Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    74Item 15. Controls and Procedures
    
    
    75Item 16A. Audit Committee Financial Expert
    
    
    76Item 16B. Code of Ethics
    
    
    77Item 16C. Principal Accountant Fees and Services
    
    
    77Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    77Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    77PART IIIItem 17. Financial Statements
    
    
    77Item 18. Financial Statements
    
    
    77Item 19. Exhibits
    
    
    140
 2




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Currency of Presentation and Certain Defined Terms
 Online
   www.sifycorp.com
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Forward-Looking Statements May Prove Inaccurate
 WWW.SEC.GOV
 4




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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
   5




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##### 



2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2007Indian Rupees(1)
   
   
      
    
   
   
     
   
    
    U.S. Dollars(In thousands, except share and per share data)Statement of Operations Data:Revenues
    
    
    1,959,855
    
    
    
    2,751,623
    
    
    
    3,554,237
    
    
    
    4,606,409
    
    
    
    5,447,347
    
    
    
    126,389Revenue from related parties
    
    
    34,345
    
    
    
    49,561
    
    
    
    59,220
    
    
    
    75,398
    
    
    
    Total Revenue
    
    
    1,994,200
    
    
    
    2,801,184
    
    
    
    3,613,457
    
    
    
    4,681,807
    
    
    
    5,447,347
    
    
    
    126,389Cost of revenues (excluding
depreciation and amortization)
    
    
    1,264,101
    
    
    
    1,476,714
    
    
    
    2,023,942
    
    
    
    2,534,723
    
    
    
    2,908,256
    
    
    
    67,477Selling, general and
administrative expenses
    
    
    1,090,935
    
    
    
    1,208,884
    
    
    
    1,418,757
    
    
    
    1,852,296
    
    
    
    1,921,771
    
    
    
    44,589Provision for doubtful debts,
receivables and advances
    
    
    156,233
    
    
    
    76,487
    
    
    
    57,579
    
    
    
    90,670
    
    
    
    153,638
    
    
    
    3,564Impairment of assets
    
    
    246,999
    
    
    
    22,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    474,261
    
    
    
    432,684
    
    
    
    472,400
    
    
    
    395,018
    
    
    
    410,321
    
    
    
    9,520Amortization of intangible assets
    
    
    69,907
    
    
    
    99,350
    
    
    
    84,387
    
    
    
    68,759
    
    
    
    50,486
    
    
    
    1,171Employee stock compensation
expense
    
    
    57,729
    
    
    
    27,946
    
    
    
    10,639
    
    
    
    12,749
    
    
    
    60,933
    
    
    
    1,414Foreign exchange (gain)/loss
    
    
    18
    
    
    
    52,148
    
    
    
    (2,595
    )
    
    
    (23,221
    )
    
    
    (8,332
    )
    
    
    (193
    )Total operating expenses
    
    
    3,360,183
    
    
    
    3,396,764
    
    
    
    4,065,109
    
    
    
    4,930,994
    
    
    
    5,497,073
    
    
    
    127,542Operating (loss) / Profit
    
    
    (1,365,983
    )
    
    
    (595,580
    )
    
    
    (451,652
    )
    
    
    (249,187
    )
    
    
    (49,726
    )
    
    
    (1,153
    )Other income, net (5)
    
    
    52,948
    
    
    
    144,147
    
    
    
    77,614
    
    
    
    59,239
    
    
    
    128,642
    
    
    
    2,985Equity in net profit of affiliate
    
    
    (26,061
    )
    
    
    80,142
    
    
    
    50,752
    
    
    
    40,703
    
    
    
    70,221
    
    
    
    1,629Gain on sale of investments /
subsidiary
    
    
    
    
    
    
    
    
    
    
    15,710-
    
    
    
    
    
    
    
    226
    
    
    
    5Profit / (Loss) before income
taxes and minority interest
    
    
    (1,339,096
    )
    
    
    (371,291
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    149,363
    
    
    
    3,466Income taxes
    
    
    (2,856
    )
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    68,928
    
    
    
    1,599Profit / (Loss) before minority
interest
    
    
    (1,341,952
    )
    
    
    (371,363
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    218,291
    
    
    
    5,065Minority interest
    
    
    12,564
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    (30,531
    )
    
    
    (708
    )Net (loss) / Profit
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    187,760
    
    
    
    4,357Net (loss)/Profit per share (3)- Basic
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    4.40
    
    
    
    0.10- Diluted
    
    
    (51.15
    )
    
    
    (10.76
    )
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    4.39
    
    
    
    0.10Weighted-average number of equity
shares used in computing earnings
per equity share- Basic
    
    
    25,988,095
    
    
    
    34,519,545
    
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    42,704,619
    
    
    
    42,704,619- Diluted
    
    
    25,988,095
    
    
    
    34,519,545
    
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    42,792,514
    
    
    
    42,792,514
 6




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##### 



2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2007Indian Rupees(1)
   
   
      
    
   
   
     
   
    
    U.S. Dollars(In thousands, except share and per share data)Balance Sheet Data:Cash and cash equivalents
    
    
    897,596
    
    
    
    1,325,803
    
    
    
    1,323,912
    
    
    
    2,822,501
    
    
    
    3,070,157
    
    
    
    71,233Total assets
    
    
    3,700,387
    
    
    
    3,799,073
    
    
    
    4,020,782
    
    
    
    5,951,771
    
    
    
    7,162,952
    
    
    
    166,194Capital Lease obligations,
excluding current installments
    
    
    3,767
    
    
    
    5,151
    
    
    
    3,814
    
    
    
    2,546
    
    
    
    3,671
    
    
    
    85Total shareholders equity
    
    
    2,888,696
    
    
    
    2,715,668
    
    
    
    2,498,589
    
    
    
    4,054,509
    
    
    
    4,381,090
    
    
    
    101,649Cash Flow DataNet cash provided by (used in):Operating activities
    
    
    (238,273
    )
    
    
    273,985
    
    
    
    480,117
    
    
    
    220,382
    
    
    
    178,519
    
    
    
    4,142Investing activities
    
    
    (273,674
    )
    
    
    11,327
    
    
    
    (552,669
    )
    
    
    (426,406
    )
    
    
    (788,692
    )
    
    
    (18,299
    )Financing activities
    
    
    758,777
    
    
    
    189,058
    
    
    
    69,182
    
    
    
    1,684,055
    
    
    
    866,060
    
    
    
    20,094Other Financial Data 
Reconciliation of Adjusted EBITDA
to net profit / (loss)Adjusted EBITDA from operations (4)
    
    
    (755,394
    )
    
    
    142,635
    
    
    
    209,029
    
    
    
    268,057
    
    
    
    492,000
    
    
    
    11,416Add: Interest income (Note 22)
    
    
    31,999
    
    
    
    48,187
    
    
    
    52,759
    
    
    
    70,314
    
    
    
    154,190
    
    
    
    3,577Add: Income tax benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,928
    
    
    
    1,599Less: Depreciation and amortization
    
    
    544,168
    
    
    
    532,034
    
    
    
    556,787
    
    
    
    463,777
    
    
    
    460,807
    
    
    
    10,691Less: Stock compensation cost
    
    
    57,729
    
    
    
    27,946
    
    
    
    10,639
    
    
    
    12,749
    
    
    
    60,933
    
    
    
    1,414Less: Interest expense (Note 22)
    
    
    4,096
    
    
    
    2,126
    
    
    
    1,938
    
    
    
    11,090
    
    
    
    5,618
    
    
    
    130Less: Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Profit / (loss)
    
    
    (1,329,388
    )
    
    
    (371,284
    )
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    187,760
    
    
    
    4,357
 
 Notes1.
    
    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, 2007 of
Rs.43.10 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.
    
    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.4.
    
    Adjusted EBITDA from continuing operations represents earnings (loss) from continuing
operations before interest, taxes, stock compensation expense and depreciation, and
amortization.5.
    
    Refer to note 22 of the financial statements for the components of other income,net. 7




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Exchange Rates
  High
    

LowMonth

    
    Rs.
    
    Rs.December 2006
    
    
    44.70
    
    
    
    44.11January 2007
    
    
    44.49
    
    
    
    44.07February 2007
    
    
    44.21
    
    
    
    43.87March 2007
    
    
    44.43
    
    
    
    42.78April 2007
    
    
    43.05
    
    
    
    40.56May 2007
    
    
    41.04
    
    
    
    40.14
  Fiscal Year Ended
    
    
Period end
    

Average
    

High
    

LowMarch 31
    
    
    Rs.
    
    Rs.
    
    Rs.
    
    Rs.2003
    
    
    
    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
    
    
    
    44.092007
    
    
    
    43.10
    
    
    
    45.12
    
    
    
    46.83
    
    
    
    42.78
  Capitalization and indebtedness
  Reasons for the offer and use of proceeds
  Risk Factors
 The following risk factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements in this Annual Report on Form 20-F for the year ended
March 31, 2007. Such factors, among others, could have a material adverse effect upon our
business, results of operations and financial condition. This could cause the trading price of our
ADSs to decline and a loss of all or part of your investment.
 Please refer to the discussion of Forward-Looking Statements on page 4 of this Annual Report
on Form 20-F in connection with your consideration of the risk factors and other important factors
that may affect future results described below.
 8




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Risks Related to Sify Limited
 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, e-learning software development services and managed network services. It is
therefore difficult to evaluate our company based on our historical results of operations.
  
    
    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 years ended March 31, 2006, we incurred net losses of Rs.149.2 million and for
the fiscal year ended 31 March, 2007 we made net profit of Rs.187.76 million. As of March 31,
2007, we had an accumulated deficit of approximately Rs.12,378 million ($287 million). We may
incur additional losses in the future because our business plan 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.
  9




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We are required to comply with certain conditions imposed by the Government of India or GOI in
connection with the National Long Distance/International Long Distance or NLD/ILD licenses
issued to Sify Communications Limited or Sify Comm, our subsidiary company, on a continuous
basis during the validity of the licence period.
  
    
    The company to ensure that the foreign holding never exceeds 74% of the outstanding
capital of the company, which is the threshold limit of Foreign Direct Investment for the
Telecom sector.
    
    The Managing Director, Chief Technical Officer and Chief Financial Officer shall be
resident Indian citizens.
    
    The company shall always have a net worth as well as paid up capital of Rs.250 million.
    
    The company shall pay the annual fee at 6% of the Adjusted Gross Revenue to Department of
Telecommunications or DOT.
    
    In addition to the above, the company is required to furnish all information to DOT and
Telecom Regulatory Authority of India or TRAI.
 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.
  10




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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
    
    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.
   We lack full redundancy for our computer systems and a system failure could prevent us from
operating our business for a significant time, which could have an adverse effect on our
business and results of operations.
  11




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##### 



Security breaches could damage our reputation or result in liability to us.
   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.
  12




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##### 



Compliance with new and changing corporate governance and public disclosure requirements adds
uncertainty to our compliance policies and increases our costs of compliance.
    We may inadvertently fail to comply with local laws of other countries in connection with the
negotiation and execution of operational agreements.
  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
 13




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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.
  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 CTOs, whom we do not control.
 iway
 14




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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.
    Our current infrastructure and its scalability may not accommodate increased use while
maintaining acceptable overall performance.
  The success of our newly acquired on line travel business in the United States depends on
various factors, and to a large extent, beyond our control.
  
    
    Obtaining the ARC Accreditation in the name of Sify from the Airline Reporting
Corporation, an nodal agency run by various airline companies;
    
    How quickly we integrate an airlines on line platform for ticketing;
    
    Our ability to quickly improve our online sales in the United States;
    
    The growth of the tourism and the hospitality industry;
    
    The threat of terrorism and outbreak of any epidemic;
    
    Lost revenue from credit card fraud.
  15




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##### 



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.
   16




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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;
    
    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.
 17




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##### 



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.
  18




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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.
  19




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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.
    The Government of India has brought out new guidelines for grant of licence for operating
internet services, which is applicable to the new entrants. The Government is also likely to
bring out new guidelines for grant of licence for operating internet services for the existing
licence holders, which may be difficult to comply with by us and any such change could decrease
our revenues and/or increase our costs, which would adversely affect our operating results.
    Changes in Indian income taxes will increase our tax liability and decrease any profits we
might have in the future.
  20




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##### 



Risks Related to the Internet Market in India
  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.
  21




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##### 



Risks Related to the Internet
 We may be liable to third parties for information retrieved from the Internet.
  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.
  22




---



##### 



Item 4 . Information on the Company
 History and Development
   www.sify.com
 Online Online Online Online
 iways iways
   Initial Public Offering and Subsequent Financing Transactions
  23




---



##### 



Investment Strategy
  Sify Networks Private Limited (formerly E Alcatraz Consulting Private Limited)
  Globe Travels, USA.
  24




---



##### 



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 agreements with certain cable television
operators through which we offer Internet access through cable. As of March 31, 2007, we
had approximately 1 million 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
    25




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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.
 26




---



##### 




    
    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, 2007, we owned and operated 188 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 marketsegments 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 SifyOnline
access 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 experience in providing
information assurance and compliance certification, following frameworks such as
Committee of Sponsoring Organizations of the Treadway Commission (COSO) / Control
Objectives for Information and related Technology (COBIT). We believe that our managed
infrastructure and security services utilise our experience and skill sets to provide
constant value to our customers, 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. As of March 31, 2007, we
had procured six Synchronous Transport Mode (STM-1) bandwidth lines, all from leading
telecom players. 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, 2007, we had approximately 1
Million retail Internet subscribers and 3,638 cybercafés, of which 38 were owned by us
and 3,600 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, 2007, we
had agreements with more than 2,100 cable television operators across 109 cities in
India. 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
have previously introduced a number of other services, including VoIP, video
conferencing, e-mail designed for regional Indian dialects, a user customized portal site
and micro-payments.
 27




---



##### 




    
    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.
 28




---



##### 



Service Offerings
 Corporate network/data services.
  
    
    SiteConnect (TM), 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
 29




---



##### 



Security and Assurance Services.
 Data Centers
 Digital Certification
 Remote Management Services
  VOIP Services.
 Internet access services
 iway
 Public Internet Access. iway iway iways
 30




---



##### 



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
 Voice Over Internet Protocol iways iways
      31




---



##### 



Online Portal Services
 www.sifymax.in www.sify.com www.samachar.com www.sifmax.in sify.com Online iway
 www.walletwatch.com www.khel.com www.bawarchi.com
 www.mumbailive.in www.bangalorelive.in www.hyderabadlive.in
 www.samachar.com
  32




---



##### 



Corporate Customers
  Customer Service and Technical Support
  Sales and Marketing
 Corporate Offerings
 Consumer Offerings
 iway
 Technology and Network Infrastructure
  33




---



##### 



Geographic Coverage
 Network Architecture
   Network Operations Center
 Data Centre Infrastructure.
 34




---



##### 



Competition
 General
 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
  35




---



##### 



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.
 36




---



##### 




    
    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.
        37




---



##### 



th
  Organization Structure
  Property, Plant and Equipment
  Item 4A. Unresolved Staff Comments
 None.
 38




---



##### 



Item 5. Operating and Financial Review and Prospects
 The following discussion should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Annual Report. See Risk Factors regarding certain factors
known to Sify that could cause reported financial information not to be necessarily indicative of
future results, including discussions of the risks related to the development of new products and
services, our intellectual property, investments in Indian companies, the Internet and the Internet
market in India.
 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.
 Revenues
 Corporate network/data services
  Internet access services
  39




---



##### 



Online portal services and content offerings
 www.sifymall.com
 Other services
   Expenses
 Cost of revenues
 Corporate network/data services
  Internet access services
 iways
 Online portal services and content offerings
  Selling, general and administrative expenses
  40




---



##### 



Depreciation and amortization
 Goodwill and
Other Intangible Assets
 Amortization of deferred stock compensation expense
  Results of Operations
 Year ended March 31, 2007 compared to year ended March 31, 2006
 Revenues
     41




---



##### 



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.
 Foreign exchange (gain)/loss.
 Other income (net)
 Equity in profit of affiliates.
 Net Profit
 42




---



##### 



Year ended March 31, 2006 compared to year ended March 31, 2005
 Revenues
  iways
   Cost of Revenues
 Selling, general and administrative expenses
 43




---



##### 



Provision for doubtful receivables and advances.
 Depreciation.
 Amortization of intangible assets.
 Amortization of deferred stock compensation expenses.
 Foreign exchange (gain)/loss.
 Other income (net)
 Equity in profit of affiliates.
 Net Loss
 44




---



##### 



Liquidity and Capital Resources
   Fiscal year ended, and as of March 31,2005
    
    2006
    
    2007
    
    2007Indian Rupees
    
    U.S. Dollars(in thousands)Net (loss)/Profit
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    187,760
    
    
    
    4,357Net decrease (increase) in working capital
    
    
    227,872
    
    
    
    (135,666
    )
    
    
    (582,917
    )
    
    
    (13,525
    )Other adjustments for non-cash items
    
    
    559,821
    
    
    
    505,293
    
    
    
    573,676
    
    
    
    13,309Net cash provided by (used in) operating activities
    
    
    480,117
    
    
    
    220,382
    
    
    
    178,519
    
    
    
    4,142Net cash provided by (used in) investing activities
    
    
    (552,669
    )
    
    
    (426,406
    )
    
    
    (788,692
    )
    
    
    (18,299
    )Net cash provided by (used in) financing activities
    
    
    69,182
    
    
    
    1,684,055
    
    
    
    866,060
    
    
    
    20,094Effect of exchange rate changes on cash and cash equivalents
    
    
    1,479
    
    
    
    20,558
    
    
    
    (8,231
    )
    
    
    (191
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,891
    )
    
    
    1,498,589
    
    
    
    247,656
    
    
    
    5,746
       45




---



##### 



46




---



##### 



Payments Due by Period
    
    Rs.MillionMoreLess than 1
    
    
    
    
    
    
    
    
    
    than 5Contractual Obligations
    
    Total
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsCapital Lease Obligations
    
    
    6.9
    
    
    
    2.9
    
    
    
    4.0
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    6.9
    
    
    
    2.9
    
    
    
    4.0
    
    
    
    
    
    
    
    
 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
    
    
    42.42
    
    
    
    0.89
    
    
    
    41.53
    
    
    
    
    
    
    
    Guarantees
    
    
    598.69
    
    
    
    4.54
    
    
    
    590.84
    
    
    
    3.31
    
    
    
    Total Commercial Commitments
    
    
    641.11
    
    
    
    5.43
    
    
    
    632.37
    
    
    
    3.31
    
    
    
    
  FIN 48
  Critical Accounting Policies
  Revenue Recognition
  
    
    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
  47




---



##### 



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.
   Accounting Estimates
    Allowance for accounts receivable
   48




---



##### 



Business Combinations, Goodwill and Intangible Assets
       Estimated Useful Lives of Property And Equipment.
  49




---



##### 



Item 6. Directors, Senior Management and Employees
 Board of Directors and Senior Management Executives
  Name
    
    Age
    
    DesignationRaju Vegesna
    
    
    47
    
    
    Chief Executive Officer and Managing DirectorC.B.Mouli (1)
    
    
    60
    
    
    Director, Chairman & Financial Expert of Audit CommitteeS.K.Rao (1) (2) (3)
    
    
    63
    
    
    DirectorT.H. Chowdary (2) (3)
    
    
    75
    
    
    Director & Chairman of Compensation & Nominating CommitteesP.S.Raju (2)
    
    
    54
    
    
    DirectorS R Sukumara (1) (2) (3)
    
    
    62
    
    
    DirectorAnanda Raju Vegesna
    
    
    48
    
    
    DirectorR.D.Thulasiraj (1) (2) (3)
    
    
    55
    
    
    DirectorC V S Suri
    
    
    47
    
    
    Chief Operating OfficerPijush Kanti Das
    
    
    53
    
    
    Chief Financial Officer & President  Access MediaP J Nath
    
    
    45
    
    
    Executive President  Enterprise SolutionsBaskar R Sayyaparaju
    
    
    40
    
    
    Chief Technology OfficerAravind Mathur
    
    
    43
    
    
    Chief Architect  Global ServicesV Sivaramakrishnan
    
    
    42
    
    
    President  Interactive ServicesDavid Appasamy
    
    
    50
    
    
    Chief Communications OfficerVenkata Rao Mallineni
    
    
    40
    
    
    Head  HRAjith K N
    
    
    38
    
    
    Head  HRMr S Gopalakrishnan
    
    
    40
    
    
    President  Government Initiatives
 
 (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Compensation Committee.(3)
    
    Member of the Nominating Committee. 50




---



##### 



.
     .
 51




---



##### 



52




---



##### 



Director Compensation
  Officer Compensation
  Summary Compensation Table(Rs. Million)StockName
    
    Salary
    
    Bonus
    
    CompensationV Sivaramakrishnan
    
    
    4.03
    
    
    
    
    
    
    
    1.19V M Kumar
    
    
    2.38
    
    
    
    0.15
    
    
    
    David Appasamy
    
    
    2.49
    
    
    
    0.17
    
    
    
    0.11Part of the yearR Ramaraj
    
    
    3.02
    
    
    
    
    
    
    
    Rahul Swarup
    
    
    3.56
    
    
    
    3.13
    
    
    
    Rustom Irani
    
    
    2.41
    
    
    
    3.00
    
    
    
    Shrikant P Joshi
    
    
    0.49
    
    
    
    
    
    
    
    Ajit Abraham
    
    
    2.07
    
    
    
    2.88
    
    
    
    Surya Mantha
    
    
    2.04
    
    
    
    
    
    
    
    Durgesh Mehta
    
    
    4.92
    
    
    
    
    
    
    
    C V S Suri
    
    
    3.11
    
    
    
    
    
    
    
    3.74Pijush Kanti Das
    
    
    2.50
    
    
    
    
    
    
    
    1.41Bhaskar R Sayyaparaju
    
    
    3.01
    
    
    
    
    
    
    
    1.87Venkata Rao Mallineni
    
    
    1.42
    
    
    
    
    
    
    
    0.94S Gopalakrishnan
    
    
    1.70
    
    
    
    
    
    
    
    0.34
  Equity Shares UnderlyingName
    
    Option Grant
    
    Exercise Price (Rs.)
    
    Expiration DateV Sivaramakrishnan
    
    
    35,000
    
    
    
    578.47
    
    
    August 19, 2009Pijush Kanti Das
    
    
    25,000
    
    
    
    390.38
    
    
    November 17, 2009C V S Suri
    
    
    100,000
    
    
    
    425.70
    
    
    February 16, 2010Bhaskar R Sayyaparaju
    
    
    50,000
    
    
    
    425.70
    
    
    February 16, 2010Venkata Rao Mallineni
    
    
    25,000
    
    
    
    425.70
    
    
    February 16, 2010P S Raju
    
    
    15,000
    
    
    
    425.70
    
    
    February 16, 2010S Gopalakrishnan
    
    
    25,000
    
    
    
    361.19
    
    
    May 21, 2010
  Name
    
    No. of shares
    
    Exercise PriceRs.R. Ramaraj
    
    
    140,625
    
    
    
    163.40Rahul Swarup
    
    
    30,875
    
    
    
    163.40Ajit Abraham
    
    
    22,500
    
    
    
    163.40Shrikant P Joshi
    
    
    27,500
    
    
    
    163.40J. Avinash
    
    
    1,562
    
    
    
    163.40Rustom Irani
    
    
    21,500
    
    
    
    163.40David Appasamy
    
    
    833
    
    
    
    163.40
 53




---



##### 



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
  54




---



##### 



Employees
  Stock Ownership
  Equity SharesBeneficially OwnedBeneficial
Owner
    
    Number
    
    PercentRaju Vegesna
    
    
    17,902,860
    
    
    
    41.83T. H. Chowdary
    
    
    
    
    
    
    C B Mouli
    
    
    
    
    
    
    P S Raju
    
    
    
    
    
    
    S K Rao
    
    
    
    
    
    
    S R Sukumara
    
    
    
    
    
    
    Anand Raju Vagesna
    
    
    
    
    
    
    R. D. Thulasiraj
    
    
    
    
    
    
    
 Employee Stock Option Plan
   55




---



##### 



Item 7. Major Shareholders and Related Party Transactions
 Principal Shareholders
   Equity SharesBeneficially ownedBeneficial Owner
    
    Number
    
    PercentInfinity Capital Ventures, LP, 11601 Wilshire Boulevard, Suite 1900, Los Angeles, CA 90025
    
    
    17,902,860
    
    
    
    41.83
 Details of significant change in the percentage ownership held by the major shareholders:
 2004-05
    
    2005-06
    
    2006-07Name of the shareholder
    
    No. of shares
    
    %
    
    No. of shares
    
    %
    
    No. of shares
    
    %Satyam Computer Services Ltd.
    
    
    11,182,600
    
    
    
    31.61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Venture Tech Solutions Pvt. Ltd.
    
    
    2,750,000
    
    
    
    7.77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SAIF Investment Company Ltd.
    
    
    2,808,140
    
    
    
    5.68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Infinity Capital Ventures, LP
    
    
    
    
    
    
    
    
    
    
    17,902,860
    
    
    
    42.23
    
    
    
    17,902,860
    
    
    
    41.83
  United States Shareholders
  Host country Shareholders
  56




---



##### 



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.
  Related Party Transactions
     57




---



##### 



Item 8 . Financial Information
 Financial Statements
  Legal Proceedings
 In re Satyam Infoway Ltd.
   Dividends
   58




---



##### 



Item 9 . The Offer and Listing
 Trading Markets
  Price History
  Prior Fiscal Years
 High
    
    LowFiscal year ended
    
    $
    
    $March 31, 2007
    
    
    14.78
    
    
    
    7.43March 31, 2006
    
    
    14.58
    
    
    
    3.81March 31, 2005
    
    
    8.62
    
    
    
    3.82March 31, 2004
    
    
    9.25
    
    
    
    3.75March 31, 2003
    
    
    6.44
    
    
    
    0.88
 Quarters of Prior Fiscal Years
 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
 High
    
    LowFiscal year ended March 31, 2007
    
    $
    
    $First Quarter
    
    
    14.78
    
    
    
    8.21Second Quarter
    
    
    10.33
    
    
    
    7.43Third Quarter
    
    
    10.59
    
    
    
    8.68Fourth Quarter
    
    
    9.49
    
    
    
    7.61
 Prior Six months
 Price rangeHigh
    
    LowMonth
    
    $
    
    $December 2006
    
    
    10.59
    
    
    
    9.09January 2007
    
    
    9.49
    
    
    
    7.63February 2007
    
    
    9.41
    
    
    
    7.61March 2007
    
    
    8.89
    
    
    
    7.95April 2007
    
    
    9.50
    
    
    
    8.30May 2007
    
    
    9.00
    
    
    
    8.33June 2007
    
    
    8.63
    
    
    
    8.06
  59




---



##### 



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.
 60




---



##### 



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
   
    
    the rate of dividend to be declared may not exceed 10% of its paid up capital or the
average of the rate at which dividends were declared by the company in the prior five years,
whichever is less;
    
    the total amount to be drawn from the accumulated profits earned in the previous years
and transferred to the reserves may not exceed an amount equivalent to 10% of its paid up
capital and free reserves, and the amount so drawn is to be used first to set off the losses
incurred in the fiscal year before any dividends in respect of preference or equity shares
are declared; and
    
    the balance of reserves after withdrawals shall not fall below 15% of its paid up
capital.
 61




---



##### 



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
  62




---



##### 



2007 Annual General Meeting
    Limitations on the Rights to Own Securities
  Register of Shareholders; Record Dates; Transfer of Shares
     63




---



##### 



Audit and Annual Report
 www.sifycorp.com
 Company Acquisition of Equity Shares
  Liquidation Rights
  Redemption of Equity Shares
  Material Contracts
 Internet Service Provider License.
    64




---



##### 



th
  Sponsored ADR Program
  65




---



##### 



Subscription Agreement
  Standstill Agreement
  Shareholders Agreement
  Exchange Controls
 General
   66




---



##### 



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;
    
    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.
  67




---



##### 



Investment by Non-Resident Indians and Overseas Corporate Bodies
    Investment by Foreign Institutional Investors
  68




---



##### 



Ownership Restrictions
     Voting Rights of Deposited Equity Shares Represented by ADSs
   69




---



##### 



Taxation
 Indian Taxation
 General
  Residence
 
    
    a period or periods amounting in all to 182 days or more; or
    
    a period or periods amounting in all to60 days or more and within the four years
preceding that year has been in India for a period or periods amounting to 365 days or
more.
  )
 70




---



##### 



Taxation of Distributions
 Taxation of Capital Gains
    Buy-back of Securities
 Stamp Duty and Transfer Tax
 71




---



##### 



Wealth Tax
 Gift Tax and Estate Duty
 Service Tax
 Income Tax Matters
   United States Federal Taxation
 i.e.,
  Ownership of ADSs
 72




---



##### 



Dividends
   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.
 73




---



##### 



Backup Withholding Tax and Information Reporting Requirements
  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
  74




---



##### 



Item 15. Controls and procedures
 Evaluation of disclosure controls and procedures
  Managements annual report on internal control over financial reporting
        75




---



##### 



Changes in internal control over financial reporting
  Item 16A. Audit Committee financial expert
  76




---



##### 



Item 16B. Code of Ethics
 www.sifycorp.com
 Item 16C. Principal Accountant Fees and Services
  Type of Service
    
    Fiscal year endedmarch 31,2006
    
    march 31,2007(a) Audit Fees
    
    Rs.7.8 million
    
    Rs.6.2 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
 77




---



##### 



Report of Independent Registered Public Accounting Firm
 
   .
  
 78




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and as otherwise stated)
 As at March 31,
    
    
    As at March 31,2006
    
    
    2007
    
    
    2007Conveniencetranslationinto US$Unaudited(Note 2)Rs.
    
    
    Rs.
    
    
    $ASSETSCurrent assets:Cash and cash equivalents
    
    Rs.
    2,822,501
    
    
    Rs.
    3,070,157
    
    
    $
    71,233Accounts receivable
    
    
    838,433
    
    
    
    1,188,406
    
    
    
    27,573Due from employees
    
    
    23,818
    
    
    
    7,726
    
    
    
    179Inventories
    
    
    30,462
    
    
    
    28,686
    
    
    
    666Prepaid expenses
    
    
    91,158
    
    
    
    118,207
    
    
    
    2,743Net investment in leases
    
    
    10,776
    
    
    
    16,560
    
    
    
    384Other current assets
    
    
    165,767
    
    
    
    289,673
    
    
    
    6,721Total current assets
    
    
    3,982,915
    
    
    
    4,719,415
    
    
    
    109,499Cash restricted
    
    
    1,000
    
    
    
    1,000
    
    
    
    23Deferred income taxes
    
    
    
    
    
    
    66,104
    
    
    
    1,534Net investment in leases
    
    
    10,842
    
    
    
    12,032
    
    
    
    279Property, plant and equipment-net
    
    
    1,423,246
    
    
    
    1,644,564
    
    
    
    38,157Goodwill and other intangible assets
    
    
    62,436
    
    
    
    192,390
    
    
    
    4,464Investments in affiliated companies
    
    
    233,060
    
    
    
    302,956
    
    
    
    7,029Other assets
    
    
    238,272
    
    
    
    224,491
    
    
    
    5,209Total assets
    
    Rs.
    5,951,771
    
    
    Rs.
    7,162,952
    
    
    $
    166,194LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Borrowings from banks
    
    
    
    
    
    
    800,000
    
    
    
    18,561Current installments of capital lease obligations
    
    
    2,759
    
    
    
    2,476
    
    
    
    57Trade accounts payable
    
    
    440,841
    
    
    
    316,935
    
    
    
    7,353Accrued liabilities
    
    
    556,972
    
    
    
    737,284
    
    
    
    17,107Deferred revenue
    
    
    444,333
    
    
    
    450,030
    
    
    
    10,443
 79




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and as otherwise stated)
 As at March 31,
    
    
    As at March 31,2006
    
    
    2007
    
    
    2007Conveniencetranslationinto US$Unaudited(Note 2)Rs.
    
    
    Rs.
    
    
    $Due to employees
    
    
    1,300
    
    
    
    
    
    
    
    Advances from customers
    
    
    112,512
    
    
    
    89,908
    
    
    
    2,086Other current liabilities
    
    
    74,174
    
    
    
    89,855
    
    
    
    2,085Total current liabilities
    
    
    1,632,891
    
    
    
    2,486,488
    
    
    
    57,692Capital lease obligations, excluding current installments
    
    
    2,546
    
    
    
    3,671
    
    
    
    85Other liabilities
    
    
    261,825
    
    
    
    121,938
    
    
    
    2,829Total liabilities
    
    
    1,897,262
    
    
    
    2,612,097
    
    
    
    60,606Minority interest
    
    
    
    
    
    
    169,765
    
    
    
    3,939Stockholders equityCommon stock, Rs 10 par value; 50,000,000 equity shares
authorized (as of March 31, 2006 : 50,000,000); Issued
and outstanding: 42,800,265 shares as of March 31,2007
and 42,389,514 shares as of March 31, 2006
    
    
    423,895
    
    
    
    428,003
    
    
    
    9,930Additional paid-in capital
    
    
    16,238,413
    
    
    
    16,325,960
    
    
    
    378,793Deferred compensation - employee stock option plan
    
    
    (41,925
    )
    
    
    
    
    
    
    Accumulated deficit
    
    
    (12,565,874
    )
    
    
    (12,378,114
    )
    
    
    (287,195
    )Accumulated other comprehensive income
    
    
    
    
    
    
    5,241
    
    
    
    121Total stockholders equity
    
    
    4,054,509
    
    
    
    4,381,090
    
    
    
    101,649Total liabilities and stockholders equity
    
    Rs.
    5,951,771
    
    
    Rs.
    7,162,952
    
    
    $
    166,194
  80




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data and as otherwise stated)
 Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Conveniencetranslation intoUS$Unaudited(Note 2)Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    $RevenueProducts
    
    Rs.
    402,391
    
    
    Rs.
    343,712
    
    
    Rs.
    536,165
    
    
    $
    12,440Services
    
    
    3,151,846
    
    
    
    4,262,697
    
    
    
    4,911,182
    
    
    
    113,949Rs.
    3,554,237
    
    
    Rs.
    4,606,409
    
    
    Rs.
    5,447,347
    
    
    $
    126,389Revenue from related partiesProducts
    
    
    8,532
    
    
    
    43,879
    
    
    
    Services
    
    
    50,688
    
    
    
    31,519
    
    
    
    
    
    
    
    59,220
    
    
    
    75,398
    
    
    
    
    
    
    
    Total Revenue
    
    
    3,613,457
    
    
    
    4,681,807
    
    
    
    5,447,347
    
    
    
    126,389Cost of revenueProducts
    
    
    357,753
    
    
    
    324,411
    
    
    
    461,284
    
    
    
    10,703Services
    
    
    1,666,189
    
    
    
    2,210,312
    
    
    
    2,446,972
    
    
    
    56,7742,023,942
    
    
    
    2,534,723
    
    
    
    2,908,256
    
    
    
    67,477Selling, general and administrative expenses
    
    
    1,418,757
    
    
    
    1,852,296
    
    
    
    1,921,771
    
    
    
    44,589Provision for doubtful receivables and
advances
    
    
    57,579
    
    
    
    90,670
    
    
    
    153,638
    
    
    
    3,564Depreciation
    
    
    472,400
    
    
    
    395,018
    
    
    
    410,321
    
    
    
    9,520Amortisation of intangible assets
    
    
    84,387
    
    
    
    68,759
    
    
    
    50,486
    
    
    
    1,171Employee stock compensation expense
    
    
    10,639
    
    
    
    12,749
    
    
    
    60,933
    
    
    
    1,414Foreign exchange (gain) / loss, net
    
    
    (2,595
    )
    
    
    (23,221
    )
    
    
    (8,332
    )
    
    
    (193
    )Total operating expenses
    
    
    4,065,109
    
    
    
    4,930,994
    
    
    
    5,497,073
    
    
    
    127,542Operating loss
    
    
    (451,652
    )
    
    
    (249,187
    )
    
    
    (49,726
    )
    
    
    (1,153
    )Other income, net
    
    
    77,614
    
    
    
    59,239
    
    
    
    128,642
    
    
    
    2,985Equity in net profit of affiliate
    
    
    50,752
    
    
    
    40,703
    
    
    
    70,221
    
    
    
    1,629Gain on sale of investments
    
    
    15,710
    
    
    
    
    
    
    
    226
    
    
    
    5Net Profit / (Loss) before income taxes and
minority interest
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    149,363
    
    
    
    3,466Income tax benefit
    
    
    
    
    
    
    
    
    
    
    68,928
    
    
    
    1,599Net Profit / (Loss) before minority interest
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    218,291
    
    
    
    5,065Minority interest
    
    
    
    
    
    
    
    
    
    
    (30,531
    )
    
    
    (708
    )Net Profit / (loss)
    
    Rs.
    (307,576
    )
    
    Rs.
    (149,245
    )
    
    Rs.
    187,760
    
    
    $
    4,357Net Profit/(loss) per share (basic)
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    4.40
    
    
    
    0.10Net Profit/(loss) per share ( diluted)
    
    
    (8.75
    )
    
    
    (4.05
    )
    
    
    4.39
    
    
    
    0.10Weighted average number of equity shares
used in computing earnings per equity shareBasic
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    42,704,619
    
    
    
    42,704,619Diluted
    
    
    35,156,120
    
    
    
    36,811,476
    
    
    
    42,792,514
    
    
    
    42,792,514
  81




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share data and as stated otherwise)
 Accumulated
    
    
    DeferredOther
    
    
    Compensation -
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    Employee Stock
    
    
    Accumulated
    
    
    StockholdShares
    
    
    Par Value
    
    
    Paid In Capital
    
    
    Income
    
    
    Income
    
    
    Option Plan
    
    
    Deficit
    
    
    ers' EquityNos.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.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
    )
    
    
    4,054,509Issue of common stock
    
    
    410,751
    
    
    
    4,108
    
    
    
    68,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,647Compensation related to stock option grants
    
    
    
    
    
    
    
    
    
    
    60,933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,933Reversal of unamortized compensation cost pursuant to
adoption of SFAS 123R
    
    
    
    
    
    
    
    
    
    
    (41,925
    )
    
    
    
    
    
    
    
    
    
    
    41,925
    
    
    
    
    
    
    
    Comprehensive incomeNet Profit / (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,760
    
    
    
    
    
    
    
    
    
    
    
    187,760
    
    
    
    187,760Other comprehensive income / (loss) of affiliateTranslation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )
    
    
    316
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,444Adjustment pursuant to adoption of SFAS 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,566
    
    
    
    
    
    
    
    
    
    
    
    5,566Other comprehensive income / (loss) of affiliateAdjustment pursuant to adoption of SFAS 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Balance as of March 31, 2007
    
    
    42,800,265
    
    
    
    428,003
    
    
    
    16,325,960
    
    
    
    
    
    
    
    5,241
    
    
    
    
    
    
    
    (12,378,114
    )
    
    
    4,381,090Balance as of March 31, 2007 (Convenience translation
into US$- Unaudited  Note 2)
    
    
    
    
    
    
    9,930
    
    
    
    378,793
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    (287,195
    )
    
    
    101,649
  82




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data and as otherwise stated)
 Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Conveniencetranslationinto US$Unaudited(Note 2)Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    $Net profit / (loss)
    
    Rs.
    (307,576
    )
    
    Rs.
    (149,245
    )
    
    
    187,760
    
    
    $
    4,357Adjustments to reconcile net loss to net cash provided
by / (used in) operating activities:Income taxes
    
    
    
    
    
    
    
    
    
    
    (68,928
    )
    
    
    (1,599
    )Depreciation
    
    
    472,400
    
    
    
    395,018
    
    
    
    410,321
    
    
    
    9,520Amortization of intangible assets
    
    
    84,387
    
    
    
    68,759
    
    
    
    50,486
    
    
    
    1,171Deferred stock compensation
    
    
    10,639
    
    
    
    12,749
    
    
    
    60,933
    
    
    
    1,413Equity in profit of affiliate
    
    
    (50,752
    )
    
    
    (40,703
    )
    
    
    (70,221
    )
    
    
    (1,629
    )Gain on sale of investment
    
    
    (15,710
    )
    
    
    
    
    
    
    (226
    )
    
    
    55(Gain) / Loss on sale of property, plant and equipment
    
    
    2,757
    
    
    
    1,662
    
    
    
    (487
    )
    
    
    (11
    )Provision for doubtful receivables and advances
    
    
    57,579
    
    
    
    90,670
    
    
    
    153,638
    
    
    
    3,564Minority interest
    
    
    
    
    
    
    
    
    
    
    30,531
    
    
    
    708Unrealized (gain) / loss on account of exchange differences
    
    
    (1,479
    )
    
    
    (21,267
    )
    
    
    7,629
    
    
    
    (177
    )Gain on disposal of subsidiary
    
    
    
    
    
    
    (1,595
    )
    
    
    (226
    )
    
    
    (5
    )Changes in assets and liabilities:Accounts receivable
    
    
    (178,885
    )
    
    
    (279,853
    )
    
    
    (503,009
    )
    
    
    (11,671
    )Due from employees
    
    
    4,250
    
    
    
    (23,952
    )
    
    
    16,340
    
    
    
    379Dues from related parties
    
    
    (20,494
    )
    
    
    
    
    
    
    
    
    
    
    Inventories
    
    
    (8,435
    )
    
    
    (1,268
    )
    
    
    1,776
    
    
    
    41Prepaid expenses
    
    
    19,795
    
    
    
    (3,996
    )
    
    
    (27,049
    )
    
    
    (628
    )Other assets
    
    
    (26,246
    )
    
    
    (69,335
    )
    
    
    (110,373
    )
    
    
    (2,561
    )Trade accounts payable and accrued liabilities
    
    
    310,643
    
    
    
    177,185
    
    
    
    29,114
    
    
    
    675Deferred revenue
    
    
    67,291
    
    
    
    35,089
    
    
    
    5,697
    
    
    
    132Advances from customers
    
    
    (14,241
    )
    
    
    43,070
    
    
    
    (23,904
    )
    
    
    (555
    )Other liabilities
    
    
    74,194
    
    
    
    (12,606
    )
    
    
    28,717
    
    
    
    661Net cash provided/(used) by operating activities
    
    Rs.
    480,117
    
    
    Rs.
    220,382
    
    
    Rs.
    178,519
    
    
    $
    4,142
 83




---



##### 



SIFY LIMITED and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data and as otherwise stated)
 Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2007Conveniencetranslationinto US$Unaudited(Note 2)Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    $Cash flows from investing activities:Expenditure on property, plant and equipment
    
    
    (533,197
    )
    
    
    (592,270
    )
    
    
    (628,614
    )
    
    
    (14,585
    )Proceeds from sale of property, plant and equipment
    
    
    15,200
    
    
    
    4,922
    
    
    
    4,893
    
    
    
    114Expenditure on intangible assets
    
    
    (100,000
    )
    
    
    (17,655
    )
    
    
    (64,222
    )
    
    
    (1,490
    )Business acquisition (net of cash)
    
    
    
    
    
    
    
    
    
    
    (93,775
    )
    
    
    (2,176
    )Net investment in leases
    
    
    (29,165
    )
    
    
    7,547
    
    
    
    (6,974
    )
    
    
    (162
    )Net movement in cash  restricted
    
    
    79,493
    
    
    
    31,240
    
    
    
    
    
    
    
    Proceeds from sale of investments
    
    
    15,000
    
    
    
    139,810
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    Rs.
    (552,669
    )
    
    Rs.
    (426,406
    )
    
    Rs.
    (788,692
    )
    
    $
    (18,299
    )Cash flows from financing activities:Borrowings from Banks
    
    
    
    
    
    
    
    
    
    
    800,000
    
    
    
    18,561Principal payments under capital lease obligations
    
    
    (9,579
    )
    
    
    (8,361
    )
    
    
    (6,587
    )
    
    
    (153
    )Net proceeds from issuance of common stock
    
    
    78,761
    
    
    
    1,692,416
    
    
    
    72,647
    
    
    
    1,686Net cash provided by financing activities
    
    Rs.
    69,182
    
    
    Rs.
    1,684,055
    
    
    Rs.
    866,060
    
    
    $
    20,094Effect of exchange rate changes on cash and cash equivalents
    
    
    1,479
    
    
    
    20,558
    
    
    
    (8,231
    )
    
    
    (191
    )Net increase / (decrease) in cash and cash equivalents
    
    
    (1,891
    )
    
    
    1,498,589
    
    
    
    247,656
    
    
    
    5,746Cash and cash equivalents at the beginning of the period
    
    
    1,325,803
    
    
    
    1,323,912
    
    
    
    2,822,501
    
    
    
    65,487Cash and cash equivalents at the end of the period
    
    Rs.
    1,323,912
    
    
    Rs.
    2,822,501
    
    
    Rs.
    3,070,157
    
    
    $
    71,233Supplementary InformationCash paid towards interest
    
    
    832
    
    
    
    11,090
    
    
    
    5,618
    
    
    
    130Cash paid / (refund received) towards income taxes
    
    
    12,698
    
    
    
    (11,643
    )
    
    
    
    
    
    
    Additions to property, plant and equipment represented by
capital lease obligations
    
    
    7,272
    
    
    
    3,637
    
    
    
    8,570
    
    
    
    199Reversal of minority interest pursuant to disposal of subsidiary
    
    
    
    
    
    
    1,595
    
    
    
    
    
    
    
    
  84




---



##### 



SIFY LIMITED and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data and as stated otherwise)
 1.
    
    Description of businessSify Limited (Sify) together with its subsidiaries (India World Communications Limited, Sify
Communications Limited, Sify Networks Private Limited and Sify International Inc.)
(collectively referred to as 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 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, 2007 have been
translated into United States dollars at the noon buying rate in New York City on March 31,
2007 for cable transfers in Indian rupees, as certified for customs purposes by the Federal
Reserve Bank of New York of U.S. $1 = Rs. 43.10. 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, 2007 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.Business combinationsBusiness combinations have been accounted using the purchase method under the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS)
No.141, Business Combinations. Cash and amounts of consideration that are determinable at the
date of acquisition are included in determining the cost of the acquired business.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 material
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 diminution 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 represents 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.
 85




---



##### 



Revenue recognition
  
    
    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.
   Revenue Arrangements with
Multiple Deliverables ,
       86




---



##### 



iway iway
    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 PCs 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.
 Accounting for Franchisee Fee Revenue.
     , Accounting for Performance of Construction Type and Certain Production-Type
Contracts.
 Cost of revenues
  87




---



##### 



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.
 Goodwill and Other Intangible Assets
 Foreign currency translations
  Foreign currency transactions
  88




---



##### 



Forward Contracts
  Earnings per share
 Earnings per Share
  Income taxes
  Retirement benefits to employees
 Provident fund
  Gratuity
  Employers Accounting for Pensions Employers
Disclosures about Pensions and Other Postretirement Benefits Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 89




---



##### 



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 Accounting for Stock based Compensation  Transition and
Disclosure
 Accounting for
Stock Based Compensation
 Year ended March 31,
    
    
    Year ended March 31,2005
    
    
    2006Net loss  as reported
    
    Rs.
    (307,576)
    
    Rs.
    (149,245)Add: Stock based compensation
expense included in reported net
loss
    
    
    10,639
    
    
    
    12,749Less: Stock based compensation
expense determined under fair
value method
    
    
    55,025
    
    
    
    66,538Pro forma net loss
    
    Rs.

    (351,962)
    
    Rs.
    (203,034)Loss per share:Basic and diluted  as reported
    
    Rs.
    (8.75)
    
    Rs.
    (4.05)Basic and diluted  proforma
    
    Rs.
    (10.01)
   
    Rs.
    (5.52)
   90




---



##### 



Year ended March 31,
 2005
    
    
    2006
    
    
    2007Dividend Yield
    
    
    
    
    
    
    
    
    
    
    Assumed volatility
    
    103.4% to 116.6%
    
    58.13% to 116%
    
    57.2% to 95.4%Risk-free interest rate
    
    4.5% to 7.50%
    
    4.5% to 7.5%
    
    4.5% to 4.75%Expected Term
    
    12-36 month
    
    12  40 months
    
    18  40 months
 Impairment of long-lived assets and long-lived assets to be disposed off
 Accounting for the Impairment or Disposal of Long-Lived
Assets,
 Gain / Loss on sale of investments
 Staff Accounting Bulletin 51.
 Fair value of financial instruments
  Recent Accounting Pronouncements
 FIN 48
  Reclassifications
  a)
    
    Withholding taxes amounting to Rs. 46,929 has been regrouped from Other current
assets to Other Assets in the balance sheet as of March 31, 2006.b)
    
    Deposits received from franchisees amounting to Rs. 27,292 has been regrouped
from Other current liabilities to Other liabilities in the balance sheet as of March
31, 2006.c)
    
    Gain on sale of investments amounting to Rs. 15,710 has been regrouped from
Other income, net to Gain on sale of investments in the statement of consolidated
operations for the year ended March 31, 2005.
 91




---



##### 



3.
    
    Acquisition of Globe Travel BusinessDuring the year ended March 31, 2007, the Company acquired Globe Travels which operates an
online travel agency. The management believes this acquisition marks Sifys entry into the
fast growing online travel business, particularly e-ticketing, the category with highest
revenues and fastest growth in online e-commerce today. The management also believes that the
addition of a travel portal is in line with the Companys strategy of providing end-to-end
services to Sify users. The results of Globe Travels operations have been consolidated in the
financial statements effective May 10, 2006, the date of acquisition. The purchase price in
respect of the business acquisition comprises the following:
 Cash price
    
    Rs.
    112,220  (USD 2,500)Stock options (No. of options)
    
    
    140,000Earn out payments
    
    USD 500
 The Cash price of USD 2,500 includes an amount of USD 500 as holdback amount payable upon the
Airlines Reporting Corporation (ARC) approval of the Companys application for change of
ownership of the travel portal. The Company has been advised by its legal counsel that the
receipt of ARC approval is only a procedural formality and hence the resolution of the
contingency is beyond reasonable doubt. Accordingly, the said holdback amount has been
included and accounted as purchase consideration. Subsequent to the balance sheet date, the
ARC approval was received in August 2007.The Stock Options have been treated as compensation cost in accordance with the provisions of
EITF 95-8 Accounting for Contingent Consideration Paid to the Shareholders of an Acquired
Enterprise in a Purchase Business Combination. Further, as the Earn Out Payment is
contingent upon continuing employment and achievement of specified earning levels the same
will be treated as compensation cost in accordance with the provisions of EITF 95-8. As the
cost of Stock Options and Contingency Earn out payments is treated as compensation cost, the
cost of acquisition comprises of only cash price of Rs.112,220 and other incidental direct
acquisition cost of Rs.3,999.The purchase Price has been allocated to the estimated fair value of the assets, properties
including rights at the date of purchase of business. The following table summarizes the
preliminary allocation of estimated fair value of the assets, properties including rights at
the date of purchase of the business. The allocation of the purchase price is subject to
obtaining third party valuation of certain intangibles.
 Property and Equipment
    
    
    Rs.
    1,246Intangible Assets
    
    
    
    88,052Goodwill
    
    
    
    26,921Total
    
    
    
    116,219
 The acquired intangible assets, in the opinion of the management, have a weighted average
useful life of five years. The
intangible assets are as follows:
 Customer and Contract related intangibles
    
    Rs.
    85,797Software
    
    
    
    2,255
  4.
    
    IP / VPN LicenseIn December 2004, as per the Government of India (GOI) guidelines regarding Virtual Private
Network (IP-VPN) services by Internet Service Providers (ISPs), the Company paid
Rs.100,000 as an entry fee for a 15 year license and submitted a financial bank guarantee of
Rs.10,000. In addition, the ISP licensees were required to pay an annual fee at a prescribed
rate of the adjusted gross revenues generated under the ISP license for IP-VPN services.
 92




---



##### 



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 Rs.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 discontinued
amortization of the IP-VPN license effective November 10, 2005 and reversed the amortization
of the license fee.As the NLD / ILD licenses were under the regime of Department of Telecommunications, the
notification of the GOI dated 7 November 2005 was required to be complied with to receive NLD
/ ILD licenses. The primary condition set out in the notification among other conditions was
that, the total composite foreign holding by the applicant should not exceed 74 per cent.
Given that the foreign shareholding in Sify was higher than the aforesaid threshold limit,
Sify Communications Limited (Sify Comm), a wholly-owned subsidiary of the Company proposed to
obtain the NLD/ILD licenses in its name and made necessary applications in this regard. To
facilitate this, Sify divested its stake in Sify Comm to the extent of 26% (refer to note 5
below) and the Company decided to transfer the IP-VPN business to Sify Comm effective from
the date the NLD/ILD licenses are received.On November 21, 2006, Sify Comm executed two License Agreements with GOI, for NLD / ILD
licenses respectively, (Rs.25,000 paid for each license) which enabled Sify Comm to provide
IP-VPN services. Accordingly, the Company has transferred its IP VPN business to Sify Comm
effective November 22, 2006 and the latter commenced the said services on the same day. Sify
Comm has also furnished bank guarantees for Rs.200,000 each for NLD and ILD licenses to GOI.
These licenses are valid for an initial period of 20 years and can be renewed for another 10
years at one time, upon request of the licensee made during the 19th year of
license.5.
    
    Sale of 26% holding in Sify Communications LimitedThe new guidelines issued by the GOI for NLD / ILD licenses limit foreign direct investment
(FDI) for the telecommunication sector to 74% of the equity shares outstanding. As the
foreign shareholding in Sify was 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 Comm, a subsidiary of Sify.On December 19, 2005 Sify contributed Rs.700,000 as additional equity in Sify Comm to make
the net worth of Sify Comm positive. Pursuant to the agreement entered with Infinity Satcom,
Sify divested 26% of its holding in Sify Comm, or 4,680 shares, to M/s Infinity Satcom
Universal (P) Ltd (Infinity Satcom), a related party, for a sale consideration of Rs.139,810
during the quarter ended December 31, 2005. M/s Infinity Satcom a company incorporated under
the laws of India, is owned by Anand Raju, who is the brother of Raju Vegesna, Chairman of
Sifys Board of Directors and the principal of Infinity Capital Ventures, LP (Infinity
Capital). Infinity Capital owns approximately 41.83 % of Sifys outstanding equity shares.Pending receipt of the ILD / NLD licenses by Sify Comm, based on legal advice, Sify continued
to carry on IP VPN business and accordingly, the amount received as against the sale
proceeds, was included under other liabilities and the corresponding gain on divestment of
26% was also not recognized at that stage.As indicated in note 4 above, the ILD / NLD licenses were granted by GOI on November 21,
2006. Accordingly, during the year ended 31 March 2007, the Company has recognized a gain of
Rs. 226 on the divestment of 26% holding in Sify Comm.
 93




---



##### 



6.
    
    Cash and cash equivalentsCash and cash equivalents as on March 31, 2007 amounted to Rs. 3,070,157 (Rs. 2,822,501 as on
March 31, 2006). This excludes cash-restricted included in non-current assets of Rs.1,000
(Rs. 1,000 as on March 31, 2006), representing deposits held under lien against bank
guarantees given by the Company towards future performance obligations.Cash Restricted  Non current
 Years ended March 31,2006
    
    
    2007Against future performance obligation
    
    Rs.1,000
    
    Rs. 1,000Rs.1,000
    
    Rs.1,000
 The fair values of cash and cash equivalents approximate their carrying values.7.
    
    Accounts receivableAccounts receivable as of March 31, 2006 and 2007 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.Accounts receivables consist of:
 Years ended March 31,2006
    
    
    2007Rs.
    
    
    Rs.Due from customers
    
    
    1,038,480
    
    
    
    1,290,030Less: Allowance for doubtful debts
    
    
    200,047
    
    
    
    101,624Balance at the end of the year
    
    
    838,433
    
    
    
    1,188,406
  Years ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.Balance at the beginning of the year
    
    
    52,533
    
    
    
    109,377
    
    
    
    200,047Add : Additional provision
    
    
    57,579
    
    
    
    90,670
    
    
    
    153,638Less : Bad debts written off
    
    
    735
    
    
    
    
    
    
    
    252,061Balance at the end of the year
    
    
    109,377
    
    
    
    200,047
    
    
    
    101,624
 94




---



##### 



8.
    
    InventoriesInventories consist of:
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Communication hardware
    
    
    18,454
    
    
    
    21,565Application software
    
    
    2,041
    
    
    
    876Others
    
    
    9,967
    
    
    
    6,24530,462
    
    
    
    28,686
 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 31,2006
    
    
    2007Rs.
    
    
    Rs.Minimum lease payments receivable
    
    
    22,987
    
    
    
    30,493Less: Unearned income
    
    
    1,369
    
    
    
    1,901Net investment in sales-type leases
    
    
    21,618
    
    
    
    28,592
  For the year ending March 31,2008
    
    
    17,7962009
    
    
    7,2752010
    
    
    5,422Total
    
    

30,493
 95




---



##### 



10.
    
    Other current assetsOther current assets consist of:
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Vendor advances and deposits
    
    
    98,008
    
    
    
    159,785Advances for expenses
    
    
    2,744
    
    
    
    5,025Accrued income
    
    
    29,284
    
    
    
    73,702Interest earned but not due
    
    
    35,731
    
    
    
    51,161165,767
    
    
    
    289,673
 96




---



##### 



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% stockholder 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 has been won by M/s Man Financial Inc. (Man Financial).
Pursuant to such take over of Refco, the ownership of Refco-Sify has changed from Refco to
Man Financial. Consequent to such change in the ownership of Refco-Sify, Man Financial and
the Company executed a Shareholders Agreement on November 25, 2005 (the Shareholders
Agreement), pursuant to which, the name of Refco-Sify has changed to Man-Sify Securities
India Private Limited (Man-Sify)The carrying value of the investment in Man-Sify as of March 31, 2006 and 2007 was Rs.
233,060 and Rs. 302,956 respectively. Sifys equity in the profit of Man-Sify for the years
ended March 31, 2005, March 31, 2006 and March 31, 2007 is Rs 50,752, Rs. 40,703 and
Rs. 70,221 respectively.The summarised audited financial information as to assets, liabilities and results of
operations of Man-Sify and its subsidiaries is presented below:Balance Sheet
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Current assets
    
    
    2,457,172
    
    
    
    4,097,993Non-current assets
    
    
    150,359
    
    
    
    280,079Total Assets
    
    
    2,607,531
    
    
    
    4,378,072Current liabilities
    
    
    1,838,869
    
    
    
    3,363,146Shareholders equity
    
    
    768,662
    
    
    
    1,014,926Total Liabilities and Shareholders equity
    
    
    2,607,531
    
    
    
    4,378,072
 Statement of Operations
 For the year ended March 31,2005
    
    
    2006
    
    
    2007(unaudited)Rs.
    
    
    Rs.
    
    
    Rs.Revenues
    
    
    507,105
    
    
    
    796,609
    
    
    
    1,341,659Net Profit
    
    
    99,785
    
    
    
    130,093
    
    
    
    247,356
 97




---



##### 



12.
    
    Property, plant and equipmentProperty, plant and equipment consist of:
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Land
    
    
    5,132
    
    
    
    5,132Building
    
    
    485,156
    
    
    
    634,230Leasehold improvements
    
    
    162,139
    
    
    
    165,058Plant and machinery
    
    
    2,835,478
    
    
    
    3,186,546Computer equipment
    
    
    286,170
    
    
    
    424,329Office equipment
    
    
    95,104
    
    
    
    103,934Furniture and fixtures
    
    
    152,059
    
    
    
    182,198Vehicles
    
    
    14,214
    
    
    
    8,766Construction-in-progress
    
    
    19,368
    
    
    
    24,0224,054,820
    
    
    
    4,734,215Accumulated depreciation
    
    
    (2,631,574
    )
    
    
    (3,089,651
    )1,423,246
    
    
    
    1,644,564
 13.
    
    Goodwill and other intangible assets, netGoodwill and other intangible assets consist of:
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Goodwill
    
    
    14,596
    
    
    
    41,517Other Intangible assets :Technical know-how
    
    
    82,753
    
    
    
    82,753Portals and web content
    
    
    52,730
    
    
    
    52,730Customer contracts and others
    
    
    56,084
    
    
    
    141,881Software
    
    
    222,119
    
    
    
    239,846ILD / NLD License fee
    
    
    
    
    
    
    50,000Total
    
    
    413,686
    
    
    
    567,210Less: Accumulated amortization
    
    
    365,846
    
    
    
    416,337Other Intangible Assets, net
    
    
    47,840
    
    
    
    150,873Total
    
    
    62,436
    
    
    
    192,390
 98




---



##### 



Goodwill
  Year ended
    
    
    March 31,2006
    
    
    March 31,2007Balance at the beginning of the year
    
    
    14,596
        
    
    14,596Acquired during the year
    
    
    

    
    
    26,921Balance at the end of the year
    
    
    14,596

    
    
    41,517
   Segment
    
    March 31,2006
    
    
    March 31,2007Online Portal Services
    
    
    14,596
    
    
    
    26,921Total
    
    
    14,596
    
    
    
    26,921
 Intangible Assets
 Business Combinations Goodwill and Other Intangible Assets
  As at March 31, 2007Weighted average life
    
    
    Gross carrying amount
    
    
    Accumulated amortizationTechnical know-how fees
    
    
    5.00
    
    
    
    82,753
    
    
    
    82,753Portals and web content
    
    
    4.91
    
    
    
    52,730
    
    
    
    52,711Customer
contracts and others
    
    
    4.04
    
    
    
    141,881
    
    
    
    60,252Systems Software
    
    
    2.87
    
    
    
    239,846
    
    
    
    219,714ILD / NLD License fee
    
    
    20.00
    
    
    
    50,000
    
    
    
    907Rs. 567,210
    
    Rs.  416,337
 Estimated amortization expense in future years for the carrying value of other intangible
assets as at March 31, 2007:
 For the year ended March 31,2008
    
    
    28,5982009
    
    
    25,9472010
    
    
    25,4422011
    
    
    20,1102012
    
    
    20,1102013 and onwards
    
    
    30,666
 99




---



##### 



14.
    
    Other assetsOther assets consist of:
 As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Deposits
    
    
    89,768
    
    
    
    105,653Staff advances recoverable
    
    
    1,575
    
    
    
    150Witholding Taxes
    
    
    46,929
    
    
    
    105,734Deposit with Department of Income Tax
    
    
    
    
    
    
    12,954Deposit with Department of Telecommunication towards License Fees
    
    
    100,000
    
    
    
    238,272
    
    
    
    224,491
 Witholding taxes represent taxes deducted at source by the customer and paid to the
Government, which is refundable to the Company. Deposit with Department of Income Tax
represents tax demands paid to the authorities under protest. Refer to note 26 (a).15.
    
    Deferred revenue
  
    
    For the Companys corporate network / data services division, revenue relating to
the connectivity / hosting charges and from provision of digital certificates;
    
    For the Companys Internet access services and online portal services divisions,
revenue relating to the internet access charges and the advertisement charges
respectively; and
    
    For the Companys other service division, revenue relating to development of
e-learning software.
  As at March 31,2006
    
    
    2007Rs.
    
    
    Rs.Corporate network/data services
    
    
    305,028
    
    
    
    351,933Internet access services
    
    
    133,613
    
    
    
    61,459Online portal services
    
    
    623
    
    
    
    21Other services
    
    
    5,069
    
    
    
    36,617444,333
    
    
    
    450,030
 100




---



##### 



16.
    
    Capital lease obligationsThe gross amounts and related accumulated depreciation recorded for assets acquired under
capital leases are as follows:
 As at March 31,2006
    
    
    2007Rs.Vehicles
    
    
    14,212
    
    
    
    8,766Less: Accumulated depreciation
    
    
    8,168
    
    
    
    2,1286,044
    
    
    
    6,638
  Due for the year ended March 31,
    
    Rs.2008
    
    
    2,9542009
    
    
    2,5872010
    
    
    1,395Total minimum lease payments
    
    
    6,936Less: Interest
    
    
    (789
    )Present value of net minimum capital leases payments
    
    
    6,147Less: Current installments of obligations under capital leases
    
    
    2,476Obligations under capital leases, excluding current installments
    
    
    3,671
 17.
    
    Borrowings from banksThe Company has short term borrowings of Rs. 800,000 as of March 31, 2007 (Nil as of March
31, 2006), from its bankers for working capital requirements. The borrowings are secured by
fixed deposits held by the Company. The borrowings bear interest ranging from 8 to 9.75% and
are repayable within one year from the balance sheet date.18.
    
    Accrued and Other liabilitiesAccrued liabilities principally comprise of provisions for expenses amounting to Rs. 507,006
and Rs. 670,754 as at March 31, 2006 and 2007, respectively. Other liabilities primarily
comprise of deposits received from franchisees amounting to Rs. 94,822 and Rs. 109,938 as at
March 31, 2006 and 2007, respectively.
 101




---



##### 



19.
    
    Income taxThe provision for income taxes consists of:
 Year ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.Current tax
    
    
    
    
    
    
    
    
    
    
    Deferred tax expense/ (benefit)
    
    
    
    
    
    
    
    
    
    
    (68,928
    )Income tax expense / (benefit)
    
    
    
    
    
    
    
    
    
    
    (68,928
    )
  Year ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.Profit (Loss) from operations before taxes and minority interest
    
    
    (307,576
    )
    
    
    (149,245
    )
    
    
    149,363Enacted tax rates in India
    
    
    36.59
    %
    
    
    33.66
    %
    
    
    33.66
    %Computed expected tax expense/ (benefit)
    
    
    (112,542
    )
    
    
    (50,236
    )
    
    
    50,276Differences not deductible for tax purposes
    
    
    15,349
    
    
    
    55,519
    
    
    
    69,809Change in valuation allowance
    
    
    142,777
    
    
    
    (165,488
    )
    
    
    (188,019
    )Others
    
    
    (5,440
    )
    
    
    4,478
    
    
    
    (994
    )Effect of tax rate change
    
    
    (40,144
    )
    
    
    155,727
    
    
    
    Total income tax expense/(benefit)
    
    
    
    
    
    
    
    
    
    
    (68,928
    )
  As at March 31,2006
    
    
    2007Deferred tax assets:Carry forward business loss
    
    
    1,470,841
    
    
    
    1,175,143Property, plant and equipment
    
    
    35,447
    
    
    
    95,282Accrual and expenses currently not allowed for tax purposes
    
    
    
    
    
    
    10,603Investment in affiliates
    
    
    335,474
    
    
    
    318,587Carry forward capital loss
    
    
    31,169
    
    
    
    35Provision for doubtful accounts receivables
    
    
    30,416
    
    
    
    43,913Intangible Assets
    
    
    5,126
    
    
    
    2,975Total deferred tax assets
    
    
    1,908,473
    
    
    
    1,646,538Less: valuation allowance
    
    
    (1,908,473
    )
    
    
    (1,573,695
    )Net deferred tax assets
    
    
    
    
    
    
    72,843Deferred tax liabilities:Intangible Assets
    
    
    
    
    
    
    (3,915
    )Retirement benefits
    
    
    
    
    
    
    (2,824
    )Total deferred tax liabilities
    
    
    
    
    
    
    (6,739
    )Net Deferred Tax Asset
    
    
    
    
    
    
    66,104
 102




---



##### 



Year endingMarch 31,
    
    Rs.2008
    
    
    2009
    
    
    216,5492010
    
    
    599,7382011
    
    
    227,6252012
    
    
    82,5472013
    
    
    10,0472014
    
    
    1,573
 20.
    
    Stockholders 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/- .21.
    
    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.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. 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.
 103




---



##### 



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 as determined
under the Indian Companies Act 1956, 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
stockholders.Stock OptionsThere are no voting, dividend or liquidation rights to the holders of warrants issued under
the Companys stock option plan.22.
    
    Other income, netOther income consists of:
 For the year ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.Interest expense
    
    
    (1,938
    )
    
    
    (11,090
    )
    
    
    (5,618
    )Other finance charges
    
    
    (11,281
    )
    
    
    (13,773
    )
    
    
    (17,949
    )Interest income
    
    
    52,759
    
    
    
    70,314
    
    
    
    154,190Others
    
    
    38,074
    
    
    
    13,788
    
    
    
    (1,981
    )Other (expense)/income, net
    
    
    77,614
    
    
    
    59,239
    
    
    
    128,642
 23.
    
    Employee benefitsGratuityThe following table sets out the funded status of the Gratuity Plan and the amounts
recognized in Sifys balance sheet.
 As of March 31,2006
    
    
    2007Rs.
    
    
    Rs.Accumulated benefit obligation
    
    
    12,799
    
    
    
    10,702Change in projected benefit obligationProjected benefit obligation at the beginning of the year
    
    
    18,140
    
    
    
    21,615Service cost
    
    
    6,806
    
    
    
    7,616Interest cost
    
    
    1,392
    
    
    
    1,666Actuarial (gain)/loss
    
    
    (2,217
    )
    
    
    (832
    )Benefits paid
    
    
    (2,506
    )
    
    
    (12,589
    )Projected benefit obligation at the end of the year
    
    
    21,615
    
    
    
    17,476
 104




---



##### 



As of March 31,2006
    
    
    2007Rs.
    
    
    Rs.Change in plan assetsFair value of plan assets at the beginning of the year
    
    
    4,716
    
    
    
    1,718Actual return on plan assets
    
    
    (492
    )
    
    
    794Employer contributions
    
    
    
    
    
    
    18,500Benefits paid
    
    
    (2,506
    )
    
    
    (12,589
    )Fair value of plan assets at the end of the year
    
    
    1,718
    
    
    
    8,423Funded status of the plans
    
    
    19,897
    
    
    
    9,053Unrecognized net actuarial gain/(loss)
    
    
    7,395
    
    
    
    Accrued benefit cost
    
    
    27,292
    
    
    
    9,053
  Before Application of

    
    
    
    
    
    After ApplicationFAS 158
    
    Adjustments
    
    of FAS 158Deferred
income taxes  Non Current
    
    
    68,928
    
    
    
    (2,824
    )
    
    
    66,104Total Assets
    
    
    7,165,776
    
    
    
    (2,824
    )
    
    
    7,162,952Other Liabilities
    
    
    130,328
    
    
    
    (8,390
    )
    
    
    121,938Total Liabilities
    
    
    2,620,487
    
    
    
    (8,390
    )
    
    
    2,612,097Accumulated Other
Comprehensive Income
    
    
    (325
    )
    
    
    5,566
    
    
    
    5,241Total Stockholders equity
    
    
    4,375,524
    
    
    
    5,566
    
    
    
    4,381,090Total liabilities and
stockholders equity
    
    
    7,165,776
    
    
    
    (2,824
    )
    
    Rs.
    7,162,952
 105




---



##### 



As of March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.The components of net gratuity costs are reflected below:Service cost
    
    
    5,688
    
    
    
    6,806
    
    
    
    7,616Interest cost
    
    
    1,100
    
    
    
    1,392
    
    
    
    1,665Expected returns on plan assets
    
    
    (543
    )
    
    
    (538
    )
    
    
    (163
    )Recognized net actuarial (gain)/ loss
    
    
    (130
    )
    
    
    (490
    )
    
    
    (467
    )Net gratuity costs
    
    
    6,115
    
    
    
    7,170
    
    
    
    8,651Principal weighted average actuarial assumptions:Discount rate
    
    
    8
    %
    
    
    8
    %
    
    
    9.8
    %Long-term rate of compensation increase
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %Rate of return on plan assets
    
    
    6
    %
    
    
    7.50
    %
    
    
    7.50
    %
   For the year ended March 31,2008
    
    
    1,3382009
    
    
    1,6252010
    
    
    2,4842011
    
    
    4,1332012
    
    
    6,4482013 to 2018
    
    
    38,879
 Provident fund
  106




---



##### 



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 provides 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
  As at March
    
    
    April 01 to31,2005
    
    
    November 10,2005Rs.
    
    
    Rs.Due (to)/from Satyam Computer Services Limited
at beginning of the year
    
    
    13,030
    
    
    
    33,524Allocation of facilities costs
    
    
    (1,647
    )
    
    
    Billings to Satyam Computer Services Limited
    
    
    48,713
    
    
    
    121,132Collections from Satyam Computer Services Limited
    
    
    (36,005
    )
    
    
    (101,958
    )Payment to Satyam Computer Services Limited
    
    
    9,433
    
    
    
    Due (to)/from Satyam Computer Services Limited
    
    
    33,524
    
    
    
    52,698
  Year ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.Sale of Equity in Sify Communications Limited
    
    
    
    
    
    
    139,810
    
    
    
    Payments to Directors (Fees for consultancy services)
    
    
    240
    
    
    
    240
    
    
    
    240
 Employee loans
  2006
    
    
    2007Rs.
    
    
    Rs.Due from employees
    
    
    25,393
    
    
    
    7,726
  107




---



##### 



25.
    
    Stock based compensation plansAssociate 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.
    Weighted average exercise priceShares arising out of option
    
    
    (in Rupees)Year ended March 31,
    
    
    Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2005
    
    
    2006
    
    
    2007Outstanding at beginning of the year
    
    
    151,500
    
    
    
    7,770
    
    
    
    2,040
    
    
    
    214.20
    
    
    
    105.91
    
    
    
    182.47Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    10,391
    
    
    
    720
    
    
    
    
    
    
    
    171.40
    
    
    
    165.91
    
    
    
    Expired
    
    
    19,396
    
    
    
    1,090
    
    
    
    2,040
    
    
    
    281.26
    
    
    
    107.11
    
    
    
    182.47Exercised
    
    
    113,943
    
    
    
    3,920
    
    
    
    
    
    
    
    167.36
    
    
    
    54.71
    
    
    
    Outstanding at the end of the year
    
    
    7,770
    
    
    
    2,040
    
    
    
    
    
    
    
    105.91
    
    
    
    182.47
    
    
    
    Exercisable at the end of the year
    
    
    990
    
    
    
    960
    
    
    
    
    
    
    
    107.52
    
    
    
    182.47
    
    
    
    Weighted-average grant date fair
value of grants during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 108




---



##### 



Associate Stock Option Plan 2002
   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.
    Weighted average exercise priceShares arising out of option
    
    
    (in Rupees)Year ended March 31,
    
    
    Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2005
    
    
    2006
    
    
    2007Outstanding at beginning of the year
    
    
    1,108,000
    
    
    
    757,473
    
    
    
    376,857
    
    
    
    170.25
    
    
    
    178.35
    
    
    
    172.83Granted
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    254.16
    
    
    
    
    
    
    
    Forfeited
    
    
    69,458
    
    
    
    85,479
    
    
    
    521
    
    
    
    189.66
    
    
    
    214.74
    
    
    
    265.35Expired
    
    
    5,727
    
    
    
    10,081
    
    
    
    31,323
    
    
    
    281.26
    
    
    
    239.35
    
    
    
    188.45Exercised
    
    
    365,342
    
    
    
    285,056
    
    
    
    338,763
    
    
    
    163.39
    
    
    
    172.60
    
    
    
    172.18Outstanding at the end of the year
    
    
    757,473
    
    
    
    376,857
    
    
    
    6,250
    
    
    
    178.35
    
    
    
    172.83
    
    
    
    228.74Exercisable at the end of the year
    
    
    131,589
    
    
    
    357,482
    
    
    
    3,906
    
    
    
    174.61
    
    
    
    168.58
    
    
    
    228.74Weighted-average grant date fair value of grants during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157.78
    
    
    
    
    
    
    
    
 109




---



##### 



Associate Stock Option Plan 2005
   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.
    Shares arising out of option
    
    
    Weighted average exerciseYear ended March 31
    
    
    price Year ended March 312006
    
    
    2007
    
    
    2006
    
    
    2007Outstanding at beginning of the year
    
    
    
    
    
    
    1,676,400
    
    
    
    
    
    
    
    286.20Granted
    
    
    1,735,400
    
    
    
    547,600
    
    
    
    285.98
    
    
    
    451.15Forfeited
    
    
    59,000
    
    
    
    1,268,293
    
    
    
    279.57
    
    
    
    290.32Expired
    
    
    
    
    
    
    15,524
    
    
    
    
    
    
    
    254.01Exercised
    
    
    
    
    
    
    71,988
    
    
    
    
    
    
    
    238.32Outstanding at the end of the year
    
    
    1,676,400
    
    
    
    868,195
    
    
    
    286.20
    
    
    
    391.59Exercisable at the end of the year
    
    
    
    
    
    
    54,914
    
    
    
    
    
    
    
    338.66Weighted-average grant date fair value of grants during the year
    
    
    
    
    
    
    
    
    
    
    126.37
    
    
    
    224.86
  Number
    
    
    
    
    
    
    Weighted
    
    
    Number
    
    
    Weightedoutstanding at
    
    
    Weighted
    
    
    average
    
    
    exercisable at
    
    
    averageRange of
    
    
    March 31,
    
    
    average
    
    
    remaining
    
    
    March 31,
    
    
    exerciseexercise price
    
    
    2007
    
    
    exercise price
    
    
    contractual life
    
    
    2007
    
    
    priceASOP 2002
    
    
    163-265
    
    
    
    6,250
    
    
    
    228.74
    
    
    0.29 years
    
    
    3,906
    
    
    
    228.74ASOP 2005
    
    
    163-265
    
    
    
    868,195
    
    
    
    391.59
    
    
    
    1.57 to 2.81 years
    
    
    
    54,914
    
    
    
    338.66
 110




---



##### 



26.
    
    Commitments and contingencies
 a)
    
    During the year ended March 31, 2006, the Company 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. Subsequently, the demand was revised to Rs. 77,724 by the
income tax authorities. Under the Income tax regulations the company is required to pay
such amounts in 12 monthly instalments under protest if it seeks to dispute the demand.
Accordingly, the Company has paid two instalments amounting to Rs. 12,954 till March 31,
2007 under protest and challenged such demands. The Company believes that 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 has demonstrated to the tax authorities that international service providers
neither had a permanent establishment in India nor installed any equipment at the
Companys premises, and hence concluded that the likelihood of the loss contingency is
remote and no provision for the loss contingency is considered necessary. The amounts
paid under protest is included under Other assets.b)
    
    The Company has outstanding financial and performance guarantees for various
statutory purposes and letters of credit totalling Rs. 422,683 and Rs. 641,115 as of
March 31, 2006 and 2007, respectively. These guarantees are generally provided to
governmental agencies.c)
    
    Additionally, the Company is also involved in lawsuits, claims and proceedings,
which arise in the ordinary course of business. There are no such items pending that the
Company expects to be material in relation to its business.
 27.
    
    Products and servicesBreakup of revenues against products and services are as follows:
 Year ended March 31,2005
    
    
    2006
    
    
    2007Rs.
    
    
    Rs.
    
    
    Rs.RevenueService revenue
    
    
    2,858,070
    
    
    
    3,928,072
    
    
    
    4,587,873Initial franchise fee
    
    
    107,956
    
    
    
    104,085
    
    
    
    67,269Installation service revenue
    
    
    236,508
    
    
    
    262,059
    
    
    
    256,0403,202,534
    
    
    
    4,294,216
    
    
    
    4,911,182Product revenue
    
    
    410,923
    
    
    
    387,591
    
    
    
    536,1653,613,457
    
    
    
    4,681,807
    
    
    
    5,447,347Cost of revenues (excluding depreciation and amortization)Products
    
    
    357,753
    
    
    
    324,411
    
    
    
    462,419Services
    
    
    1,660,578
    
    
    
    2,167,748
    
    
    
    2,357,326Annual fee on IP VPN revenue
    
    
    5,611
    
    
    
    42,564
    
    
    
    88,5112,023,942
    
    
    
    2,534,723
    
    
    
    2,908,256
 111




---



##### 



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.
      112




---



##### 



The Companys operating segment information for the years ended March 31, 2005, 2006 and 2007
are presented below:
  Year ended March 31, 2007
    
    (in Rupees)
 CorporateNetwork / Data
    
    Internet Access
    
    Online PortalServices
    
    Services
    
    Services
    
    Other Services
    
    TotalRevenues
    
    
    3,147,369
    
    
    
    1,862,945
    
    
    
    262,903
    
    
    
    174,130
    
    
    
    5,447,347Allocated expenses
    
    
    (1,937,489
    )
    
    
    (1,760,624
    )
    
    
    (261,949
    )
    
    
    (154,692
    )
    
    
    (4,114,754
    )Equity in profits of affiliates
    
    
    
    
    
    
    
    
    
    
    70,221
    
    
    
    
    
    
    
    70,221Minority Interest
    
    
    (30,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,531
    )Segment operating income / (loss)
    
    
    1,179,349
    
    
    
    102,321
    
    
    
    71,175
    
    
    
    19,438
    
    
    
    1,372,283Unallocated corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (886,789
    )Foreign exchange gain / (loss), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,332Other income / (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,309
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (521,740
    )Interest income, net*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,055Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,928Net Profit / (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,760
 
 *
    
    Excludes bank charges of Rs. 18,104 being allocated to the strategic business units.  Year ended March 31, 2006
    
    (all in Rupees)
 CorporateNetwork / Data
    
    Internet Access
    
    Online PortalServices
    
    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 profits of affiliates
    
    
    
    
    
    
    
    
    
    
    40,703
    
    
    
    
    
    
    
    40,703Segment operating income / (loss)
    
    Rs.
    1,018,262
    
    
    Rs.
    15,152
    
    
    Rs.
    31,748
    
    
    Rs.
    16,045
    
    
    Rs.
    1,081,207Unallocated corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (843,599
    )Foreign exchange gain / (loss), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,221Other income / (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,835Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (476,526
    )Interest income, net*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,617Net Profit / (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rs.
    (149,245
    )
 
 *
    
    Excludes bank charges of Rs. 7,413 being allocated to the strategic business units. 113




---



##### 



Year ended March 31, 2005
    
    (all in Rupees)
 Corporate
    
    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 (loss)/profit of affiliates
    
    
    
    
    
    
    
    
    
    
    50,752
    
    
    
    
    
    
    
    50,752Segment operating income/(loss)
    
    
    678,158
    
    
    
    43,736
    
    
    
    54,502
    
    
    
    7,770
    
    
    
    784,166Corporate expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (620,235
    )Foreign exchange gain/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,595Other income/(expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,503Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (567,426
    )Interest income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,821Net Profit / (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307,576
    )
 29.
    
    Legal proceedingsThe Company and certain of its erstwhile officers and directors are named as defendants in
a securities class action lawsuit filed in the United States District Court for the Southern
District of New York. This action, which is captioned In re Satyam Infoway Ltd. Initial Public
Offering Securities Litigation, also names several of the underwriters involved in Sifys
initial public offering of American Depositary Shares as defendants. This class action is
brought on behalf of a purported class of purchasers of Sifys ADSs from the time of Sifys
Initial Public Offering (IPO) in October 1999 through December 2000. The central allegation in
this action is that the underwriters in Sifys IPO solicited and received undisclosed
commissions from, and entered into undisclosed arrangements with, certain investors who
purchased Sifys ADSs in the IPO and the aftermarket. The complaint also alleges that Sify
violated the United States federal securities laws by failing to disclose in the IPO prospectus
that the underwriters had engaged in these allegedly undisclosed arrangements. More than 300
issuers have been named in similar lawsuits.In July 2002, an omnibus motion to dismiss all complaints against issuers and individual
defendants affiliated with issuers was filed by the entire group of issuer defendants in these
similar actions. In October 2002, the cases against the Companys executive officers who were
named as defendants in this action were dismissed without prejudice. In February 2003, the court
in this action issued its decision on defendants omnibus motion to dismiss. This decision
denied the motion to dismiss the Section 11 claim as to the Company and virtually all of the
other issuer defendants. The decision also denied the motion to dismiss the Section 10(b) claim
as to numerous issuer defendants, including the Company. On June 26, 2003, the plaintiffs in the
consolidated IPO class action lawsuits currently pending against Sify and over 300 other issuers
who went public between 1998 and 2000, announced a proposed settlement with Sify and the other
issuer defendants. The proposed settlement provides that the insurers of all settling issuers
will guarantee that the plaintiffs recover $1 billion from non-settling defendants, including
the investment banks who acted as underwriters in those offerings. In the event that the
plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the
difference.The Company believes that it has sufficient insurance coverage to cover the maximum amount that
it may be responsible for under the proposed settlement. Although the Federal District Court has
preliminarily approved the settlement, it is possible that the Federal District Court may not
finally approve the settlement in whole or part. The Company believes the maximum exposure under
this settlement, in the event that the plaintiffs recover nothing from the non-settling
defendants, is approximately U.S. $3.9 million, an amount which the Company believes is fully
recoverable from the Companys insurer.The Company is party to additional legal actions arising in the ordinary course of business.
Based on the available information, as of March 31, 2007 Sify believes that it has adequate
legal defenses for these actions and that the ultimate outcome of these actions will not have a
material adverse effect on Sify.
 114




---



##### 



MF Global Sify Securities India Private Limited and Subsidiaries
   
 115




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  Price Waterhouse
 
 116




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 117




---



##### 



In Rupees thousands, except share data and as otherwise stated
 As of March 312007
    
    
    2006Rs.
    
    
    Rs.AssetsCash
    
    
    324,375
    
    
    
    93,739Cash-restricted
    
    
    2,562,032
    
    
    
    1,039,115Interest bearing deposits with bank
    
    
    130,424
    
    
    
    102,250Deposits with clearing organizations and others
    
    
    138,533
    
    
    
    438,103Receivable from broker-dealers and clearing organizations
    
    
    60,916
    
    
    
    138,301Receivable from customers (net of allowances of Rs. 76,400
Previous year Rs. 3,100)
    
    
    616,792
    
    
    
    621,233Securities owned:Marketable, at market value
    
    
    204,176
    
    
    
    12,605Not readily marketable (at estimated fair value)
    
    
    52,000
    
    
    
    2,927Memberships in exchanges, at adjusted cost (Refer Note 7)
    
    
    8,745
    
    
    
    8,899Furniture and equipment-net
    
    
    80,814
    
    
    
    55,517Other assets
    
    
    165,387
    
    
    
    89,619Deferred tax asset -net
    
    
    33,878
    
    
    
    5,223Total assets
    
    Rs.
    4,378,072
    
    
    Rs.
    2,607,531LiabilitiesPayable to broker dealers and clearing organizations
    
    
    1,195,594
    
    
    
    366,210Payable to customers
    
    
    1,797,100
    
    
    
    1,271,821Accounts payable, accrued expenses, and other liabilities
    
    
    370,452
    
    
    
    200,838Total liabilities
    
    
    3,363,146
    
    
    
    1,838,869Commitments, contingencies and guarantees (Refer note 15)Stockholders equityCommon stock at Rs. 10 par value: 65,000,000 shares
authorized (2006 - 65,000,000); Issued, Subscribed and
outstanding: 51,894,182 shares as of March 31, 2007 and
51,894,182 shares as of March 31, 2006
    
    
    518,942
    
    
    
    518,942Additional paid-in capital
    
    
    28,968
    
    
    
    28,968Retained earnings
    
    
    468,108
    
    
    
    220,752Accumulated other comprehensive income (loss)
    
    
    (1,092
    )
    
    
    -Total stockholders equity
    
    
    1,014,926
    
    
    
    768,662Total liabilities and stockholders equity
    
    Rs.
    4,378,072
    
    
    Rs.
    2,607,531
 The accompanying notes are an integral part of these consolidated financial statements
 118




---



##### 



Consolidated statements of income and comprehensive income
 In Rupees thousands, except share data and as otherwise stated
 Particulars
    
    Years ended March 312007
    
    
    2006Rs.
    
    
    Rs.RevenuesCommissions
    
    
    1,025,505
    
    
    
    674,045Depository and clearing fees
    
    
    44,352
    
    
    
    28,350Interest and dividends
    
    
    160,801
    
    
    
    64,910Gain on exchange shares
    
    
    49,073
    
    
    
    Other income
    
    
    61,928
    
    
    
    29,304Total
    
    Rs.
    1,341,659
    
    
    Rs.
    796,609ExpensesEmployee compensation and benefits
    
    
    453,457
    
    
    
    259,099Exchange expenses and clearance fees
    
    
    104,065
    
    
    
    27,479Brokerage to other broker-dealers
    
    
    109,319
    
    
    
    96,168Communications and data processing
    
    
    14,611
    
    
    
    12,949Interest
    
    
    19,896
    
    
    
    9,967Occupancy
    
    
    63,732
    
    
    
    67,616Allowance for doubtful debts
    
    
    73,300
    
    
    
    2,600Other expenses
    
    
    145,911
    
    
    
    96,287Loss on exchange membership rights (Refer note 7)
    
    
    
    
    
    
    5,980Total
    
    
    984,291
    
    
    
    578,145Income before income taxes
    
    
    357,368
    
    
    
    218,464Income tax expense
    
    
    (110,012
    )
    
    
    (88,371
    )Net income
    
    Rs.
    247,356
    
    
    Rs.
    130,093Loss on foreign currency translation, net of taxes
    
    
    (1,061
    )
    
    
    Comprehensive income
    
    Rs.
    246,295
    
    
    Rs.
    130,039
 The accompanying notes are an integral part of these consolidated financial statements
 119




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##### 



Consolidated statement of stockholders equity  In Rupees thousands, except share data and as otherwise stated
 Additional
    
    
    Accumulated Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Capital
    
    
    Income/ (loss)
    
    
    Earnings
    
    
    EquityNo. of shares
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.
    
    
    Rs.Balance as of April 1, 2005
    
    
    51,894,182
    
    
    
    518,942
    
    
    
    28,968
    
    
    
    
    
    
    
    90,659
    
    
    
    638,569Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,093
    
    
    
    130,093Balance as of March 31, 2006
    
    
    51,894,182
    
    
    
    518,942
    
    
    
    28,968
    
    
    
    
    
    
    
    220,752
    
    
    
    768,662Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247,356
    
    
    
    247,356Loss on
foreign currency translation, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,061
    )
    
    
    
    
    
    
    (1,061
    )Adjustment to initially adopt SFAS 158, net of
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Balance as of March 31, 2007
    
    
    51,894,182
    
    
    
    518,942
    
    
    
    28,968
    
    
    
    (1,092
    )
    
    
    468,108
    
    
    
    1,014,926
 The accompanying notes are an integral part of these consolidated financial statements
 120




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##### 



Consolidated statements of cash flows  In Rupees thousands, except share data and as otherwise stated
 Years ended March 312007
    
    
    2006Particulars
    
    Rs.
    
    
    Rs.Cash flows from operating activitiesNet income
    
    
    247,356
    
    
    
    130,093Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    33,635
    
    
    
    22,414Loss on exchange membership rights (Refer note 7)
    
    
    
    
    
    
    5,980Allowance for doubtful debts
    
    
    73,300
    
    
    
    2,600Deferred tax expense
    
    
    (28,655
    )
    
    
    12,411Stock Appreciation Rights
    
    
    7,174
    
    
    
    Gain on Exchange Shares
    
    
    (49,073
    )
    
    
    Others
    
    
    146
    
    
    
    35Changes in operating assets and liabilities:Interest bearing deposits with banks
    
    
    (28,174
    )
    
    
    (102,250
    )Deposits with clearing organizations and others
    
    
    299,570
    
    
    
    (317,249
    )Net receivable from broker-dealers and clearing organizations
    
    
    77,385
    
    
    
    (4,817
    )Net receivable from customers
    
    
    (68,859
    )
    
    
    (229,213
    )Securities owned, net
    
    
    (191,571
    )
    
    
    20,242Other, net
    
    
    (75,768
    )
    
    
    (35,479
    )Increase (decrease) in operating liabilities:Payable to broker dealers and clearing organizations
    
    
    829,384
    
    
    
    119,956Payable to customers
    
    
    525,279
    
    
    
    493,360Accounts payable, accrued expenses, and other liabilities
    
    
    179,617
    
    
    
    66,546Net cash provided by operating activities
    
    
    1,830,746
    
    
    
    184,629Cash flows from investing activitiesExpenditure on furniture and equipment
    
    
    (58,924
    )
    
    
    (34,258
    )Purchase of DGCX membership
    
    
    
    
    
    
    (4,512
    )Net movement in cash-restricted
    
    
    (1,522,917
    )
    
    
    (143,382
    )Proceeds from sale of furniture, equipment
    
    
    
    
    
    
    806Net cash used in investing activities
    
    
    (1,581,841
    )
    
    
    (181,346
    )Cash flows from financing activitiesPayment of bank loans
    
    
    (17,177
    )
    
    
    (3,471
    )Net cash used in financing activities
    
    
    (17,177
    )
    
    
    (3,471
    )Effect of foreign exchange fluctuation on cash
    
    
    (1,092
    )
    
    
    -Net increase (decrease) in cash
    
    
    230,636
    
    
    
    (188
    )Cash at the beginning of the year
    
    
    93,739
    
    
    
    93,927Cash at the end of the year
    
    
    324,375
    
    
    
    93,739
 121




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##### 



Consolidated
statements of cash flows (continued....)  In Rupees thousands, except share data and as otherwise stated
 Years ended March 312007
    
    
    2006Particulars
    
    Rs.
    
    
    Rs.Supplementary information:Cash paid for:Interest
    
    
    9,486
    
    
    
    1,893Taxes
    
    
    158,515
    
    
    
    91,875
  The accompanying notes are an integral part of these consolidated financial statements
 122




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##### 



1.
    
    Organization and nature of businessMF Global Sify Securities India Private Limited (formerly Man Financial-Sify Securities India
Private Limited) was incorporated on 29 December 1999 as a private limited company under the
Indian Companies Act 1956.MF Global Sify Securities India Private Limited (MF Global Sify) has three wholly owned
subsidiaries, MF Global Commodities India Private Ltd., MF Global Capital India Private Ltd.
incorporated in India and MF Global Middle East Limited DMCC (DMCC) incorporated in Dubai.
MF Global Sify and its subsidiaries are hereinafter referred to as the Company.In March 2006, MF Global Overseas Limited (MFG), a company incorporated in United Kingdom
acquired 70.15% of MF Global Sify equity share capital from Refco Group Inc., USA (Refco).
Thereby, MFG holds 70.15% of MF Global Sify and the balance, 29.85% of MF Global Sifys
equity shares, is held by Sify Limited. MFG is a subsidiary of Man Group plc, a company
incorporated in United Kingdom. Man Group plc along with its subsidiaries is referred as Man
Group.The principal activity of the Company is to act as a stock and commodity broker for foreign
institutional investors (FIIs), mutual funds, domestic financial institutions and retail
investors. The Company also acts as a depository participant and provides depository services
to FIIs, mutual funds, domestic financial institutions and retail investors.2.
    
    Significant accounting policiesBasis of presentationThe accompanying consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles (U.S. GAAP).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 of assets, valuation allowance for deferred tax assets and valuation of
memberships in exchanges. Actual results could differ from those estimates.Principles of consolidationThe consolidated financial statements of MF Global Sify include the amounts of MF Global Sify
and all of its majority-owned subsidiaries, where MF Global Sify is able to exercise control
over the operating and financial policies of the investees. All significant inter-company
accounts and transactions are eliminated on consolidation.
 123




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##### 



Securities TransactionsThe Company executes transactions on behalf of its clients and does not trade on its own
account. Transactions executed as agents for customers are recorded on trade date basis. The
Commission income and related expenses are reported on the trade date basis.Amounts receivable and payable for securities transactions that have not reached their
contracted settlement date are recorded net on the statement of financial condition.Marketable securities are valued at market value. Non-marketable shares in exchange held by
the Company that are not required for trading rights are recorded at fair market value, as
determined by management, taking into account any restrictions. Unrealized gains and losses
arising from these assets are reported separately in the consolidated statements of income as
gain on exchange shares.RevenueCommission, Clearing fees and related expenses are recorded on a trade-date basis as
securities transactions occur. Depository fee income earned from customer is recognized in
the period in which services are rendered.Interest income is recognized on a time proportion basis. Dividend income is recognized when
the right to receive payment is established.Foreign Currencies transactionsThe Indian rupee (Rs.) is the functional currency of MF Global Sify and its subsidiaries,
except for MF Global Middle East Limited DMCC, whose functional currency is the US dollar.
The consolidated financial statements are reported in Indian rupees (Rs.), the reporting
currency of the Company. In case of MF Global Middle East Limited DMCC, assets and
liabilities are translated into reporting currency at the exchange rate prevailing on the
date of consolidated financial condition, and income and expense items are translated using
average exchange rates prevailing during the period. The resulting unrealized gains or losses
are reported as Loss on foreign currency translation, net of taxes within accumulated other
comprehensive income (loss), a separate component of shareholders equity.Transactions in foreign currency are recorded at the exchange rate prevailing on the dates of
the transactions. Revenues, costs and expenses are recorded using average exchange rates
prevailing during the reporting periods. Monetary assets and liabilities denominated in
foreign currencies are translated into the functional currency at the exchange rates in
effect at the date of consolidated financial condition. The resulting gains or losses from
the settlement of foreign currency transactions and from remeasurement at the date of
consolidated financial condition are included in the consolidated statements of income.Furniture and equipmentFurniture and equipments are stated at cost of acquisition less accumulated depreciation
thereon. Cost includes all expenses incidental to the acquisition and placing the assets to
use, while maintenance and repairs are charged to expense when incurred.Depreciation is provided over the estimated useful lives of the assets on the reducing
balance method.Capitalized costs of computer software obtained for internal use represent costs incurred to
purchase computer software from third parties. Capitalized costs are amortized on a straight
line basis over the estimated useful life of the software.
 124




---



##### 



Exchange membership rightsThe Company has exchange membership rights of Bombay Stock Exchange Limited (BSEL) and
membership in Dubai Gold and Commodity exchange (DGCX). These assets are carried at cost
after reviewing for impairment in accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets.Income TaxesIncome taxes are accounted for using the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences
between the financial statements carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount considered more likely than not to
be realized.Retirement benefits to employeesProvident FundIn accordance with Indian law, all employees receive benefits from a provident fund, which is
a defined contribution plan. Both the employee and employer make monthly contributions to
the plan, each equal to a specified percentage of employees basic salary. The Company has
no further obligations under the plan beyond its monthly contributions.GratuityThe Company provides for gratuity, a defined benefit retirement plan (the Gratuity Plan)
covering all employees. The plan provides a lump sum payment to vested employees at
retirement or termination of employment of an amount based on the respective employees
salary and the years of employment with the Company. The Company provides the gratuity
benefit through annual contributions to a fund managed by the Life Insurance Corporation of
India (LIC). Under this scheme, the settlement obligation remains with the Company, although
the LIC administers the scheme and determines the contribution premium required to be paid by
the Company. The Gratuity Plan is accounted for in accordance with SFAS No. 87, Employers
Accounting for Pensionsas amended by SFAS 158.Effective March 31, 2007, the Company adopted the provision of SFAS No. 158, Employers
accounting for defined benefit pension and other postretirement plans an amendment of SFAS
87. The provisions of SFAS 158 were adopted pursuant to the
transition provision therein. Accordingly, unrecognized losses have been recognized with an
adjustment (net of taxes) to accumulated other comprehensive income (loss), a separate
component of shareholders equity.
 125




---



##### 



Stock-based compensationThe Companys employees participate in various share-based payment plans; that is stock
appreciation rights plan sponsored by MF Global Sify and co-investment plan sponsored by Man
Group. The Company follows SFAS No. 123R, Share Based Payment (SFAS 123R). SFAS 123R
measures the cost of employee services received for stock based compensation based on the
grant-date fair value of the award. That cost is recognized over the period during which an
employee is required to provide service in exchange for the award.Recently issued accounting pronouncementsIn July 2006, the Financial Accounting Standards Board (FASB) issued FIN 48, Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109(FIN 48). FIN
48 applies to all tax positions within the scope of SFAS No. 109, Accounting for Income
Taxes, and clarifies when and how to recognize tax benefits in the financial statements with
a two-step approach of recognition and measurement. FIN 48 is effective for fiscal years
beginning after December 15, 2006, which is the fiscal year commencing April 1, 2007 for the
Company. FIN 48 also requires the enterprise to make explicit disclosures about
uncertainties in its income tax positions, including a detailed roll-forward of tax benefits
taken that do not qualify for financial statement recognition. The Company is currently
evaluating the impact that is expected to result from the adoption of this standard on its
consolidated financial statements.In September 2006, the United States Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (SAB 108) effective for fiscal years ending after November 15,
2006. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal
of prior year misstatements should be considered in quantifying a current year misstatement
for the purpose of a materiality assessment. The adoption of SAB 108 as of March 31, 2007 has
no impact on the Companys consolidated financial statements.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157),
which establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 applies under
other accounting pronouncements that require or permit fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, which is the fiscal year
commencing April 1, 2008 for the Company. The Company is currently evaluating the impact that
is expected to result from the adoption of this standard on its consolidated financial
statements.In February 2007, FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and
Financial Liabilities(SFAS 159). SFAS 159 expands the use of fair value measurement by
allowing entities the option to reflect the current cash equivalent value of financial
instruments rather than the historical price of the transaction. The fair value option
established by SFAS 159 permits all entities to choose to measure eligibleitems at fair value at specified election dates. A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date. SFAS 159 is effective as of the beginning of an entitys
first fiscal year that begins after November 15, 2007, which is the fiscal year commencing
April 1, 2008 for the Company. The Company is currently evaluating the impact that is
expected to result from the adoption of this standard on its consolidated financial
statements.3.
    
    Cash-restrictedRestricted cash as of March 31, 2007 includes fixed deposits of Rs. 1,061,603 thousand
(Rs. 750,615 thousand as of March 31, 2006) placed with banks as margins for bank guarantees
issued to clearing organizations and fixed deposits of Rs. 1,500,429 thousand
(Rs. 288,500 thousand as of March 31, 2006) specifically earmarked as liens to clearing
organizations towards margins.
 126




---



##### 



4.
    
    Receivable from and Payable to Broker-Dealers and Clearing OrganizationsAmounts receivable from and payable to broker-dealers and clearing organizations consist of
the following:
 As of March 312007
    
    
    2006Receivable
    
    
    Payable
    
    
    Receivable
    
    
    Payable(Rs. in thousands)Clearing organizations -- Unsettled trade
    
    
    60,724
    
    
    
    14,400
    
    
    
    133,898
    
    
    
    83,344- Margin deposit
    
    
    
    
    
    
    5,600
    
    
    
    
    
    
    
    26,960Broker-Dealer
    
    
    192
    
    
    
    1,175,594
    
    
    
    4,403
    
    
    
    255,906Total
    
    
    60,916
    
    
    
    1,195,954
    
    
    
    138,301
    
    
    
    366,210
 5.
    
    Receivable From and Payable to CustomersAccounts receivable from and payable to customers include amounts due on cash and margin
transactions. Securities owned by customers are held as collateral for receivables.6.
    
    Securities ownedMarketable securities consist of investments in units of mutual funds. These are reported at
fair value. Securities not readily marketable represent investments in equity shares of
Bombay Stock Exchange Limited (BSEL), obtained by the Company pursuant to the exchange
transaction explained in Note 7. BSEL, exchange shares that are not required for trading
rights are recorded at fair market value, as determined by management, taking into account
any restrictions.7.
    
    Membership in exchangesMembership in exchanges consists of
 (i)
    
    BSE membership of Rs 4,387 thousands as at March 31, 2007 and 2006, and(ii)
    
    DGCX membership of Rs 4,358 thousands and Rs.4,512 thousand as at March 31, 2007 and
2006, respectively. DGCX membership value underwent a change due to foreign currency
translation.
 BSE membershipThe Company acquired The Stock Exchange, Mumbai (the BSE) membership card on December 6,
2000. During the year 2005-06, a scheme, The Bombay Stock Exchange (Corporatisation and
Demutualization) Scheme 2005 (the Scheme) was approved by Securities Exchange Board of
India with effect from 19 August 2005 (the due date) which converted the BSE from an
Association of Person to a corporate body in the name of Bombay Stock Exchange Limited
(BSEL).
 127




---



##### 



In accordance with the scheme, the members of the erstwhile BSE, in exchange of their
erstwhile BSE membership cards (rights) received membership rights of BSEL (i.e. right to
trade on BSEL without placement of cash deposit) as well as equity shares of BSEL.The carrying value of the erstwhile BSE membership card on the due date in the books of the
Company was Rs. 13,570 thousand.  Consequent to the corporatisation of the BSE, the Company
computed the fair value of the membership rights of BSEL and shares of BSEL as follows:
 Membership rights of BSEL
    
    On the basis of the benefits which the Company
would get over the current deposit based
membership right of BSELEquity shares of BSEL
    
    On the basis of the fair value of the equity
shares of BSEL determined by the management
 The difference between the aggregate of the fair values of the membership right of BSEL and
the equity shares of BSEL and the carrying value of the initial BSE membership right of
Rs. 5,980 thousand has been written off to consolidated statements of income during the year
ended March 31, 2006 as follows:
 (Rs. in thousands)Carrying Value as


    Fair Value as of
    
    
    Write off to Profitof 19 August 2005
    
    
    19 August 2005
    
    
    & Loss AccountErstwhile BSE membership card
    
    
    13,570
    
    
    
    4,673
    
    
    
    8,897Shares in BSE Limited at cost
    
    
    
    
    
    
    2,917
    
    
    
    (2,917
    )Total
    
    
    13,570
    
    
    
    7,590
    
    
    
    5,980
 DGCX membershipMF Global Middle East Limited DMCC (DMCC) is registered with and has been granted a trading
license by the Dubai Multi Commodities Centre on 7th February 2006. The United
Arab Emirates Securities and Commodities Authority (ESCA) issued the DMCC a license on
18th June 2006 to operate as a broker on the Dubai Gold and Commodities Exchange
(DGCX). DMCC has been admitted as a member of the DGCX on 1st September 2006.
DMCC has paid and capitalized US$ 100 thousand towards the license of DGCX, which is assessed
annually for impairment.
 128




---



##### 



8.
    
    Furniture and equipmentA listing of furniture and equipment by asset category is set out below:
 Depreciation
    
    
As of March 31,Rate
    
    
    2007
    
    
    2006Particulars
    
    (in percentage)(Rs. In thousands)Furniture, fixtures and equipment
    
    
    13.9 - 18.1
    
    
    
    18,505
    
    
    
    12,446Computer hardware and software*
    
    
    33.3 - 40.0
    
    
    
    382,227
    
    
    
    331,557Vehicles
    
    
    25.9
    
    
    
    8,303
    
    
    
    6,108409,035
    
    
    
    350,111Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    328,221
    
    
    
    294,593Furniture and equipment-net
    
    
    
    
    
    
    80,814
    
    
    
    55,517
 
 * Software is depreciated on a straight line basis The depreciation expense was Rs. 33,635 thousand and Rs. 21,274 thousand for years ended
March 31, 2007 and 2006, respectively, which is included in occupancy expenses in the
consolidated statements of income.9.
    
    Other assetsOther assets consist of the following:
 As of March 31,2007
    
    
    2006Particulars
    
    (Rs. in thousands)Interest accrued but not due
    
    
    61,725
    
    
    
    27,034Prepaid expenses
    
    
    24,684
    
    
    
    20,901Advance-tax net of tax provisions
    
    
    49,091
    
    
    
    31,948Loans to staff
    
    
    9,990
    
    
    
    1,905Others*
    
    
    19,897
    
    
    
    7,831Total
    
    
    165,387
    
    
    
    89,619
 
 *
    
    Includes Advances to vendors towards expenses, Interest receivable from clients,
withholding tax recoverable, etc 10.
    
    Accounts payable, accrued expenses and other liabilitiesAccounts payable, accrued expenses and other liabilities consist of the following:
 As of March 312007
    
    
    2006(Rs. in thousands)Accrued expenses
    
    
    62,425
    
    
    
    51,393Withholding tax payable
    
    
    63,925
    
    
    
    30,394Provision for gratuity
    
    
    2,259
    
    
    
    1,404Bank overdraft
    
    
    37,369
    
    
    
    54,547SARs provision
    
    
    7,174
    
    
    
    Bonus payable
    
    
    152,164
    
    
    
    46,064Others
    
    
    45,136
    
    
    
    17,036Total
    
    
    370,452
    
    
    
    200,838
 129




---



##### 



11.
    
    Employee benefitsThe following table sets forth the funded status of the plans and the amounts recognized in
the Companys consolidated financial condition.
 As of March 31,2007
    
    
    2006(Rs. in thousands)Change in benefit obligationsProjected benefit obligations at beginning of the year
    
    
    4,130
    
    
    
    2,100Service cost
    
    
    2,214
    
    
    
    1,416Interest cost
    
    
    296
    
    
    
    157Benefits payments
    
    
    
    
    
    
    Actuarial (gain)/loss on obligations
    
    
    (354
    )
    
    
    457Projected benefit obligations at the end of the year
    
    
    6,286
    
    
    
    4,130Change in plan assetsFair value of plan assets at beginning of the year
    
    
    2,264
    
    
    
    Return on plan assets
    
    
    210
    
    
    
    Employer contributions
    
    
    1553
    
    
    
    2,264Actual benefits paid
    
    
    
    
    
    
    Plan assets at the end of the year
    
    
    4,027
    
    
    
    2,264Funded status
    
    
    (2,259
    )
    
    
    (1,866
    )Unrecognized actuarial loss
    
    
    
    
    
    
    Net prepaid (accrued) gratuity cost
    
    
    (2,259
    )
    
    
    (1,866
    )Accumulated benefit obligation
    
    
    1,702
    
    
    
    1,341
 The components of the net gratuity cost are reflected below:
 As of March 31,2007
    
    
    2006(Rs. in thousands)Service cost
    
    
    2,214
    
    
    
    1,416Interest cost
    
    
    296
    
    
    
    157Expected return on assets
    
    
    (170
    )
    
    
    Net gratuity cost
    
    
    2,340
    
    
    
    1,573
 130




---



##### 



The actuarial assumptions used in determining the benefit obligation and the net gratuity
cost are given below:
 As of March 31,2007
    
    
    2006Discount rate
    
    
    8.00
    %
    
    
    7.50
    %Rate of increase in compensation levels
    
    
    6.00
    %
    
    
    6.00
    %Rate of return on plan assets
    
    
    8.00
    %
    
    
    7.50
    %
 The expected long term rate of return is an average of the expected long term returns for the
fund held with LIC.Investment strategy for plan assets maintained by the Life Insurance Corporation of India
(LIC)The LIC administers the plan fund and it independently determines the target allocation by
asset category. The LIC primarily invests the fund in government securities and other debt
instruments. The selection of investments and the asset category is determined by LIC. The
LICs strategy is to invest in a prudent manner to produce a return that will enable the fund
to meet the required benefit obligations. The insurance industry in the country is highly
regulated and the LIC, which is majority, owned by the Government of India, functions within
regulated investment norms. As such, while the return on investments is subject to market
interest rate and other risks, no untoward losses are expected to the plan assets. No such
events have occurred in the history of operations of the fund. The payments to the plan fund
started in March 29, 2006. As of March 31, 2007 all plan assets are invested in approved
government securities only.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:
 (Rs. in thousands)Future estimated payments during the year ending March 31,2008
    
    
    802009
    
    
    1012010
    
    
    2572011
    
    
    3152012
    
    
    599Thereafter
    
    
    5612Total
    
    
    6,964
 The Companys best estimate of contribution expected to be paid to the plan during the period
2007-2008 amounts to Rs. 1,839 thousand.Effective March 31, 2007, the Company adopted the recognition and disclosure provisions of
SFAS 158. While the adoption of SFAS 158 had no effect on the Companys net income, it was,
however, effected via gross charge to accumulated other comprehensive income of Rs. 47
thousand, net of related deferred income tax of Rs.16 thousand.The effect of applying this statement on individual line items presented in the March 31,
2007 consolidated financial statements is as follows:
 Before
    
    
    
    
    
    
    Afterapplication
    
    
    
    
    
    
    applicationParticulars
    
    of SFAS 158
    
    
    Adjustments
    
    
    of SFAS 158Deferred income taxes
    
    
    33,862
    
    
    
    16
    
    
    
    33,878Total Assets
    
    
    33,862
    
    
    
    16
    
    
    
    33,878Other liabilities (grouped under Account payable, accrued expenses and other liabilities)
    
    
    2,307
    
    
    
    47
    
    
    
    2,260Total liabilities
    
    
    2,307
    
    
    
    47
    
    
    
    2,260Accumulated Other Comprehensive Income (Loss)
    
    
    (1,061
    )
    
    
    (31
    )
    
    
    (1,092
    )Total Shareholders Equity
    
    
    (1,061
    )
    
    
    (31
    )
    
    
    (1,092
    )
 131




---



##### 



Provident fundThe Company contributed Rs. 3,615 thousand during the year ended March 31, 2007
(Rs. 2,280 thousand during March 31, 2006) towards provident fund.12.
    
    Income taxesComponents of the deferred tax balancesThe tax effects of temporary differences are reflected through a deferred tax asset/
liability, which is included in the statement of financial condition of the Company.Components of the deferred tax balances are set out below:
 As of March 31,Particulars
    
    2007
    
    
    2006(Rs. In thousands)Deferred tax assetsFurniture and equipment
    
    
    6,806
    
    
    
    12,185Allowances for Debtors
    
    
    25,924
    
    
    
    1,009Gratuity
    
    
    671
    
    
    
    470Membership in exchanges
    
    
    
    
    
    
    3,881Stock Appreciation Rights
    
    
    2,438
    
    
    
    Bonus Payable
    
    
    12,606
    
    
    
    Preliminary Expenditure
    
    
    65
    
    
    
    48,510
    
    
    
    17,545Valuation allowance
    
    
    
    
    
    
    (3,881
    )Total deferred tax asset
    
    
    48,510
    
    
    
    13,664Deferred tax liabilityFurniture and equipment
    
    
    11
    
    
    
    -Undistributed earnings of subsidiaries
    
    
    13,848
    
    
    
    8,441Gain on Exchange Shares
    
    
    773
    
    
    
    Net deferred tax asset
    
    
    33,878
    
    
    
    5,223
 In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of the deferred tax asset is dependent on the generation
of future taxable income during the periods in which the temporary differences become
deductible. Management considers the scheduled reversal of the projected future taxable
income and tax planning strategies in making this assessment. Based on the level of
historical taxable income and projections for future taxable incomes over the periods in
which the deferred tax assets are deductible, management believes that it is more likely than
not that the Company will realize the benefits of those deductible differences. The valuation
allowance as of March 31, 2006 relates to the long-term capital loss carried forward on
membership in exchanges.
 132




---



##### 



Reconciliation of tax ratesThe Indian statutory tax rate consists of a basic rate (30% in 2007 and 2006) plus a
surcharge, if any. During each of the years presented, legislation was enacted in the first
few months of the fiscal year that changed the amount of the surcharge for that fiscal year
and future years. The surcharge (including education cess) during years 2007 and 2006 has
been 12.20% of the base tax rate.DMCC incorporated in Dubai is operates in a tax-free jurisdiction.The reported income tax expense differs from amounts computed by applying the enacted tax
rates to income before income taxes as set out below:
 Year ended March 31,2007
    
    
    2006(Rs. In thousands)Income before income taxes
    
    
    357,368
    
    
    
    218,464Statutory tax rate
    
    
    33.66
    %
    
    
    33.66
    %Income tax expense at the statutory tax rate
    
    
    120,290
    
    
    
    73,534Increase/(reduction) in taxes on account of:Loss on misdeal
    
    
    
    
    
    
    2,446Change in valuation allowance
    
    
    
    
    
    
    1,609Dividend on marketable securities
    
    
    (3,174
    )
    
    
    Contribution to co-investment plan
    
    
    2,973
    
    
    
    Loss at MF Global Middle East DMCC (a non-taxable entity)
    
    
    352
    
    
    
    Income charged at rates other than statutory tax rate*
    
    
    (16,518
    )
    
    
    804Fringe benefit tax
    
    
    935
    
    
    
    994Tax on undistributed earnings of subsidiaries*
    
    
    5,407
    
    
    
    7,192Others
    
    
    (253
    )
    
    
    1,792Income tax expense reported
    
    
    110,012
    
    
    
    88,371
 
 *
    
    Income charged at tax rate other than statutory tax rate includes gain on fair valuation of
BSE Limited shares for the year ended March 31, 2007 and profit on sale of investments for
the year ended March 31, 2006, taxable as long term capital gain at a lower tax rate of 20%
plus surcharge. Tax on undistributed earnings of subsidiaries represents long term capital
gain subject to a lower tax rate of 20% plus surcharge. 133




---



##### 



Components
of income tax expense/(benefit)
  Year ended March 31,2007
    
    
    2006(Rs. In thousands)Current
    
    
    138,650
    
    
    
    75,960Deferred
    
    
    (28,638
    )
    
    
    12,411Income tax expense/ (benefit) reported
    
    
    110,012
    
    
    
    88,371
 13.
    
    Stockholders equity
  Dividends
   14.
    
    Financial instruments
 Financial
instruments with off-Balance-Sheet risk
  134




---



##### 



Concentrations
of credit risk
  15.
    
    Commitments and contingent liabilities
 Operating
lease commitments
  Rs. inthousandLease rental commitments for the years ending March 31,2008
    
    
    19,0682009
    
    
    8,0262010
    
    
    1,1012011
    
    
    Thereafter
    
    
    Total minimum lease commitments
    
    
    28,196
  135




---



##### 



Guarantees
  Exchange member guarantees
  16.
    
    Related party transactions
  §
    
    Significant stakeholders;§
    
    Affiliates of significant stakeholders; and§
    
    Employees/Directors of the Company.
 Other income
  136




---



##### 



Other expenses
  Due from affiliates of significant stakeholders
  Due from employees
  17.
    
    Fair value of financial instruments
  18.
    
    Share-based payments
 
 Employees
Stock Appreciation Scheme
  137




---



##### 



Co-investment plan
    19.
    
    Other Income
  As of March 312007
    
    
    2006(Rs in thousands)Penalty on Delayed Payment
    
    
    28,719
    
    
    
    11,425Account Opening Charges
    
    
    2,668
    
    
    
    2,892CTCL Fees
    
    
    2,362
    
    
    
    2,272Research Fees
    
    
    1,587
    
    
    
    2,031Others
    
    
    26,592
    
    
    
    10,684Total
    
    
    61,928
    
    
    
    29,304
 138




---



##### 



20.
    
    Other Expenses
  As of March 312007
    
    
    2006(Rs in thousands)Advertisement & Business Promotion
    
    
    45,418
    
    
    
    27,912Professional Fees
    
    
    14,465
    
    
    
    14,682Traveling & Conveyance
    
    
    15,388
    
    
    
    8,923Books, Postage, Printing & Stationary
    
    
    33,958
    
    
    
    20,255Loss on account of error trades (net)
    
    
    21,988
    
    
    
    6,698Repairs & Maintenance
    
    
    1,687
    
    
    
    1,935Others
    
    
    13,007
    
    
    
    15,882Total
    
    
    145,911
    
    
    
    96,287
 139




---



##### 



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 2005
(12)4.4
    
    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 in respect of the Sify Limited15.2
    
    Consent of KPMG in respect of Man Financial-Sify Securities India Private Limited for the fiscal year ended March 31, 200615.3
    
    Consent of PWC in respect of Man Financial-Sify Securities India Private Limited for the fiscal year ended March 31, 2007
 140




---



##### 



(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.(12)
    
    Previously filed as an exhibit to the Annual Report on Form
20-F filed with the Commission on
June 30, 2006 and incorporated herein by reference. 141




---



##### 



SIGNATURES
  SIFY LIMITEDBy:
    
    /s/ Raju VegesnaName:
    

Raju VegesnaTitle:
    
    Chief Executive Officer & Managing DirectorBy:
    
    /s/ Pijush Kanti DasName:
    

Pijush Kanti DasDate:
October 15, 2007
    
    Title:
    
    Chief Financial Officer
 142




---



##### 



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 2005
(12)4.4
    
    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 in respect of the Sify Limited15.2
    
    Consent of KPMG in respect of Man Financial-Sify Securities India Private Limited for the fiscal year ended March 31, 200615.3
    
    Consent of PWC in respect of Man Financial-Sify Securities India Private Limited for the fiscal year ended March 31, 2007
 143




---



##### 



(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.(12)
    
    Previously filed as an exhibit to the Annual Report on Form
20-F filed with the Commission on
June 30, 2006 and incorporated herein by reference. 144