Taneja Aerospace And Aviation

30 September 2005 INFORMATION MEMORANDUM Taneja Aerospace and Aviation Limited (Incorporated in the Republic of India as a company with limited liability under the Indian Companies Act, 1956 with Registration No.11-48221) 1,919,118 Global Depositary Receipts Representing 3,838,236 Equity Shares, par value Rs.5 each US$ 4.00 per Global Depositary Receipt This is an offering of 1,919,118 Global Depositary Receipts ("GDRs") representing 3,838,236 equity shares of a nominal value of Rs.5 each (the "Shares"), that are being issued by Taneja Aerospace and Aviation Limited ("TAAL" or the "Issuer" or the "Company"). Application has been made to admit the GDRs to listing on the Luxembourg Stock Exchange (the "LuxSE") and to trading on the EuroMTF market ("EuroMTF"). No application has been made to list the GDRs on any stock exchange other than the LuxSE. This Information Memorandum (as defined herein) has been prepared in accordance with the Listing Rules of the LuxSE for the purpose of giving information with regard to the Company, the GDRs and the Shares. This Information Memorandum does not constitute, nor contain (and should not be construed as) an offer or invitation in any jurisdiction to subscribe for or purchase any GDRs or Shares or any other securities in the Company where it would be unlawful to do so. The GDRs and the Shares to be represented by such GDRs have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"). The GDRs were offered and sold in offshore transactions outside the United States in reliance on Regulation S promulgated under the Securities Act ("Regulation S"). Subject to certain exceptions, the GDRs may not be offered, sold or delivered within the United States or to or for the benefit of US persons (as defined in Regulation S). The GDRs may not be offered or sold directly or indirectly in the Republic of India ("India") or to, or for the account or benefit of, any resident of India. The GDRs offered hereby are not transferable except in accordance with the restrictions described under "Transfer Restrictions". Investing in GDRs involves risks. See "Risk Factors" beginning on Page 34. Global Co-ordinator and Lead Manager Elara Capital Advisors Limited 33A Dollis Avenue, London, N3 1BY, United Kingdom Tel: +44 20 8343 1420 Fax: +44 20 8343 4596 The issued GDRs will be represented by a master GDR (the "Master GDR"), registered in the name of a nominee for Euroclear Bank S.A./N.V., as operator of the Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg") and held for the account of account holders in Euroclear and Clearstream, Luxembourg. Except as described herein, individual global depositary receipts representing the GDRs will not be issued in exchange for beneficial interest in the Master GDRs. Interests in the Master GDR will be subject to certain restrictions on transfer. See "Terms and Conditions of the Global Depositary Receipts" and "Transfer Restrictions". The GDRs were issued pursuant to the Reserve Bank of India ("RBI") automatic route contained in the RBI Notification Number FERA 214/2000-RB, dated 20 January 2000, as amended from time to time, which permits eligible Indian companies to make international offerings of Rupee denominated equity shares by way of issue of global depositary receipts to persons resident outside India. The GDRs were issued pursuant to a deposit agreement (the "Deposit Agreement") dated 13 September and made between the Company and The Bank of New York (the "Depositary"). The Company’s outstanding Shares are listed on The Bombay Stock Exchange Limited ("BSE") and The Pune Stock Exchange ("PSE") (together, the "Indian Stock Exchanges"). The Company has undertaken to apply to have the Shares represented by the GDRs approved for listing on the BSE. There can be no assurance that the Shares represented by the GDRs will in fact be admitted to listing on the BSE. On 27 September 2005, the closing price of the Shares on the BSE was Rs.151.25. Holders of GDRs may withdraw the Shares represented by the GDRs only after listing of the Shares represented by the GDRs on the BSE. The Company believes that such listing will occur within 90 days from the Closing Date but there is no guarantee that such listing will be granted. After the listing has occurred, a Holder of GDRs may request the Depositary to withdraw, from the depositary facility, the Shares represented by the GDRs and transfer such Shares to the Holder. Delivery of the GDRs were made in book-entry form only and were made on 13 September 2005 (the "Issue Date"). A copy of this Information Memorandum will be delivered to the Registrar of Companies, Pune, India, the Reserve Bank of India, the Securities and Exchange Board of India, the BSE and PSE for record purposes only. To the best of the knowledge of the Company, having made all reasonable enquiries, the Company confirms that this document (the "Information Memorandum") contains all information with respect to the Company, the GDRs and the Shares that is material in the context of the issue and offering of the GDRs. To the best of the knowledge and belief of the Company, there are no other facts in relation to the Company, the GDRs and the Shares the omission of which would, in the context of the issue and offering of the GDRs, make any statement in this document misleading in any material respect and all reasonable enquiries have been made by the Company to ascertain such facts and to verify the accuracy of all such information and statements and the issuer accepts responsibility accordingly. The statements contained in this Information Memorandum relating to the Company, the GDRs and the Shares are, to the best of the knowledge of the Company, in material respect true and accurate and not misleading, the opinions and intentions expressed in this document with every regard to the Company, the GDRs and the Shares are honestly held, have been reached after considering all relevant circumstances and information which is presently available to the Company, and are based on reasonable assumptions. Where information contained in this Information Memorandum includes extracts from summaries of information and data from various published and private sources, the Company accepts responsibility for accurately reproducing such summaries and data. However, the Company has not independently verified the accuracy or material particulars of such information and does not make any other representation with respect to the same. This Information Memorandum does not constitute an offer of, or an invitation by or on behalf of the Company, the Legal Advisors or Elara Capital Advisors Limited (the "Lead Manager") to subscribe for or purchase any of the GDRs in any jurisdiction where it is unlawful for such person to make such an offer or invitation. The distribution of this Information Memorandum and the offering of the GDRs in certain jurisdictions may be restricted by law. Persons into whose possession this Information Memorandum comes are required by the Company, the Legal Advisors and the Lead Manager to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the GDRs and distribution of this Information Memorandum, see "Plan of Distribution". No action has been (or will be) taken to permit an offering of the GDRs or the Shares in any jurisdiction where such action is required. Accordingly, this Information Memorandum may not be distributed in such jurisdiction except in connection with the application for listing of the GDRs on the LuxSE. Neither the Legal Advisors nor the Lead Manager has separately verified the information contained in this Information Memorandum. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Legal Advisors or the Lead Manager as to the accuracy or completeness of the information contained in this Information Memorandum or any other information supplied in connection with the GDRs or the Shares. Each person receiving this Information Memorandum acknowledges that such person has not relied on either the Legal Advisors or the Lead Manager nor on any person affiliated with the Legal Advisors or the Lead Manager in connection with its investigation of the accuracy of such information or its investment decision and each such person must rely on his own examination of the Company and the merits and risks involved in investing in the GDRs. None of the Company, the Lead Manager or the Legal Advisors or any of their respective affiliates or representatives is making any representation to any purchaser of the GDRs regarding the legality of an investment by such purchaser under applicable laws. Prospective investors should not construe anything in this Information Memorandum as legal, business or tax advice. Each prospective investor should consult its own advisors, as needed, to make its investment decision and to determine whether it is able lawfully to purchase the GDRs under applicable laws or regulations. This Information Memorandum is based on information provided by the Company and by other sources believed by the Company to be reliable. The Company and the Directors accept responsibility for the information contained in this Information Memorandum. To the best of its knowledge and that of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained herein is in accordance with the facts and does not omit anything likely to affect the import of such information. Page 3 No person is authorised to give any information or to make any representation not contained in this Information Memorandum and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Company or the Lead Manager. The delivery of this Information Memorandum at any time does not imply that the information contained in it is correct as at any time subsequent to its date. Certain monetary amounts in this Information Memorandum have been subject to rounding adjustments and accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures, which precede them. Market data and certain industry forecasts used throughout this Information Memorandum have been obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and neither the Company nor the Lead Manager makes any representation as to the accuracy or completeness of that information. Certain statements in this Information Memorandum may constitute "forward-looking statements". Such forwardlooking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forwardlooking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. Among the important factors that could cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the condition of and changes in India's political and economic status, government policies, applicable laws, changes in currency exchange rates, the success of the Company’s growth strategies and whether expected internal growth is in fact realised, demographic changes, changes in competitive conditions and the Company's ability to compete under these conditions, changes in the Company’s future capital needs and the availability of financing and capital to fund these needs and international and domestic events having a bearing on business and the aviation industry and such other factors beyond the control of the Company. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under "Risk Factors" and "Business". These forward-looking statements speak only as of the date of this Information Memorandum. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All references in this Information Memorandum to "Condition(s)" are to the terms and conditions of the GDRs as set out in "Terms and Conditions of the Global Depositary Receipts". All references in this Information Memorandum to the "Government" are to the Government of India. All references in this Information Memorandum to "dollars", "US dollars", "USD" and "US$" are to the lawful currency of the United States. All references in this Information Memorandum to "Rupee", "Rupees" and "Rs." are to the lawful currency of India. Unless otherwise indicated, all translations from Rupees to US dollars have been made on the basis of Reserve Bank of India reference rate on 31 March 2005 of Rs.43.75 = US$1.00. Although certain Rupee amounts in this Information Memorandum have been translated into US dollars for convenience, this does not mean the Rupee amounts referred to could necessarily have been, or could be, converted into US dollars at the above rates, at any particular rate or at all. Page 4 Notice to Investors The GDRs may not be offered or sold directly or indirectly in India. The GDRs and the Shares have not been registered under the Securities Act and the GDRs may not be offered or sold within the United States or to, or for the account or benefit of, US persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Therefore, the GDRs are being offered and sold outside the United States in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act. Except in certain limited circumstances, interests in the GDRs may only be held through interests in the Master GDR. Such interests in the Master GDR will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants. Each purchaser of the GDRs, by accepting delivery of such GDRs, will be deemed to have acknowledged and represented to and agreed as follows (terms used herein that are defined in Regulation S are used as defined therein): 1. The GDRs and the Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer. Each owner purchasing prior to the expiration of 40 days after the later of the commencement of the offering of the GDRs, the Issue Date and the issue date with respect to the additional GDRs (if any) issued pursuant to over-allotment (the "Distribution Compliance Period") is purchasing the GDRs in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S. The GDRs and the Shares may not be sold, pledged or transferred to, or for the account or benefit of, any US person during the Distribution Compliance Period. Such owner will not offer, sell, pledge or otherwise transfer any interest in the GDRs or the Shares except as permitted by the applicable legend set forth in paragraph (5) below. The GDRs will bear legends to the following effect, unless the Company determines otherwise in compliance with applicable law, and it will observe the restrictions contained therein: "THIS GLOBAL DEPOSITARY RECEIPT AND THE EQUITY SHARES OF TANEJA AEROSPACE AND AVIATION LIMITED REPRESENTED HEREBY (THE "SHARES") HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF A DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS THE 40-DAY PERIOD BEGINNING ON THE LATEST OF THE COMMENCEMENT OF THE GDR OFFERING, THE ORIGINAL ISSUE DATE OF THE GDRS AND THE LATEST ISSUE DATE WITH RESPECT TO THE ADDITIONAL GDRS (IF ANY) ISSUED PURSUANT TO OVER-ALLOTMENTS), MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT." UPON THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD REFERRED TO ABOVE, THIS GLOBAL DEPOSITARY RECEIPT AND THE SHARES REPRESENTED HEREBY SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN THIS LEGEND, PROVIDED THAT AT THE TIME OF SUCH EXPIRATION THE OFFER OR SALE OF THE GLOBAL DEPOSITARY RECEIPTS REPRESENTED HEREBY AND THE SHARES REPRESENTED THEREBY BY THE HOLDER HEREOF IN THE UNITED STATES WOULD NOT BE RESTRICTED UNDER THE SECURITIES LAWS OF THE UNITED STATES OR ANY STATE IN THE UNITED STATES. 2. 3. 4. 5. Page 5 THE HOLDER HEREOF, BY PURCHASING THE GDRS REPRESENTED BY THIS CERTIFICATE, AGREES FOR THE BENEFIT OF TANEJA AEROSPACE AND AVIATION LIMITED AND THE DEPOSITARY NAMED BELOW THAT THE GDRS MAY NOT, UNLESS EXPRESSLY PERMITTED BY INDIAN LAWS AND REGULATIONS, AT ANY TIME BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY PERSON LOCATED IN INDIA, RESIDENTS OF INDIA OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, SUCH PERSONS. 6. Until the shares are listed, each GDR shall also bear the following legend, which thereafter may be removed. "UNTIL THE SHARES ARE LISTED ON THE BOMBAY STOCK EXCHANGE NO GDR HOLDER WILL BE ENTITLED TO WITHDRAW THE DEPOSITED PROPERTY REPRESENTED BY SUCH GDRS AND NO PERSON SHALL BE PERMITTED TO MAKE ANY FURTHER DEPOSIT OF SHARES INTO THE GDR FACILITY." 7. Such owner is entitled to subscribe for the GDRs under the laws of all jurisdictions that apply to it and it has fully observed such laws and has obtained all necessary consents and completed all necessary formalities. Page 6 TABLE OF CONTENTS GLOSSARY OF TERMS .......................................................................................................................................... 8 SUMMARY ............................................................................................................................................................. 12 GLOBAL DEPOSITARY RECEIPTS.................................................................................................................... 14 BUSINESS ............................................................................................................................................................... 21 MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE SHARES ............ 43 EXCHANGE RATES .............................................................................................................................................. 44 USE OF PROCEEDS............................................................................................................................................... 45 CAPITALISATION................................................................................................................................................. 46 DIVIDENDS ............................................................................................................................................................ 47 MANAGEMENT’S DISCUSSION AND ANALYSIS ......................................................................................... 48 DIRECTORS AND MANAGEMENT ................................................................................................................... 50 THE INDIAN SECURITIES MARKET................................................................................................................. 60 TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS .................................................. 68 SUMMARY OF PROVISIONS RELATING TO THE GDRS WHILE IN MASTER FORM ............................ 86 INFORMATION RELATING TO THE DEPOSITARY....................................................................................... 89 TRANSFER RESTRICTIONS................................................................................................................................ 90 DESCRIPTION OF THE SHARES ........................................................................................................................ 92 FOREIGN INVESTMENT AND EXCHANGE CONTROLS .............................................................................. 99 INDIAN REGULATORY APPROVALS............................................................................................................. 104 TAXATION ........................................................................................................................................................... 105 PLAN OF DISTRIBUTION .................................................................................................................................. 109 ACCOUNTANTS .................................................................................................................................................. 110 ENFORCEABILITY OF CIVIL LIABILITIES ................................................................................................... 111 GENERAL INFORMATION................................................................................................................................ 112 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND IAS/IFRS.................... 114 INDEX TO FINANCIAL STATEMENTS........................................................................................................... 125 Page 7 GLOSSARY OF TERMS Articles ADE AS Board of the Company BSE CAGR CDSL Civil Code CLA Clearing Systems Clearstream, Luxembourg Common Depositary Companies Act Cr Custodian Deposit Agreement Depositaries Act Depositary Depository Receipt Scheme Articles of Association of the Company Aeronautical Development Establishment Accounting Standard, issued by the Institute of Chartered Accountants of India The Board of Directors of the Company The Bombay Stock Exchange Limited Compounded Annual Growth Rate Central Depository Services (India) Limited The Code of Civil Procedure, 1908 of India The Central Listing Authority of India Euroclear and Clearstream, Luxembourg Clearstream Banking, société anonyme, incorporated under the laws of The Grand Duchy of Luxembourg A common depositary in London for Clearstream, Luxembourg and Euroclear The Indian Companies Act, 1956, as amended Credit The Hongkong and Shanghai Banking Corporation Limited. An agreement relating to the creation of the GDRs dated or about • made between the Company and the Depositary The Indian Depositaries Act, 1996, as amended The Bank of New York the Indian Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme, 1993, as amended The directors of the Company Director General Civil Aviation Debit Extraordinary General Meeting Taneja Aerospace and Aviation Limited Earnings per Share Employees Stock Option Scheme European Union The Euroclear System operated by Euroclear Bank S.A./ N.V. Euro MTF market of the Luxembourg Stock Exchange Foreign Direct Investment Foreign Exchange Management Act, 1999 and subsequent amendments thereof Directors DGCA Dr EGM TAAL /The Company EPS ESOS EU Euroclear Euro MTF FDI FEMA Page 8 GLOSSARY OF TERMS FIIs FIIA Finance Act FIPB FSMA FY GAAP GDR holders GDRs GSLV Government HAL HP HUF IAI IAS IAF ICAI IFRS IM Income Tax Act India Indian GAAP Indian Stock Exchanges IP ISRO Issue Date Issue/Offer Lead Manager Listing Agent LuxSE Master GDR Foreign Institutional Investors Foreign Investment Implementation Authority The Indian Finance Act, 2004, as amended Foreign Investment Promotion Board, Ministry of Finance, Government of India The U.K. Financial Services and Markets Act 2000 Financial Year beginning from April to March Generally Accepted Accounting Practices Holders of the GDRs Global Depositary Receipts issued pursuant to the Deposit Agreement Geo-Satellite Launch Vehicle The Government of India Hindustan Aeronautics Limited Hewlett Packard Hindu Undivided Family Israeli Aircraft Industries International Accounting Standards Indian Air Force The Institute of Chartered Accountants of India International Financial Reporting Standards Information Memorandum The Income Tax Act, 1961 of India (as amended) The Republic of India Generally accepted accounting principles followed in India BSE and PSE Intellectual Property Indian Space Research Organization 13 September 2005 The present GDR Issue Elara Capital Advisors Limited The Bank of New York Europe Limited The Luxembourg Stock Exchange Société de la Bourse de Luxembourg S.A. Issued GDRs will be represented by a master GDR Page 9 GLOSSARY OF TERMS Memorandum/ Memorandum of Association MRO MOF Mumbai NAL Non-Resident Indian(s) NR NRE Account NRIs NRO Account NSDL NSE OECD Issue Price Offering Placing Promoter Group PSLV PSE R&D RBI Regulation S Rs., rupees or Indian rupees UAV PMA SARAS SCRA SEBI SEBI Act SEBI Guidelines SEC Securities Act The Memorandum of Association of the Company Maintenance, Repair & Overhaul Ministry of Finance, India The city of Mumbai, previously named Bombay National Aerospace Laboratory An individual/individuals of Indian nationality or origin residing outside India Non Resident as defined under FEMA, 1999 Non Resident External Account Non-Resident Indians, as defined under FEMA Non Resident Ordinary Account National Securities Depository Limited National Stock Exchange of India Limited. Organisation for Economic Co-operation and Development US$4.00 per GDR 1,919,118 GDRs representing 3,838,236Shares offered pursuant to this Information Memorandum Placing of GDRs pursuant to the Placing Agreement made between the Company and the Lead Manager The relatives and associates of the Promoters of TAAL Polar Satellite Launch Vehicle Pune Stock Exchange. Research and Development The Reserve Bank of India Regulation S under the Securities Act the legal currency of India Unmanned Aerial Vehicle Parts Manufacturers Approval (granted by the Federal Aviation Authority (U.S.A) a multi-role 14 seat pressurized turbo-prop aircraft Securities Contracts (Regulation) Act, 1956 of India The Securities and Exchange Board of India Securities and Exchange Board of India Act, 1992, as amended SEBI (Disclosure and Investor Protection) Guidelines 2000, as amended U.S. Securities and Exchange Commission The United States Securities Act of 1933, as amended Page 10 GLOSSARY OF TERMS Securities Contracts Rules Shareholders Shares STT Supreme Court Takeover Code U.K. U.S. dollars, dollars, $, U.S.$ UK GAAP US GAAP US or USA VIP The Indian Securities Contracts (Regulation) Rules, 1957, as amended The holders of Shares Equity shares with full voting rights of the Company each with a nominal value of Rs.5 Securities Transaction Tax The Honourable Supreme Court of India SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997, as amended The United Kingdom of Great Britain and Northern Ireland The currency of the United States of America Generally accepted accounting principles in the UK Generally accepted accounting principles in the United States of America The United States of America, its territories and its possessions and the District of Columbia Very Important Person All references to "we", "our", "us", "the Company" or "our Company" or words of similar import in this Information Memorandum are to TAAL Limited. Page 11 SUMMARY The following summary does not purport to be complete and should be read in conjunction with the more detailed information contained elsewhere in this Information Memorandum and may not contain all the information that may be important to investors. Before making an investment decision, investors should read the entire Information Memorandum, including the financial statements and the notes to those statements appearing elsewhere in this Information Memorandum. In particular, investors should carefully consider the risks discussed under the heading "Risk Factors". OVERVIEW OF THE COMPANY TAAL was incorporated on 22 July 1988 with the object of designing, developing, manufacturing, and dealing in aeroplanes and all machines, instruments and accessories capable of being used for or in connection with aerial transit, conveyance or communication. The Company started operations in 1994 with the manufacture of the P68C, a six seat twin-piston engine aircraft. Since then the Company has diversified its activities into a number of other areas and the current business of the Company can be divided into four distinct groups; namely, General Aviation Aircraft Manufacturing, Air charter services, Aerostructures and Aviation infrastructure services. TAAL is the only private sector (non-government owned) Company in India to manufacture aircraft. In the General Aviation Aircraft category, TAAL manufactures the P68C, a six seat twin piston engine aircraft; the Hansa, a two seat single engine trainer aircraft and the Thorpe, a two seat single engine aircraft. TAAL is also the authorised sales representative of the Cessna Aircraft Company, U.S.A. for their Citation range of Business Jets and for the Cessna Caravan aircraft. Given the breadth of this product portfolio, the Company enjoys a very strong position in the Indian market. TAAL is also the largest fixed-wing air-charter operator in the country in terms of fleet size and currently manages six P68C aircraft located in various parts of India. TAAL specializes in cost effective, short haul flights to regional destinations where road access in India is often poor. TAAL has a competitive advantage in this operation, in that the aircraft used for the charter operations have been produced by TAAL and are therefore very easy and economical to support. Furthermore it is expensive for new entrants to replicate TAAL's network of operations bases which are now spread throughout the country at places such as Belgaum, Pune and Nagpur, Bangalore. Apart from manufacturing and operating aircraft, TAAL also manufactures aircraft parts and assemblies (aerostructures), in particular for Government organisations like Hindustan Aeronautical Ltd (HAL) and National Aerospace Laboratory (NAL) in new aircraft development programmes. TAAL has, along with the Indian Space Research Organization (ISRO), Aeronautical Development Establishment (ADE) and the Indian Air Force (IAF), assisted in improving the country’s space and aeronautical capabilities. From a manufacturing standpoint, TAAL has, together with these companies, been involved in some prestigious projects, such as the Polar Satellite Launch Vehicle (PSLV), Geo-stationary Satellite Launch Vehicle (GSLV), the Nishant, an Unmanned Air Vehicle (UAV), the SARAS, a 14 seat aircraft and the HANSA a two seat composite trainer aircraft. TAAL also manufactures plastic cabin parts for Jet Airways, Indian Airlines, Air India and Pawan Hans. TAAL expects to receive a U.S. FAA certification for the manufacture of some of these parts. The Company owns a 180 acre site at Hosur (50 km from Bangalore, with close proximity to 'Electronic City', the software hub of Bangalore) on which the Company has setup it own airfield and hangar facilities. The hangar is currently used by Deccan Aviation, a low cost domestic carrier, to maintain its fleet of ATR 42 aircraft. The airfield is also used by a number of other Indian companies for parking their aircraft as well as for commuting to and fro from Hosur. Strategy for Growth TAAL’s growth strategy is based on the following visions: Page 12 • • • To be a global Aerostructure manufacturer specialising in (i) advanced composite parts and (ii) light alloy structures/assemblies; To develop TAAL’s Airfield as a hub of aviation activity – commercial flights, training, maintenance services To consolidate its position as a leader in the general aviation market in India As per the fresh investment plan, TAAL is planning to upgrade its manufacturing facilities both for metal as well as for sheet metal components/aerostructures. This upgraded facility will target 'offset work' (offset work refers to work that aircraft companies are obliged to source from India against purchase of aircraft by the Government owned Indian airlines i.e. Air India and Indian Airlines) from companies such as Boeing and Airbus. The facility will also target work from overseas General Aviation aircraft producers who are looking to reduce their manufacturing costs. TAAL is investing in new hangar facilities that will be able to accommodate an Airbus A320 class of aircraft. These facilities will be targeted towards the new low cost airlines that are bound to require maintenance facilities for their aircraft. TAAL is also considering a joint venture with a foreign company to enter this business. TAAL’s current airfield at Hosur has a 1.2 km runway. TAAL is planning to increase the length of the runway to accommodate a ATR 72 class of aircraft. With this TAAL believes that the airfield can act as secondary airport to Bangalore, servicing the requirements of Electronic City and the industrial town of Hosur. TAAL enjoys a strong competitive advantage at Hosur, since the Government is unlikely to permit a new airfield in the vicinity of Electronic City. TAAL’s current product portfolio in the general aviation segment (starting from the Hansa and Thorpe aircraft, to the P68C and Cessna’s range of Citation Business Jets and the Cessna Caravan aircraft) encompasses virtually the entire range of fixed wing General Aviation. TAAL is in discussions with some Rotary Wing aircraft (helicopter) manufacturers to ascertain if TAAL can represent them in India. TAAL is also in discussions with some piston engine aircraft manufacturers so as to replace the P68C aircraft in the coming years with a more modern version. Corporate Information The registered office of TAAL is located at Lunkad Towers, Sno. 199, Plot No.3, Viman Nagar, Lohegaon, Pune 411014 and its corporate office at Block 'B', 2nd Floor, Akshaya Commercial Complex, 26, Victoria Road, Bangalore 560047. TAAL's shares are currently listed on the BSE and PSE. Page 13 GLOBAL DEPOSITARY RECEIPTS The following is a general summary of the terms of the GDRs. This summary is derived from and should be read in conjunction with, the full text of the Conditions and the Deposit Agreement constituting the GDRs, which prevail to the extent of any inconsistency with the terms set out in this section. Capitalised terms used herein and not otherwise defined have the respective meanings given to such terms in the Conditions. The Company Taneja Aerospace and Aviation Limited, a public company incorporated in India with limited liability. 1,919,118 GDRs were offered outside the United States in reliance on Regulation S and other applicable laws. The GDRs will not be offered in India. US$ 4.00 Each GDR represents two Shares. The GDRs were issued pursuant to the Deposit Agreement. There are limitations on redeposit of Shares that have been withdrawn from the GDR deposit facilities and on deposits of Shares acquired in the open market. See "Issue of Additional GDRs". The GDRs and the Shares represented thereby are subject to restrictions on transfer. See "Transfer Restrictions". Issue Date Form and Denomination 13 September 2005 The initial deposit of Shares in connection with this offering were made by the delivery to The Hongkong and Shanghai Banking Corporation Limited, as custodian (the "Custodian"), of a share certificate representing the Shares. Upon receipt by the Custodian of such share certificate and receipt by the Depositary of confirmation from the Company that the Shares to be represented by the GDRs have been issued as fully paid, the Depositary shall execute and deliver a Master GDR evidencing the GDRs to a nominee for Euroclear and Clearstream, Luxembourg. Except as described herein, beneficial interests in the Master GDR will be shown on, and transfers thereof will be effected only through, book-entry records maintained by Euroclear and Clearstream, Luxembourg. Under current Indian law, the Deposit Agreement and the Conditions, additional GDRs may be issued only in connection with (i) dividends or on free distributions of Shares, (ii) the exercise by holders of their pre-emptive rights in connection with rights offerings, and (iii) to the extent previously issued GDRs have been cancelled. As of 31 March 2005 there were 18,742,500 Shares outstanding. Immediately after this offering there were 22,580,735 Shares outstanding, including 3,838,238 Shares represented by the GDRs. The Offering Price per GDR GDRs Issue of Additional GDRs Total Shares outstanding prior to and after this Offering Dividends Holders of GDRs will be entitled to receive dividends, subject to the terms of the Deposit Agreement, to the same extent as the holders of Shares, less the fees and expenses payable under such Deposit Agreement and any Indian tax applicable to such dividends. Cash dividends on the Shares, if any, will be paid in Rupees and, subject to any restrictions imposed by Indian law, regulations or applicable permits, will be converted into US dollars by the Depositary in the manner provided in the Deposit Agreement and distributed to holders of GDRs. See "Taxation – Indian Taxation – Taxation of Distributions". Page 14 Indian Taxation All deliveries of GDRs will be made free and clear of, and without deduction or withholding in respect of Indian taxation, save to the extent required by law. The GDRs will have the benefit of the tax concessions available under the provisions of Section 115AC of the Income Tax Act, 1961 of India and The Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme 1993 promulgated by the Government of India (the "Depositary Receipt Scheme"). These tax concessions include withholding at a reduced rate of 10% plus an applicable surcharge of 10% on such tax and an additional 2% education cess, for individuals and an association of persons if taxable income exceeds Rs.1 million and a surcharge of 10% and an additional 2% education cess for companies, in respect of capital gains resulting from long-term investments, except where such long-term capital gains are exempt from tax by virtue of the transfer of a short-term capital asset, being sale of equity shares in a company or a unit of an equity oriented fund or a derivative, and such transactions are entered into on a recognized stock exchange in India, and are chargeable to securities transaction tax under the Finance Act of 2004. Gains realized outside India on the sale or transfer of GDRs (but not the Shares represented by those GDRs) by a holder who is a non-resident of India to another nonresident of India are exempt from Indian capital gains tax. See "Taxation". With effect from 1 October 2004, Long-Term Capital Gains ("LTCG") on the sale of securities through a recognised stock exchange are treated as exempt income and shortterm capital gains are now subject to tax at 10% (plus applicable surcharge and education cess). The conditions for claiming exemption from LTCG Tax are as follows: • • There must be a purchase or sale of equity shares or a derivative or a unit of an equity oriented fund. The sale must be through a recognised stock exchange in India. The Indian Government has also introduced a Securities Transaction Tax ("STT") on certain securities transactions on and from 1 October 2004. No surcharge or education cess is payable on STT and STT is collected by the relevant stock exchange and is paid to the Government. The rate of STT varies from 0.1 to 0.2%. For a detailed discussion on STT, See "Taxation". Under current Indian laws, no tax is payable by the recipients of dividends on shares of an Indian company, including Shares represented by GDRs. However, the Company will be liable to pay distribution tax on dividends paid on the Shares (including Shares represented by GDRs) at a rate of approximately 14.03% (inclusive of surcharge and education cess). Conversion of GDRs into equity shares is not a taxable event. Voting Rights of holders of GDRs Holders of GDRs will have no voting rights with respect to the Deposited Shares. If so requested by the Board of Directors of the Company (the "Board"), the Depositary will, (subject to receipt from the Company of an opinion from the Company's legal counsel at the expense of the Company, such counsel being reasonably satisfactory to the Depositary, that to do so will not be illegal or violate any applicable law of India, or subject the Depositary to liability to any holder of GDRs or any shareholder of the Company), either vote as directed by the Board as conveyed by the Chairman of the Company (the "Chairman") (or, in the Chairman's absence, the chairman of any meeting of the Board) or give a proxy or power of attorney to vote the Deposited Shares in favour of a director of the Company or other person or vote in the same manner as those shareholders designated by the Board. In the absence of receipt from the Page 15 Company of an opinion from legal counsel as aforesaid, the Depositary shall not exercise any voting rights and shall have no liability to the Company or any holder for any action taken or not taken as the case may be pursuant to the Conditions or the Deposit Agreement. A valid corporate decision of the Company will bind the Depositary (as registered owner of the Shares) and the holders and owners of GDRs. Shares, which have been withdrawn from the depositary facility and transferred on the Company's register of members to a person other than the Depositary or its nominee may be voted by the holders thereof. However, holders and owners of GDRs may not receive sufficient advance notice of shareholders' meetings to enable them to withdraw the Shares and vote at such meetings. See "Terms and Conditions of the Global Depositary Receipts – Voting Rights" and "Transfer and Ownership" and "Transfer Restrictions". Settlement The GDRs will be represented by beneficial interests in the Master GDR, which will be deposited on the Issue Date with a custodian for, and registered in the name of a nominee of Euroclear and Clearstream, Luxembourg and held for the account of account holders in Euroclear and Clearstream, Luxembourg. Beneficial interests in the Master GDR will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg. Except as described herein, individual GDRs will not be issued in exchange for beneficial interests in the Master GDR. Restriction on Disposition of Securities Depositary for the GDRs Governing Law The GDRs and the Shares to be represented by such GDRs, have not been, and will not be, registered under the Securities Act. Offers and sales of the GDRs will be subject to certain restrictions described in "Transfer Restrictions" and "Plan of Distribution". The Bank Of New York. The Placing Agreement (as defined herein) and the Deposit Agreement will be governed by English law (except that the certifications set forth in Schedule 3 to the Deposit Agreement and any provisions relating thereto shall be governed by and construed in accordance with the laws of the State of New York). The rights and obligations attaching to the Deposited Shares will be governed by Indian law. Application has been made to admit the GDRs to listing on the LuxSE and to trading on the EuroMTF on the Issue Date. Holders of GDRs may withdraw the Shares represented by the GDRs only after listing of the Shares represented by the GDRs on the BSE. The Company believes that such listing will occur within 90 days from the Closing Date but there is no guarantee that such listing will be granted. After the listing has occurred, a Holder of GDRs may request the Depositary to withdraw, from the depositary facility, the Shares represented by the GDRs and transfer such shares to the Holder. Listings Trading Market for the GDRs and the Shares The trading market for the Shares is the BSE and the PSE. The Shares have been listed on the BSE since 17 June 1994 and on PSE since 17 June 1994. There is no public market outside India for the Shares. As of 20 May 2005, the latest date for which such information is available, there were 21,848 holders of record of the Shares. Prior to this offering, there has been no trading market for the GDRs. The Company has undertaken to apply to have the Shares represented by the GDRs approved for listing on the BSE. Page 16 Use of Proceeds The Company has raised US$7,676,472 from this offering. The net proceeds from this offering, after deduction of fees and expenses of GDRs is US$307,000 which the Company intends to use to fund its strategic initiatives and for other general Corporate purposes. Page 17 THE INDIAN AVIATION INDUSTRY The information set forth in this section is based on publicly available information from the various websites and literature available on the Indian aviation industry, which has not been independently verified by the Company, the Lead Manager or any of their respective affiliates and advisors. Aircraft and Aerospace Manufacturing and Development This industry is dominated by public sector (Government owned) institutions/companies such as Hindustan Aeronautics Limited (HAL), Indian Space Research Organization (ISRO), National Aerospace Laboratory (NAL) and Aeronautical Defence Establishment (ADE). Hindustan Aeronautics Limited (HAL) The Indian aircraft manufacturing sector has been largely dominated by HAL. Starting with maintenance of aircraft, the Company produces various military aircrafts, including components under license from various Soviet as well as Western companies. Recently, HAL enjoyed considerable success in developing indigenous aircraft such as the Light Combat Aircraft ("LCA"), Advanced Light Helicopter ("ALH") and the Intermediate Jet Trainer ("IJT"). The Company currently develops a derivative of the ALH called Light Attack Helicopter. HAL also manufactures doors for Airbus as well as Boeing aircraft. The Company recently announced a joint venture with Snecma for the manufacture of engine components. Indian Space Research Organization (ISRO) ISRO has been the prime driver for the Indian Satellite Launch programme. ISRO has not only developed two very successful Launch Vehicles, the Polar Satellite Launch Vehicle (PSLV) and the Geo-stationary Satellite Launch Vehicle (GSLV), but also developed its own range of satellites. Both the PSLV and the GSLV are ISRO's ongoing programmes. National Aerospace Laboratory (NAL) This national laboratory falls under the purview of the Council of Industrial and Scientific Research (CSIR) which has control over a number of national laboratories spanning various technologies. NAL has been an active participant from a R&D perspective in almost all aeronautical development programmes of national importance, which include the PSLV and GSLV programmes. It has also been at the forefront of the Civil Aircraft development programme in India and under this initiative has developed the Saras as well as Hansa aircrafts, described elsewhere in this document. Aeronautical Defence Establishment (ADE) ADE is part of the Indian Defence Research and Development Laboratories (DRDO). It has been an active participant in many defence programmes of the country including the country’s missile programme. Recently, ADE has also been involved in the development of two Unmanned Air Vehicles, the Nishant a reconnaissance aircraft and the Lakshya, a pilotless target towing aircraft. Private companies Historically, very few private companies have participated in this sector. Those that have are essentially subcontractors to the above organizations and these companies include companies such as L&T, Godrej and Walchandnagar Industries (which have been involved in the engines of the PSLV and GSLV) and others such as Dynamatics and Legend, which are recent subcontractors to HAL. TAAL is the only company in the private sector that manufactures an entire aircraft in India. Charter Market The Charter business in India is highly fragmented with few dedicated players in the market. The data available on this industry is scarce and to some extent unreliable. Some of the better known players in this industry are Deccan Page 18 Aviation which focuses on helicopter charters. Deccan also operates two fixed wing Pilatus PC12 aircraft based in Mumbai; Million Air which operates a couple of helicopters and a Hawker 800 Business Jet; Taj Air which operates a Falcon 2000 Business Jet and India International based in New Delhi which operates a Cessna Citation SII Business Jet. In addition to these operators many other business houses that own aircraft offer them on charter when they are not required internally. Most of these charters are unofficial since many of these companies do not possess an air-taxi licence required for such operations. Majority of the aircrafts deployed in the operations described above involve either Jet aircraft or Turbo-prop aircraft. TAAL’s charter operations, on the other hand, are based on the P68C a five passenger piston engine aircraft which is significantly more cost effective for short haul regional routes. There is very little competition for TAAL. General Aviation Aircraft Sales Aircraft sales in India, as elsewhere in the world, are highly sensitive to the level of growth and optimism in the economy. In the past the market for aircraft in India was confined to the State Governments, top ten to fifteen corporate houses and the Government owned flying schools (for trainer aircraft). With the recent liberalization of the economy, the entry of multinationals and the increase in the GDP growth rate, there has been a significant increase in the demand for aircraft and from a much broader market segment. With the increase in the number of domestic airlines there has been a tremendous increase in the demand for pilots and trainer aircrafts. Similarly a host of new companies that have emerged in the new economy have either acquired aircrafts or are considering the same. The market for general aviation aircraft in India is still at a very nascent stage. The total population of such aircrafts in India is less than 250 while in the US there are more than 150,000 such aircrafts. Broadly speaking the Indian market can be segmented as follows: Business Jets & Turbo Props (Corporate Market) Since there is no import duty on aircraft, the market in India is open to all international players. In the past the most active player in the market was Beechcraft (now owned by Raytheon) with its C90 and B200 models of turbo-prop aircrafts virtually dominating the Indian market. Recently, with a marked shift in preference towards Business Jets where Cessna dominates the market globally, Cessna aircraft sales have picked up substantially. Twin Piston Engines (Corporate Market & Twin Engine Flying Training Market) The largest global players in this segment are Piper (now called the New Piper Aircraft Co.), Beechcraft (with the Beech Baron aircraft). In India, TAAL has virtually dominated this segment of the market with the P68C aircraft built in India. Given the existing population of ten such aircrafts in India and the fact that the aircraft is supported locally by way of engineers and spares, it has become very difficult for the other players to compete in this segment. Recently there has been a significant increase in the inquiry levels for this category of aircrafts. Single Piston Engine Aircraft (Pilot training market) After a prolonged period of dormancy, this market is witnessing a revival. In the past this market was confined to Cessna 152 aircraft. Recently 8 HANSA aircraft have been sold to flying schools across the country. Also, the Thorpe aircraft produced by TAAL for Indus Aviation Limited, a company based in Dallas, US has received 50 or so inquiries in the last one month. Third party Maintenance Repair & Overhaul (MRO) market The MRO business refers to the maintenance of airliners and their components. With the Indian Airline industry being confined to Government owned Indian Airlines and Air India, this market was largely internal to these two airlines as they had set up their own in-house maintenance facilities. With the emergence of new airlines recently, particularly the low cost carriers such as Deccan Airways and SpiceJet there is expected to be a growth in the demand for third party maintenance providers. It is yet early to predict the size of this market in India. Currently, Jet Aviation and Sahara have both set up their own maintenance facilities but continue to outsource a significant portion of their component maintenance. The other airlines such as Deccan, SpiceJet and Paramount have yet to Page 19 decide on the their maintenance set-ups. It is expected that they will resort to outsourcing these activities as other low cost carriers in other countries have done. Once the MRO business in India is established, the country expects to attract work from neighbouring regions. Page 20 BUSINESS Brief History and Corporate Profile TAAL was promoted by Mr. B. R. Taneja and his associates, who are also promoters of The Indian Seamless Group. The Chairman of TAAL is Mr. Khushroo Rustumji, who is a qualified B.tech (Hons.) from IIT Kharagpur, India. Mr. Salil Taneja, a mechanical engineer with a management degree from Yale University, USA is the Vice Chairman, Mr. C. S Kameswaran, a Chartered Accountant and post graduate in business administration, is the Executive Director. TAAL commenced manufacture of aircrafts in 1994 and has a staff strength of 193 employees. Overview of present activities: TAAL has the following main line of business (1) (2) (3) (4) General Aviation Aircraft Manufacturing; Air charter services; Aero structures; Aviation Infrastructure services. General Aviation Aircraft Manufacturing: TAAL manufactures a number of aircrafts. The Company manufactures the P68C, a six seat twin piston aircraft under license from Partenavia, Italy.. TAAL also manufactures the Thorp T-211, a two-seater Light Sport Category Plane (All Up Weight 576 Kg) on subcontract basis for Indus Aviation, Dallas, USA. The Company has an order book of 25 Thorp aircraft to be delivered over the next year. This aircraft is targeted at the newly introduced and fast-growing 'Light Sports Aircraft' category in the US and also to service local needs. The Company is the manufacturing agency for the recently certificated full-composite two seat light trainer aircraft, Hansa, designed by the National Aerospace Laboratory (NAL), Bangalore. TAAL has orders on hand for 2 Hansa aircrafts with orders for another 6 expected shortly. TAAL is also the manufacturing partner for the development of the SARAS, a multi-role 14 seat pressurized turbo-prop aircraft. TAAL has also produced the first three prototypes of this aircraft so far. The aircraft is currently under flight testing and in the process of certification by the Indian Directorate General of Civil Aviation (DGCA). TAAL is the only authorized sales representative in India of the Cessna Aircraft Company of the US for their Citation range of Business Jets and the Cessna Caravan turbo-prop utility aircraft. Air Charter Services: TAAL has 6 P68C under its management which it operates on behalf of its owners and which it charters when the aircrafts are not being used by the owners. Such charter revenues accrue to TAAL. This business is growing rapidly and TAAL envisages adding two aircrafts to its fleet this year. TAAL’s charter clients include corporate travellers, tourists, Medi-vac evacuees, and VIPs. Aerostructures: TAAL is a major sub-contractor to Hindustan Aeronautics Limited (HAL) , National Aerospace Laboratory (NAL), Indian Space Research Organization (ISRO) and Aeronautical Defence Establishment (ADE). The Company manufactures the airframe for the Nishant, a full composite UAV designed by ADE Bangalore. It also manufactures composite parts (air-intake, nose cone) for the Lakshya, a Pilotless Target Aircraft designed and developed by ADE. Page 21 TAAL manufactures vertical tails and horizontal stabilizers for the Intermediate Jet Trainer (IJT) being developed by HAL. For HAL, TAAL also manufactures drop tank parts for Jaguar aircraft, interiors and auxiliary tanks for the Advanced Light Helicopter (ALH) and welded body structures for Cheetah (Allouete) helicopter. For the PSLV (Polar Satellite Launch Vehicle) project of ISRO, the Company has manufactured the Reaction Control Structures and the light alloy structures. While for the Geo-Satellite Launch Vehicle (GSLV) project, TAAL is manufacturing the protection plate, strap on nose cone, thermal shroud, inter tank structure and battery boxes (carbon composite). This work is being carried out under a four year contract awarded to the Company. For the Air-force, TAAL has been involved in the installation of Night Vision Systems on Cheetah Helicopter. This was done on a subcontract for IAI (Israeli Aircraft Industries) TAAL has also been approved recently for the manufacture of transparencies for AN 32 aircraft.. For the navy, TAAL is manufacturing the interiors of Sea King Helicopter. In the past TAAL has been involved in the development and installation of Sono-bouy Release Mechanism for Kamov helicopters and development of Torpedo Nose Cones (Glass-fibre composite). The Company also manufactures plastic cabin parts for Jet Airways, Indian Airlines, Air India and Pawan Hans. TAAL expects to obtain FAA certification for some of these parts which will allow the Company to market these products to airlines outside of India. Aviation Infrastructure Services: The Company owns a 180 acre site at Hosur (50 km from Bangalore, with close proximity to Electronic City, the software hub of Bangalore) on which the Company has setup it own airfield and hangar facilities. The hangar is currently being used by Deccan Aviation, a low cost domestic carrier, to maintain its fleet of ATR 42 aircrafts. The airfield is also used by a number of other Indian companies for parking their aircraft as well as for commuting to and fro from Hosur. For example, TVS Motors, an Indian manufacturer of two wheelers, uses the airfield virtually everyday to fly its executives between its manufacturing plants at Hosur and Mysore. TVS also parks its aircraft at TAAL’s airfield. Major events/achievements in the history of the Company: (i) (ii) (iii) First and only private sector (non-government owned) company in India to manufacture aircrafts. Co-developed the HANSA, a full composite trainer aircraft in association with NAL. Became the Authorised Sales representatives of the Cessna Aircraft Company for their Citation range of Business Jets and the Cessna Caravan aircraft. Sold four Cessna aircrafts in the last two years, a significant number for India. First company in India to manufacture the airframe for the Nishant, aUAV designed byADE. Launched the first Fractional Aircraft Ownership programme in India called CAPS Manufacture of three prototypes of the 14 Seat Saras aircraft for NAL. Commenced manufacture of the Thorpe T211 thereby becoming the first Indian company to export civil aircraft. (iv) (v) (vi) (vii) Market Opportunity Business Segment General Aviation Aircraft Opportunities and Plans • Expand product offering by representing a Rotary Wing Aircraft manufacturer in India, in discussion with manufacturers • Develop a Diesel version of the P68C – in discussion with NAL for joint venture. • Tie-up for the manufacture of other light aircraft, especially in the Light Sports Category, in discussions with various manufacturers • Expand Charter aircraft network and also flying training business – in process of inducting two new P68Cs into network • Expansion of work available from ISRO and HAL. Set up autoclave and Air Charter Aero structures Page 22 Business Segment Opportunities and Plans ancillary facilities for the production of advanced composite products • Work from Tier 1 subcontractors to Airbus and Boeing (driven by offset commitments to India). Setup machining facilities to complement sheetmetal and assembly facilities • Obtain work from General Aviation aircraft manufacturers such as Cessna and Bombardier. Augment sheet-metal facilities • Expansion of cabin parts business by selling to foreign airlines. Establish mechanism for obtaining PMA certification of cabin parts • Develop the existing airfield as a secondary regional airport to service Bangalore/Electronic City. Extend runway; Install Night Landing Facility; Set up ancillary infrastructure; • Provide parking for aircrafts arriving at Bangalore airports; • Set up maintenance facility for Regional Airliners and/or 737 class of aircraft; • Set up maintenance base for Business Aircraft. Airport Services Details of the Company's major customers: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) Mesco Airlines Enbee Plantations Madhya Pradesh Flying Club Limited Jupiter Aviation (P) Limited Misrilall Mines (P) Limited Sanmar Castings Limited Indian Seamless Metal Tubes Limited Rajiv Gandhi Aviation (P) Limited Lafarge India Limited Kinetic Motor Company Limited Kalyani Steels Limited Sesa Goa Limited. Air Charter Customers: Leading Corporates, VVIP’s including Ministers of personalities, Tourist, Hospitals andMining Companies. Aero Structures: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Vikram Sarabhai Space Centre or ISRO; HAL; NAL; Indian Navy; IAF; ADE; Pawan Hans; and Scheduled airlines in India such as Indian Airlines, Jet Airways, Air Deccan and others. State and Central Government, Celebrities, Sports Page 23 Aviation Infrastructure Customers Air Deccan Net Turnover according to Categories of Activity. Net Turn Over according to Categories of activity: (Rs. in million) 2003-04 2004-05 Particulars 36.70 Nil Light Transport Air Craft 41.51 43.63 Air Management 54.30 64.24 Aerostructures and others 132.50 107.87 Total Net Turnover according to Geographical markets Majority of the Company's revenues are earned from India. In the year 2004-2005 the Company earned Rs.4 million from sales to the US and earned the balance revenue from India. This ratio is likely to move in favour of exports as the aerostructure business from overseas companies increases. Strengths and Competitive Advantages General Aviation Aircraft Manufacturing This is an industry which is very labour intensive and as such India has a natural advantage in this field. Within India, TAAL has established a significant lead in this business and is currently the only private company to be certified for the production of an entire aircraft in India. TAAL’s facilities are also unique in the private sector and there is no other company with all the facilities in-house to be able to manfacture an aircraft. Charter TAAL is present in the cost conscious segment of this industry. In other words TAAL specializes in short haul flights to regional destinations using low cost piston engine aircraft whereas the other charter operators in the country either focus on rotary wing (helicopter) operations or operate turbo-props and business jets. In the piston engine category, TAAL is by far the dominant player and has established operating/maintenance bases in multiple locations across the country. It would be difficult for a new operator to replicate the infrastructure without making a substantial investment. Most importantly, TAAL’s charter business is based on the P68C aircraft that the Company itself manufactures. Since these aircrafts are manufactured locally, spares and engineers are available easily and at low costs as compared to those for imported aircraft. It is therefore difficult to match TAAL’s cost of operations in this area. Aerostructure Manufacturing Being one of the first companies in India to enter this sector, TAAL has established strong relationships with a number of important customers in India such as HAL, ISRO and NAL. TAAL has also gone through prolonged approval processes with each of these customers and with other authorities such as the DGCA and CEMILAC. New entrants to this sector would have to replicate these relationships (based on knowledge as well as contacts) as well as obtain the gamut of approvals that TAAL currently holds. In the Export arena TAAL enjoys an advantage in that it is already ready with the facilities at a time when the export market is just beginning to open up. If the Company is able to make the investments as planned under this offering, the Company will establish a significant lead/differentiator in terms of manufacturing facilities. Aviation Infrastructure Services In this area TAAL has a virtual monopoly in that no one else can now establish an airfield in the vicinity of Hosur/Electronic City. Not only is it difficult to acquire the land required for such a facility but also a second Page 24 airfield is unlikely to be permitted in that area. With the proliferation in the number of domestic airlines the Company expects that there will be a shortage of hangar facilities in the country in the coming years and if TAAL is ready with its new hangar it will be able to market this facility at remunerative rates. Sales and Marketing The current sales and marketing organization is divided into three parts – aircraft marketing, aerostructure marketing and charter marketing. Domestic aerostructure marketing is headed by Mr. Harinath, a senior General Manager. Within aircraft marketing Cessna sales is headed by Mr. Santosh Deshpande, a General Manager and P68C sales are handled by Mr. Anjan Rao. Charter marketing is handled by Rajiv Nandi. TAAL expects to induct two additional persons in the marketing department to look after aerostructure marketing outside of India and for the marketing of maintenance services. These persons will be added once the new facilities are nearing completion. TAAL’s marketing strategies are all direct in that the Company targets prospective addresses customers directly either through direct mailers or through direct appointments. Production Currently TAAL has a single production facility located at Hosur, about 50 km from Bangalore, India. These production facilities relate to the production of metallic and composite aircraft parts and the assembly of aircraft structures. The current investment plan envisions a substantial augmentation of all these facilities. Strategy for growth TAAL’s growth strategy is based on the following vision: • • • To be a global Aerostructure manufacturer specializing in (i) Advanced composite parts and (ii) Light Alloy Structures/Assemblies; To develop TAAL’s Airfield as a hub of Aviation Activity – Commercial flights, Training, Maintenance services; To consolidate our position as a Leader in the General Aviation Market in India. As per the fresh investment plan TAAL is planning to upgrade its manufacturing facilities both for metal as well as for sheet metal components/aerostructures. This upgraded facility will target 'offset work' (offset work refers to work that aircraft companies are obliged to source from India against purchase of aircraft by the Government owned Indian airlines i.e. Air India and Indian Airlines) from companies such as Boeing and Airbus. The facility will also target work from overseas General Aviation aircraft producers who are looking to reduce their manufacturing costs. TAAL is investing in new hangar facilities that will be able to accommodate an Airbus A320 class of aircraft. These facilities will be targeted towards the new low cost airlines that are bound to require maintenance facilities for their aircraft. TAAL is also considering a joint venture with a foreign company to enter this business. TAAL’s current airfield has a 1.2 km runway. TAAL is planning to increase the length of the runway to accommodate a ATR 72 class of aircraft. With this TAAL believes that the airfield can act as secondary airport to Bangalore servicing the requirements of Electronic City and the industrial town of Hosur where the airfield is located. TAAL enjoys a strong competitive advantage in that no new airfield is likely to permitted in the vicinity of Electronic City in the future. TAAL’s current product portfolio in the general aviation segment (starting from the Hansa and Thorpe aircraft, to the P68C and Cessna’s range of Citation Business Jets and the Cessna Caravan aircraft) encompasses virtually the entire range of fixed wing General Aviation. TAAL is therefore in discussions with some Rotary Wing aircraft (helicopter) manufacturers to ascertain if TAAL can represent them in India. TAAL is also in discussions with some piston engine aircraft manufacturers so as to replace the P68C aircraft in the coming years with a more modern version. Page 25 Banking Facilities Since its inception TAAL has been working with a consortium of bankers including Bank of India, State Bank of India, Canara Bank and Bank of Baroda. Of these, Bank of India is the lead Bank for the consortium. The Company enjoys a good working relationship with all these banks. Employees and Employee Relations The Company has enjoyed cordial relations with all its employees right through its inception. TAAL believes in participative management and encourages broader involvement in all long-term decision making processes. The Company has appropriate policies and practices to attract, retain, motivate its employees for achieving higher level of performance. The Company has on going people development programs. The Employer -Employee relationship has been peaceful and cordial during the last three years. Location In No. of Technical Staff Administrative Staff Bangalore/ 62 38 Hosur Average number employed over the past 3 financial years Particulars No. of Employees Properties of the Company The Company’s principal properties used in its operating activities comprises of its plants situated in: Particulars of the Property 180 Acres of land at Hosur Building at Hosur Plant and Machinery at Hosur Office Equipments at Bangalore and Hosur Furnitures and Fixtures at Bangalore & Hosur Vehicles at Bangalore & Hosur Registration Number: The Company is incorporated in the Republic of India and registered under the Companies Act, 1956 with Registration No. 11-48221. Main Objects: The Main Objects of the Company as set out in Clause III(A) of the Memorandum and Articles of Association are as follows: 1. To design, develop, manufacture, construct, build, assemble, test, repair, overhaul, reconstruct or renovate or otherwise deal in aeroplanes, airships, aircrafts hovercrafts, seaplanes, helicopters, space vehicles, communication or other satellites navigational control or guidance system, aero engines and all machines, instruments, apparatus, stores, spares, parts, aides, alliances, kits, tools and accessories capable of being used for or in connection with aerial transit, conveyance or communication. To provide establish, keep maintain, run operate or make available facilities for or otherwise engage in designing development invention, testing, assembling, repairing, maintaining, overhauling, aeroplanes, airships, seaplanes, aircrafts, helicopters, hovercrafts, space vehicles, communication satellites, propellers and all other machines or apparatus. As on 31 March 2005(Rs.In Million) 73.58 36.06 82.14 1.84 0.96 0.45 31 March 2005 193 Retainers 17 Trainees 52 Casual 24 Total 193 31 March 2004 206 31 March 2003 208 2. Page 26 Employee Stock Option Scheme The Company does not have any Employee Stock Option Scheme. Page 27 FINANCIAL PERFORMANCE Selected Financial and Operating Data The following table sets forth TAAL's selected Financial and operating data. The financial data has been derived from TAAL's financial statements prepared in accordance with Indian GAAP. The summary income statement data for the financial years ended 31 March 2003, 2004 and 2005 and the summary balance sheet data as of 31 March 2003, 2004 and 2005 are derived from TAAL's audited financial statements included in this Information Memorandum, together with the report of Haresh Upendra & Co., Chartered Accountants for the years ended 31 March 2003, 31 March 2004 and 31 March 2005. Neither the information set forth below nor the format in which it is presented should be viewed as comparable to information prepared in accordance with IAS/IFRS, US GAAP or other accounting principles. Indian GAAP differs in certain material respects from IAS /IFRS and US GAAP. For a discussion of significant differences between Indian GAAP and IAS /IFRS and US GAAP, see "Summary of Significant Differences between IAS / IFRS, US GAAP AND INDIAN GAAP" Potential investors should read the following data together with the more detailed information contained in "Management's Discussion and Analysis Report'', "Selected Statistical Information'' and the financial statements and related notes included elsewhere in this Information Memorandum. The following data is qualified in its entirety by reference to all of that information. The Company does not have any subsidiary and therefore does not prepare consolidated accounts. Summary of Non-consolidated Income Statement (Figures in Million) Particulars Three months ended 30 June 2005 (un-audited) in Rs. in US$ 39.812 0.910 0.218 0.005 40.030 0.915 13.505 0.309 5.911 0.135 4.799 0.110 15.815 0.361 5.311 0.121 10.504 0.240 2.341 0.054 8.163 0.187 0.00 0.00 8.163 0.187 0.00 0.00 8.163 0.187 93.712 2.142 0.00 0.00 Three months ended 30 June 2004 in Rs. 27.868 0.031 27.899 6.005 4.726 5.453 11.715 7.082 4.633 2.312 2.321 0.00 2.321 0.00 2.321 89.250 0.00 in US$ 0.637 0.001 0.638 0.137 0.108 0.125 0.268 0.162 0.106 0.053 0.053 0.00 0.053 0.00 0.053 2.040 0.00 Sales (Net of Excise) Other Income Total Income Raw Materials Manufacturing Expenses Sales, General and Administrative Expenses PBDIT Interest PBDT Depreciation Profit / (Loss) Before Taxation Prior Period Items Profit Before Taxation Taxation Profit / (Loss) After Taxation Equity Capital Reserves (excluding revaluation reserves) US $ Rate = Rs.43.75 Page 28 Particulars Three months ended 30 June 2005 (un-audited) Three months ended 30 June 2004 Summary of Income Statement for the last 3 financial years (Figures In Million) Particulars Sales (Net of Excise) Other Income Total Income Manufacturing & Other Expenses PBDIT Interest PBDT Depreciation Profit / (Loss) Before Taxation Prior Period Items Profit Before Taxation Taxation Profit / (Loss) After Taxation Equity Capital Reserves (excluding revaluation reserves) US$ Rate = Rs.43.75 FY 2004-05 FY 2003-04 In Rs. US$ In Rs. US$ 132,499,863 3,028,568 107,868,856 2,465,574 2,138,594 48,882 1,262,832 28,865 134,638,457 3,077,450 109,131,688 2,494,439 86,152,476 1,969,199 60,079,869 1,373,254 48,485,980 21,140,124 27,345,856 9,269,244 18,076,612 13,938,537 32,015,149 800,000 31,215,149 93,712,500 31,882,485 1,108,251 483,203 625,048 211,868 413,180 318,595 731,775 18,286 713,489 2,142,000 728,743 49,051,819 32,538,133 16,513,686 9,258,673 7,255,013 0 7,255,013 0 7,255,013 89,250,000 25,571,545 1,121,184 743,729 377,456 211,627 165,829 0 165,829 0 165,829 2,040,000 584,492 FY 2002-03 In Rs. US$ 152,537,051 3,486,561 2,979,859 68,111 155,516,910 3,554,672 128,066,620 2,927,237 27,450,290 38,493,236 -11,042,946 1,38,31,218 -24,874,164 26,937,443 2,063,279 0 2,063,279 85,000,000 25,571,545 627,435 879,845 -252,410 316142 -568,552 615,713 47,161 0 41,761 1,942,857 584,492 Page 29 Summary of Balance Sheet Particulars Three months ended 30 June 2005 FY 2004-05 FY 2003-04 (Figures In Million) FY 2002-03 In Rs. US$ In Rs. US$ In Rs. US$ Sources of Funds Equity Share 93,712,500 2,142,000 93,712,500 2,142,000 89,250,000 2,040,000 85,000,000 1,942,857 Capital Reserves and 40,040,000 915,200 31,882,485 728,743 25,571,545 584,492 25,571,545 584,492 Surplus Money 0 0 0 0 0 0 0 0 towards Warrants Total 133,752,500 3,057,200 125,594,985 2,870,743 114,821,545 2,624,492 110,571,545 2,527,350 Shareholders Funds Loans 250168000 5718126 255,489,191 5,839,753 302,792,896 6,920,980 306,274,208 7,000,553 Total 383,920,500 8,775,326 381,084,176 8,710,495 417,614,441 9,545,473 416,845,753 9,527,903 Liabilities Application of Funds Gross Block 290,760,000 6,645,943 290,287,278 6,635,138 284,794,110 6,509,580 284,312,232 6,498,565 Less: 95,407,000 2,180,731 93,065,819 2,127,219 83,796,575 1,915,350 74,627,767 1,705,778 Depreciation Net Block 195,353,000 4,465,211 197,221,459 4,507,919 200,997,535 4,594,229 209,684,465 4,792,788 Capital Works 0 0 0 0 0 0 0 0 in Progress (CWIP) Total Fixed 195,353,000 4,465,211 197,221,459 4,507,919 200,997,535 4,594,229 209,684,465 4,792,788 Assets Investments Gross Current 244,244,000 5,582,720 215,925,376 4,935,437 214,106,016 4,893,852 196,998,529 4,502,824 Assets Less : Current 56,942,000 1,301,531 32,984,380 753,929 27,777,539 634,915 27,380,683 625,844 Liabilities & Provisions Net Current 187,302,000 4,281,189 182,940,996 4,181,508 186,328,477 4,258,937 169,617,846 3,876,979 Assets Misc. Exp. 1,266,500 28,949 921,721 21,068 921721 21068 921,721 21,068 Product Devp. Profit and 0 0 0 0 29,366,708 671,239 36,621,721 837,068 Loss A/c Total Assets 383,920,500 8,775,326 381,084,176 8,710,495 417,614,441 9,545,473 416,845,753 9,527,903 Net Worth 132,486,000 3,028,25 125,594,985 2,870,743 114,821,545 2,624,492 110,571,545 2,527,350 US$ Rate = Rs.43.75 Page 30 Movement in Authorised and Issued Share Capital The following are the particulars of the changes affecting the Issued & Paid up Equity Share Capital of the Company for last five years, preceding the date of this Information Memorandum Equity Share Capital Authorised Allotment Capital (Rs.) 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000 1,00,00,000 10,000,000 120,000,000 120,000,000 120,000,000 250,000,000 200,000,000 50,000,000 250,000,000 200,000,000 50,000,000 250,000,000 200,000,000 50,000,000 250,000,000 Preference Share Capital Face No. of Allotment Value Shares Price (Rs. (Rs.) Allotted per Share) Remarks Date No of Shares Allotted 700 20,000 5,000 15,000 40,000 20,000 20,000 84,900 6,294,400 5,000,000 22 July 1988 20 August 1988 9 February 1990 26 March 1990 26 March 1990 28 March 1991 9 July 1991 3 September 1991 7 October 1991 30 September 1993 9 June 1994 9 June 1994 10 November 1994 17 September 1997 17 September 1997 17 September 1997 31 March 1998 31 March 1998 31 March 1998 20 April 2001 20 April 2001 20 April 2005 7,000 200,000 50,000 150,000 400,000 200,000 200,000 849,000 62,944,000 50,000,000 Face Value (Rs) 10 10 10 10 10 10 10 10 10 10 10 10 10 Initial Authorised Capital Subscription to Memorandum Allotted to Promoters and Associates Allotted to Promoters and Associates Allotted to Promoters and Associates Allotted to Promoters and Associates Allotted to Promoters and Associates Allotted to Promoters and Associates Allotted to Promoters and Associates Increase in Authorised Equity Share Capital Allotted to Promoters and Associates Public Issue Allotment Increase in Authorised Equity Share Capital Reclassified 20,000,000 Equity shares of Rs. 10 and 500,000 Redeemable Cumulative Preference Shares of Rs.100 each 25,000,000 250,000 100 Increase in Authorised Capital Allotted to Promoters Increase in Authorised Capital Share Split Increase in the equity share capital from 20,000,000 equity shares of Rs.10 to 40,000,000 equity Shares of Rs.5 and preference share capital from 500,000 cumulative redeemable preference shares of Rs.100 to 1,000,000 cumulative redeemable preference shares of Rs.50 Page 31 Date Equity Share Capital Authorised Allotment Capital (Rs.) 200,000,000 50,000,000 250,000,000 57,500,000 13 June 2001 13 June 2001 13 June 2001 No of Shares Allotted 11,500,000 Face Value (Rs) 5 Preference Share Capital Face No. of Allotment Value Shares Price (Rs. (Rs.) Allotted per Share) 12,500,000 250,000 50 Remarks 31 October 2001 31 October 2001 31 October 2001 31 October 2001 31 October 2001 31 October 2001 31 October 2003 19 September 2003 31 March 2004 31 March 2004 31 March 2005 31 March 2005 31 March 2005 TOTAL 200,000,000 50,000,000 250,000,000 200,000,000 50,000,000 250,000,000 200,000,000 50,000,000 200,000,000 50,000,000 250,000,000 200,000,000 50,000,000 250,000,000 15,000,000 3,000,000 5 12,500,000 2,500,000 5 5 4,250,000 850,000 5 Reduction of Capital - pursuant to the High Court of Bombay Order dated 13 June 2001 confirming the reduction of Equity & Cumulative Redeemable Preference Share Capital i.e. Paid up Equity Share Capital from Rs.115,000,000 to Rs.57,500,000 and Paid up Cumulative Preference Share Capital from Rs.25,000,000 to Rs.12,500,000. Issued to Promoters in pursuance of the Mumbai High Court Order dated 23 July 2001 pursuant to Section 391(2) and Section 394(1) of the Companies Act, 1956. Issued to Promoters in pursuance of the Mumbai High Court Order dated 23 July 2001 pursuant to Section 391(2) and Section 394(1) of the Companies Act, 1956 in lieu of Preference share of Rs.12,500,000 Preferential Allotment pursuant to the AGM convened on 19 September 2003 4,462,500 892,500 5 Preferential Allotment pursuant to the AGM convened on 27 September 2004 93,712,500 18,742,500 Page 32 Information on the Company’s Share Capital as on 31 March 2005 Share Capital Structure of the Company as at 31 March 2005 Authorised Share Capital 40,000,000 Equity Shares of Rs.5 each 1,000,000 15% Redeemable Cumulative Preference Shares of Rs.50 each. Issued, Subscribed and Paid-up capital 18,742,500 Equity Shares of face value Rs.5 each (Rs. in Million) 200,000,000 50,000,000 93,712,500 Page 33 RISK FACTORS The risks described below together with the other information contained in this Information Memorandum should be carefully considered before making an investment decision. The risks described below are not the only ones relevant to the country, the industry in which the company operates the Company, the GDRs or the Shares. Additional risks, not presently known to the Company or that, it currently deems immaterial may also Impair Company’s business operations. Company’s business, financial condition or results of operations could be materially adversely affected by any of these risks. Any potential investor in, and purchaser of, the GDRs should pay particular attention to the fact that Company is governed in India by a legal and regulatory environment which in some material respects may be different from that which prevails in the United States and United Kingdom and other countries. Prior to making an investment decision, prospective investors and purchasers should carefully consider all of the information contained in this Information Memorandum (including the non-consolidated financial statements included in this Information Memorandum). This Information Memorandum may be construed as forward-looking statements that involve risks and uncertainties. Company’s actual results could differ materially from those anticipated in these construed forwardlooking statements as a result of certain factors, including the considerations described below and elsewhere in this Information Memorandum. RISKS RELATED TO THE COMPANY New entrants in the aerostructure Industry As on the date of this Information Memorandum, the Company has few competitors, but there is no assurance that competition will not develop in this industry. The entry of future competitors or new entrants in the market may reduce the margins available in the industry. The Company's market position will depend upon its ability to maintain a lead in manufacturing capabilities and efficiencies. Loss of Cessna Agency Currently TAAL is the only Authorized Sales Representative of the Cessna Aircraft Company in India for their Citation range of Business Jets and for the Cessna Caravan Aircraft. While the Company has been a representative of Cessna for the past seven years and enjoys an excellent working relationship with them, Cessna retains the right to either terminate the Company's representation agreement or to add other representatives in India. If this happens there could be a loss of future revenue for the company. Slowdown in the economy The sales of aircraft and charters are highly sensitive to the growth rate of the economy. Should there be a slowdown in the Indian economy income from the sales of aircraft and charter could be adversely affected. Availability of Avgas Like all Piston engine aircraft the world over, the P68C aircraft produced by the Company and also used by the Company for its charter operation, runs on Avgas a fuel that has been in short supply globally. Should the supply of Avgas reduce, the Company could suffer a loss of revenue on account of its charter operations as well as due to the lack of sales of such aircraft. Failure of MRO business to materialize as expected Some of the business plans of the Company relate to the setting up a new hangar for the maintenance of commercial airliners. These plans are based on the expectation that the demand for third party maintenance services in the country will grow rapidly. Should this fail to happen the revenues of the company will fall short of expectations. Page 34 Failure of the Offset business to materialize as expected The Company is planning some investments in order to augment its current manufacturing facilities. Such new facilities will be targeting 'offset work' from companies such as Boeing and Airbus and their subcontractors. Should Indian Airlines and Air India fail to place orders for new aircrafts there could be a shortfall in the offset work that devolves on India and that could in turn result in a potential shortfall in projected revenues for the Company in future years. Inability to attract the right talent Our expansion plans will require us to hire, train and retain a significant number of new employees in the future. Our competitors may offer wage and benefit packages that are more attractive than our wage and benefit packages. We may be adversely affected if highly skilled employees such as pilots, and engineers who have been trained by us, leave our employment and join our competitors. If we are unable to attract and retain qualified and skilled employees at a reasonable cost, our business and expansion plans may be adversely affected. Our success depends in large part upon our senior management, directors and key personnel and our ability to attract and retain them We are highly dependent on our senior management, our directors and our other key personnel. Our future performance will depend upon the continued services of these persons. We do not maintain key man life insurance for any of the senior members of our management team, our directors or our other key personnel. We may not be able to retain our senior management personnel or attract and retain new senior management personnel in the future. The loss of any of the members of our senior management, our directors or other key personnel may adversely affect our business and results of operations. The trading price of our Equity Shares may be affected by variations in our results of operations We expect our quarterly operating results to fluctuate in the future based on a variety of factors, including the timing and success of our growth plans as we manufacture and lease additional aircrafts, increase our reach to other sectors, fuel and maintenance costs; and increases in personnel, marketing and other operating expenses to support the Company's anticipated growth. In addition, seasonal variations in traffic, weather conditions such as fog and poor visibility, and certain expenditures affect our operating results from quarter to quarter. Due to the factors described above, our operating results may vary from quarter to quarter. In addition, it is possible that in any future quarter our operating results could be below the expectations of investors and any published reports or analysis regarding the Company. In that event, the price of our Equity Shares could decline. RISKS ASSOCIATED WITH THE INDUSTRY Substantial increases in fuel costs or the unavailability of sufficient quantities of fuel would harm our business Fuel expenditure constitutes a significant portion of our total expenses in the charter business. Significant increases in fuel costs could result in a potential drop in revenue in this sector. The price of crude oil is influenced by geopolitical issues, government regulation and various supply and demand factors, including periods of market surplus and shortage. The price of Avgas in India is also dependent on other factors including the following: Page 35 limited competition in India because Avgas is currently available at airports from only one Government-controlled company (Indian Oil Corporation Limited ("IOC"); periodic variations in the ex-refinery prices for Avgas ; fluctuations in the exchange rate between the US Dollar and the Rupee, since Avgas is fully imported; variations in excise duty on Avgas, ; sales tax on Avgas is levied at most of the stations and is currently between 4% and 30.55%,. Because of the effect of these events on the price and availability of fuel, the cost and future availability of fuel cannot be predicted with any degree of certainty. In the event of a fuel supply shortage or higher fuel prices, we may be required to curtail some of our services. The aviation industry in India is subject to extensive regulation. Changes in government regulation imposing additional restrictions on our operations could increase our operating costs and result in service delays and disruptions The DGCA regulates the manufacture of aircraft and the operations of aircraft in the country. Any changes in these guidelines may affect our ability to generate revenues and profits. The Airports Authority of India ("AAI") determines landing charges, route navigation facility charges, terminal navigation landing charges, allocation of parking bays and allocation of slot timings. Any increase in such charges could have an adverse impact on net charter revenues. The inordinate tightening of such regulations could also have an adverse impact on the sales of aircraft in the country and therefore on our revenues relating to this segment of our business. Any adverse change in these regulations or the imposition of additional restrictions and conditions that affect our business and operations could impact our ability to grow. Our reputation and financial results could be harmed in the event of an accident or incident involving our aircraft An accident or incident involving one of our aircraft could involve repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service, and significant potential claims of injured passengers and others. Although we believe we currently maintain liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate and we may be forced to bear substantial losses resulting from an accident or incident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our business and operating results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that we are less safe or reliable, which would harm our charter business. Failure to convert licence of the current airfield to commercial category The Company plans to convert its current airfield to commercial category so that domestic airlines can use the airport to cater to the requirements of Electronic City situated close to Bangalore. Should the Government, for any reason, refuse to grant permission, the Company could suffer a potential loss of expected future revenue from landing fees. Insurance cover is unavailable for certain risks or may be inadequate The availability of insurance is fundamental to air charter operations. However, insurance cover is generally not available for certain risks such as mechanical breakdowns. We believe our insurance coverage is consistent with industry practice. To the extent that any uninsured risks materialize, our operating results and financial performance could be detrimentally affected. Page 36 RISKS ASSOCIATED WITH INDIA Hostilities with neighbouring countries and civil unrest in India may have a material adverse effect on the market for securities in India. India has from time to time experienced instances of hostilities between neighbouring countries, including between India and Pakistan. In recent years, military confrontations between India and Pakistan have occurred in Kashmir and along the India-Pakistan border, although the governments of India and Pakistan have recently engaged in conciliatory efforts. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult. Such political tensions could create a greater perception that investments in Indian companies involve a higher degree of risk. Events of this nature in the future, as well as social and civil unrest, could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including the GDRs and the Shares, and on the business of the Company. Terrorist attacks and other acts of violence or war involving India, the United States, and other countries could adversely affect the financial markets, result in a loss of business confidence and adversely affect the Company’s business, results of operations and financial condition Terrorist attacks, such as the ones that occurred in New York and Washington, D.C., on September 11, 2001, New Delhi on December 13, 2001, the bomb blasts in Mumbai on August 25, 2003, and the October 2004 bomb blasts in Northeast India, as well as other acts of violence or war, including those involving India, the United States or other countries, may adversely affect Indian and worldwide financial markets. These acts may also result in a loss of business confidence and have other consequences that could adversely affect the Company’s business, results and financial condition. Political, economic and social developments in India and acts of violence or war could adversely affect the business of the Company Since 1991, the Government of India has pursued policies of economic liberalisation, including significantly relaxing restrictions on the private sector. The new Government that has been formed as a result of the 2004 general elections in India consists of a coalition of political parties. Any change in the economic policies by the new Government could change specific laws and policies affecting the leather industry, pace of deregulation, foreign investment, currency exchange rates and other matters which could adversely affect the investment in the equity shares of the Company. Acts of violence, terrorist activity or war could affect the industrial and commercial operations in the country which could have an adverse effect on the demand and supply of leather. Such events could also create a perception that investments in Indian companies involve a higher degree of risk which could have a material adverse effect on the market for securities of Indian companies. A slowdown in economic growth in India and other political and economic factors may adversely affect the Company’s business and results of operations Substantially all of the Company’s business facilities are located in India and a significant part of Company’s revenues are derived from the domestic market. The Company itself, and the market price and liquidity of the GDRs and the Shares, may be affected by foreign exchange rates and controls, interest rates, changes in Government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India. During the past decade, the Government has pursued policies of economic liberalisation, including significantly relaxing restrictions on the private sector. Nevertheless, the role of the Government and state governments in the Indian economy in relation to producers, consumers and regulators has remained significant. It cannot be assured that liberalisation policies will continue in the future. The Government may also pursue other policies which could have a material adverse effect on the Company’s business. The rate of economic liberalisation could change, and specific laws and policies affecting the Company’s Page 37 business, the Company’s suppliers, foreign investment, currency exchange rates and other matters affecting the Company’s business are also subject to change. A significant change in the Government’s or Indian state governments’ economic liberalisation and deregulation policies could adversely affect business and economic conditions in India generally, and the Company’s business and financial condition and prospects in particular Any downgrading of India’s debt rating by an international rating agency could have a negative impact on Company’s business Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely impact Company’s ability to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on Company’s business and future financial performance, Company’s ability to obtain financing for capital expenditures, and the trading price of Company’s equity shares. If there is a change in tax regulations, the tax liabilities of the Company may increase and thus adversely affect the Company’s financial results Currently, the Company enjoys certain fiscal benefits under Indian tax laws. Any changes in these laws or their application may increase the Company’s tax liabilities and thus adversely affect Company’s financial results. The Government of India has announced the gradual elimination of some of the income tax exemptions that are available. Non-availability of these tax exemptions will increase Company’s future tax liabilities and decrease after tax profits that Company might have in future. In addition, various taxes, duties, cess and other levies are imposed by Government of India, State Governments and other Local Authorities in India that effect the Company. An increase in these taxes, duties, cess or other levies or imposition of new taxes, duties, cess or other levies in the future, may have a material adverse effect n the Company. The Company's ability to freely raise foreign currency denominated indebtedness outside India is constrained by Indian law While the Government of India has classified the Company for automatic approval of foreign direct equity investment, the Company may be required to obtain regulatory approvals to raise foreign currency denominated indebtedness outside India. The need to obtain such regulatory approval for future indebtedness, if any, could constrain the Company's ability to raise funds necessary for it to grow, including upgrading Company’s facilities and making strategic acquisitions. There can be no assurance that any required approvals will be given when needed. Investors may have difficulty enforcing foreign judgments against the Company or Company’s management The Company is a public company with limited liability incorporated under the laws of India. Substantially all of the Company's directors and executive officers are residents of India and a substantial portion of the assets of the Company and of such persons are located in India. As a result, it may not be possible for investors to affect service of process upon the Company and such persons outside India or to enforce judgments obtained against such parties outside India. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Indian Code of Civil Procedure, 1908 (as amended) (the "Code") on a statutory basis. Section 13 of the Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings Page 38 that the judgment is founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud; and (vi) where the judgment sustains a claim founded on a breach of any law in force in India. However, Section 44A of the Code provides that where a foreign judgment has been rendered by a superior court within the meaning of that section in any country or territory outside India which the Government of India has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty. The United Kingdom has been declared by the Government of India to be a reciprocating territory. A judgment of a court in a jurisdiction, which is not a reciprocating territory, may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive and in the nature of a penalty or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to execute such a judgment or to repatriate outside India any amount recovered. Exchange rate fluctuations between the Rupee and the U.S. may affect the market value of the GDR’s independent of the Company’s operating results The price of the GDR’s will be quoted in U.S. dollars. The Shares are quoted in Rupees on the Indian Stock Exchanges. Depreciation of the Rupee against the U.S. dollar may adversely affect the price of the GDR’s. Dividends in respect of the Shares will be paid in Rupees. Holders, who seek to sell in India any Shares, and to convert the Rupee proceeds of such sale into foreign currency and remittance in such foreign currency from India, will require the approval of the RBI for each such transaction unless the sale of Shares is affected through a recognised stock exchange. In the past the Indian economy has experienced severe foreign exchange shortages. There may be less company information available in the Indian securities markets than securities markets in developed countries There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of the markets in the United States and other developed countries. SEBI is responsible for approving and improving disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed countries. The Indian securities markets are more volatile than certain other securities markets The Indian securities markets are more volatile than the securities markets in certain countries which are members of the OECD. The Indian Stock Exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. The Indian Stock Exchanges (including the NSE and the BSE) have experienced problems which, if such or similar problems were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian Stock Exchanges have from time-to-time imposed restrictions on trading in certain securities, limitations Page 39 on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies, and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment. Indian accounting principles and audit standards differ from those which prospective investors may be familiar with in other countries As stated in the report of the Company’s auditors included in this Information Memorandum, the Company’s financial statements are in conformity with Indian GAAP, consistently applied during the periods stated and no attempt has been made to reconcile any of the information given in this Information Memorandum to any other principles or to base it on any other standards. Indian GAAP differs from accounting principles and auditing standards with which prospective investors may be familiar in other countries. See "Summary of Significant Differences between Indian GAAP & IAS/IFRS". RISKS ASSOCIATED WITH THE GDRS AND THE SHARES There is no guarantee that the Shares underlying the GDRs will be listed on the Indian Stock Exchanges The Shares are listed on the Indian Stock Exchanges. Application for listing of the Shares underlying the GDRs will not, in accordance with Indian Law and practice, be made until after those Shares and the GDRs representing them have been issued and allotted. Although "in principal" approval for listing the Shares underlying the GDRs has been obtained from the BSE, there is no guarantee that such Shares will be admitted to listing on the Indian Stock Exchanges There is no existing market for the Company’s GDRs, and an active market for the Company’s GDRs may not develop, which may cause the price of the Company’s GDRs to fall Application has been made to admit the GDRs to listing on the LuxSE and to trading on the EuroMTF market. The GDRs could trade at prices that may be lower than the initial market value thereof depending on many factors, including prevailing market interest rates; the Company’s operating results and the market for similar securities. In addition, the market for equity securities in emerging markets has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the GDRs. There can be no assurance that the markets for the GDRs, if any, will not be subject to similar disruptions. Any disruptions in these markets may have an adverse effect on the market price of the GDRs. GDR holders will bear the risk of fluctuation in the price of the Shares The fluctuations in the market price of the Shares are expected to affect the market price of the GDRs and it is impossible to predict whether the price of the Shares will rise or fall. Trading prices of the Shares will be influenced by, among other things, the Company’s financial condition, the results of operations and political, economic, financial and other factors. Any decline in the price of the Shares is likely to have an adverse effect on the market price of the GDRs. The market value of the GDRs may fluctuate due to the volatility of the Indian securities market Indian securities markets are more volatile than the securities markets in certain countries that are members of the OECD. Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. Indian stock exchanges (including the BSE and the NSE) have experienced problems which, and if such or similar problems were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies, stock exchanges and other regulatory bodies, which Page 40 in some cases may have had a negative effect on market sentiment. These factors could adversely affect the trading price of the GDRs. There is a lower level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants than in certain OECD countries. The SEBI received statutory powers in 1992 to assist it in carrying out its responsibility for improving disclosure and other regulatory standards for the Indian securities markets. Subsequently, the SEBI has prescribed certain regulations and guidelines in relation to disclosure requirements, insider trading and other matters relevant to the Indian securities market. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in certain OECD countries. GDR Holders may be restricted in their ability to exercise pre-emptive rights under Indian law and thereby may suffer future dilution of their ownership position Under the Companies Act, a company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any additional equity shares, unless the pre-emptive rights have been waived by a special resolution passed by three-quarters in nominal value of the Company’s shares which are voted on that resolution. Although the Government has begun to allow the exercise of pre-emptive rights by persons resident outside India, it cannot be assured that such exercise of pre-emptive rights will continue in the future. GDR Holders in other countries outside India may be unable to exercise pre-emptive rights attaching to Shares underlying GDRs, unless a prospectus, registration statement or other applicable document under relevant securities laws is effective with respect to the rights or an exemption from any such registration requirements is available. In the case of future rights issuances, the new securities may be issued to the Depositary, which may sell the securities for the benefit of holders of the GDRs. The value, if any, that the Depositary would receive upon the sale of such securities cannot be predicted. To the extent that holders of GDRs are unable to exercise pre-emptive rights granted in respect of the Shares represented by their GDRs, their proportional interests in the Company would be reduced. Holders of GDRs will not have voting rights Holders of GDRs will have no voting rights with respect to the underlying Shares. The Depositary will not exercise any voting rights in respect of the underlying Shares unless requested to do so by the Board. If the Depositary is requested by the Board to exercise any voting rights in respect of the underlying Shares, the Depositary will (subject to receipt from the Company of an opinion from the Company's Indian legal advisers at the expense of the Company that to do so will not violate any applicable laws of India or subject the Depositary to liability to any GDR holders or any shareholder), either vote as directed by the Board or give a proxy or power of attorney to vote the underlying Shares in favour of a Director. Future issues or sales of the Shares may significantly affect the trading price of the Shares and the GDRs Future issues of Shares by the Company or the disposal of Shares by any of the major shareholders of the Company or the perception that such issues or sales may occur may significantly affect the trading price of the Shares and the GDRs. There is no restriction on the ability of the Company to issue Shares, and there can be no assurance that the Company will not issue Shares or that any such substantial shareholder will not dispose of, encumber, or pledge, its Shares or related securities. As a result of Government regulation of foreign ownership the price of the GDRs could decline Foreign ownership of Indian securities is regulated and is partially restricted. GDRs issued by companies in certain emerging markets, including India, may trade at discount or premium to the underlying equity shares, in part because of the restrictions on foreign ownership of the underlying equity shares and in part because GDRs are sometimes perceived to offer less liquidity than underlying shares which can be traded freely in local markets by both local and international investors. See "Foreign Investment and Exchange Controls". The GDRs could trade at a discount to the market price, if any, of the underlying Shares. Page 41 Issues of GDRs may not result in the market for GDRs being more active or liquid, particularly in light of Indian legal restrictions on equity share conversion and other restrictions The Company cannot predict the extent to which issues of GDRs will change the public trading market for the GDRs. Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Although GDR holders are generally entitled to withdraw the Shares underlying their GDRs from the Depositary at any time, there is no public market for Shares anywhere outside India. The Company has applied to have the GDRs admitted to the official list of the Luxembourg Stock Exchange. Prior to the listing of the GDRs on the Luxembourg Stock Exchange, there has been no public market for the GDRs and there can be no assurance that an active public market for the GDRs will develop or be sustained after the listing of the GDRs on the Luxembourg Stock Exchange or that the initial listing price will correspond to the price at which the GDRs will trade in the public market subsequent to the listing. Neither the Company, nor the Depositary, nor the Lead Manager, nor the Custodian has undertaken to ensure that an active public market for the GDRs will develop or be sustained. There are restrictions on daily movements in the price of the Shares, which may adversely affect a GDR Holder's ability to sell, or the price at which it can sell, Shares at a particular point in time The Company is subject to a daily circuit breaker imposed by all stock exchanges in India, which does not allow transactions beyond certain volatility in the price of the Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by the SEBI on Indian stock exchanges. The percentage limit on the Company’s circuit breaker is set by the stock exchanges based on the historical volatility in the price and trading volume of the Shares. The stock exchanges do not inform the Company of the percentage limit of the circuit breaker from time to time, and may change it without the Company’s knowledge. This circuit breaker effectively limits the upward and downward movements in the price of the Shares. As a result of this circuit breaker, there can be no assurance regarding the ability of shareholders to sell the underlying Shares or the price at which shareholders may be able to sell their Shares at a particular time. Page 42 MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE SHARES The Company’s shares have been listed on the BSE and PSE since 17 June 1994 The table below sets forth, for the periods indicated, the high and low closing prices for the Company’s shares on the BSE and the average volume of trading activities on the BSE for its shares. Monthly high and low quotations of shares on the BSE from January 2003 to July 2005 Period 2003 January February March April May June July August September October November December 2004 January February March April May June July August September October November December 2005 January February March April May June July August High 4.40 4.20 3.80 4.00 3.35 3.94 4.20 9.82 6.20 4.60 6.38 6.10 5.50 4.75 4.07 3.84 6.75 5.38 5.25 7.28 12.70 12.80 15.00 23.61 23.65 41.15 64.25 65.45 86.75 99.70 93.80 108.20 Low 2.60 2.65 2.25 2.35 2.10 2.36 2.37 2.85 3.14 2.77 2.60 4.35 3.09 3.01 2.56 2.52 2.53 3.94 4.00 4.30 5.70 9.60 9.35 12.10 15.60 20.10 34.90 45.75 53.00 73.15 77.65 77.05 Volume 35,127 18,417 27,439 15,837 13,014 24,370 47,999 231,447 214,477 40,915 100,025 193,971 173,128 102,909 92,417 15,503 176,166 278,283 77,515 210,106 857,292 374,476 446,029 2,030,648 683,041 2,673,057 4,234,635 1,495,114 2,256,508 1,248,706 1,078,310 2,242,475 No. of Trades 260 132 173 75 189 250 340 1,104 770 251 482 744 461 498 245 97 671 909 479 1,185 3,743 1,832 2,234 9,429 3,804 10,628 12,699 4,515 6,244 5,600 5,134 9,231 Page 43 EXCHANGE RATES The following table sets forth, for the periods indicated, certain information concerning the exchange rates between Rupees and US dollars since 1998 based on the noon buying rate in New York City on the last business day of each month during the period for cable transfers in Rupees as reported by the Federal Reserve Bank of New York. In early July 1991, the Government of India adjusted the Rupee downward by an aggregate of approximately 20% against the US dollars as part of an economic package designed to overcome an external payment crisis. In 1994, the Rupee was permitted to float fully for the first time. Between 1980 and 2002, the Rupee declined on an average annual basis against the US dollars. Recently, however, the Rupee has appreciated against the US dollars. The exchange rate as at 31 August 2005 was Rs.44 = US$1.00. No representation is made that the Rupee amounts actually represent such US dollar amounts or could have been, or could be, converted into US dollars at the rates indicated or at any other rate or at all. (Rs. Per US$1.00) Period End Period Average Buying Rate High Low 1998 42.52 1999 43.51 2000 46.75 2001 48.27 2002 48.00 2003 45.55 2004 43.27 January 2005 43.60 February 2005 43.57 March 2005 43.62 April 2005 43.48 May 2005 43.62 June 2005 43.51 July 2005 43.40 August 2005 44.00 Source: Federal Reserve Bank of New York 41.43 43.20 45.14 47.28 48.62 46.53 45.26 43.62 43.57 43.58 43.64 43.41 43.52 43.43 43.55 42.65 43.59 46.90 48.27 49.06 47.83 46.45 43.82 43.73 43.70 43.72 43.62 43.71 43.59 44.00 38.80 42.50 43.65 46.44 48.00 45.33 43.27 43.35 43.28 43.44 43.48 43.21 43.44 43.05 43.36 Although certain Rupee amounts in this Information Memorandum have been translated into U.S. dollars for convenience, this does not mean the Rupee amounts referred to could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated above, or at all. Unless otherwise indicated, all translations in this Information Memorandum from Rupees to U.S. dollars in respect of the year ended or as at 31 March 2005 have been made at the rate of Rs.43.75 = U.S.$1.00, and all translation in this Information Memorandum, if any, from Rupees to US dollars in respect of the three months ended or as at 30 June 2005 have been made at the rate of Rs.43.75 to U.S.$1.00. Page 44 USE OF PROCEEDS The Company has raised US$ 7,676,472 United States Dollars seven million six hundred seventy six thousand four hundred seventy two from this offering. The net proceeds from this offering of GDRs, after deductions of fees and expenses is US$ 307,000, which the Company intends to use to fund its strategic initiatives and for other general Corporate purposes. Page 45 CAPITALISATION The following table sets forth the Company’s non-consolidated capitalisation and total debt, as adjusted to give effect to the issuance of the GDRs. This table should be read in conjunction with the Company’s audited nonconsolidated financial statements, the related notes and the other financial information contained elsewhere in this Information Memorandum. As adjusted following issue of GDRs As at 31-Aug-05 Before issue of GDRs As at 31-Mar-05 Short Term Debt Secured Loans Unsecured Loans Total Short Term Debt Long Term Debt Secured Debt Unsecured Debt Total Long Term Debt Total Debt Shareholders' Funds Share Capital Paid up Capital: Reserves and Surplus Warrant Money Total Shareholders' Funds Total Capitalisation US$ rate = Rs.43.75 129,620,850 129,620,850 2,962,762 2,962,762 127,842,000 127,842,000 2,922,103 2,922,103 65,287,239 60,581,102 125,868,341 255,489,191 1,492,280 1,384,711 2,876,991 5,839,753 58,481,100 62,981,102 121,462,202 249,304,202 1,336,710 1,439,568 2,776,278 5,698,381 93,712,500 31,882,486 0 125,594,986 381,084,177 2,142,000 728,743 0 2,870,743 8,710,495 112,903,680 348,536,956 0 461,440,636 710,744,838 2,580,655 7,966,559 0 10,547,214 16,245,595 Except as disclosed in this Information Memorandum, there has been no material change in the Company’s nonconsolidated financial position since 31 March 2005, the date of the latest audited financial statements. Page 46 DIVIDENDS Under the Companies Act, unless the Company’s Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. The shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value of the Company’s Shares. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their Shares as on the record date for which such dividend is payable. In addition, as is permitted by the Company’s Articles of Association, the Board may declare and pay interim dividends. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date, which is specified as the "record date" or "book closure date". No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of his Shares is outstanding. The Company has not declared any dividend so far. The Company is not permitted to declare any dividend, which is not recommended by the Directors. The Directors may pay an interim dividend. No dividend may be paid except out of the profits of the Company pursuant to Section 205 of the Companies Act, 1956. The form, frequency and amount of future dividends on the Shares will depend upon the Company’s earning, cash flow, financial conditions and other factors and shall be at the discretion of the Board. Future Dividends There is no guarantee that any future dividends will be declared or paid or that the amount thereof will not be decreased. Holders of the GDRs will be entitled to receive dividends paid on Shares represented by such GDRs Cash dividend on shares represented by GDRs will be paid to the Depositary in rupees, and, except as otherwise described under "Terms and Conditions of the Global Depositary Receipts" will be converted by the Depositary into USD and distributed, net of the Depositary fees, taxes if any, and expenses, to the Holders of such GDRs. Page 47 MANAGEMENT’S DISCUSSION AND ANALYSIS The following Management Discussion and Analysis contains a brief write-up on the industry structure, opportunities and concerns, performance of the Company with respect to the operations and other information such as future outlook. The following Management Discussion and Analysis contains a brief write–up on the Industry scenario, Business Scenario, opportunities and concerns, performance of the Company with respect to operations and other information such as future outlook. For simplicity of conversions to western naming conventions the figures in Rs. lakhs and Rs. crores are approximated and presented in Rupees million. The Company is engaged in the three principal business areas i.e. the sales of General Aviation Aircraft, Air Charter Services and manufacture of Aero-Structures and components. The Indian Industry has begun to recognise the importance of enhanced productivity as its competitive advantage in its global businesses and the role-played by aviation as an enabler and has enabled the Company to offer a range of products that meet the specific needs of its individual customers. The Company besides manufacturing the Piston Engine Aircraft, is also the authorised sales representative for Cessna Aircraft Company of the US in India for the sale of their Citation Business Jets and their Cessna Caravan aircraft. The Air Charter Business in India both in the fixed wing operations and rotary wing (helicopter) operations have shown a significant rise in the demand for services and the Company estimates that this sector will continue to grow with a CAGR greater than 20%. The Company's fixed wing piston engine charter operations would then need to be augmented with a broader offering of Jet/Turbo pro aircraft. Plans are underway to induct a business jet and a turbo prop into the Company's fleet. TAAL is also a major sub-contractor to Hindustan Aeronautics Limited (HAL), National Aerospace Laboratories (NAL), Aeronautical Development Establishment (ADE) and Indian Space Research Organisation (ISRO), etc. for the manufacture of aero structures and components. TAAL also has been subcontracted the work for part manufacturing and assembly of the Indus Aviation Thorpe T211 Light Sport Aircraft for export to the US and for the domestic market too. Opportunities & Threats Aircraft Sales The growth of enquiries for aircraft has been very encouraging and with the observed trend there exists a potential for the sale of a good number of Jets and turbo-props. The market for the Piston Engine Aircraft as a civil transport plane and for use in twin engine training has also shown signs of revival and the Company expects a good demand for this aircraft. The DGCA is also proposing a cut off age for aircraft that would be issued airworthiness certificates and if implemented would create a surge in demand for twin engine aircraft. TAAL’s initiative would focus on the areas of providing a complete package of services to aircraft owners so that they could concentrate on travelling Air Charter The Air Charter business has shown tremendous growth and there is a growing demand in various sectors for these services. A concerted effort into creating an effective marketing and communications program is being developed to address domestic and international tourism, emergency medical evacuation and business travellers. The reach of the Piston Engine Aircraft to various airfields in India will care out a niche segment which will complement the low cost, no frills airlines. The threat for this business will come from a large number of Corporates who also do charters when they are not using their aircraft, but who own aircraft. Page 48 Aero structures The Aero Structures business has also grown with HAL, ISRO, NAL outsourcing the manufacturing. The aero structures and components being outsourced are getting more complex and would entail investments into equipment and infrastructure. TAAL would focus in developing specific high vale areas of its strength in aero structures and assembly and a quality system that has global recognition. A number of aircraft part manufacturer’s from Europe and the US have visited our facility recently and have recommended areas of improvement in manufacturing and processing in order to meet their standards. Efforts and investments have been planned accordingly in a phased manner. Risks & Concern The principal risks that the Company faces at the current time are: • • The sudden entry of multiple players in aero-structures market. Delays caused in execution due to developmental nature of most aero structures orders. However, to counter the risks and concerns highlighted above, a number of new areas connected with aviation are being explored on a continuous basis. Internal Control and their Adequacy TAAL has proper and adequate internal control systems to ensure that all the assets are safeguarded and protected against any loss and that the transactions are authorized, recorded and reported properly. At the same time the Company further recognize the need to strengthen the control systems on a continuous basis and towards the objective steps have been taken. Development in Human Resources/Industrial Relations During the year, the Company continued to have normal relationship with its employees. The Company’s human resources activities are focused on building talent to meet the future challenges. Fiscal year 2005 compared to Fiscal year 2004 Financial Performance The financial performance for the financial year 2005 as compared to the previous period is given below: Year ending 31 March 2005 Rs. (million) Rs. 134,638,456 48,485,980 21,140,124 9,269,244 13,938,537 1,848,441 US$ 3,077,450 1,108,251 483,203 211,868 318,595 42,250 Year ending 31 March 2004 Rs.(million) Rs. 109,131,688 49,051,819 32,538,133 9,258,673 0 -29,366,708 US$ 2,494,439 1,121,184 743,729 211,627 0 -671,239 For the period 1 October 2001 to 31 March 2003 (18 months) Rs. (million) Rs. US$ 155,516,910 3,554,672 27,450,290 627,435 38,493,236 13,831,218 26,937,443 -36,621,721 879,845 316,142 615,713 -837,068 Gross Income Profit before Interest/Depreciation Interest Depreciation Previous year income (Net) Profit / (Loss) US$ rate = Rs.43.75 Page 49 DIRECTORS AND MANAGEMENT BOARD OF DIRECTORS Election of Directors Under the Companies Act, the Company’s Board of Directors has the ultimate responsibility for the management and administration of the company’s business. The Company’s Articles provide that its Board shall have not less than 3 and not more than 12 Directors. The minimum and maximum number of Directors may be increased or decreased, as the case may be, by a special resolution of the Company’s shareholders and approval of the Government (as may be applicable), subject to the provisions of the Company’s Articles of Association and the Companies Act. As of the date of this Information Memorandum, the Company’s Board comprises nine (9) Directors. The Companies Act, 1956 provides that directors of a company be appointed by shareholders at their general meeting by a resolution passed by simple majority, where at least two-thirds of the directors so appointed are liable to retire by rotation and at every Annual General Meeting one third of such Directors shall retire from office. The remaining directors in the absence of any provision in the Articles of Association can be appointed at such general meeting for such duration of time as the general meeting may determine. The Companies Act, 1956 also states that a public company may through its articles provide for the appointment of not less than two thirds of its directors according to the principal of proportional representation either by a single transferable vote, or by a system of cumulative voting or otherwise as provided in the articles. A retiring Director is eligible for re-election. The Directors who retire by rotation shall be those who have been longest in office since their last appointment. The Company’s Articles state that persons to be appointed as Directors need not hold any Shares to qualify for the office of Director. Composition of the Board The Listing Agreement with BSE provides that the Company’s Board shall have an optimum combination of executive and non-executive directors with not less than half the Board consisting of non-executive directors. A non-executive director is a Director, who does not undertake to devote his whole working time to the company, and as such does not draw additional remuneration from the company. The number of independent directors depends on whether the Chairman is an executive or a non-executive director. In case of a non-executive Chairman, at least one-third of the Board should be independent and in case of an executive Chairman, at least half the Board should be independent. An independent director is one who, apart from receiving director’s remuneration, does not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in judgment of the Board may affect the independence of judgment of the director. The Companies Act, 1956 also provides that a company may have both a Managing Director and a whole-time Director. A Managing Director is a director who is entrusted with substantial powers of management and a wholetime director is a director in the whole time employment of the company and devotes all of his time and attention in the carrying on of the affairs of the company. The Board consists of a whole time Director, part time Executive Chairman and five Non-executive Directors. The Board functions as a full board and meets at regular intervals. The Company furnishes all the relevant information as recommended by SEBI / Stock Exchange to the board. Page 50 Information about Directors: # Name Designation Residential Address Principal Activity Business Directorship in other Public Companies 1 1. Mr. Khushroo Rustumji 2. 3. 4. 5. 6. 7. Chairman-Advisor The Town House, No.12, Serpentine Street, Richmond Town, Bangalore- 560025. Mr. Salil Taneja Vice Chairman- Flat No. 18, 5th Floor, " Non Executive Atlantis", Director Kalyani Nagar, Pune 411006 Mr. Rakesh Surie Non Executive ContactCenters, Inc. Director 34, Benford Drive Princeton Jct., NJ 08550-1328 Mr. A K Jain Non Executive " Mineral House", 27A, Camac Director Street, Calcutta. Mr. J P Sureka Non Executive 6A, Kiran Sankar Roy Road, Director Calcutta. Mr.B R Taneja Non Executive 3, Kasturba Samadhi Road, Near Director Aga Khan Palace Road, Pune 411006 Mr C S Kameswaran Director-Finance "Surbhimati", Flat No. 101, Executive Director 60,6th Main, 15th Cross Road, Malleswaram , Bangalore : 560055 Service Nil Service Nil Business Business Business 1 2 1 Service Nil Page 51 Biography of the Directors Mr. Khushroo Rustumji Mr. Khushroo Rustumji is a B.Tech (Hons) -IIT Kharagpur. He has started his career in marketing field and worked with various Companies. He worked more than 2 decades with Towry Law Group of UK and rose to level of Managing Director and then invited to join the Main Board as Group Development Director consequent to his success in International Marketing & Development. He is an independent marketing consultant doing consultancy services for various reputed Indian Organisations. Mr. Salil Taneja Mr Salil Taneja holds a degree of B.Sc in Mechanical Engineering from Case Western Reserve University, Cleveland, Ohio, USA and Master in Business Management specialising in finance from Yale University, New Haven, Connecticut, USA . He has been associated with the Company since its inception and has been instrumental in launching the Aviation Business of the Company. Mr. Rakesh Surie Mr Rakesh Surie is a B.Tech IIT Kanpur and a Master in Business Administration from the Harvard Business School. He is a consultant by profession with an experience in various aspects of international business. Mr. A. K. Jain Mr A K Jain is an industrialist with business interests in financial services, mining and mineral processing of iron ore, china clay, graphite etc. in Bihar and West Bengal, India. Mr A K Jain is also on the Board of The Indian Seamless Metal Tubes Limited. Mr. J. P. Sureka Mr J P Sureka, a graduate in Commerce is an industrialist having business interests in financial services, chemicals, steel and tea plantations. Mr J P Sureka is also on the Board of The Indian Seamless Metal Tubes Limited. Mr. B. R. Taneja Mr. B R Taneja is a Mechanical Engineer with Post Graduate Diploma in Business Management from XLRI, Jamshedpur. He started his career with the erstwhile Indian Tube Company (now division of TISCO), which he left to promote The Indian Seamless Metal Tubes Limited ( ISMTL). ISMTL is engaged in the manufacture of seamless tubes for a very diverse range of applications such as oil and gas exploration, petroleum refineries, petrochemical companies, and hydraulic cylinders, earth moving equipment, textile machinery, diesel engines, and general engineering industry. At present Mr B R Taneja is Executive Chairman of ISMT. Mr. C. S. Kameswaran Mr C S Kameswaran is a Chartered Accountant by profession and Post Graduate in Business Administration. He has three decades of rich working experience in leading large and medium scale industries in various capacities covering the areas of Corporate Planning, Marketing, Finance and Accounts and Personnel. His stint as General Manager in the last nine years has helped the Company in all areas of operations. Page 52 Directors shareholding in the Company Sr. No. 1 2 3 4 5 6 7 Name Mr. Khusroo Rustumji Mr .Salil Taneja Mr. Rakesh Surie Mr. A. K. Jain Mr. J.P. Sureka Mr. B. R. Taneja Mr C S Kameswaran Designation Chairman- Advisor Vice Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Director – Finance Executive Director No of shares held 200 2900 47800 166600 45100 300 0 The Company has not granted any stock option to any of its Directors. No transaction undertaken by the Company with its administrative or management bodies is of unusual nature. The Company has not granted any loans to the members of its administrative or management bodies or given any guarantee for their benefit. Remuneration of Directors (I) Name Executive Directors: Salary & Perquisites (Rs)* per Commission (Rs) annum Mr.K. Rustumji 364,845 Nil Mr Vijay Simha ** 605,351 Nil Mr. C. S. Kameswaran 749,750 Nil *Salary and perquisites include house rent allowances; contribution to provident fund and Super leave travel allowance and medical reimbursement. ** Part of the Year (II) Non- Executive Directors: Annuation; No remuneration nor sitting fees were paid to non-executive directors by the Company during the financial year 2004 – 2005 Key Executives of the Company Name Designation Qualification Years of Experience H.N. Choudhury Sr. GM (Operations) B.TECH from IITKharagpur,PG Certificate in Design from IITBombay 30 Held various senior positions in HAL. Has been associated with the Company since 1995. He is incharge of R&D and complete factory operations Held various Senior positions in VSSC. He is incharge of Technical and Business Development of Aerostructures. Experience No. of Total Salary Shares held in TAAL NIL Per Annum (Rs. Million) 0.649 K. Harinath GM-Technical & B.E. (Mech) Business Development 36 0.456 Page 53 Name Santosh Deshpande Designation General Manager (Aircraft Sales) Qualification BE(Mech) Years of 19 Experience Has been associated with the Company for more than 10 years. He is incharge of marketing of Cessna, P68 Aircraft; major business tie up of charter, maintenance etc. Approved Licence holder of DGCA for all Aircraft Certifications, C of A, Maintenance and all Quality Control work. Has been associated with the Company for more than a decade. Recruitment, Selection, Appointment, Wage Administration, Annual Appraisals, IR, Statutory Compliances, General Administration etc. Has been associated with the Company for more than a decade. No. of Total Salary Shares NIL 6.01 S. General Manager Soundrarajan (QC) AME with licences 18 100 6.35 Ms M Sujatha Manager-HR & Admn. BA, D.Com(IMC) PGDPM&IR, (Pursuing II year MBA part time course ) 13 100 2.96 No transactions undertaken by the Company with its administrative or management bodies are of an unusual nature. Loans and guarantees to Directors and Management The Company has not granted any loans to the members of its administrative or management bodies or given any guarantee for their benefit. Page 54 Committees 1. Audit committee The Audit Committee was established in 2001 with qualified and independent members of the Board of Directors of the Company. The Statutory Auditor and Director- Finance are the invitees of the Audit Committee. The terms and reference of the Audit Committee cover the areas mentioned under clause 49 of the Listing Agreement and Section 292A of the Companies Act, 1956 besides areas related to business practices; cost reductions and controls; cash, inventory and risk management; legal compliance; systems improvement and such other areas as may be referred to by the Board of Directors from time to time Brief Descriptions of the terms of reference to the Audit Committee: The terms and reference of the Audit Committee are in conformity with the Provisions of Paragraphs C & D in sub-clause II of the clause 49 of the Listing Agreement entered with the Stock Exchange – Pune & Mumbai. The terms of reference includes the following: (i) Oversight of Company's financial reporting process and disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. Recommending the appointment of and removal of external auditor , fixation of audit fee and also approval for payment for any other services. Reviewing with management the annual financial statements before submission to the Board, focusing primarily on: (a) (b) (c) (d) (e) (f) (g) (h) Any change in accounting policies and practices. Major accounting entries based on exercise of judgment by management. Qualifications in draft audit report. Significant adjustments arising out of Audit. The going concern assumption. Compliance with Accounting Standards. Compliance with Stock Exchange and legal requirements concerning financial statements. Any related party transaction i.e. Transactions of Company of material nature, with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interest of Company at large. Reviewing with the management, external and internal auditors, the adequacy of internal control systems. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. Discussion with internal auditors any significant findings and follow up thereon. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board Discussion with external auditors as to the areas of concerns, if any. Reviewing the Company's financial and risk management policies. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders ( in case of non payment of dividend declared) and creditors. To review the quarterly / half- yearly and annual financial statements before submission to the Board and also ensure compliance of internal control systems. Authority to investigate into any matter referred to it by the Board. (ii) (iii) (i) (j) (k) (l) (m) (n) (o) (p) (q) Page 55 The present members and the Composition of Audit Committee of the Board and the details of their attendance at the meeting of the audit committee are given below: Name of the Member Mr. A. K. Jain, Chairman Mr. Khushroo Rustumji Mr. Rakesh Surie Mr. J. P. Sureka Status Independent Director Independent Director Independent Director Independent Director The Statutory Auditor, the Director (Finance), were invitees of the Audit Committee Meetings. The company recognizes the need to have regular interaction with statutory and internal auditors and the necessary steps are being taken in this direction. 2. Remuneration Committee Brief descriptions of the terms of reference to the Remuneration Committee: The Company has constituted a Remuneration Committee in 2001. The Company has constituted a Remuneration Committee and the Committee at present consists of Mr. A. K. Jain, Chairman, Mr. J. P. Sureka and Mr. Rakesh Surie as Committee members. Remuneration payable to the whole time Director is determined by the Remuneration Committee taking into account his qualification, experience, expertise and responsibilities and recommended to the Board of Directors for their review and final decision. 3. Shareholders/ investors grievance Committee The Company has constituted this Committee in 2001. Brief descriptions of the terms of reference to the Shareholders/ Investors Grievance Committee: The Committee looks into the redressing of shareholders and investors complaints such as transfer of shares, non receipt of Balance Sheets, change of addresses etc. The present members of the Shareholders’ / Investors grievance Committee consist of the following Independent Directors: Name Mr. A. K. Jain Mr. Rakesh Surie Mr. J. P. Sureka Mr. K. Rustumji Name and Designation of the Compliance Officer Mr. C. S. Kameswaran, Director – Finance, has been nominated by the Company as compliance officer. The complaints which are not settled at the level of compliance officer are forwarded to the Shareholders/Investors Grievance Committee for final settlement. The complaints received during the financial year April ’04 to March’05 were complied with fully. Mr. A.K. Jain is the Chairman of Shareholders’/Investors’ Grievance Committee. Mr. C. S. Kameswaran, Director, Finance acts as a secretary to the Investor Grievance Committee. Designation Chairman Member Member Member Page 56 DISTRIBUTION OF SHAREHOLDING Distribution of Shareholding as on 20 May 2005: Category A. 1. 2. B. 3. a. b. Promoter’s holding Indian Seamless Enterprises Limited and its associates and Mr B R Taneja Persons acting in concert Sub-Total Non-Promoters holding Institutional Investors Mutual Funds UTI Banks, Financial Institutions, Insurance Companies (Central / State Govt Institution/Non –Government Institutions) FIIs Sub-Total Others Private Corporate Bodies Indian Public NRIs Any other:II. Clearing House III. Clearing Member Sub-Total Total No. of shares held Percentage of Shareholding (%) 56.93 Nil 56.93 1,06,70,400 Nil 10,670,400 1,800 442,600 900 Nil 445,300 1,678,711 5,896,189 51,900 Nil 0.01 2.36 0.005 Nil 2.38 8.96 31.46 0.28 Nil c. 4. a. b. c. d. 7,626,800 18,742,500 40.69 100 Pattern of Equity Shareholding as on 20 May 2005 No 1 2 3 4 5 6 7 Category Non Resident Indians Resident Indians Corporate Bodies Mutual Funds Public Financial Institution Nationalized Banks Promoters & its other associative Directors TOTAL No. of Share Holders 6 21,679 136 1 1 4 21 21,848 No. of Shares 51,900 5,636,489 1,678,711 1,800 442,600 900 10,930,100 18,742,500 Percentage (%) 0.28 30.07 8.96 0.01 2.36 58.32 100.00 Shareholding Pattern for Shareholders holding more than 1% of the Total Number of Shares of the Company The following table sets for the table of shareholders holding more than 1% of the Shares of the Company: Name of the Shareholders holding more than 1% of the total number of Shares of the Company : Indian Seamless Enterprises Ltd Knox Investments Pvt Ltd Indseam Services Ltd No. of Shares Percentage (%) of Shareholding on the basis of number of shares of the issued capital 46.62 9.1 1.2 8,737,100 1,705,000 225,100 Page 57 Name of the Shareholders holding more than 1% of the total number of Shares of the Company : Founders Asset Management B Arun Kumar Capital Transactions with Related Parties No. of Shares 231,961 255,000 Percentage (%) of Shareholding on the basis of number of shares of the issued capital 1.24 1.36 From time to time the Company enters into transactions with affiliates or related parties, and with its associate companies. The Company’s policy is that such transactions are made on an arm’s length basis on no less favourable terms than if such transactions were carried out with unaffiliated third parties. Full details of related party transactions with subsidiaries and associates as of 31 March 2005 are set out in Note 10, Schedule 13 to the Company’s financial statements included elsewhere in the Information Memorandum. The term "promoter" is defined in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 as: (i) (ii) any person who is directly or indirectly in control of the company; or any person named as promoter in any document for offer of securities to the public or existing shareholders or in the shareholding pattern disclosed by the company under the provisions of the listing Agreement, which ever is later; or any person named as person acting in concert with the promoter in any disclosure made in terms of the listing Agreement with the stock exchange or any other regulations or guidelines made or issued by the board under the Act. and includes (a) where such person is an individual, (i) (ii) his spouse, parents, brothers, sisters or children; any company in which twenty six percent (26%) or more of the equity share capital is held by him or by the persons mentioned in sub-clause (i) or any firm or Hindu undivided family in which he or any of the persons mentioned in sub-clause (i) is a partner or member; any company in which a company is specifying in sub-clause (ii), holds more than fifty percent (50%) of the equity share capital; any firm in which the aggregate of his holding and the holdings of the persons mentioned in sub-clause (i) is more than fifty percent (50%) (iii) (iii) (iv) (b) where such person is body corporate, (i) (ii) (iii) (iv) a subsidiary or holding company of that body corporate; any company in which the said body corporate holds twenty six percent (26%) or more of the equity share capital; any company which holds twenty-six percent (26%) or more of the equity share capital of the said body corporate; any company in which persons acting in concert held twenty-six percent (26%) or more of the equity share capital and those persons acting in concert also hold twenty-six percent (26%) or more of the equity share capital in such body corporate; any other body corporate under the same management as the said body corporate within the meaning of sub-section (IB) of 370 of the Companies Act, 1956 ; (v) Explanations I: A financial institution, scheduled commercial bank, foreign institutions investor, mutual fund and venture capital fund shall not be deemed to be a promoter merely by virtue of its shareholding. Page 58 Explanation II: A financial institution, scheduled commercial bank, foreign institutions investor, mutual fund and venture capital fund shall be deemed to be a promoter of its subsidiary and of the mutual fund sponsored by it, as applicable. Transactions with Subsidiary Company and Amounts Outstanding The Company does not have any subsidiary. Classification of shares The Company's shares are currently classified in the S group. Page 59 THE INDIAN SECURITIES MARKET The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the Securities and Exchange Board of India, the Bombay Stock Exchange Limited, and the National Stock Exchange of India Limited, and has not been prepared or independently verified by the Company or the Lead Manager, or any of the Company's or the Lead Manager’s affiliates or advisors. India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai. Stock Exchange Regulation India’s stock exchanges are regulated primarily by the SEBI, as well as by the Government of India acting through the Ministry of Finance ("MOF"), Stock Exchange Division, under the Indian Securities Contracts (Regulation) Act, 1956 and the Indian Securities Contracts (Regulation) Rules, 1957. The Indian Securities Contracts (Regulation) Rules, 1957 along with the rules, bye-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner in which contracts are entered into and enforced between members. The Securities and Exchange Board of India Act, 1992 granted the SEBI powers to regulate the business of Indian securities markets, including stock exchanges and other financial intermediaries, promote and monitor selfregulatory organisations, prohibit fraudulent and unfair trade practices and insider trading, and regulate substantial acquisitions of shares and takeovers of companies. The SEBI has also issued guidelines concerning minimum disclosure requirements by public companies, rules and regulations concerning investor protection, insider trading, substantial acquisitions of shares and takeovers of companies, buybacks of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, debenture trustees, credit rating agencies and other capital market participants. The Central Listing Authority of India (the "CLA") has been set up to address the issue of multiple listing of the same security. It also aims to bring about uniformity in the due diligence process by scrutinising all listing applications on any stock exchange in India. The functions of the CLA are enumerated in the SEBI (Central Listing Authority) Regulations, 2003 which, amongst other things, include: (i) (ii) (iii) (iv) Listing The listing of securities on recognised Indian stock exchanges is regulated by the Securities Contract (Regulations) Rules, 1957 and the listing agreement of the respective stock exchange (the "Listing Agreement"). Under the standard terms of stock exchange listing agreements, the governing body of each stock exchange is empowered to suspend trading of or dealing in a listed security for breach of the Company's obligations under such agreement, subject to the Company receiving prior notice of the intent of the stock exchange. processing the application made by any body corporate, mutual fund or collective investment scheme for the letter of recommendation to be listed at the stock exchange; making recommendations as to listing conditions; making suggestions with respect to investor protection development and regulation of the securities market and disclosures to be made in offer documents; and any other functions that may be specified by the SEBI from time to time. Page 60 The Listing Agreement executed with the Indian Stock Exchanges requires the Company to maintain a minimum level of non-promoter shareholding of 25% of its paid-up equity share capital. The non-promoter shareholding in the Company is 41.96% as at 20 May 2005. The Delisting Guidelines provide for voluntary and compulsory delisting of securities where the 25% minimum threshold is breached. The Delisting Guidelines provide that if for any reason the securities of a company become liable to be delisted from the relevant Indian Stock Exchange, the company may, if it desires to maintain listing, follow the procedure laid down in the Delisting Guidelines. Pursuant to the Delisting Guidelines, the company may, within six months, issue new shares to the public or the promoters of the company may sell a portion of their shares to the public, such that the minimum level of public shareholding is re-established. The Delisting Guidelines also provide that if a company fails to issue new shares or the promoters fail to sell a portion of their shares to the public, so as to bring the public shareholding back to the minimum required level, then SEBI may delist that company (after giving notice and as per the procedure laid down in the Delisting Guidelines). The procedure essentially requires the promoter to make an open offer to buy the securities from the public at a fair value (the "fair value" being determined in accordance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Code"). In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers, which do not allow transactions beyond a certain level of price volatility. An indexbased market wide (equity and equity derivatives) circuit breaker system has been implemented and additionally there are currently in place varying individual scrip-wise bands. The Indian Stock Exchanges can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by stockbrokers. Disclosure under the Companies Act and Securities Regulation Under the Companies Act, a public offering of securities in India must be made by means of a prospectus, which must contain information specified in the Companies Act and be filed with the Registrar of Companies having jurisdiction over the place where a company’s registered office is situated which, in the case of the Company, is currently the Registrar of Companies, Mumbai, State of Pune. Additionally, the SEBI has prescribed certain guidelines, which provide for the contents of the prospectus. A company’s directors and promoters may be subject to civil and criminal liability for misrepresentation in a prospectus. The Companies Act along with certain guidelines issued by the SEBI also sets forth procedures for the acceptance of subscriptions and the allotment of securities among subscribers and establishes maximum commission rates for the sale of securities. Public limited companies are required under the Companies Act to prepare, file with the Registrar of Companies and circulate to their shareholders audited annual accounts, which comply with the Companies Act’s disclosure requirements and regulations governing their manner of presentation and which include for listed companies, sections pertaining to corporate governance and the management’s discussion and analysis as required under the listing agreement. In addition, a listed company is subject to continuing disclosure requirements pursuant to the terms of its listing agreement with the relevant stock exchange. Companies are also required to publish unaudited financial statements (albeit subject to a limited review by the company’s auditors) on a quarterly basis and are required to inform the applicable stock exchanges immediately regarding any stock-price sensitive information. The Companies Act further allows buybacks of securities, issuance of shares for a consideration other than cash in certain circumstances and mandatory compliance with accounting standards issued by the Institute of Chartered Accountants of India (the "ICAI"). The ICAI and the SEBI have implemented changes which require Indian companies to account for deferred taxation, to consolidate their accounts (subsidiaries only), to provide segment-wise reporting and disclosure of related party transactions from 1 April 2001 and accounting for investments in associated companies and joint ventures in consolidated accounts and interim financial reporting from 1 April 2002. Page 61 As of 1 April 2003, accounting of intangible assets is also regulated by accounting standards set by the ICAI and, as of 1 April 2004, accounting standards regulate accounting for impairment of assets. Indian Stock Exchanges There are now 23 stock exchanges in India. Most of the stock exchanges have their own governing boards for selfregulation. The BSE and the NSE together hold a dominant position among the stock exchanges in terms of number of listed companies, capitalisation and trading activity. NSE The NSE was established by financial institutions and banks to provide nationwide on-line satellite linked screenbased trading facilities with market makers and electronic clearing and settlement for securities, including government securities, debentures, public sector bonds and units. Deliveries for trades executed "on-market" are exchanged through the National Securities Clearing Corporation Limited. Screen-based paperless trading and settlement is possible through the NSE from 365 cities in India as of 31 March 2004. The NSE commenced operations in the wholesale debt market and capital markets in 1994 and derivatives in 2000. The average daily traded value of the capital market segment was approximately Rs.50.48 billion in April 2004. The NSE had 872 trading members as of 7 May 2004 and 4,382 registered sub-brokers on the capital market segment and the wholesale debt market segment as of 30 April 2004. As of 30 April 2004, 1341 securities were listed on the capital markets board of the NSE. The market capitalisation (capital market) of the NSE reached a record high of Rs. 12,427.78 billion on 8 January 2004 and was approximately Rs. 11,718.28 billion as of the end of April 2004. BSE The BSE, established in 1875, is the oldest stock exchange in India. It has evolved over the years into its present status as the premier stock exchange of India. The BSE switched over to an on-line trading network in May 1995 and has expanded this network to over 400 cities in India. As at March 2004, the BSE had 721 members, comprising 206 individual members, 495 Indian companies and 20 FIIs. As of March 2004, there were 5,528 listed companies trading on the BSE with an estimated total market capitalisation of Rs. 12,012.07 billion. The average daily turnover on the BSE was Rs.23.08 billion in March 2004. Derivatives trading commenced on the BSE in 2000. The BSE also has wholesale and retail debt trading segments. Retail trading in government securities commenced in January 2003. Trading Hours Trading on the BSE is conducted from Monday to Friday between 9: 55 a.m. and 3: 30 p.m. Trading on the NSE is conducted from Monday to Friday between 9: 30 a.m. and 3: 30 p.m. The BSE and the NSE are closed on public holidays. Trading Procedure Until 1995, brokers and members of the BSE received individual orders from which any cross-orders were matched and taken off. The balance of the orders was transmitted to the trading floor for execution in an open outcry system. The BSE has now introduced its BOLT online trading system on the exchange. The enhanced transparency in dealings due to implementation of BOLT has assisted considerably in smoothening settlement cycles and improving efficiency in back office work. The BOLT was commissioned on 14 March 1995. Classification of Shares On the BSE, shares are classified into, inter alia, A, B1, B2, F, G, S and Z groups. All groups settle funds and securities through the BSE clearing house. The Z group includes those companies that have not fulfilled the listing Page 62 guidelines or have not paid listing fees. The F group covers odd lot securities in other groups and rights renunciations. The Company's Shares are currently classified in the S group. Settlement All settlements in Shares are currently through the rolling settlement mode on a T+2 basis. Commissions The maximum commission charged by brokers for trading equities is 2.5% of the transaction value but, in practice, commissions are normally in the range of 0.5% to 2%. The 2004 budget imposed a 10% service tax on brokerage commissions with an additional education cess of 2%, thereby aggregating to 10.2%. The Finance Act, 2001 has brought commission under the tax purview for payment of commission exceeding Rs. 2,500. As a result any payment to the brokers would attract withholding tax of 10% (with an additional applicable surcharge and an education cess of 2%). Stock Market Indices The following two indices are generally used in tracking the aggregate price movements on the BSE. The BSE Sensitive Index (SENSEX) consists of listed shares of 30 large market capitalisation companies. The companies are selected on the basis of market capitalisation, liquidity and the need for industry representation. The BSE Sensitive Index was first compiled in 1986 with the fiscal year ended 31 March 1979 as its base year. This is the most commonly used index in India. The BSE 100 Index (formerly the BSE National Index) contains listed shares of 100 companies including the 30 in the BSE Sensitive Index, and fiscal year 1983 to 1984 was chosen as the base year. The BSE 100 Index was introduced in January 1989. Internet-Based Securities Trading and Services The SEBI approved Internet trading in January 2000. Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Thus a client sitting in any part of the country would be able to trade using the Internet as a medium through brokers’ Internet trading systems. Stock brokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated by the SEBI. The NSE became the first exchange to grant approval to its members for providing Internet based trading services. Internet trading is possible on both the "Equities" as well as the "Derivatives" segments of the NSE. Insider Trading Regulations The SEBI (Prohibition of Insider Trading) Regulations, 1992, or the Insider Trading Regulations, have been notified by the SEBI to prohibit and penalise insider trading in India. The Insider Trading Regulations prohibit "insider" dealings in the securities of a company on the basis of "unpublished price sensitive information," communication of such information or the counsel or procurement of any other person to deal in securities on the basis of such information. The Insider Trading Regulations require any person who holds more than 5% shares or voting rights in any listed company to inform the company of the number of shares or voting rights held by such person, on becoming such holder, within four working days of: (i) (ii) the receipt of information of allotment of shares; or the acquisition of shares or voting rights, as the case may be. On a continuing basis, any person who holds more than 5% of the shares or voting rights in any listed company is required to disclose to the company the number of shares or voting rights held by him and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such Page 63 holdings from the last disclosure made, provided such change exceeds 2% of total shareholding or voting rights in the company. Such disclosure is required to be made within four working days of: (i) (ii) the receipt of information of allotment of shares; or the acquisition or sale of shares or voting rights, as the case may be. Page 64 Takeover Code Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 of India (as amended) (the "Takeover Code") and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 which prescribe certain thresholds or trigger points that give rise to these obligations, as applicable. The Takeover Code is under constant review by the SEBI and was last amended by Notification No S.O.5(E) [F.No.SEBI/LAD/29278/2004] dated 30 December 2004. The salient features of the Takeover Code are as follows: Any acquirer (meaning a person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in a company, either by himself or with any person acting in concert) who acquires shares or voting rights that would entitle him to more than 5%, 10%, 14%, 54% or 74% of the shares or voting rights in a company is required to disclose the aggregate of his shareholding or voting rights in that company to the company and to each of the stock exchanges on which the company’s shares are listed at every stage within two days of (i) the receipt of allotment information or (ii) the acquisitions of shares or voting rights, as the case may be. A person who holds more than 15% of the shares or voting rights in any company is required to make annual disclosure of his holdings to that company (which in turn is required to disclose the same to each of the stock exchanges on which the company’s shares are listed). Further, such person who holds 15% or more of the shares or voting rights is required to disclose any purchase or sale of shares exceeding 2% of the share capital of the company, to the company and to each of the stock exchanges where the shares of the company are listed within two days of (i) the receipt of allotment information or (ii) the acquisitions of shares or voting rights, as the case may be. Promoters or persons in control of a company are also required to make periodic disclosure of their holdings in the same manner as above, annually within 21 days of the end of the fiscal year as well as from the record date for entitlement of dividends. No acquirer shall acquire shares or voting rights in a company, whether through market purchases or preferential allotment, which will entitle such acquirer to exercise more than 55% of the voting rights in the Company. In the event an acquirer does acquire more than 55% shares or voting rights through such market purchases or preferential allotment, the acquirer must forthwith divest its shareholding, which is in excess of 55%. An acquirer who, along with persons acting in concert, acquires or intends to acquire 15% or more of the shares or voting rights in a company is required to make a public announcement (open offer) to acquire a further 20% of the shares of the company. An acquirer who, together with persons acting in concert with him, holds 15% or more but less than 55% of the shares, cannot acquire additional shares or voting rights that would entitle him to exercise more than 5% of the voting rights in any fiscal year unless such acquirer makes a public announcement offering to acquire a further 20% of the shares of the company. In the event an acquirer, who together with persons acting in concert with him holds 55% of the shares or voting rights in a company, acquires any additional shares or voting rights in a company, such acquirer must make a public announcement (open offer) to acquire shares and if the public offer results in the public shareholding in the company being reduced to 10% or less of the voting capital of the company, the acquirer must acquire only such number of shares so as to maintain the minimum public shareholding. In addition, regardless of whether there has been any acquisition of shares or voting rights in a company, an acquirer cannot directly or indirectly acquire control over a company (for example, by way of acquiring the right to appoint a majority of the directors or to control the management or the policy decisions of the company) unless such acquirer makes a public announcement offering to acquire a minimum of 20% of the shares of the company. However the public announcement requirement will not apply to any change in control, which takes place pursuant to a special resolution passed by way of postal ballot by the shareholders of the company. Page 65 The Takeover Code sets out the contents of the required public announcements as well as the minimum offer price. The minimums offer price shall be the higher of: (i) (ii) the negotiated price under the agreement for the acquisition of shares in the company; the highest price paid by the acquirer or persons acting in concert with him for acquisitions, including through an allotment in a public, preferential or rights issue, during the 26 week period prior to the date of public announcement; or the average of the weekly high and low of the closing prices of the shares quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks or the average of the daily high and low of the closing prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher. (iii) The Takeover Code permits conditional offers as well as the acquisition and subsequent delisting of all shares of a company and provides specific guidelines for the gradual acquisition of shares or voting rights. Specific obligations of the acquirer and the board of directors of the target company in the offer process have also been set out. Acquirers making a public offer are also required to deposit in an escrow account a percentage of the total consideration which amount will be forfeited in the event that the acquirer does not fulfil his obligations. In addition, the Takeover Code introduces the "chain principle" by which indirect acquisition by virtue of acquisition of companies, whether listed or unlisted, whether in India or abroad of a company listed in India will oblige the acquirer to make a public offer to the shareholders of each such company which is indirectly acquired. Pursuant to an open offer, the company whose public shareholding has been reduced to a level below 10% of the voting capital of the company would have to delist itself and the company would have to make another open offer for the remaining public shareholding in accordance with the Delisting Guidelines. There are separate requirements for "bail-out takeovers" relating to substantial acquisitions of shares of a financially weak company but not a "sick industrial company" pursuant to a rehabilitation scheme approved by a public financial institution or a scheduled bank. A "financially weak company" is a company which has at the end of the previous fiscal year accumulated losses, which have resulted in erosion of more than 50% but less than 100% of net worth at the end of the previous fiscal year. A "sick industrial company" is a company registered for more than five years, which has at the end of any fiscal year accumulated losses equal to or exceeding its entire net worth. The Takeover Code does not apply, inter alia, to certain specified acquisitions including the acquisition of shares (i) by allotment in a public and rights issue subject to the fulfilment of certain conditions, (ii) pursuant to an underwriting agreement, (iii) by registered stockbrokers in the ordinary course of business on behalf of clients, (iv) in unlisted companies, except under certain circumstances, (v) pursuant to a scheme of arrangement or reconstruction including amalgamation, under any law or regulation, Indian or foreign, (vi) pursuant to a scheme under Section 18 of the Indian Sick Industrial Companies (Special Provisions) Act, 1985 (the "SICA") or (vii) in the ordinary course of business by public financial institutions either on their own account or as a pledge. In addition, the Takeover Code does not apply to the acquisition of global depositary receipts, so long as they are not converted into shares carrying voting rights where the issuer is a public listed company. The Takeover Code does not apply to acquisition of shares in companies whose shares are not listed on any stock exchange. Depositaries In August 1996, the Indian Parliament enacted the Indian Depositories Act, 1996, which provides a legal framework for the establishment of depositaries to record ownership details and effect transfers in book-entry form. The Securities and Exchange Board of India (Depositories and Participants) Rules and Regulations, 1996, which provides for the formation of such depositaries, the registration of participants as well as the rights and obligations of the depositaries, participants, the beneficial owners and the issuers. The depositary system has significantly improved the operations of the Indian securities markets. Trading of securities in book-entry form commenced in December 1996. In January 1998, the SEBI has notified scrips of various companies for compulsory dematerialised trading by certain categories of investors such as high net worth individuals and other institutional investors and has also notified compulsory dematerialised trading in Page 66 specified scrips for all retail investors. The SEBI has subsequently significantly increased the number of scrips in which dematerialised trading is compulsory for all investors. Under guidelines issued by the SEBI, the company shall give the option to subscribers/shareholders to receive the security certificates and hold securities in dematerialised form with a depositary. However, even in case of scrips notified for compulsory dematerialised trading, investors, other than institutional investors, are permitted to trade in physical shares on transactions outside the stock exchange where there are no requirements of reporting such transactions to the stock exchange, and on transactions on the stock exchange involving lots less than 500 securities. Transfers of shares in book-entry form require both the seller and the purchaser of the equity shares to establish accounts with depositary participants registered with the depositaries established under the Depositories Act, 1996. Charges for opening an account with a depositary participant, transaction charges for each trade and custodian charges for securities held in each account vary depending upon the practice of each depositary participant and have to be borne by the account holder. Upon delivery, the shares shall be registered in the name of the relevant depositary on the Company's books and this depositary shall enter the name of the investor in its records as the beneficial owner. The transfer of beneficial ownership shall be effected through the records of the depositary. The beneficial owner shall be entitled to all rights and benefits and subject to all liabilities in respect of his securities held by a depositary. The Companies Act compulsorily provides that Indian companies making any initial public offerings of securities for or in excess of Rs.100.00 million (USD 2.29 million) should issue the securities in dematerialised form. Page 67 TERMS AND CONDITIONS OF THE GLOBAL DEPOSITARY RECEIPTS The following terms and conditions (subject to completion and amendment and excepting sentences in italics) will apply to the Global Depositary Receipts, and will be endorsed on each Global Depositary Receipt certificate: The Global Depositary Receipts ("GDRs") represented by this certificate are each issued in respect of two equity shares of par value Rs.5 each (the "Shares") in Taneja Aerospace and Aviation Limited (the "Company") pursuant to and subject to an agreement dated 13 September 2005, and made between the Company and The Bank of New York in its capacity as depositary for the Facility (the "Depositary") (such agreement, as amended from time to time, being hereinafter referred to as the "Deposit Agreement"). Pursuant to the provisions of the Deposit Agreement, the Depositary has appointed The Hongkong and Shanghai Banking Corporation Limited as Custodian (the "Custodian") to receive and hold on its behalf any relevant documentation in respect of certain Shares (the "Deposited Shares") and all and any rights, interests and other securities, property and cash deposited with the Custodian which are attributable to the Deposited Shares (together with the Deposited Shares, the "Deposited Property"). The Depositary shall hold the Deposited Property for the benefit of the Holders (as defined below) as bare trustee in proportion to their holdings of GDRs. In these terms and conditions (the "Conditions"), references to the "Depositary" are to The Bank of New York and/or any other depositary which may from time to time be appointed pursuant to the Deposit Agreement, references to the "Custodian" are to The Hongkong and Shanghai Banking Corporation Limited or any other custodian from time to time appointed pursuant to the Deposit Agreement and references to the "Main Office" mean, in relation to the relevant Custodian, its head office in the city of Mumbai or such other location of the head office of the Custodian in India as may be designated by the Custodian with the approval of the Depositary (if outside the city of Mumbai) or the head office of any other custodian from time to time appointed under the Deposit Agreement. References in these Conditions to the "Holder" of any GDR shall mean the person or persons recorded in the books of the Depositary maintained for such purpose (the "Register") as holder for the time being. These Conditions include summaries of, and are subject to, the detailed provisions of the Deposit Agreement, which includes the forms of the certificates in respect of the GDRs. Copies of the Deposit Agreement are available for inspection at the specified office of the Depositary and each Agent (as defined in Condition 17) and at the Main Office of the Custodian. Terms used in these Conditions and not defined herein but which are defined in the Deposit Agreement have the meanings ascribed to them in the Deposit Agreement. Holders of GDRs are not party to the Deposit Agreement and thus, under English Law, have no contractual rights against, or obligations to, the Company or the Depositary. However, the Deed Poll executed by the Company in favour of the Holders provides that, if the Company fails to perform the obligations imposed on it by certain specified provisions of the Deposit Agreement, any Holder may enforce the relevant provisions of the Deposit Agreement as if it were a party to the Deposit Agreement and was the "Depositary" in respect of that number of Deposited Shares to which the GDRs of which he is the Holder relate. The Depositary is under no duty to enforce any of the provisions of the Deposit Agreement on behalf of any Holder of a GDR or any other person. 1. 1.1 Withdrawal of Deposited Property and Further Issues of GDRs. Any Holder may request withdrawal of, and the Depositary shall thereupon relinquish, the Deposited Property attributable to any GDR upon production of such evidence of the entitlement of the Holder to the relative GDR as the Depositary may reasonably require, at the specified office of the Depositary or any Agent accompanied by: (a) a duly executed order (in a form approved by the Depositary) requesting the Depositary to cause the Deposited Property being withdrawn to be delivered at the Main Office of the Custodian, or (at the request, risk and expense of the Holder, and only if permitted by applicable law from time to time) at the specified office located in New York, London or India of the Depositary or any Agent, or to the order in writing of, the person or persons designated in such order; the payment of such fees, taxes, duties, charges and expenses as may be required under these Conditions or the Deposit Agreement; (b) Page 68 (c) the surrender (if appropriate) of GDR certificates in definitive registered form properly endorsed in blank or accompanied by proper instruments of transfer satisfactory to the Depositary to which the Deposited Property being withdrawn is attributable; and the delivery to the Depositary of a duly executed and completed certificate substantially in the form set out in Schedule 3, Part B, to the Deposit Agreement, if Deposited Property is to be withdrawn or delivered during the relevant Distribution Compliance Period (such term being defined as the 40-day period beginning on the latest of (i) the commencement of the offering of GDRs, (ii) the original issue date of the GDRs, and (iii) the latest issue date with respect to the additional GDRs (if any) issued to cover over-allotments) in respect of surrendered GDRs. (d) Notwithstanding the terms of Conditions 1.1, 1.4, 4, 5, 6, 7 and 10, unless the Deposited Shares have been listed on The Stock Exchange Mumbai and the Pune Stock Exchange: (i) (ii) 1.2 no Holder shall be entitled to withdraw Deposited Property; and no person shall be entitled to deposit further Shares. Certificates for withdrawn Deposited Shares will contain such legends (including, if applicable, the legend required in respect of the US Securities Act of 1933 (the "Securities Act"), and withdrawals of Deposited Shares may be subject to such transfer restrictions or certificates, as the Company or the Depositary may from time to time determine to be necessary for compliance with applicable laws and regulations. Upon production of such documentation and the making of such payment as aforesaid for withdrawal of the Deposited Property in accordance with Condition 1.1, the Depositary will direct the Custodian by tested telex, facsimile or SWIFT message within a reasonable time after receiving such direction from such Holder, to deliver at its Main Office to, or to the order in writing of, the person or persons designated in the accompanying order: (a) a certificate (if any) for, or other appropriate instrument of title (if any) to or evidence of a bookentry transfer in respect of the relevant Deposited Shares, registered in the name of the Depositary or its nominee and accompanied by such instruments of transfer in blank or to the person or persons specified in the order for withdrawal and such other documents, if any, as are required by law for the transfer thereof; and all other property forming part of the Deposited Property attributable to such GDR, accompanied, if required by law, by one or more duly executed endorsements or instruments of transfer in respect thereof as aforesaid; provided however that the Depositary may make delivery at its specified office in New York of any Deposited Property which is in the form of cash; 1.3 (b) PROVIDED FURTHER THAT the Depositary (at the request, risk and expense of any Holder so surrendering a GDR): (i) will direct the Custodian to deliver the certificates for, or other instruments of title to, or book-entry transfer in respect of, the relevant Deposited Shares and any document relative thereto and any other documents referred to in sub-paragraphs 1.3(a) and (b) of this Condition 1 (together with any other property forming part of the Deposited Property which may be held by the Custodian or its agent and is attributable to such Deposited Shares); and/or (ii) will deliver any other property forming part of the Deposited Property which may be held by the Depositary and is attributable to such GDR (accompanied, if required by law, by one or more duly executed endorsements or instruments of transfer in respect thereof); in each case to the specified office located in New York or London of the Depositary (if permitted by applicable law from time to time) or at the specified office in India of any Agent as designated by the surrendering Holder in the order accompanying such GDR. Page 69 1.4 Delivery by the Depositary, any Agent and the Custodian of all certificates, instruments, dividends or other property forming part of the Deposited Property as specified in this Condition 1 will be made subject to any laws or regulations applicable thereto. Unless otherwise agreed by the Depositary and the Company and permitted by applicable law, only the following may be deposited under the Deposit Agreement: (a) (b) Shares issued as a bonus issue in respect of Deposited Shares pursuant to Condition 5; Shares subscribed or acquired on behalf of Holders from the Company through the exercise of rights distributed by the Company to such persons in respect of Deposited Shares pursuant to Condition 7; Securities issued by the Company to the Holders in respect of Deposited Shares as a result of any change in the par value, sub-division, consolidation or other reclassification of Deposited Shares or otherwise pursuant to Condition 10 (references in these Conditions to "Deposited Shares" or "Shares" shall include any securities, where the context permits); and to the extent permitted by applicable laws and regulations, any other Shares in issue from time to time. 1.5 (c) (d) Shares may not be deposited by persons located in India or residents of India or for, or for the account of, such persons (except by the Company and the Custodian). The Depositary may, subject to the restrictions set forth above and in accordance with the terms of the Deposit Agreement and these Conditions upon delivery of a duly executed order (in a form reasonably approved by the Depositary) and a duly executed certificate substantially in the form of Schedule 3, Part A of the Deposit Agreement by or on behalf of any investor who is to become the beneficial owner of the GDRs from time to time execute and deliver further GDRs having the same terms and conditions as the GDRs which are then outstanding in all respects (or the same in all respects except for the first dividend payment on the Shares corresponding to such further GDRs) and, subject to the terms of the Deposit Agreement and these Conditions, the Depositary may accept for deposit any further Shares in connection therewith, so that such further GDRs shall form a single series with the already outstanding GDRs. References in these Conditions to the GDRs include (unless the context requires otherwise) any further GDRs issued pursuant to this Condition and forming a single series with the already outstanding GDRs. 1.6 Any further GDRs issued pursuant to Condition 1.5 which correspond to Shares which have different dividend rights from the Shares corresponding to the outstanding GDRs will correspond to a separate temporary Master GDR. Upon becoming fungible with outstanding GDRs, such further GDRs shall be evidenced by a Master GDR (by increasing the total number of GDRs evidenced by the Master GDR by the number of such further GDRs, as applicable). The Depositary may issue GDRs against rights to receive Shares from the Company (or any agent of the Company recording Share ownership). No such issue of GDRs will be deemed a "Pre-Release" as defined in Condition 1.8. Unless requested in writing by the Company to cease doing so, and notwithstanding the provisions of Condition 1.4, the Depositary may execute and deliver GDRs or issue interests in the Master GDR, prior to the receipt of Shares (a "Pre-Release"). The Depositary may, pursuant to Condition 1.1, deliver Shares upon the receipt and cancellation of GDRs, which have been Pre-Released, whether or not such cancellation is prior to the termination of such Pre-Release or the Depositary knows that such GDR has been Pre-Released. The Depositary may receive GDRs in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release will be (a) preceded or accompanied by a written representation from the person to whom GDRs or Deposited Property are to be delivered (the "Pre-Releasee") that such person, or its customer, (i) owns or represents the owner of the corresponding Deposited Property or GDRs to be remitted (as the case may be), (ii) assigns all beneficial right, title and interest in such Deposited Property 1.7 1.8 Page 70 or GDRs (as the case may be) to the Depositary in its capacity as such and for the benefit of the Holders, (iii) will not take any action with respect to such GDRs or Deposited Property (as the case may be) that is inconsistent with the transfer of beneficial ownership (including without the consent of the Depositary, disposing of such Deposited Property or GDRs, as the case may be), other than in satisfaction of such PreRelease, (b) at all times fully collateralised with cash or such other collateral as the Depositary determines in good faith will provide substantially similar liquidity and security, (c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. The number of GDRs which are outstanding at any time as a result of Pre-Release will not normally represent more than 30 per cent. of the total number of GDRs then outstanding; provided, however, that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate and may, with the prior written consent of the Company, change such limits for the purpose of general application. The Depositary will also set dollar limits with respect to such transactions hereunder with any particular Pre-Releasee hereunder on a case by case basis as the Depositary deems appropriate. The collateral referred to in sub-paragraph (b) above shall be held by the Depositary as security for the performance of the Pre-Releasee’s obligations in connection herewith, including the Pre-Releasee’s obligation to deliver Shares and/or other securities or GDRs upon termination of a transaction anticipated hereunder (and shall not, for the avoidance of doubt, constitute Deposited Property hereunder). The Depositary may retain for its own account any compensation received by it in connection with the foregoing including, without limitation, earnings on the collateral. The person to whom any Pre-Release of GDRs or Shares is to be made pursuant to this paragraph shall be required to deliver to the Depositary a duly executed and completed certificate substantially in the form set out in Schedule 3, Part A of the Deposit Agreement. 2. 2.1 Suspension of Issue of GDRs and of Withdrawal of Deposited Property The Depositary shall be entitled, at its reasonable discretion, at such times as it shall determine, to suspend the issue or transfer of GDRs (and the deposit of Shares) generally or in respect of particular Shares. In particular, to the extent that it is in its opinion practicable for it to do so, the Depositary will refuse to accept Shares for deposit, to execute and deliver GDRs or to register transfers of GDRs if it has been notified by the Company in writing that the Deposited Shares or GDRs or any depositary receipts corresponding to Shares are listed on a US Securities Exchange or quoted on a US automated inter dealer quotation system. Further, the Depositary may suspend the withdrawal of Deposited Property during any period when the Register, or the register of shareholders of the Company is closed or, generally or in one or more localities, suspend the withdrawal of Deposited Property or deposit of Shares if deemed necessary or desirable or advisable by the Depositary in good faith at any time or from time to time, in order to comply with any applicable law or governmental or stock exchange regulations or any provision of the Deposit Agreement or for any other reason. The Depositary shall (unless otherwise notified by the Company) restrict the withdrawal of Deposited Shares where the Company notifies the Depositary in writing that such withdrawal would result in ownership of Shares exceeding any limit under any applicable law, government resolution or the Company’s Constitutive Documents or would otherwise violate any applicable laws. Transfer and Ownership The GDRs are in registered form, each corresponding to two Shares. Title to the GDRs passes by registration in the Register and accordingly, transfer of title to a GDR is effective only upon such registration. The Depositary will refuse to accept for transfer any GDRs if it reasonably believes that such transfer would result in violation of any applicable laws. The Holder of any GDR will (except as otherwise required by law) be treated by the Depositary and the Company as its beneficial owner for all purposes (whether or not any payment or other distribution in respect of such GDR is overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or theft or loss of any certificate issued in respect of it) and no person will be liable for so treating the Holder. 3. Page 71 Prior to expiration of the relevant Distribution Compliance Period, no owner of GDRs may transfer GDRs or Shares represented thereby except in accordance with Regulation S under the Securities Act. 4. Cash Distributions Whenever the Depositary shall receive from the Company any cash dividend or other cash distribution on or in respect of the Deposited Shares (including any amounts received in the liquidation of the Company) or otherwise in connection with the Deposited Property, the Depositary shall, as soon as practicable, convert the same into United States dollars in accordance with Condition 8. The Depositary shall, if practicable in the opinion of the Depositary, give notice to the Holders of its receipt of such payment in accordance with Condition 23, specifying the amount per Deposited Share payable in respect of such dividend or distribution and the earliest date, determined by the Depositary, for transmission of such payment to Holders and shall as soon as practicable distribute any such amounts to the Holders in proportion to the number of Deposited Shares corresponding to the GDRs so held by them respectively, subject to and in accordance with the provisions of Conditions 9 and 11; PROVIDED THAT: (a) in the event that the Depositary is aware that any Deposited Shares are not entitled, by reason of the date of issue or transfer or otherwise, to such full proportionate amount, the amount so distributed to the relative Holders shall be adjusted accordingly; and the Depositary will distribute only such amounts of cash dividends and other distributions as may be distributed without attributing to any GDR a fraction of the lowest integral unit of currency in which the distribution is made by the Depositary, and any balance remaining shall be retained by the Depositary beneficially as an additional fee under Condition 16.1(iv). (b) 5. Distributions of Shares Whenever the Depositary shall receive from the Company any distribution in respect of Deposited Shares which consists of a dividend or free distribution of Shares, the Depositary shall cause to be distributed to the Holders entitled thereto, in proportion to the number of Deposited Shares corresponding to the GDRs held by them respectively, additional GDRs corresponding to an aggregate number of Shares received pursuant to such distribution. Such additional GDRs shall be distributed by an increase in the number of GDRs corresponding to the Master GDR or by an issue of certificates in definitive registered form in respect of GDRs, according to the manner in which the Holders hold their GDRs, PROVIDED THAT, if and in so far as the Depositary deems any such distribution to all or any Holders not to be reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall (either by public or private sale and otherwise at its discretion, subject to all applicable laws and regulations) sell such Shares so received and distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto. 6. Distributions other than in Cash or Shares Whenever the Depositary shall receive from the Company any dividend or distribution in securities (other than Shares) or in other property (other than cash) on or in respect of the Deposited Property, the Depositary shall distribute or cause to be distributed such securities or other property to the Holders entitled thereto, in proportion to the number of Deposited Shares corresponding to the GDRs held by them respectively, in any manner that the Depositary may deem equitable and practicable for effecting such distribution; PROVIDED THAT, if and in so far as the Depositary deems any such distribution to all or any Holders not to be reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary shall deal with the securities or property so received, or any part thereof, in such way as the Depositary may determine to be equitable and practicable, including, without limitation, by way of sale (either by public or private sale and otherwise at its discretion, subject to all applicable laws and regulations) and shall (in the Page 72 case of a sale) distribute the resulting net proceeds as a cash distribution pursuant to Condition 4 to the Holders entitled thereto. 7. 7.1 Rights Issues If and whenever the Company announces its intention to make any offer or invitation to the holders of Shares to subscribe for or to acquire Shares, securities or other assets by way of rights, the Depositary shall as soon as practicable give notice to the Holders, in accordance with Condition 23, of such offer or invitation, specifying, if applicable, the earliest date established for acceptance thereof, the last date established for acceptance thereof and the manner by which and time during which Holders may request the Depositary to exercise such rights as provided below or, if such be the case, specifying details of how the Depositary proposes to distribute the rights or the proceeds of any sale thereof. The Depositary will deal with such rights in the manner described below: (i) if and to the extent that the Depositary shall, at its discretion, deem it to be lawful and reasonably practicable, the Depositary shall make arrangements whereby the Holders may, upon payment of the subscription price in Rupees or other relevant currency together with such fees, taxes, duties, charges, costs and expenses as may be required under the Deposit Agreement and completion of such undertakings, declarations, certifications and other documents as the Depositary may reasonably require, request the Depositary to exercise such rights on their behalf with respect to the Deposited Shares and to distribute the Shares, securities or other assets so subscribed or acquired to the Holders entitled thereto by an increase in the numbers of GDRs corresponding to the Master GDR or an issue of certificates in definitive registered form in respect of GDRs, according to the manner in which the Holders hold their GDRs; or if and to the extent that the Depositary shall at its discretion, deem it to be lawful and reasonably practicable, the Depositary will distribute such rights to the Holders entitled thereto in such manner as the Depositary may at its discretion determine; or if and to the extent that the Depositary deems any such arrangement and distribution as is referred to in paragraphs (i) and (ii) above to all or any Holders not to be lawful and reasonably practicable (including, without limitation, due to the fractions which would otherwise result or to any requirement that the Company, the Custodian or the Depositary withhold an amount on account of taxes or other governmental charges) or to be unlawful, the Depositary (a) will, PROVIDED THAT Holders have not taken up rights through the Depositary as provided in (i) above, sell such rights (either by public or private sale and otherwise at its discretion subject to all applicable laws and regulations) or (b) may, if such rights are not transferable, in its discretion, arrange for such rights to be exercised and the resulting Shares or securities sold and, in each case, distribute the net proceeds of such sale as a cash distribution pursuant to Condition 4 to the Holders entitled thereto. (a) Notwithstanding the foregoing, in the event that the Depositary offers rights pursuant to Condition 7(i) (the "Primary GDR Rights Offering"), if authorised by the Company to do so, the Depositary may, in its discretion, make arrangements whereby in addition to instructions given by a Holder to the Depositary to exercise rights on its behalf pursuant to Condition 7(i), such Holder is permitted to instruct the Depositary to subscribe on its behalf for additional rights which are not attributable to the Deposited Shares represented by such Holder’s GDRs ("Additional GDR Rights") if at the date and time specified by the Depositary for the conclusion of the Primary GDR Offering (the "Instruction Date") instructions to exercise rights have not been received by the Depositary from the Holders in respect of all their initial entitlements. Any Holder’s instructions to subscribe for such Additional GDR Rights ("Additional GDR Rights Requests") shall specify the maximum number of Additional GDR Rights that such Holder is prepared to accept (the "Maximum Additional Subscription") and must be received by the Depositary by the Instruction Date. If by the Instruction Date any rights offered in the Primary GDR Rights Offering have not been subscribed by the Holders initially entitled thereto (ii) (iii) (iv) Page 73 ("Unsubscribed Rights"), subject to Condition 7(iv)(c) and receipt of the relevant subscription price in Rupees or other relevant currency, together with such fees, taxes, duties, charges, costs and expenses as it may deem necessary, the Depositary shall make arrangements for the allocation and distribution of Additional GDR Rights in accordance with Condition 7(iv)(b). (b) Holders submitting Additional GDR Rights Requests shall be bound to accept the Maximum Additional Subscription specified in such Additional GDR Request but the Depositary shall not be bound to arrange for a Holder to receive the Maximum Additional Subscription so specified but may make arrangements whereby the Unsubscribed Rights are allocated pro rata on the basis of the extent of the Maximum Additional Subscription specified in each Holder’s Additional GDR Rights Request. In order to proceed in the manner contemplated in this Condition 7(iv), the Depositary shall be entitled to receive such opinions from Indian counsel and US counsel as in its discretion it deems necessary which opinions shall be in a form and provided by counsel satisfactory to the Depositary and at the expense of the Company and may be requested in addition to any other opinions and/or certifications which the Depositary shall be entitled to receive under the Deposit Agreement and these Conditions. For the avoidance of doubt, save as provided in these Conditions and the Deposit Agreement, the Depositary shall have no liability to the Company or any Holder in respect of its actions or omissions to act under this Condition 7(iv) and, in particular, the Depositary will not be regarded as being negligent, acting in bad faith, or in wilful default if it elects not to make the arrangements referred to in Condition 7(iv)(a). (c) The Company has agreed in the Deposit Agreement that it will, unless prohibited by applicable law or regulation, give its consent to, and if requested use all reasonable endeavours (subject to the next paragraph) to facilitate, any such distribution, sale or subscription by the Depositary or the Holders, as the case may be, pursuant to Conditions 4, 5, 6, 7 or 10 (including the obtaining of legal opinions from counsel reasonably satisfactory to the Depositary concerning such matters as the Depositary may reasonably specify). 7.2 If the Company notifies the Depositary that registration is required in any jurisdiction under any applicable law of the rights, securities or other property to be distributed under Conditions 4, 5, 6, 7 or 10 or the securities to which such rights relate in order for the Company to offer such rights or distribute such securities or other property to the Holders or owners of GDRs and to sell the securities corresponding to such rights, the Depositary will not offer such rights or distribute such securities or other property to the Holders or sell such securities unless and until the Company procures the receipt by the Depositary of an opinion from counsel reasonably satisfactory to the Depositary and the Company that a registration statement is in effect or that the offering and sale of such rights or securities to such Holders or owners of GDRs are exempt from registration under the provisions of such law. Neither the Company nor the Depositary shall be liable to register such rights, securities or other property or the securities to which such rights relate and they shall not be liable for any losses, damages or expenses resulting from any failure to do so. If at the time of the offering of any rights, at its discretion, the Depositary shall be satisfied that it is not lawful or practicable (for reasons outside its control) to dispose of the rights in any manner provided in paragraphs (i), (ii), (iii) and (iv) above, the Depositary shall permit the rights to lapse. The Depositary will not be responsible for any failure to determine that it may be lawful or feasible to make such rights available to Holders or owners of GDRs in general or to any Holder or owner of a GDR or Holders or owners of GDRs in particular. Conversion of Foreign Currency Whenever the Depositary shall receive any currency other than United States dollars by way of dividend or other distribution or as the net proceeds from the sale of securities, other property or rights, and if at the 7.3 8. Page 74 time of the receipt thereof the currency so received can in the judgement of the Depositary be converted on a reasonable basis into United States dollars and distributed to the Holders entitled thereto, the Depositary shall as soon as practicable itself convert or cause to be converted by another bank or other financial institution, by sale or in any other manner that it may reasonably determine, the currency so received into United States dollars. If such conversion or distribution can be effected only with the approval or licence of any government or agency thereof, the Depositary shall make reasonable efforts to apply, or procure that an application be made, for such approval or licence, if any, as it may deem desirable. If at any time the Depositary shall determine that in its judgement any currency other than United States dollars is not convertible on a reasonable basis into United States dollars and distributable to the Holders entitled thereto, or if any approval or licence of any government or agency thereof which is required for such conversion is denied or, in the opinion of the Depositary, is not obtainable, or if any such approval or licence is not obtained within a reasonable period as determined by the Depositary, the Depositary may distribute such other currency received by it (or an appropriate document evidencing the right to receive such other currency) to the Holders entitled thereto to the extent permitted under applicable law, or the Depositary may in its discretion hold such other currency for the benefit of the Holders entitled thereto. If any conversion of any such currency can be effected in whole or in part for distribution to some (but not all) Holders entitled thereto, the Depositary may at its discretion make such conversion and distribution in United States dollars to the extent possible to the Holders entitled thereto and may distribute the balance of such other currency received by the Depositary to, or hold such balance for the account of, the Holders entitled thereto, and notify the Holders accordingly. 9. 9.1 Distribution of any Payments Any distribution of cash under Conditions 4, 5, 6, 7 or 10 will be made by the Depositary to Holders on the record date established by the Depositary for that purpose (such date to be as close to the record date set by the Company as is reasonably practicable) and, if practicable in the opinion of the Depositary, notice shall be given promptly to Holders in accordance with Condition 23, in each case subject to any laws or regulations applicable thereto and (subject to the provisions of Condition 8) distributions will be made in United States dollars by cheque drawn upon a bank in New York City or, in the case of the Master GDR, according to usual practice between the Depositary and Clearstream or Euroclear, as the case may be. The Depositary or the Agent, as the case may be, may deduct and retain from all moneys due in respect of such GDR in accordance with the Deposit Agreement all fees, taxes, duties, charges, costs and expenses which may become or have become payable under the Deposit Agreement or under applicable law or regulation in respect of such GDR or the relative Deposited Property. Delivery of any securities or other property or rights other than cash shall be made as soon as practicable to the Holders on the record date established by the Depositary for that purpose (such date to be as close to the record date set by the Company as is reasonably practicable), subject to any laws or regulations applicable thereto. If any distribution made by the Company with respect to the Deposited Property and received by the Depositary shall remain unclaimed at the end of three years from the first date upon which such distribution is made available to Holders in accordance with the Deposit Agreement, all rights of the Holders to such distribution or the proceeds of the sale thereof shall be extinguished and the Depositary shall (except for any distribution upon the liquidation of the Company when the Depositary shall retain the same) return the same to the Company for its own use and benefit subject, in all cases, to the provisions of applicable law or regulation. Capital Reorganisation Upon any change in the nominal or par value, sub-division, consolidation or other reclassification of Deposited Shares or any other part of the Deposited Property or upon any reduction of capital, or upon any reorganisation, merger or consolidation of the Company or to which it is a party (except where the Company is the continuing corporation), the Depositary shall as soon as practicable give notice of such event to the Holders and at its discretion may treat such event as a distribution and comply with the relevant provisions of Conditions 4, 5, 6 and 9 with respect thereto, or may execute and deliver additional GDRs in respect of Shares or may require the exchange of existing GDRs for new GDRs which reflect the effect of such change. 9.2 10. Page 75 11. 11.1 Withholding Taxes and Applicable Laws Payments to Holders of dividends or other distributions on or in respect of the Deposited Shares will be subject to deduction of Indian and other withholding taxes, if any, at the applicable rates. If any governmental or administrative authorisation, consent, registration or permit or any report to any governmental or administrative authority is required under any applicable law in India in order for the Depositary to receive from the Company Shares or other securities to be deposited under these Conditions, or in order for Shares, other securities or other property to be distributed under Conditions 4, 5, 6 or 10 or to be subscribed under Condition 7 or to offer any rights or sell any securities represented by such rights relevant to any Deposited Shares, the Company has agreed to apply for such authorisation, consent, registration or permit or file such report on behalf of the Holders within the time required under such laws. In this connection, the Company has undertaken in the Deposit Agreement to the extent reasonably practicable to take such action as may be required in obtaining or filing the same. The Depositary shall not be obliged to distribute GDRs representing such Shares, Shares, other securities or other property deposited under these Conditions or make any offer of any such rights or sell any securities corresponding to any such rights with respect to which such authorisation, consent, registration or permit or such report has not been obtained or filed, as the case may be, and shall have no duties to obtain any such authorisation, consent, registration or permit, or to file any such report. Voting Rights Holders of GDRs will have no voting rights with respect to the Deposited Shares. If so requested by the Board of Directors of the Company (the "Board"), the Depositary will, (subject to receipt from the Company of an opinion from the Company’s legal counsel at the expense of the Company, such counsel being reasonably satisfactory to the Depositary, that to do so will not be illegal or violate any applicable law of India, or subject the Depositary to liability to any Holder or any shareholder of the Company), either vote as directed by the Board as conveyed by the Chairman of the Company (the "Chairman") (or, in the Chairman’s absence, the chairman of any meeting of the Board) or give a proxy or power of attorney to vote the Deposited Shares in favour of a director of the Company or other person or vote in the same manner as those shareholders designated by the Board. In the absence of receipt from the Company of an opinion from legal counsel as aforesaid, the Depositary shall not have any obligation to exercise any voting rights and shall have no liability to the Company or any Holder for any action taken or not taken as the case may be pursuant to Condition 12 or Clause 5. A valid corporate decision of the Company will bind the Depositary (as registered owner of the Shares) and the Holders and owner of GDRs. Shares which have been withdrawn from the depositary facility and transferred on the Company’s register of members to a person other than the Depositary or its nominee may be voted by the holders thereof. However, Holders and owners of GDRs may not receive sufficient advance notice of shareholders’ meetings to enable them to withdraw the Shares and vote at such meetings. Documents to be Furnished, Recovery of Taxes, Duties and Other Charges The Depositary shall not be liable for any taxes, duties, charges, costs or expenses which may become payable in respect of the Deposited Shares or other Deposited Property or the GDRs, whether under any present or future fiscal or other laws or regulations, and such part thereof as is proportionate or referable to a GDR shall be payable by the Holder thereof to the Depositary at any time on request or may be deducted from any amount due or becoming due on such GDR in respect of any dividend or other distribution. In default thereof, the Depositary may for the account of the Holder discharge the same out of the proceeds of sale on any Stock Exchange on which the Shares may from time to time be listed, and subject to all applicable laws and regulations, of any appropriate number of Deposited Shares or other Deposited Property and subsequently pay any surplus to the Holder. Any such request shall be made by giving notice pursuant to Condition 23. 11.2 12. 12.1 12.2 12.3 13. Page 76 14. 14.1 Liability In acting hereunder the Depositary shall have only those duties, obligations and responsibilities expressly specified in the Deposit Agreement and these Conditions and, other than holding the Deposited Property for the benefit of Holders as bare trustee, does not assume any relationship of trust for or with the Holders or owners of GDRs or any other person. Neither the Depositary, the Custodian, the Company, any Agent, nor any of their agents, officers, directors or employees shall incur any liability to any other of them or to any Holder or owner of a GDR or any other person with an interest in any GDRs if, by reason of any provision of any present or future law or regulation of India or any other country or of any relevant governmental authority, or by reason of the interpretation or application of any such present or future law or regulation or any change therein, or by reason of any other circumstances beyond their control, or in the case of the Depositary, the Custodian, the Agent or any of their agents, officers, directors or employees, by reason of any provision, present or future, of the Constitutive Documents of the Company, any of them shall be prevented, delayed or forbidden from doing or performing any act or thing which the terms of the Deposit Agreement or these Conditions provide shall or may be done or performed; nor shall any of them incur any liability to any Holder or owner of GDRs or any other person with an interest in any GDRs by reason of any exercise of, or failure to exercise, any voting rights attached to the Deposited Shares or any of them or any other discretion or power provided for in the Deposit Agreement. Any such party may rely on, and shall be protected in acting upon, any written notice, request, direction or other document believed by it to be genuine and to have been duly signed or presented (including a translation which is made by a translator believed by it to be competent or which appears to be authentic). Neither the Depositary nor any Agent shall be liable (except for its own wilful default, negligence or bad faith or that of its agents, officers, directors or employees) to the Company or any Holder or owner of GDRs or any other person, by reason of having accepted as valid or not having rejected any certificate for Shares or GDRs or any signature on any transfer or instruction purporting to be such and subsequently found to be forged or not authentic or for its failure to perform any obligations under the Deposit Agreement or these Conditions. The Depositary and its agents may engage or be interested in any financial or other business transactions with the Company or any of its subsidiaries or affiliates, or in relation to the Deposited Property (including without prejudice to the generality of the foregoing, the conversion of any part of the Deposited Property from one currency to another), may at any time hold or be interested in GDRs for its own account, and shall be entitled to charge and be paid all usual fees, commissions and other charges for business transacted and acts done by it as a bank, and not in the capacity of Depositary, in relation to matters arising under the Deposit Agreement (including, without prejudice to the generality of the foregoing, charges on the conversion of any part of the Deposited Property from one currency to another and on any sales of property) without accounting to Holders or any other person for any profit arising therefrom. The Depositary shall endeavour to effect any such sale as is referred to or contemplated in Conditions 5, 6, 7, 10, 13 or 21 or any such conversion as is referred to in Condition 8 in accordance with the Depositary’s normal practices and procedures but shall have no liability (in the absence of its own wilful default, negligence or bad faith or that of its agents, officers, directors or employees) with respect to the terms of such sale or conversion or if such sale or conversion shall not be reasonably practicable. The Depositary shall not be required or obliged to monitor, supervise or enforce the observance and performance by the Company of its obligations under or in connection with the Deposit Agreement or these Conditions. The Depositary shall have no responsibility whatsoever to the Company, any Holders or any owner of GDRs or any other person as regards any deficiency which might arise because the Depositary is subject to any tax in respect of the Deposited Property or any part thereof or any income therefrom or any proceeds thereof. 14.2 14.3 14.4 14.5 14.6 14.7 Page 77 14.8 In connection with any proposed modification, waiver, authorisation or determination permitted by the terms of the Deposit Agreement, the Depositary shall not, except as otherwise expressly provided in Condition 22, be obliged to have regard to the consequence thereof for the Holders or the owners of GDRs or any other person. Notwithstanding anything else contained in the Deposit Agreement or these Conditions, the Depositary may refrain from doing anything which could or might, in its opinion, be contrary to any law of any jurisdiction or any directive or regulation of any agency or state or which would or might otherwise render it liable to any person and the Depositary may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation. The Depositary may, in relation to the Deposit Agreement and these Conditions, act or take no action on the advice or opinion of, or any certificate or information obtained from, any lawyer, valuer, accountant, banker, broker, securities company or other expert whether obtained by the Company, the Depositary or otherwise and shall not be responsible or liable for any loss or liability occasioned by so acting or refraining from acting or relying on information from persons presenting Shares for deposit or GDRs for surrender or requesting transfers thereof. Any such advice, opinion, certificate or information (as discussed in Condition 14.10 above) may be sent or obtained by letter, telex, facsimile transmission, telegram or cable and the Depositary shall not be liable for acting on any advice, opinion, certificate or information purported to be conveyed by any such letter, telex or facsimile transmission although (without the Depositary’s knowledge) the same shall contain some error or shall not be authentic. The Depositary may call for and shall be at liberty to accept as sufficient evidence of any fact or matter or the expediency of any transaction or thing, a certificate, letter or other communication, whether oral or written, signed or otherwise communicated on behalf of the Company by a director of the Company or by a person duly authorised by a director of the Company or such other certificate from persons specified in Condition 14.10 above which the Depositary considers appropriate and the Depositary shall not be bound in any such case to call for further evidence or be responsible for any loss or liability that may be occasioned by the Depositary acting on such certificate. The Depositary shall have no obligation under the Deposit Agreement except to perform its obligations as are specifically set out therein without wilful default, negligence or bad faith. The Depositary may delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons, whether being a joint Depositary of the Deposit Agreement or not and not being a person to whom the Company may reasonably object, all or any of the powers, authorities and discretions vested in the Depositary by the Deposit Agreement and such delegation may be made upon such terms and subject to such conditions, including power to sub-delegate and subject to such regulations as the Depositary may in the interests of the Holders think fit, provided that no objection from the Company to any such delegation as aforesaid may be made to a person whose financial statements are consolidated with those of the Depositary’s ultimate holding company. Any delegation by the Depositary shall be on the basis that the Depositary is acting on behalf of the Holders and the Company in making such delegation. The Company shall not in any circumstances and the Depositary shall not (provided that it shall have exercised reasonable care in the selection of such delegate) be bound to supervise the proceedings or be in any way responsible for any loss, liability, cost, claim, action, demand or expense incurred by reason of any misconduct or default on the part of any such delegate or sub-delegate. However, the Depositary shall, if practicable and if so requested by the Company, pursue (at the Company’s expense and subject to receipt by the Depositary of such indemnity and security for costs as the Depositary may reasonably require) any legal action it may have against such delegate or sub-delegate arising out of any such loss caused by reason of any such misconduct or default. The Depositary shall, within a reasonable time of any such delegation or any renewal, extension or termination thereof, give notice thereof to the Company. Any delegation under this Condition which includes the power to sub-delegate shall provide that the delegate shall, within 14.9 14.10 14.11 14.12 14.13 14.14 Page 78 a specified time of any sub-delegation or amendment, extension or termination thereof, give notice thereof to the Company and the Depositary. 14.15 The Depositary may, in the performance of its obligations hereunder, instead of acting personally, employ and pay an agent, whether a solicitor or other person, to transact or concur in transacting any business and do or concur in doing all acts required to be done by such party, including the receipt and payment of money. The Depositary shall be at liberty to hold or to deposit the Deposit Agreement and any deed or document relating thereto in any part of the world with any banking company or companies (including itself) whose business includes undertaking the safe custody of deeds or documents or with any lawyer or firm of lawyers of good repute, and the Depositary shall not (in the case of deposit with itself, in the absence of its own negligence, wilful default, or bad faith or that of its agents, directors, officers or employees) be responsible for any losses, liability or expenses incurred in connection with any such deposit. Notwithstanding anything to the contrary contained in the Deposit Agreement or these Conditions, the Depositary shall not be liable in respect of any loss or damage which arises out of or in connection with its performance or non-performance or the exercise or attempted exercise of, or the failure to exercise any of, its powers or discretions under the Deposit Agreement except to the extent that such loss or damage arises from the wilful default, negligence or bad faith of the Depositary or that of its agents, officers, directors or employees. No provision of the Deposit Agreement or these Conditions shall require the Depositary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity and security against such risk of liability is not assured to it. For the avoidance of doubt, the Depositary shall be under no obligation to check, monitor or enforce compliance with any ownership restrictions in respect of GDRs or Shares under any applicable Indian law as the same may be amended from time to time. Notwithstanding the generality of Condition 3, the Depositary shall refuse to register any transfer of GDRs or any deposit of Shares against issuance of GDRs if notified by the Company, or the Depositary becomes aware of the fact, that such transfer or issuance would result in a violation of the limitations set forth above. No disclaimer of liability under the US Securities Act is intended by any provision of the Deposit Agreement or the Conditions. Issue and Delivery of Replacement GDRs and Exchange of GDRs Subject to the payment of the relevant fees, taxes, duties, charges, costs and expenses and such terms as to evidence and indemnity as the Depositary may require, replacement GDRs will be issued by the Depositary and will be delivered in exchange for or replacement of outstanding lost, stolen, mutilated, defaced or destroyed GDRs upon surrender thereof (except in the case of the destruction, loss or theft) at the specified office of the Depositary or (at the request, risk and expense of the Holder) at the specified office of any Agent. 16. 16.1 Depositary’s Fees, Costs and Expenses The Depositary shall be entitled to charge the following remuneration and receive the following remuneration and reimbursement (such remuneration and reimbursement being payable on demand) from the Holders in respect of its services under the Deposit Agreement: (i) for the issue of GDRs (other than upon the issue of GDRs pursuant to the Offering) or the cancellation of GDRs upon the withdrawal of Deposited Property: US$5.00 or less per 100 GDRs (or portion thereof) issued or cancelled; 14.16 14.17 14.18 14.19 14.20 15. Page 79 (ii) for issuing GDR certificates in definitive registered form in replacement for mutilated, defaced, lost, stolen or destroyed GDR certificates: a sum per GDR certificate which is determined by the Depositary to be a reasonable charge to reflect the work, costs and expenses involved; for issuing GDR certificates in definitive registered form (other than pursuant to (ii) above): the greater of US$1.50 per GDR certificate (plus printing costs) or such other sum per GDR certificate which is determined by the Depositary to be a reasonable charge to reflect the work plus costs (including but not limited to printing costs) and expenses involved; for receiving and paying any cash dividend or other cash distribution on or in respect of the Deposited Shares: a fee of US$0.02 or less per GDR for each such dividend or distribution; in respect of any issue of rights or distribution of Shares (whether or not evidenced by GDRs) or other securities or other property (other than cash) upon exercise of any rights, any free distribution, stock dividend or other distribution: US$5.00 or less per outstanding 100 GDRs (or portion thereof) for each such issue of rights, dividend or distribution; a fee of US$0.02 or less per GDR for depositary services, which will accrue on the last day of each calendar year and which shall be payable as provided in paragraph (vii) below, provided, however, that no fee will be assessed under this provision to the extent a fee of US$0.02 per GDR was charged in such calendar year pursuant to paragraph (iv) above; and any other charge payable by the Depositary, any of the Depositary’s agents, including the Custodian, or the agents of the Depositary’s agents in connection with the servicing of Deposited Shares or other Deposited Property (which charge shall be assessed against Holders as of the date or dates set by the Depositary and shall be payable at the sole discretion of the Depositary by billing such Holders for such charge or by deducting such charge from one or more cash dividends or other cash distributions), (iii) (iv) (v) (vi) (vii) together with all expenses (including currency conversion expenses), transfer and registration fees, taxes, duties and charges payable by the Depositary, any Agent or the Custodian, or any of their agents, in connection with any of the above. 16.2 The Depositary is entitled to receive from the Company the fees, taxes, duties, charges costs and expenses as specified in a separate agreement between the Company and the Depositary. Agents The Depositary shall be entitled to appoint one or more agents (the "Agents") for the purpose, inter alia, of making distributions to the Holders. Notice of appointment or removal of any Agent or of any change in the specified office of the Depositary or any Agent will be duly given by the Depositary to the Holders. Listing The Company has undertaken in the Deposit Agreement to use its best endeavours to maintain, so long as any GDR is outstanding, a listing for the GDRs on the Luxembourg Stock Exchange. For that purpose the Company will pay all fees, sign and deliver all undertakings and take any other steps required by the Luxembourg Stock Exchange in connection with such listing. In the event that the listing on the Luxembourg Stock Exchange is not maintained, the Company has undertaken in the Deposit Agreement to use its best endeavours with the reasonable assistance of the Depositary (provided at the Company’s expense) to obtain and maintain a listing of the GDRs on any other internationally recognised stock exchange. 17. 17.1 17.2 18. Page 80 19. The Custodian The Depositary has agreed with the Custodian that the Custodian will receive and hold (or appoint agents approved by the Depositary to receive and hold) all Deposited Property for the account and to the order of the Depositary in accordance with the applicable terms of the Deposit Agreement which include a requirement to segregate the Deposited Property from the other property of, or held by, the Custodian PROVIDED THAT the Custodian shall not be obliged to segregate cash comprised in the Deposited Property from cash otherwise held by the Custodian. The Custodian shall be responsible solely to the Depositary PROVIDED THAT, if and so long as the Depositary and the Custodian are the same legal entity, references to them separately in these Conditions and the Deposit Agreement are for convenience only and that legal entity shall be responsible for discharging both functions directly to the Holders and the Company. The Custodian may resign or be removed by the Depositary by giving 90 days’ prior notice, except that if a replacement Custodian is appointed which is a branch or affiliate of the Depositary, the Custodian’s resignation or discharge may take effect immediately on the appointment of such replacement Custodian. Upon the removal of or receiving notice of the resignation of the Custodian, the Depositary shall promptly appoint a successor Custodian (approved (i) by the Company such approval not to be unreasonably withheld or delayed, and (ii) by the relevant authority in India, if any), which shall, upon acceptance of such appointment, and the expiry of any applicable notice period, become the Custodian. Whenever the Depositary in its discretion determines that it is in the best interests of the Holders to do so, it may, after prior consultation with the Company, terminate the appointment of the Custodian and, in the event of any such termination, the Depositary shall promptly appoint a successor Custodian (approved (i) by the Company such approval not to be unreasonably withheld or delayed, and (ii) by the relevant authority in India, if any), which shall, upon acceptance of such appointment, become the Custodian under the Deposit Agreement on the effective date of such termination. The Depositary shall notify Holders of such change immediately upon such change taking effect in accordance with Condition 23. Notwithstanding the foregoing, the Depositary may temporarily deposit the Deposited Property in a manner or a place other than as therein specified; PROVIDED THAT, in the case of such temporary deposit in another place, the Company shall have consented to such deposit, and such consent of the Company shall have been delivered to the Custodian. In case of transportation of the Deposited Property under this Condition, the Depositary shall obtain appropriate insurance at the expense of the Company if and to the extent that the obtaining of such insurance is reasonably practicable and the premiums payable are of a reasonable amount. 20. 20.1 Resignation and Termination of Appointment of the Depositary The Company may terminate the appointment of the Depositary under the Deposit Agreement by giving at least 120 days’ prior notice in writing to the Depositary and the Custodian, and the Depositary may resign as Depositary by giving at least 120 days’ prior notice in writing to the Company and the Custodian. Within 30 days after the giving of either such notice, notice thereof shall be duly given by the Depositary to the Holders and to the Luxembourg Stock Exchange in accordance with Condition 23. The termination of the appointment or the resignation of the Depositary shall take effect on the date specified in such notice; PROVIDED THAT no such termination of appointment or resignation shall take effect until the appointment by the Company of a successor depositary under the Deposit Agreement and the acceptance of such appointment to act in accordance with the terms thereof and of these Conditions, by the successor depositary. The Company has undertaken in the Deposit Agreement to use its best endeavours to procure the appointment of a successor depositary with effect from the date of termination specified in such notice as soon as reasonably possible following notice of such termination or resignation. Upon any such appointment and acceptance, notice thereof shall be duly given by the Depositary to the Holders in accordance with Condition 23 and to the Luxembourg Stock Exchange. Upon the termination of appointment or resignation of the Depositary and against payment of all fees and expenses due to the Depositary from the Company under the Deposit Agreement, the Depositary shall deliver to its successor as depositary sufficient information and records to enable such successor efficiently to perform its obligations under the Deposit Agreement and shall deliver and pay to such successor depositary all property and cash held by it under the Deposit Agreement. The Deposit Agreement provides 20.2 20.3 Page 81 that, upon the date when such termination of appointment or resignation takes effect, the Custodian shall be deemed to be the Custodian thereunder for such successor depositary, and the Depositary shall thereafter have no obligation under the Deposit Agreement or the Conditions (other than liabilities accrued prior to the date of termination of appointment or resignation or any liabilities stipulated in relevant laws or regulations). 21. 21.1 Termination of Deposit Agreement Either the Company or the Depositary but, in the case of the Depositary, only if the Company has failed to appoint a replacement Depositary within 90 days of the date on which the Depositary has given notice pursuant to Condition 20 that it wishes to resign, may terminate the Deposit Agreement by giving 90 days’ prior notice to the other and to the Custodian. Within 30 days after the giving of such notice, notice of such termination shall be duly given by the Depositary to Holders of all GDRs then outstanding in accordance with Condition 23. During the period beginning on the date of the giving of such notice by the Depositary to the Holders and ending on the date on which such termination takes effect, each Holder shall be entitled to obtain delivery of the Deposited Property relative to each GDR held by it, subject to the provisions of Condition 1.1 and upon compliance with Condition 1, payment by the Holder of the charge specified in Condition 16.1(i) and Clause 10.1.1(a) for such delivery and surrender, and payment by the Holder of any sums payable by the Depositary and/or any other expenses incurred by the Depositary (together with all amounts which the Depositary is obliged to pay to the Custodian) in connection with such delivery and surrender, and otherwise in accordance with the Deposit Agreement. If any GDRs remain outstanding after the date of termination, the Depositary shall as soon as reasonably practicable sell the Deposited Property then held by it under the Deposit Agreement and shall not register transfers, shall not pass on dividends or distributions or take any other action, except that it will deliver the net proceeds of any such sale, together with any other cash then held by it under the Deposit Agreement, pro rata to Holders of GDRs which have not previously been so surrendered by reference to that proportion of the Deposited Property which is represented by the GDRs of which they are the Holders. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement and these Conditions, except its obligation to account to Holders for such net proceeds of sale and other cash comprising the Deposited Property without interest. Amendment of Deposit Agreement and Conditions All and any of the provisions of the Deposit Agreement and these Conditions (other than Clause 13 of the Deposit Agreement and this Condition 22) may at any time and from time to time be amended by written agreement between the Company and the Depositary and, if required by Indian law, the Securities Exchange Board of India (or its successor organisation) in any respect which they may deem necessary or desirable. Notice of any amendment of these Conditions (except to correct a manifest error) shall be duly given to the Holders by the Depositary, and any amendment (except as aforesaid) which shall increase or impose fees payable by Holders or which shall otherwise, in the opinion of the Depositary, be materially prejudicial to the interests of the Holders (as a class) shall not become effective so as to impose any obligation on the Holders until the expiration of three months after such notice shall have been given. During such period of three months, each Holder shall be entitled to obtain, subject to and upon compliance with Condition 1, delivery of the Deposited Property relative to each GDR held by it upon surrender thereof, in accordance with the Deposit Agreement and these Conditions. Each Holder at the time when such amendment so becomes effective shall be deemed, by continuing to hold a GDR, to approve such amendment and to be bound by the terms thereof in so far as they affect the rights of the Holders. In no event shall any amendment impair the right of any Holder to receive, subject to and upon compliance with Condition 1, the Deposited Property attributable to the relevant GDR. For the purposes of this Condition 22, an amendment shall not be regarded as being materially prejudicial to the interests of Holders if its principal effect is to permit the creation of GDRs in respect of additional Shares to be held by the Depositary which are or will become fully consolidated as a single series with the 21.2 21.3 22. 22.1 22.2 Page 82 other Deposited Shares PROVIDED THAT temporary GDRs will represent such Shares until they are so consolidated. 23. 23.1 Notices Any and all notices to be given to any Holder shall be duly given if personally delivered, or sent by mail (if domestic, first class, if overseas, first class airmail) or air courier, or by telex or facsimile transmission confirmed by letter sent by mail or air courier, addressed to such Holder at the address of such Holder as it appears on the transfer books for GDRs of the Depositary, or, if such Holder shall have filed with the Depositary a written request that notices intended for such Holder be mailed to some other address, at the address specified in such request. Delivery of a notice sent by mail or air courier shall be effective three days (in the case of domestic mail or air courier) or seven days (in the case of overseas mail) after despatch, and any notice sent by telex transmission, as provided in this Condition, shall be effective when the sender receives the answerback from the addressee at the end of the telex and any notice sent by facsimile transmission, as provided in this Condition, shall be effective when the intended recipient has confirmed by telephone to the transmitter thereof that the recipient has received such facsimile in complete and legible form. The Depositary or the Company may, however, act upon any telex or facsimile transmission received by it from the other or from any Holder, notwithstanding that such telex or facsimile transmission shall not subsequently be confirmed as aforesaid. So long as GDRs are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, all notices to be given to Holders generally will also be published in a leading daily newspaper having general circulation in Luxembourg (which is expected to be d' Wort) and the notices shall also be published on the official website of the Luxembourg Stock Exchange (www.bourse.lu). Reports and Information on the Company The Company has undertaken in the Deposit Agreement (so long as any GDR is outstanding) to furnish the Depositary with six copies in the English language (and to make available to the Depositary, the Custodian and each Agent as many further copies as they may reasonably require to satisfy requests from Holders) of: (i) in respect of the financial year ending on 31 March 2006 and in respect of each financial year thereafter, the consolidated (if any) and non-consolidated balance sheets as at the end of such financial year and the consolidated (if any) and non-consolidated statements of income for such financial year in respect of the Company, prepared in conformity with generally accepted accounting principles in India and reported upon by independent public accountants selected by the Company, as soon as practicable (and in any event within 180 days) after the end of such year; the semi annual financial statement of the Company, as soon as practicable after the same are published and in any event no later than three months after the end of the period to which they relate; and the quarterly financial statements of the Company, as soon as practicable after the same are published and in any event no later than three months after the end of the period to which they relate. 23.2 23.3 24. 24.1 (ii) (iii) 24.2 The Depositary shall upon receipt thereof give due notice to the Holders that such copies are available upon request at its specified office and the specified office of any Agent. Copies of Company Notices The Company has undertaken in the Deposit Agreement to transmit to the Custodian and the Depositary on or before the day when the Company first gives notice, by mail, publication or otherwise, such notice shall also be published on the website of Luxembourg Stock Exchange (www.bourse.lu), to holders of any 25. Page 83 Shares or other Deposited Property, whether in relation to the taking of any action in respect thereof or in respect of any dividend or other distribution thereon or of any meeting or adjourned meeting of such holders or otherwise, such number of copies of such notice and any other material (which contains information having a material bearing on the interests of the Holders) furnished to such holders by the Company (or such number of English translations of the originals if the originals were prepared in a language other than English) in connection therewith as the Depositary may reasonably request. If such notice is not furnished to the Depositary in English, either by the Company or the Custodian, the Depositary shall, at the Company’s expense, arrange for an English translation thereof (which may be in such summarised form as the Depositary may deem adequate to provide sufficient information) to be prepared. Except as provided below, the Depositary shall, as soon as practicable after receiving notice of such transmission or (where appropriate) upon completion of translation thereof, give due notice to the Holders which notice may be given together with a notice pursuant to Condition 9.1, and shall make the same available to Holders in such manner as it may determine. 26. Moneys held by the Depositary The Depositary shall be entitled to deal with moneys paid to it by the Company for the purposes of the Deposit Agreement in the same manner as other moneys paid to it as a banker by its customers and shall not be liable to account to the Company or any Holder or any other person for any interest thereon, except as otherwise agreed and shall not be obliged to segregate such moneys from other moneys belonging to the Depositary. 27. Severability If any one or more of the provisions contained in the Deposit Agreement or in these Conditions shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained therein or herein shall in no way be affected, prejudiced or otherwise disturbed thereby. 28. 28.1 Governing Law The Deposit Agreement and the GDRs are governed by and shall be construed in accordance with English law except that the certifications set forth in Schedules 3 and 4 to the Deposit Agreement and any provisions relating thereto shall be governed and construed in accordance with the laws of the State of New York and any United States Federal Court sitting in the Borough of Manhattan, New York City. The rights and obligations attaching to the Deposited Shares will be governed by the Indian law. The Company has submitted in respect of the Deposit Agreement and the Deed Poll to the jurisdiction of the English courts and the courts of the State of New York and any United States Federal Court sitting in the Borough of Manhattan, New York City and has appointed an agent for service of process in London and the Borough of Manhattan, New York City. The Company has also agreed in the Deposit Agreement, and the Deed Poll to allow, respectively, the Depositary and the Holders to elect that Disputes are resolved by arbitration. The Company has irrevocably appointed Law Debenture with offices at 100 Wood Street, London EC2V 7EX as its agent in England to receive service of process in any Proceedings in England based on the Deposit Agreement and the Deed Poll. If for any reason the Company does not have such an agent in England it will promptly appoint a substitute process agent and notify the Holders and the Depositary of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law. The courts of England are to have jurisdiction to settle any disputes (each a "Dispute") which may arise out of or in connection with the GDRs and accordingly any legal action or proceedings arising out of or in connection with the GDRs ("Proceedings") may be brought in such courts. The Depositary irrevocably submits to the non-exclusive jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. 28.2 28.3 Page 84 28.4 These submissions are made for the benefit of the Depositary and shall not limit the right of the Depositary to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) to the extent permitted by law. In the event that the Depositary is made a party to, or is otherwise required to participate in, any litigation, arbitration, or Proceedings (whether judicial or administrative) which arises from or is related to or is based upon any act or failure to act by the Company, or which contains allegations to such effect, upon notice from the Depositary, the Company has agreed to fully cooperate with the Depositary in connection with such litigation, arbitration or Proceeding. The Depositary irrevocably appoints The Bank of New York, London Branch, (Attention: The Manager) of 48th Floor, One Canada Square, London E14 5AL as its agent in England to receive service of process in any Proceedings in England based on any of the GDRs. If for any reason the Depositary does not have such an agent in England, it will promptly appoint a substitute process agent and notify the Holders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law. 28.5 28.6 Page 85 SUMMARY OF PROVISIONS RELATING TO THE GDRS WHILE IN MASTER FORM The GDRs will be represented by a Master GDR in registered form. The Master GDR will be deposited with The Bank of New York Depository (Nominees) Limited, as common depositary for the respective accounts of Clearstream, Luxembourg and Euroclear, on the Issue Date. The Master GDR contains provisions that apply to the GDRs while they are in master form, some of which modify the effect of the Conditions of the GDRs set out in this document. The following is a summary of certain of those provisions. Unless otherwise defined herein, terms defined in the Conditions shall have the same meaning herein. The Master GDR will only be exchanged for certificates in definitive registered form representing GDRs in the circumstances described in (i), (ii) or (iii) below in whole but not in part and until exchanged in full is subject to the Conditions and the Deposit Agreement. Subject to the terms and conditions hereof, the Depositary irrevocably undertakes to deliver certificates in definitive registered form in exchange for the Master GDR to the relevant Holder in the event that: (i) Clearstream, Luxembourg or Euroclear (or any successor) advises the Company in writing at any time that it is unwilling or unable to continue as depositary for this Master GDR and a successor depositary is not appointed within 90 calendar days; or either Clearstream, Luxembourg or Euroclear is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention to permanently cease business or does in fact do so, and no alternative clearing system satisfactory to the Depositary is available within 45 days; or the Depositary has determined that, on the occasion of the next payment in respect of the GDRs, the Depositary or its agent would be required to make any deduction or withholding from any payment in respect of the GDRs that would not be required were the GDRs represented by certificates in definitive registered form provided that the Depositary shall have no obligation to so determine or to attempt to so determine, (ii) (iii) within 60 days of the occurrence of the relevant event in (i), (ii) and (iii). Any exchange pursuant to sub-paragraphs (i), (ii) and (iii) shall be at the expense of the Company. Upon any exchange of a part of the Master GDR for certificates in definitive registered form, or any distribution of GDRs pursuant to Conditions 5, 7 or 10 or any reduction in the number of GDRs represented thereby following any withdrawal of Deposited Property pursuant to Condition 1, the relevant details shall be entered on the Register (which shall be maintained at all times outside the United Kingdom and India) whereupon the number of GDRs represented by the Master GDR shall be reduced or increased (as the case may be) accordingly, provided always that if the number of GDRs represented by the Master GDR is reduced to zero the Master GDR shall continue in existence until the obligations of the Company under the Deposit Agreement and the obligations of the Depositary pursuant to the Deposit Agreement and the Conditions have terminated. Payments, Distributions and Voting Rights Payments of dividends and other amounts (including cash distributions) payable in respect of the GDRs represented by the Master GDR will be made by the Depositary through Euroclear and Clearstream, Luxembourg on behalf of persons entitled thereto upon receipt of funds therefor from the Company. Any free distribution or rights issue of Shares to the Depositary on behalf of the Holders will result in the records of the Depositary being adjusted to reflect the enlarged number of GDRs represented by the Master GDR. As specified in Condition 12, Holders of GDRs will have no voting rights in respect of the Deposited Shares. Surrender of GDRs Any requirement in the Conditions relating to the surrender of a GDR to the Depositary shall be satisfied by the production by Euroclear or Clearstream, Luxembourg on behalf of a person entitled to an interest therein of such Page 86 evidence of entitlement of such person as the Depositary may reasonably require, which is expected to be a certificate or other documents issued by Euroclear or Clearstream, Luxembourg or, if relevant, an alternative clearing system. The delivery or production of any such evidence shall be sufficient evidence, in favour of the Depositary, any Agent and the Custodian of the title of such person to receive (or to issue instructions for the receipt of) all moneys or other property payable or distributable and to issue voting instructions in respect of the Deposited Property represented by such GDRs. Notices For as long as the Master GDR is registered in the name of the Common Depositary or its nominee on behalf of Euroclear and Clearstream, Luxembourg notices to Holders may be given by the Depositary by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg for communication to persons entitled thereto in substitution for publications required by Condition 23, except that for so long as the GDRs are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange so requires, notice shall also be published in a leading newspaper having general circulation in Luxembourg, which is expected to be the d'Wort. Such notice shall also be published on the website of the Luxembourg Stock Exchange (www.bourse.lu). The Master GDR shall be governed by and construed in accordance with English law. Clearance and Settlement Custodian, Depositary and Lead Manager links have been established with Euroclear and Clearstream, Luxembourg to facilitate the issue of the GDRs and cross-market transfers associated with secondary market trading. The Clearing System Euroclear and Clearstream, Luxembourg hold securities for participating organisations and facilitate the clearance and settlement of securities transactions outside the United States between their respective participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream, Luxembourg provide to their respective participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities leading and borrowing. Euroclear and Clearstream, Luxembourg participants are financial institutions throughout the world, including underwriters, securities brokers and dealers banks, trust companies, clearing corporations and certain other organisations. Indirect access to Euroclear and Clearstream, Luxembourg is also available to others, such as banks, brokers, dealers and trust companies which clear through or maintain custodial relationship with Euroclear and Clearstream, Luxembourg participants, either directly or indirectly. Distribution of dividends and other payments with respect to book-entry interests in the GDRs held through Euroclear or Clearstream, Luxembourg will be credited, to the extent received by the Depositary, to the cash account of Euroclear or Clearstream, Luxembourg participants in accordance with the relevant system’s rules and procedures. Registration and Form Book-entry interests in the GDRs held through Euroclear or Clearstream, Luxembourg will be evidenced by the Master GDR registered in the name of a nominee for, and held by the common depositary for Euroclear or Clearstream, Luxembourg. As necessary, the Depositary will adjust the amounts of GDRs on the register for the accounts for Euroclear or Clearstream, Luxembourg to reflect the amounts of GDRs held through Euroclear or Clearstream, Luxembourg. Beneficial ownership in the GDRs will be held through financial institutions as direct and indirect participants in Euroclear or Clearstream, Luxembourg. The aggregate holdings of book-entry interests in the GDRs in Euroclear and Clearstream, Luxembourg will be reflected in the book-entry accounts of each institution. Euroclear, Clearstream, Luxembourg and every other intermediate holding in the chain to the beneficial owner of book-entry interests in the GDRs will be responsible for establishing and maintaining accounts for their participants and customers having interests in the book-entry interests in the GDRs. The Depositary will be responsible for maintaining a record of the aggregate holdings registered in the name of a nominee for Euroclear and Clearstream, Luxembourg and Holders in definitive Page 87 registered firm. The Depositary will be responsible for ensuring that payments received by it from the Company for Holders through Euroclear or Clearstream, Luxembourg are credited to Euroclear or Clearstream, Luxembourg respectively. The Company will not incur any fees in respect of the GDRs, however, holders of book-entry interests in the GDRs may incur fees normally payable in respect of the maintenance and operation of accounts in Euroclear and Clearstream, Luxembourg. Global Clearance and Settlement Procedure Initial Settlement On the initial offering, the GDRs will be in a global form evidenced by a Master GDR. Book-entry interests in the GDRs will be credited to Euroclear and Clearstream, Luxembourg participant securities clearance accounts on the business day following the Issue Date against payment, ("Value Issue Date"). Secondary Market Trading/Primary Market Trading Trading between Euroclear and Clearstream, Luxembourg participants and primary or secondary market sales of book-entry interests in the GDRs held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the GDRs will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the normal procedures applicable to depositary receipts. General Although the foregoing sets out the procedures of Euroclear and Clearstream, Luxembourg in order to facilitate the transfers of interests in the GDRs among participants of Euroclear and Clearstream, Luxembourg, Euroclear and Clearstream, Luxembourg are not under any obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company, the Depositary, the Custodian, the Lead Manager nor their respective agents will have any responsibility for the performance of Euroclear, Clearstream, Luxembourg or their respective participants under the rules and procedures governing their operations. Page 88 INFORMATION RELATING TO THE DEPOSITARY The Depositary is a state-chartered New York banking corporation and a member of the United States Federal Reserve System, subject to regulation and supervision principally by the United States Federal Reserve Board and the New York State Banking Department. The Depositary was constituted in 1784 in the State of New York. It is a wholly owned subsidiary of The Bank of New York Company, Inc., a New York bank holding company. The principal office of the Depositary is located at One Wall Street, New York, New York 10286. Its principal administrative offices are located at 101 Barclay Street, 22 floor West, New York, New York 10286. A copy of the Depositary's Bye-laws, as amended, together with copies of The Bank of New York Company, Inc.'s most recent financial statements and annual report are available for inspection at the Corporate Trust Office of the Depositary located at 101 Barclay Street, New York, NY 10286 and at The Bank of New York, One Canada Square, London E14 5AL as listing agent and at The Bank of New York, Luxembourg at Aerogolf Centre, 1A Hoehenhof, L-1736 Senningerberg, Luxembourg as intermediary agent. Page 89 TRANSFER RESTRICTIONS Because of the following restrictions, purchasers are advised to consult their legal counsel prior to making any offer, resale, pledge or other transfer of the GDRs or the Shares represented thereby. This offering is being made in reliance on Regulation S. The GDRs may not be offered, sold, pledged or otherwise transferred, directly or indirectly to any person in India, residents of India, or to, or for the account or benefit of, such persons. The GDRs have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state of the United States or any other jurisdiction, and may only be offered, sold or delivered outside the United States to persons other than US persons (as defined in Regulation S) in offshore transactions in reliance on Regulation S, and in accordance with any other applicable law. Each owner of GDRs will be deemed to have represented and agreed and acknowledged as follows (terms used herein are defined in Regulation S): (1) It understands that such GDRs and the underlying Shares have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state of the United States or any other jurisdiction of the United States and are subject to restrictions on transfer; Each owner purchasing the Distribution Compliance Period is, or at the time the GDRs are purchased will be, the beneficial owner of such GDRs and (a) is not a US person and is located outside the United States and (b) is not an affiliate of the Company or a person acting on behalf of the Company; Such owner, prior to the expiration of the Distribution Compliance Period, will not offer, sell, pledge or otherwise transfer any interest in the GDRs or the underlying Shares except as permitted by the applicable legend set out in paragraph 4 below; It understands that all GDRs, unless otherwise agreed between the Company and the Depositary, will bear a legend substantially to the following effect: "THIS GLOBAL DEPOSITARY RECEIPT AND THE EQUITY SHARES OF TANEJA AEROSPACE AND AVIATION LIMITED REPRESENTED HEREBY (THE "SHARES") HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, PRIOR TO THE EXPIRATION OF A DISTRIBUTION COMPLIANCE PERIOD (DEFINED AS THE 40-DAY PERIOD BEGINNING ON THE LATEST OF THE COMMENCEMENT OF THE GDR OFFERING, THE ORIGINAL ISSUE DATE OF THE GDRS AND THE LATEST ISSUE DATE WITH RESPECT TO THE ADDITIONAL GDRS (IF ANY) ISSUED PURSUANT TO OVER-ALLOTMENTS), MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT. UPON THE EXPIRATION OF THE DISTRIBUTION COMPLAINCE PERIOD REFERRED TO ABOVE, THIS GLOBAL DEPOSITARY RECEIPT AND THE SHARES REPRESENTED HEREBY SHALL NO LONGER BE SUBJECT TO THE RESTRICTIONS PROVIDED IN THIS LEGEND, PROVIDED THAT AT THE TIME OF SUCH EXPIRATION THE OFFER OR SALE OF THE GLOBAL DEPOSITARY RECEIPTS REPRESENTED HEREBY AND THE SHARES REPRESENTED THEREBY BY THE HOLDER HEREOF IN THE UNITED STATES WOULD NOT BE RESTRICTED UNDER THE SECURITIES LAWS OF THE UNITED STATES OR ANY STATE IN THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING THE GDRS REPRESENTED BY THIS CERTIFICATE, AGREES FOR THE BENEFIT OF TANEJA AEROSPACE AND AVIATION LIMITED AND THE DEPOSITARY NAMED BELOW THAT THE GDRS MAY NOT, UNLESS EXPRESSLY PERMITTED BY INDIAN LAWS AND REGULATIONS, AT ANY TIME BE OFFERED, SOLD, PLEDGED OR (2) (3) (4) Page 90 OTHERWISE TRANSFERRED TO ANY PERSON LOCATED IN INDIA, RESIDENTS OF INDIA, OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, SUCH PERSONS." (5) Until the shares are listed, each GDR shall also bear the following legend, which thereafter may be removed. "UNTIL THE SHARES ARE LISTED ON THE STOCK EXCHANGE, MUMBAI NO GDR HOLDER WILL BE ENTITLED TO WITHDRAW THE DEPOSITED PROPERTY REPRESENTED BY SUCH GDRS AND NO PERSON SHALL BE PERMITTED TO MAKE ANY FURTHER DEPOSIT OF SHARES INTO THE GDR FACILITY." (6) The Company, the Depositary, the purchasers and their respective affiliates and others, will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. It understands that the GDRs offered in reliance on Regulation S will be evidenced by the Master GDR. Any resale or other transfer, or attempted resale or other transfer of GDRs, made otherwise than in compliance with the above-stated restrictions shall not be recognised by the Company or the Depositary in respect of the GDRs or the Shares represented by the GDRs. (7) (8) Page 91 DESCRIPTION OF THE SHARES Set forth below is certain information relating to the share capital of the Company, including brief summaries of certain provisions of its Articles of Association, the Companies Act, the Indian Securities Contracts (Regulation) Act, 1956 (as amended) (the "SCRA") and certain related legislations of India, all as currently in effect. References in this section "Description of the Shares" to "shares" shall include the Shares and any other equity shares issued by the Company. General The Company's authorised share capital is Rs.250,000,000 consisting of 4,00,00,000 equity shares of Rs.5 (Rupees five only) per share (US$ 0.11 per share) and 10,00,000 Redeemable Cumulative Preference Shares of Rs.50 (Rupees fifty only) per share (US$ 1.15 per share). As of 25 June 2005, 79.82% of Company's total shares representing 14,960,554 are held in de-materialised form and balance 3,781,946 shares representing 20.18 % of total shares are held in physical form. As of 24 June 2005 18,742,500 shares have been issued and subscribed. At present no preference shares are issued. The Shares are currently traded in dematerialised form. Dividends Under the Companies Act, unless the Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Under the Company's Articles of Association, the shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their shares as of the record date for which such dividend is payable. In addition, the Board may declare and pay interim dividends. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date, which is specified as the "record date" or "book closure date". No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of his Shares is outstanding. The Shares represented by the GDRs will rank pari passu with the existing fully paid-up Shares of the Company in all respects including entitlement of dividends declared. Dividends must be paid within 30 days from the date of the declaration and any dividend, which remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money which remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by the Company to the Investor Education and Protection Fund established by the Government of India and thereafter no claim shall lie against the Company or the Investor Education and Protection Fund. Under the Companies Act, the Company may only pay a dividend in excess of 10% of paid-up capital in respect of any year out of the profits of that year after it has transferred to the reserves of the Company a percentage of its profits for that year ranging between 2.5% and 10%, depending on the rate of dividend proposed to be declared in that year. The Companies Act further provides that if the profit for a year is insufficient, the dividend for that year may be declared out of the accumulated profits earned in previous years and transferred to reserves, subject to the following conditions: (i) the rate of dividend to be declared may not exceed the lesser of the average of the rates at which dividends were declared in the five years immediately preceding the year, or 10% of paid-up capital; (ii) the total amount to be drawn from the accumulated profits from previous years may not exceed an amount equivalent to 10% of paid-up capital and reserves and the amount so drawn is first to be used to set off the losses incurred in the fiscal year before any dividends in respect of preference or equity shares; and (iii) the balance of reserves after withdrawals must not be below 15% of paid-up capital. Dividends may also be declared and paid out of the accumulated profits in compliance with the provisions of the Companies (Declaration of Dividend Out of Reserves) Rules, 1975. Payment of dividends and financial service functions in respect of the Shares are performed by Sharepro Services, 3, Chintamani Apartments, 824/D Bhandarkar Road, Pune 411004 Page 92 Capitalisation of reserves and issue of bonus shares The Company's Articles of Association permit the Company by a resolution of the shareholders in a general meeting to resolve in certain circumstances that certain amounts standing to the credit of certain reserves or securities premium can be capitalised by the issue of fully-paid bonus shares or by crediting shares, not fully paidup with the whole or part of any sum outstanding or by issue of unissued shares, debentures or debenture stock. Bonus shares must be issued pro rata to the amount of capital paid-up on existing shareholdings. Any issue of bonus shares would be subject to the guidelines issued by the SEBI in this regard. The relevant SEBI guidelines prescribe that no company shall, pending conversion of convertible securities, issue any shares by way of bonus unless similar benefit is extended to the holders of such convertible securities, through reservation of shares in proportion to such conversion. Further, for the issuance of such bonus shares, a company should not have defaulted in the payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption of such debentures. The declaration of bonus shares in lieu of dividends cannot be made. Further, a company should have sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees, such as contribution to provident fund, gratuity and/or bonus. The issuance of bonus shares must be implemented within six months from the date of approval by the Board or the shareholders, whichever is later. Pre-emptive rights and alteration of share capital Subject to the provisions of the Companies Act, the Company may increase its share capital by issuing new shares ("New Shares") on such terms and with such rights as the Company, by action of shareholders in a general meeting, determine. Such New Shares shall be offered to existing shareholders listed on the members’ register on the record date in proportion to the amount paid-up on those shares at that date. The offer shall be made by notice specifying the number of New Shares offered and the date (being not less than 15 days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After such date, the Board may dispose of the New Shares offered in respect of which no acceptance has been received, in such manner as they think most beneficial to the Company. The offer is deemed to include a right exercisable by the person concerned to renounce the New Shares offered to him in favour of any other person, provided that the person in whose favour such shares have been renounced is approved by the Board in its absolute discretion. Under the provisions of the Companies Act, New Shares may be offered to any persons whether or not those persons include existing shareholders, if a special resolution to that effect is passed by the shareholders of the Company in a general meeting or by an ordinary resolution with the consent of the Central Government. The issuance of the Shares represented by the GDRs has been duly approved by a special resolution of the shareholders of the Company and such shareholders have waived their pre-emptive rights with respect to such shares. The Company's issued share capital may, among other things, be increased by the exercise of warrants attached to any security of the Company, or individually issued, which entitle the holder to subscribe for shares in the Company or upon the conversion of convertible debentures issued. The issue of any convertible debentures or the taking of any convertible loans, other than from the Government of India and financial institutions, requires the approval of a special resolution of shareholders. The Articles of Association provide that the Company, by an ordinary resolution passed at a general meeting, may consolidate or sub-divide its share capital, convert all or any of its fully paid-up shares into stock and reconvert that stock into fully paid-up shares or cancel shares which have not been taken up by any person. Preference Shares Preference share capital is that part of the paid-up capital of the company, which fulfils both of the following requirements, namely: (b) (c) that as respects dividends, it carries a preferential right to be paid a fixed amount or an amount calculated at a fixed rate; and the preference shares do not confer any further rights to participate in the Company’s profits or assets. Page 93 Holders of preference shares are not entitled to vote at general meetings of the Company except where the dividend due on such capital has remain unpaid: (i) (ii) in the case of cumulative preference shares, in respect of an aggregate period of not less than 2 years preceding the date of commencement of the meeting; and in the case of non cumulative preference shares, either in respect of a period of no less than 2 years or in respect of an aggregate period of not less than 3 years comprised in the six years ending with the expiry of the financial year immediately preceding the commencement of the meeting. Under the Companies Act, the Company may issue redeemable preference shares but (i) no such shares shall be redeemed except out of profits of the Company which would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; (ii) no such shares shall be redeemed unless they are fully paid; (iii) the premium, if any, payable on redemption shall have been provided for out of the profits of the Company or out of the Company's share premium account, before the shares are redeemed; (iv) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividends, be transferred to a reserve fund, to be called the Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed; and (v) the provisions of the Companies Act relating to the reduction of the share capital of a company shall apply as if such reserve account were paid-up share capital of such company. Preference shares must be redeemable before the expiry of a period of 20 years from the date of their issue. General meetings of shareholders The Company must hold its annual general meeting each year within 15 months of the previous annual general meeting and in any event not later than six months after the end of each accounting year, unless extended by the Registrar of Companies at the request of the Company for any special reason. The Board may convene an extraordinary general meeting of shareholders when necessary or at the request of a shareholder or shareholders holding in the aggregate not less than 10% of the paid-up capital of the Company. Written notices convening a meeting setting out the date, place and agenda of the meeting must be given to members at least 21 days prior to the date of the proposed meeting. A general meeting may be called after giving shorter notice if consent is received from all shareholders, in the case of an annual general meeting, and from shareholders holding not less than 95% of the paid-up capital of the Company, in the case of any other general meeting. Currently, the Company gives written notices to all members and, in addition, gives public notice of Annual General Meetings of shareholders in a daily newspaper of general circulation in Pune. General meetings are normally held at the registered office of the Company. A company intending to pass a resolution, relating to matters such as, but not limited to, amendment in the objects clause of the Memorandum, buy-back of shares under the Companies Act, giving loans or extending guarantees in excess of limits prescribed under the Companies Act, and Rules / guidelines issued there under, is required to obtain the resolution passed by means of a postal ballot instead of transacting the business in the general meeting of the company. A notice to all the shareholders must be sent along with a draft resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of posting the letter. Postal ballot includes voting by electronic mode. The quorum for a general meeting of the company is five shareholders personally present. Voting rights At a general meeting, upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy are in the same proportion as the capital paid-up on each share held by such holder bears to the total paid-up capital of the Company. Voting is by show of hands, unless a poll is ordered by the Chairman of the meeting or demanded by a shareholder or shareholders holding at least 10% of the voting rights in respect of the resolution or by those holding paid-up capital of at least Rs.50,000 (i.e. 5,000 shares of Rs.5 each). The Chairman of the meeting has a casting vote. Page 94 Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution. The Companies Act provides that, to amend the Articles of Association, a special resolution is required to be passed in a general meeting. Certain instances, including dissolutions, merger or consolidation of the Company, transfer of the whole or a significant part of the business of the Company to another company or taking over the whole of the business of any other company and, in any case where shareholding of public financial institutions and banks exceeds 25%, appointment of statutory auditors, require a special resolution. A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association of the Company. The instrument appointing a proxy is required to be lodged with the Company at least 48 hours before the time of the meeting. A shareholder may, by a single power of attorney, grant a general power of representation regarding several general meetings of shareholders. Any shareholder of the Company may appoint a proxy. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings. A proxy may not vote except on a poll and does not have a right to speak at meetings. A shareholder which is a legal entity may appoint an authorised representative who can vote in all respects as if a member both on a show of hands and a poll. The Companies Act allows for a company to issue shares with differential rights as to dividend, voting or otherwise subject to certain conditions. In this regard, the laws require that for a company to issue shares with differential voting rights the company must have had distributable profits in terms of the Companies Act for a period of three fiscal years, the company has not defaulted in filing annual accounts and annual returns for the immediately preceding three years, the Articles of Association of the Company allow for the issuance of such shares with differential voting rights and such other conditions set forth in the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001. The Company shall promptly provide to the Depositary sufficient copies, as the Depositary may reasonably request, of notices of meetings of the shareholders of the Company and the Agenda therefore, as well as voting instruction forms by which each holder may give instructions to the Depositary to vote for or against each and any resolution specified in the agenda for the meeting, which the Depositary shall mail to holders as soon as practicable after receipt of the same by the Depositary. If so requested by the Board of Directors, the Depositary will, (subject to receipt from the Company of an opinion from the Company’s legal counsel that to do so will not be illegal or violate any applicable law of India, or subject the Depositary to liability to any GDR Holder or any shareholder of the Company), either vote as directed by the Board as conveyed by the Chairman of the Company or of any meeting of the Board, or give a proxy or power of attorney to vote in favour of a director of the Company or other person, or vote in the same manner as those shareholders designated by the Board. Withdrawn Shares may be re-deposited under the Deposit Agreement subject to certain limits on the number of GDRs issued by the Company. See "Transfer of Shares" and "Terms and Conditions of the Global Depositary Receipts - Voting Rights". The voting rights of holders of GDRs are subject to the terms of the Deposit Agreement. See "Transfer of Shares" and "Terms and Conditions of the Global Depositary Receipts– Voting Rights". Convertible securities/warrants There are currently no convertible securities or warrants outstanding. The Company may issue from time to time debt instruments that are partly and fully convertible into shares and/or warrants to purchase shares in accordance with applicable SEBI guidelines. Register of shareholders and record dates The Company must maintain a register of shareholders at its registered office or at some other place in the same city. The register and index of beneficial owners maintained by a depositary under the Indian Depositories Act, Page 95 1996 is deemed to be an index of members and register and index of debenture holders. The Company recognises as shareholders only those persons who appear on its register of shareholders and the Company cannot recognise any person holding any share or part of it upon any trust, express, implied or constructive, except as permitted by law. In the case of shares held in physical form, the Company registers transfers of shares on the register of shareholders upon lodgement of the share transfer form, duly complete in all respects, accompanied by a share certificate or, if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. Transfers of shares by way of stock transfer form attracts stamp duty at the rate of 0.25% of the transfer price. In respect of electronic transfers, the depositary transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, the Company enters the name of the depositary in its records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares that are held by the depositary. Transfer of beneficial ownership through a depositary is exempt from any stamp duty. For the purpose of determining the shareholders, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time. In order to determine the shareholders entitled to dividends, the Company keeps the register of shareholders closed for approximately 7 days, generally in the period immediately prior to the annual general meeting, of each year. Under the listing regulations of the stock exchanges on which the Company's outstanding shares are listed, the Company may, upon at least 15 days’ advance notice to such stock exchanges, set a record date and/or close the register of shareholders in order to ascertain the identity of shareholders. The trading of shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed. Annual report and financial results The Annual Report must be laid before the annual general meeting. This also includes certain other financial information of the Company, a corporate governance section and management’s discussion and analysis and is sent to the shareholders of the Company, and also made available for inspection at the Company registered office during normal working hours for 21 days prior to the annual general meeting. Under the Companies Act, the Company must file the Annual Report with the Registrar of Companies within seven months from the close of the accounting year or within 30 days from the date of the annual general meeting, whichever is earlier. As required under the Listing Agreement, copies are required to be simultaneously sent to the Indian Stock Exchanges. The Company must also publish its financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a newspaper published in the language of the region where the registered office of the Company is situated. The Company files certain information on-line, including its Annual Report, quarterly financial statements, report on corporate governance and the shareholding pattern statement, in accordance with the requirements of the Listing Agreement. Transfer of shares Shares held through depositaries are transferred in the form of book entries or in electronic form in accordance with the regulations laid down by the SEBI. These regulations provide the regime for the functioning of the depositaries and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depositary are exempt from stamp duty. The Company has entered into two tripartite agreements between Intime Spectrum Registry Limited and each of the depositaries, namely with National Securities Depositary Limited and Central Depositary Services (India) Limited for such depositary services. The SEBI requires that the Company's shares for trading and settlement purposes be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange. See "Indian Securities Market — Depositaries". The requirement to hold shares in book-entry form will apply to GDR holders when the Shares are withdrawn from the depositary facility upon surrender of the GDRs. In order to trade in the Shares of the Company in the Indian market, the withdrawing GDRs holder will be required to comply with the procedures above. Page 96 Shares are freely transferable, subject only to the provisions of the Companies Act under which, if a transfer of shares contravenes the SEBI provisions or the regulations issued under it, or any other law for the time being in force, the Company Law Board may, on an application made by the company, a depositary incorporated in India, an investor, the SEBI or certain other parties, direct a rectification of the register of records. If a company without sufficient cause refuses to register a transfer of shares within two months from the date of which the instrument of transfer is delivered to the company, the transferee may appeal to the Company Law Board seeking to register the transfer of equity shares. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant equity shares before completing its investigation of the alleged contravention. By the Companies (Second Amendment) Act, 2002. The Company Law Board is proposed to be replaced by the National Company Law Tribunal, which is expected to be set up shortly. The Companies Act provides that the shares or debentures of a public listed company (such as the Company) shall be freely transferable. The Company’s Articles of Association provide for certain restrictions on the transfer of shares, including granting power to the Board in certain circumstances, to refuse to register or acknowledge transfer of shares or other securities issued by the Company. However, under the Companies Act, the enforceability of these transfer restrictions is unclear Pursuant to the Listing Agreement, in the event the Company has not effected the transfer of shares within one month or where the Company has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, the Company is required to compensate the aggrieved party for the opportunity loss caused during the period of the delay. Acquisition by the company of its own shares The Company is prohibited from acquiring its own shares or other specified securities unless the consequent reduction of capital is effected and sanctioned by the High Court of competent jurisdiction. However, pursuant to certain amendments to the Companies Act, a company has been empowered to purchase its own shares or other specified securities out of its free reserves, or the securities premium account or the proceeds of any shares or other specified securities (other than the proceeds of an earlier issue of the same kind of shares or other specified securities proposed to be bought back) subject to certain conditions, including: (i) (ii) (iii) (iv) (v) the buy-back should be authorised by the Articles of Association of the Company; a special resolution has been passed in a general meeting of the Company authorising the buy-back; the buy-back is limited to 25% of the total paid-up capital and free reserves; the debt owed by the Company is not more than twice the capital and free reserves after such buyback; and the buy-back is in accordance with the Securities and Exchange Board of India (Buy-Back of Securities) Regulation, 1998. The condition mentioned in (ii) above would not be applicable if the buy-back is for less than 10% of the total paidup equity capital and free reserves of the company and provided that such buy-back has been authorised by the board of directors of the company. A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buy-back. Further, a company buying back its securities is not permitted to buy-back any securities for a period of one year from the buy-back or to issue securities for six months. A company is also prohibited from purchasing its own shares or specified securities (i) through any subsidiary company, including its own subsidiary companies or (ii) through any investment company (other than a purchase of shares in accordance with a scheme for the purchase of shares by trustees of or for shares to be held by or for the benefit of employees of the company) or (iii) if the company has defaulted on the repayment of deposit or interest, redemption of debentures or preference shares or payment of dividends to a shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank or (iv) if the company is listed and it desires to buy back its shares or specified securities for the purpose of delisting its shares or specified securities or (v) in the event of non-compliance with certain other provisions of the Companies Act. Page 97 Every buy back has to be completed within a period of one year from the date of passing of the special resolution or the resolution of the Board of Directors as the case may be. Further, subject to certain conditions, all public companies and private companies which are subsidiaries of the public companies are prohibited from giving, whether directly or indirectly, and whether by means of a loan, guarantee, the provisions of security or otherwise, any financial assistance for the purpose of, or in connection with, a purchase or subscription made, or to be made, by any person, of, or for any shares in the company, or its holding company. Disclosure of Ownership Interest Section 187C of the Companies Act requires beneficial owners of shares of Indian companies who are not holders of record to declare to the company details of the holder of record and the holder of record to declare details of the beneficial owner. Any person who fails to make the required declaration within 30 days may be liable for a fine of up to Rs.1,000 for each day the declaration is not made. Any charge, promissory note or other collateral agreement created, executed or entered into with respect to any share by the registered owner thereof, or any hypothecation by the registered owner of any share pursuant to which a declaration is required to be made under Section 187C, shall not be enforceable by the beneficial owner or any person claiming through the beneficial owner if such declaration is not made. Failure to comply with Section 187C will, inter alia, not affect the obligation of the company to register a transfer of shares or to pay any dividends to the registered holder of any shares pursuant to which such declaration has not been made. LIQUIDATION RIGHTS Subject to the rights of creditors, of employees and of the holders of any other shares entitled by their terms of issue to preferential repayment over shares, in the event of winding-up of the Company, the holders of shares are entitled to be repaid the amounts of capital paid-up or credited as paid-up on such shares. All surplus assets after payments due to employees, the holders of any preference shares and other creditors belong to the holders of the equity shares in proportion to the amount paid-up or credited as paid-up on such shares, respectively, at the commencement of the winding-up. Page 98 FOREIGN INVESTMENT AND EXCHANGE CONTROLS GENERAL With effect from 1 June 2000, foreign investment in Indian securities is regulated by the Indian Foreign Exchange Management Act, 1999 (as amended) (the "FEMA") and the rules, regulations and notifications made under the FEMA. The transfer and issue of securities by a person resident, including but not limited to Corporates established and incorporated, outside India is also governed by the FEM Securities Regulations, notified by the RBI on 3 May 2000 as amended from time to time. Pursuant to the Liberalisation Policy relating to the FDI, the RBI has issued a recent Circular No. 38 dated 3 December 2003 containing the current regulatory provisions as amended from time to time. The FEM Securities Regulations provide that an Indian entity may issue securities to a person resident outside India or record in its books any transfer of security from or to such person only in the manner set forth in the FEMA and the rules and regulations made thereunder or as permitted by the RBI. FOREIGN DIRECT INVESTMENT The Government of India, pursuant to its liberalisation policy, set up the Foreign Investment Promotions Board ("FIPB") to regulate all investment by way of subscription and/or purchase of securities of an Indian company by a non-resident investor, or FDI, into India. Foreign direct investment means investment by way of subscription and/or purchase of securities of an Indian company by a non-resident investor ("Foreign Direct Investment" or "FDI"). FIPB approval is required for investment in sectors such as housing, broadcasting, petroleum (other than private sector oil refining), defence and strategic industries, print media and for investment in certain other circumstances. Also, the following investments require the prior permission of the FIPB: (i) investments in excess of specified sectoral caps; (ii) investments by any person who has or had an existing or previous venture through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field to that in which the Indian company whose shares are being acquired is engaged; (iii) investment of more than 24% in the equity capital of units manufacturing items reserved for small scale industries; (iv) investment by an unincorporated entity; (v) investment in industries for which industrial licensing is compulsory; and (vi) all proposals relating to the acquisition of shares of an Indian company by a foreign investor (including an individual of Indian nationality or origin residing outside India (a "Non-Resident Indian") and corporates established and incorporated outside India). A person residing outside India (other than a citizen of Pakistan or Bangladesh) or any entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) has general permission to purchase shares or convertible debentures or preference shares of an Indian company, subject to certain terms and conditions. Currently, subject to certain exceptions, FDI and investment by Non-Resident Indians in Indian companies do not require the prior approval of the FIPB or the RBI. The Government of India has indicated that in all cases where FDI is allowed on an automatic basis without FIPB approval, the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. In cases where FIPB approval is obtained, no approval of the RBI is required, although a declaration in the prescribed form, detailing the foreign investment, must be filed with the RBI once the foreign investment is made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies. The Government of India has set up the Foreign Investment Implementation Authority (the "FIIA") in the Department of Industrial Policy and Promotion. The FIIA has been mandated to (i) translate foreign direct investment approvals into implementation, (ii) provide a pro-active one stop after care service to foreign investors by helping them obtain necessary approvals, (iii) deal with operational problems, and (iv) meet with various Government of India agencies to find solutions to foreign investment problems, and maximise opportunities through Page 99 a partnership approach. Under the current regulations, 100% FDI is permitted for investments made in respect of refineries in the private sector of India. Pricing The SEBI is the regulatory body that regulates the business of Indian securities markets and has framed SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended (the "SEBI Guidelines") to be complied with by Indian companies who intend to issue and list their securities in the Indian stock markets. The SEBI Guidelines are applicable to all public issues by listed and unlisted companies, all offers for sale, bonus issues and rights issues by listed companies whose equity share capital is listed, except in case of rights issues where the aggregate value of securities offered does not exceed Rs.5 million. In terms of RBI Notification Number FEMA 20/2000-RB, dated 3rd May 2000 as amended from time to time require an issuer of depositary receipts to price such securities in accordance with Regulation 5A (in case of a public issue) and Regulation 5 (in all other cases) thereof. Regulation 5A states that an Indian company may, where the issue is on a public offer basis, price the securities in consultation with the lead manager to the issue and in all other cases as provided in Regulation 5. Regulation 5 states that shares issued to persons resident outside India shall not be less than the price worked out in accordance with the SEBI Guidelines as applicable, where the issuing company is listed on any recognised stock exchange in India and in all other cases not less than the fair valuation of the shares arrived at by a chartered accountant. Every Indian company issuing shares or convertible debentures in accordance with the Regulations must submit a report to the RBI within 30 days of receipt of the consideration and another report within 30 days from the date of issue of the shares to the non-resident purchaser. The above description applies only to a fresh issue of securities by an Indian company. Investment by Foreign Institutional Investors In September 1992, the Government of India issued guidelines which enable foreign institutional investors ("FIIs"), including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers, to make portfolio investments in all securities of listed and unlisted companies in India. Investments by registered FIIs or Non-Resident Indians made through a stock exchange are known as portfolio investments ("Portfolio Investments"). Foreign investors wishing to invest and trade in Indian securities in India under these guidelines are required to register with the SEBI and obtain a general permission from the RBI under the FEMA. However, since the SEBI provides a single window clearance, a single application must be made to the SEBI. Foreign investors are not necessarily required to register with the SEBI as FIIs and may invest in securities of Indian companies pursuant to the FDI route discussed above. FIIs that are registered with the SEBI are required to comply with the provisions of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations 1995 (the "Foreign Institutional Investor Regulations"). A registered FII may, subject to the ownership restrictions discussed below, freely buy and sell securities issued by any Indian company, realise capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings for shares. A Fll may not hold more than 10% of the total issued capital of a company in its own name; a corporate/individual sub-account of the FII may not hold more than 5% of the total issued capital of a company, and a broad-based sub-account may not hold more than 10% of the total issued capital of a company. The total holding of all Flls in a company is subject to a cap of 24% of the total issued capital of a company, which can be increased to the relevant statutory cap/ceiling in respect of the company with the passing of a special resolution of the shareholders of the company in a general meeting. In terms of RBI Notification Number FEMA 20/2000-RB, dated 3rd May 2000 as amended from time to time, a registered FII is permitted to purchase shares/convertible debentures of an Indian company through public Page 100 offer/private placement, subject to the FII limits stipulated therein, and an Indian company is permitted to issue such shares / convertible debentures; provided that 1) in case of Public Offer, the price of the shares to be issued is not less than the price at which shares are issued to residents, and 2) in case of issue by private placement, the price is not less than the price arrived in terms of SEBI guidelines or guidelines issued by erstwhile Controller of Capital Issues, as applicable. Registered FIIs are generally subject to tax under Section 115AD of the Indian Income Tax Act. The GDRs and the Shares are subject to tax under Section 115AC. There is uncertainty under Indian law as to the tax regime applicable to the FIIs that hold and trade in foreign currency global depositary receipts. "See Taxation – Indian Tax". Portfolio Investment by Non-Resident Indians A variety of methods for investing in shares of Indian companies are available to Non-Resident Indians. These methods allow Non-Resident Indians to make Portfolio Investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. In addition to Portfolio Investments in Indian companies, Non-Resident Indians may also make foreign direct investments in Indian companies pursuant to the FDI route discussed above. Overseas corporate bodies, at least 60% of which are owned by Non-Resident Indians (‘‘Overseas Corporate Bodies’’), were allowed to invest under the Portfolio Investments scheme until 2001 when the RBI prohibited such investments. Further, pursuant to a circular dated 16 September 2003 and a press release dated 18 September 2003, the RBI no longer recognises Overseas Corporate Bodies as a separate category of investor. However, the entities owned by Non-Resident Indians continue to enjoy all the facilities available to other foreign investors. Transfer of shares and convertible debentures of an Indian company by a person resident outside India Until recently, the sale of shares of an Indian company from a non-resident to a resident required RBI approval, unless the sale was made on a stock exchange at the market price. The Government has granted general permission to persons residing outside India to transfer shares and convertible debentures held by them to an Indian resident, subject to compliance with certain terms and conditions and reporting requirements. A resident who wishes to purchase shares from a non-resident must, pursuant to the relevant notice requirements, file a declaration with an authorised dealer in the prescribed Form FC-TRS, together with the relevant documents and file an acknowledgment thereof with the Indian company to effect transfer of the shares to his name. However, in such cases, the person to whom the shares are being transferred is required to obtain the prior permission of the Central Government of India to acquire the shares if he has an existing or previous venture or tieup in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name called in the same field or allied field other than in the information technology field to that in which the Indian company whose shares are being transferred is engaged. Further, a non-resident may transfer any security held by him to a person resident in India by way of gift. If a sale of shares withdrawn from a global depositary receipt program is made in compliance with the FEMA and the Rules and Regulations framed thereunder, the transferor may remit the sale proceeds overseas without seeking any RBI approval for such remittance. Any non-resident seeking to sell shares received upon surrender of global depositary receipts or otherwise transfer such shares within India, whether or not through the BSE, NSE or any other stock exchange, should seek advice from their Indian legal advisers as to the applicable requirements. Page 101 Sponsored GDR schemes From November 2002, the RBI has permitted Indian companies whose shares are being offered for divestment in the overseas market to sponsor global depositary receipts issues against the block of existing shares of the Indian company offered by the shareholders, subject to the following conditions: • • The facility to sell the shares would be available pari passu to all categories of shareholders of the Company. The sponsoring company whose shareholders propose to divest existing shares in the overseas market through issue of global depositary receipts will give an option to all its shareholders indicating the number of shares to be divested and the mechanism how the price will be determined under the global depositary receipt norms. If the shares offered for divestment are more than the pre-specified number to be divested, shares would be accepted for divestment from the existing shareholders in proportion to their existing shareholdings. The proposal for divestment of the existing shares in the global depositary receipt market would have to be approved by a special resolution of the company. The proceeds of the global depositary receipt issue raised abroad shall be repatriated into India within a period of one month from the closure of the issue. However, the proceeds of the global depositary receipt issue can also be retained abroad to meet the future foreign exchange requirements of the company and by a recent notification this facility has been extended indefinitely till further notice. The issue related expenses in relation to public issue of global depositary receipts under this scheme would be subject to a ceiling of 4% of the issue size in the case of public issues and 2% of the issue size in the case of private placements. The issue related expenses would include underwriting commissions, lead manager’s charges, legal expenses and reimbursable expenses. The issue expenses shall be passed onto the shareholders participating in the sponsored issue on a pro rata basis. • • • Transfer of GDRs by non-residents The Ministry of Finance, Government of India, has granted general permission for the transfer of global depositary receipts outside India. The Ministry of Finance, Government of India, has also permitted non-resident holders of global depositary receipts to surrender global depositary receipts in exchange for the underlying shares. Pursuant to the terms of the Deposit Agreement an investor who surrenders global depositary receipts and withdraws shares is permitted to re-deposit such shares subject to the total issued global depositary receipts and obtain global depositary receipts at a later time. Fungibility of GDRs The RBI has permitted the re-conversion of shares of Indian Companies into global depositary receipts, subject to the following conditions: • • the Indian company has issued global depositary receipts; the shares of the Indian company are purchased by a registered stock broker in India in the name of the Depositary, on behalf of the non-resident investor who wishes to convert such shares into global depositary receipts; shares are purchased on a recognised stock exchange; the shares are purchased with the permission of the custodian of the global depositary receipts of the Indian company and are deposited with the custodian; • • Page 102 • • the issuer company has authorised the custodian to accept shares from non-resident investors for reissuance of global depositary receipts; the number of shares so purchased do not exceed the global depositary receipts converted into underlying shares, and are in compliance with the sectoral caps applicable under the Foreign Direct Investment regime; and the non-resident investor, broker, custodian and the overseas depositary comply with the provisions of the Depositary Receipt Mechanism and the guidelines issued thereunder from time to time. • However, participation by Overseas Corporate Bodies in the two-way fungibility scheme has not yet been authorised. Obligations of Domestic Custodian Also the RBI has prescribed that the domestic custodians are the entity required to ensure compliance with the RBI guidelines and to file reports with the RBI from time to time. The domestic custodian is required to perform the following functions: • • • monitor the re-issuance of global depositary receipts and provide a certificate to the RBI and the SEBI stating that the sectoral caps for foreign investment in the relevant company have not been breached; record the total number of global depositary receipts that have been issued and redeemed and sold in the domestic market; ascertain the extent of registration in favour of global depositary receipt holders/non-resident based on the advice of Depositary for the underlying shares being transferred in the books of account of the relevant company in the name of the non-resident on redemption of the global depositary receipts; verify with the Company Secretary/National Securities Depository Ltd./Central Depository Services Ltd. if the total sectoral cap on foreign investment in the relevant company is being breached; notify the extent up to which re-issuance of global depositary receipts would be permissible; advise the Depositary on the custody of shares and on issuance of corresponding global depositary receipts to the non-resident investor; ensure that the advices to the Depositary are issued on the first come first serve basis, i.e., the first deposit of underlying shares with the custodian shall be eligible for the first re-issuance of global depositary receipts to the non-resident investor; ensure that shares only to the extent of the depletion in global depositary receipts stock are deposited with it; coordinate with the Depositary on a daily basis in computing the head room; and file a monthly report about the global depositary receipt transactions under the two-way fungibility arrangement with the RBI and the SEBI. • • • • • • • Page 103 INDIAN REGULATORY APPROVALS Approvals For the purposes of offer of Global Depositary Receipts, Indian regulations do not require a company issuing GDRs to obtain any approval/permission from the Ministry of Finance, Government of India or the Foreign Investment Promotion Board. In the event, the issue related expenses (covering both fixed expenses like underwriting commissions, lead manager's charges, legal expenses and other reimbursable expenses) exceed the ceiling of 4%, the company issuing GDRs will have to obtain RBI approval. The Company has received BSE in-principle approval dated 5 September 2005 for listing of the shares underlying the GDRs. Reporting Requirements The company issuing GDRs is required to furnish capital structure of the company before and after the issue within thirty days from the closure of the issue to the RBI. The company is to inform the RBI of any repatriation of issue proceeds held abroad immediately on such repatriation required to furnish a statement in the prescribed form to the RBI within thirty days from the date of closing of the issue. It is required to furnish a quarterly return in the prescribed form, within 15 days of the close of the calendar quarter to the RBI. The company issuing GDRs is required to furnish specified details of the transaction within 30 days from the date of completion of the transaction to the Ministry of Finance, Government of India. Page 104 TAXATION INDIAN TAXATION The following is a summary of the principal Indian tax consequences for non-resident investors of the GDRs and the Shares underlying the GDRs. The summary is based on the taxation law and practice in force at the time of this Information Memorandum and is subject to change. Further, it only addresses the tax consequences for persons who are non-resident as defined in the Indian Income Tax Act, who acquire GDRs or Shares underlying the GDRs or Shares pursuant to this Information Memorandum and who hold such GDRs, or Shares underlying the GDRs as capital assets, and does not address the tax consequences which may be relevant to other classes of non-resident investors, including dealers. The summary proceeds on the basis that the person continues to remain a non-resident when the income by way of dividends and capital gains is earned. The following discussion describes the material Indian income tax, stamp duty consequences of the purchase, ownership and disposal of the GDRs. This summary is based on the provisions of Section 115AC and other applicable provisions of the Indian Income Tax Act and the "Depositary Receipt Scheme" (together, the "Section 115AC Regime"). The Offering is in accordance with the Section 115AC Regime, and non-resident investors of the GDRs will therefore have the benefit of tax concessions available under the Section 115AC Regime, subject to the fulfilment of the conditions of that section. These tax concessions include withholding at a reduced rate of 10% plus an applicable surcharge of 10% on such tax and an additional 2% education cess, for individuals and an association of persons if taxable income exceeds Rs. 0.85 Million and a surcharge of 2.5% and an additional 2% education cess for companies. The Finance Act, 2005 has raised this ceiling to levy surcharge of 10 per cent. if taxable income exceeds Rs.1 million. The Indian Government has recently exempted certain securities transactions from long-term capital gains (investments held in excess of 12 months) and made short-term capital gains subject to tax at 10% (plus applicable surcharge and education cess). The Indian Government has also introduced a Securities Transaction Tax ("STT") on certain securities transactions on and from 1 October 2004. No surcharge or education cess is payable on STT and STT is collected by the relevant stock exchange and is paid to the Government. The rate of STT varies from 0.1% to 0.2%. Sale of the Shares, arising on conversion of the GDRs will attract STT and the gains, if any, arising on the sale of the Shares will depend on the holding period of those Shares by the original holder of the GDR subject to any relevant double taxation treaty arrangements. The conversion of GDRs does not constitute a taxable event for Indian income tax purposes. See "Taxation". This summary is not intended to a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of the GDRs (or of other transactions involving GDRs or of the redemption of GDRs into equity shares) or sale of equity shares by non-resident investor. Potential investors should, therefore, consult their own tax advisors on the tax consequences of such acquisition, ownership and sale including, specifically, tax consequences under Indian Law, the laws of the jurisdiction of their residence, any tax treaty between India and their own country of residence or the country of residence of the Depositary as applicable and, in particular, the applicable provisions of the Income Tax Act and the Section 115AC Regime. The Income Tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the 115AC Regime may be modified or amended by future amendments to the Income Tax Act. The Income Tax Act is the law relating to taxes on income in India. The Income Tax Act provides for taxation of persons resident in India on global income and persons not resident in India on income received, accruing or arising in India or deemed to have been received, accrued or arisen in India. Section 4,5,6 and 99 of the Income Tax Act set forth the circumstances under which persons not resident in India are subject to income tax in India. Page 105 Residence for the purpose of the Income Tax Act For the purpose of the Indian Income Tax Act, an individual is considered to be a resident of India during any financial year if such individual: 1. is in India in that year for 182 days or more; or 2. having, within the four years preceding that year, been in India for a period or periods amounting in aggregate to 365 days or more, is in India for a period or periods amounting in aggregate to 60 days or more in that year. The period of 60 days is substituted by 182 days in the case of an Indian citizen or person of Indian origin who, being resident outside India, comes on a visit to India during the financial year or an Indian citizen who leaves India for the purposes of his employment during the financial year. A company is resident in India in any financial year if it is registered in India or the control and management of its affairs is situated wholly in India. A firm or other association of persons is resident in India, except where the control and the management of its affairs are situated wholly outside India. An Indian company means a company formed and registered under the Companies Act and includes a company formed and registered under any law relating to companies formerly in force in India or, a corporation established by or under a Central, State or Provincial Act of India or, an institution, association or a body declared by the Central Board of Direct Taxes of India to be a company for the purpose of the Income tax Act; provided that the registered office or, as the case may be, the principal office of the company, corporation, institution, association or body is in India. A firm or other association of persons, and every other person is regarded as resident in India except where, during the year ended 31 March, the control and the management of its affairs is situated wholly outside India. Taxation of Distributions The Company is liable to pay a "dividend distribution tax'' currently at the rate of 12.5% (plus a surcharge at 2.5% and education tax at the rate of 2% on dividend distribution tax and surcharge The Finance Act, 2005 has raised said surcharge from existing 2.5% to 10%, as a result, effective dividend distribution tax will increase from 13.07 per cent. to 14.03 per cent on the total amount distributed as dividend and dividends are not taxable in India in the hands of the recipient and hence holders of the GDRs or after withdrawal of shares from the depositary facility under the Depositary Agreement, dividends to such non-resident holder will not be liable to tax in India. Distribution to non-residents of bonus GDRs or bonus shares or rights to subscribe for equity shares (for the purposes of this Section, "Rights'') made with respect to GDRs or shares are not subject to Indian tax. Taxation on Acquisition of GDRs or Shares upon Conversion or in Exchange for GDRs The acquisition of equity shares in exchange for GDRs does not constitute a taxable event for Indian income tax purposes. Such exchange may, however, give rise to stamp duty as described below under ""Stamp Duty''. Taxation of Capital Gains The transfer of GDRs between non-resident investors outside India falling within the purview of Section 115AC is not subject to income tax in India on capital gains there from. It is unclear whether capital gains derived from the sale of rights by a non-resident investor to another non-resident investor will be subject to tax liability in India. This would depend on the view taken by Indian tax authorities on the position with respect to the status of the rights being offered under the GDRs. Equity shares (including shares issuable on the conversion of the GDRs) held by the non-resident investor for a period of more than 12 months are treated as long term capital assets. If the equity shares are held for a period of less than 12 months from the date of conversion, the capital gains arising on the sale thereof is to be treated as short term capital gains. Capital gains arising to the non-resident investor on the transfer of the equity shares received upon conversion of the GDRs (whether in India or outside India to a non-resident investor) will be liable for income tax under the provisions of the Income Tax Act. With effect from 1 October 2004 any gain realized on the sale of Page 106 listed equity shares held for more than 12 months will not be subject to Indian capital gains tax if the Securities Transaction Tax (""STT'') has been paid on the transaction. The STT will be levied on and collected by a domestic stock exchange on which equity shares are sold at the rate of 0.1% from the seller and at the rate of 0.2% from the purchaser on the total price at which the equity shares are sold. Any gain realized on the sale of equity shares held for more than 12 months to an Indian resident on which no STT has been paid will be subject to Indian capital gains tax at the rate of 10% plus applicable surcharge on income tax and education tax at the rate of 2.0% of the tax and surcharge. For the purpose of computing capital gains tax on the sale of the equity shares under the Section 115AC Regime, the cost of acquisition of equity shares received in exchange for GDRs will be determined on the basis of the prevailing price of the equity shares on the BSE as of the date on which the relevant Depositary gives notice to its Custodian for the delivery of such equity shares upon redemption of the GDRs while the cost of acquisition of shares directly converted from the GDRs will be determined on the basis of the price prevailing on the BSE on the date of conversion into equity shares. A nonresident holder's holding period (for purpose of determining the applicable Indian capital gains tax rate) in respect of equity shares received in exchange for GDRs commences on the date of the advice of withdrawal of such equity shares by the relevant Depository to its custodian. Capital gains realized in respect of equity shares held (calculated in the manner set forth in the prior paragraph) for 12 months or less (short term gain) on which STT is paid in the manner and rates set out above, is subject to tax at the rate of 10% plus applicable surcharge on income tax and an education tax at the rate of 2.0% of the tax and surcharge. In the event that no STT is paid, short term gain is subject to tax at variable rates with the maximum rate of 40% plus applicable rate of surcharge on income tax and education tax at the rate of 2.0% of the tax and surcharge. The actual rate of tax on short term gains depends on a number of factors, including the legal status of the non-resident holder and the type of income chargeable in India. The provisions of the Agreement for Avoidance of Double Taxation entered into by the Government with the country of residence of the non-resident investor will be applicable to the extent they are more beneficial to the non-resident investor. Tax Deduction at Source Tax on long-term and short-term capital gains if payable is to be deducted at source by the person paying for equity shares in accordance with the relevant provisions of the Income Tax Act. The provisions for the agreement of Avoidance of Double Taxation entered into by the Government with the country of residence of the non-resident investor will be applicable to the extent that they are more beneficial to the non-resident investor. Capital Losses Neither Section 115AC nor the Depository Receipt Scheme deals with capital losses arising on a transfer of equity shares in India on which no STT is paid. In general terms, losses arising from a transfer of a capital asset in India can only be set off against capital gains. Since a long-term capital gain on the sale of listed securities in respect of which STT has been paid is not subject to capital gains tax, it is doubtful whether any long-term capital loss arising from such a sale would be allowed to be set-off. A short-term capital loss can be set off against a capital gain, whether short-term or long-term. To the extent that the losses are not absorbed in the year of transfer, they may be carried forward for a period of eight assessment years immediately succeeding the assessment year for which the loss was firs determined by the assessing authority and may be set off against the capital gains assessable for such subsequent assessment years. In order to set off capital losses, the non-resident investor would be required to file appropriate and timely tax returns in India and undergo the usual assessment procedures. Taxation on Buyback of Equity Shares If the shares held by a non-resident investor are purchased by the issuing company from the non resident investor, the non-resident investor will be liable for income tax in respect of the capital gains arising on such buyback, as per the provisions of the Income Tax Act. Capital gains tax arising there from is withheld at the source before repatriation of sale proceeds from India. See "Taxation of Capital Gains''. Taxation of Payment on Liquidation or Reduction of Capital Page 107 If any distribution is made by a company to its shareholders or GDR holders upon its liquidation or the reduction of its capital, to the extent to which the distribution is attributable to the accumulated profits of the issuing company, the same will be treated as deemed dividend income in the hands of the shareholders or GDR holders and will be subject to income tax in India. However, tax on such deemed dividend will be paid by the company. Any gains accruing to the shareholders or GDR holders on the company's liquidation or reduction of capital of the issuing company in excess of its accumulated profits will be liable to income tax as capital gains in the hands of the shareholder or GDR holder as per the provisions of the Income Tax Act. Tax Treaties Currently dividend income is not subject to tax in India in the hands of the holder of the equity shares. If any equity shares are held by a non-resident investor following withdrawal thereof from the depositary facility under the Deposit Agreement, the double taxation treaty, if any, entered into by India with the country of residence of such non-resident investor will be applicable to taxation with respect to any capital gain arising from transfer of such equity shares or the GDRs. However, during the period of fiduciary ownership of equity shares in the hands of the Depositary, the provisions of Double Taxation Avoidance Agreement entered into by the Government with the country of residence of the Depositary will be applicable in the matter of taxation of capital gains, if any, on GDRs. Stamp Duty There is no stamp duty liability on the sale or transfer of GDRs outside India. The transfer of equity shares in physical form would be subject to Indian stamp duty at the rate of 0.25% of the market value of the equity shares on the trade date, and such stamp duty customarily is borne by the transferee, that is, the purchaser. In order to register a transfer of equity shares in physical form, it is necessary to present a stamped deed of transfer. However, since the Company's equity shares are deliverable in dematerialised form there would be no stamp duty payable in India on transfer of these equity shares in dematerialised form. Other Taxes At present, there is no wealth, gift or inheritance taxes which may apply to the GDRs or the underlying Shares. Service Tax Brokerages or commissions paid to stockbrokers in connection with the sale or purchase of shares listed on a recognized stock exchange in India are subject to a service tax of 10.0% plus education tax at the rate of 2.0% ad valorem. The stockbroker is responsible for collecting the service tax and paying it to the relevant taxation authority. Page 108 PLAN OF DISTRIBUTION The Lead Manager and the Company have, pursuant to an agreement dated 6 September 2005 (the "Placing Agreement"), pursuant to which the Lead Manager has acted as the agent for the Company offered the GDRs for subscription by institutional investors. Under the terms of the Placing Agreement, the Lead Manager acting as agent for the Company procured payment for the Shares represented by the GDRs from such institutional investors at the issue price of US$4.00 per GDR (being US$4.00 per Share). The Placing Agreement provides that the obligations of the Lead Manager acting as agent for the Company are subject to satisfaction of certain conditions precedent. The Company has agreed to indemnify the Lead Manager against certain liabilities. In accordance with the terms of the Placing Agreement, the Lead Manager has – only placed the GDRs to investors who are experienced and institutional investors being exempt persons for the purposes of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 in respect of any offer or promotion in England and Wales and of sufficient sophistication to comply with the securities laws in other jurisdictions in which any offer or promotion of the GDRs is made; only placed the GDRs to offshore investors in reliance on Regulation S; not offered or sold the GDRs in the United States or to United States investors nor offered or sold the GDRs in jurisdictions where such offer or sale would be unlawful. The GDRs were issued pursuant to a Deposit Agreement dated 13 September 2005 between the Depositary and the Company on 13 September (the "Issue Date"). The GDRs have been issued in global form and evidenced by a Master GDR. The Company has paid an amount of 1.5% of the Issue proceeds as placing commission, which aggregates toUS$115,148. The Company has not made any other payment such as underwriting commission or margin commission, guarantee commission, placing commission or selling agent’s commission. Page 109 ACCOUNTANTS The audited non-consolidated financial statements of the Company included in this Information Memorandum prepared in accordance with Indian GAAP have been audited by Haresh Upendra & Co., Chartered Accountants stated in their reports appearing herein. Page 110 ENFORCEABILITY OF CIVIL LIABILITIES The Company is a limited liability public company incorporated under the laws of India. Substantially all of the Company's directors and executive officers are residents of India and all or a substantial portion of the assets of the Company and such persons are located in India. As a result, it may not be possible for investors to effect service of process upon the Company or such persons in jurisdictions outside of India, or to enforce against them judgments obtained in courts outside of India. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments is provided for under Section 13 of the Code of Civil Procedure, 1908 (the "Civil Code"). Section 13 and Section 44A of the Civil Code provide that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except (i) where it has not been pronounced by a court of competent jurisdiction, (ii) where it has not been given on the merits of the case, (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases where such law is applicable, (iv) where the proceedings in which the judgment was obtained were opposed to natural justice, (v) where it has been obtained by fraud or (vi) where it sustains a claim founded on a breach of any law in force in India. Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty. The United States has not been declared by the Government to be a reciprocating territory for the purpose of Section 44A of the Civil Code. However, the United Kingdom has been declared by the Government of India to be a reciprocating territory. Accordingly, a judgment of a court in the United States may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered. Page 111 GENERAL INFORMATION The Company’s registered office is at Pune. This offering and the issue of the GDRs was authorised and approved by the Board of Directors on 3 June 2005 and by the shareholders of the Company on 1 August 2005. The shareholders have neither exercised the right of pre-emption nor has the Company set any restriction on withdrawal of such rights. The Company is not involved in any litigation or arbitration proceedings that may have, or have had during the 12 months preceding the date of this Information Memorandum, a significant adverse effect on the Company’s financial position, and the Company is not aware that any such proceedings are pending or threatened. The Company has not been subject to any public takeover or exchange offers by third parties in respect of its shares either in the last financial year or in the current financial year. The Company has also not made any public exchange offers in respect of other companies' shares. The Company does not own any intellectual property, patents or licenses. The Company is therefore not dependent on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes, where such factors are of fundamental importance to the Company's business or profitability. The Company does not have any specific investment policy. It invests its surplus funds for its future growth and expansion. The Company also invests its short term surplus funds with liquid schemes of mutual funds or Government securities. Application has been made to admit the GDRs to listing on the LuxSE and to trading on the EuroMFT market. Copies of the following documents will be available for inspection, free of charge, during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the office of the Listing Agent, The Bank of New York, Europe Limited at One Canada Square, London E14 5AL, and for so long as the GDRs are listed on the Luxembourg Stock Exchange at the specified office of each Agent, the Luxembourg Intermediary and at the Main Office (as defined in the Conditions) of the Custodian: 1. 2. 3. 4. 5. 6. 7. 8. 9. this Information Memorandum; the Deposit Agreement dated as of 13 September 2005 between the Company and The Bank of New York as Depositary, relating to the GDRs and each document incorporated by reference into the Deposit Agreement; the Placing Agreement, dated 6 September 2005, among the Company and the Lead Manager; the resolutions relating to the authorisation of the issue of the GDRs and Shares duly adopted by the Board of Directors on 3 June 2005; the resolutions of the Company’s shareholders authorising the issue of the GDRs dated 1 August 2005; the Annual Reports for the last three years; last three years’ annual audited non-consolidated accounts of the Company; Unaudited Financial Statements for the year ended 31 March 2005; Memorandum and Articles of Association of the Company. For as long as the GDRs are listed on the Luxembourg Stock Exchange, The Bank of New York (Luxembourg) S.A. will serve as the intermediary between the Luxembourg Stock Exchange and persons connected with the issue and listing of the GDRs. Copies of the non consolidated audited annual accounts, unaudited semi-annual financial statements and unaudited quarterly financial statements will be available free of charge at the offices of The Bank of New York (Luxembourg) S.A., and the Company will publish all notices to holders of the GDRs in the local news paper which is expected to be the d'Wort. In addition, to the extent the GDRs are issued in connection with the acquisition of a controlling or strategic interest, a copy of the relevant sale and purchase agreement will also be available. Page 112 Further, for as long as the Master GDR is registered in the name of the Common Depositary or its nominee on behalf of Euroclear and Clearstream, notices to Holders may be given by the Depositary by delivery of the relevant notice to Euroclear and Clearstream for communication to persons entitled thereto in substitution for publications required by Condition 23.3, except that so long as the GDRs are listed on the Luxembourg Stock Exchange and the Luxembourg Stock Exchange so requires, notice shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the d'Wort). Except as disclosed in this Information Memorandum, there has been no material adverse change in the Company’s non-consolidated financial position since 31 March 2005, the date of the latest audited financial statements. The Deposit Agreement and the Placing Agreement are governed by English law (except that the certifications set forth in Schedule 3 to the Deposit Agreement and any provisions relating thereto shall be governed by and construed in accordance with the laws of the State of New York). The GDRs have been accepted for clearance and settlement through the facilities of Euroclear and Clearstream, Luxembourg. The ISIN for the GDRs is US8753891089, and the Common Code number for the GDRs is 022832620. DISCLAIMER CLAUSE OF THE BOMBAY STOCK EXCHANGE LIMITED BSE – The Bombay Stock Exchange Limited (the "Exchange") by its letter dated 5 September 2005 has given inprinciple approval for listing of the underlying shares arising upon proposed issue of GDRs of the Company. The Exchange has scrutinised this Information Memorandum for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Company. The Exchange does not in any manner:i) ii) iii) Warrant, certify or endorse the correctness or completeness of any of the contents of this Information Memorandum; or Warrant that the Company’s securities will be listed or continue to be listed on the Exchange; or Take any responsibility for the financial or other soundness of the Company, its promoters, its management or any scheme or project of the Company; and it should not for any reason be deemed or construed that this Information Memorandum has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of the Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange, whatsoever, by reason of any loss, which may be suffered by such person consequent to or in connection with such subscription/acquisition, whether by reason of anything stated or omitted to be stated herein or for any reason whatsoever. Page 113 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND IAS/IFRS The financial statements of the Company (collectively referred to as the "Financial Statements") included in this document have been prepared in accordance with the accounting principles generally accepted in India and the requirements of the Companies Act (collectively "Indian GAAP") which differ in certain material respects from IAS/IFRS. The following is a summary of the significant differences between IAS/IFRS and Indian GAAP, insofar as they are relevant to the Financial Statements. The Company has maintained primary financial records for the preparation of financial statements, cash flow and other disclosure requirements as per Indian GAAP, rather than IAS/IFRS and the information for the purposes of this document has been prepared on the basis of such financial statements. Accordingly, there can be no assurance that the table below is complete, or that the differences described disclose the most material differences between IAS/IFRS and Indian GAAP. SUBJECT Contents of Financial statements IAS / IFRS Two years’ balance sheets, income, recognised gains and losses and cash flow statements, changes in equity, accounting policies and notes. INDIAN GAAP Two years’ balance sheets, profit and loss account, schedules, accounting policies and notes. Only companies listed on Indian stock exchanges and non-listed enterprises whose turnover exceeds Rs. 500 million are required to furnish cash flow statements. The format follows the requirement of the Companies Act, 1956. No override of standards permitted. Historical cost, but fixed assets, other than intangibles, may be revalued. Include effect in the income statement of the period in which the change is made. Disclosure: Impact of and adjustments resulting from the change, if material, is to be shown in the financial statements of the period in which the change is made. If the effect of the change cannot be estimated that fact is to be disclosed. A change that has no material effect in the current period but is reasonably expected to have material effect in later periods is to be appropriately disclosed in the period in which change is adopted. Prior period items are reported on a prospective basis beginning with year of change. Include effect in current year income statement. In practice it is rare for entities not to use local currency. True and fair view override Accounting convention In rare cases, override standards to give "true and fair view". Historical cost, but some assets may be revalued. Changes policies in accounting Either restates comparatives and prior year opening retained earnings or include effects (net of taxes) in current year income statement and provide proforma comparatives in the notes. Disclosure: Disclosure is required of the reasons for and the effect of the change Correction of fundamental errors Reporting currency Either restate comparatives or include effect in current year income statement with proforma comparatives in the notes. Requires measurement of profit using the measurement currency; however entities may present financial statements in different currency. Page 114 SUBJECT Balance sheet format Income statement format Cash flow statement formats and method IAS / IFRS Does not prescribe a particular format, however certain items must be presented on the face of the balance sheet. Does not prescribe a particular format, however expenditure must be presented in one of two formats (function or nature). Certain items must be presented on the face of the income statement. Standard headings, but flexibility over their contents. Use direct or indirect method. INDIAN GAAP The Balance sheet is prepared as per the requirement of the Companies Act, 1956. Prepared as per the requirements of the Companies Act, 1956. Changes in estimates accounting Account for in income statement in the current and future periods, as appropriate. As per the requirement of AS - 3, prescribed for all listed companies and companies with turnover in excess of Rs 500 million. Comparable to IFRS. Group Reporting Definition of subsidiary Based on voting control or power to exercise dominant influence. As per IAS 27,consolidated financial statements must be prepared whenever there is a parent-subsidiary relation (with a few minor exceptions) Intermediate parent companies which are wholly owned or virtually wholly owned subsidiaries are exempted from preparing consolidated financial statements irrespective of their location, provided the parent publishes consolidated financial statements that comply with IAS. Under IAS 27, in a parent's separate financial statements investments in subsidiaries may be accounted for either at cost less any impairment, or by the equity method as described under IAS 28, or as an available- for- sale investment under IAS 39. Only if severe long-term restrictions or acquired and held for re-sale in the near future; dissimilar activities is not a justification. Based on significant influence: presumed if 20% interest or participation in entity’s affairs. Expense research costs as incurred. Capitalise and amortise development costs only if stringent criteria are met. Exclusion of subsidiaries from consolidation Intangible assets Controlling interest through majority of voting shares or control of board of directors. Comparable to IFRS. ICAI issued Accounting Standard (AS21) on "Consolidated Financial Statements", on April 1, 2001. AS 21 does not require consolidation, but sets out the standards to be followed in the event that consolidated financial statements are presented or required by law or regulation. SEBI requires listed companies and those seeking listing to publish consolidated financial statements in accordance with AS 21 in addition to separate financial statements of the parent. Accordingly, listed companies have presented consolidated financial statements for accounting periods commencing April 1, 2001, in addition to their stand-alone financial statements. Under AS 21, in a parent's separate financial statements, investments in subsidiaries are carried at cost less any impairment loss recognised. AS 26 on Intangible Assets became effective in respect of expenditure incurred on intangible items during accounting periods commencing on or after April 1, 2003, in respect of listed public companies. The standard differentiates between intangible items and intangible assets, whereby intangible items are expensed and Page 115 SUBJECT IAS / IFRS Fixed Assets Amounts. Frequent valuations of entire classes of assets necessary when revalued amounts used. Depreciation Allocated on a systematic basis to each accounting period during the useful life of the asset. Measure at depreciated cost or fair value and recognise changes in fair value in the income statement. Impairment of assets If impairment indicated, write down assets to higher of net selling price and value in use based on discounted cash flows. The standard seeks to ensure that assets are carried at no more than their recoverable amount and to define how the recoverable amount is calculated. At each balance sheet date, an enterprise is required to review all assets for indications that an asset may be impaired. The IAS provides a list of external and internal indicators of impairment. If there are such indicators, then the recoverable amount needs to be computed. For assets to be disposed off, recoverable amount is the net selling price. If net selling price cannot be determined, then the recoverable amount is value in use. Measuring value in use involves: estimating future cash inflows and outflows relating to continuing use of that asset at net proceeds from its ultimate disposal. Discounting those cash flows using an appropriate discount rate. Impairment losses are recognised in the income statement unless it relates to a revalued asset where the value changes are recognised directly in equity. INDIAN GAAP intangible assets should be recognized if, and only if, (a) it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise (b) the cost of an asset can be measured reliably. Capital expenditure incurred on assets owned is capitalised and depreciated over useful life of the asset. Abandoned fixed assets are generally written off when abandoned. Use historical cost or revalued amounts. On revaluation, an entire class of assets is revalued, or selection of assets for revaluation is made on a systematic basis. No current restriction on frequency of valuation. Rates prescribed in the Companies Act for the minimum depreciation provision. Where applicable, higher depreciation based on useful life of the asset should be provided. Asset lives are not prescribed by the Cos. Act but can be derived from the depreciation rates. Carry at cost. Reduce carrying amount to recognise a decline in value other than a temporary decline. AS 28," Impairment of Assets", is mandatory for certain enterprises including listed public companies. The standard requires an enterprise to assess on each balance sheet date whether there is any indication that an asset is impaired. If such an indication exists, the company is required to estimate the recoverable amount of an asset. If the recoverable amount of an asset is less than its carrying amount, that carrying amount of the asset should be reduced to its recoverable amount. That reduction is an impairment loss. Page 116 SUBJECT IAS / IFRS Recoverable amount should be determined for individual assets. If it is not possible to determine recoverable amounts for individual assets, then recoverable amount for the asset's cash generating unit needs to be determined. If goodwill relates to a cash-generating unit, the entity must consider impairment of goodwill in the financial statements relating to that cash-generating unit. Reversal of impairment loss is allowed where there is an indication that the impairment loss has decreased. However, the reversal should not be more than what the depreciated historical cost would have been had the impairment not been considered. of The benchmark treatment is to expense all borrowings costs in the period in which they are incurred. Allowed alternative treatment is that borrowing costs in relation to the acquisition, construction and production of a qualifying asset should be treated as a part of the cost of the relevant asset. Where the allowed alternative method is adopted, that treatment should be applied consistently to all borrowing costs incurred for the acquisition, construction and production of qualifying asset. Similar treatment as in Indian GAAP for charging off the capitalised interest costs. Borrowing costs include foreign exchange differences that are regarded as an adjustment to interest cost. Debt issuance costs and redemption premiums payable on the redemption of debt are treated as deferred charge and amortised using the effective interest rate method over the life of the debt. INDIAN GAAP Capitalisation borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of the asset. Other borrowings cost are recognised as an expense in the period in which they are incurred. Investments Inventories and long term contracts Carry long-term investments at cost or revalued amounts. Record revaluations consistently in income statement or equity. Carry current asset investments at lower of cost and market value or at market value. Record market value changes in income statement. Recent proposals to carry some financial assets at fair value. Carry at lower of cost and net realisable value; use FIFO, LIFO or weighted average method to determine cost. IAS 2 requires certain additional disclosures Carrying amount of inventories carried at Carry long-term investments at cost (with provision for permanent diminution in value). Current investments carried at lower of cost or fair value determined on individual basis or by category of investment but not on overall (or global) basis. Carry at lower of cost and net realisable value. Cost is normally determined by FIFO or weighted average cost method. Specific identification method may be used in Page 117 SUBJECT IAS / IFRS NRV; Reversals of write-down; and circumstances that lead to write-down; Inventories pledged as security for liabilities. Recognise long-term contract revenues and profits using percentage of completion method. INDIAN GAAP certain cases. For long-term contracts, either percentage completion method or completed contract method may be used. Revenue Transfers assets of recognition financial Recognise revenue if meets specific criteria. Currently no standard. Recent proposals to recognise and de- recognise assets based on control. IAS/IFRS 2 requires mandatory charge to the income statement of the fair value of options given to employees. IAS/IFRS 2 requires detailed disclosures to be made. Comparable to IFRS. Recognise/derecognise based on transfer of significant risks and rewards of ownership. At present, there is no accounting standard or guidance note issued by ICAI requiring accounting for employee stock option plans ("ESOPs"). In the case of listed companies, SEBI Guidelines contain two methods for accounting ESOPs in the books of account. One method is to record as compensation the excess of market price at the date of grant of option over the exercise price (option discount method). Therefore if the market price and the grant price were the same there will be no charge in the income statement of the employer. The other method is to record compensation based on the Black Scholes or other similar valuation method. In the case of unlisted companies, applying these rules is difficult (not impossible) because of absence of market price. In the absence of a market price, fair value of unlisted shares should be used as determined by using dividend yields, expected growth rates, industry P/E’s, etc. AS-25 mandates that in case a regulator requires an enterprise to prepare and present certain information at an interim date which may be different in form and/or content as may be required by AS-25, the recognition and measurement methods per AS-25 shall apply. Presently Indian Stock Exchanges mandatorily stipulates as per Listing Agreements for quarterly publication Employee Stock Options Scheme Interim Reporting Financial IAS-34 does not mandate: • • • which enterprise should publish interim financial reports. How frequently or How soon after the end of an interim period. Such matters are left to local regulators. Page 118 SUBJECT IAS / IFRS INDIAN GAAP of financial information, which is subject to limited review by the auditors. Comparable to IFRS. Provisions - general Provisions – restructuring Contingencies Record provisions relating to present obligations from past events if probable outflow of resources can be reliably estimated. Make restructuring provisions if detailed formal plan exists and announced or implementation begun. Disclose possible losses and probable gains. Comparable to IFRS. Employee benefits pension costs – defined benefit plans IAS 19 covers retirement benefits and also short-term employee benefits (such as, compensated absences, profit sharing, and bonus plans); long-term employee benefits (such as, long-service benefits, disability benefits and deferred compensation); termination benefits; and equity compensation benefits (for disclosure only). For measuring retirement benefit obligations and expense, IAS 19 requires use of a uniform actuarial method by all companies using Projected Unit Credit Method. The discount rate used is to be determined by reference to market yields on the balance sheet date on high quality corporate bonds. Past service costs on new plans or awarded benefits is spread on a straight-line basis over the average period until awarded benefits immediately if the plans are already vested. If cumulative unrecognised actuarial gains and losses exceed 10% of the greater of plan assets or the plan obligation, that excess must be amortised through net profit or loss. Contingent loss is provided in the profit and loss statement if it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date and a reasonable estimate of the amount of the resulting loss can be made. In other cases, contingent losses are to be disclosed unless the possibility of occurrence is remote. Contingent gains are not recognised. If employer chooses to make payment for retirement benefits out of his own funds provision in the accounts is normally made based on actuarial valuation. In case liability is funded through creation of a trust, cost incurred for the year is determined actuarially. Annual contributions are normally based on actuarial valuation. The scope of AS 15, "Accounting for Retirement Benefits in the Financial statements of Employers", is limited to retirement benefits(including pensions and health and welfare schemes). For measuring retirement benefit obligations and expenses, AS 15 requires only an actuarially accepted method. Several alternative methodologies are considered acceptable for the purposes of the valuation, and the actuary has considerable latitude in selecting assumptions to be used. No specification on discount rate to be used. Past service coasts are recognised immediately in the profit and loss account. In respect of cumulative unrecognised actuarial gains or losses, no corresponding amortisation required. Page 119 SUBJECT IAS / IFRS Employee benefits - other Deferred income taxes Account for post-retirement benefits as pensions. Rules also given for termination benefits and other post-employment and long term employee benefits. Account for termination indemnity plans as pensions. Use full provision method, driven by balance sheet temporary differences. Recognise deferred tax assets if recovery is probable. Related party transactions - definition Related party transactions – disclosures Determine by level of direct or indirect control and significant influence of one party over another or common control of both parties. Disclose name of related party and nature of relationship and types of transactions. For control relationships, give disclosures regardless of whether transactions occur. Some exemptions available for separate financial statements of subsidiaries. INDIAN GAAP Vacation accrual or leave encashment, is viewed as a retirement benefit and is generally reported at the actuarially determined present value of future benefits. In case liability is funded through a scheme administered by an insurer, an actuarial certificate or confirmation from the insurer regarding contributions payable is obtained. The financial statements have to disclose the method by which retirement benefit costs for the period have been determined. In case the costs are based on actuarial valuation, the financial statements to disclose the date of actuarial valuation and the method by which the accrual for the period has been determined. Post retirement schemes, which are defined benefit schemes, are accounted as pensions. For other benefits, contributions are reflected in the profit and loss statement. Deferred Tax assets and liabilities should be recognised for all timing differences subject to consideration of prudence in respect of deferred tax assets. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is certain that such previously unrecognised deferred tax assets will be realised. Deferred tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the Balance Sheet date. Determine by ability to control or to exercise significant influence over the other party. Similar to IFRS except the following additional disclosures: · Volume of transactions · Amounts due from related parties outstanding at the balance sheet date together with provision for doubtful debts due from related parties. · Amounts written off or written back during the period in respect of debts due from related parties. Comparable to IFRS. Earnings diluted per share – Use weighted average potential dilutive shares as denominator for diluted EPS. Use "treasure stock" method for share options / warrants. Page 120 SUBJECT Extraordinary exceptional items and Post balance sheet events Segment reporting - scope and basis of formats Segment reporting accounting policies - IAS / IFRS Extraordinary items limited to a few events outside control of company. Does not use the term, but requires separate disclosure of items that are of such size and nature that requires separate disclosure to explain the performance of the entity. Exceptional items usually shown on the face of the income statement or in the notes. Adjust financial statements for subsequent events providing evidence of conditions at balance sheet date and materially affecting amounts in financial statements. Disclose non-adjusting events. Public entities. Report primary and secondary segment formats based on risks and returns and internal reporting structure. Use group accounting policies. INDIAN GAAP Similar to IFRS. Similar to IFRS. Similar to IFRS. Segment reporting disclosures – Disclosures for primary segment format include sales, profits, capex, assets and liabilities. For secondary segment format, report sales, assets and capex. Cash flow statement formats and method Cash flow statements – definition of cash and cash equivalents Standard headings, but flexibility over their contents. Use direct or indirect method. Cash includes overdrafts and cash equivalents with short- term maturities (less than 3 months). Statement of recognised gains and losses. Translation Differences Give Statement of recognised gains and losses. either as separate primary statement or separately highlighted in primary statement of movements in equity. Same as Indian GAAP, except that no different treatment is prescribed for exchange differences arising in respect of Segment information should confirm to accounting policies used for preparing financial statements of the enterprise as a whole. A detailed calculation for applying an enterprise wide accounting policy may be allocated to segments. Disclosure of additional segment information prepared on a basis other than enterprise wide accounting policy is permitted. Additional disclosures with respect to depreciation and other non-cash expenses. For secondary format sales, assets and capex to be disclosed. Other required disclosures include basis of pricing inter segment transfers, types of products and services and composition of each geographical segment. Standard headings, using method prescribed in AS – 3 for all listed companies and companies with turnover in excess of Rs 500 million. Cash includes cash in hand and deposits repayable on demand. Cash equivalents are short term, highly liquid investments that are readily convertible to cash (normally 3 months or less). Bank borrowings are generally considered to be financing activities. Not required. AS 11, "Accounting for the Effects of Changes in Foreign Exchange Rates", deals with accounting for foreign Page 121 SUBJECT IAS / IFRS liabilities for acquisition of fixed assets. Depreciation accounting Allocated on a systematic basis to each accounting period during the useful life of the asset. However IAS, 8 treats changes in depreciation method resulting from a revised useful life or pattern of benefits as a "change in estimate", recognised prospectively. Revenue recognition Revenue from sale of goods are recognised INDIAN GAAP exchange transactions. Transactions in foreign currency are recorded at the exchange rate prevailing on the date of the transaction. Monetary items are restated at year-end exchange rates. Non-monetary items which are carried in terms of historical cost denominated in foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. Exchange differences arising on transactions and translation of monetary items are recognised as income or expense, in the year in which they arise In respect of acquisition of fixed assets, such exchange difference is considered in the profit and loss account. Premium or discount on forward exchange contracts is amortized and recognized in the income statement over the period of such contract, except in respect of contracts relating to liabilities for purchase of fixed assets where the amortization is adjusted to the carrying value of the fixed assets. Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset, however, rates are prescribed in the Companies Act for the minimum depreciation provision. Where applicable, higher depreciation based on useful life of the asset should be provided. Asset lives are not prescribed by the Companies Act but can be derived from the depreciation rates. If the rates applied are different from the rates specified in the governing statute then the rates and useful life are to be also disclosed. Under AS 6 the cumulative prior period effect of a change in depreciation method is recognised in the net profit or loss in the period of change. In transactions involving sale of Page 122 SUBJECT Issuance and redemption costs for borrowings Deferred taxation IAS / IFRS when the following conditions are met: the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; the enterprise retains neither continuing managerial involvement to the degree normally associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that economic benefits associated with the transaction will flow into the enterprise; the costs incurred or to be incurred in respect of transactions can be measured reliably. Debt issuance costs and redemption premiums payable on the redemption of the debt are treated as deferred charge and amortised using the effective interest rate method over the life of the debt. Deferred tax assets, however should be recognised for deductible temporary differences, unused tax losses and unused tax credits to the extent that it is 'probable' that taxable profit will be available against which temporary timing differences can be utilised. IAS 12 requires that taxes should be charged or credited directly to equity if they relate to items that are credited or charged directly to equity. INDIAN GAAP goods, revenue's recognised when significant risks and rewards of ownership are transferred and no significant uncertainty exists regarding the amount of consideration that will be derived from the sale of goods. Provisions, contingent liabilities and contingent IAS 37 requires that where the effect of the time value of money is material, the Debt issuance costs and redemption premiums payable on the redemption of debt may be amortised, charged as an expense or charged to the Securities Premium Account. AS 22 "Accounting for Taxes on Income", requires deferred tax to be provided for the tax effect of timing differences between taxable income and accounting income. Deferred tax assets and liabilities should be measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets arising due to unabsorbed depreciation or carryforward of losses are recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. Other deferred tax assets should be recognised and carried forward only to the extent that there is a 'reasonable certainty' that sufficient future taxable income will be available against which such deferred tax assets can be realised. Under the transitional adjustment, the impact on profit and loss of the opening deferred tax asset or liability arising on first implementation of the accounting standard is to be set off against the opening balance lying to the credit if general reserve. AS 29, "Provisions, Contingent Liabilities, Contingent Assets", issued Page 123 SUBJECT assets Dividends Preference shares IAS / IFRS provision must be measured at the present value of the expenditures expected to be required to settle the obligation. Disclosure required for possible losses and probable gains. IAS 37 distinguishes between accruals and provisions. IAS 37 requires that if an enterprise has a contract that is onerous (expected costs exceed expected benefits), the net present obligation under the contract should be recognised as a loss and a provision. Under IAS 37, a provision is recognised not only when a legal obligation exists but also when a constructive obligation exists, i.e. an obligation created by a pattern of past practise or policy that creates a valid expectation on the part of third parties that the enterprise will discharge its responsibilities. IAS 37 provides guidance on statistical methods to be used in measuring a provision. IAS 37 requires certain disclosures in respect of contingent assets in the financial statements where an inflow of economic benefits is probable. Guarantees, other than financial guarantees that an entity enters into or retains on transferring to another party financial assets or financial liabilities within the scope of IAS 39, qualify as insurance contracts under IFRS 4 on "insurance Contracts" and are recognised at fair values on inception. Dividends declared after the balance sheet date is not recognised as liability at the balance sheet date. Consistent with U.S. GAAP INDIAN GAAP by the ICAI comes into effect in respect of accounting periods commencing on or after April 1, 2004 and is mandatory to all listed public companies. The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value. Disclosure for each class of provision and contingent liabilities has been prescribed by the standard. A liability is recognised for dividends in the year to which they relate. Preference shares in Indian GAAP are classified as share capital and included as part of the shareholders' funds. Dividends relating to these shares are treated as an appropriation of profit. Page 124 INDEX TO FINANCIAL STATEMENTS Particulars Page Nos. Auditors’ Report on the Financial Statements Audited Balance Sheets Schedules to Audited Balance Sheets Audited Profit and Loss Accounts Schedules to Audited Financial Statements Accounts (Notes to Accounts) Cash Flow Statement Quarterly Results for the quarter ended 30 June 2005 126 131 132 134 136 141 142 Page 125 Auditors' Report 2005 (1) We have examined the attached Balance Sheet of Taneja Aerospace and Aviation Limited, Pune as at 31st March 2005 and also the Profit and Loss Account and the Cash Flow Statement of the company for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order to the extent applicable. Further to our comments in the Annexure referred to in paragraph 3 above, we report that: The interest on working capital borrowings have been computed and provided in the accounts based on restructuring scheme as approved by the banks subject to continuance of compliance of the conditions. The company’s method of valuation of inventories is not in accordance with the accounting standard AS 2 issued by the Institute of Chartered Accountants of India. This is, as informed to us, due to unique nature of the industry. The company has accounted interest free sales tax liability to reflect the discounted present value of future payments. The difference between the actual liability and the discounted value will be treated as revenue expenditure in the year in which it is paid to the Authorities. Such an accounting practice is not in conformity with the generally accepted accounting principle of Historical Cost and matching principle. Subject to our comments in paragraph 4 above. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit; In our opinion proper books of accounts as required by law have been kept by the company so far appears from our examination of books; The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by our report are in agreement with books of accounts; In our opinion the Profit and Loss Account, Balance Sheet and Cash Flow Statement comply with the accounting standards referred to in sub-section 3 (c) of section 211 of Companies Act 1956. (Except Accounting Standard 2 (AS 2) as mentioned in paragraph 4 above, adjustment of Losses against reserves in earlier year) On the basis of written representations received from the Directors as on 31st March 2005 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March 2005 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act 1956. (2) (3) (4) 4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8. 4.9. Page 126 4.10. In our opinion and to the best of our information and according to the explanations given to us the said accounts read with the schedules thereto and the notes thereon give information required by the Companies Act 1956 in the manner so required and give true and fair view: - 4.10.1. In the case of Balance Sheet of the state of company’s affairs as at 31st March 2005; 4.10.2. In case of Profit and Loss Account of the profit (before adjustments mentioned in clause 4 above) for the period ending on that day and 4.10.3. In the case of Cash Flow Statement, of the cash flows for the year ended on that date. Page 127 Annexure to the Auditor’s Report As required by the Companies (Auditor’s Report) Order 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, and on the basis of such checks of book & records of Company as we considered appropriate & according to the information and explanation given to us, during the course of our Audit, we report that in our opinion. (1) 1.1. The company has maintained proper records showing full particulars including quantitative details and situation of Fixed Assets. All the fixed assets have been physically verified by an independent valuer during the year and based on the said report, none of the assets are impaired and no major discrepancies were noticed on such verification. According to the information and explanations given to us, the company has not disposed off major part of fixed asset during the year, which would affect the going concern of the company. 1.2. 1.3. (2) 2.1. As explained to us, the stocks of finished goods and work in progress in the Company’s custody have been physically verified by the auditor appointed by the bank during the previous year and by the Management as at the end of the financial year or after the year end, and in respect of stocks of stores and spares, and raw materials in Company’s custody, there is a perpetual inventory system and a substantial portion of the stocks have been verified during the year. In our opinion, the frequency of verification is reasonable. In our opinion and according to the information and explanations given to us, the procedure of physical verification of stocks is adequate in relation to the size of the company and the nature of its business. In our opinion and according to the information and explanations given to us the company is maintaining proper records of inventory. However, we are of the opinion that the valuation of stock is not in accordance with the accepted accounting principals as prescribed in the revised Accounting Standard AS2 in respect of valuation of inventories issued by the institute of Chartered Accountants of India. The valuation of inventories is on the same basis as in the previous year. Further valuation is in line with value arrived and accepted by the bankers based on its auditor report including in respect of old and slow moving items. Company is required to maintain its stores as per Director General of Civil Aviation (DGCA) requirements and company has done this as its stores are approved as per DGCA regulations. Further in terms of the representation by the management, we are unable to determine the discrepancy, if any, noticed on physical verification. 2.2. 2.3. (3) 3.1. During the year the company has taken temporary advance from companies (details of which are mentioned below) covered in register maintained under section 301 of the Act. Other than the above, company has not granted secured or unsecured loans to/from companies, firms or other parties covered in the register maintained under section 301 of the Act, during the financial year under the audit. The amount of loan outstanding taken by the company at the end of the financial year is as follows: Klapa Investment Rs.2,200,000 Knox Investments Rs.20,445,382 In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions on which loans have taken from/granted to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company. The repayment of interest free loans from associates is subordinate to term loan and hence there is no repayment involved. 3.2. 3.3. Page 128 (4) In our opinion and according to the information and explanations given to us, and after considering internal audit reports the company needs to strengthen system in procurements and marketing procedures. Apart from this there are adequate internal control commensurate with the size of the company and the nature of its business with regard to purchase of fixed assets. (5) 5.1. To the best of our knowledge and belief and according to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. In our opinion and according to explanations given to us, transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the companies act, 1956 and exceeding the value of Rupees five lakhs have been made at prices which are reasonable having regard to prevailing market prices at the relevant time. As per explanation given to us, the Company has not accepted any deposits from public to which the provisions of section 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 would apply. Therefore, the provisions of clause 4 (vi) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company. In our opinion the company needs to increase the areas of internal audit and make it commensurate with the size of the company and nature of its activity. The company is taking reasonable steps to implement the recommendations made by the internal auditors. The Central Government has not prescribed the maintenance of the cost record u/s 209(1) (d) of the Companies Act, 1956 and hence the provisions of clause 4 (viii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company. 5.2. 5.3. 5.4. 5.5. (6) 6.1. In our opinion and according to the information and explanation given to us the company is regular in depositing with appropriate authorities undisputed statutory dues including the investor education and protection fund, income tax, sales tax, wealth tax, custom duty excise duty, cess and other material statutory dues applicable to it. In our opinion and according to the explanation given to us there is no amount outstanding for more than six months as statutory dues. According to the explanation and information given to us, and the records examined by us there is no dues to be deposited on account of dispute. The company has no accumulated losses. Further the company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year. According to the records of the company examined by us and the information and explanation given to us, the company has not defaulted in repayment of dues to any financial institution or bank as at the Balance Sheet date. The company is paying the interest on the Bank Loans that have been computed and provided in the accounts based on restructuring scheme as approved by banks subject to continuance of compliance of conditions. According to the explanations given to us, the company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of clause 4 (xiii) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company. 6.2. 6.3. (7) (8) (9) (10) Page 129 (11) In our opinion and according to the information and explanations given to us, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company. In our opinion and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institution. Hence, the provisions of clause 4 (xv) of the Companies (Auditor’s Report) Order, 2003 are not applicable to the company. As per the information and explanations given to us, the Company has not raised any term loan during the year under audit and hence clause 4 (xvi) of the Companies (Auditor’s Report) Order, 2003 is not applicable to the company. According to information and explanation given to us, and on an overall examination of the balance sheet of the company we report that no funds raised on short-term basis have been used for long-term investment and no long-term funds have been used to finance shot-term assets. The company has made preferential allotment of 892,500 shares to one of the promoter company – Knox Investment Pvt. Ltd. at a price of Rs. 10 per share (including a share premium of Rs. 5 per share) by way of adjustment against the balance outstanding of that company. The preferential allotment was made in accordance with SEBI guidelines for preferential allotment, hence in our opinion; issue price is not prejudicial to the interest of the company. In our opinion and according to the information and explanations given to us, the Company has not issued any secured debentures during the period of our audit. Therefore, clause 4 (xix) of the Companies (Auditor’s Report) Order, 2003 is not applicable to the company. During the period covered by our audit report, the Company has not raised any money by public issue. To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. (12) (13) (14) (15) (16) (17) (18) Page 130 Balance Sheets (All figures in Rupees have been converted into US$ at the exchange rate of US$= Rs.43.75 (RBI reference rate as of 31 March 2005) Schedule As at March, 2005 No. Rs. US$ As at 31 March, 2004 As at 31 March, 2003 Shareholders' Funds Share Capital Reserves and Surplus Loan Funds A) Secured Loans B) Unsecured Loans Total Application of Funds Fixed Assets Gross Block Less : Depreciation Current Assets, Loans & Advances a) Inventories b) Sundry Debtors c) Cash and Bank Balances d) Loans and Advances Less : Current Liabilities & Provisions Net Current Assets Product Development Expenditure Profit and Loss Account Total 1 2 3 93,712,500 31,882,485 194,908,089 60,581,102 381,084,176 2,142,000 728,743 4,455,042 1,384,711 8,710,495 89,250,000 25,571,545 235,338,287 67,454,609 417,614,441 85,000,000 25,571,545 243,604,404 62,669,804 416,845,753 4 290,287,278 93,065,819 197,221,459 155,957,000 44,898,158 7,366,646 8,999,572 215,925,376 32,984,380 182,940,996 921,721 921,721 217,221,376 6,635,138 2,127,219 4,507,919 3,564,731 1,026,244 168,381 205,704 4,935,437 753,929 4,181,508 21,068 21,068 4,965,060 284,794,110 83,796,575 200,997,535 149,027,766 53,026,383 777,045 11,274,822 214,106,016 27,777,539 186,328,477 921,721 29,366,708 30,288,429 417,614,441 284,312,232 74,627,767 209,684,465 150,574,000 23,400,530 2,002,831 21,021,168 196,998,529 27,380,683 169,617,846 921,721 36,621,721 37,543,442 416,845,753 5 6 7 8 9 Page 131 Schedules to Audited Balance Sheets As at March, 2005 US$ As at 31 March, 2004 As at 31 March, 2003 Rs. SCHEDULE - 1 : Share Capital Authorised Capital 40000000 Equity Shares of Rs.5/-Each 1000000 -15% Redeemable Cumulative Preference Shares of Rs.50/- Each Issued, Subscribed & Paid-up 18742500 Equity Shares of Rs.5/- Each SCHEDULE -2 : Reserves and Surplus Reserves Capital Reserve Share Premium Account Revaluation Reserve - Land Surplus Transfer from Profit & Loss Account SCHEDULE -3 : Loan Funds A. Secured Loans i) Term Loan from Banks ii) Working Capital Borrowing from Banks iii) Hire Purchase B. Unsecured Loans Interest free Sales Tax / Loan discounted Liability (Refer Note No.4. Actual Liabilities Rs.26,932,073/Previous year Rs.26,932,073/-) Other Interest Free Loans 200,000,000 50,000,000 250,000,000 93,712,500 4,571,429 1,142,857 5,714,286 2,142,000 200,000,000 50,000,000 250,000,000 89,250,000 200,000,000 50,000,000 250,000,000 85,000,000 583,000 4,462,500 24,988,545 1,848,441 31,882,486 13,326 102,000 571,167 42,250 728,743 583,000 24,988,545 583,000 24,988,545 25,571,545 25,571,545 65,029,449 129,620,850 257,790 194,908,089 14,664,224 1,486,387 2,962,762 5,892 4,455,042 335,182 80,547,225 154,358,455 432,607 235,338,287 14,742,087 96,035,756 147,130,231 438,417 243,604,404 16,334,063 45,916,878 60,581,102 1,049,529 1,384,711 52,712,522 67,454,609 46,335,741 62,669,804 Page 132 Schedule - 4 Fixed Assets Name of Fixed Assets Gross Block as on Depreciation as on Net Block as on 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 2005 2004 2003 2005 2004 2003 2005 2004 2003 Fixed Assets Factory Land Factory Building Furniture & Fixtures Plant & Machineries Vehicles Office Equipment Total Capital Work-inProgress Grand Total 73,581,950 73,581,950 73,581,950 0 0 0 73,581,950 73,581,950 73,581,950 53,953,676 53,953,676 53,953,676 17,895,46416,093,41114,291,35836,058,212 37,860,265 39,662,318 6,052,264 6,042,914 5,173,419 5,089,651 4,878,118 3,120,341 962,613 1,164,796 1,094,772 147,412,650142,204,275142,204,27565,274,95458,462,56051,707,85782,137,696 83,741,715 90,496,418 1,602,105 1,602,105 1,370,446 1,148,238 989,681 802,710 453,867 612,424 567,736 5,495,620 5,180,997 5,800,273 3,657,512 3,372,805 4,705,501 1,838,108 1,808,192 2,053,078 288,098,265282,565,917282,084,03993,065,81983,796,57574,627,767195,032,446198,769,342207,456,272 2,180,013 2,228,193 2,228,193 0 0 0 2,189,013 2,228,193 2,228,193 290,287,278284,794,110284,312,23293,065,81983,796,57574,627,767197,221,459200,997,535209,684,465 As at 31 March, 2005 Rs. US$ SCHEDULE-5 INVENTORIES (as certified by the Management) i) Aircraft Parts & Components ii)Work-in-Progress Iii) Finished Goods SCHEDULE-6 Sundry Debtors Unsecured & Considered Good Over Six Months Other Debts SCHEDULE-7 Cash & Bank Bal. Cash and cheques on hand Bank balances with Scheduled Banks SCHEDULE -8 Loans & Advances Advances Recoverable in cash or kind or value to be Received - Considered Good Deposits SCHEDULE-9 Current Liabilities & Provisions Current Liabilities Sundry Creditors Other Liabilities As at 31 March 2004 As at 31 March 2003 92,907,000 63,050,000 0 155,957,000 2,123,589 1,441,143 0 3,564,731 88,796,366 60,039,000 192,400 149,027,766 88,808,000 61,766,000 0 150,574,000 15,005,224 29,892,934 44,898,158 96,285 7,270,362 7,366,647 6,943,225 342,977 683,267 1,026,244 2,201 166,180 168,381 158,702 10,535,088 42,491,295 53,026,383 6,116 770,929 777,045 8,451,384 5,420,914 17,979,616 23,400,530 61,883 1,940,948 2,002,831 6,401,057 2,056,346 8,999,571 47,002 205,704 2,823,438 11,274,822 14,620,111 21,021,168 16,371,974 17,908,406 34,280,380 374,217 409,335 783,552 8,491,995 19,285,544 27,777,539 9,514,515 17,866,168 27,380,683 Page 133 Profit and Loss Accounts Schedule No. As at March, 2005 US$ As at 31 March, 2004 As at 31 March, 2003 Rs. Income Sales & Other Income Expenditure Manufacturing and other Expenses Operating Profit (Before Interest and Depreciation) Interest Depreciation Extra Ordinary / Prior Year Income (Net) Provision for Income Tax Profit after Tax Balance of Profit / (Loss) brought forward from previous year Profit Transferred to Surplus Account Earning per Share in Rupees Accounting Policies and Notes on Accounts 10 134,638,456 3,077,450 109,131,688 155,516,910 11 86,152,476 48,485,980 452,722 1,108,251 60,079,869 49,051,819 128,066,620 27,450,290 12 21,140,124 9,269,244 13,938,537 483,203 211,868 318,595 32,538,133 9,258,673 0 38,493,236 13,831,218 26,937,443 800,000 31,215,149 -29,366,708 18,286 713,489 -671,239 0 7,255,013 -36,621,721 0 2,063,279 -38,685,000 1,848,441 1.67 13 42,250 -29,366,708 0.41 -36,621,721 0.12 As at 31 March, 2005 Rs. US$ SCHEDULE- 10 Income Sale of Products and Services Other Income SCHEDULE- 11 Expenditure 1. Raw Materials Consumed Opening Stock Add Purchases Less : Closing Stock 2. Purchase of Goods for Trading 3. Personnel Salaries and Wages Directors Remuneration 132,499,863 2,138,594 134,638,457 3,028,568 48,882 3,077,450 As at 31 March 2004 107,868,856 1,262,832 109,131,688 As at 31 March 2003 152,537,051 2,979,859 155,516,910 88,796,366 23,917,214 92,907,000 19,806,579 18,740,780 18,740,780 17,514,704 1,719,946 2,029,631 752,393 2,123,589 452,722 428,361 428,361 400,336 39,313 88,808,000 11,238,863 88,796,367 11,250,496 192,400 192,400 17,033,576 1,505,987 84,048,000 39,662,744 88,808,000 34,902,744 0 0 28,687,947 4,099,055 Page 134 Provident and Other Funds Welfare Expenses 4. Operation and Other Funds Aircraft Fuel Charges Electricity Charges Repairs & maintenance Other Direct Expenses Rent, Rates, Taxes & Insurance Travelling & Conveyance Communication Expenses Consultancy Auditors Remuneration Selling Expenses Office Expenses Agriculture Expenses 5. Loss on Sale of Asset As at 31 March, 2005 As at As at Rs. US$ 31 March 2004 31 March 2003 861,898 19,701 839,537 1,444,700 844,547 19,304 619,255 1,553,185 20,941,095 478,654 19,998,355 35,784,887 8,889,434 1,809,928 630,284 4,250,343 2,426,641 5,572,693 2,222,709 777,447 166,455 2,041,684 531,219 163,785 29,482,622 0 203,187 41,370 14,406 97,151 55,466 127,376 50,805 17,770 3,805 46,667 12,142 3,744 673,889 0 10,139,581 1,844,188 502,665 3,946,453 2,066,000 4,102,908 1,804,179 525,162 105,747 944,689 917,192 179,025 27,077,789 26,229 26,229 As at 31 March 2004 13,313,743 2,969,774 1,450,227 8,589,755 2,519,928 9,515,623 3,646,525 1,262,334 160,294 4,445,283 2,036,017 381,500 50,291,003 10,986 10,986 As at 31 March 2003 As at 31 March, 2005 Rs. US$ 6. Reduction / (Accretion) to Workin- Progress and Finished Goods Added / (Deducted) i) Opening Stock ii) Less: Closing Stock Total SCHEDULE - 12 Interest & Other Financial Charges Interest on Fixed Loans Interest and Other Financial Chgs. Lease Rent on Aircraft 60,231,400 63,050,000 -2,818,600 86,152,476 1,376,718 1,441,143 64,425 1,969,199 61,766,000 60,231,400 1,534,600 60,079,869 68,843,000 61,766,000 7,077,000 128,066,620 12,155,662 7,718,672 1,265,790 21,140,124 277,844 176,427 28,932 483,203 18,737,857 9,716,774 4,083,502 32,538,133 28,388,153 1,837,442 8,267,641 38,493,236 Page 135 SCHEDULE -13 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (A) (1) SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING METHOD The financial statements have been prepared in accordance with the historical cost convention, the applicable accounting standard and the relevant provisions of the companies Act, 1956. (2) FIXED ASSETS (i) All fixed Assets are valued at cost less depreciation, pre-operation expenses net of revenue are capitalized and interest on borrowings during the period of construction is added to the cost of Fixed Assets. All indirect expenses incurred on project implementation including interest cost on funds deployed for the project (net of income earned) are treated as incidental expenditure during construction and subsequently capitalized. All indirect Expenses including Interest on borrowings on the project for manufacture of Aircraft parts and components for all categories of Multi Role Light Transport Aircraft are added to the cost of Fixed Assets. (ii) (iii) (3) DEPRECIATION Depreciation on all assets is provided on pro-rata basis from the month of addition / deduction on straight line method for Building and Plant Machinery on written down value method on all other assets at rates prescribed under Schedule XIV of the Companies Act, 1956. (4) FOREIGN CURRENCY TRANSACTIONS Foreign Currency Transactions are accounted for at the exchange rate prevailing at the date of transactions. Monetary items are stated at the rate prevailing at the close of the financial year in accordance with the Accounting Standard 11. (5) RETIREMENT BENEFITS Liabilities in respect of Retirement Benefits to employees are provided for by payments to Gratuity and Superannuation Funds through LIC’s Group Schemes. (6) Revenue Recognition (A) Sale of Aircraft is accounted after completion of following two aspects (i) Part Advance is received from the customer against confirmed order (ii) Test Flight after DGCA approval for the same Sales of fractional Aircraft accounted only after receipt of substantial payment from the customers. Commission from agency business of sale of aircraft is accounted on proportionate basis considering completion of major service and time period of delivery Training fees received is accounted in the year of receipt, being non-refundable (B) (C) (D) Page 136 (7) INVENTORIES (i) Stock of raw materials, bought out items and certain components and finished goods are valued at cost. Stock of certain aircraft structures, components and work in progress are valued at lower of the cost and net realizable value based on technical estimate even though in traditional basis of valuation, it may be considered as slow moving and/or obsolete. Stores and Spares are stated at cost and loose tools are stated at cost or depreciated value. In determining the cost of raw materials, components, stores, spares and loose tools, the first in first out (FIFO) method is used at weighted average cost. Cost of work in progress and manufactured finished products include material cost, labour and factory overheads on the basis of full absorption costing. In case of aircraft under manufacture, work in progress includes attributable profits. Progress payments received against such contract are shown as deduction from work in progress. (ii) (8) TAXATION Deferred Tax resulting from timing difference between book profits and tax profits is accounted for at the applicable rate of tax to the extent the time difference are expected to crystallize, in case of Deferred tax liabilities with reasonable certainty and in case of Deferred Tax Assets with virtual certainty would be adequate future taxable income against which Deferred tax assets can be realized. (9) SEGMENT REPORTING The Company has primarily engaged in manufacturing, selling of products and services connected with Aviation and therefore has only one business segment. Further the economic environment in which the company operates is significantly similar as is not subject to materially different risks and returns. (10) CONTINGENCIES AND EVENTS OCCURRING AFTER THE DATE OF BALANCE SHEET (i) Accounting for contingencies arising out of contractual obligation, are made only on the basis of mutual acceptances. Material events occurring after the date of Balance Sheet upto the date of adoption of the accounts, are considered in preparation and presentation of financial statements. In view of carry over losses as per the IT Act 1961 and generation of future profit to setoff of such losses largely depend on economic behaviour of the Country and Defence related projects, no effect is given in the accounts for the deferred tax asset. (ii) (iii) Page 137 (B) (1) NOTES ON ACCOUNTS Contingent Liability not provided for (a) Bank Guarantees Rs. 277.64 (Previous year Rs. 1.344 million) (b) Interest on term loan sacrificed – Rs. 132.870 million (previous ear Rs. 132.870 million). The Extra – Ordinary item (Net) includes interest credit on working capital based on Restructurig scheme of consortium Member Banks amounting to Rs.14.231 million. Similarly the interest for the year is after giving effect to the revised interest rate applicable as per the scheme. The Increase in Equity Share capital as on 31.03.2005n is due to preferential allotment of 892500 shares to promoters at a premium of Rs.5/- per share. (i) The Term Loans from Bank is secured by a first mortgage and charge on all the immovable properties, present and future, of the Company and first charge by way of hypothecation of all present and future movables excluding book debts subject to prior charges created / to be created in favour of bankers on stock of raw materials, semi finished and finished goods, consumables stores and such other movables as may be agreed for securing the borrowings for Working Capital requirements and further guaranteed by counter guarantee of promoter company. Working Capital Loan from the Banks is secured against hypothecation of Stocks & Book Debts on pari passu and second charge on Immovable properties and further guaranteed by counter guarantee of Promoter Company. Hire Purchase Finance is secured against assets taken on hire. (2) (3) (4) (ii) (iii) (5) The Company has sent confirmation of balance letters to the debtors and creditors as appearing in the books of the accounts and confirmations from few have been received. The company has accounted interest free sales tax liability to reflect the discounted present value of future payments. Such an accounting practice is not in conformity with the generally accepted accounting principle of Historical Cost. The difference between the actual liability and the discounted value will be treated as revenue expenditure in the year in which it is paid to the Authorities. Auditors Remuneration includes 2004-2005 (Rs) i) Audit Fees 27550 22040 27550 52330 36985 166455 105747 2003-2004 (Rs) 27000 21600 27000 30147 (6) (7) ii) Tax Audit Fees iii) Taxation iv) Other Services v) Out of Pocket (8) The Company is primarily engaged in manufacturing, selling of products and services connected with Aviation and therefore have only one business segment. Further the economic environment in which the company operates significantly similar as is not subject to materially different risks and return. Accordingly no separate disclosures are necessary as per Accounting Standard 17 regarding Segment reporting. Page 138 (9) The freehold land was revalued in the year 2000/01 based on the valuation report obtained from the approved valuer. Part of revaluation reserve was utilized to adjust against debit balance in profit and loss account as per the court approved Capital restructuring scheme, through the same is not in accordance with the general accounting policies (AS 10) and Schedule VI. DISCLOSURE IN STANDARD 18 (A) RESPECT OF RELATED PARTIES PURSUANT TO ACCOUNTING (10) Related Parties Transactions Rs. in million Particulars Associates 1. 2. 3. 4. 5. Interest Free Advance Rent / Lease rent Other Services (Net) Rendering of services Balance payable by TAAL (B) Related Parties Transactions Name of the Party 4.433 1.549 0.017 49.498 Key Management Personnel 1.700 Particulars 1. Associates 2. Key Management Personnel The Indian Seamless Metal Tubes Limited The Indian Seamless Enterprises Limited Knox Investments (P) Limited Klapa Investments Pvt. Ltd. Misrilall Mines Private Ltd. Mr. K.Rustumji Mr. Vijay Simha Mr. C S Kameswaran (11) As per the records of the Company, it is not feasible to identify the small scale suppliers and report outstanding separately. The provision for all known liabilities is adequate in the opinion of the Board. Current Assets, Loans and Advances are of the value stated if realized in the ordinary course of business. Previous year figures have been regrouped / recast, wherever necessary. ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PARAGRAPHS 3, 4C AND 4D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956. (A) LICENSED AND INSTALLED CAPACITY AND ACTUAL PRODUCTION. CAPACITY Licensed Installed 2005 NA 24 PRODUCTION 2004 24 2005 -2004 -- (12) (13) (14) (15) DESCRIPTION Light Transport Aircraft Page 139 PARTICULARS IN RESPECT OF SALES / INCOME (Rs. in million) Units of Quantity (Nos.) Value 2005 2004 2005 2004 Light Transport Aircraft 3 36.696 Air Management -41.507 43.630 Aero-Structures and others -54.297 64.239 (C) DETAILS OF FINISHED GOODS IN NOS. (Light Transport Aircraft) (Rs. Million) Quantity Value 2005 0.1 2004 -0.1 2005 0.0192 2004 Nil 0.0192 (B) Opening Stock Closing Stock (D) VALUE OF RAW MATERIALS, COMPONENTS CONSUMED DURING THE YEAR. (Rs. in million) Percentage 2005 42 58 100 Value 2005 6.131 8.467 14.598 Imported Indigenous 2004 40 60 100 2004 4.500 6.750 11.250 (E) EARNINGS IN FOREIGN EXCHANGE DURING THE YEAR (Rs. in million) 2005 3.485 2004 ---(Rs. Million) 2005 2004 0.9857 0.3992 0.0073 -- Export of Goods Technical Services CIF Value Of Imports Of Raw Materials, Spares Expenditure in foreign currency on actual payment basis Travel expenses Page 140 Cash Flow Statement Year 2004-05 Rupees US$ A. Cash Flow Operating Activities Net Profit before tax and extraordinary items Depreciation Interest Operating Profit before Working Capital Changes Adjustments for : Trade & Other receivables Inventories Trade Payables Cash Generated Less : Interest Paid Cash Flow Before Extraordinary Items Net Cash from Operating Activities B. Cash Flow from Investing Activities Purchase of Fixed Assets Net Cash Used in Investing Activities C. Cash Flow from Financing Activities Proceeds from share capital Proceeds from long term borrowings Proceeds from Working Capital Finance Payment of Term Loan Net Cash Used in Financing activities Net increase in cash and cash equivalents Add : Cash and cash equivalents as at 1 April 2004 Cash and cash equivalents as at 31 March 2005 18,076,612 9,269,244 21,140,124 48,485,980 413,180 211,868 483,203 1,108,251 Year 2003-04 Rupees 7,255,013 9,168,808 32,538,133 48,961,954 Year 2002-03 Rupees (24,874,164) 13,780,304 38,493,236 27,399,376 11,699,476 (6,929,234) 4,406,841 57,663,063 21,140,124 36,522,939 36,522,939 (5,493,168) (5,493,168) 8,925,000 -(10,799,068) (22,566,101) (45,580,293) 6,589,602 777,045 7,366,647 267,417 (158,382) 100,728 1,318,013 483,203 834,810 834,810 (125,558) (125,558) 204,000 (246,836) (515,795) (1,041,835) 150,619 17,761 168,381 (19,879,507) 1,546,234 (1,195,120) 29,433,561 32,538,133 (3,104,572) 0 (481,878) (481,878) 4,250,000 6,376,781 7,222,414 (15,488,531) 2,360,664 (1,225,786) 2,002,831 777,045 37,818,006 2,317,000 4,920,027 72,454,409 38,493,236 33,961,173 33,961,173 (3,312,994) (3,312,994) -(24,862,098) (4,542,049) -(29,404,147) 1,244,032 758,799 2,002,831 Page 141 UNAUDITED FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED 30 JUNE, 2005 Rs. Million Quarter Correspondin Unaudited for ended g Quarter the year ended 30th June ended 30th 31st March, 2005 2005 June 2004 1 2 3 a) b) c) 4 5 6 7 8 9 10 11 12 Notes: 1 2 Net Sales / Income from operations Other Income Total Expenditure Consumption of materials Staff cost Other Expenditure Finance Charges Depreciation Profit / (Loss) after non-recurring items Provision for Tax – current Exceptional Item (Net) Net Profit Paid-up Equity Share Capital(Rs.5/- per Share) Reserves excluding Revaluation Reserves Earning per share (Rs) 39.812 0.218 27.868 0.031 132.500 2.138 13.505 5.911 4.799 5.311 2.341 8.163 --8.163 93.712 -0.044 6.005 4.726 5.453 7.082 2.312 2.321 --2.321 89.250 -0.013 35.729 20.941 29.483 21.140 9.269 18.076 0.800 13.939 31.215 93.712 6.894 0.167 The company has only one reportable segment viz. "Aviation" Book Profit tax, if any will be provided based on full year's performance. As at the beginning of the quarter there were no outstanding investor complaints. During the quarter , 297 investor complaints were received and redressed. The above results were taken on record by the Board of Directors at their meeting held on 18 July 2005. 3 4 Page 142 The Company Taneja Aerospace and Aviation Limited Lunkad Towers, S.No.199 Plot No.3, Viman Nagar Lohegaon, Pune 411014 Lead Manager Elara Capital Advisors Limited 33A Dollis Avenue, London N3 1B4 United Kingdom Tel: +44 2083431420 Fax: +442083434596 Depositary The Bank of New York 101 Barclay Street 22nd Floor New York, NY 10286 USA Custodian The Hongkong Shanghai Banking Corporation Limited S.K.Ahire Marg Worli Mumbai-400030 India. Listing Agent The Bank of New York Europe Limited One Canada Square 48th Floor London E14 5AL United Kingdom The Luxembourg Intermediary The Bank of New York (Luxembourg) S.A. Aerogolf Center 1A, Hoehenhof L-1736 Senningerberg Luxembourg Legal Advisors To the Lead Manager Campbell Hooper 35 Old Queen Street London, SW 1H9 JD England To the Company as to Indian law Rajani Associates F-4, Panchsheel 53, ‘C’ Road Churchgate Mumbai 400020 India Auditors of the Company Haresh Upendra & Co. Chartered Accountants 233,Patil Plaza Business Complex Parvati, Pune 411009 Page 143