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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 500108ISIN: INE153A01019INDUSTRY: Telecommunications - Service

BSE   ` 16.85   Open: 16.60   Today's Range 16.60
17.15
+0.20 (+ 1.19 %) Prev Close: 16.65 52 Week Range 14.90
31.25
Year End :2017-03 

1. FAIR VALUE DISCLOSURES

I Fair values hierarchy

Financial assets and financial liabilities measured at fair value in the statement of financial position are Companied into three Levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

Level 1: quoted prices (unadjusted) in active markets for financial instruments.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximize the use of observable market data rely as little as possible on entity specific estimates.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

II. Financial assets and liabilities measured at fair value - recurring fair value measurements

The Company does not have any financial instruments which are measured at Fair value either through statement of profit and loss or through other comprehensive income. instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

(i) Long-term fixed-rate and variable-rate receivables are evaluated by the Company based on parameters such as interest rates, individual creditworthiness of the customer and other market risk factors. Based on this evaluation, allowances are taken into account for the expected credit losses of these receivables.

(ii) The fair values of the Company's interest-bearing borrowings, loans and receivables are determined by applying discounted cash flows ('DCF') method, using discount rate that reflects the issuer's borrowing rate as at the end of the reporting period. The own nonperformance risk as at 31 March 2016 was assessed to be insignificant.

The Company's risk management is carried out by a central treasury department (of the Company) under policies approved by the board of directors. The board of directors provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity.

A. Credit risk

Credit risk is the risk that a counterparty fails to discharge an obligation to the company. The company is exposed to this risk for various financial instruments, for example by granting loans and receivables to customers, placing deposits, etc. The company's maximum exposure to credit risk is limited to the carrying amount of following types of financial assets.

- cash and cash equivalents,

- trade receivables,

- loans & receivables carried at amortized cost, and

- deposits with banks and financial institutions.

a. Credit risk management

The Company assesses and manages credit risk based on internal credit rating system, continuously monitoring defaults of customers and other counterparties, identified either individually or by the company, and incorporates this information into its credit risk controls. Internal credit rating is performed for each class of financial instruments with different characteristics. The Company assigns the following credit ratings to each class of financial assets based on the assumptions, inputs and factors specific to the class of financial assets.

A: Low

B: Medium

C: High

Cash & cash equivalents and bank deposits

Credit risk related to cash and cash equivalents and bank deposits is managed by only accepting highly rated banks and diversifying bank deposits and accounts in different banks across the country.

Trade receivables

Credit risk related to trade receivables are mitigated by taking bank guarantees from customers where credit risk is high. The Company closely monitors the credit-worthiness of the debtors through internal systems that are configured to define credit limits of customers, thereby, limiting the credit risk to pre-calculated amounts. The Group assesses increase in credit risk on an ongoing basis for amounts receivable that become past due and default is considered to have occurred when amounts receivable become past due in each business segment as follows:

(i) Cellular: Six months past due

(i) Basic & other services: Three years past due

Other financial assets measured at amortized cost

Other financial assets measured at amortized cost includes loans and advances to employees, security deposits and others. Credit risk related to these other financial assets is managed by monitoring the recoverability of such amounts continuously, while at the same time internal control system in place ensure the amounts are within defined limits.

b. Expected credit losses

The Company provides for expected credit losses based on the following:

Trade receivables

(i) The company recognizes lifetime expected credit losses on trade receivables using a simplified approach, wherein Company has defined percentage of provision by analysing historical trend of default relevant to each business segment based on the criteria defined above. And such provision percentage determined have been considered to recognize life time expected credit losses on trade receivables (other than those where default criteria are met).

Other financial assets measured at amortized cost

Company provides for expected credit losses on loans and advances other than trade receivables by assessing individual financial instruments for expectation of any credit losses. Since this category includes loans and receivables of varied natures and purpose, there is no trend that the company can draws to apply consistently to entire population For such financial assets, the Company's policy is to provides for 12 month expected credit losses upon initial recognition and provides for lifetime expected credit losses upon significant increase in credit risk. The Company does not have any expected loss based impairment recognized on such assets considering their low credit risk nature, though incurred loss provisions are disclosed under each sub-category of such financial assets.

b. Liquidity risk

“Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the nature of the business, the Company maintains flexibility in funding by maintaining availability under committed facilities. Management monitors rolling forecasts of the Company's liquidity position and cash and cash equivalents on the basis of expected cash flows. The Company takes into account the liquidity of the market in which the entity operates. In addition, the Company's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.”

Maturities of financial liabilities

The tables below analyse the Company's financial liabilities into relevant maturity Companying based on their contractual maturities for all non-derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

C. Market Risk

a) Foreign currency risk

The Company is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the US Dollar and Euro. Foreign exchange risk arises from recognized assets and liabilities denominated in a currency that is not the functional currency of any of the Company entities. Considering the low volume of foreign currency transactions, the Company's exposure to foreign currency risk is limited and the Company hence does not use any derivative instruments to manage its exposure. Also, the Company does not use forward contracts and swaps for speculative purposes.

* Holding all other variables constant

b) Interest rate risk Liabilities

The Company's policy is to minimize interest rate cash flow risk exposures on long-term financing. At 31 March 2017, the Company is exposed to changes in market interest rates through bank borrowings at variable interest rates. The Company's investments in Fixed Deposits all pay fixed interest rates.

Interest rate risk exposure

Below is the overall exposure of the Company to interest rate risk:

* Holding all other variables constant ii) Assets

The Company's fixed deposits are carried at amortized cost and are fixed rate deposits. They are therefore not subject to interest rate risk as defined in Ind AS 107, since neither the carrying amount nor the future cash flows will fluctuate because of a change in market interest rates.

c) Price risk

The Company does not have any significant investments in equity instruments which create an exposure to price risk.

2. CAPITAL MANAGEMENT

The Company' s capital management objectives are

- to ensure the Company's ability to continue as a going concern

- to provide an adequate return to shareholders

The Company monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of balance sheet.

Management assesses the Company's capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Company's various classes of debt. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

The Company has not declared dividend in current year or previous year.

* Owing to equity being negative as at 31 March 2017 and 31 March 2016, debt to equity ratio has been shown as nil.

Gratuity

The Company provides for gratuity for employees in India as per the Payment of Gratuity Act, 1972. Employees who are in continuous service for a period of 5 years are eligible for gratuity. The amount of gratuity payable on retirement/termination is the employees last drawn basic salary per month computed proportionately for 15 days salary multiplied for the number of years of service.

For the funded plan, the Company makes contributions to recognized debt base funds in India. The Company does not fully fund the liability and maintains a target level of funding to be maintained over a period of time based on estimations of expected payments. The expected contribution to the plan for next annual reporting period amounts to Rs, 19.36 crores (previous year - Rs, 20.28 crores). The weighted average duration of the defined benefit obligation as at 31 March 2017 is 7 to 8 years (31 March 2016: 7 to 8 years).

A Disclosure of gratuity

(i) Amount recognized in the statement of profit and loss is as under:

The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defind benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied which was applied while calculating the defined benefit obligation liability recognized in the balance sheet.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to prior period.

B. Compensated absences (funded)

The leave obligations cover the Company's liability for sick and earned leaves. The Company does not have an unconditional right to defer settlement for the obligation shown as current provision balance above. However based on past experience, the Company does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months, therefore based on the independent actuarial report, only a certain amount of provision has been presented as current and remaining as non-current.

These assumptions were developed by management with the assistance of independent actuarial appraisers. Discount factors are determined close to each year-end by reference to government bonds of relevant economic markets and that have terms to maturity approximating to the terms of the related obligation. Other assumptions are based on management's historical experience.

C. Defined contribution plans

Contributions are made to the Government Provident Fund and Family Pension Fund which cover all regular employees eligible under applicable Acts. Both the eligible employees and the Company make pre-determined contributions to the Provident Fund. The contributions are normally based upon a proportion of the employee's salary.

E. Gratuity and compensated absences is payable to the employees on death or resignation or on retirement at the attainment of superannuation age. To provide for these eventualities, the Actuary has used LIC (1994-96) Ultimate table for mortality in service and LIC (1996-98) table for mortality in retirement.

F. Mortality in service is assumed on the basis of LIC (1994-96) Ultimate table for mortality in service and LIC (199698) table.

G. The Company has taken an Insurance Policy for medical benefits in respect of its retired and working employees. The Insurance Policy is fully funded by the Company.

3. RELATED PARTY DISCLOSURES

Related parties where control exists:

i Company having substantial interest: nil

ii Key Management Personnel

Name Designation

Mr. N.K Yadav__C.M.D. upto 07.06.16_

Mr. P. K. Purwar CMD from 02.03.2017 & Director (Finance) upto 02.03.2017 & Additional charge of CMD from

08.06.16 upto 01.03.17 & Additional charge of Director (Finance) from 03.03.17.

Mr. Sunil Kumar Director (HR)

Mr. Sanjeev Kumar Director (Technical) from 02.07.2016

Mr. S.R. Sayal Company Secretary

Mr.Nirmal Kumar Joshi Executive Director, Delhi (01.12.16 to till date)

Mr. Sunil Kumar Executive Director, Delhi (01.05.16 to 30.11.16)

Mr. Harvesh Bhatia Executive Director, Delhi (01.04.16 to 30.04.16)

Mr. Pravin Punj Executive Director, Mumbai

iii Subsidiaries

Mahanagar Telephone (Mauritius) Limited ('MTML')

Millenium Telecom Limited

MTML International Limited (subsidiary of MTML)

MTML Data Limited (subsidiary of MTML)

iv Joint ventures

MTNL STPI IT Services Limited ('MSISL')

v Associates

United Telecommunications Limited ('UTL')

4. SEGMENT INFORMATION

The Company is in the business of providing telecommunication services in India and has two reportable segments viz. Basic and Cellular. As per para 4 of Ind AS 108 'Operating Segments”, if a financial report contains both the consolidated financial statements as well as the separate financial statements, segment information is required only in the consolidated financial statements.

The above disclosure has been determined to the extent such parties have been identified on the basis of information available with the Group. This has been relied upon by the auditors.

54A The Company is covered under Section 135 of the Companies Act, 2013 and accordingly constituted a Corporate Social Responsibility Committee of the Board. However, as the Company did not have average net profits based on the immediately preceding three financial years, the Company is not required to spend amounts towards Corporate Social Responsibility in terms of the 2013 Act.

5During the year the Company has made expenditure in foreign currency equivalent to Rs, 3.10 crores. Whereas earnings in foreign currency are Rs, 3.83 crores.

6 First time adoption of Ind AS

These are the Group's first financial statements prepared in accordance with Ind AS.

The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended 31 March 2017, the comparative information presented in these financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS balance sheet at 01 April 2015 (the Company's date of transition). An explanation of how the transition from previous GAAP to Ind AS has affected the Company's financial position, financial performance and cash flows is set out in the following tables and notes.

A Ind AS optional exemptions

1 Deemed cost for property, plant and equipment and intangible assets

Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognized in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind AS 38 Intangible Assets. Accordingly, the Company has elected to measure all of its property, plant and equipment and intangible assets at their previous GAAP carrying value.

2 Leases

Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material.

The Company has elected to apply this exemption for such contracts/arrangements.

3 Foreign currency translation reserve

The Group has deemed the cumulative translation differences for foreign operations at the date of transition to be zero. Adjustments to give effect to this are recorded against opening equity. After the date of transition, translation differences arising on translation of foreign operations are recognized in other comprehensive income and included in a separate translation reserve within equity.

4 Arrangements containing lease

The Group has elected to use facts and circumstances existing at the date of transition to determine whether an arrangement contains a lease. No such assessment was done under previous GAAP

5 Assets held for sale

The company has elected to measure non-current assets held for sale at the lower of carrying value and fair value less cost to sell at the date of transition and recognize directly in retained earnings any difference between that amount and the carrying amount of those assets at the date of transition.

6 Provision for decommissioning obligation

The Company shall account for the decommissioning, restoration or similar liabilities in the cost of the asset to which it related at the date of transition. The adjusted depreciable amount of the asset shall then be depreciated prospectively over its remaining useful life.

B Ind AS mandatory exemptions

1 Estimates

An entity's estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind AS estimates as at 01 April 2015 are consistent with the estimates as at the same date made in conformity with previous GAAP. The Company made estimates for Impairment of financial assets based on expected credit loss model in accordance with Ind AS at the date of transition as these were not required under previous GAAP:

2 Classification and measurement of financial assets and liabilities

The classification and measurement of financial assets will be made considering whether the conditions as per Ind AS 109 are met based on facts and circumstances existing at the date of transition.

Financial assets can be measured using effective interest method by assessing its contractual cash flow characteristics only on the basis of facts and circumstances existing at the date of transition and if it is impracticable to assess elements of modified time value of money i.e. the use of effective interest method, fair value of financial asset at the date of transition shall be the new carrying amount of that asset. The measurement exemption applies for financial liabilities as well.

Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. It is impracticable to apply the changes retrospectively if:

a) The effects of the retrospective application or retrospective restatement are not determinable;

b) The retrospective application or restatement requires assumptions about what management's intent would have been in that period;

The retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that existed at that time.

3 De-recognition of financial assets and liabilities

Ind AS 101 requires a first-time adopter to apply the de-recognition provisions of Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, Ind AS 101 allows a first-time adopter to apply the de-recognition requirements in Ind AS 109 retrospectively from a date of the entity's choosing, provided that the information needed to apply Ind AS 109 to financial assets and financial liabilities derecognized as a result of past transactions was obtained at the time of initially accounting for those transactions.

The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.

C Reconciliations between previous GAAP and Ind AS

Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.

Note - 1

Amortized cost instrument

Under previous GAAP, all financial assets and financial liabilities were carried at cost.

Under Ind AS, certain financial assets and financial liabilities are subsequently measured at amortized cost which involves the application of effective interest method. In applying the effective interest method, an entity identifies fees that are an integral part of the effective interest rate of a financial instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or financial liability. For certain financial liabilities, the fair value of the financial liability at the date of transition to Ind AS has been considered as the new amortized cost of that financial liability at the date of transition to Ind AS.

The aforesaid adjustment has been made for following categories of financial assets and financial liabilities:

(i) Security deposits received

(ii) Security deposits paid

(iii) Long term borrowings (including bonds issued)

(iv) Employee loans

(v) Other long term loans and receivables.

Note - 2

Expected credit loss

Under previous GAAP, provision for doubtful debts was recognized based on the estimates of the outcome and of the financial effect of contingencies determined by the judgment of the management of the Company. This judgment was based on consideration of information available up to the date on which the financial statements were approved and included a review of events occurring after the balance sheet date.

Under Ind AS, a loss allowance for expected credit losses is recognized on financial assets carried at amortized cost. Expected loss on individually significant receivables is assessed when they are past due and based on company's historical counterparty default rates and forecast of macro-economic factors. Other receivables have been segmented by reference to the industry of the counterparty and other shared credit risk characteristics to evaluate the expected credit loss. The expected credit loss estimate is then based on recent historical counterparty default rates for each identified segment.

Note - 3

Revenue recognition

Under previous GAAP, the amount of revenue was usually determined by agreement between the parties to the transaction.

Under Ind AS -

(i) Where a Company received any upfront fees (like activation or installation charges) which relate to provision of services over the entire term of customer contract, then such upfront charges shall be deferred and recognized over the contract term or where no term is defined, then over the expected customer relationship period.

(ii) Where the Group provides extended credit period to its customers and realization of amount receivable is deferred, then the fair value of consideration may be lower than the cash consideration received or receivable. In such cases, when the arrangement effectively constitutes a financing transaction, then revenue shall be recognized by discounting all future receipts using an imputed rate of interstice, rate that discounts future receipts to cash sales price or market rate of interest for instrument with similar terms.

Note - 4

Asset retirement obligation

The Group hires space for installing towers in the wireless business segment. The Group is under obligation to restore the premises to their original condition upon vacation of such premises at the end of lease term. Such obligation for asset restoration is computed and adjusted in the cost of asset as explained above.

Under Ind AS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Decommissioning liability is measured at best estimate of cost required to settle the liability, discounted to its present value at the time when asset becomes ready to use, using pre tax discount rate that reflects market assessment of time value of money between date of capitalization and time of settlement of such obligation. The adjustment made in fixed assets is depreciated over its expected useful life and interest recognized on corresponding provision using the aforementioned discount rate that accretes the provision to the amount expected to be settled in future.

Note - 5

Employee benefit obligations

The Group ascertained its employee benefit obligations for gratuity and pension towards combined service pension optees. The estimate for such liability was revised based on information that was available at the time when such estimates were made prior to the transition date. Accordingly, this resulted in prior period adjustment for revision of the estimate.

Further, under Ind AS, such long term provisions are required to be recognized at their present value by discounting future expected cash flows to their present value using pre-tax discount rate for similar liabilities. The unwinding of interest cost on such provisions is recognized as finance cost on a periodical basis.

Note - 6

Other adjustments

Other adjustments comprise of prior period adjustments amounting to Rs, 313.44 crores as at 31 March 2016 (31 March 2015: Rs, 257.23 crores) for transactions that were identified in the year ended 31 March 16 or 31 March 2017 but pertained to earlier periods and accordingly financial statements have been restated for such earlier periods.

Note - 7

Other comprehensive income

Under Ind AS, all items of income and expense recognized in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognized in profit or loss but are shown in the statement of profit and loss as 'other comprehensive income' includes re-measurements of defined benefit plans, foreign exchange differences arising on translation of foreign operations, effective portion of gains and losses on cash flow hedging instruments and fair value gains or (losses) on FVOCI equity instruments. The concept of other comprehensive income did not exist under previous GAAP

56. Discontinued operations

(a) Description

CDMA Service, which is reported under Cellular Segment as per Ind AS 108, 'Operating Segment' (Segment Reporting), was discontinued from 01 March 2016 and spectrum used for CDMA services has been surrendered for Rs, 458.04 crores to DoT. As at 31st March 2016, the carrying amount of the assets of CDMA was Rs,23.92 crore (Rs,82.59 crores) and its liabilities were Rs,185.77 crores (Rs,129.30 crores).

(b) Financial performance and cash flow information

The financial performance and cash flow information presented are for the year ended 31 March 2016 and 31 March 2017.

8 Certain Lands and Buildings capitalized in the books are pending registration/legal vesting in the name of the company and the landed properties acquired from DOT have not been transferred in the name of the company and in the case of leasehold lands, the documentation is still pending. Stamp Duty on the lands and buildings acquired from DOT is payable by DOT as per sale deed and in respect of properties acquired after 01 April 1986, the documentation shall be contemplated at the time of sale or disposal as and when effected.

9 Department of Telecommunications (DOT) has levied one time spectrum charges for the GSM and CDMA spectrum on MTNL and it also included the spectrum given on trial basis to the extent of 4.4 Mhz in 1800 Mhz frequency while calculating the spectrum charges. The calculations are further subject to change in accordance with the changes in the quantum of spectrum holding and the remaining valid period of license as per DOT MTNL has surrendered some of the spectrum allotted on trial basis and does not require to pay for CDMA spectrum since it holds only 2.5 Mhz spectrum in respect of CDMA. DOT has been apprised of the same and the matter is still under correspondence. Apart from this, the issue of charges for spectrum given on trial basis is also to be decided. Further MTNL has finally surrendered CDMA spectrum w.e.f. 28 February 2016.

Besides, ab-initio, the very policy of levy of one time spectrum charges by DOT itself has been challenged by private operators and is sub judice as on date whereas MTNL's case is also to be decided by DOT on the basis of outcome of the court case and the spectrum surrendered or retained

The finalization of charges and the modalities of payment are therefore to be crystallized yet and as on date the position is totally indeterminable as to the quantum of charges and also the liability.

Pending final outcome of the issue which itself is sub judice and non finality of quantum of charges payable, if at all, to DOT, no provision is made in the books of accounts as the amount is totally indeterminable. However the contingent liability of Rs, 3,205.71 crores is shown on the basis of the demand raised by DOT in respect of GSM.

10 License fee on the Adjusted Gross Revenue (AGR) was calculated and accounted for on accrual basis in respect of both revenue and revenue sharing with other operators till F.Y. 2011-12. As per the directions of Supreme Court given earlier in respect of calculation of License Fees and AGR, the matter was referred back to TDSAT. TDSAT vide its judgment dated 23.04.2015 set aside the impugned demands of DOT and DOT was directed to rework the license fee in the light of their findings. However, MTNL is not a party to the dispute and the AGR is calculated as per License Agreement.

The issue of deduction claimed in AGR upto F.Y 2011-12 in respect of revenue sharing on netting basis with BSNL has been taken up with DOT and BSNL while paying License Fees on actual payment basis from 2012-13 onwards. The impact of Rs, 140.36 crores on this account up to the year 2011-12 has been shown as contingent liability.

11 The Company had subscribed to 8.75% Cumulative Preference Shares of M/s. ITI Limited, amounting to Rs, 100 crores during the year 2001-02. As per the terms of allotment, the above Preference Shares were proposed to be redeemed in five equal installments.

Accordingly, five installments amounting to Rs, 20 crores each, aggregating to Rs, 100 crores have become redeemable, which have not been redeemed by ITI Limited. As per letter No.U-59011-10/2002-FAC dated 31.07.2009 issued by DOT, the repayment schedule of the above cumulative Preference Shares was deferred to 2012-13 onwards in five equal installments. The installments which were due in 2012-13 and 2013-14 have not been paid and necessary provision for the overdue installments has been made. Though in letter of Dept. of Telecom No: 20-37/2012-FAC.II dated 25-4-2014, the Cabinet Committee on Economic Affairs has approved the financial assistance to M/S ITI which includes the grants -in -aid for payment of commitments made by M/S ITI and as funds will be made available after budget 2014-15 is passed and hence repayment issue may be held in abeyance till such time. Subsequently M/S ITI vide letter no: ITI/Corp/Fin/MTNL dated 7 May 2014 informed that upon receipt of the financial assistance from the Govt. the redemption process would be initiated. Further DOT has also been reminded to issue directions to M/S ITI to redeem Preference Share capital and make repayment vide letter no.MTNL/ CO/GM (BB & IA)/ITI Inve / 2013-14 dated 06 May 2015, 21 July 2015, 27 August 2015 and 29 January 2016. Further a proposal for conversion of above cumulative Preference Shares to Equity Shares of ITI was given by ITI vide its letter no.K/B3/Pref-Shares/2016 dated 20 January 2016 but the same was rejected by MTNL and communicated to ITI vide letter no. MTNL/CO/GM(BB&IA)/ITI Investment/2013-14 dated 09 February 2016. Subsequently MTNL has initiated the required actions as per Section 55(3) of Companies Act 2013 effected from 1 June 2016 and the issue is taken up again vide letter no. MTNL/CO/BKG/ITI Investment/2013-14/127 dated 19 May 2017 for issuing of cumulative preference shares for the entire amount due inclusive of dividend.

12 Certain claims in respect of damaged/lost fixed assets and inventory has been lodged with Insurance Companies by MTNL but the settlement of the claims is pending. Final adjustment in respect of difference between amount claimed and assets withdrawn will be made in the year of settlement of claim.

13 The Company had claimed benefit under section 80IA of the Income Tax Act, 1961 for the financial year from 1996-97 to 2005-06. The appellate authorities have allowed the claim to the extent of 75% of the amount claimed. The Company has preferred appeals for the remaining claim before the Hon'ble Court of Delhi. The Company has retained the provision of Rs, 375.96 crores (previous year Rs, 400.33 crores) for this claim for the assessment years 1998-99, 1999-00 and 2000-2001, however, the demands on this account amounting to Rs, 243.22 crores (previous year Rs, 345.72 crores) for the assessment years 2000-01 to 2005-06 have been shown as contingent reserve to meet the contingency that may arise out of disallowances of claim of benefit u/s 80IA of Income Tax Act, 1961.

14 Useful life of assets revised in the year 2014-15. However due to computational error in respect of Electrical Installation and Rs, 89.66 crores has been effected in 2015-16 and Rs, 29.20 crores in 2016-17. Depreciation of Rs,49.09 crores on account of assets/component of assets, whose useful life is already exhausted before 01 April 2015, has been adjusted against opening retained earnings.

15 Litigations

a) “MTNL entered into contracts with M/s. M & N Publications Limited for printing, publishing and supply of telephone directories for Delhi and Mumbai unit for a period of 5 years starting from 1993. After printing and issue of 1993 (main & supplementary) and 1994 main directory, M/s. M & N Publications Ltd terminated the contract prematurely on 04 April 1996. MTNL, Mumbai & Delhi invoked Bank Guarantees on 09 April 1996, issued Legal Notice on 22 July 1996 and terminated the contract.

Sole Arbitrator has been appointed by CMD, MTNL. The Sole Arbitrator has since given his award on 09 April 2013 partly in favor of MTNL, Mumbai and on 31 July 2013 in favor of MTNL, Delhi. The claim and counter claim under arbitration will be accounted for in the year when the ultimate collection/payment of the same becomes reasonably certain.

M/s. M & N Publications has approached the Bombay & Delhi High Courts against the arbitration awards and MTNL also approached the Bombay & Delhi High Courts for balance amount due.

\b) As per directions of the Hon'ble Delhi High Court one UASL operator had paid to MTNL, Mumbai Rs, 124.93 crores and Rs, 33.99 crores in 2004-05 and 2005-06 respectively against the claim of Rs, 158.92 crores. The Company has recognized the amount realized as revenue in the respective period. The Hon'ble TDSAT has ordered for refund of Rs, 96.71 crores. MTNL has filed a Civil Appeal and application for stay of operation of the order of TDSAT in the Hon'ble Supreme Court of India in which Supreme Court directed on 08 May 2014 that TDSAT will review the impugned order on seeking of it by appellant. MTNL filed review application which had been disposed off by Hon'ble TDSAT vide order dated 27 May 2014 on which MTNL filed CWP no.022764 dated 16 July 2014 in Hon'ble Supreme Court and the same is pending. Meanwhile UASL operator also filed appeal in Hon'ble Supreme Court. The claim of Rs, 96.71 crores on this account has been shown as contingent liability.

c) MTNL Mumbai has received claims from M/s. BEST, Electricity supply provider categorizing MTNL at Commercial tariff instead of Industrial tariff. The claim has been made with retrospective effect for the period Feb-2007 to May-2009 in respect of HT connection and Jan-2002 to Apr-2011 in respect of LT connection. MTNL has represented to BEST for reconsideration which has not been accepted by BEST. Hence MTNL has approached Hon'ble Mumbai High Court and got a stay on the arrears claimed by BEST amounting to Rs, 20.82 crores. In the opinion of the management, there is remote possibility of the case being settled against MTNL.

d) In respect of Mobile Services Delhi, a sum of Rs, 25.89 crores claimed by TCL towards ILD charges for the period Oct-09 to March-10 has not been paid due to heavy spurt in ILD traffic towards M/S TCL. On technical analysis it was found that these calls were made to some dubious and tiny destination. These destinations do not confirm to international numbering plan of the respective countries and are not approved destinations as per approved interconnect agreement. Further these calls have not got physically terminated to the destinations. The observations were shared with M/S TCL. M/S TCL has also been advised that the balance, which relates to fraudulent calls, is not payable and accordingly no provision has been made in the books of accounts. The matter was handed over to the committee for investigation. Subsequently M/S TCL filed a case in Hon'ble TDSAT for recovery of the amount, decision for which is awaited. The claim of Rs, 172.83 crores on this account has been shown as contingent liability.

In addition, the Company is subject to legal proceedings and claims, which have arisen in the ordinary course of business. The Company's management perceives that these legal actions, when ultimately concluded and determined, will not have any material impact on the Company's financial statements.

16 Settlements with BSNL:

a) The amount recoverable from BSNL is Rs, 5,671.54 crores ( previous year Rs, 5,117.82 crore) and amount payable is Rs, 1,941.76 crores ( previous year Rs, 2,019.43 crores). The net recoverable of Rs, 3,729.78 crores (previous year Rs, 3,098.39 crores) is subject to reconciliation and confirmation.

b) Certain claims of BSNL on account of Signaling charges Rs, 21.93 crores (previous year Rs, 21.93 crores), Transit tariff Rs, 25.19 crores ( previous yea Rs, 25.19 crores), MP Billing Rs, 6.01 crores (Rs, 6.01 crores), Service Connections Rs, 40.15 crores (previous year Rs, 40.15 crores), IUC Rs, 10.14 crores ( previous year Rs, 10.14 crores) and IUC from Gujrat Circle Rs, 1.11 crore (previous year Rs, 1.11 crore) are being reviewed. Pending settlement of similar other claims from BSNL, no provision is considered necessary.

c) Delhi Unit has accounted for the expenditure on account of telephone bills of service connections raised by BSNL towards MTNL for the period from 01 October 2000 to 30 September 2006 to the tune of Rs, 9.80 crores ( previous year Rs, 9.80 crores) on the basis of actual reimbursement made for subsequent periods against the disputed claim of Rs, 31.27 crores ( previous year Rs, 31.27 crores), since no details / justifications are received till date from BSNL in spite of repeated persuasion. The balance amount of Rs, 21.47 crores ( previous year Rs, 21.47 crores) is shown as contingent liability.

17 Subscribers' dues and deposits:

a) The total balance in the subscribers' deposit accounts, in all the units, is to the tune of Rs, 321.75 crores (previous year Rs, 346.63 crores). Out of this, balance in Delhi Unit amounting Rs, 280.78 crores ( previous year Rs, 283.87 crores) is under reconciliation.

b) Interest Accrued and Due on the aforesaid subscriber deposit accounts to the tune of Rs, 0.10 crores (previous year Rs, 0.11 crores) is subject to reconciliation with the relevant subsidiary records in Delhi unit.

c) Other current liabilities include credits on account of receipts including service tax from subscribers amounting to Rs, 34.58 crores ( previosu year Rs, 13.79 crores), which could not be matched with corresponding debtors or identified as liability, as the case may be. Appropriate adjustments/ payments shall be made inclusive of service tax, when these credits are matched or reconciled. Therefore, it could not be adjusted against making provision for doubtful debts.

18 The amounts of receivables and payables (including NLD / ILD Roaming operators) are subject to confirmation and reconciliation.

19. The matching of billing for roaming receivables / payables with the actual traffic intimated by the MACH is being done. Further the roaming income is booked on the basis of actual invoices raised by MACH on behalf of MTNL. Similarly the roaming expenditure is booked on the basis of actual invoices received by MTNL from MACH on behalf of the other operators. However, regarding collection, the payment is directly received in the bank from other operators for varying periods.

20 Settlements with DOT:

a) Amount recoverable on current account from DOT is Rs, 7,318.54 crores (previous year Rs, 8,109.09 crores) and amount payable is Rs, 54.93 crores (previous year Rs, 49.42 crores). The net recoverable of Rs, 7,263.61 crores (previous year Rs, 8,059.67 crores) is subject to reconciliation and confirmation. There is no agreement between the MTNL and DOT for interest recoverable/Payable on current account. Accordingly, no provision has been made for interest payable/receivable on balances during the year except charging of interest on GPF claims receivable from DOT.

b) Deposits from applicants and subscribers as on 31 March 1986 were Rs, 81.32 crores ( previous year Rs, 81.32 crores) in Mumbai unit as intimated provisionally by DOT. At the year end, these deposits amounted to Rs, 103.28 crores (previous year Rs, 103.28 crores), the difference being attributable to connections/refunds granted in respect of deposits received prior to 31 March 1986. Balance on this account still recoverable from DoT is Rs, 55.85 crores (previous year Rs, 55.85 crores).

c) The total provision for Leave Encashment is Rs, 1,091.05 crores up to 31 March 2017 ( previous year Rs, 1,038.43 crores). Out of this, an amount of Rs, 65.37 crores ( previous year Rs, 65.37 crores ) and Rs, 43.37 crores (previous year Rs, 43.37 crores ) is recoverable, from DOT in respect of Company C & D and Company B employees respectively for the period prior to their absorption in MTNL.

d) An amount of Rs, 1,775.54 crores (previous year Rs, 1,946.56 crores) towards GPF contribution is recoverable from DOT as on 31 March 2017. The amount pertains to Company C& D and Company B employees absorbed in MTNL w.e.f. 01 November 1998 and 01 October 2000 respectively.

21 As per gazette notification no.GSR 138(E) dated 3rd March 2014 pensionary benefits in respect of absorbed combined service pension optees are being paid by the Government of India on BSNL pay scales. Gratuity provision for other than combined service pension optee employees of MTNL, and Leave Encashment provision for all of the employees of MTNL has been made on the basis of actuarial valuation.

22 There is no indication of any impairment of assets of the Company, on the basis of the company as a whole as a CGU under Indian Accounting Standards - 36 “Impairment of assets” as specified under Section 133 of the Companies Act, 2013.

23 As per the accounting policy, Bonus/ Exgratia is paid based on the productivity linked parameters and it is to be provided accordingly subject to the profitability of the Company. In view of losses, no provision for Bonus/ Exgratia has been made during the year.

24 Debenture Redemption Reserve: In view of losses, Debenture Redemption Reserve had not been created in respect of Redeemable Non-Convertible Debentures since 2014-15 (in the form of Bonds).

25 There is no delay in transferring amount, required to be transferred, to Investor Education and Protection Fund by the Company.

26 The Company has no foreseeable losses, which requires provision under applicable laws or accounting standards on long-term contracts and not dealing into derivative contracts at all.

27 The Bank Reconciliation Statements as at 31 March 2017 include unmatched/unlinked credits/debits amounting to Rs, 2.33 crore (previous Rs, 3.31 crore) and Rs, 1.04 crore (Rs, 3.53 crore) respectively. Reconciliation and follow up with the bank to match/rectify the same is in process.

28 The Company has incurred a loss of ' 2,941.08 crores during the year under report. Although the net worth continues to be positive at the end of the year, considering the negative net worth resulted at the end of 3rd quarter of the year under report and also the positive net worth at the end of the year being not that tangible, the management has made an assessment of an entity's ability to continue as a going concern. The company has taken up a VRS proposal with the Govt., in the current financial year for voluntary retirement of around 5,312 employees of all grades going to retire in next 10 years to reduce the legacy staff costs inherited on account of absorption of employees recruited under government w.e.f. 1 November 1998 and also on 1 October 2000, which has been under active consideration of Govt. of India. On approval and implementation of the scheme, the company is likely to reduce the staff expenses which will help the company to reduce its costs and thereby losses. Besides, the Company has taken for monetization of the lands and buildings of the company which is also under consideration of the Govt. In addition to this, the case for approval for sovereign guarantee cover of Rs, 5,500 crores has also been sent to the Government for the purpose of swapping of long term and short term loans by issuance of Govt. Guaranteed bonds. This debt restructuring would bring down the finance costs. All these cases are under consideration of the Govt. Besides, the CMTS License which was earlier valid up to 10 October 2017, the validity is revised by Govt. up to 5 April 2019 which facilitates the continuation of services without any additional upfront Spectrum cost till the year 2019 and in addition the proposal for monetization of assets is also taken up with Govt.. All these aspects are considered by the management while preparing the financial statements, and an assessment of an entity's ability to continue as a going concern is made accordingly.

29. The diminutions in value of investments in subsidiaries, associates and joint ventures are considered as temporary in nature.

30. The Company has reclassified certain items of assets and liabilities to comply with the requirements of Ind AS. This has no resulting impact on equity and net profit.