MTNL

Tw enty Second Annual Report 2007-08

MAHANAGAR TELEPHONE NIGAM LIMITED

(A Nav Ratna Company)
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MISSION OF MAHANAGAR TELEPHONE NIGAM LIMITED

"To provide in its area of operation, in a leading way, world class telecom services which are demanded, keeping always the customer's delight as its aim, so that it continues to be the premier Indian Telecom Company".

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MTNL CONTENTS
Page No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Board of Directors Statutory Auditors, etc. Performance Highlights Notice Directors' Report Corporate Governance Report Management Discussion & Analysis Auditors' Report Annual Accounts (Balance Sheet, Profit & Loss Account, Consolidated Balance Sheet, Profit & Loss Account & Cash Flow Statement) Annexure to Directors Report-Addendum to Directors' Report-2007-08 Comments of Statutory Auditors & Management replies thereto Annexure to Directors' Report - Comments of C&AG Replies of Management to the Comments of C&AG Statements Pursuant to Section 212 of the Companies Act, 1956 Relating to subsidiary companies Millennium Telecom Limited - Directors' Report, Auditors' Report, Balance Sheet, Cash Flow Statement & Comments of C&AG Mahanagar Telecom Mauritius Limited Auditors' Report, Balance Sheet ECS Mandate Form Proxy & Admission Forms 4 5 6 7-10 11-21 22-34 35-37 39-53

54-99

10.

100-105 106-107 108-109

11. 12. 13.

110-111

14.

112-133

15.

134-148 149 151

16. 17.

MTNL BOARD OF DIRECTORS

(AS ON 30.08.08)
Shri R.S.P. Sinha Shri Kuldip Singh Smt. Anita Soni Sh. S.P. Pachauri Dr.S.Balasubramanian Shri J.S. Deepak Smt. Usha Sahajpal Smt. Anuradha Joshi Durgapal Chairman & Managing Director Director (Technical) Director (Finance) Director (HR) Director Director Director Director

BOARD COMMITTEES
Audit Committee Dr.S.Balasubramanian Smt. Usha Sahajpal Smt. Anuradha Joshi Durgapal Smt. Anita Soni, Director (Finance) Sh. S.R. Sayal, Company Secretary Investors/Shareholders Grievances Committee Dr.S.Balasubramanian Smt. Usha Sahajpal Smt. Anita Soni, Director (Finance) Sh. S.R. Sayal, Company Secretary Chairman Member Member Permanent Invitee Secretary

Chairman Member Member Secretary

COMPANY SECRETARY Shri S.R. SAYAL

REGISTERED AND CORPORATE OFFICE Jeevan Bharti Building, Tower I, 12th floor, 124 Connaught Circus, New Delhi - 110 001 Tel: 91 11 23742212 Fax: 91 11 23314243 Website : www.mtnl.net.in / www.bol.net.in 4

MTNL
STATUTORY AUDITORS
M/s Dhawan & Co. Wegmans House 21, Veer Savarkar Block Vikas Marg,Shakarpur NEW DELHI - 110 092

BRANCH AUDITORS
Delhi M/s Gandhi Minocha & Co. Chartered Accountants 82, Shakti Apartments Ashok Vihar, Delhi-110 017 Mumbai C.V.K. & Associates Chartered Accountants No.2, Samarath Apartments D.S. Baprekar Road, Dadar (W), Mumbai-400 028

BANKERS
State Bank of India, New Delhi/Mumbai Indian Overseas Bank, New Delhi/Mumbai Punjab National Bank, Mumbai Oriental Bank of Commerce, New Delhi Central Bank of India, Mumbai Dena Bank,Union Bank of India, Mumbai United Bank of India, New Delhi Syndicate Bank, Mumbai, Vijaya Bank, New Delhi/Mumbai Indian Bank, New Delhi,ICICI Bank, Mumbai UTI Bank, Mumbai

REGISTRARS AND TRANSFER AGENTS

M/s. Beetal Financial & Computer Services (P) Ltd. 3rd Floor, Beetal House 99,Madangir, Behind Local Shopping Centre Near Dada Harsukhdas Mandir, New Delhi - 110 062. Ph: 011-29961281-82, Fax : 011-29961284 E-mail : beetal@rediffmail.com Investor Helpdesk Ph : 011-23765269, Fax : 011-23716655 E-mail : mtnligrc@bol.net.in

22nd Annual General Meeting on Friday, September 26, 2008 at 3.00 p.m. at FICCI Golden Jubilee Auditorium, Tansen Marg, New Delhi-110001
The Annual Report can be accessed at www.mtnl.net.in 5

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PERFORMANCE HIGHLIGHTS
(2007-08)

Particulars Total Income Total Expenditure Revenue Sharing License Fees Profit before tax and Prior Period Adjustment Dividend Earnings Per Share (EPS)

(Rs. In Million) 53299.33 46982.84 8042.41 4215.11 6316.49

2520.00 Rs. 9.32

MTNL N OT I C E
Notice is hereby given that the twenty second Annual General Meeting of the members of Mahanagar Telephone Nigam Limited will be held on Friday, the 26th September 2008 at 3.00 P.M. at FICCI Golden Jubilee Auditorium, Tansen Marg, New Delhi-110 001 to transact the following business:I. 1. ORDINARY BUSINESS: To receive, consider and adopt the audited Balance Sheet of the company as at 31st March, 2008 and the Profit and Loss Account for the year ended on that date together with the reports of the Auditors and Directors and the comments of the Comptroller and Auditor General of India thereon u/s 619(4) of the Companies Act, 1956. To confirm interim dividend and declare final dividend on equity shares. To appoint directors in place of those retiring by rotation: To appoint a director in place of Dr. S. Balasubramanian, who retires by rotation and being eligible, offers himself for reappointment. To appoint a director in place of Sh J. S. Deepak, who retires by rotation and being eligible, offers himself for reappointment To fix the remuneration of the Statutory and Branch Auditors appointed by the Comptroller & Auditor General of India for the Financial Year 2008-09. SPECIAL BUSINESS : To pass, with or without modifications, the following Resolution as Ordinary Resolution:"RESOLVED THAT Smt. Usha Sahajpal who was appointed as non-official part-time director of the company by the Govt. of India, D.o.T, vide their letter dated 30th April 2008 for a period of 3 years and whose appointment was ratified by the Board in terms of Article of Association of the company as Additional Director of the company from 30th April 2008 till the next AGM, be and is hereby appointed as Director of the Company from the date of AGM i.e. 26th September 2008 in terms of D.O.T.'s aforesaid letter dt. 30th April 2008 subject to retirement by rotation, as per provisions of Companies Act." Explanatory statement pursuant to Section 173 of the Companies Act, 1956 is enclosed.

2. 3.

4.

II.

By order of the Board For MAHANAGAR TELEPHONE NIGAM LIMITED

(S.R.SAYAL) Company Secretary Place : New Delhi Date : 2-9-2008

MTNL
Explanatory statement pursuant to Section 173 of the Companies Act, 1956 for the Special Business to be conducted at the AGM. 1. Smt. Usha Sahajpal was appointed as non-official part-time director of the company by the Govt. of India, D.o.T, dt 30th April 2008 for a period of 3 years. In terms of Article of Association of the company Smt. Usha Sahajpal was appointed as Additional Director of the company from 30th April 2008 till the next AGM, subject to the provisions of the Companies Act. Accordingly, Smt. Usha Sahajpal ceases to hold office of Director at this AGM, and may be appointed as Director of the Company from the date of AGM i.e. 26th September 2008 in pursuance to D.O.T.'s aforesaid letter dt. 30th April 2008 subject to retirement by rotation as per the provisions of Companies Act. Mrs. Usha Sahajpal is having Master of Arts (Political Science) degree from Delhi University. She had joined Indian Audit and Accounts Service from 1966 to 1976 and Indian Civil Accounts Service from 1976 to 2003 (till retirement). During her tenure, she has held various positions in the Indian Audit and Accounts Department as Controller of Accounts in various ministries of the Govt. of India, Finance Advisor to the Employees Provident Fund Organization, Ministry of Labour, Chief Controller of Accounts, Ministry of Industry, Jt. Secretary and Finance Advisor, Ministry of Agriculture, Principal Chief Controller of Accounts, Central Board of Excise and Customs, Department of Revenue, Ministry of Finance and Controller General of Accounts, Ministry of Finance. She has retired from service on 31st March 2003 as Controller General of Accounts, Ministry of Finance, Govt. of India. She is presently nonofficial, part-time Director on the Board of South Eastern Coal Fields Ltd. (a subsidiary of Coal India Ltd.), Member, Finance Committee, Jawahar Lal Nehru University, Delhi and Member of other institutes/ societies, NGOs, etc. In terms of D.o.T.'s letter dated 30th April 2008 the tenure of appointment of Smt. Usha Sahajpal is 3 years. Therefore the appointment of Smt. Usha Sahajpal is recommended for approval. Smt. Usha Sahajpal is interested in the resolution. None of the other directors except Smt. Usha Sahajpal are personally interested in the resolution.

By order of the Board For MAHANAGAR TELEPHONE NIGAM LIMITED

(S.R.SAYAL) Company Secretary Place : New Delhi Date : 2-9-2008

MTNL NOTES
1. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER OF THE COMPANY. PROXIES IN ORDER TO BE VALID MUST BE LODGED AT THE REGISTERED OFFICE OF THE COMPANY AT 12TH FLOOR, TOWER-1, JEEVAN BHARTI BUILDING, 124, CONNAUGHT CIRCUS, NEW DELHI-110001, NOT LESS THAN 48 HOURS BEFORE COMMENCEMENT OF THE MEETING. PROXY FORM IS ANNEXED. The Register of members and Share Transfer Books will remain closed from 24th September to 26th September 2008. (both days inclusive). (i) Final Dividend, if any, approved at the 22nd Annual General Meeting of the Company will be paid to those shareholders whose names appear: (a) As beneficial owners as at the end of the business hours on 23rd September 2008 as per the list to be furnished by the Depository in respect of the shares held in electronic form, and (b) As members in the register of members of the company after giving effect to all valid share transfers in physical form lodged with the company on or before 23rd September 2008. (ii) Members are advised to avail ECS facility for the credit of dividend directly to their bank accounts. This facilitates quick credit of the dividend amount and eliminates any delay or loss of the dividend warrants in the transit and also ensures safety against fraudulent encashment. (iii) While opening a depository account with the participants of NSDL/CDSL you may have given your bank account details, which will be used by your company for printing of dividend warrants. This ensures that the dividend warrants, even if stolen or lost, cannot be used for any purpose other than for depositing the money in the account specified on the dividend warrant. This ensures safety for investors. However, you may want to receive dividend in an account other than the one specified, while opening the depository account. You may change/correct bank account details with your depository participant accordingly. We also request you to kindly give MICR code of your bank to your depository participant. 4. The Members are requested to notify change of address, if any, to:(i) The company's Registrar & Transfer Agent, M/s. Beetal financial & Computer Services (P) Ltd. 3rd Floor, Beetal House 99,Madangir, Behind Local Shopping Centre Near Dada Harsukhdas Mandir, New Delhi - 110 062 in case the shares are held in physical form and (ii) to the respective Depository Participant (DP) with whom the members are having their Demat Accounts, in case the shares are held in electronic form. 5. 6. 7. It will be appreciated that queries, if any, on the accounts and operations of the company are sent to the company 10 days in advance of the meeting so that the answers could be made readily available. As a measure of economy, copies of Annual Report will not be distributed at the Annual General Meeting. Members are therefore, requested to bring their copies of the Annual Report to the meeting. Members are requested to fill up their name, folio No./ID No. and to affix their signature at the space provided on the attendance sheet (given at the end of the Annual Report) and hand over the same at the entrance of the place of the meeting. 9

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8. Members, who are holding shares in identical order of names in more than one folio, are requested to write to the Registrar & Transfer Agents of the company, enclosing their share certificates to enable the company to consolidate their holding in one folio. The share certificates will be returned to the members after making necessary endorsement in due course. In terms of Section 109A of the Companies Act, 1956, nomination facility is available to individual shareholders. Members holding shares in physical form may nominate a person in respect of all the shares held by them whether singly or jointly. Members who hold shares singly are advised to avail of the nomination facility by filing up the prescribed form.

9.

10. All the shareholders who have not yet got their shares demated, are requested to get their shares demated in their own interest as it will be easier for them to trade as well as maintain the security. 11. The Board had recommended a final Dividend of 10% as its meeting held on 31st July, 2008. The dividend, if approved by the Member at the said Annual General Meeting, will be posted by 25th October, 2008 to those Members, whose names appear on the Register of Members of the Company as on 23rd September, 2008. However, in respect of shares held in electronic form, the dividend will be payable to those persons whose names appear as beneficial owners as at the closure of the business hours on 23rd September, 2008 as per details thereof to be furnished by the depositories. 12. Pursuant to Section 205A(5) and 205C of the Companies Act, 1956, the Company has transferred the unpaid/unclaimed amount of dividends paid up to 1999-2000, to the General Revenue Account/Investor Education and Protection Fund of the Central Government. The unpaid / unclaimed amount of Dividend declared on 28th September, 2001 for the financial year 2000-01 will be transferred to the Investor Education and Protection Fund (IEPF) of the Central Government by 27th September, 2008. Members who have not encased their dividend warrants pertaining to the said year may approach the Company or its Registrar & Share Transfer Agent for obtaining payment thereof.

Please note that no gifts of any sort would be distributed at the AGM

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MTNL DIRECTORS' REPORT

To The Shareholders of of Mahanagar Telephone Nigam Limited Dear Shareholders, Your Directors have pleasure in presenting the 22nd Annual Report of your Company together with the Statement of Accounts and Auditors' Report as well as comments of Comptroller and Auditor General on the Accounts for the financial year ended on March 31, 2008. HIGHLIGHTS India has set on to join a handful elite of nations offering third-generation (3G) mobile telephony services as the Govt. announced the auction of slices of spectrum to offer the high-value services which give the Telecom Industry a chance to earn higher revenue per user and your company is ready to launch the 3G services soon. The company is well equipped to keep pace with the competition in the growing economy of the country. During the year there is a tremendous increase in the cellular subscriber base. The company has continued to provide a sustained push to mobile services through an expanding network and a large range of services. The Company strives for enhancement of the shareholders value. We strengthened our leadership in GSM mobile services by improving on market shares in both the metros. The net profit during this year has gone down by Rs 948.45. million as compared to previous year which is mainly due to revision of tariff. The reduction in tariff is costing your company dearly. But inspite of all the facts, due to the hard work of our officials, we have almost maintained our profit in the last three years at the similar level. There is a decline in income from services as compared to previous year. This is partly attributed to the decline in tariffs due to heavy competition. The downward trend of the Fixed line subscribers is still an area of concern for the company.

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FINANCIAL RESULTS
Sources and application of funds for the year under review are given below:(Rs. in Million) 2007-08 Income from Services Expenditure (excluding` Interest & prior period Adjustments) Operating Profit Other Income Interest Profit before tax Tax provision for the year Prior Period Adjustments Net Profit for the year Profit available for Appropriation Interim/Proposed final dividend Dividend Tax Transfer to: a) Contingency Reserve b) Reserve for R&D c) General Reserve SOURCES AND USES OF FUNDS Authorised Capital Issued, Subscribed & paid-up Capital Reserves & Surpl Secured and unsecured loan Deferred Tax Liability (Net) REPRESENTED BY Fixed Assets* (Net Block) Investment Net Current Assets Deferred Revenue Expenditure Capital Work-in-Progress 47225.17 46955.02 270.15 6074.16 27.82 6316.49 2248.31 (1800.73) 5868.91 5868.91 2520.00 428.27 --2920.64 2006-07 49093.18 47881.54 1211.64 6735.30 20.11 7926.83 3266.50 (2157.03) 6817.36 6817.36 2520.00 372.14 --3925.22

8000.00 6300.00 112913.58 4865.16

8000.00 6300.00 109992.96 6204.79

63197.96 5573.92 44065.31 1591.70 9649.85

64036.68 4414.03 44186.71 2216.51 7643.82

Note : Previous year's figures have been re-grouped/re-cast wherever considered necessary. 12

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DIVIDEND
The Company has paid an interim dividend @ 30 % for the year 2007-08 and the Board is pleased to recommend payment of final dividend @ 10% i.e. total 40% on the paid up equity capital of Rs. 6300 million. The dividend will absorb a sum of Rs. 2520 million excluding dividend tax.

SUBSIDIARY COMPANIES
Your Company has two subsidiaries viz. Millennium Telecom Ltd. (MTL) at Mumbai and Mahanagar Telephone Mauritius Ltd. (MTML) at Mauritius. The reports and accounts of subsidiary companies pursuant to section 212 of the Companies Act, 1956 are annexed.

(i) Millennium Telecom Ltd. (MTL)

MTL is handling the project for laying submarine cable from India to south East Asia and Middle East with ultimate intent to extend eventually to the USA and Europe. By investing in this project, MTNL & BSNL (would be joint venture partner with 50% equity participation in capital of MTL) can get International Bandwidth to support its own network demand as well as to lease it to others at very competitive rates. Thus, MTNL & BSNL would not be dependent on other operators for international bandwidth.

(ii) Mahanagar Telephone Mauritius Ltd. (MTML)

The company was incorporated as private domestic company at Mauritius on 14.11.2003 with an authorized capital of MUR 600M and the paid up capital as on 31.3.2008 stands as MUR 436.5 Million. The company is having License from the telecom regulatory ICTA for Fixed Telephone Services, Mobile Services, International Long Distance Services and Internet Services. It has Installed 100K state of art technology CDMA IX & IX EVDO switch with a radio network of 51 Base stations. The system is equipped to provide value added services viz., SMS, DATA, Multi-media service * The following Telecom Services are being provided by MTML as of today: Fixed Wireless Telephone Mobile International Long Distance Calls. Internet through Fixed Wireless Phones and Data cards The Company is second operator in Fixed Line and third operator in Mobile and one among the seven ILD operators.The company is equipped with call centre (10 positions) and 11 Customer Care centres all over the island and started its operations in the year 2005-2006 partially. The full operations of the company started from March 2007. The company is having the following customer base as of 31.3.2008. Fixed Wireless Phones Mobile International Long Distance (through CAC) Internet Customers 26,710 8,901 5,708 2,993

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REVENUE
The company earned a gross revenue of MUR 188.8M from services during the year 2007-08 and just broke even during the year 2007-08. The Fixed assets of the company as of 31.3.2008 MUR 445.27 M.

JOINT VENTURES
Your company has two joint ventures viz. UNITED TELECOMMUNICATIONS LTD. (UTL) & MTNLSTPI IT SERVICES Ltd.

(i) UNITED TELECOMMUNICATIONS LTD. (UTL)

UTL is a Public Limited Company registered in Nepal and has been promoted by three telecom majors viz. MTNL, TCIL & VSNL (TATA) and Vishal Group of Nepal. Initially, UTL deployed state of art 3G CDMA 2000 1xWLL equipments for providing Basic Telephone Service based on WLL technology in Kathmandu valley consisting of five municipalities namely Kathmandu city, Lalitpur, Bkaktapur, Thimi and Kitipur. For serving customers in the valley, UTL has established a modern customer service centre called Wave Gallery in Pitlisadak for providing registration and other commercial services to its customers. Subsequently five more Customer Service Centres in Hattisar, Chhabhil, Balaju, Patan, Ghataghar and Kakhtapur were establilshed in valley. UTL has set up first call centre for telecom in Nepal with IVRS system for customers support services like FRS (Fault Repair Service), DQ (Directory Enquiry), PRS (Payment Reminder System) etc. UTL installed international Gateway Switch from M/s. Alcatel (France/India) and Satellite Earth Station from M/s. GSI (USA) for provision of international customers through its own international gateway (consisting of satellite earth station and international gateway switch) in April 2004. As on date, UTL has expanded its services in Hetuda, Birganj, Butwal, Bhairawah, Pokhara, Banepa, Bharatpur/Narayanagarh, Birat Nagarm Itahari and Dharan. In another couple of months, UTL services will be available in Simra and Damak. UTL was adjudged as one of the highest payer of taxes towards Customs Duty, VAT, TSC, TDS etc and UTL by this way has remitted more than NRs 20 crore to the Government treasury. As on date, Customer base is about 115,000. The number of PCOs are about 1200. UTL is planning to deploy Value Added Services (VAS) viz PDSN(high speed internet of 144 KBPS), SMS, etc and also the expansion, upgradation of existing network including IN platform. Also provision of prepaid services is on anvil. The network covers adjourning villages to the cities wherever its services are in operation, 283 villages have been covered having customer base of 16,559.

(ii) MTNLSTPI IT SERVICES Ltd.

MTNL has joined hands with Software Technology Parks of India (STPI), a society under the Ministry of Information Technology as 50:50 partners. The main objective of the company is to undertake all such activities that are required to make domain "India.in" popular. The joint venture was incorporated on 3103-2006 under the Companies Act 1956, with authorized capital of Rs. 50 Crores and at present the paid up capital is Rs. 5 Lacs. The project under this joint venture is under way. MTNL-STPI JV project of data centre at Chennai will provide services like messaging, web-hosting, application hosting, Web-farming application etc. The company is in the process of recruiting its own staff and will be recruiting the best professionals from software industry. The Company has obtained 'Certificate of Commencement of Business' from ROC on 14-12-2007. 14

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SYSTEM STATUS OF MTNL AS ON 31st MARCH 2008.
S. NO. 1 2 PARTICULARS Number of Exchanges Equipped Capacity* Digital Lines DLC Capacity Digitalization % lines 3 4 DELs (Including WLL Fixed and GSM) DELs a) Wired Lines. b) WLL-Fixed c) Garuda (FWT) d) WLL-Mobile e) Cellular Mobile (GSM) 5 6 7 DLC (Nos) Leased Circuits PCOs Local STD Total 8 9 10 11 Tax capacity Tandem ISDN Internet connection a) Pre paid b) Post paid c) Broadband (including ADSL) 12 13 14 15 16 Waiting List OFC (in Route Kms) OFC (in Fibre Kms) IPTV VOIP 19892 593825 232169 Nil 7172.383 201349.534 3481 1523 7407 735182 338422 Nil 5866.132 138992.902 3499 1302 27299 1329007 570591 Nil 13038.515 340342.436 6980 2825 57340 25352 82692 150000 370500 8945 134794 21849 156643 155200 386060 16748 192134 47201 239335 305200 756560 25693 100966 1478440 425 15273 59950 1763411 509 35900 160916 3241851 934 51173 1574417 27640 2101452 103572 3675869 131212 DELHI 342 5135129 5135129 160152 100% 3181463 MUMBAI 210 4734081 4734081 117734 100% 4028385 TOTAL 552 9869210 9869210 277886 100% 7209848

*(including WLL fixed ,WLL mobile & GSM) 15

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CUSTOMER CARE AND AFTER SALE SERVICES
MTNL pays utmost attention to customer care and after sales services. The customer care help lines for all its services have been strengthened and more trained staff has been posted on these help lines as well as in Sanchar Haats to provide on the spot solutions to all the requirements of the customers. With a view to provide world class customer care services, the company has recently increased the seats in all its call centers by deploying qualified professionals.

HUMAN RESOURCE DEVELOPMENT

The Telecom industry in India is undergoing through a volatile phase and fate of the organizations is being written and re-written everyday. In the recent past, we have identified Human Resources as one of the strategic partners for rapid business strides leading to success in all strata of our operations. During last fiscal also we continued our endeavors towards world standards HR policies. We have always considered our Manpower as one of our greatest assets and this is what differentiates MTNL from its competitors. We have a strong manpower base of 47422 Nos. with wide array of Technical and Managerial aptitudes and also talented supporting staff having exposure to state of the art technologies prevailing in Telecom Industry in the world. As a step towards restructuring of our manpower we have adopted dual pronged strategy, viz., at one end we have recruited young and talented professionals in areas like Telecom, Finance, HR, Marketing, Law and on the other hand we have taken steps towards rightsizing of the organization by offering VRS. Thus fine-tuning our existing manpower mix in terms of age, qualification, and aptitude to meet the demands posed by the changing Business Environment and to take advantage of the opportunities presented to serve ever-increasing customer base.

TRAINING PERFORMANCE
Our Company has been conducting various Training & Development activities, which apart from minimizing the skill gap and technical obsolescence, are also focusing towards attaining the bigger organizational purpose of building a competent workforce to take the challenge in the currently existing Telecom sector.

CENTRE FOR EXCELLENCE IN TELECOM TECHNOLOGY AND MANAGEMENT (CETTM)

Our dream for having a world-class in house Training Centre furthered one step when CETTM (Centre for Excellence in Telecom Training & Management) was awarded ISO 9001:2000 certification. CETTM is slowly taking the lead role and becoming the nodal center for HRD. Induction Training programme for newly recruited executive Trainees in the field of Telecom, Finance, Marketing, HR, Legal have been conducted at CETTM. CETTM has started generating revenues by leasing out infrastructure and providing training to other organizations of repute.

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INDUSTRIAL RELATIONS
Industrial peace and Industrial harmony based on healthy Employee Relations, like the previous year prevailed throughout the year. The Grievances/Issues raised by the employees/Union/Associations was given due attention and regard. The cases/issues brought up by them were settled through regular meetings ad interactions between Management and Unions/Associations and action as mutually agreed was taken to settle them. A further step towards Worker's Participation in critical issues concerning business endeavors, a special Joint Negotiation Committee meeting was convened to share the views of recognized Unions on the various aspects of our business endeavors and to obtain opinion from them in further improving the same.

EMPLOYEES' WELFARE
Employees Welfare Schemes like subsidized Canteen, Crches, Housing, Medical facilities, Scholarships for the wards of employees, Group Insurance, dormitories for females working in night shift etc. continued and maintained by the Company for its employees. Sports and Cultural activities were also given priority during the year.

IMPLEMENTATION OF OFFICIAL LANGUAGE POLICY

The company continued its efforts to comply with statutory requirements in promoting the use of Hindi and has been able to achieve most of the annual targets set by the Government for implementation and promotion of Hindi as Official Language in the Company.

IMPLEMENTATION OF RESERVATION POLICY FOR SC/ST/OBC AND PH COMMUNITY

Your Company has endeavored to fulfill all the statutory requirements with regard to implementation of reservation policy for candidates belonging to SC/ST/OBC communities and as well as Physically Challenged candidates.

WORKING CONDITIONS OF WOMAN EMPLOYEES

We are continuously striving towards gender sensitization amongst our employees. Special care has been taken in case of woman employees working in night shifts. Also to redress the issues of Sexual Harassment at workplace Special Cells have been constituted. The Parliamentary Committee on empowerment of Women had studied the working conditions of women in MTNL during the year. Special grants have been sanctioned to Women Welfare Committee at Delhi/ Mumbai.

CORPORATE SOCIAL RESPONSIBILITY

Fulfilling the Social Responsibility was always high on our agenda and in last fiscal year also your company supported a lot of Organizations fighting for the bigger social cause. In many instances we also took the same responsibility on our shoulders.

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MANPOWER STATUS
As on 31st March 2008 your Company had a strength of employees as per details given below:-

MTNL Employees working strength as on 31.3.2008

Group A B C D Total DRMs Grand Total Working 1257 5342 28214 12538 47351 71 47422 SC 230 807 4892 2912 8841 0 8841 ST 57 115 533 922 1627 1 1628

VIGILANCE
Vigilance cell in MTNL is headed by Sh. Kabal Singh, IRSSE who has joined as CVO in corporate office on 24.3.2005. CVO is responsible for complete vigilance administration of MTNL. In 2007-08, emphasis has been laid on incorporating practices to increase transparency and making systemic improvements to prevent the possibility of manipulation. Under the guidance and instructions of Central Vigilance commission steps has been initiated for ensuring efficient vigilance administration by leveraging of technology and through increasing transparency by way of making effective use of information technology in the functioning of company. In its commitment to ensure total transparency MTNL achieved a milestone by way of signing a MOU with Transparency International - India (TII) for implementation of Integrity Pact in all its major procurements. Integrity Pact is a tool developed by a NGO named Transparency International, which ensures that all activities and transactions between a Company or Government Departments and their Suppliers are handled in a Fair, Transparent and Corruption Free manner. Training programmes, seminars and workshops had been conducted from time to time to enhance the knowledge and skills of executives and staff so as to improve their efficacy and strengthen their role in overall development of the organization. The Vigilance Awareness Week was celebrated from 12.11.2007 to 17.11.2007 and various activities were observed during this week. Customer's feedback and suggestion via a questioner was collected through various Sanchar Haats/CSCs for improvement in the services and complaint handling policy of MTNL was released. The telecom frauds and system failures causing revenue leakage were detected with the help of Fraud Management and Control Centre (FMCC). FMCC is proving a vital instrument in timely detection of various revenue realization related issues such as delay in disconnection of service due to non-payment bills or non-issue of bills etc. The cases of high calling customers and bulk users were regularly monitored and checked so as to prevent any potential financial loss to company. Monthly Vigilance meetings were regularly conducted to monitor the progress of pending vigilance complaints and disciplinary cases. In these meetings, remedial measures and actions were suggested and initiated to redress the problems and remove the hurdles in timely settlement of such cases. Vigilance branch received 321 complaints during the year. These complaints were expeditiously examined and necessary actions 18

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were taken. Total 107 disciplinary cases were finalized during the year. Regular inspections were also carried out by vigilance officials at sensitive areas and corrective action were initiated and suggested wherever required. Major/minor penalty, disciplinary proceedings have been initiated against 105 employees of the company for the irregularities and misconducts detected during vigilance investigations.

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

Being a service providing organization, the relevant rules in this regard are not applicable to your Company.

FOREIGN EXCHANGE EARNINGS

a) Activities relating to Export and total Foreign Exchange earned and used:Earned : Expenditure in Foreign Currency Rs. (Million) 66.70 Rs. (Million) 34.09

CORPORATE GOVERNANCE
Your company follows the principles of effective corporate governance practices. The Company has taken steps to comply with the requirements of revised Clause 49 of the Listing Agreement with the Stock Exchanges. A Report on Corporate Governance has been appended under separate section titled ' Corporate Governance Report ' and forms a part of the Annual Report.

COMPLIANCE CERTIFICATE
A certificate from the Practicing Company Secretary regarding compliance of conditions of Corporate Governance as stipulated under revised Clause 49 of the Listing Agreement is attached to this report.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the provisions of Sec 217(2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that: (i) (ii) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at the end of the financial year and of the profit or loss of the company for that period; (iii) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act 1956 and for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; (iv) they have prepared the annual accounts on a going concern basis. 19

MTNL
PARTICULARS OF EMPLOYEES
During the year under report, there was no employee who was in receipt of remuneration in excess of limits prescribed under the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees), Rules, 1975.

COMMENTS OF C & AG ON THE ACCOUNTS

Comments of C&AG and management replies thereto are given as an Annexure to the Directors' Report.

DIRECTORS
During the year under report, the Board of Directors of your Company met frequently. At these meetings, the Board held intensive discussions on the budget, important financial transactions and various steps to face the impending competition from private operators both in Basic Telephone Service and Cellular Mobile Telephony and other value added services. Sh.R.S.P.Sinha continued to be the Chairman and Managing Director of your company and Sh. Kuldip Singh, and Smt. Anita Soni continued to be the Director(Technical ) and Director(Finance) respectively of your Company. During the period under report, the following changes took place in the `Directorship of the Company:1 . Sh. Satya Prakash Pachauri was appointed as Director (HR) w.e.f. 06.12.2007 in place of Sh. V. Shivakumar who had retired from the services of the company after completion of his tenure on 03.04.07. 2. Sh. J. S. Deepak Joint Secretary (T) , Department of Telecommunication was appointed as director in place of Sh. M. Sahu w.e.f. 30.04.2008 3. Smt. Usha Sahajpal was appointed as non-official Part-Time Director (Independent Director) w.e.f. 30.04.2008. 4. Smt. Anuradha Joshi Durgapal, DDG (FEB.), DOT was appointed as Govt. director w.e.f 31.7.2008 in place of Sh. A.S. Bhola. The Board places on record its deep appreciation for the excellent services rendered by Sh M. Sahu and Sh. A.S. Bhola during their tenure as Directors on the Board of MTNL.

AUDITORS
M/s. Bansal Sinha & Co. Chartered Accountants, were appointed as Statutory Auditors of your Company by the Comptroller and Auditor General of India. In addition, M/s. Gandhi Minocha & Co. and M/s C.V.K. & Associates, Chartered Accountants were appointed as Branch Auditors for Delhi and Mumbai units respectively for the year 2008-09.

20

MTNL
ACKNOWLEDGEMENT
Your Directors take this opportunity to gratefully acknowledge the help, guidance and support received from Deptt. of Telecom (DOT) and various Ministries of the Government of India. Your Directors are especially grateful to its Bankers, all stakeholders and investors including ADR holders, for their continued patronage and confidence reposed in the company. The Directors would like to express their thanks for the sincere hard work and dedication of every employee leading to impressive results of your company. The Board is confident that with the employees' continued enthusiasm, initiative and dedicated efforts, your company could face the new challenges and opportunities arising out of the resultant competition from private operators in the Cellular Mobile, Basic Telephone, Internet services and other Value Added services.

For and on behalf of the Board of Directors

(R.S.P. SINHA)
CHAIRMAN AND MANAGING DIRECTOR PLACE : NEW DELHI DATE : 29th August 2008

21

MTNL
CORPORATE GOVERNANCE REPORT
A detailed report on Corporate Governance for the financial year 2007-08 is given below:-

1. COMPANY'S PHILOSOPHY ON CODE OF GOVERNANCE

The company's philosophy on corporate governance encompasses achieving the balance between shareholders interest and corporate goals through the efficient conduct of its business and meeting its stakeholders obligation in a manner that is guided by transparency, accountability and integrity.

2. BOARD OF DIRECTORS
The Company currently has eight Directors including the Chairman and Managing Director and three Functional Directors as per the following details. Name Category Directorship in Other Companies. Chairman of MTML, MTL, UTL and MTNLSTPI IT Services Ltd. Director, MTNLSTPI IT Services Ltd. and MTL Director, MTNLSTPI IT Services Ltd. and MTL -Director, BSNL & MTL --Membership in other Committees --

Sh. R.S.P. Sinha Chairman and Managing Director Sh. Kuldip Singh Smt. Anita Soni Director (Technical) Director (Finance)

-Audit Committee & Shareholders'/Investors' Grievances Committee --Audit Committee Audit Committee & Shareholders'/Investors' Grievances Committee Audit Committee & Shareholders'/Investors' Grievances Committee

Sh. Satya Director (HR) Prakash Pachauri Sh. J.S. Deepak Smt. Anuradha Joshi Durgapal Govt. Director Govt. Director

Dr. S. Part-time Director Balasubramanian Smt. Usha Sahajpal Part-time Director

Director, South Eastern Coalfield Ltd.

2.1 Attendance of Directors at the Board Meeting and the last Annual General Meeting. The Company holds regular Board Meetings. The detailed agenda along with the explanatory notes is circulated in advance. The Directors can suggest inclusion of any item(s) in the agenda at the Board meeting. During the year 2007-08, Ten meetings were held.

22

MTNL
Name of the Director No. of Board meetings Attended 10 out of 10 10 out of 10 10 out of 10 2 out of 2 5 out of 10 4 out of 9 Percentage (%) 100 100 100 100 50 44 Attendance at the last AGM held on 28th September, 2007 Yes Yes Yes No No No Assumed office w.e.f. 6.12.2007 ceased to be Director w.e.f. 31.07.08 ceased to be Director w.e.f. 27.02.08 Remarks

Sh. R.S.P. Sinha Sh. Kuldip Singh Smt. Anita Soni Sh. Satya Prakash Pachauri Sh. A.S. Bhola Sh. M. Sahu

DETAIL OF BOARD MEETINGS HELD DURING 2007-08

Sl. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Meeting No. 224 225 226 227 228 229 230 231 232 233 Date 24th April 2007 4th June 2007 17th July 2007 27th July 2007 30th August 2007 28th September 2007 31st October 2007 30th November 2007 30th January 2008 27th February 2008 Place New Delhi New Delhi New Delhi New Delhi New Delhi New Delhi New Delhi New Delhi New Delhi New Delhi No. of Directors present 4 5 5 5 6 6 4 6 4 5

2.2 DETAILS OF MEMBERSHIP OF BOARD COMMITTEES

None of the Directors of the Company hold memberships of more than ten Committees nor is any Director/ Chairman of more than five Committees of Boards of all the companies where he holds Directorships. For this purpose committees comprise Audit Committee and Shareholders'/Investors' Grievance Committee.

2.3 CODE OF CONDUCT FOR DIRECTORS AND SR. MANAGEMENT PERSONNEL

MTNL has adopted the Code of Conduct for Directors and Senior Management Personnel as per the requirement of clause 49 of the Listing Agreement dealing with Corporate Governance. The Code is comprehensive Code applicable to all Directors and Senior Management Personnel Viz. Executive Directors, General Managers and all functional heads of the company. The Code lays down in detail the standard of business conduct, ethics governance and centers around the following theme: 23

MTNL
"Integrity and transparency are the core value in all our business dealings. We shall act in compliance with applicable laws and regulations, in a manner that excludes considerations of personal advantage and will not compromise in our commitment to honesty and integrity in any aspect of our business. We are committed to excellence, in all our endeavours".

3. AUDIT COMMITTEE
The scope of the Audit Committee has been defined by the Board of Directors in accordance with the provisions of the Companies Act read with clause 49 of the listing agreement, which among others, includes:Reviewing the Company's financial reporting processes and systems Recommending the appointment and removal of statutory auditors, taking decisions regarding audit fee and related expenses Reviewing the Company's financial and risk management policies Reviewing with management the quarterly and annual financial statements, before submission to the Board, focusing primarily on: changes in accounting policies and practices; major accounting entries, qualifications and accounting issues based on the managements discretion and judgement; compliance with the accounting standards compliance with the stock exchange and legal requirements, concerning financial statements; any related party transactions; and internal audit processes and systems The Audit Committee specifically reviews the un-audited quarterly financial results before these are submitted to the Board for approval. Minutes of each Audit Committee meeting are placed before the Board for information. Presently, the Audit Committee consists of the following directors:1. 2. 3. 4. 5. Dr.S.Balasubramanian Smt. Usha Sahajpal Smt. Anuradha Joshi Durgapal Smt. Anita Soni, Director (Finance) Sh. S.R. Sayal, Company Secretary Chairman Member Member Permanent Invitee Secretary

3.1 Meetings and attendance The Audit Committee held 10 meetings during the year 2007-08. The members' attendance at the Committee Meetings was as under:S. No. 1. 2. 3. 4. Name of Director Dr.S.Balasubramanian Chairman Sh. A.S. Bhola, Member Sh. M. Sahu, Member (part of the year) Smt. Annie Moraes (part of the year) No. of meetings 10 10 7 1 attended 9 5 2 0

24

MTNL
4. SHAREHOLDERS'/INVESTORS'GRIEVANCES COMMITTEE
Pursuant to claue 49 of the Listing Agreement, a Shareholders/Investors' Grievances Committee exists in MTNL to look into the investors' complaints, if any, and to redress the same expeditiously. The Committee oversees the reviews all matters connected with the Securities' transfers. The Committee looks into redressing of shareholders complaints like non-receipt of Balance Sheet, non receipt of dividends, etc. The Committee also oversees the performance of the Registrar and Transfer Agents, and recommends measures for overall improvement in the quality of investors services. Presently the Committee consists of the following directors:1. 2. 3. 4. Dr.S.Balasubramanian Smt. Usha Sahajpal Smt. Anita Soni, Director (Finance) Sh. S.R. Sayal, Company Secretary Chairman Member Member Secretary

The Investors' Grievances Committee held 4 meetings during the year 2007-08 and the attendance of the members is given as under:Sl. No. 1. 2. 3. Attendance No. of meetings Dr.S.Balasubramanian 4 Sh. A.S. Bhola (part of the year) 3 Smt. Anita Soni, Director (Finance) Member 4 attended 4 1 4

To redress the investors' complaints expeditiously and to comply with clause 47 of the listing agreement with the stock exchanges, we have created an e-mail address exclusively for investors grievances/complaints i.e. mtnligrc@bol.net.in. The investors can file their complaints on line to this address directly. The same has been posted on company's website also.

5. SHARE TRANSFER COMMITTEE

Pursuant to clause 47A of the Listing Agreement the Board has delegated the powers to approve transfer of securities, issue of duplicate shares, request for issue of new certificates on split/ consolidation etc., to a committee of officers consisting of Sh. T.R. Gandhi, General Manager (BB & IA) and Company Secretary. The Committee held regular meetings during the year and approved the transfer of shares, transmission of shares, Dematerialization of shares, rematerialization of shares and issue of duplicate shares. No share transfer request case is pending as on the date of the preparation of this report. Details Of Shareholders/Investors' Complaints Are Given Here Under:No. of Share holders' complaints Received 37 * These complaints have since been resolved. No. of Shareholders complaints Solved 34 No. of Shareholders complaints as on 31.03.08* 03*

6. COMPANY SECRETARY
Name of the Company Secretary Address Contact Telephone Fax 25 Sh. S.R. SAYAL Jeevan Bharti Building, 13th floor, Tower - I, 124 Connaught Circus, New Delhi - 1. 011- 23324587 011- 23716655

MTNL
7. COMPLIANCE OFFICER
Name of the Compliance officer Address Contact Telephone Fax Sh. S.R. SAYAL Jeevan Bharti Building, 13th floor, Tower I, 124 Connaught Circus, New Delhi - 1. 011-23324587 011-23716655

8. REMUNERATION COMMITTEE
The whole time Directors of the company including the Chairman and Managing Director are appointed by the Government of India and are being paid remuneration as per the terms of their appointment The Company, therefore, has not constituted a Remuneration Committee. The non-official part-time Directors are paid Rs.10,000/- by way of sitting fees for every meeting of the Board/Committee of the Board attended by them. No other remuneration is paid to the non-official part-time Directors.

9. DISCLOSURE
a. All the relevant information in respect of materially significant related party transactions, i.e. transactions of the Company of material nature with its Promoters, Directors or Management, or their relatives or subsidiaries of the Company, etc. having potential conflict with the interest of the Company at large has been given in the Annual Accounts. The Company has complied with statutory compliances and no penalty or stricture has been imposed on the Company by the Stock Exchanges or SEBI or any other statutory authority on any matter relating to the capital markets during the last three years.

b.

10. MEANS OF COMMUNICATION

a. b. c. d. The quarterly and half yearly results were published in English and Hindi Newspapers. The Company's Audited & Un-audited periodic financial results and Press Releases are posted on the Company's website. Detailed Management Discussion and Analysis Reports have been included in this Annual Report. The Company has also posted information relating to Corporate Governance etc. through Corp Filing as required by the Stock Exchanges.

11. GENERAL BODY MEETINGS

LOCATION AND TIME FOR LAST THREE ANNUAL GENERAL MEETINGS WERE: Nature of meeting 21st Annual General Meeting 20th Annual General Meeting 19th Annual General Meeting Date and Time 28th September 2007 3.00 P.M. 26th September 2006 11.00 A.M. 28th September, 2005 3.00 P.M. Venue FICCI Golden Jubilee Auditorium, Tansen Marg New Delhi-110 001 FICCI Golden Jubilee Auditorium, Tansen Marg New Delhi-110 001 FICCI Golden Jubilee Auditorium, Tansen Marg New Delhi-110 001

Whether special resolutions were put through postal ballot last year? No special resolution was passed last year, so there was no requirement of postal ballot. Person who conducted the Postal Ballot exercise. Not applicable. 26

MTNL
Whether special resolutions are proposed to be conducted through postal ballot? If any Special resolution on matters notified vide Companies (Passing of the resolution by postal ballot) Rules, 2001 read with section 192A of the Companies Act, 1956 is required to be passed, the same will be passed through Postal ballot. Procedure for Postal Ballot. The procedure shall be as per the provisions of the Companies Act, 1956 read with Companies (Passing of the resolution by postal ballot) Rules, 2001.

12. GENERAL SHAREHOLDER'S INFORMATION:

(i) Annual General Meeting Date and Time Venue (ii) (iii) (iv) Dates of Book Closure Dividend Payment Financial Calendar 31st July 2008 26th September 2008, 03.00 P.M. FICCI Golden Jubilee Auditorium, Tansen Marg New Delhi-110 001 24th September to 26th September, 2008 Within 30 days from the date of AGM

Board meeting for considering Audited Annual Accounts for the year ended on 31.3.2008 and recommendation of dividend Submission of Audited Accounts to C&AG of India Board Meeting for Unaudited Quarterly Financial Results for the quarter ended on 30th June 2008 Board Meeting for Unaudited Quarterly Financial Results for the quarter ended on 30th September 2008 Board Meeting for Unaudited Quarterly Financial Results for the quarter ended on 31st December 2008 Board Meeting for Unaudited Quarterly Financial Results for the quarter ended on 31st March 2009 (v) Registered Office -

31st July 2008

31st July 2008 End of October 2008

End of January 2009

End of April 2009

Mahanagar Telephone Nigam Limited. Jeevan Bharti Building, Tower-I, 12th Floor, 124, Connaught Circus, New Delhi-110001. Tel: 911123742212 Fax: 911123716655

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(vi) Listing Details The Equity Shares of the Company are listed on the following Stock Exchanges: (i) The Delhi Stock Exchange Association Limited DSE House,3/1, Asaf Ali Road, New Delhi-110002. Tel: 011-23292039/40, Fax: 011-23292181

(ii) Bombay Stock Exchange Limited, Mumbai Rotunda Building, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai-400001. Tel: 022-22655614/21/22, Fax: 022-22721072 (iii) The Calcutta Stock Exchange Association Limited 7, Lyons Range, Kolkata-700001. Tel: 033-22201488, Fax: 033-22102210 (iv) Madras Stock Exchange Limited 11, Second Lines Beach, Chennai-600001. Tel: 044-25224382/83/93, Fax: 044-25244897. (v) The National Stock Exchange of India Limited Exchange Plaza, 5th floor, Plot No. C/1, G Block, Bandra-Kurla Complex, Bandra(E), Mumbai-400051. Tel: 022-26598100/8235/8236 Fax: 022-26598237/8238.

(vi) New York Stock Exchange 11, Wall Street, New York. (For ADRs) The Listing Fee for the Financial Year 2008-09 has been paid to all stock exchanges. Tel. : 0012126565791, Fax : 0012126565071 (vii) Name and Designation of Compliance Officer Shri S.R.SAYAL Company Secretary Jeevan Bharti Building Tower-I, 13th Floor, 124, Connaught Circus, New Delhi-110001 Tel : 91-11-23324587, Fax : 91-11-23716655 Email : dcsco@bol.net.in. 'MAHANGR TELE 108' '13069' 'MTP' 'MTNL EQ' '23036' 'MTE' INE 153A01019 NSDL & CDSL. The annual custodian fees for the Financial Year 2008-09 have been paid to NSDL and CDSL. 28

(viii) (a) Stock Code Bombay Stock Exchange Delhi Stock Exchange Madras Stock Exchange National Stock Exchange Calcutta Stock Exchange New York Stock Exchange (b) Demat ISIN Numbers in

MTNL
(c) Corporate Identity Number (CIN) Our CIN, allotted by the Ministry of Corporate Affairs, Government of India is L 3210DL1986GOI023501 and out company is registered within the jurisdiction of Registrar of Companies NCT of Delhi & Haryana. M/s. Beetal Financial & Computer Services (P) Ltd. 3rd Floor, Beetal House, 99,Madangir, Behind Local Shopping Centre, Near Dada Harsukhdas Mandir, New Delhi - 110 062. Ph: 011 29961281-82, Fax No.: 011- 29961284 E-mail : beetal@rediffmail.com The monthly high, low, closing prices & volume for the month at each of the Stock Exchanges where the Company's shares are listed are given in the following table:-

(ix)

Registrar and Transfer Agents

(x)

Stock Market Data

BOMBAY STOCK EXCHANGE (BSE) MONTH April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 HIGH 168.00 159.00 169.40 171.00 149.65 173.70 199.80 191.90 199.30 219.45 133.80 118.90 LOW 141.90 145.55 148.60 147.60 129.00 141.10 144.00 153.35 171.50 112.60 115.75 92.75 CLOSE 148.15 153.15 160.55 150.45 141.05 159.90 179.55 171.45 192.30 119.55 118.40 96.55 QUANTITY 15950119 11661918 14733267 11273564 8020192 11632473 36916480 20911403 25252114 35168594 12633753 15945672

NATIONAL STOCK EXCHANGE (NSE) MONTH Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 HIGH 170 159 169.4 171 150 173.75 199.7 191.8 199 217.8 133.9 118.95 LOW 138.9 144.4 148.55 147.55 128.8 141.05 142.1 152.05 171.2 112.1 115.8 92.7 29 CLOSE 148.3 152.95 160.65 150.45 141.4 160.65 179.45 171.85 192.4 118.95 119.1 96.6 QUANTITY 43581798 34316582 37964455 26703887 18719737 28138159 79308741 48863184 55931845 76376945 34546416 31033305

MTNL
(xi) Share Transfer System As per the directives of Securities & Exchange Board of India, the Equity Shares of your Company have been mandated for trading in dematerialized form by all categories of investors since 1997. Share transfers in physical form are registered, if documents are complete in all respects, and returned within 15 days from the date of receipt in most cases and in any case within 30 days from the date of receipt.

(xii)

Distribution of Shareholding (As on 31.3.2008) ( NOMINAL VALUE OF EACH SHARE/UNIT RS. 10 ) Number of Shareholders % to Total No of Shares Amount in Rs. % to Total

Share Holding of Nominal Value of Rs. UP TO 5000 5001 TO 10000 10001 TO 20000 20001 TO 30000 30001 TO 40000 40001 TO 50000 50001 TO 100000 100001 AND ABOVE TOTAL a)

1,25,128 5,352 2,329 696 332 298 398

92.67 3.96 1.72 0.52 0.25 0.22 0.29

1,43,92,345 44,09,191 35,78,571 17,86,103 11,76,256 14,13,472 29,57,430

14,39,23,450.00 4,40,91,910.00 3,57,85,710.00 1,78,61,030.00 1,17,62,560.00 1,41,34,720.00 2,95,74,300.00

2.2845 0.6999 0.5680 0.2835 0.1867 0.2244 0.4694

494 1,35,027 -

0.37 100.00

60,02,86,632 63,00,00,000

6,00,28,66,320.00 6,30,00,00,000.00

95.2836 100.0000

Dematerialization of Shares

As on 31st March 2008, almost all shares of the Company's equity share capital available in the market is in dematerialized form. The Company has entered into agreements with both the depositories viz. National Securities Depository Ltd. (NSDL) and Central Depository Services Ltd. (CDSL), whereby shareholders have an option to dematerialize their shares with any of them. MTNL shares are actively traded in the Indian Stock Exchanges and NYSE. MTNL shares consistently rank among the top few traded shares, both in terms of Volume and value. The Shares of the Company are traded in the "A" Group at the Bombay Stock Exchange and are included in the NIFTY index on the NSE.

b)

Liquidity

(xiv) Status of unclaimed and unpaid dividend for different years. The Unclaimed Dividends have been transferred to the Govt. of India/IEPF as and when became due (upto 1999-00). Information in respect of unclaimed and unpaid dividend declared for 200001 and thereafter is given below and the shareholders who have not received the same, may claim it from the Company before the dates mention herein. 30

MTNL
Financial Year ended 31.03.2001 31.03.2002 31.03.2003 31.03.2004 31.03.2005 31.03.2005 31.03.2006 31.03.2006 31.03.2007 31.03.2007 31.03.2008 (xv) Date of declaration of Dividend 28th September 2001 30th September 2002 20th September 2003 29th September 2004 22nd February 2005 28th September 2005 21st February 2006 26th September 2006 20th February, 2007 28th September 2007 22nd February 2008 Last date for claiming unpaid dividend. 27th September 2008 29th September 2009 19th September 2010 28th September 2011 21st February 2012 27th September 2012 20th February 2013 25th September 2013 19th February 2014 27th September 2014 21st February 2014

Procedure to get changes in address registered in the Company's records. Shareholders holding shares in physical form, may send a request letter duly signed by all the holders giving the new address along with Pin Code. Shareholders are also requested to quote their folio number and furnish proof such as attested copies of Ration Card/ PAN card/ Passport/ Latest electricity or telephone bill/Lease Agreement, etc. If shares are held in dematerialised form, information about change in address needs to be sent to the DP concerned.

(xvi) Procedure for registering change of name of shareholders. Shareholders may request the Company's R&TA for effecting change of name in the share certificate(s) and records of the Company. Original share certificate(s) alongwith the supporting documents like marriage certificate, court order etc. should be enclosed. The Company's R&TA, after verification, will effect the change of name and send the share certificate(s) in the new name of the shareholders. Shareholders holding share in demat form, may request the concerned DP in the format prescribed by DP. (xvii) BRIEF RESUME OF THE DIRECTORS APPOINTED DURING THE YEAR/PROPOSED TO BE APPOINTED/REAPPOINTED AT THE ANNUAL GENERAL MEETING: (i) Sh. Jagdish Saksena Deepak Govt. Director Sh. J.S. Deepak, Joint Secretary (Telecom), Govt. of India has been nominated Govt. director on the Board of MTNL by the DOT, Govt. of India on 30th April, 2008. Mr. Deepak is having M.Sc. degree in Electronics from Bangalore University and MBA from prestigious institute IIM, Ahmedabad in Marketing and Finance. Mr. Deepak belongs to 1982 batch of Indian Administrative Services (IAS) and has over 25 years of experience. He has worked in the Govt. of UP in different departments/ organizations such as Principal Secretary, Industrial Development. Export Commissioner UP, Managing Director, UP Export Corporation Limited, Deputy Managing Director, State Industrial Development Corporation, UP,. Principal Secretary, Elementary Education, Health, Family Welfare in Government of UP and Commissioner, Faizabad and Commissioner Meerut. ii) Dr. S. Balasubramanian Independent Director Dr.S. Balasubramanian has been a member of MTNL Board since 25.11.05 as Non-official part-time Director. He holds M.A.(Economics) degree, M.Phil (Economics) degree, Ph.D (Eco) and DSS from University of Madras. He served as Professor of Economics in Madras University for 28 years as well as served as Head of Deptt. Of Economics for 15 years in Presidency College, Chennai. He has published several publications on Socio-Economic thoughts etc. He has also served as a Member of Tamilnadu Public Service Commission. 31

MTNL
iii) Smt. Usha Sahajpal -

Independent Director

Smt. Usha Sahajpal is having Master of Arts (Political Science) degree from Delhi University. She had joined Indian Audit and Accounts Service from 1966 to 1976 and Indian Civil Accounts Service from 1976 to 2003 (till retirement). During her tenure, she has held various positions in the Indian Audit and Accounts Department as Controller of Accounts in various ministries of the Govt. of India, Finance Advisor to the Employees Provident Fund Organization, Ministry of Labour, Chief Controller of Accounts, Ministry of Industry, Jt. Secretary and Finance Advisor, Ministry of Agriculture, Principal Chief Controller of Accounts, Central Board of Excise and Customs, Department of Revenue, Ministry of Finance and Controller General of Accounts, Ministry of Finance. She has retired from service on 31st March 2003 as Controller General of Accounts, Ministry of Finance, Govt. of India. She is presently non-official, part-time Director on the Board of South Eastern Coal Fields Ltd. (a subsidiary of Coal India Ltd.), Member, Finance Committee, Jawahar Lal Nehru University, Delhi and Member of other institutes/ societies, NGOs, etc. iv) Smt. Anuradha Joshi Durgapal -

Govt. Director

Smt. Anuradha Joshi Durgapal was appointed Govt. Director on MTNL Board on 31.7.08. She had joined Indian Post and Telecommunication Accounts & Finance service through civil services examination in 1987. She holds a Post Graduate Degree in M.Sc.(Chemistry) from IIT Delhi. She also holds Masters Degree in Public Policy from Australian National University, Canberra. Presently she is holding the charge of DDG (FEB) in DOT since May 2008. Prior to this she has worked in MTNL, Delhi and DOT at various middle and senior level management posts and looked after Telecom revenues, Banking, Finance, Establishment, Accounts, Audit, Training and Project Finance. She has also worked in Cabinet Secretariat on deputation basis for five years. She has been a member of the Study Group 3 relating to the tariff and economic issues in the International Telecommunication Union (ITU) during 2007-08. She has attended various seminars and workshops relating to Telecom Revenue, Access to ICT to women in Asia, Human Resource Management and Career Progression in Japan, South Korea and Sweden.

Any queries relating to the financial statements of the Company can be addressed to:Mrs. Anita Soni Director (Finance) Jeevan Bharti Building, Tower - I, 12th floor 124 Connaught Circus, New Delhi - 110 001. Tel: 23321095/ 23710460 Fax : 23738361

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V.K. SHARMA & CO.
Company Secretaries 422, Ocean Plaza, Sector-18, Noida Tel. : 0120-4221470, Mobile : 9811009592 E-mail : vks_cosecy@yahoo.com

CERTIFICATE OF COMPLIANCE AS STIPULATED UNDER CLAUSE 49 OF THE LISTING AGREEMENT OF THE STOCK EXCHANGES OF INDIA
To, The shareholders We have examined the compliance of conditions of Corporate Governance by Mahanagar Telephone Nigam Limited for the year ended 31st March 2008, as stipulated in clause 49 of the Listing Agreement of the said Company with stock exchanges in India. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression on the financial statements of the company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement except that: 1. The composition of the Board of Directors is not as per the stipulation regarding number of non executive directors and independent directors required by the Clause as there are less than 50% independent directors. The composition of the Audit Committee is not as per the stipulation regarding number independent directors required by the Clause as there are less than two third independent directors.

2.

For V.K.SHARMA & CO. Company Secretaries Sd/(V.K.Sharma) FCS 3440 Place : New Delhi Date : 12th August, 2008

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MTNL
CEO and CFO Certificate pursuant to Clause 49(V) of the Listing Agreement This is to certify that :
a). We have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief : (i) (ii) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; these statements together present a true and fair view of the company's affairs and are in compliance with existing accounting standards, applicable laws and regulations.

b)

There are, to the best of our knowledge and belief, no transactions entered into by the company during the year which are fraudulent, illegal or violative of the company's code of conduct.

c). We accept responsibility for establishing and maintaining internal controls and that We have evaluated the effectiveness of the internal control systems of the company and We have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies. d) We have indicated to the auditors and the Audit committee (i) (ii) significant changes in internal control during the year; significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

(iii) instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company's internal control system appointed in terms of the Companies Act.

(R.S.P. Sinha) Chairman & Managing Director (CEO)

(Anita Soni) Director (Finance) (CFO)

34

MTNL
MANAGEMENT DISCUSSIONS & ANALYSIS
This discussion contains forward looking statements, the performance of the company for the year 200708 and an outlook for the future. The report conveys expectations on future performance based on an assessment of current business environment. These could vary based on future developments.

INDUSTRY STRUCTURE & DEVELOPMENTS

Telecom Infrastructure development has a key role to play in both economic growth and public convenience. Investors, policymakers and citizens alike acutely feel the constraint of physical infrastructure on economic growth. Introduction of 3G services by Government of India is a major stride towards contributing economic growth of the nation. The policy guidelines signal big business for global players and a revenue opportunity for the government, which is expected to net Rs.30,000 crores to 40,000 crores from the 20 year licenses. In 2007-08, the biggest improvement in telephony was in voice services. Prices dropped dramatically to the point where India is now as competitive as developed markets. The steep cut in mobile STD rates and the availability of cheap mobile handsets can be expected to lead to further growth in coming months. Service quality, a major problem in the past, has improved significantly, but there is ground left to cover as India still lags behind many other countries in this regard, even within the developing world.

OPPORTUNITIES & THREATS

MTNL is being the first company in both Metros to have been offered 3G license by GOVT. OF INDIA and we will get a head start in offering the services which is expected next year to bring high-speed Internet to palmtop. As we are the market leader in providing affordable services, the 3G services will also be affordable in a price-conscious market. The market and consumers enthusiasm indicates a major increase in our revenues through 3G services in coming years. Broadband and IPTV will also be a contributing a significant revenues in our kitty. Department of Telecom has asked the Telecom Regulatory Authority of India to review mobile call termination charges on priority basis. A revision can bring about a reduction in call tariffs for users. Given the central aim of telecom policy to provide services at affordable rates, it may be beneficial that a review of the mobile termination charges based on present and projected cost and traffic is undertaken by TRAI on a priority in a time bound manner. Termination charges is one of the major components of tariff and is paid by an operator from whose network call originates, to a service provider on whose network the call is terminated. Currently, the charges have been fixed at Rs.0.30 a minute. The charges were fixed in 2003. While the cost of network and services have comes down by more than 50 per cent since then, termination charges have remained unaffected as they are independent of market flux. The cost-based termination charges would be less than Rs.0.10 a minute. If implemented, the existing operators would have to forego a substantial portion of their revenues, while new cellular operators would find it easy to establish themselves. The reduction in termination charges will lead to reduction in pay-outs of the operators thus making the tariffs more viable and sustainable in the competitive environment.. Following major categories of risk are faced by MTNL in the current competitive telecom scenario:35

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MARKET RISKS
The telecommunications market in the cities of Delhi and Mumbai are among the most competitive markets. MTNL faces intense competition from the other mobile operators and the basic service operators. This has led to an increased pressure on margins due to reducing tariffs and also on the customer retention and acquisition. The Average revenue per user is also going down. With new operators coming in Delhi and Mumbai, such competitive pressures are likely to increase further, putting a further strain on the margins. Recently DOT has issued LOIs to a number of new players which will lead to increased competition to market share. MTNL is confirmed only in two cities i.e. Delhi and Mumbai, therefore MTNL is not able to expand its telecom services beyond its area of jurisdiction.

POLICY AND REGULATORY RISKS

The telecommunications sector in India is one of the highest taxed sector. The high level of license fee is a big strain on the finances of the company. This is paid over and above all other taxes and duties which are levied on all other businesses. Regulatory policies cannot be foretold and may at time, be such as to affect the financials of the company.

MANPOWER RISKS
There is a huge workforce and approximately 32% of revenue is spent on staff. In comparison of the staff costs of other operators, it is about 7% of the revenues. This is a major risk which the company faces, as it has little flexibility in the matter and may have to continue to carry the cost. It may in fact become even higher as wage negotiations are now due as per the earlier wage agreement which was for 10 years. Considering the tremendous growth of private sector and opportunities that have become available and availability of employment in telecom & IT sectors, retention of suitable manpower is a big challenge. There is 20% attrition rate among the young executives recruited for specialized jobs.

OUTSTANDING DUES
Over the years, the amount owned to MTNL by its customers had been increasing and accumulated significantly. Realisation of dues from customers has become even more difficult in the increasingly competitive telecom market as the customers can close the connection and take services of other operators. Efforts are being made to reduce the outstanding and some success has been achieved in bringing down total outstanding in a multi operator environment, this risk remains.

HUMAN RESOURCE DEVELOPMENT

The Company attachs the highest priority to the quality of intellectual capital at its disposal and believes that knowledge and skill level of its employees are the key to achievements of its corporate mission. MTNL has a sound recruitment policy and comprehensive training system. During the past one year, your Company has laid greater emphasis on Human Resources Development. We have been devoting substantial resources on building a skilled workforce that has an innate capability to counter threats posed by ever changing business environment and to take advantages of opportunities presented to serve ever increasing customer base.

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The Company has been conducting various training and development activities which apart from reorienting the employees towards the greater organizational purpose, are also focusing on eliminating any skill gap and technical obsolescence. The management's view on training is one of development of employees' overall personality and enabling them in becoming a vital productive resource.

INTERNAL CONTROL SYSTEM & THEIR ADEQUACY

The company has internal control system commensurate with its size and nature of business and meeting with following objectives:(i) Efficient use and safeguarding of resources (ii) Compliance with statutes, policies and procedures (iii) Transactions being accurately recorded and promptly reported The Internal Control System provides well-documented policies, guidelines authorizations and approval procedures. The internal Audit Department conducts periodic audits across all locations and all functions throughout the year. The observations raised out of the audit are subject to periodic review and compliance monitoring. The Audit Committee of the Board on a regular basis reviews the internal audit Reports along with the report of the status of implementation of recommendations contained therein.

37

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Annual Accounts (2007-08)

38

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DHAWAN & CO.
Chartered Accountants 312, Wegmans House, 21, Veer Savarkar Block, Shakarpur, Vikas Marg, Delhi-110092 Ph. : 011-22017651, Fax : 011-22025360

AUDITORS REPORT
To, The Members of Mahanagar Telephone Nigam Limited New Delhi 1. We have audited the attached Balance Sheet of Mahanagar Telephone Nigam Limited as at March 31, 2008, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto, in which, the accounts of 3 units namely Delhi unit, Mumbai unit and MS unit (Delhi & Mumbai both) are incorporated, which are audited by the branch auditors appointed by the Comptroller & Auditor General of India. 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. 2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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. 3. As required by the Companies (Auditor's Report) Order 2003, as amended by the Companies (Auditor's Report) Order, 2004 (together the 'Order'), issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, and on the basis of such checks as we considered appropriate and according to the information and explanation given to us, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the company. 4. Further to our comments in the Annexure referred to in paragraph 3 above and subject to: i) Non-Provision of a sum of Rs. 32.29 Millions, payable in terms of directions of Hon'ble Supreme Court of India to various Companies. The Profit of the company as well as Current Assets of the company are overstated by the above amount. [Refer Note No. 7(C)]. ii) Booking of Income of Rs. 545.86 Millions, during the year under review, on account of charges for usage of MTNL Trunk Automatic Exchange (TAX) by BSNL, which has been 39

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rebutted by BSNL. The Profit of the company, for the year, therefore, is overstated by Rs. 545.86 Millions and Current Assets of the company are overstated by an equivalent amount. [Refer Note No. 10(d)]. iii) Non-Provision of Post Medical Retirement Benefits in the Books of Accounts as per the requirements of Accounting Standard AS - 15 (Revised), which may have significant impact on the profitability of the company. Amount not ascertainable. Further, as regards provisions and disclosures made for Gratuity, Pension and Leave encashment, we have relied on the report of Actuarial Valuation carried out by the Actuary and provided to us by the management. [Refer Note No. 30, 31 & 32]. iv) During the year, the company has entered into project agreement with a private company for development of core knowledge park at Noida and has given the right to develop the project on land belonging to MTNL for the period of 50 years. The company has received Rs. 481.25 Millions as consideration towards granting right to develop the project and maintain the same for 50 years. This amount has been treated as Income of this year whereas the same should be deferred and should be spread over the life of the agreement. This has resulted in overstatement of profit by Rs. 471.62 Millions and understatement of Deferred Revenue Income. [Refer Note No. 22]. v) The company has not provided for Rs. 19.55 Millions on account of old EMIs of handsets billed but not paid for closed connections and Rs. 100.84 Millions billed at the year end out of unbilled EMI of closed connections of handsets for CDMA connections. This has resulted into overstatement of profit by Rs. 120.39 Millions and consequent overstatement of current assets. vi) In respect of some equipments in Old WLL exchange, which have been recommended by the committee for de-capitalisation, the same have not been de-capitalised and as such have not been valued at lower of Net Book Value or Net Realisable Value, as such the financial impact of the same is Rs. 484.40 Millions have not been charged to Profit & Loss Account. The Profit of the company, therefore, is overstated by Rs. 484.40 Millions and Fixed Assets are overstated by an equivalent amount. vii) The company has not made provision in the accounts for the balance of Rs. 9.92 Millions outstanding for more than 3 years in respect of dues from International operators. Thus, the profit of the company is overstated by Rs. 9.92 Millions and debtors have been overstated by the same amount. viii) Short-provision of Rs. 1149.81 Millions on account of merger of 50% of Dearness Allowance (DA) with basic pay to the employees on IDA scales in terms of Department of Public Enterprises OM No. 2(7)/2005-DPE (WC)-GL-III dated 26.02.2008. The profit of the company, therefore, is overstated by Rs. 1149.81 Millions and current liabilities are understated by the same amount. [Refer Note No. 21]. Further, there will be liability on account of impact of the

40

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same on retirement benefits too. Impact of the same on retirement benefits is not ascertainable. ix) During the year, the company has raised bills of ADC to two private operators for the period from November 2004 to January 2005 of Rs. 22.56 Millions. The bills are arbitrarily raised without exact basis as such there is reasonable uncertainty at the time of raising of claim. The same is not as per AS - 9 issued by the Institute of Chartered Accountants of India. The profit of the company, therefore, is overstated by Rs. 22.56 Millions and Current Assets are overstated by equivalent amount. [Refer Note No. 10(e)]. x) There is a difference of Rs. 36.54 Millions as per financial books and as per report generated from billing system. The impact of the same, on provisioning for Bad-debts and profitability is un-ascertainable. xi) The system of issuance of completion certificate by engineering department needs to be strengthened. The impact, if any, due to delay of issuance of completion certificate by concerned engineering department on the capitalization of assets, WIP and consequently on depreciation, if any, is un-ascertainable. xii) In MS Delhi unit, during the year, no reconciliation of roaming receivables have been carried out. The impact of non-reconciliation of roaming debtors on profitability, if any, is unascertainable. xiii) No provision has been made for the following expenses / claims made by BSNL: a) Signalling charges amounting to Rs. 219.30 Millions; b) Transit Tariff claims amounting to Rs. 251.90 Millions; c) M. P. Bills claims upto 31.03.2005 amounting to Rs. 60.10 Millions; d) Claims for service connections amounting to Rs. 401.48 Millions; e) IUC claims of MTNL rebutted by BSNL amounting to Rs. 101.40 Millions; f) IUC claims raised by BSNL, Gujarat circle amounting to Rs. 11.14 Millions; The profit of the company, in view of para (xiii) above, is overstated by Rs. 1045.32 Millions and Current Assets are overstated by similar amount. xiv) The Bank Reconciliation Statements as at 31st March 2008 include the unmatched / unlinked credits and debits aggregating Rs. 56 Millions and Rs. 42.75 Millions, respectively, which have not been properly accounted for, in the absence of adequate particulars. The impact of such entries on the accounts is not ascertainable. (Refer Note No. 13). xv) The value of the properties where the conveyance / lease deeds remain to be executed, stamp duty payable, if any, for execution of above said properties has not been provided for. The outstanding liabilities, if any, towards Ground Rent payable on properties transferred from DOT also remains unascertained. [Refer Note No. 8]. 41

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xvi) The balance in Subscriber's Deposit Accounts Rs. 8481.73 Millions, Interest Accrued & Due thereon Rs. 29.48 Millions and Unlinked Receipt from Subscribers Rs. 312.44 Millions are subject to reconciliation. Reconciliation of metered and chargeable calls generating revenue in Service unit at Mumbai has been made in case of a few exchanges. Reconciliation of remaining exchanges at Mumbai needs to be completed. In respect of Delhi and MS unit, thorough reconciliation of activation charges, ratable calls, customers deposits and sundry debtors from the output generated from the billing system and the books of accounts has not been conducted.The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company. [Refer Note No. 15(b)]. xvii) a) Amount recoverable on current account from DOT Rs. 30,856.38 Millions. and amount payable on current account to DOT Rs. 454.99 Millions i.e. Net Recoverable Rs. 30,401.39 Millions (Previous Year Rs. 29,443.42 Millions) are subject to reconciliation, confirmation and consequent adjustments. [Refer Note No. 17(a)]. (b) Amount recoverable on current account from BSNL Rs. 6,036.32 Millions (Previous Year Rs. 8,677.31 Millions) is subject to reconciliation, confirmation and consequent adjustments. [Refer Note No. 17(b)]. The final impact of the above on the accounts is, presently, not ascertainable. The same may, however, have an impact on reconciliation / settlement. xviii) The Mumbai unit of the Company has computed and accounted for the IUC charges of BSNL for the CurrentYear on the basis of actual CDR's recorded in MTNL's Mumbai Exchange and in respect of Intra Circle Calls, as per Leased Lines. Any adjustment after settlement of dispute with BSNL may have an impact on the Profits of the company. Amount not ascertainable. [Refer Note No. 10(C)]. xix) The company has not made following disclosures required under schedule - VI of the Companies Act, 1956 as per references given after each item: a) Consumption of stores and spares (Para No. 3 (x)(a) of part II. b) Consumption of imported and indigenous stores & spares and percentage to the total consumption. (Para No. 4 D (C) of part II) c) The classification of sundry debtors as unsecured without considering the security deposit that the unit has received from subscribers. d) Non-Furnishing of Agewise details of Loans & Advances contravenes the requirements of Part - I of Schedule - VI to the Companies Act, 1956. e) The Company is not in possession of requisite information and details for the identification of Micro, Small and Medium enterprises. Hence, we are unable to comment upon the compliance of section 15 and 22 of Micro, Small and Medium Enterprises Development Act, 2006. 42

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xx) The following mentioned practices and procedures followed by the Company in respect of Fixed Assets and Depreciation Accounting, in our opinion, are not in accordance with the Accounting Standard - 10 on 'Accounting for Fixed Assets'; Accounting Standard - 6 on 'Depreciation Accounting' and Accounting Standard - 28 on "Impairment of Assets" issued by the Institute of Chartered Accountants of India : (a) During the year, the company has changed the policy regarding allocation of overhead expenses to fixed assets, from percentage of capital expenditure as prescribed by DOT to directly allocable expenses and a sum of Rs. 2754.28 Millions have been allocated to Capital Work in Progress out of Employees Remuneration & Benefits and Administrative, Operating & Other Expenses [Refer Schedule P & Q of the Annual Accounts]. Branch Auditor has further reported that method of capturing of data for allocation of overhead expenses to capital expenditure requires more scientific and prudent methodology. This change in policy has resulted in increase of Profit by Rs. 2098.68 Millions. [Refer Note No. 3(b)]. (b) Expenditure on replacement of assets, equipments, instruments and rehabilitation work is capitalised if it results in enhancement of revenue earning capacity as stated in Significant Accounting Policy 2(iii).This being a technical matter, we have placed reliance on the opinion of the management. (c) In respect of Mumbai unit, various Fixed Assets (including WLL handsets but not including exchange equipments), replacement cost have been capitalised and / or the assets are sold, without any adjustments of the relevant costs and written down value of such assets from the Fixed Assets block. xxi) Non - confirmation and reconciliation of balances recoverable and payable. Impact on Profits not ascertainable. xxii) The company has adopted the basis of valuation of inventories (except for WLL handsets) as stated in Significant Accounting Policies of the company, which is in accordance with the Accounting Standard - 2 on "Valuation of Inventories" issued by the Institute of Chartered Accountants of India which prescribes for valuation of the same at the lower of the cost and net realizable value. This is a change in the Accounting Policy which has resulted in understatement of inventories by Rs. 1.11 Millions and profits by Rs. 1.11 Millions. xxiii) The accounting policy for revenue and phonogram has been changed from cash basis to accrual basis. This has resulted in the Income being more by Rs. 0.14 Millions and the debtors more by the same amount. However, the impact of above change in policy in respect of Delhi unit is negligible. Thus, the Net Profit of the company is overstated by Rs. 0.14 Millions and Current Assets are correspondingly shown higher by the same amount. xxiv) As per the change in Accounting Policy in respect of Intangible Assets which include Application Software, the depreciation is charged assuming there will be no residual value 43

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at the end of the life of the assets. This has resulted in increase in Depreciation amounting to Rs. 2.62 Millions. Thus the profit is understated by Rs. 2.62 Millions and Fixed Assets are also understated by equivalent amount. [Refer Note No. 3(d)]. xxv) During the year, the company has changed the policy with regard to reciprocal services and stated there is no reciprocal arrangement with BSNL / DOT. Since in the previous year also, no revenue was booked, as such impact of change of policy on the account is not ascertainable. It has further been reported by the branch auditors that they are unable to comment whether all the reciprocal arrangements with DOT have been accounted for.

(The overall impact of the above qualifications on the Profit and Assets / Liabilities of the company is placed in Annexure - II, which is annexed hereto and is forming part of the report.) We report that : i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; ii) In our opinion, proper Books of Account, as required by law, have been kept by the Company, so far as appears from our examination of those books except that the following items referred to in paragraph l (i) of Significant Accounting Policies are consistently accounted on cash basis, instead of on accrual basis as required under section 209 of the Companies Act, 1956 : a) b) iii) Interest Income / Liquidated Damages, when realisability is uncertain. Annual recurring charges of amount up to Rs.0.10 Millions each for overlapping period.

The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report, are in agreement with the books of account;

iv)

In our opinion, the Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 except AS - 2 regarding Valuation of Inventories (Refer Significant Accounting Policy No. 3); AS - 4 regarding Contingencies and Events Occurring after the date of Balance Sheet; AS - 5 regarding Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies [Refer Significant Accounting Policy No. 1(b)]; AS - 6 regarding Depreciation Accounting [Refer Significant Accounting Policy No. 2(v)]; AS - 9 regarding Revenue Recognition [Refer Accounting Policy No. 1 (ii)], AS - 10 regarding Accounting of Fixed Assets (Refer Significant Accounting Policy No. 2); AS - 11 regarding The Effects of Changes in Foreign Exchange (Accounting Policy No. 4); AS - 15 regarding Accounting for Retirement Benefits in the Financial Statements of Employers (Refer Note No. 30, 31 & 32); AS -28 regarding Impairment of Assets (Refer Significant Accounting Policies No. 2 and Note No. 37) and AS - 29 on Provisions, Contingent Liabilities and Contingent Assets.

v)

Since the company is a Government company, clause (g) of sub-section (1) of section 274 of the Companies Act, 1956 regarding obtaining written representations from the directors of the company, is not applicable to the Company in terms of Notification No.GSR-829 (E) dated 21.10.2003); 44

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vi) Attention is further invited to the following : a) Non compliance of Accounting Standard - 28 on Impairment of Assets, which, in view of the recent technological changes, may have significant impact on the carrying cost of the Fixed Assets of the company and may have significant impact on the profitability of the company. b) Non - Redemption of Ist, IInd, IIIrd and IVth installment of 8.75% Cumulative Redeemable Preference Shares amounting to Rs. 800 Millions by ITI Limited, due in the year 2005, 2006, 2007 and 2008. Consequently, the funds of the company have been blocked to the tune of Rs. 800 Millions. (Refer Note - 12). c) The Income Tax Assessment of the company is pending at various stages from the assessment year 1994-95 to 2005-06. The Income Tax Department has partially allowed claims of the company u/s 80 IA & some other claims against which the company has filed appeals. To meet the contingency of Income Tax demands, which may arise due to rejection of its appeals, the company had specifically created a CONTINGENCY RESERVE in the previous years. During the year also, an amount of Rs. 5111.50 Millions has been transferred from General Reserve to the Contingency Reserve. [Refer Note No. 5]. d) In spite of the directions issued by the Department of Telecommunications (DOT), in the month of January 2006, the company is not reconciling its accounts with BSNL on monthly basis. e) Settlement of claim with DOT, in respect of Pension, Gratuity, GPF and Leave encashment liability of absorbed employees is long pending. Non - Provisioning of Fringe Benefit Tax (FBT) on the Service connections provided to the employees of the company, Free of cost / at concessional rate. g) As per suspense list, certain CDRs are lying unmatched in the computer billing system and are pending reconciliation. Provision has been made in the accounts for one time permission charges payable to MCD / NDMC relating to BTS sites acquired on ad-hoc basis in the absence of detailed information. Reconciliation of site taken as per field record and as per account is not available. i) Non - compliance of various clauses of Clauses - 49 of the Listing Agreement relating to Corporate Governance, as per detail given hereunder: 1. The Board of Directors should have an optimum combination of executive and non executive directors with not less than 50% of the board of directors comprising of non executive directors. The company has 4 executive directors including Managing Director and has only 1 non executive director. 2. The Audit Committee constituted by the company is defective to the extent that it has only one independent director in place of two, as required by law.

f)

h)

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j) Debtors Balance as per subsidiary records are short by Rs. 74.21 Millions as compared to General Ledger balances and are under reconciliation. Impact on the accounts not ascertainable. [Refer Note No. 16]. k) A review of the balances with Non-Scheduled Banks reveal that the company is having accounts with some non-scheduled banks, where the accounts are closed and still the balances are lying in the account. [Refer Note No. 26]. vii) In our opinion, and to the best of our information and according to the explanations given to us, the said accounts read with the significant Accounting Policies and together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and also give, subject to our observations in paragraph 4 foregoing, a true and fair view in conformity with the accounting principles generally accepted in India. (a) (b) in the case of Balance Sheet, of the State of Affairs of the Company as at 31st March, 2008; in the case of the Profit & Loss Account, of the Profit of the Company for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

For & on behalf of

Dhawan & Co.

Chartered Accountants

Place : New Delhi Dated : July 31, 2008

Sunil Gogia (Partner) M.No. - 73740

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ANNEXURE - I TO THE AUDITORS' REPORT
(Referred To In Paragraph - 3 Of Our Report Of Even Date To The Members of Mahanagar Telephone Nigam Limited On The Accounts For The Year Ended 31st March 2008)
As required by the Companies (Auditor's Report) Order, 2003, issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956 and as per the information and explanations given to us, the books and records examined by us in the normal course of audit, the reports received from the Branch Auditors and to the best of our knowledge and belief, we further report that: 1. (a) Delhi unit has maintained records of fixed assets. However, full particulars of the assets & locations as required are not maintained in most of the cases. In respect of assets acquired from DOT on 1st April 1986, particulars of location are not available. In case of Mumbai Unit and MS unit Mumbai, fixed assets registers maintained w.e.f. 01.04.2002 are adequate in so far as these give full particulars of quantitative details and identification of situation of fixed assets is in progress. In MS unit - Delhi, records of fixed assets have been maintained. However, full particulars of assets and location as required are not maintained in many cases. Corporate Office has maintained fixed assets register showing full particulars including quantitative details. The situation / location of fixed assets have, however, not been mentioned in most of the cases. As per the Accounting Policy of the company, Fixed Assets are required to be physically verified by the Management on rotation basis, once in three years. In respect of Mumbai unit, the work of physical verification of fixed assets namely Underground Cables is being conducted in accordance with accounting policy No. 2(ii). The fixed assets have been physically verified during the year covering one third of the fixed assets every year. In respect of Delhi and Mobile Service (MS) units (both Delhi & Mumbai), physical verification has been conducted on rotation basis once in three years. As certified by the management, the office machinery and equipment, electrical appliances, Furniture & Fixtures and line and wires were physically verified in accordance with programme of verification by the management in this year and relied on by us. In our opinion, the area of physical verification needs to be strengthened and discrepancies need to be categorically reported. In respect of Corporate office, no physical verification has been conducted by the Management. (c) 2. (a) (b) The company has not disposed off any substantial part of its fixed assets during the year and as such there is no effect on the going concern. In our opinion, physical verification of inventory has been conducted by the management at reasonable intervals. In our opinion, the procedure of physical verification of the inventory followed by the management needs to be strengthened and frequency needs to be increased. According to the information and explanations given to us, the physical verification of all the items of stores was carried out during the year by Delhi and Mumbai units. However, at MS unit, Delhi, physical verification was conducted only for SIM cards. Detailed physical verification reports for all the above units except Mumbai, were not made available for the verification of auditors. We, in view of the same, are unable to offer our comments on the same. 47

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(c) The Company is maintaining proper records of inventory. As per the information provide to us, discrepancies noticed on physical verification of inventory were not material and have been properly dealt with in the books of accounts.

3.

According to the information and explanations given to us, the Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained u/s 301 of the Companies Act, 1956. Consequently, clauses (iii)(b), (iii)(c), (iii)(d), (iii)(e), (iii)(f) and (iii)(g) of paragraph 4 of the order are not applicable. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for the purchase of inventory and fixed assets and for the sale of goods / services. However, in case of Delhi unit, Auditors have shown their inability to comment on the procedures with respect to the purchases under tenders floated and evaluated by corporate office. Further, reconciliation & confirmation of deposits to various departments, reconciliation between the exchange generated calls & billed calls, reconciliation of the balance in subscriber deposit account with subsidiary records needs to be strengthened. Further, in respect of Mumbai Unit, the overall internal control on revenue billing and records of use and return FWP instruments, ADSL Modems and CDMA handsets needs to be strengthened. In case of MS units, the overall internal control system on revenue billing needs to be strengthened as the sundry debtors, deposits and service tax generated by system is not in agreement with the financial books. Further, in MS unit Delhi, the system of reconciliation of IUC payable needs to be strengthened, as the amount generated as per the system for the payable, in certain cases, has to be reconciled with certain operators. In addition to above, there is continuing failure to correct the above weakness in the Internal Control System. In our opinion, there should be a system of cross checking of IUC billing to operators. The Company has not made purchase of material from companies, firms or other parties listed in the register required to be maintained under section 301 of Companies Act 1956, aggregating during the year to Rs. 5,00,000/- or more in value in respect of each party. The company has, however, obtained and provided the services from / to the companies, firms or other parties listed in the register required to be maintained under section 301 of the Companies Act, 1956. The above transactions, though required to be entered in the register required to be maintained under section 301 of the Companies Act, 1956, have not been entered. As informed to us, the Company has not accepted any deposits from the public during the year within the meaning of section 58 A of the Companies Act, 1956 and the rules framed there under. Therefore, the directives issued by the Reserve Bank of India are not applicable.

4.

5.

6.

7. In our opinion, the Internal Audit System of the company commensurate with the size of the Company and the nature of its business. However, the extent of coverage of the areas of operations, frequency / quality of reporting / timeliness of the reporting and the follow up of internal audit observations need to be strengthened. 8. The Central Government has prescribed the maintenance of cost records under clause (d) of sub section (1) of section 209 of Companies Act, 1956 w.e.f. 01.04.2003. The company has not made available Cost Records for the year under review and in the absence of the same, we are unable to express our opinion. 48

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9. (a) There were no undisputed amounts payable in respect of Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2008, for a period of more than six months from the date they become payable except service tax payable on amount lying in unlinked credits accounts in units (amount not ascertainable). As informed to us, the provisions of Employees State Insurance Act are not applicable to the company. There has generally been no delay in depositing CPF contribution to the trust. GPF contribution, in respect of employees on deemed deputation, are generally remitted regularly to DOT cell. GPF contribution, in respect of absorbed DOT employees, has been deposited with the GPF Trust after registration of the trust with Income Tax Department. According to the information and explanation given to us, there are no dues in respect of Custom Duty, Excise Duty and Cess that have not been deposited with the appropriate authorities on account of any dispute. However, the Company has not deposited Sales Tax / VAT Dues, Service Tax and Income Tax Dues on account of disputes as under:

(b)

(i)

Local Sales Tax and Central Sales Tax / VAT: Amount (Rs) L.S.T 268131 162120 1006001 11660806 1437418 1699669 1032760 827253 71319 0 0 1461 88527 2036407 371932 1255424 0 72041344 Amount (Rs) C.S.T 92302769 20517000 15337192 63932673 144392134 176491 201103762 88446906 0 348774 102613 545178 5000 15200 0 0 180544146 4234 Period 1988 - 89 1989 - 90 1990 - 91 1991 - 92 1992 - 93 1993 - 94 1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 2002 - 03 2003 - 04 1987 - 88 to1993 - 94 2004 - 05 Authority where pending Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax High court High court High court Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax Addl. Comm.Sales Tax

Name of the Statute Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act Delhi Sales Tax Act

Delhi Unit has already deposited Rs. 15,45,11,466.90, out of the total disputed liability as above. 49

MTNL
(ii) Service Tax Name of the Statute Service Tax (iii) Bombay Sales Tax Name of the Statute BST Act BST Act BST Act BST Act BST Act BST Act Finance Act, Service Tax Lease Act (Now under MVAT) (iv) CESTAT Sl. No. 1 2 3 4 5 6 Nature of Dues Installation of BTS Sites Installation of BTS Sites Installation of BTS Sites Installation of BTS Sites Installation of BTS Sites Service Tax Demand 2003-04 Amount 3963453 35665083 7489891 (Penalty) 2248797 2617816 2080000 Forum where the dispute is pending CESTAT CESTAT CESTAT CESTAT CCE Appeal is being filed with Joint Commissioner (Appeals) CCE CCE CCE Nature of Dues Amount under dispute not deposited 54829094.00 40201675.00 59424662.00 53193370.00 3552968.00 553070.00 5600000.00 1943994661.00 Year to which Forum where amount the dispute is relates pending 2000 - 01 1999 - 00 1998 - 99 1996 - 97 1993 - 94 1988 - 89 2003 - 04 1998 - 99 to 2002 -03 MSTT MSTT MSTT DC MSTT MSTT Appeal filed with CESTAT. Joint Comm. of Sales Tax-(Apps.) Amount (Rs.) 220600000 Period 2007 - 08 Authority where pending Excise Commissioner

Assessed Amount Assessed Amount Assessed Amount Assessed Amount Assessed Amount Assessed Amount Service Tax cause Notice Assessed Dues

7 8 9

Installation of BTS Sites Installation of BTS Sites Installation of BTS Sites

3210353 15167288 12190290

10. The company has not incurred any losses in the current year and in the financial year immediately preceding such financial year. 11. The Company has neither taken any loans from a financial institution / bank nor issued any debentures. Accordingly, clause 4 (xi) of the order is not applicable. 50

MTNL
12. The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Accordingly, clause 4 (xii) of the order is not applicable. 13. The Company is not a Chit Fund or a Nidhi Mutual Benefit Fund / Society. Accordingly, clause 4(xiii) of the order is not applicable. 14. The Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, clause 4(xiv) of the Order is not applicable. 15. According to the information and explanation given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the Order is not applicable. 16. The Company has not obtained any Term Loans. Accordingly, clause 4(xvi) of the Order is not applicable.

17. The Company has not raised any Long Term or Short Term Loan. Accordingly, Clause 4(xvii) of the Order is not applicable. 18. The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Act. 19. The Company has not issued any debentures. Accordingly, clause 4(xix) of the Order is not applicable. 20. The Company has not raised any money by public issues during the year. Accordingly, clause 4(xx) of the Order is not applicable. 21. According to the information and explanations given to us, no major fraud on or by the company has been noticed or reported during the year. The figures of subscribers fraud is yet to be ascertained and provided in case of Delhi unit.

For Dhawan & Co. Chartered Accountants

Sunil Gogia (Partner) M. No. 73740 Place : New Delhi Dated : July 31, 2008

51

MTNL
ANNEXURE - II TO THE AUDITORS REPORT
Impact of Audit Observations given in our report dated 31st July 2008, on the Profit, Assets & Liabilities of M/s Mahanagar Telephone Nigam Limited as at 31st March 2008
Particular A) B) Overstatement of Profit Understatement of Profit - Net Impact on Profit & Cumulative Profit - Accumulated Profit would have been Overstatement of Current Assets Understatement of Current Assets - Net Impact on Current Assets - Current Assets would have been Overstatement of Current Liabilities Understatement of Current Liabilities - Net Impact on Current Liabilities - Current Liabilities would have been Overstatement of Fixed Assets Understatement of Fixed Assets - Net Impact of Fixed Assets - Fixed Assets would have been Overstatement of Deferred Revenue Income Understatement of Deferred Revenue Income - Net Impact on Deferred Revenue Income - Deferred Revenue Income would have been Rupees in Million Amount Amount 3960.80 0.00 3960.80 108952.78 (112913.58) 1744.05 0.00 1744.05 139872.48 (141616.53) 0.00 1260.73 1260.73 44569.90 (43309.18) 484.40 0.00 484.40 62713.56 (63197.96) 471.62 0.00 471.62 471.62

C) D)

E) F)

G) H)

I) J)

Impact of other Audit Observations not ascertainable, hence not ascertained. Note : Figures shown in bracket represent figures reported in the balance sheet. For & On behalf of For Dhawan & Co. Chartered Accountants

Sunil Gogia (Partner) M. No. 73740 Place : New Delhi Dated : July 31, 2008 52

Parawise Impact of Audit Observations given in our report dated 31st July 2008, on the Profit, Assets & Liabilities of M/s. Mahanagar Telephone Nigam Limited as at 31st March 2008
Profit Overstated 32.29 545.86 471.62 120.39 484.40 9.92 1149.81 22.56 1045.32 3882.17 0.00 1744.05 0.00 0.00 1182.10 0.00 1045.32 471.62 484.40 0.00 22.56 1149.81 9.92 484.40 120.39 471.62 545.86 32.29 Understated Overstated Understated Overstated Understated Overstated Understated Overstated Understated Current Assets Current Liabiliies Deferred Revenue Expenses Fixed Assets

Para No.

Particulars

4(i)

Relating to Non-Provision of Contingent Liabilities

4(ii)

Relating to Booking of Income of MTNL TAX

4(iv)

Booking of One Time Income

4(v)

Non-Provision of EMI handsets/Closed connection

4(vi)

Decapitalisation of Equipment in old WLL exchange

4(vii)

Non-Provisioning for International operators

4(viii)

Non-Provision of 50% DA merge with Basic Pay

4(ix)

Non-Provisioning of ADC claims

4(xiii) a-f

BSNL Bills/Provisions

Note : Impact of other Audit Observations not ascertainable, hence not ascertained.

53
Profit Overstated 2098.68 0.14 2098.82 1.11 2.62 3.73 Understated

Parawise Impact on Profit due to change in Accounting Policies, as given in our report dated 31st July 2008, on the Profit, Assets & Liabilities of M/s Mahanagar Telephone Nigam Limited as at 31st March 2008
Net Impact Overstated Understated

Para No.

Particulars

4(xx)(a)

Change in Accounting Policy for allocation of overheads

4(xxii)

Change in Accounting Policy for valucation of inventory

4(xxiii)

Accounting Policy for Revenue & Phonogram

4(xxiv)

Change in Accounting Policy for Intangible Assets

2095.09

The overall impact of quantifiable qualifications as per I above is Increase in Profit by Rs. 3882.17 Millions, Increase in Current Assets by Rs. 1744.05 Millions, decrease in Current Liabilities by Rs. 1182.10 Millions. Decrease in Deferred Revenue Income By Rs. 471.62 Millions and Increase in Fixed Assets by Rs. 484.40 Millions.

The overall impact due to change in Accounting Policies is overstatement of Profit by Rs. 2095.09 Millions.

MTNL

MTNL
MAHANAGAR TELEPHONE NIGAM LIMITED
Balance Sheet as at 31st March, 2008
As at 31.3.2008 (Rs.in Million) SOURCES OF FUNDS Shareholders' Funds Share Capital Reserves & Surplus Deferred Tax Liability (Net) Total APPLICATION OF FUNDS Fixed Assets Gross Block Less : Depreciation Net Block Capital Work-in-Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances As at 31.3.2007 (Rs.in Million)

A B C

6,300.00 112,913.58 4,865.16 124,078.74

6,300.00 109,992.96 6,204.79 122,497.75

D 158,425.77 95,227.81 63,197.96 9,649.85 5,573.92 1,607.05 9,417.97 33,693.60 2,385.17 94,512.74 141,616.53 152,913.45 88,876.77 64,036.68 7,643.82 4,414.03 2,212.78 9,652.02 18,687.02 1,100.90 110,304.62 141,957.34 43,309.18 54,461.45 44,186.71 2,216.51 122,497.75

E F G H I J K

Less : Current Liabilities and Provisions Current Liabilities L 43,093.00 Provisions M 54,458.22 Net Current Assets 44,065.31 Deferred Revenue Expenditure 1,591.70 Total 124,078.74 Accounting Policies & Notes to Accounts T The Schedules referred to above form an integral part of the Balance Sheet.

( R.C.Sen) Dy. General Manager (Accounts) In terms of our report of even date For Dhawan & Co. Chartered Accountants

( S.R.Sayal) Company Secretary

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

Sunil Gogia (Partner) M.No:73740 Place : New Delhi Date : 31st July, 2008 54

MTNL
MAHANAGAR TELEPHONE NIGAM LIMITED
Profit & Loss Account for the year ended 31st March, 2008
For the year ended 31.3.2008 (Rs.in Million) INCOME Income from Services Other Income EXPENDITURE Employees' Remuneration and Benefits Revenue Sharing Licence Fee Administrative,Operating & Other Expenses Depreciation Interest Profit Before Tax Provision for Taxation Provision for Deferred Taxation Profit After Tax Prior Period Adjustments Profit For the Year Profit Available for Appropriation Appropriations : Interim/Final Dividend Tax on Dividend Transfer To Contingency Reserve Transfer to General Reserves N O 47,225.17 6,074.16 53,299.33 16,434.71 8,042.41 4,215.11 11,222.19 7,040.60 27.82 46,982.84 6,316.49 3,587.94 (1,339.63) 4,068.18 (1,800.73) 5,868.91 5,868.91 2,520.00 428.27 2,920.64 5,868.91 For the year ended 31.3.2007 (Rs. in Million) 49,093.18 6,735.30 55,828.48 18,132.03 8,807.42 4,647.39 9,462.86 6,831.84 20.11 47,901.65 7,926.83 3,177.98 88.52 4,660.33 (2,157.03) 6,817.36 6,817.36 2,520.00 372.14 3,925.22 6,817.36 10.82

Q D R

Earning Per Share Basic/Diluted earnings per share (in Rs.) 9.32 (Refer note 35) Accounting Policies & Notes to Accounts T The Schedules referred to above form an integral part of the Profit & Loss Account.

(R.C.Sen) Dy. General Manager (Accounts) In terms of our report of even date For Dhawan & Co. Chartered Accountants Sunil Gogia (Partner) M.No:73740 Place : New Delhi Date : 31st July, 2008 55

(S.R.Sayal) Company Secretary

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

MTNL
SCHEDULES FORMING PART OF BALANCE SHEET SCHEDULE-A Share Capital
As at 31.3.2008 (Rs.in Million) AUTHORISED CAPITAL 80,00,00,000 Equity Shares of Rs.10/- each ISSUED SUBSCRIBED AND PAID UP CAPITAL 63,00,00,000 Fully paid Equity Shares of Rs. 10/- each Out of the above shares (i) 59,99,98,400 Equity Shares are allotted as fully paid up pursuant to a contract without payment being received in cash out of which 35,43,72,740 Shares are held by the Government of India (ii) 3,00,00,000 Equity Shares are allotted as fully paid up represented by Global Depository Receipts (GDRs) through an International Offering in US Dollars.One GDR represented two equity shares.In Nov, 2001 the GDRs were exchanged in American Depository Shares (ADSs) on a one-for one basis. One ADS also represents two of our equity shares. 6,300.00 6,300.00 8,000.00 As at 31.3.2007 (Rs.in Million) 8,000.00

6,300.00

6,300.00

SCHEDULE-B Reserves & Surplus

As at 1.4.2007 (Rs in Millions) Bonds Redemption Reserve Bonds Redemption Reserve(Prev.Yr) Share Premium Share Premium(Prev.Yr) General Reserve General Reserve(Prev.Yr) Reserve For Contingencies Reserve For Contingencies(Prev.Yr) Reserve For Research & Development Reserve For Research & Development(Prev.Yr) TOTAL (0) 6,650.05 (6,650.05) 93,905.57 (84,906.04) 9,129.34 (14,203.65) 308.00 (308.00) 109,992.96 (106,067.74) 56 8,032.14 (8,999.53) (0) 5,111.50 (5,074.31) (0) 2,920.64 (8,999.53) 5,111.50 (5,074.31) (0) 5,111.50 Addition during the year (Rs in Millions) (0) Deduction As at during the year 31.3.2008 (Rs in Millions) (Rs in Millions) (0) 6,650.05 (6,650.05) 91,714.71 (93,905.57) 14,240.84 (9,129.34) 308.00 (308.00) 112,913.58 (109,992.96)

MTNL
SCHEDULE C Deferred Tax Liability (Net)
Deferred Tax Liability(Asset) As at 1.04.2007 (Rs. in million) Deferred Tax Liabilities Difference between Book, Tax Depreciation & others Difference between Book, Tax Depreciation & others(Prev.Yr) Total - A (12,643.18) 13,523.89 (12,643.18) Deferred Tax Assets Provision for Doubtful Debts, Advances and Bank Balances Provision for Doubtful Debts, Advances and Bank Balances(Prev.Yr) Provision for Obsolete Stock Provision for Obsolete Stock(Prev.Yr) Others Others(Prev.Yr) Total - B (880.71) (356.92) (880.71) (13,523.89) 13,166.97 (13,523.89) (Rs. in million) Current Year Charge/(Credit) (Rs. in million) Deferred Tax Liability(Asset) As at 31.03.2008 (Rs. in million)

13,523.89

(356.92)

13,166.97

(3,491.86)

(421.43)

(3,913.29)

(-3111.15) (231.58) (-230.24) (3,595.66) (-3185.52) (7,319.10) (-6526.91)

(-380.71) (43.58) (-1.34) (517.70) (-410.14) (982.71) (-792.19) (1,339.63) (88.52)

(-3491.86) (275.16) (-231.58) (4,113.36) (-3595.66) (8,301.81) (-7319.10) 4,865.16 (6,204.79)

Deferred Tax Liability (A B)

6,204.79 (6,116.27)

57

SCHEDULE D : FIXED ASSETS

GROSS BLOCK (RS. IN MILLION) ADJUSTMENTS DURING THE YEAR THE YEAR 31.3.2008 1.4.2007 YEAR DURING THE YEAR 31.3.2008 31.3.2008 31.3.2007 DURING AS AT AS AT FOR THE ADJUSTMENTS AS AT AS.AT AS.AT SALES SALES/ DEPRECIATION (RS. IN MILLION) NET BLOCK (RS. IN MILLION)

MTNL

DESCRIPTION

ADDITIONS

AS AT

DURING

1.4.2007

THE YEAR

INTANGIBLE ASSETS:20.23 135.67 1,552.92 4.02 0.29 2.27 0.28 114.35 114.16 1,659.58 784.43 242.96 152,913.45 82,854.01 4.11 158,425.77 88,876.77 7,091.64 6,917.78 0.10 (97.12) 2,075.95 1,491.60 128.07 0.74 1,358.56 511.58 61.74 0.71 94.22 740.60 895.02 369.90 180.41 15.98 0.76 1,328.76 815.44 56.31 0.02 2.18 312.53 214.81 23.66 4.44 0.18 68,245.35 38,444.59 4,352.47 648.82 42,148.25 234.03 871.73 195.63 572.61 1,525.46 95,227.81 88,876.77 69,211.31 43,878.94 1,967.03 (0.02) 45,845.99 0.91 868.73 564.18 21.65 585.83 37.85 6.37 0.75 7.12 11,396.14 2,467.60 389.77 (0.29) 2,857.65 8,538.49 30.73 282.89 23,365.32 26,097.10 78.50 457.03 174.27 785.94 550.49 (97.12) 63,197.96 64,036.68 2,717.09 249.65 54.23 303.88 2,413.21 190.48 190.48 (284.60) 410.24 51.61 19.98 (8.05) 79.63 330.61 74.03 190.48 1,903.47 8,464.98 31.48 274.82 24,232.43 26,258.65 102.64 466.39 186.33 831.18 644.73 375.07 64,036.68 -

APPLICATION SOFTWARE

125.64

LAND:

- FREEHOLD

190.48

- LEASEHOLD -

2,153.12

563.97

BUILDING

10,932.58

483.80

LEASED PREMISES

37.85

LINES & WIRES

839.00

30.63

CABLE

68,111.37

1,235.61

APPARATUS & PLANT

64,703.24

5,095.21

VEHICLES

317.46

1.27

FURNITURE & FIXTURES

1,281.82

47.22

OFFICE MACHINERY &

58
Rs.in.Million 7,040.60 51.04 7,091.64

EQUIPMENTS

366.74

5.43

ELECTRICAL APPLIANCES

1,342.76

16.82

COMPUTERS

2,136.33

53.96

ASSETS SCRAPPED/

DECOMMISSIONED

375.07

(357.92)

TOTAL

152,913.45

7,176.01

Previous Year

148,541.50

5,399.35

Notes

1.

Additions during the year include adjustments on account of value difference,spill over cost, etc indentified duting the year in respect of existing fixed assets

2.

2.Deprection charged during the year includes:

a.

Depreciation for the year

b.

Depreciation /adjustment relating to prior period

c.

Depreciation written back

MTNL
SCHEDULE-E Capital Work-In-Progress
As at 31.3.2008 (Rs. in Million) 362.86 7,567.63 12.42 1,461.47 139.38 124.28 (18.19) 9,649.85 As at 31.3.2007 (Rs. in Million) 496.93 5,503.61 13.81 1,416.79 124.24 106.84 (18.40) 7,643.82

Buildings Apparatus & Plants Lines & Wires Cables Subscribers' Installations Air Conditioning Plants Less Provision For Abandoned Works

SCHEDULE-F Investments
As at 31.3.2008 (Rs. in Million) Long Term-Non Trade (At Cost) Investment in 10000000 8.75%Un Quoted preference share of Rs. 100/- each fully paid up with M/s. ITI Ltd. (Refer Note No.12) Investment in subsidiary companyMillenniumTelecom Ltd. ( Un Quoted 2875880 Equity shares of Rs. 10 each fully paid up) Mahanagar Telephone Mauritius Ltd. (Un Quoted 49418754 Equity Share of MUR 10 (INR 14.9251) each fully paid up) Investment in Joint Ventures with United Telecom Ltd. (Un-Quoted 2901450 Equity Share of Rs.100 each, fully paid up) with MTNLSTPI IT Services Ltd.(Un Quoted 25000 Equity share @Rs.10 each) Others Investment in LIC (MF) Investment in UTI (MF) Investment in Un Quoted 11.5% Bonds fully paid up of Maharashtra Krishna Valley Development Corporation Ltd. (Redemption in the Year 2012) 59 508.83 508.35 2,500.00 5,573.92 2,500.00 4,414.03 290.15 0.25 290.15 28.76 28.76 As at 31.3.2007 (Rs. in Million)

1,000.00

1,000.00

737.58

595.12

MTNL
SCHEDULE - G Inventories (At Cost)
As at 31.3.2008 (Rs.in Million) Stores and Spares : Building Material Lines & Wires Cables Exchange Equipments WLL Equipments Telephone & Telex instruments WLL Instruments Telephones & Telex Spares Installation Test Equipments Store - in -Transit Mobile Handsets & Sim Cards Less: Provision for obsolete stores 0.62 87.73 1,046.64 396.75 7.86 147.10 203.44 2.79 0.42 0.10 17.54 1,910.99 303.94 1,607.05 As at 31.3.2007 (Rs.in Million) 0.62 108.16 857.69 552.24 16.00 493.54 459.35 2.79 1.64 0.04 16.47 2,508.54 295.76 2,212.78

SCHEDULE - H Sundry Debtors (Unsecured)*

As at 31.3.2008 (Rs.in Million) Outstanding for a Period Exceeding Six Months Considered Good Considered Doubtful Other Debts #Considered Good Considered Doubtful Income Accrued from services Less: Provision for doubtful debts Less: Provision for wrong billing 3,189.42 4,202.14 6,154.47 39.48 13,585.51 4,151.20 16.34 9,417.97 As at 31.3.2007 (Rs.in Million) 3,042.01 2,902.11 6,558.00 37.53 12,539.65 2,873.28 14.35 9,652.02

# Include Rs3450.56 Millions (Rs.4290.65 millions) on account of income accrued from services * Except to the extent covered by Security Deposits from subscribers. For the current year, debtors exceeding Six months, considered good & doubtful includes service tax of Rs. 135.51millions (Rs301.51Millions) & Rs.329.86 millions (Rs.252.34 Millions) respectively.Other debtors considered good & doubtful include service tax of Rs.232.47 millions(Rs.836.42Millions) & Rs.221.63 millions(Rs.4.09 Millions) respectively. 60

MTNL
SCHEDULE - I Cash & Bank Balances
As at 31.3.2008 (Rs.in Million) Cash in hand, Including cheques in hand Rs.40.87 millions (Rs96.44 Millions) Balance with Scheduled Banks In Current Accounts In Fixed Deposit Accounts Balance with Non-Scheduled Banks In Current Account (Refer Note -26) 65.41 1,237.75 32,390.50 5.66 33,699.32 Less: Provision for Doubtful Bank Balances 5.72 33,693.60 As at 31.3.2007 (Rs.in Million) 123.40 1,493.64 17,070.04 5.66 18,692.74 5.72 18,687.02

SCHEDULE - J Other Current Assets Unsecured Considered Good

As at 31.3.2008 (Rs.in Million) Interest Accrued on Deposits with Banks, Interest Accrued on Bonds Income Accrued From other Deposits & Loans & Advances Cheque in transit with other Bank Less :- Provision for doubtful Income 1,336.13 192.19 852.64 4.21 2,385.17 As at 31.3.2007 (Rs.in Million) 111.12 192.19 796.56 1.03 1,100.90

61

MTNL
SCHEDULE - K Loans & Advances Unsecured Considered Good*
As at 31.3.2008 (Rs.in Million) Loans & Advances Secured Loans Housing Loan To Employees Un Secured Loans (Considered good, unless otherwise stated)* (1) To Subsidiary Company (2) To DOT (3) To BSNL (4) To Other Corporates (5) To Employees i) Vehicles ii) Others Amount Recoverable from DOT Amount Recoverable from BSNL Amount Recoverable from VSNL Advances Recoverable in Cash or in Kind or for value to be received.# Advance to JV Co (MTNLSTPI IT Services Ltd) Advance Tax Deposits with Govt. Deptt. Capital Advance Amount Recoverable from GPF Trust Others Less: Provision for Doubtful Advances 38.58 122.07 30,856.38 6,036.89 3.42 17,137.54 4.60 32,057.44 476.86 167.12 886.65 4,571.03 95,074.67 561.93 94,512.74 34.58 119.51 29,995.46 12,437.81 2.17 15,647.15 3.71 48,059.34 354.35 149.09 714.72 600.54 110,856.19 551.57 110,304.62 908.09 741.85 1,808.00 1,995.91 As at 31.3.2007 (Rs.in Million)

* Except to the extent of doubtful advances recoverable in cash or in kind or for value to be received for which provision has been made. # Including Rs.442.28 Millions (Rs. 65.10 millions) receivable from Gratuity Trust

62

MTNL
SCHEDULE - L Current Liabilities
As at 31.3.2008 (Rs.in Million) Sundry Creditors (i) For Goods and Services (ii) For Work done (iii) For Others Advances Received from Customers & Others Deposits from : (i) Contractors (ii) Customers & Others Unclaimed Bonds Other Liabilities (i) For Salaries and Other Benefits (ii) Bonus/ Ex-Gratia (iii) GPF of MTNL optee (iv) Others Interest Accrued and due on GPF Income Received in advance against Services Amount Payable: (i) To DOT (ii) To BSNL (iii) To VSNL (iv) To Subsidiary (v) To Others Deffered Tax Liabilities Interest Accrued but not due : (i) On Bonds (ii) On Deposits 6,377.64 4,243.58 1,440.47 405.50 367.49 9,886.30 0.06 992.79 390.00 10,094.87 6,293.91 1,476.85 455.00 0.57 18.72 6.37 640.16 2.72 43,093.00 3.44 43,309.18 552.04 3,760.49 13.08 8.03 494.66 1,274.72 409.59 405.98 9,293.02 4,138.84 342.08 10,792.93 0.06 306.22 5,228.28 3,937.99 2,347.73 As at 31.3.2007 (Rs.in Million)

63

MTNL
SCHEDULE - M Provisions
As at 31.3.2008 (Rs.in Million) Pension (i) Company Employees (ii) Others Leave Encashment (i) Company Employees (ii) Others Gratuity Proposed Final Dividend Tax on Dividend Income Tax Fringe Benefit tax Wealth Tax 31,451.29 122.99 3,196.70 12.56 2,609.66 630.00 107.07 16,128.27 189.85 9.83 54,458.22 As at 31.3.2007 (Rs.in Million) 28,716.45 116.50 2,679.58 8.86 2,623.24 630.00 107.07 19,399.81 128.49 51.45 54,461.45

Schedules Forming Part of Profit and Loss Account for the year ended 31-03-2008

SCHEDULE - N Income from Services

For the year ended 31.3.2008 (Rs. in Million) Telephone (a) Rentals (b) Calls & Other Charges (c ) Franchises Services (d) Rent & Junction Charges (e) Access Calls & Other Charges VCC Internet Telex Circuits WLL Rent WLL Call Charges Mobile (a)Rentals, calls& IUC revenue (b)Income from Roaming (c)Pre paid Trump (d)Activation Charges Broadband Value added and Other Services (a) Indonet (b) Voice Mail (c ) Free Phone (d) Premium Rate (e) ISDN - Rental (f) ISDN - Call Charges Others 64 10,999.55 12,636.84 3,991.54 1,133.02 3,657.92 355.75 129.26 0.19 480.73 435.07 445.82 2,395.51 1,513.54 4,420.11 34.53 3,358.73 1.22 74.40 193.28 0.66 352.44 572.81 42.25 47,225.17 For the year ended 31.3.2007 (Rs. in Million) 11,383.63 14,979.15 6,165.44 1,223.55 2,547.79 456.35 127.60 0.01 758.48 482.94 352.41 2,460.58 1,259.58 3,780.94 118.24 1,958.38 1.91 71.28 150.21 0.55 245.66 496.64 71.86 49,093.18

MTNL
SCHEDULE - O Other Income
For the year ended 31.3.2008 (Rs. in Million) Interest (i) From Banks (Tax deducted at source Rs.602.89 Millions (Rs. 417.36 Millions) (ii) Interest on Advances to Employees (iii) Interest on Deposits, Advances and Others (iv) Interest from Income Tax Department Dividend from Mutual Fund Sale of Directories,Publications, Forms etc. Profit on Sale of Assets Liquidated Damages Foreign Currency Fluctuation Bad Debts Recovered Credit Balances Written Back Rent on Quarters, Inspection Quarters, Hostels and other services provided Others For the year ended 31.3.2007 (Rs. in Million)

2,618.28 108.82 310.21 1,100.18 17.19 22.52 26.11 316.68 62.07 320.43 62.19 1,109.48 6,074.16

1,584.35 206.60 324.06 3,221.36 14.55 9.82 230.01 0.08 96.36 838.83 55.36 153.92 6,735.30

SCHEDULE - P Employees' Remuneration and Benefits

For the year ended 31.3.2008 (Rs. in Million) 12,042.44 474.16 926.84 631.26 7.30 4,032.86 12.36 265.22 (165.17) 625.19 126.47 18,978.93 2,544.22 16,434.71 65 For the year ended 31.3.2007 (Rs. in Million) 11,232.97 415.08 822.28 522.49 9.12 3,872.87 170.22 237.39 733.98 622.09 242.84 18,881.33 749.30 18,132.03

Salaries,Wages,Allowances and other Benefits Bonus/ Ex-Gratia Medical Expenses/Allowances Leave Encashment (i) Company Employees (ii) Others Pension Contribution (i) Company Employees (ii) Others Contribution to Provident Fund Gratuity Compensation under VRS Scheme Staff Welfare Expenses Less : Allocation to Capital Work-In-Progress

MTNL
SCHEDULE - Q Administrative, Operating and Other Expenses
For the year ended 31.3.2008 (Rs. in Million) Power & Fuel Rent Repairs & Maintenance: - Buildings - Plant & Machinery - Others Insurance Rates & Taxes Travelling Expenses Postage & Courier Printing & Stationery Vehicle Expenses: (i) Maintenance (ii) Running (iii) Hiring Commission paid on Franchised Services Comm. Paid to Pre Paid services Advertising/Business Promotion Expenses Provision for Doubtful Debts including Disputed Bills Provision for Wrong Billing Bad Debts Written Off Provision for Obsolete Stores Professional & Consultancy Charges Seminar and Training Expenses Miscellaneous Expenses Loss on Sale of Assets Internet charges PSTN Charges Spectrum Charges (WLL) Spectrum Charges (MS) Loss of Assets Less : Allocation to Capital work in progess 1,883.37 618.98 153.91 936.20 486.89 37.14 360.34 43.31 172.64 150.21 14.05 32.52 93.10 1,895.38 7.23 331.61 1,238.59 1.28 59.77 128.22 106.68 12.64 817.98 443.51 609.29 17.62 338.81 440.98 11,432.25 210.06 11,222.19 66 For the year ended 31.3.2007 (Rs. in Million) 1,607.88 608.84 166.92 759.54 395.16 36.61 325.37 51.52 206.16 146.98 15.31 36.13 97.72 2,248.94 11.02 446.92 1,119.68 0.39 22.74 3.95 84.26 10.65 613.07 50.12 168.30 20.92 204.94 2.82 9,462.86 9,462.86

MTNL
SCHEDULE - R Interest :
For the year ended 31.3.2008 (Rs. in Million) Interest on : Customers' Deposits GPF Other 15.82 0.02 11.98 27.82 19.74 0.19 0.18 20.11 For the year ended 31.3.2007 (Rs. in Million)

SCHEDULE - S Prior Period Adjustments

For the year ended 31.3.2008 (Rs. in Million) Debits Salary,Wages,Allowances & Staff Expenses Power & Fuel Rent Rates & Taxes Repairs to Plant & Machinery Depreciation/Amotisation Others (includes Tax Rs. 671.37 Millions) Credits Rate & Taxes written back Excess provision written back (Income Tax) Others Net Adjustment 2,526.53 89.14 2,615.67 (1,800.73) 2,283.17 16.36 2,299.53 (2,157.03) 0.01 13.02 2.00 51.04 748.87 814.94 18.21 1.81 1.00 0.16 16.63 85.94 18.75 142.50 For the year ended 31.3.2007 (Rs. in Million)

67

MTNL
SCHEDULE FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED 31ST MARCH 2008. SCHEDULE - T
SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS A. SIGNIFICANT ACCOUNTING POLICIES 1. Basis of preparation of financial statements i. The accounts are prepared under the historical cost convention adopting the accrual method of accounting except the following items, which are accounted for on cash basis: (a) Interest income/liquidated damages, where realisability is uncertain. (b) Annual recurring charges of amount up to Rs. 0.10 Millions each for overlapping period. ii. Revenue Recognition (a) Revenue is recognised on accrual basis, including income from subscribers whose disputes are pending resolution, and closure of the subscribers' line. Revenue in respect of service connection is recognised when recoverability is established. (b) Provision is made for wrong billing, disputed claims from subscribers excluding operators, cases involving suspension of revenue realisation due to proceedings in Court and debtors outstanding for more than 3 years. In case of Mobile Services (GSM), the provision is made for dues, which are more than 180 days. (c) Activation charges recovered from the subscribers at the time of new telephone connection is recognised as income in the year of connection. (d) Activation charges in case of Mobile Services (GSM) is recognised as revenue on connection. (e) Income from services includes income from leasing of infrastructure to other service providers. iii. The cost of stores and materials is charged to project or revenue job at the time of issue. However, spill over items at the end of the year lying at various stores are valued at weighted average method. iv. The sale proceeds of scrap arising from maintenance & project works are taken into miscellaneous income in the year of sale. v. Bonus / Ex - Gratia is paid based on the productivity - linked parameters and it is provided accordingly.

vi. Income from services pertaining to prior years is not disclosed as prior period item. In respect of other income/expenditure, only cases involving sums exceeding Rs. 0.10 Millions are disclosed as prior period items. 1.1 Employee Retirement Benefits a) In respect of officials who are on deemed deputation from DOT and other Govt. Departments, the provision for pension contribution is provided at the rates specified in Appendix 2(A) to FR 116 and 117 of FR. & SR. and provision for leave encashment is made @ 11% of pay as specified in appendix 2(B) of F.R.116 and 117 of F.R. & S.R. Provision of gratuity, in respect of these officers, is not required to be made. In respect of others, provision is made as per Actuarial Valuation. 68

b)

MTNL
2. Fixed Assets i. Fixed Assets are carried at cost less accumulated depreciation. Cost includes directly related establishment expenses including employee remuneration and benefits and other administrative expenses. Establishment overheads and expenses incurred in units where project work is also undertaken are allocated to capital and revenue based either on time allocated or other attributable basis. Assets are capitalised, as per the practices described below, to the extent completion certificates have been issued, wherever applicable. (a) Land is capitalised when possession of the land is taken. Value of Leasehold Land is amortised over the period of lease. (b) Building is capitalised to the extent it is ready for use. (c) Apparatus & Plants principally consisting of Telephone Exchange Equipments and Air Conditioning Plants are capitalised on commissioning of the exchange. Subscribers Installations are capitalised as and when the exchange is commissioned and put to use either in full or in part. (d) Lines & Wires are capitalised as and when laid or erected to the extent completion certificates have been issued. (e) Cables are capitalised as and when ready for connection with the main system. (f) Vehicles and Other Assets are capitalised as and when purchased (g) Intangible assets include application software are capitalised when ready for use. ii. The fixed assets of the company are being verified by the management at reasonable intervals i.e. once in every three years by rotation. The physical verification of underground cables is done on the basis of working of network and based on records available together with a certificate from the technical officers. Expenditure on replacement of assets, equipments, instruments and rehabilitation work is capitalised if it results in enhancement of revenue earning capacity.

iii.

iv. Upon scrapping / decommissioning of assets, these are classified in fixed assets at the lower of Net Book Value and Net Realisable Value and the estimated loss, if any, is charged to Profit and Loss A/c. V. Depreciation (a) Depreciation is provided on Straight Line Method at the rates prescribed in Schedule XIV to the Companies Act, 1956 except in respect of Apparatus & Plant (including Air Conditioning System attached to exchanges), which is depreciated at the rates based on technical evaluation of useful life of these assets i.e. 9.5%, which is higher than the rates prescribed in Schedule XIV to the Companies Act, 1956. (b) 100 % depreciation is charged on assets of small value in the year of purchase, other than those forming part of project, the cost of which is below Rs.0.01 Millions in case of Apparatus & Plants, Training Equipment & Testing Equipment and Rs.0.20 Millions for partitions. (c) In case of intangible assets, the useful life of the assets is considered as 10 years and amortization is charged on depreciable amount accordingly. There will be no residual value at the end of the life of the assets.

69

MTNL
3. Inventories Inventories being stores and spares are valued at cost or net realizable value, whichever is lower. However, inventories held for capital consumption are valued at cost. 4. Foreign Currency Transactions Transactions in foreign currency are stated at the exchange rate prevailing on the transaction date. Yearend balances of current assets and liabilities are restated at the closing exchange rates and the difference adjusted to Profit & Loss Account. 5. Deferred Revenue Expenditure Compensation paid to employees retired under Voluntary Retirement Scheme (VRS) is treated as deferred revenue expenditure to be written off over a period of five years. Investments Current investments are carried at the lower of cost & fair market value. Long term Investments are stated at cost. Provision for diminution in the value of long-term investments is made only if such a decline is other than temporary in the opinion of the management.

6.

B. NOTES TO ACCOUNTS 2007-2008 (Rs. in Million) 1. Contingent Liabilities (a) Income Tax Demands disputed and under appeal (b) Sales Tax, Service Tax, Excise duty, Municipal Tax Demands Disputed and under Appeal (c) Disputed Demand under Lease Act* (d) i Interest to DDA on delayed payments/Pending Court Cases ii Pending Court Cases/Tax cases iii Stamp duty payable on land and buildings acquired by the Company (e) (f) (g) (h) (i) Claims against the Company not acknowledged as Debts. Bank guarantee & Letter of Credit Directory dispute Interest on cancellation of 6th series of Bonds (Canfina) Interest demanded by DOT and disputed by company on account of delay in payment of Leave Salary and Pension Contribution Pending court cases against land acquisition 2006-2007 (Rs. in Million)

17233.13 1423.07 1943.99 Amount Indeterminate Amount Indeterminate Amount Presently Unascertainable 3013.49 913.60 2852.50 54.12

26359.64 1151.48 1943.99 Amount Indeterminate Amount Indeterminate Amount Presently Unascertainable 2461.33 1123.30 2852.50 54.12

(j)

1738.10 Indeterminate

1738.10 Indeterminate

A demand from service Tax Department for Rs.5.60 Millions being short payment of Service Tax in 200304 (Claiming that MTNL should get refund of any excess payment during the previous half- year and should not adjust) was contested by MTNL, Mumbai in CESTAT. While admitting our petition CESTAT has 70

MTNL
directed MTNL to deposit Rs.1.5 Millions. Accordingly an amount of Rs.1.5 Millions has been deposited on 15.01.2008. The case is pending for hearing. * Consequent to the judgment by Hon'able Supreme Court in the matter of U.P. State Government vs. Union of India (DOT), the authorities have raised fresh demand for the period from 1998 - 99 to 2002 - 03 for Rs. 1943.99 Millions. Estimated amount of contracts remaining to be executed on Capital Account and not provided for (Net of Advances) in relation to execution of works and purchase of equipments is Rs. 5492.87 Millions (Rs. 6165.64 Millions). In respect of contracts where expenditure already incurred has exceeded the contract value and the contract remains incomplete, additional expenditure required to complete the same cannot be quantified. Changes in the Accounting Policies during the financial year 2007-08 a) Revenue from Phonogram is accounted for on accrual basis. Last year, revenue from phonogram was accounted for on cash basis. Due to change in the policy from cash to accrual basis, the impact on profitability is negligible. Due to change in accounting policy the overheads charged to capital expenditure is calculated on direct allocation basis, as per the parameter recommended by the consultant and duly recommend by the Technical committee, instead of the fixed percentage as prescribed by the DOT in earlier periods. Consequently due to the impact on change in accounting policy, the profit has gone up by Rs.2098.68 Millions. Due to change in accounting policy for valuation of inventory, the Delhi and MS unit has negligible impact on accounts while in respect of Mumbai unit, the inventory has been gone down by Rs 1.11 Millions and Profit has gone down by Rs 1.11 Millions. Hitherto the company did not have any specified Policy as regards intangible assets of the company. The Profit has gone down by Rs 2.62 Millions due to new policy of intangible assets.

2.

3.

b)

c)

d) 4.

Other liabilities include credits on account of receipts including service tax from subscribers amounting to Rs.312.45 Millions (Rs.259.84 Millions), 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. a) The company had claimed benefit under section 80 - IA of the Income Tax Act, 1961 for the financial year from 1996-97 to 2005-06 @100% for the first 5 years and @ 30% for the subsequent five years. The benefit is claimed on operational profit earned by the Company. In case of financial years 1997-98 to 1999-2000 and 2001-2002, the benefits under section 80IA of the Income Tax Act were partially allowed by the IT department. The balance, in the Contingency Reserve Accounts specifically created for contingency arising out of disallowances of claims of benefits under section 80IA of Income Tax Act ,stood at Rs 9129.34 Millions .The company has further provided an additional amount of Rs 5111.50 Millions by debiting to General Reserve Account thus increasing the balance in the contingency Reserve to Rs 14240.84 Millions. During the years ,on the basis of Assessment Orders received by the company for the financial years from 1993-1994 to 2004-2005 allowing certain partial benefits to the company, the company has written back provision on account of Income Tax provided in the earlier years amounting to Rs 2364.42 Millions 71

5.

b)

c)

MTNL
6. Provision for taxation for the current year comprises of Income Tax of Rs. 3523.95 Millions, Deferred Tax Asset of Rs.1339.63 Millions, Wealth Tax of Rs 2.64 Millions and Rs.61.35 Millions for Fringe Benefit Tax. (a) The supplemental agreement entered into between United India Periodicals Pvt. Ltd. / United Data Base (India) Pvt. Ltd/ Sterling Computers Ltd and the company for printing of telephone directories was struck down by the Hon'ble High Court of Delhi on 30.9.92 and the said decision was upheld by the Hon'ble Supreme Court of India on 12.1.93. A claim against the Company has been raised by Sterling Computers Ltd. for Rs. 258.2 Millions which being under dispute, has not been provided for. The company has filed its counter claims of Rs. 228.7 Millions before the Hon'ble High Court against Sterling/UDI/UIP and has also filed arbitration claims of Rs. 561.8 Millions against these parties under the original agreement. Pending finalisation of this dispute, the company has raised and recorded as 'Claims Recoverable', a claim for Rs. 154.91 Millions (Rs. 154.91 Millions) on account of royalty, interest and billing charges and on payments made through Letter of Credit; Rs.130.47 Millions (Rs.130.47 Millions) recovered there against by the company from subscribers for the issue of directories, is carried under 'Current Liabilities'. Further claims of the Nigam for interest and service charges aggregating Rs.143.67 Millions (previous year Rs.143.67 Millions) have not been accounted for. Financial implication of the claim raised against the company, adjustment of the sums received against outstanding claims, any nonrealisation of claim and further claims recoverable shall be effected upon determination based on the outcome of the proceedings in the court of law. MTNL has moved an application under section 446 of the Companies Act, 1956 praying to show arbitral proceedings to be continued between parties pending before Hon'ble Mr. Justice K.S.Tiwana (Retd.) Sole Arbitrator and grant permission to continue with OMP No. 135/94.The company court vide its order dated 01.04.2008 has allowed the application seeking the leave of the court to continue with the proceedings in OMP No. 135/1994 the Delhi high court fixed next date on 30.09.2008. (b) MTNL entered into contracts with M/s M & N Publications Limited for printing, publishing and supply of telephone directories for Delhi and Mumbai units for a period of 5 years starting from 1993. In view of the breaches of the terms and conditions of the contracts committed by the contractor in publishing first issue of the directories of both units and their failure to execute the remaining part of the contracts, both the contracts were terminated by MTNL on 22.07.1996. Income from royalty and other applicable recoveries, for first issue published by contractor, Rs. 181.2 Millions have been accounted for and received. Sole Arbitrator has been appointed by both the parties. The effect of claims under the contract for remaining issues published by contractor will be accounted for in the year of issuing of award by the Sole Arbitrator. (c) Hon'ble TDSAT, in MTNL Vs C.G.Faxmail & Others, vide its order had directed MTNL to refund the double rent charged by it to e-mail service providers. MTNL filed a Special Leave Petition against the aforesaid order before Hon'ble Supreme Court. The Hon'ble Supreme Court, while admitting the petition, directed the company to pay a sum of Rs.59.36 Millions to the C.G.Faxmail & Others. 8. Certain Lands and Buildings capitalised 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. In case of Mumbai unit legal vesting of land and building of the value of Rs.14.60 Millions (Rs.15.61 Millions) acquired after 1st April, 1986 is under process. 72

7.

MTNL
9. The Mumbai Unit had applied for amnesty under the Maharashtra Kar Nivaran Yojana, 1999 in respect of the Sales Tax demands of Rs 8.10 Millions (Rs. 8.10 Millions). The application for amnesty towards demands aggregating Rs.2.09 Millions (Rs.2.09 Millions) has been accepted. The balance applications relating to demands of Rs.6.02 Millions (Rs.6.02 Millions) are under process and are not included under Contingent Liabilities. BSNL has been carrying all NLD traffic (Both Incoming as well as Outgoing) of MTNL through the TAXs in Delhi and Mumbai owned and operated by MTNL since its inception and significantly expanded by MTNL over the years. In terms of IUC regulations of TRAI, a claim for TAX for an amount of Rs. 1277.26 Millions (Rs. 1251.49 Millions) has been billed to BSNL towards usage of MTNL TAX. The same has been recognised as Revenue. During the year, the Company has claimed from BSNL charges for leasing infrastructure of Rs. 514.53 Millions (Rs.477.54 Millions) as per the tariff in force. The same has been recognised as revenue in the current year, in accordance with the accounting policy of the company. The Mumbai unit has computed and accounted for IUC charges of BSNL for the Current year on the basis of actual CDR's recorded in MTNL's Mumbai exchanges. In respect of intra circle calls, carriage charges are computed with reference to Leased Lines and accounted. Entries have been passed accordingly for amount payable of Rs. 1676.95 Millions (Rs. 1765.02 Millions) and amount receivables of Rs. 1202.33 Millions (Rs. 1210.84 Millions). The tax usage on the incoming traffic and outgoing traffic from and to BSNL is calculated at a prescribed rate of Rs. 0.19 per minute. As per latest BSNL office letter no. 352-1/2008-Regln. Dated 06/05/2008, BSNL is also charging Rs.0.19 per minute as transit charges as prescribed in IUC Regulation of TRAI from cellular operators. These charges are levied by MTNL also on similar lines and are as per TRAI instructions. ADC receivable from M/s Tata Com. and M/s Reliance has been calculated on the least applicable rate of the period of billing i.e. Rs.0.30 per minute. There were slabs of rates of Rs.0.30, Rs.0.50 and Rs.0.80 during the billing period. The charge has been made taking into the 50% of total arrived at i.e. Rs.450.00lacs. as a conservative measure and accordingly bill to the tune of Rs.225.00lacs only has been raised against M/s Tata Com. and M/s Reliance.

10. a)

b)

c)

d)

e)

11. As per directions of the court, one UASL operator had deposited Rs. 3412.74 Millions against the claim of the same amount. The company had recognised revenue of Rs 2367.90 Millions in the year 2004 - 05 and Rs. 1044.84 Millions in the year 2005 - 06. The petition filed by UASL operator before Hon'ble High Court, Delhi is dismissed as withdrawn with a liberty to the UASL operator to take steps in accordance with law. The matter is presently pending before the Hon'ble Court. 12. The company had subscribed to 8.75% Cumulative Preference Shares of M/s. ITI Limited, amounting to Rs.1000 Millions during the year 2001-02. As per the terms of allotment, the above Preference Shares were proposed to be redeemed in 5 equal installments in the 3rd, 4th, 5th, 6th and 7th year. Accordingly, Four installments amounting to Rs. 200 Millions each, aggregating to Rs. 800 Millions have become redeemable, which have not been redeemed by ITI Limited. Moreover, no dividend income has been booked in the accounts for the same, as ITI Limited has not declared any dividend. 13. In respect of Mumbai Unit the bank reconciliation statements as at 31st March, 2008 include unmatched/ unlinked credits/ debits given by the banks amounting to Rs. 56.00 Millions (Rs. 12.91 Million) and Rs. 42.75 Millions (Rs.7.66 Millions) respectively, which could not be properly accounted for, in the absence of adequate particulars. 73

MTNL
14. In respect of Mumbai unit , an amount of Rs 4.59 Millions being the amount of commission charges debited by PNB in respect of East-2 area has not been accounted as it is under dispute. Hence the amount is kept as a reconciliation item without reducing the bank balance. The commission charges have been considered as a contingent liability. 15. a) Deposits from applicants and subscribers as on 31st March 1986 were Rs.1503.59 Millions as intimated provisionally by DOT. Corresponding assets shown under claims recoverable are being reduced by the amount of recovery of rebate on rental and by the amount of recovery of application deposit for which connections have been released to subscribers with effect from 1.4.1986. Balance still recoverable from DOT on this account is Rs. 558.45 Millions (Rs. 558.38 Millions). The balance in the Subscribers' Deposit Accounts of Rs. 8481.73 Millions (Rs. 10254.63 Millions) and Interest Accrued and Due thereon of Rs. 29.48 Millions (Rs. 34.07 Millions) is subject to reconciliation with the relevant subsidiary records.

b)

16. The aggregate balance of sundry debtors as per the subsidiary records is short by Rs. 74.21 Millions (Previous Year high by Rs. 6.01 Millions) as compared to the balance in General Ledger and is under reconciliation. The resultant impact of the above on the account is not ascertainable. 17. a) Amount recoverable on current account from DOT is Rs. 30856.38 Millions (Rs. 29995.46 Millions) and amount payable is Rs. 454.99 Millions (Rs. 552.04 Millions). The net recoverable of Rs. 30401.39 Millions (Rs. 29443.42 Millions) is subject to reconciliation and confirmation. The amount recoverable from BSNL is Rs.6036.32 Millions (Rs.8677.32 Millions) after netting off Rs. 6042.33 Millions is subject to reconciliation and confirmation. Out of total provision of Gratuity of Rs. 6335.22 Millions up to 31.3.2008 (Rs. 6434.32 Millions), an amount of Rs. 1943.72 Millions and Rs. 665.41 Millions is recoverable from DOT, in respect of Group C & D and Group B employees respectively, for the period prior to their absorption. As on 31.03.2008 Rs. 3725.55 Millions is available with the Gratuity Trust. The total provision of Leave Encashment is Rs. 3196.69 Millions up to 31.3.2008 (Rs. 2679.58 Millions). Out of this, an amount of Rs. 433.74 Millions and Rs. 653.68 Millions is recoverable, from DOT in respect of Group B and Group C & D employees respectively for the period prior to their absorption in MTNL. An amount of Rs. 10554.52 Millions (Rs. 9293.02 Millions) towards GPF contribution is recoverable from DOT as on 31.3.2008. The amount pertains to Group C& D and Group B employees absorbed in MTNL w.e.f. 01.11.98 and 01.10.2000, respectively. The total provision of Pension is Rs. 31451.29 Millions (Rs.28716.45 Millions) upto 31.3.2008. Out of this an amount of Rs. 7582.23 Millions and Rs. 2198.24 Millions is recoverable from DOT in respect of Group C&D and Group B employees for the period prior to their absorption.

b) 18. a)

b)

c)

d)

19. The amount of receivables and payables (including NLD / ILD Roaming operators) is subject to confirmation and reconciliation. Pending such confirmation/ reconciliation, the impact on the account is not ascertainable at this stage. 20. In respect of Delhi unit ,the management has not yet taken any decision to close the old CDMA exchange commissioned in the year 2003 and the passive infrastructure of old CDMA network is still being used. The liability outstanding in this regard to the extent of Rs.470.10 Millions is not payable to vendor against this network due to the deficiencies and there is no arbitration and court case against the liability which otherwise is outstanding beyond three years liable to be written back. The write 74

MTNL
back of liability as well as the decommissioning of the system fully is yet to be decided and due to the fact that liability is not payable as certified by the CDMA unit, which is almost equivalent to the depreciated cost of the system, there is no impact in this regard. 21. During the year in terms of office memorandum of department of Public Enterprises OM No 2(7)/2005DPE(WC)-GL-III dated 26.02.2008 an amount of Rs.520 Millions towards merger of DA along with basic pay has been provided on adhoc basis. 22. During the year under report, the company has entered into an agreement for development of a core knowledge park on its land at Noida and accorded the responsibilities of development; at the consideration of one time non-refundable Development Compensation Charges. No claim of refund or adjustment of the Development Compensation Charges is ever to be made. In addition to this M.T.N.L. shall recover throughout the life of the concession a regular annual license fee. Besides this, the delivery of built up area of 25.2% of total built up area is to be handed over to MTNL by a project development company selected in the RFP process. Accordingly revenue of Rs.481.30 Millions under 'Other Income', on the payment becoming due and receivable by 4.11.2007 as per the agreement towards the non- refundable Development Compensation Charges(DCC) has been recognized. 23. In respect of accounting for billing of subscribers for Mobile Services and collections made thereon, computerised billing system has been implemented and the financial entries for booking of income and debtors accounting have been incorporated in the books of accounts based on the output generated through computer system. 24. Pending final settlement, the following have not been accounted for 2007-08 a) b) c) d) e) Customs Duty Refund Claims Insurance Claims for damages due to floods Insurance Claims for damages due to fire Service Charges for 1992 issue of Directory. Interest on advances for 1992 Directory 53.21 228.82 16.51 0.59 979.19 2006-07 53.21 461.07 0.59 979.19 (Rs. in Millions)

25. The other information under Para 4B and 4C of part II of schedule VI of the companies Act, 1956 is as under a) Remuneration paid/payable to the Chairman & Managing Director(s) and Other Directors for the year ended 31st March 2008:For the Year ended 31.03.2008 5.08 Millions 0.22 Millions Statutory Auditors (Rs.in Million) 0.56(0.55) 0.22(0.33) 0.12(0.06) For the year ended 31.03.2007 4.07 Millions 0.24 Millions Branch Auditors (Rs.in Million) 1.90(1.55) 0.79(0.92) 0.18(0.22)

i) Remuneration ii) Perquisites b) Remuneration to Auditors:

(i) As Audit Fee (ii) Limited Review (iii) Auditors Expenses

75

MTNL
c) Value of i. Imports on CIF basis ii. Others Expenditure in Foreign Currencies Earnings in Foreign Exchange Gross Income from Services NIL NIL 34.09 66.70 47225.19 NIL NIL 34.08 54.80 49093.18

d) e) f)

26. The Balances with Non Scheduled Banks comprise of :Name of the Bank Patan Cooperative Bank Ltd. Mumbai (Account closed, considered doubtful) Indira Sahakari Bank Ltd., Mumbai (Considered doubtful) The Mogaveera Co-op. Bank Ltd, Mumbai (Account closed, considered doubtful) Balance as on 31.3.2008 0.03 (0.03) 5.59 (5.59) 0.04 (0.04) (Rs. in Millions) Maximum Balance during the year 0.03 (0.03) 5.59 (5.59) 0.04 (0.04)

The maximum balance outstanding during the year have been taken as per the bank statements of the individual branches in respect of the operative accounts, since the unit maintains its accounts for each bank as a whole without accounting for the balances with individual bank branches. 27. There is no reported Micro, Small and Medium enterprise as defined in the Micro, Small and Medium enterprise development Act, 2006, to whom the company owes dues. 28. Information required under Paragraphs 3(x)(a) and 4D(c) of Part II of Schedule VI to the Companies Act 1956 is not ascertainable, since (i) consumption of stores is included under the normal heads of Capital Expenditure and/or Repairs & Maintenance, and (ii) the issue of imported and indigenous items are not separately priced/ identified. 29. There is no agreement between the Company and DOT for interest recoverable / payable on current account. Accordingly, no provision has been made for interest payable / receivable on balance during the year. 30. During the year company has discontinued its medical benefit scheme for retired employees w.e.f 31.08.2007. Thereafter, an adhoc arrangement was made w.e.f 1.9.2007. According to this adhoc arrangement the respective units were allowed to settle such claims on case to case basis. This scheme was also discontinued w.e.f 20.03.2008; however the employees who are under treatment will continue to get the benefits till discharge from the hospital. 31. Contingencies and Events Occuring after Balance Sheet Date-AS-4 MTNL vide its office order no. MTNL/CO/Pers/8(1-176)2006 dt. April 17,2008 has introduced medical plan till finalization of new alternative arrangement for Indoor Treatment of Retired MTNL employees, under this plan the emergent cases requiring hospitalization may be decided by the Executive Directors of the respective units on a case-to-case basis.

76

MTNL
32. Employee Benefits -AS-15(R) I. During the year, the Company has recognized the following amounts in the Profit and loss Account. a) Defined Contribution Plans Particulars Employer Contribution to Provident Fund* Leave Encashment Contribution for DOT employees** Pension Contribution for DOT employees*** * Mentioned as Contribution to CPF **Mentioned as Leave Encashment-Others ***Mentioned as Pension contribution-Others (Rs. In Millions) Amounts 265.22 7.30 12.21

Particulars Current Service Cost Interest Cost Expected Return on Plan Assets Actuarial(gain)/loss Past Service Cost Curtailment and Settlement Cost/(Credit) Net Cost *Mentioned as Gratuity. **Mentioned as Pension Contribution-Company employees.

(Rs. In Millions) Gratuity* Pension** 250.30 924.00 540.00 2390.00 (489.90) (465.60) 718.80 (165.20) 4032.80

II. The assumptions used to determine the Defined Benefit Obligations are as follows: Particulars Discount Rate Salary Escalation Current Expected rate of Return on Plan Assets Gratuity 8.25% 5.00% 8.00% Pension 8.25% 5.00% -

III. Reconciliation of opending and closing balances of benefit obligations and plan assets. a) Benefit obligations. Particulars Projected benefit obligation at beginning of the year Interest Cost Current Service Cost Past Service Cost Benefit Paid Actuarial (Gain)/loss on obligations Projected benefit obligation at end of the year Gratuity 6434.30 540.00 250.30 (290.60) (598.80) 6335.20 (Rs. In Millions) Pension 28716.40 2390.00 924.00 (1298.00) 718.80 31451.30

77

MTNL
b) Plan Assets Particulars Fair Value of plan assets at beginning of year Expected Return on Plan Assets Contributions Benefit Paid Actuarial gain/(loss) on Plan Assets Fair Value of Plan Assets at the end of the year IV. Category of Investment in Gratuity trust as on 31.03.2008. (Rs. In Millions) Particulars Government of India Assets Corporate Bonds State Govt Others Total V. Amounts 1755.70 1600.80 645.00 2333.70 6335.20 (Rs. In Millions) Gratuity 6434.30 489.90 (165.20) (290.60) (133.20) 6335.20

The discount rate of 8.25% which have taken for calculation of present value of obligation is based on the bench mark rate available on Govt. Securities for the tenure of payment.

VI. Gratuity is payable to the employees on death or resignation or on retirement at the attainment of superannuation age. To provide for these eventualities we have use Mortality:1994-96 LIC Ult table for mortality in service and LIC (1996-98) table for mortality in retirement. VII. Mortality in service is assumed on the basis of LIC (1994-96) Ult and mortality in retirement is based on LIC(1996-98) table. VIII.Bonus is a short term benefit and during the year company has charged Rs.474.16 Millions as expenses and balance outstanding as on 31.03.08 is Rs.390.00 Millions. 33. Information regarding Primary Business Segments: - AS - 17 Rs. in Millions S.No. 1. Particulars Income from Services Basic & Other Services Cellular Unallocable Total Less: Inter Unit Income Net Income From Services 78 Year Ended 31.3.2008 (Audited) 39,959.21 8,821.91 48,781.12 1555.93 47,225.19 Year Ended 31.3.2007 (Audited) 42,035.18 7,741.46 49,776.64 683.46 49,093.18

MTNL
2. Segment result before interest and tax Basic & Other Services Cellular Unallocable Total Less: Interest Less: Prior period Items Profit before tax Less: Provision for Tax Profit after tax Capital Employed (Segment Assets - Segment Liabilities) Basic & Other Services Cellular Unallocable Total 2581.86 2327.10 1435.35 6344.31 27.82 (1,800.74) 8117.23 2,248.31 5,868.92 1472.97 2873.49 3600.46 7,946.94 20.11 (2,157.03) 10,083.86 3,266.50 6,817.36

3.

41,716.47 5,832.09 70,810.39 118,358.95

46,857.35 4.772.47 62.446.61 114,076.43

Notes: 1. The company has disclosed Business Segment as the Primary Segment. Segments have been identified taking into account the nature of the services, the deferring risks and returns, the organisational structure and internal reporting system 2. The company caters mainly to the needs of the two metro cities viz. Delhi and Mumbai. As such there are no reportable geographical segments. 3. Segment Revenue, Segment Result, Segment Asset and Segment Liabilities include the respective amount identifiable to each of the segments. The expenses, which are not directly relatable to the business segment, are shown as unallocable corporate assets and liabilities respectively. 34. Related Party Disclosures - AS - 18 a) List of Related Parties and Relationships Party Department of Telecommunication Millennium Telecom Limited Mahanagar Telecom Mauritius Ltd. United Telecom Limited MTNL STPI IT Services Ltd. Key Management Personnel Mr. R. S. P. Sinha Mr. Kuldip Singh Mrs. Anita Soni Mr. S.P Pachauri (Part of the year) Mr. K. C. Gupta Mr. A. K. Arora Mr. J. Gopal 79 Chairman & Managing Director Director (Technical) Director (Finance) Director (HR) Executive Director (Operation) Executive Director, Delhi Executive Director, Mumbai

Relation Holding 56.25% shares of the Company Wholly owned Subsidiary Wholly owned Subsidiary Joint Venture Joint Venture

MTNL
(Rs. In Millions) b) Related Party Transactions (Except DOT) Transactions Guarantees Unsecured Loan Remuneration Paid Loans & Advances Others 35. Earning Per Share - AS - 20 1) 2) 3) 4) Profit after Tax Number of Shares Nominal value of shares Basic/ diluted EPS Rs. 5868.91 Millions 630 Millions Rs. 10/Rs. 9.32 Joint Venture 142.47 Key Management NIL 1.14 Personnel NIL 3.81 -

36. Consolidated Financial Statements - AS - 21 & AS - 27 The financial statements of Millennium Telecom Limited & Mahanagar Telephone Mauritius Limited (wholly owned subsidiaries of the Company) and United Telecom Limited & MTNL STPI IT Service Limited (Joint Ventures) have been consolidated in accordance with the Accounting Standard - 21 and Accounting Standard - 27, respectively. 37. No provision has been made for any loss on account of impairment of assets under Accounting Standard 28 as there is no indication of any impairment of assets of the Company. 38. Balance Sheet Abstract and Company's General Business Profile - PART IV (i) Registration Details Registration No. 23501 Balance Sheet Date State Code 55 Year 2008

Date 31

Month 03

(ii)

Capital raised during the year ( Rs. in Millions) Public Issue(GDR) Nil Bonds Issue Nil Total Liabilities Sources of Funds: Paid up Capital Secured Loans Deferred Tax Liability 6300 NIL 4865 80 124079

Rights Issue

Nil

(iii) Position of Mobilisation and Deployment of Funds (Rs. in Millions) Total Assets Reserves & Surplus Unsecured Loans 124079 112914 NIL

MTNL
Application of Funds: Net fixed assets + Capital WIP Net Current Assets Accumulated Losses iv) 72848 44065 NIL Investment Misc. Expenditure 5574 1592

Performance of Company (Rs. in Millions) Turnover Profit before Tax Earning per share in Rs. 53299 6316 9.32 Total Expenditure Profit After Tax Dividend Rate 46983 5869 40%

v)

Generic names of three Principal Product/services of Company (as per monetary terms) Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description Item Code No. (ITC Code) Product Description NOT AVAILABLE TELEPHONE SERVICE NOT AVAILABLE TELEX NOT AVAILABLE CIRCUITS

39. Previous year figures have been regrouped / recast to confirm to current year's presentation. Amounts in brackets represent the previous year's figures. 40. Schedules "A" to "T" form an integral part of the Balance Sheet and the Profit and Loss Account.

(S.R.Sayal) Company Secretary For Dhawan & Co. Chartered Accountants

(R.C.Sen) Dy. General Manager (Accounts)

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

Sunil Gogia (Partner) M. No:73740 Place : New Delhi Date : 31st July, 2008

81

MTNL
Annexure-I

MAHANAGAR TELEPHONE NIGAM LIMITED

Cash Flow Statement for th year ended 31st March 2008 [Pursuant to Clause 32 of Listing Agreement(s) as (amended)] 2007-08 (Rs. in Million) A. Cash Flow from Operating Activities Net profit before Tax and extra ordinary items Adjustment for: Prior period adjustment (net) Profit on sale of fixed assets Loss on sale of fixed assets Depreciation Compensation charged under VRS Scheme Compensation paid under VRS Scheme Interest Cost Interest Income Interest paid Operating cash profit before working capital changes Adjustment for: Trade and other receivables Inventries Trade and other payables Cash generated from operations Direct Taxes paid Net Cash Flow from Operating Activities B. Cash Flow from Investing Activities Purchase of fixed assets (inclulding capital W.I.P.) Sale of Fixed Assets Interest received Investment Net Cash Flow from Investing Activities 2006-07 (Rs. in Million)

6316.49

7926.79

1851.20 -26.11 443.51 7040.60 625.19 -0.38 27.82 -4137.50 -28.55 12112.27

2242.97 -9.82 50.12 6831.84 622.09 -1696.12 20.11 -5336.37 -22.43 10629.19

-79.91 605.74 3033.09 15671.19 9206.86 24878.05

-6139.69 -834.64 5591.22 9246.08 -5669.69 3576.39

-8748.94 73.16 2912.49 -1159.90 -6923.20

-7751.96 55.83 5325.52 -226.78 -2597.39

82

MTNL
C. Cash Flow from Financing Activities Repayment of Loans Dividend paid (including tax) Net Cash Flow from Financing Activities Net Increase/Decrease in Cash and Cash Equivalents Cash and Cash equivalent as at the beginning of the year Cash and cash equivalient as at the end of the year 0.00 -2948.27 -2948.27 15006.58 18687.02 33693.60 -1.50 -2873.43 -2874.93 -1895.93 20583.98 18688.05

D.

Note:1. Previous year figures have been regrouped wherever necessary

(S.R.Sayal) Company Secretary

( R.C.Sen) Dy. General Manager (Accounts)

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

For Dhawan & Co. Chartered Accountants

Sunil Gogia (Partner) M.No: 73740 Place : New Delhi Date : 31st July, 2008

83

MTNL
Consolidated Balance Sheet of Mahanagar Telephone Nigam Ltd. as at 31st March, 2008
As at 31.3.2008 (Rs. in Million) SOURCES OF FUNDS Shareholders' Funds Share Capital Reserves & Surplus Loan Funds Secured Loans Deferred Tax Liability (Net) Total APPLICATION OF FUNDS Gross Block Less : Depreciation Net Block Capital Work-in-Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Less : Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (to the extent not written off) Total 6 7 8 9 10 11 12 13 14 As at 31.3.2007 (Rs. in Million)

1 2 3 4

6,300.00 112,698.61 106.17 4,849.96 123,954.74 159,386.79 95,451.92 63,934.87 9,694.15 4,516.68 1,629.27 9,670.91 33,823.34 2,385.94 94,563.16 142,072.62 43,403.84 54,493.11 44,175.67 1,633.37 123,954.74

6,300.00 109,726.53 139.85 6,181.74 122,348.12 153,773.42 89,005.36 64,768.06 7,649.44 3,500.00 2,230.06 9,848.28 18,848.14 1,104.00 110,384.47 142,414.95 43,742.69 54,489.91 44,182.36 2,248.26 122,348.12

The Schedules referred to above form an integral part of the Balance Sheet.

( R.C.Sen) Dy. General Manager (Accounts) In terms of our report of even date For Dhawan & Co. Chartered Accountants Sunil Gogia (Partner) M.No: 73740 Place : New Delhi Date : 31st July, 2008 84

(S.R.Sayal) Company Secretary

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

MTNL
Consolidated Profit & Loss of Mahanagar Telephone Nigam Ltd. for the year ended 31st March, 2008
As at 31.3.2008 (Rs. in Million) INCOME Income from Services Other Income EXPENDITURE Employees' Remuneration and Benefits Revenue Sharing Licence Fee Administrative,Operating & Other Expenses Depreciation Interest Profit Before Tax Provision for Taxation Provision for Deffered taxation Profit After Tax Prior period adjustments Profit For the Year Profit Available for Appropriation Appropriation : Interim/Final dividend Tax on Dividend Transfer To Contingency Reserve Reserve for R&D General Reserve Earning Per Share Basic/Diluted earnings per share (in Rs.) 15 16 17 18 5 19 47,672.36 6,083.31 53,755.67 16,447.00 8,127.70 4,245.98 11,635.03 7,132.30 44.15 47,632.16 6,123.51 3,599.86 (1,339.63) 3,863.28 (1,800.74) 5,664.02 5,664.02 2,520.00 428.27 2,715.75 5,664.02 8.99 As at 31.3.2007 (Rs. in Million) 49,401.43 6,739.68 56,141.11 18,140.11 8,895.44 4,676.76 9,638.19 6,892.09 43.49 48,286.08 7,855.03 3,178.00 88.61 4,588.42 (2,232.35) 6,820.77 6,820.77 2,520.00 372.14 3,928.63 6,820.77 10.83

20

Accounting Policies & Notes to Accounts 21 The Schedules referred to above form an integral part of the Profit & Loss Account.

(S.R.Sayal) Company Secretary

( R.C.Sen) Dy. General Manager (Accounts) In terms of our report of even date For Dhawan & Co. Chartered Accountants Sunil Gogia (Partner) M.No: 73740 Place : New Delhi Date : 31st July, 2008 85

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

MTNL
SCHEDULES FORMING PART OF CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH 2008 SCHEDULE-1 Share Capital
As at 31.3.2008 (Rs.in Million)
AUTHORISED CAPITAL 80,00,00,000 Equity Shares of Rs.10/- each ISSUED SUBSCRIBED AND PAID UP CAPITAL 63,00,00,000 Fully paid Equity Shares of Rs. 10/- each Out of the above shares (i) 59,99,98,400 Equity Shares are allotted as fully paid up pursuant to a contract without payment being received in cash out of which 35,43,72,740 Shares are held by the Government of India (ii) 3,00,00,000 Equity Shares are allotted as fully paid up represented by Global Depository Receipts (GDRs) through an International Offering in US Dollars.One GDR represented two equity shares. In Nov, 2001 the GDRs were exchanged in American Depository Shares (ADSs) on a one -for-one basis. One ADS also represents two of our equity shares. 8,000.00

As at 31.3.2007 (Rs.in Million)

8,000.00

6,300.00

6,300.00

6,300.00

6,300.00

SCHEDULE-2 Reserves & Surplus

As at 1.4.2007 (Rs in Million) Bonds Redemption Reserve Bonds Redemption Reserve(Prev.Yr) Share Premium Share Premium(Prev.Yr) General Reserve General Reserve(Prev.Yr) Reserve For Contingencies Reserve For Contingencies(Prev.Yr) Reserve For Research & Development Reserve For Research & Development(Prev.Yr) TOTA L (0) 6,650.05 (6,650.05) 93,639.14 (84,669.87) 9,129.34 (14,203.65) 308.00 (308.00) 109,726.53 (105,831.57) (0) 2,715.75 (9,002.94) 5,111.50 7,827.25 (9,002.94) (0) 4,855.17 (33.67) (5,074.31) (0) 4,855.17 (5,107.98) Addition Deduction during the year during the year (Rs in Million) (Rs. in Million) (0) (0) As at 31.3.2008 (Rs in Million) 6,650.05 (6,650.05) 91,499.72 (93,639.14) 14,240.84 (9,129.34) 308.00 (308.00) 112,698.61 (109,726.53)

86

MTNL
SCHEDULE-3 Secured Loans
As at 31.3.2008 (Rs.in Million) Term Loan (PNB - EBL) 106.17 106.17 As at 31.3.2007 (Rs.in Million) 139.85 139.85

SCHEDULE-4 Deferred Tax Liability (Net)

Deferred Tax Liability (Asset) As at 1.04.2007 (Rs. in Million) Deferred Tax Liabilities Difference between Book, Tax Depreciation & others Difference between Book, Tax Depreciation & others(Prev.Yr) Total - A (12,619.20) 13,502.00 (12,619.20) Deferred Tax Assets Provision for Doubtful Debts, Advances and Bank Balances Provision for Doubtful Debts, Advances and Bank Balances(Prev.Yr) Provision for Obsolete Stock Provision for Obsolete Stock(Prev.Yr) Others Others (Prev.Yr) Total - B (-3111.15) -231.58 (-230.24) -3596.82 (-3186.68) 7320.26 (-6528.07) Deferred Tax Liability (A B) 6,181.74 (6,091.13) 87 (-380.71) -43.58 (-1.34) -517.69 (-410.14) (982.70) (-792.19) (1,332.94) (90.61) (-3491.86) (275.16) (-231.58) 4113.35 (-3596.82) 8301.80 (-7320.26) 4,849.96 (6,181.74) -3491.86 -421.43 3913.29 (882.80) (350.24) (882.80) (13,502.00) 13,151.76 (13,502.00) 13,502.00 (350.24) 13,151.76 Current Year Charge/(Credit) (Rs. in Million) Deferred Tax Liability (Asset) As at 31.03.2008 (Rs. in Millions)

SCHEDULE-5 : FIXED ASSETS

GROSS BLOCK (RS. IN MILLION) ADJUSTMENTS DURING THE YEAR THE YEAR 31.3.2008 1.4.2007 YEAR DURING THE YEAR 31.3.2008 31.3.2008 31.3.2007 DURING AS AT AS AT FOR THE ADJUSTMENTS AS AT AS.AT AS.AT SALES SALES/ DEPRECIATION (RS. IN MILLION) NET BLOCK (RS. IN MILLION)

MTNL

DESCRIPTION

ADDITIONS

AS AT

DURING

1.4.2007

THE YEAR

LAND: 20.23 135.67 1,552.92 4.02 0.29 2.27 0.28 114.35 114.16 1,659.58 784.43 242.96 153,773.43 83,000.91 4.11 159,386.79 89,005.36 0.10 (97.12) 7,187.16 6,902.56 2,078.77 1,491.88 128.34 0.74 1,358.64 511.58 61.74 369.90 180.41 15.98 0.76 0.71 94.22 740.60 898.11 1,334.62 815.52 56.82 0.02 2.18 317.39 215.02 23.84 4.44 0.18 69,190.53 38,572.55 4,447.03 648.82 69,211.31 43,878.94 1,967.03 (0.02) 45,845.99 42,370.77 234.42 872.32 195.63 572.61 1,526.00 95,451.92 89,005.36 0.91 868.73 564.18 21.65 585.83 37.85 6.37 0.75 7.12 11,396.14 2,467.60 389.77 (0.29) 2,857.65 8,538.49 30.73 282.89 23,365.32 26,819.76 82.97 462.30 174.27 786.02 552.76 (97.12) 63,934.87 64,768.06 2,717.09 249.65 54.23 303.88 2,413.21 190.48 190.48 (284.60) 410.24 51.61 19.98 (8.05) 79.63 330.61 74.03 190.48 1,903.47 8,464.98 31.48 274.82 24,232.43 26,975.98 107.30 471.64 186.33 831.26 646.93 375.07 64,768.06 -

INTANGIBLE ASSETS:-

APPLICATION SOFTWARE

125.64

LAND:

- FREEHOLD

190.48

- LEASEHOLD -

2,153.12

563.97

BUILDING

10,932.58

483.80

LEASED PREMISES

37.85

LINES & WIRES

839.00

30.63

CABLE

68,111.37

1,235.61

APPARATUS & PLANT

65,548.53

5,195.10

VEHICLES

322.32

1.27

FURNITURE & FIXTURES

1,287.16

47.75

88
Rs. in. Million 7,132.30 51.04 7187.16

OFFICE MACHINERY &

EQUIPMENTS

366.74

5.43

ELECTRICAL APPLIANCES

1,342.84

16.82

COMPUTERS

2,138.81

54.31

ASSETS SCRAPPED/

DECOMMISSIONED

375.07

(357.92)

TOTAL

153,773.43

7,277.05

Previous Year

148,828.76

5,972.06

Notes

1.

Additions during the year include adjustments on account of value difference,spill over cost, etc indentified duting the year in respect of existing fixed assets

2.

Deprection charged during the year includes:

a.

Depreciation for the year

b.

Depreciation /adjustment relating to prior period

c.

Depreciation written back

MTNL
SCHEDULE-6 Capital Work-In-Progress
As at 31.3.2008 (Rs.in Million) 407.16 7,567.63 12.42 1,461.47 139.38 124.28 (18.19) 9,694.15 As at 31.3.2007 (Rs.in Million) 502.55 5,503.61 13.81 1,416.79 124.24 106.84 (18.40) 7,649.44

Buildings Apparatus & Plants Lines & Wires Cables Subscribers' Installations Air Conditioning Plants Less:- Provision For Abandoned Works

SCHEDULE-7 Investments
As at 31.3.2008 (Rs.in Million) Long Term-Non Trade (At Cost) Investment in 10000000 8.75%Un Quoted preference share of Rs. 100/- each fully paid up with M/s. ITI Ltd. (Refer Note No.12) Investment in Subsidiary Companies MillenniumTelecom Ltd. (Un Quoted 2875880 Equity shares of Rs. 10 each fully paid up) Mahanagar Telephone Mauritius Ltd. (Un Quoted 49418754 Equity Share of MUR 10 (INR 14.9251) each fully paid up) Investment in Joint Ventures With United Telecom Ltd. (Un-Quoted 2901450 Equity Share of Rs.100 each, fully paid up) With MTNLSTPI IT Services Ltd. (Un Quated 25000 Equity share @Rs.10 each) Others Investment in LIC (MF) Investment in UTI (MF) Investment in Un Quoted 11.5% Bonds fully paid up of Maharashtra Krishna Valley Development Corporation Ltd. (Redemption in the Year 2012) 89 As at 31.3.2007 (Rs.in Million)

1,000.00

1,000.00

508.58 508.10

2,500.00 4,516.68

2,500.00 3,500.00

MTNL
SCHEDULE-8 Inventories (At Cost)
As at 31.3.2008 (Rs.in Million) Stores and Spares: Building Material Lines & Wires Cables Exchange Equipments WLL Equipments Telephone & Telex instruments WLL Instruments Telephones & Telex Spares Installation Test Equipments Store - in -Transit Mobile Handsets & Sim Cards Less: Provision for obsolete stores 0.62 87.73 1,046.64 396.75 7.86 169.32 203.44 2.79 0.42 0.10 17.54 1,933.21 303.94 1,629.27 As at 31.3.2007 (Rs.in Million) 0.62 108.16 857.69 552.24 16.00 510.82 459.35 2.79 1.64 0.04 16.47 2,525.82 295.76 2,230.06

SCHEDULE-9 Sundry Debtors (Unsecured)*

As at 31.3.2008 (Rs.in Million) Outstanding for a Period Exceeding Six Months Considered Good Considered Doubtful Other Debts #Considered Good Considered Doubtful Less: Provision for doubtful debts Less: Provision for wrong billing 6,154.47 39.48 13,838.57 4,151.32 16.34 9,670.91 6,558.00 37.53 12,736.03 2,873.40 14.35 9,848.28 3,442.26 4,202.36 3,238.17 2,902.33 As at 31.3.2007 (Rs.in Million)

# Include Rs3450.56 Millions (Rs.4290.65 Millions) on account of income accrued from services * Except to the extent covered by Security Deposits from subscribers. For the current year, debtors exceeding Six months, considered good & doubtful includes service tax of Rs.135.51Millions (Rs301.51Millions) & Rs.329.86 Millions (Rs.252.34Millions) respectively.Other debtors considered good & doubtful include service tax of Rs.232.47 Millions (Rs.836.42 Millions) & Rs.221.63 Millions (Rs.4.09Millions) respectively. 90

MTNL
SCHEDULE-10 Cash & Bank Balances
As at 31.3.2008 (Rs.in Million) Cash in hand, Including cheques in hand Rs.40.87 Millions (Rs 96.44 Millions) Balance with scheduled Banks In Current Accounts In Fixed Deposit Accounts Balance with Non-Scheduled Banks In Current Account (Refer Note -26) Less: Provision for Doubtful Bank Balances As at 31.3.2007 (Rs.in Million)

65.41 1,308.35 32,449.94

123.40 1,617.76 17,107.04

5.66 33,829.06 5.72 33,823.34

5.66 18,853.86 5.72 18,848.14

SCHEDULE-11 Other Current Assets Unsecured Considered Good

As at 31.3.2008 (Rs.in Million) Interest Accrued on Deposits with Banks, Interest Accrued on Bonds Income Accrued From other Deposits & Loans & Advances Cheque in transit with other bank Less:- Provision for doubtful Income 1,340.93 192.19 852.83 4.21 2,385.94 As at 31.3.2007 (Rs.in Million) 114.03 192.19 796.75 1.03 1,104.00

91

MTNL
SCHEDULE-12 Loans & Advances Unsecured Considered Good*
As at 31.3.2008 (Rs.in Million) Loans & Advances Secured Loans Housing Loan To Employees Un Secured Loans (Considered good, unless otherwise stated) (1) To Subsidiary Company (2) To DOT (3) To BSNL (4) To Other Corporates (5) To Employees i) Vehicles ii) Others Amount Recoverable from DOT Amount Recoverable from BSNL Amount Recoverable from VSNL Advances Recoverable in Cash or in Kind or for value to be received.# Advance to JV Co (MTNLSTPI IT Services Ltd) Advance Tax Deposits with Govt. Deptt. Capital Advance Amount Recoverable from GPF Trust Others Less: Provision for Doubtful Advances 17,137.54 32,059.42 476.86 167.12 886.65 4,624.07 95,125.09 561.93 94,563.16 15,647.15 3.71 48,060.91 354.35 149.09 714.72 679.07 110,936.06 551.57 110,384.49 38.58 122.07 30,856.38 6,036.89 3.42 34.58 119.51 29,995.46 12,437.81 2.17 908.09 (0.23) 741.85 1,808.00 1,995.91 As at 31.3.2007 (Rs.in Million)

* Except to the extent of doubtful advances recoverable in cash or in kind or for value to be received for which provision has been made. # Including Rs 442.28 Millions (Rs. 65.10 Millions) receivable from Gratuity Trust

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SCHEDULE-13 Current Liabilities
As at 31.3.2008 (Rs.in Million) Sundry Creditors (i) For Goods and Services (ii) For Work done (iii) For Others Advances Received from Customers & Others Deposits from : (i) Contractors (ii) Customers & Others Unclaimed Bonds Other Liabilities (i) For Salaries and Other Benefits (ii)Bonus/ Ex-Gratia (iii) GPF of MTNL optee (iv) Others Income Received in advance against services Amount Payable: (i) To DOT (ii) To BSNL (iii) To VSNL (iv) To Subsidiary (v) To Others Interest Accrued but not due : (i) On Bonds (ii) On Deposits 6,485.44 4,243.58 1,440.47 405.50 367.49 9,914.12 0.06 992.79 390.00 10,094.87 6,464.79 1,476.85 455.00 0.57 18.72 6.37 644.50 2.72 43,403.84 As at 31.3.2007 (Rs.in Million) 5,474.07 3,937.99 2,347.73 306.22 342.08 10,817.68 0.06 409.59 405.98 9,293.02 4,293.47 1,274.72 552.04 3,760.49 13.08 8.03 503.00 3.44 43,742.69

SCHEDULE-14 Provisions
As at 31.3.2008 (Rs.in Million) Pension (i) Company Employees (ii) Others Leave Encashment (i) Company Employees (ii) Others Gratuity Proposed Final Dividend Tax on Dividend Income Tax Fringe Benefit tax Wealth Tax Others 93 31,451.29 122.99 3,196.70 12.56 2,609.66 630.00 107.07 16,129.71 189.85 9.83 33.46 54,493.11 As at 31.3.2007 (Rs.in Million) 28,716.45 116.50 2,679.58 8.86 2,623.24 630.00 107.07 19,400.46 128.49 51.45 27.81 54,489.91

MTNL
SCHEDULES FORMING PART OF CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31-03-2008 SCHEDULE-15 Income from Services
As at 31.3.2008 (Rs.in Million) Telephone (a) Rentals (b) Calls & Other Charges (c ) Franchises Services (d) Rent & Junction Charges (i) Mobile Operators (ii) Basic Service Operators (iii) Dolphin (e) Access Calls & Other Charges (i) Mobile Operators (ii) Basic Service Operators (iii) Dolphin VCC Internet Telex Circuits WLL Rent WLL Call Charges Mobile (a) Rentals, calls& IUC revenue (b) Income from Roaming (c) PSTN Charges (d) Pre paid Trump (e) Activation Charges Broadband Value added and Other Services (a) Indonet (b) Voice Mail (c ) Free Phone (d) Premium Rate (e) ISDN - Rental (f) ISDN - Call Charges Others 10,999.55 12,710.58 3,991.54 1,133.02 3,657.92 355.75 139.39 0.19 480.73 571.31 445.82 2,411.55 1,513.54 4,420.11 34.53 3,358.73 1.22 193.73 193.28 0.66 352.44 572.81 133.97 47,672.36 94 As at 31.3.2007 (Rs. in Million) 11,383.63 15,050.52 6,165.44 1,223.55 2,547.79 456.35 127.60 0.01 758.48 565.64 352.41 2,464.22 1,259.58 3,780.94 118.24 1,958.38 1.91 191.87 150.21 0.55 245.66 496.64 101.81 49,401.43

MTNL
SCHEDULE-16 Other Income
As at 31.3.2008 (Rs.in Million) Interest (i) From Banks (Tax deducted at source Rs. 602.89 Millions (Rs. 417.36 Millions) (ii) Interest on Advances to Employees (iii) Interest on Deposits, Advances and Others (iv) Interest from Income Tax Department Dividend from Mutual Fund Sale of Directories,Publications, Forms etc. Profit on Sale of Assets Liquidated Damages Foreign Currency Fluctuation Bad Debts Recovered Credit Balances Written Back and other services provided Others Waste paper etc (added with others) As at 31.3.2007 (Rs. in Million)

2,620.51 108.82 313.51 1,100.18 17.19 22.54 26.11 316.68 62.07 320.43 62.19 1,113.09 6,083.31

1,585.00 206.60 326.69 3,221.36 14.55 9.82 230.01 0.08 96.36 838.83 55.36 155.02 6,739.68

SCHEDULE-17 Employees' Remuneration and Benefits

As at 31.3.2008 (Rs.in Million) Salaries,Wages,Allowances and other Benefits Bonus/ Ex-Gratia Medical Expenses/Allowances Leave Encashment (i) Company Employees (ii) Others Pension Contribution (i) Company Employees (ii) Others Contribution to Provident Fund Gratuity Compensation under VRS Scheme Staff Welfare Expenses Less : Allocation to Capital Work-In-Progress 95 12,054.73 474.16 926.84 631.26 7.30 4,032.86 12.36 265.22 (165.17) 625.19 126.47 18,991.22 2,544.22 16,447.00 As at 31.3.2007 (Rs. in Million) 11,241.05 415.08 822.28 522.49 9.12 3,872.87 170.22 237.39 733.98 622.09 242.84 18,889.41 749.30 18,140.11

MTNL
SCHEDULE - 18 Administrative, Operating and Other Expenses
As at 31.3.2008 (Rs.in Million) Power & Fuel Rent Repairs & Maintenance: - Buildings - Plant & Machinery - Others Insurance Rates & Taxes Travelling Expenses Postage & Courier Printing & Stationery Vehicle Expenses: (i) Maintenance 14.05 35.12 93.10 1,895.38 7.23 359.34 11.10 1,238.59 1.28 59.77 128.22 107.35 12.64 959.19 443.51 609.29 17.62 338.81 440.98 11,635.03 15.31 38.23 97.72 2,248.94 11.02 467.91 1,119.68 0.39 22.74 3.95 84.35 10.65 754.45 50.12 168.30 20.92 204.94 2.82 9,638.19 (ii) Running (iii) Hiring Commission paid on Franchised Services Comm. Paid to pre paid services Advertising/Business Promotion Expenses Provision for Doubtful Debts including Disputed Bills Provision for Wrong Billing Bad Debts Written Off Provision for Obsolete Stores Professional & Consultancy Charges Seminar and Training Expenses Miscellaneous Expenses * Loss on Sale of Assets Internet charges Spectrum Charges(WLL) Spectrum Charges(MS) Loss of Assets 153.91 936.20 486.89 37.30 362.96 43.41 172.64 152.05 166.92 759.54 395.34 36.98 325.74 52.17 206.16 147.70 1,898.12 618.98 As at 31.3.2007 (Rs. in Million) 1,616.34 608.84

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SCHEDULE - 19 Interest :
As at 31.3.2008 (Rs.in Million) Interest on : Customers' deposits GPF Other Loans Less : Allocation to the DOT for interest on Bonds and Loans 15.82 0.02 28.31 44.15 44.15 19.74 0.19 23.56 43.49 43.49 As at 31.3.2007 (Rs. in Million)

SCHEDULE - 20 Prior Period Adjustments

As at 31.3.2008 (Rs.in Million) Expenses Salary,Wages,Allowances & Staff Expenses Power & Fuel Rent Rates & Taxes Repairs to Plant & Machinery Depreciation Others (includes Tax Rs. 671.37 Millions) Income Excess provision written back(Income Tax) Others Net Adjustment 0.01 13.02 2.00 51.04 748.87 814.94 2,526.53 89.15 2,615.68 (1,800.74) As at 31.3.2007 (Rs. in Million) 18.21 1.81 1.00 0.16 16.63 85.94 18.91 142.66 2,283.17 91.84 2,375.01 (2,232.35)

Note: 1. For the current year Consolidated Figures includes Unaudited Provisional figures of United Telecom Ltd as their financial year ends on 16thJuly. 2. For others the figures for current year is on provisional basis

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Annexure-I

MAHANAGAR TELEPHONE NIGAM LIMITED

Consolidated Cash Flow Statement for the year ended 31st March 2008 [Pursuant to Clause 32 of Listing Agreement(s) as (amended)] 2007-08 (Rs. in Million) A. Cash Flow from Operating Activities Net profit before Tax and extra ordinary items Adjustment for: Prior period adjustment (net) Profit on sale of fixed assets Loss on sale of fixed assets Depreciation Compensation charged under VRS Scheme Compensation paid under VRS Scheme Interest Cost Interest Income Interest paid Operating cash profit before working capital changes Adjustment for: Trade and other receivables Inventries Trade and other payables Cash generated from operations Direct Taxes paid Net Cash Flow from Operating Activities B. Cash Flow from Investing Activities Purchase of fixed assets (inclulding capital W.I.P.) Sale of Fixed Assets Interest received Investment Net Cash Flow from Investing Activities C. Cash Flow from Financing Activitgies Repayment of Loans Dividend paid (including tax) Loan/Share Capital Net Cash Flow from Financing Activities 98 (8,884.85) 73.16 2,912.49 (1,162.45) (7,061.66) (8,104.87) 55.83 5,325.52 (226.78) (2,950.30) 6,333.61 1,851.20 (26.11) 443.51 7,132.30 625.19 (0.38) 27.82 (4,137.50) (28.55) 12,224.55 (113.62) 600.80 2,929.30 15,641.02 9,225.84 24,866.86 7,855.04 2,242.97 (9.82) 50.12 6,892.09 622.09 (1,696.12) 20.11 (5,336.37) (22.43) 10,606.57 (6,247.68) (798.84) 5,930.29 9,490.34 (5,669.69) 3,820.66 2006-07 (Rs. in Million)

(33.91) (2,948.27) 205.53 (2,776.65)

(28.40) (2,873.43) 187.08 (2,714.75)

MTNL
D. Net Increase/Decrease in Cash and Cash Equivalents Cash and Cash equivalent as at the beginning of the year Cash and cash equivalient as at the end of the year Note:1. Previous year figures have been regrouped wherever necessary 15,028.55 18,796.61 33,823.34 (1,844.40) 20,693.57 18,849.17

( S.R.Sayal) Company Secretary For Dhawan & Co. Chartered Accountants

( R.C.Sen) Dy. General Manager (Accounts)

(Anita Soni) Director (Finance)

(R.S.P. Sinha) Chairman & Managing Director

Sunil Gogia (Partner) M.No: 73740 Place : New Delhi Date : 31st July, 2008

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Addendum to Director's Report 2007-08
Replies of Management to Auditors Report with regard to qualifications for the year 2007-08 i) Non - Provision of a sum of Rs. 33.29 Millions, payable in terms of directions of Hon'ble Supreme Court of India to various Companies. [Refer Note No. 7(C)]. Booking of Income of Rs. 545.86 Millions, during the year under review, on account of charges for usage of MTNL Trunk Automatic Exchange (TAX) by BSNL, which has been rebutted by BSNL. The Profit of the company, for the year, therefore, is overstated by Rs. 545.86 Millions and Current Assets of the company are overstated by an equivalent amount. [Refer Note No. 10 (d)]. Non provision of post medical retirement benefits in the books of accounts as per the requirements of Accounting Standard AS-15 (Revised), which may have `impact on the profitability of the company. Amount not ascertainable. Further, as regards provisions and disclosures made for Gratuity, pension and leave encashment, we have relied on the report of Actuarial valuation carried out by the Actuary and provided to us by the management. i) Necessary adjustment will be made in the year 2008-09 after review of the actual provisions. ii) The income has been booked as per accrual method of accounting in terms of IUC Regulations of TRAI and pertains to actual usage of Tax by BSNL for passing its traffic.

ii)

iii)

iii) There is no defined contributory medical benefit scheme in existence. Hence no provision on actuarial basis is required to be made as per AS-15.

iv) During the year, the company has entered into project agreement with a private company for development of core knowledge park at Noida and has given the right to develop the project on land belonging to MTNL for the period of 50 years. The company has received Rs.481.25 Millions as consideration towards granting right to develop the project and maintain the same for 50 years. This amount has been treated as Income of this year whereas the same should be deferred and should be spread over the life of the agreement. This has resulted in overstatement of profit by Rs.471.62 Millions and understatement of Deferred Revenue Income. (refer Note No. 22). v) The company has not provided for Rs.19.55 Millions on account of old EMIs of handsets billed but not paid for closed connections and Rs.100.84 Millions billed at the year end out of unbilled EMI of closed connections of handsets for CDMA connections. This has resulted into overstatement of profit by Rs.120.39 Millions and consequent overstatement of current assets.

iv) The income has been booked in accordance with AS-9. The payment received is the upfront payment which is non-refundable at any stage. It has no linkage to the maintenance of the project at all and the revenue is booked on its accrual as per the accounting principles and therefore can not be deferred.

v) This is being reviewed by the management

vi) In respect of some equipments in Old WLL exchange, which have been recommended by the committee for decapitalisation, the same have not been de-capitalised and as such have not been valued at lower of Net Book Value or Net Realisable value, as such the financial impact of the same is Rs. 484.40 Millions have not been charged to Profit & Loss Account. The Profit of the company, therefore, is overstated by Rs 484.40 millions and Fixed Assets are overstated by an equivalent amount. vii) The company has not made provision in the accounts for the balance of Rs.9.92 Millions outstanding for more than 3

vi) This will be reviewed by the management in the year 2008-09 as the recommendations of the committee are getting examined comprehensively.

vii) As per accounting policy of the company, the provision is made only for subscribers

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years in respect of dues from International operators. Thus, the profit of the company is overstated by Rs.9.92 Millions and debtors have been overstated by the same amount. dues, which are more than 3 years old. No provision is made for dues from operators as the recoveries can be adjusted from amounts payable as per the inter connect agreements and the debts therefore are not considered bad. viii) Pending decision of the Board and approval of the Administrative Ministry, an adhoc provision of Rs.520 millions has been made in the accounts for DA merger /wage revision as the case may be.

viii) Short-provision of Rs. 1149.81 Millions on account of merger of 50% Dearness Allowance(DA) with basic pay to the employees on IDA scales in terms of Department of Public Enterprises OM No. 2(7) 2005-DPE(WC)-GL-III dated 26.2.2008. The profit of the company, therefore, is overstated by Rs. 1149.81 Millions and current liabilities are understated by the same amount. (refer Note No. 21). Further, there will be liability on account of impact of the same on retirement benefits too. Impact of the same on retirement benefits is not ascertainable. ix) During the year, the company has raised bills of ADC to two private operators for the period from November 2004 to January 2005 of Rs. 22.56 Millions. The bills are arbitrarily raised without exact basis as such there is reasonable uncertainty at the time of raising of claim. The same is not as per AS-9 issued by the Institute of Chartered Accountants of India. The profit of the company, therefore, is overstated by Rs.22.56 Millions and Current Assets are overstated by equivalent amount. (Refer Note No. 10(e). x) There is difference of Rs 36.54 millions as per financial books and as per report generated from billing system. The impact of the same, on provisioning for Bad debts and profitability is unascertainable.

ix) These bills have been raised for minimum amount on average basis in absence of detailed data. As the amount is realizable on the basis of Hon'ble Supreme Court's applicable judgment relating to ADC due to be paid by other operators, it is considered realizable.

x) The same is under reconciliation and necessary adjustment shall be made after completion of reconciliation. xi) This will be reviewed in the year 200809.

xi) The system of issuance of completion certificate by engineering department needs to be strengthened. The impact, if any due to delay of issuance of completion certificate by concerned engineering department on the capitalization of assets, WIP and consequently on depreciation, if any, is unascertainable. xii) In MS Delhi unit, during the year, no reconciliation of roaming receivables have been carried out. The impact of nonreconciliation of roaming debtors on profitability, if any, is unascertainable. xiii) No provision has been made for the following expenses / claims made by BSNL: a) b) c) d) e) f) Signalling charges amounting to Rs. 219.30 Millions; Transit Tariff claims amounting to Rs. 251.90 Millions; M. P. Bills claims upto 31.03.2005 amounting to Rs. 60.10 Millions; Claims for service connections amounting to Rs. 401.48 Millions; IUC claims of MTNL rebutted by BSNL amounting to Rs. 101.40 Millions; IUC claims raised by BSNL, Gujarat circle amounting to Rs. 11.14 Millions;

xii) The reconciliation is under process.Necessary entries if any, shall be passed after completion of the reconciliation process. xiii) The reconciliation of claims made by BSNL and similar claim of MTNL is in progress. As per MTNL's assessment, an amount of Rs 6036.32 millions is owed to MTNL by BSNL upto 31/03/2008. Necessary adjustments, if required, will be made after finalization of reconciliation.

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The profit of the company, in view of para (xiii) above, is overstated by Rs. 1045.32 Millions and Current Assets are overstated by similar amount. xiv) The Bank Reconciliation Statements as at 31st March, 2008 include the unmatched / unlinked credits and debits aggregating Rs. 56 Millions and Rs. 42.75 Millions, respectively, which have not been properly accounted for, in the absence of adequate particulars. The impact of such entries on the accounts is not ascertainable. (Refer Note No. 13). xv) The value of the properties where the conveyance / lease deeds remain to be executed, stamp duty payable, if any, for execution of above said properties has not been provided for. The outstanding liabilities, if any, towards Ground Rent payable on properties transferred from DOT also remains unascertained. [Refer Note No. 8]. xvi) The balance in Subscriber's Deposit Accounts Rs. 8481.73 Millions, Interest Accrued & Due thereon Rs. 29.48 Millions, Unlinked Receipt from Subscribers Rs. 312.44 Millions are subject to reconciliation. The reconciliation of metered and chargeable calls generating revenue in Service unit at Mumbai has been made in case of a few exchanges. Reconciliation of remaining exchanges at Mumbai needs to be completed. In respect of Delhi and MS unit, thorough reconciliation of activation charges, ratable calls, Customer deposits and sundry debtors from the output generated from the billing system and the books of accounts has not been conducted. The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company. [Refer Note No. 15 (b)]. xvii) a) Amount recoverable on current account from DOT Rs 30856.38 Millions. and amount payable on current account to DOT Rs. 454.99 Millions i.e. Net Recoverable Rs. 30401.39 Millions (Previous Year Rs. 29443.42 Millions) are subject to reconciliation, confirmation and consequent adjustments. [Refer Note No. 17(a)]. xiv) The reconciliation of unmatched / unlinked credits is in the process. Necessary adjustments, if any, shall be made in the accounts after completion of the reconciliation process.

xv) As per Sale Deed executed between MTNL and DOT, stamp duty is not payable on the properties acquired by/vested in the name of company by the DOT.

xvi) The reconciliation is in progress. Necessary entries, if any, shall be passed after completion of the reconciliation process.

xvii)(a) This is being pursued by the Management

(b) Amount recoverable on current account from BSNL Rs. 6036.32 Millions (Previous year Rs 8677.31 millions) is subject to reconciliation, confirmation and consequent adjustments. [Refer Note No. 17 (b)]. xviii) The Mumbai unit of the Company has computed and accounted for the IUC charges of BSNL for the Current Year on the basis of actual CDR's recorded in MTNL's Mumbai Exchange and in respect of Intra Circle Calls, as per Leased Lines. Any adjustment after settlement of dispute with BSNL may have an impact on the Profits of the company. Amount not ascertainable. [Refer Note No. 10(C)]. xix) The company has not made following disclosures required under schedule - VI of the Companies Act, 1956 as per references given after each item: a) Consumption of stores and spares (Para No. 3 (x)(a) of part II.

(b) Management is in the process of reconciling the balance. Necessary adjustment entry, if any, arising out of this reconciliation would be passed after confirmation/acceptance. xviii) The entire Maharastra traffic has been treated as intra circle calls on leased lines basis vide DOT order no: 342-503/2004-VAS dated 20th May 2005. In view of the above, there would not be any additional liability, which will have impact on the profit of the company.

a) Not applicable

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b) Consumption of imported and indigenous stores & spares and percentage to the total consumption. (Para No. 4 D (C) of part II) The classification of sundry debtors as unsecured without considering the security deposit that the unit has received from subscribers Non-Furnishing of Age wise details of Loans & Advances contravenes the requirements of Part - I of Schedule - VI to the Companies Act, 1956. The Company is not in possession of requisite information and details for the identification of Micro, Small and Medium enterprises. Hence, we are unable to comment upon the compliance of section 15 and 22 of Micro, Small and Medium Enterprises Development Act, 2006. b) Not applicable

c)

c) That debtors are unsecured except to the extent covered by security deposits received from subscribers and the same fact is disclosed in Schedule-H of balance sheet. d) This will be reviewed in the year 200809, if required. e) There are no reported / confirmed MSME companies and accordingly action for the compliance does not arise

d)

e)

xx) The following mentioned practices and procedures followed by the Company in respect of Fixed Assets and Depreciation Accounting, in our opinion, are not in accordance with the Accounting Standard - 10 on 'Accounting for Fixed Assets'; Accounting Standard - 6 on 'Depreciation Accounting' and Accounting Standard - 28 on "Impairment of Assets" issued by the Institute of Chartered Accountants of India : (a) During the year, the company has changed the policy regarding allocation of overhead expenses to fixed assets, from percentage of capital expenditure as prescribed by DOT to directly allocable expenses and a sum of Rs. 2754.28 Millions have been allocated to Capital Work in Progress out of Employees Remuneration & Benefits and Administrative, Operating & Other Expenses [Refer Schedule P & Q of the Annual Accounts]. Branch Auditor has further reported that method of capturing of data for allocation of overhead expenses to capital expenditure requires more scientific and prudent methodology. This change in policy has resulted in increase of Profit by Rs. 2098.68 Millions. [Refer Note No. 3(b)]. (b) Expenditure on replacement of assets, equipments, instruments and rehabilitation work is capitalized if it results in enhancement of revenue earning capacity as stated in Significant Accounting Policy 2(iii). This being a technical matter, we have placed reliance on the opinion of the management. (c) In respect of Mumbai unit, various Fixed Assets (including WLL handsets but not including exchange equipments), replacement cost have been capitalized and / or the assets are sold, without any adjustments of the relevant costs and written down value of such assets from the Fixed Assets block. a) This is a disclosure on account of change in accounting policy

b) Noted

c) In case of exchange equipments, where value is substantial, the replacement cost have been capitalized after adjustment of the relevant cost/written down value. In case of other assets, where the value is negligible, the replacement cost have been capitalized without any adjustment of the relevant cost and written down value of such assets from the fixed assets block. WFMS System of Accounting is being implemented, and the other assets are also being accounted for after adjustment of the relevant cost and written down value xxi) The necessary adjustments, if any, will be made on confirmation.

xxi) Non - confirmation and reconciliation of balances recoverable and payable. Impact on Profits not ascertainable.

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xxii) The company has adopted the basis of valuation of inventories (except for WLL handsets) as stated in Significant Accounting Policies of the company, which is in accordance with the Accounting Standard - 2 on "Valuation of Inventories" issued by the Institute of Chartered Accountants of India which prescribes for valuation of the same at the lower of the cost and net realizable value. This is a change in the Accounting Policy which has resulted in understatement of inventories by Rs. 1.11 Millions and profits by Rs. 1.11 Millions. xxiii) The accounting policy for revenue and phonogram has been changed from cash basis to accrual basis. This has resulted in the Income being more by Rs. 0.14 Millions and the debtors more by the same amount. However, the impact of above change in policy in respect of Delhi unit is negligible. Thus, the Net Profit of the company is overstated by Rs. 0.14 Millions and Current Assets are correspondingly shown higher by the same amount. xxiv) As per the change in Accounting Policy in respect of Intangible Assets which include Application Software, the depreciation is charged assuming there will be no residual value at the end of the life of the assets. This has resulted in increase in Depreciation amounting to Rs. 2.62 Millions. Thus the profit is understated by Rs. 2.62 Millions and Fixed Assets are also understated by equivalent amount. [Refer Note No. 3(d)]. xxv)During the year, the company has changed the policy with regard to reciprocal services and stated there is no reciprocal arrangement with BSNL / DOT. Since in the previous year also, no revenue was booked, as such impact of change of policy on the account is not ascertainable. It has further been reported by the branch auditors that they are unable to comment whether all the reciprocal arrangements with DOT have been accounted for. xxii) This is a disclosure on account of change in accounting policy

xxiii) This is a disclosure on account of change in accounting policy

xxiv) This is a disclosure on account of change in accounting policy

xxv) This is a disclosure on account of change in accounting policy

Annexure I to the Auditors report

1. full particulars of the assets & locations as required are not maintained in most of the cases. In respect of assets acquired from DOT on 1st April 1986, particulars of location are not available. In case of Mumbai Unit and MS unit Mumbai, fixed assets registers maintained w.e.f. 01.04.2002 are adequate in so far as these give full particulars of quantitative details and identification of situation of fixed assets is in progress. In MS unit - Delhi, records of fixed assets have been maintained. However, full particulars of assets and location as required are not maintained in many cases. Corporate Office has maintained fixed assets register showing full particulars including quantitative details. The situation / location of fixed assets have, however, not been mentioned in most of the cases. In our opinion, the area of physical verification needs to be strengthened and discrepancies need to be categorically reported. In respect of Corporate office, no physical verification has been conducted by the Management. In our opinion, the procedure of physical verification of the inventory followed by the management needs to be strengthened and frequency needs to be increased. The management is in the process of reviewing the same in the year 2008-09 .

2.

Noted

3.

Noted

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According to the information and explanations given to us, the physical verification of all the items of stores was carried out during the year by Delhi and Mumbai units. However, at MS unit, Delhi, physical verification was conducted only for SIM cards. Detailed physical verification reports for all the above units except Mumbai, were not made available for the verification of auditors. We, in view of the same, are unable to offer our comments on the same. 4. However, in case of Delhi unit, Auditors have shown their inability to comment on the procedures with respect to the purchases under tenders floated and evaluated by corporate office. Further, reconciliation & confirmation of deposits to various departments, reconciliation between the exchange generated calls & billed calls, reconciliation of the balance in subscriber deposit account with subsidiary records needs to be strengthened. Further, in respect of Mumbai Unit, the overall internal control on revenue billing and records of use and return FWP instruments, ADSL Modems and CDMA handsets needs to be strengthened. In case of MS units, the overall internal control system on revenue billing needs to be strengthened as the sundry debtors, deposits and service tax generated by system is not in agreement with the financial books. Further, in MS unit Delhi, the system of reconciliation of IUC payable needs to be strengthened, as the amount generated as per the system for the payable, in certain cases, has to be reconciled with certain operators. In addition to above, there is continuing failure to correct the above weakness in the Internal Control System. In our opinion, there should be a system of cross checking of IUC billing to operators. The company has, however, obtained and provided the services from / to the companies, firms or other parties listed in the register required to be maintained under section 301 of the Companies Act, 1956. The above transactions, though required to be entered in the register required to be maintained under section 301 of the Companies Act, 1956, have not been entered. However, the extent of coverage of the areas of operations, frequency / quality of reporting / timeliness of the reporting and the follow up of internal audit observations need to be strengthened. There were no undisputed amounts payable in respect of Statutory Dues including Contributory Provident Fund, Investor Education and Protection Fund, Income Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, Cess and any Other Statutory Dues outstanding as at 31.03.2008, for a period of more than six months from the date they become payable except service tax payable on amount lying in unlinked credits accounts in units (amount not ascertainable) The management is reviewing the internal control system.Reconciliation of various items is in progress.

5.

Noted

6.

Noted

7.

The reconciliation of Service tax payable on unlinked credit is in progress.

(R.S.P. Sinha)
Chairman & Managing Director Place : New Delhi Date : 29th August, 2008 105

MTNL

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OFFICE OF THE DIRECTOR GENERAL OF AUDIT, POST AND TELECOMMUNICATIONS

Sham Nath Marg (Near Old Secretariat) Delhi-110 402
Confidential No. Report-II/MTNL/A/cs/2006-07/602 Date : 29th August 2008 To, The Chairman and Managing Director, Mahanagar Telephone Nigam Limited, New Delhi. Subject : Comment of Comptroller and Auditor General of India under Section 619(4) of the Companies Act, 1956 on the accounts of Mahanagar Telephone Nigam Limited for the year ended 31 March 2008. Sir, I am to forward herewith the comment of the Comptroller and Auditor General of India under Section 619(4) of the Companies Act, 1956 on the annual accounts of Mahanagar Telephone Nigam Limited for the year ended 31 March 2008 for information and further necessary action Kindly acknowledge receipt. Yours faithfully,

Encl(s) : As above

(J.N. GUPTA) Director General of Audit (P&T) Tel. : 23812666, 23814533

106

MTNL
Comment of the Comptroller and Auditor General of India under Section 619 (4) of the Companies Act, 1956 on the accounts of Mahanagar Telephone Nigam Limited for the year ended 31 March 2008.
The preparation of financial statements of Mahanagar Telephone Nigam Limited for the year ended 31 March 2008 in accordance with the financial reporting framework prescribed under the Companies Act, 1956 is the responsibility of the Management of the Company. The Statutory Auditor appointed by the Comptroller and Auditor General of India under Section 619 (2) of the Companies Act, 1956 is responsible for expressing opinion on these financial statements under Section 227 of the Companies Act, 1956 based on independent audit in accordance with the auditing and assurance standards prescribed by their professional body the Institute of Chartered Accountants of India. This is stated to have been done by them vide their Audit Report dated 31 July 2008. I, on the behalf of the Comptroller and Auditor General of India, have conducted a supplementary audit under Section 619 (3) (b) of the Companies Act, 1956 of the financial statements of Mahanagar Telephone Nigam Limited for the year ended 31 March 2008. The supplementary audit has been carried out independently without access to the working papers of the Statutory Auditors and is limited primarily to inquiries of the Statutory Auditors and Company personnel and a selective examination of some of the accounting records. Based on my supplementary audit, I would like to highlight the following significant matter under Section 619 (4) of the Companies Act, 1956 which has come to my attention and which in my view is necessary for enabling a better understanding of the financial statements and the related Audit Report: (A) Comment on Profitability 1. Expenditure Licence Fee Rs. 4,215.11 million As per Department of Telecommunications' (DoT's) instructions of May 2002, while calculating the Adjusted Gross Revenue (AGR) for the purpose of working of the amount of Licence fee payable to DoT @ 10 per cent of AGR, the Public Switching Telecom Network (PSTN) related call charges and Roaming charges, which have actually been paid to Bharat Sanchar Nigam Limited (BSNL) and other service providers by MTNL during the year should be deducted from the Gross Revenue. However, in violation of the above instructions of DoT, MTNL while calculating AGR for the current year 2007-08, deducted Rs. 3.405.26 million from its Gross Revenue towards PSTN related call charges and Roaming charges, which have actually not been paid by MTNL to BSNL and other service providers during the year. This resulted in understatement of Licence Fee as well as Current Liabilities and overstatement of Profit for the year by Rs. 340.53 million each.

The impact of the above comment on the Company's accounts is overstatement of profit to the extent of Rs. 340.53 million.

For and on the behalf of the Comptroller and Auditor General of India

Place : Delhi Date : 29th August 2008

(J.N. Gupta) Director General of Audit (P&T)

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MTNL
Comments of the Comptroller and Auditor General of India under Section 619(4) of the Companies Act, 1956 on the accounts of Mahanagar Telephone Nigam Ltd for the year ended 31st March 2008
Comments of CAG (A) Comment on Profitability ExpenditureLicence Fee Rs. 4,215.11 million
The licence fee is being paid on the basis of "accrual based revenue", irrespective of the realization as well as bad debts arising out of such revenue. The revenue share payable is primarily relating mostly to IUC charges to BSNL. Accordingly, the amount payable or adjusted to netting is taken as paid for the purpose of arriving at AGR. Replies of the Management

As per Department of Telecommunications' (DoT's) instructions of May 2002, while calculating the Adjusted Gross Revenue (AGR) for the purpose of working of the amount of Licence fee payable to DoT @ 10 per cent of AGR, the Public Switching Telecom Network (PSTN) related call charges and Roaming charges, which have actually been paid to Bharat Sanchar Nigam Limited (BSNL) and other service providers by MTNL during the year should be deducted from the Gross Revenue. However, in violation of the above instructions of DoT, MTNL while calculating AGR for the current year 2007-08, deducted Rs. 3,405.26 million from its Gross Revenue towards PSTN related call charges and Roaming charges, which have actually not been paid by MTNL to BSNL and other service providers during the year. This resulted in understatement of Licence Fee as well as Current Liabilities and overstatement of Profit for the year by Rs. 340.53 million each.

The amount payable to BSNL towards revenue sharing has been paid in full through adjustments. This adjustment of netting of Rs. 6042.33 Million payable to BSNL has been paid out of the total recoverable of Rs.12079.71 Million from BSNL as on 31.03.08. The payments to other operators are being

108

MTNL
settled on monthly basis. Therefore, the licence fee has been worked out as per definition of AGR.

The impact of the above comment on the Company's accounts is overstatement of profit to the extent of Rs. 340.53 million.

In view of the above reply, there is no impact on the profit of the company.

(J.N. Gupta) Director General of Audit (P&T)

(R.S.P SINHA) Chairman & Managing Director

Place : New Delhi Date : 29th August, 2008

109

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STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT,1956 RELATING TO SUBSIDIARY COMPANY
1. 2. 3. 4. Name of the Subsidiary Company Financial Year of MTL ended on Extent of MTNL's interest in MTL at the end of financial year 2007-08 Net aggregate amount of MTL's profit (Loss). So far as it concern the members of MTNL and is not dealt within the accounts of MTNL i) For the Financial Year of MTL ended on 31st March 2008. ii) For previous Financial Years of MTL since it became subsidiary Net aggregate amount ot MTL's profit (Loss). So far as it concern the members of MTNL and is dealt within the accounts of MTNL i) For the Financial Year of MTL ended on 31st March 2008. ii) For previous F.Y. of MTL since It became subsidiary Where the Financial Year(s) of MTL does not coincide with that of MTNL, then : a) Change in MTNL's interest in MTL between the end of F.Y. of MTNL and that of MTL b) Details of material changes which have occured between the end of F.Y. of MTNL and that of MTL in respect of i. MTL's Fixed Assets' ii. Its investments: iii. The moneys lent by it iv. The moneys borrowed by it for any purpose Other that of meting current liabilities Millennium Telecom Ltd.(MTL) 31st March, 2008 100%

Rs. 2,805,053 Rs. 23,738,689

5.

6.

Nil Nil Not Applicable

For and on behalf of Mahanagar Telephone Nigam Limited

(S.R. Sayal) Company Secretary

(R. C. Sen) Dy. General Manager (Acct.)

(Anita Soni) Director (Fin.)

(R.S.P. Sinha) Chairman & Managing Director

Place : New Delhi Date : 25-08-2008

110

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STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT,1956 RELATING TO SUBSIDIARY COMPANY
1. 2. 3. 4. Name of the Subsidiary Company Financial Year of MTML ended on Extent of MTNL's interest in MTML at the end of financial year 2007-08 Net aggregate amount of MTML's profit (Loss). So far as it concern the members of MTNL and is not dealt within the accounts of MTNL i) For the Financial Year of MTML ended on 31st March 2008. ii) For previous Financial Years of MTML since it became subsidiary Net aggregate amount ot MTML's profit (Loss). So far as it concern the members of MTNL and is dealt within the accounts of MTNL i) For the Financial Year of MTML ended on 31st March 2008. ii) For previous F.Y. of MTML since it became subsidiary Where the Financial Year(s) of MTML does not coincide with that of MTNL, then : a) change in MTNL's interest in MTML between The end of F.Y. of MTNL and that of MTML b) Details of material changes which have occured between the end of F.Y. of MTNL and that of MTML in respect of i. MTML's Fixed Assets' ii. Its investments: iii. The moneys lent by it iv. The moneys borrowed by it for any purpose Other that of meting current liabilities Mahanagar Telephone (Mauritius) Ltd. (MTML) 31st March, 2008 100%

Rs. 1,454,217 Rs. (85,828,921)

5.

6.

Nil Nil Not Applicable

For and on behalf of Mahanagar Telephone Nigam Limited

(S.R. Sayal) Company Secretary

(R. C. Sen) Dy. General Manager (Acct.)

(Anita Soni) (R.S.P. Sinha) Director (Fin.) Chairman & Managing Director

Place : New Delhi Date : 25-08-2008

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MTNL

Millennium Telecom Limited

(A Wholly Owned Subsidiary of MTNL)
BOARD OF DIRECTORS
(AS ON 30.08.08)
Shri R.S.P. Sinha Shri Kuldip Singh Smt. Anita Soni Shri J.S. Deepak Chairman Director (Technical) Director (Finance) Director

CHIEF OPERATING OFFICER Shri Piyush Aggarwal

COMPANY SECRETARY Shri S.R. Sayal

REGISTERED OFFICE 15th Floor, Telephone House, V.S.Marg, Dadar(W), Mumbai-400028

STATUTORY AUDITORS M/s. Kapadia & Birader 8th Lane, Mangaldas Market, 390 Shaikh Memon Street, 2nd Floor, Mumbai-400 002

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MTNL MILLENNIUM TELECOM LIMITED

(A wholly owned subsidiary of MTNL)
DIRECTORS REPORT
Dear Shareholders, The Directors of your company have pleasure in presenting the 8th Annual Report of your Company together with Statement of Accounts and Auditors Report for the period ended on 31st March, 2008. FINANCIAL HIGHLIGHTS During the year under report, the Company has earned interest on the Fixed Deposit amounting of Rs. 43,17,984and made a profit of Rs. 35,84,321 (before taxation) as against a profit of Rs 5,12,212 (before taxation) in the last year. DIVIDEND Your company made a net profit of Rs. 28,05,053 (after taxation and prior period adjustment ) and it has been decided to plough back the same. Therefore, the Board of Directors has not considered it prudent to declare any dividend for the year ended on 31.03.2008. OPERATIONS OF THE COMPANY SUBMARINE CABLE PROJECT Your company has felt the need for a new international submarine cable system extending between India and other Asian countries, including UAE, to serve its needs. Information in respect of MCS (Millennium Cable System) project of MTL Millennium Telecom Limited (MTL), a joint venture of two Government of India Enterprises, Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL), has noted the need for a new international submarine cable system extending between India and other Asian countries, including UAE, to serve its needs. The cable will be laid from Indian East Coast to South East Asia and from Indian West coast to Middle East with an aim for onward connectivity to the Europe and North America through existing and newly planned Submarine cables. M/s AXIOM, France has been appointed as the consultant for Procurement & Implementation of the Submarine Cable Project. The Eastern segment of the cable will run from Digha (near Kolkata) to Malaysia and Singapore with possible branches to Bangladesh, Myanmar, the Andaman Islands, Thailand and Indonesia while the Western segment will run from Ratiya in India to UAE and Djibouti with possible branches to Pakistan, Oman, Yemen. The existing traffic of MTNL will be carried on these cables and the extra capacity shall be leased out. The bids for the MCS project were called in Oct 2007 and it was planned that the contract will be awarded by June 2008. However because of some procedural issues, it was decided in June 2008 to refloat the tender and call for fresh bids. Accordingly, the tender for the MCS project was cancelled and fresh bids have been invited .The bids shall be opened in Oct 2008. 113

MTNL
Dialogue with various trunk parties: Eastern segment: Landing party Agreement for the landing of MCS cable at the Tuas landing station in Singapore has already been signed with M/s SingTel .Further MTL is in dialogue with TM (Telecom Malaysia) for MCS landing in Malaysia. An MOU in this regard has been signed with TM and discussions are in advance stage for finalizing the LPA for landing of MCS cable at Melaka in Malaysia. Western segment: MTL is in dialogue with Etisalat for MCS landing in UAE. An MOU in this regard has already been signed .Moreover MTL is also going to sign the LPA with Etisalat soon. For landing in Djibouti, discussions are in advance stage for signing the LPA. MTL is in discussions / negotiations with telecom operators in Middle East and South East countries for landing facilities to MCS cable in their countries. MTL is also in talks with other / upcoming cable systems like UNITY North project of Google (Japan to US), SJC( Singapore to Japan) of Singtel, MEF(Middle East fiber) from Jeddah to Catania of ASCC, Eassy for capacities swapping/ sharing basis to realize its ultimate aim to reach US form both sides of India. MTL has applied for the ILD license. The LOI in this regard has been issued by DOT. SHARE CAPITAL The paid up Share Capital of the Company is Rs. 2,87,58,800 (28,75,880 equity shares of Rs 10/- each). All the shares are being held by MTNL (Holding Company) and its nominees. The Joint Venture Partner Bharat Sanchar Nigam Limited (BSNL ) and MTNL would subscribe for more capital in the company as and when need for enhancement of the same arises. DIRECTORS Sh. R.S.P. Sinha continued to be Chairman of the Company. Smt Anita Soni and Sh. Kuldip Singh continue to be the Directors of your Company. During the year under report, Sh. Kuldeep Goyal, Sh. S.D. Saxena, Sh. J.R. Gupta and Sh. Rajendera Singh have resigned from the Board of Directors of your company. The Board places on record its deep appreciation for the valuable services rendered by Shri Kuldeep Goyal, Sh. S.D. Saxena, Sh. J.R. Gupta and Sh. Rajendera Singh during their tenure as Directors of your company. The Department of Telecom has appointed Sh. J.S. Deepak as the Govt. nominee on the Board of your company in place of Sh. M. Sahu who has ceased to be director on 29th April 2008 upon his transfer. AUDITORS M/s Kapadia & Biradar, Chartered Accountants continued to be the statutory auditors of your company as appointed by C &AG of India for the year 2008-09 DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the provisions of Sec 217(2AA) of the Companies Act, 1956, the Directors of the Company hereby confirm that: (i) (ii) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; they selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period; 114

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(iii) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; they have prepared the annual accounts on a going concern basis.

(iv)

CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION Being a service providing organization, the relevant rules in this regard are not applicable to your Company. FOREIGN EXCHANGE EARNINGS AND OUTGO The company has made a payment of Rs.81,00,000/- towards foreign Currency for DTS Contract with EGS to a French consulting firm for Comprehensive Technical and Business consultancy services of MTL's International Submarine Cable Project. PARTICULARS OF EMPLOYEES During the year under report, there was no employee who was in receipt of remuneration in excess of limits prescribed under the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees), Rules, 1975. ACKNOWLEDGEMENT The Board of Directors expresses its gratitude to the holding company i.e. MTNL, the Joint Venture partner BSNL, Department of Telecom(DOT) and other Govt. Ministries/Departments for their help, guidance and support extended to your company from time to time. The Board feels pleasure in placing on record its sincere appreciation for the valuable services rendered by the management of MTNL and BSNL at all levels and employees at all levels.

For and on behalf of Board of Directors

(R.S.P. SINHA) CHAIRMAN

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M/s. Kapadia & Birader 8th Lane, Mangaldas Market, 390, Saikh Memon Street, 2nd Floor, Mumbai-400 002

AUDITORS REPORT
To The Members of Millennium Telecom Limited Report on the Accounts for the period ended 31st March 2008 in compliance with section 227(2) of the Companies Act 1956. 1. We have examined the Balance Sheet of MILLENIUM TELECOM LIMITED as at 31st March 2008 and the related statements of Profit and Loss Account for the year then ended, prepared in conformity with the accounting principles generally accepted in India. 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 misstatement. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion In our opinion, and to the best of our information and according to the explanations given to us, the accompanying financial statements a. give the information required by the Indian Companies Act, 1956 ('the Act'), in the manner so required; and b. give a true and fair view of the state of affairs of MILLENIUM TELECOM LTD at 31st March 2008 and of its profit for the year then ended and have been prepared in accordance with the accounting standards referred to in Section 211(3C) of the Act. Further, the balance sheet and the related statement of profit and loss are in agreement with the books of account and, in our opinion, the Company has maintained proper books of account as required by law in so far as it appears from our examination of those books. 4, On the basis of the information and explanations given to us, and the representations obtained by the Company, as on 31st March 2008 none of the directors are disqualified from being appointed as directors in terms of section 274(1)(g) of the Act. a. We have also examined the matters specified in paragraphs 4 and 5 of the Companies (Auditor's Report) Order, 2003 for the year ended 31ST March 2008 as they relate to the Company. Our report thereon is annexed. FOR KAPADIA & BIRADER CHARTERED ACCOUNTANTS Sd/(Mr. Birader) (M No 010024) PARTNER 116

2.

3.

Place : Mumbai Date : 23-8-2008

MTNL
ANNEXURE TO THE AUDITORS REPORT (i) a) The company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets. b) The fixed assets have been physically verified by the management during the year in accordance with a phased programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification. c) As per the information and explanation given to us on our enquiries the disposal of assets during the year was not substantial so as to have an impact on the operations of the company, or affect its going concern. (ii) As the company is not dealing in any goods. Accordingly clause 4 (ii)(a) to (c) does not apply to the company. (iii) As per the information given to us, the company has neither granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956 ('the Act').Accordingly, clauses (iii)(a)(b)(c) and (d) of paragraph 4 of the Order are not applicable to the Company. e) The company has received unsecured interest free loan from its holding company MTNL, the outstanding balance as on 31st March, 2008 is Rs 230,816/-. As per the explanations given to us by management, the company has maintained register under section 301 of the Companies Act, 1956 which is kept at Delhi office and not produced before us. f) The company has received unsecured interest free loan from its holding company MTNL, therefore rate of interest & other terms & conditions does not apply

g) As the company has received unsecured interest free loan from its holding company MTNL, therefore there is no repayment schedule, no interest payable. These loans are payable on demand so there is no overdue amount. iv In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business, for the purchase of fixed assets and for the sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls in these areas a. In our opinion and according to the information and explanations given to us, the contracts or arrangements, that needed to be entered into the register maintained under section 301 of the companies act, 1956. Have been entered in the register and the register is maintained by the company at his Delhi office and the register is not produced before us. In reply to the query of Government Auditors for 2006-2007 the company has promised to produce the register at Bombay office for verification of the auditor, but the company has not produced the same before us. b. In our opinion and according to the information and explanations given to us, the contracts or arrangements referred to in Section 301 of the Act and exceeding the value of five lakh rupees in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time and other relevant circumstances. vi As per the explanations given to us, the Company has not accepted any deposits from public.

vii The Company has no formal internal audit system. However, its control procedures ensure reasonable internal checking of its financial & other records.

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viii To the best of our knowledge and as explained, the Central Government has not prescribed the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the products of the Company. ix According to the information and explanations given to us by the management Provident fund, Investor Education and Protection Fund, Employee's State Insurance, Sales tax, Wealth Tax, Customs Duty, Excise Duty, Cess is not applicable. According to the records of the Company examined by us and the information and explanation given to us by the management, the company has no accumulated losses and has not incurred any cash loss during the financial year covered by our audit or in the immediately preceding financial year. According to the records of the Company examined by us and the information and explanation given to us by the management, the Company has not defaulted in repayment of dues to any financial institution or bank or debenture holders as at the balance sheet date

xi

xii As per the explanations given to us by management, the company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. Therefore maintaining of adequate documents and records is not applicable. xiii The Company is not a chit fund company so the clause (xiii) of paragraph 4 & sub-clauses (a) to (d) of clause xiii of second part of paragraph 4 of the Order does not apply. xiv As per information and explained to us, the Company has not dealt /trade in securities or debentures during the year. The Company's surplus funds are invested in Bank Fixed deposit of which proper records have been maintained and timely entries have been made therein. This Fixed deposit was held by the Company in its own name. xv As per the information and explanation given to us, the company has not given any guarantee for loans taken by others. xvi As per the information given to us and from verification of records, the Company has not obtained any term loans. xvii As per the information given to us, the company has not taken any term loans. Accordingly this clause (xvii) of paragraph 4 of this Order does not apply. xviii As per the information and explanation given to us, the Company has not made any preferential allotment of shares, during the year, to parties and Companies covered in the register maintained under Section 301 of the Companies Act, 1956. xix As per the information and explanation given to us and the records verified by us for the period under concerned the Company has not issued any debentures. xx The company in the recent past has not raised any money by public issue. xxi As per the information and explanation given to us and in our opinion, considering the size and nature of the company's operations, no fraud of material significance has been noticed or reported on or by the company during the year to which our Audit report is related.

FOR KAPADIA & BIRADER CHARTERED ACCOUNTANTS Sd/(Mr. Birader) (M No 010024) PARTNER 118

Place: Mumbai Date : 23-8-2008

MTNL
MILLENNIUM TELECOM LIMITED
BALANCE SHEET AS AT 31st MARCH 2008
SCHEDULE NO. I. SOURCES OF FUNDS : 1. SHAREHOLDERS' FUNDS (a) Share Capital (b) Reserves & Surplus 2. LOAN FUNDS : (a) Unsecured Loan AS AT 31.3.2008 AMOUNT IN RS. AS AT 31.3.2007 AMOUNT IN RS.

A B

28,758,800 27,538,923 56,297,723 230,816 230,816 56,528,539

28,758,800 24,733,870 53,492,670 230,816 230,816 53,723,486

C TOTAL

II. APPLICATION OF FUNDS : 1. FIXED ASSETS (a) Gross Block (b) Less : Depreciation (c) Net Block 2. CURRENT ASSETS, LOANS AND ADVANCES : (a) Sundry Debtors (b) Cash and Bank Balances (c) Other Current Assets (c) Deferred Tax Asset (d) Loans & Advances Less: Current Liabilities & Provisions (a) Liabilities (b) Provisions NET CURRENT ASSETS 3. Miscellaneous Expenditure (to the extent not written off or adjusted)

D 3,754,782 2,124,015 1,630,767 E F G G(1) H 13,794,405 32,389,625 4,975,146 1,123,233 1,982,243 54,264,652 8,424,641 2,263,239 10,687,880 43,576,772 11,321,000 11,321,000 56,528,539 3,283,721 1,710,200 1,573,521 13,794,405 37,593,796 3,093,667 1,123,233 1,572,200 57,177,301 6,771,097 1,477,239 8,248,336 48,928,965 3,221,000 3,221,000 53,723,486

I J

TOTAL Accounting Policies & Notes forming part of Accounts R Sd/S.R.Sayal Company Secretary Sd/Peeyush Agrawal Chief Operating Officer

Sd/Anita Soni Director

Sd/R.S.P Sinha Chairman

AS PER OUR ATTACHED REPORT OF EVEN DATE For M/s Kapadia & Biradar Chartered Accountants Sd/Mr. Biradar Partner PLACE : MUMBAI DATED : 23-08-2008 119

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MILLENNIUM TELECOM LIMITED
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH 2008
SCHEDULE NO. INCOME Income from Operation Other Income EXPENDITURE Direct Expenses Employees Remuneration & Benefits Administrative, Operating & Other Expenses Depreciation NET PROFIT/(LOSS) BEFORE TAXATION Provision for Bad & Doubtful Debts Provision for Taxation Deferred Tax Asset On Depreciation Current tax Prior Period Adjustments Balance carried to Balance Sheet Accounting Policies & Notes forming part of Accounts Q Average number of equity shares Basic & Diluted EPS FOR THE YEAR ENDED 31.3.2008 (RUPEES) 4,317,984 4,317,984 319,848 413,815 733,663 3584321 FOR THE YEAR ENDED 31.3.2007 (RUPEES) 2,169,051 2,169,051 1,263,324 393,515 1,656,839 512,212 116,961

L M TOTAL N O P D TOTAL

786000 2,798,321 6732 2805053 2,875,880 0.98

(85377) 24,300 285,574 285,574 2,875,880 0.10

Sd/S.R.Sayal Company Secretary

Sd/Peeyush Agrawal Chief Operating Officer

Sd/Anita Soni Director

Sd/R.S.P Sinha Chairman

AS PER OUR ATTACHED REPORT OF EVEN DATE For M/s Kapadia & Biradar Chartered Accountants Sd/Mr. Biradar Partner PLACE : MUMBAI DATED : 23-08-2008 120

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SCHEDULES ANNEXED TO AND FORMING PART OF THE ACCOUNTS SCHEDULE-A SHARE CAPITAL AS AT 31.03.2008 (RUPEES) AUTHORISED 100000000 Equity Shares of Rs. 10/- each ISSUED,SUBSCRIBED & PAIDUP CAPITAL 28,75,880 Equity Shares (P.Y. 28,75,880) of Rs. 10/- each (All shares held by Mahanagar Telephone Nigam Ltd the holding company and its nominees) TOTAL 1,000,000,000 28,758,800 AS AT 31.03.2007 (RUPEES) 1,000,000,000 28,758,800

28,758,800

28,758,800

SCHEDULE-B RESERVES & SURPLUS AS AT 31.3.2008 (Rs.) Revenue Reserve Profit and Loss Appropriation Account Opening Balance Add: Current year's profit TOTAL 995,181 23,738,689 2,805,053 AS AT 31. 3.2007 (Rs.) 995,181

26,543,742 27,538,923

23,738,689 24,733,870

SCHEDULE-C UNSECURED LOAN AS AT 31.3.2008 (Rupees) Loan from Holding Company MTNL,Corporate Office TOTAL 230,816 230,816 AS AT 31. 3.2007 (Rupees) 230,816 230,816

121

SCHEDULE -D

AS PER COMPANIES ACT, 1956, A.Y. - 2008-09

MILLENNIUM TELECOM LIMITED

.

MTNL

STATEMENT OF FIXED ASSETS AS ON 31ST MARCH, 2008

GROSS BLOCK As on 01/04/2007 year during the (At Cost) 31/03/2008 01/04/2007 Back 31/03/2008 31/03/2008 31/03/2007 Additions Deductions As on As on For the year Written As on As on As on DEPRECIATION NET BLOCK

Sr.

Particulars

Rate of

No.

Depn.

1 82,639 82,639 51,404 9,346 60,750 21,889

Apparatus & Plants 31,235

Equipment & Apparatus

11.31%

2 62,215 117,760 117,760 15,914 5,594 21,508 62,215 15,185 3,938 19,124

Electrical Appliances 43,091 96,252 47,030 101,846

Electrical Fittings

6.33%

Air Condition

4.75%

3 474,252 474,252 132,493 30,020 -

Furniture & Fixtures 162,513 311,739 341,759

Furniture & Fixtures

6.33%

4 8,200 15,280 63,765 123,615 11,990 11,024 4,347 205,140 16,500 16,500 10,319 51,461 256,601 115,023 4,347 2,489 11,024 8,166 11,990 2,224 570 1,787 705 39,430 2,675 123,615 26,946 5,872 63,765 13,353 3,029 15,280 3,227 726 8,200 1,855 390 -

Office Machinery 2,244 3,952 16,382 32,818 2,794 9,953 3,194 154,453 12,994 5,956 11,328 47,383 90,797 9,196 1,071 1,153 102,148 3,506 6,346 12,053 50,412 96,669 9,766 2,858 1,858 90,117 6,181

Cellular Telephone Handset

4.75%

Water Filter

4.75%

122
636,216 636,216 272,066 60,441 371,592 775,628 104,408 199,150 3,283,721 3,283,721 471,061 419,600 371,592 775,628 104,408 618,750 315,172 517,642 72,476 134,244 3,754,782 1,710,200 3,283,721 1,316,685 60,235 125,729 16,925 46,406 413,815 393,515

Fax Machine

4.75%

Xerox Machine

4.75%

EPABX System

4.75%

Scanner

16.21%

Web Camera

16.21%

LCD Projector

16.21%

ISDN Router

16.21%

Vehicles 332,507 303,709 364,150

Motor Car

9.50%

Computers 375,407 643,372 89,401 180,650 2,124,015 1,710,200 (3,815) 132,256 15,007 438,100 1,630,767 1,573,521 56,420 257,986 31,932 64,906 1,573,521 1,967,036

Modems - MSDSL

16.21%

Computer

16.21%

Printer

16.21%

Laptop

16.21%

TOTAL

PREVIOUS YEAR

MTNL
SCHEDULE -E SUNDRY DEBTORS AS AT 31.3.2008 (RUPEES) Outstanding for a period exceeding six months - Unsecured Considered Good Other Debts Outstanding for a period exceeding six months - Unsecured Considered Bad & not other debts Less: Provision for Bad & Doubtful debts TOTAL SCHEDULE-F CASH & BANK BALANCES AS AT 31.3.2008 (RUPEES) Cash in Hand Balance with Scheduled Banks -In Current Account with Indian Overseas Bank -In Current Account with ICICI Bank -In Deposit Account Balance with Non-Scheduled Banks TOTAL 1,788,772 100,853 30,500,00 32,389,625 AS AT 31. 3 2007 (RUPEES) 492,943 100,853 37,000,000 37,593,796 13,695,595 AS AT 31. 3 2007 (RUPEES) 13,695,595

215,771 116,961 13,794,405

215,771 116,961 13,794,405

SCHEDULE-G OTHER CURRENT ASSETS AS AT 31.3.2008 (RUPEES) Telephone Deposit Prepaid Expenses Receivable from MTNL, Delhi Receivable from MTNL, Mumbai Interest Accrued on FD with Bank (TDS - Rs.773,203) TOTAL 4,856 56,047 118,166 4,796,077 4,975,146 AS AT 31. 3 2007 (RUPEES) 4,856 56,047 118,166 2,914,598 3,093,667

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SCHEDULE-G (1) DEFERRED TAX ASSET AS AT 31.3.2008 (RUPEES) Deferred Tax Asset TOTAL SCHEDULE-H LOANS & ADVANCES (Unsecured) AS AT 31.3.2008 (RUPEES) Income Tax Paid (A.Y. 2005-06) Income Tax Paid (A.Y. 2006-07) Income Tax Paid (A.Y. 2007-08) TDS RECOVERED BY BANK - 090402 TOTAL SCHEDULE-I CURRENT LIABILITIES AS AT 31.3.2008 (Rs.) Outstanding Expenses Outstanding Salary Earnest Money Deposit - 131600 MTNL Profession Tax Payable TDS Payable Service Tax Payable Sundry Creditors TOTAL SCHEDULE-J PROVISIONS AS AT 31.3.2008 (Rs.) Provision for Taxation Provision for Direct Expenses Provision for Bad & Doubtful debts TOTAL 1435300 827939 2,263,239 AS AT 31. 3 2007 (Rs.) 649300 827,939 1,477,239 71,750 4,131,283 1,663,945 761,087 1,670,148 126,428 8,424,641 AS AT 31. 3 2007 (Rs.) 70,232 4,131,283 1,663,945 779,119 126,518 6,771,097 857,155 351,885 773,203 1,982,243 AS AT 31. 3 2007 (RUPEES) 857,155 351,885 363,160 1,572,200 1,123,233 1,123,233 AS AT 31. 3 2007 (RUPEES) 1,123,233 1,123,233

124

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SCHEDULE-K MISCELLANEOUS EXPENDITURE AS AT 31.3.2008 (Rs.) Preliminary Expenses to the extent not w/off Registration Fees Stamp duty Proffessional & Consultancy Charges to the extent not w/off TOTAL 11,321,000 11,321,000 AS AT 31. 3 2007 (Rs.) 3,221,000 3,221,000

SCHEDULE-L INCOME FROM OPERATIONS FOR THE YEAR ENDED 31.3.2008 (Rs.) Income from e-Tendering Services TOTAL FOR THE YEAR ENDED 31.3.2007 (Rs.) -

SCHEDULE-M OTHER INCOME FOR THE YEAR ENDED 31.3.2008 (Rs.) Interest on FD with Bank Miscellaneous Income TOTAL 3,139,775 1,178,209 4,317,984 FOR THE YEAR ENDED 31.3.2007 (Rs.) 2,169,051 2,169,051

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SCHEDULE-N DIRECT EXPENSES FOR THE YEAR ENDED 31.3.2008 (Rs.) Website Hosting Charges Website Maintenance Charges Domain Expenses Internet Bandwidth Charges TOTAL FOR THE YEAR ENDED 31.3.2007 (Rs.) -

SCHEDULE-O EMPLOYEES REMUNERATION & BENEFITS FOR THE YEAR ENDED 31.3.2008 (Rs.) Salary to Staff Dearness Allowance City Compensatory Allowance House Rent Allowance Travelling Allowance Medical Expenses Ohters Leave Salary TOTAL 0 FOR THE YEAR ENDED 31.3.2007 (Rs.) 0

126

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SCHEDULE-P ADMINISTRATIVE, OPERATING & OTHER EXPENSES FOR THE YEAR ENDED 31.3.2008 (Rs.) Advertisement/Business Promotion Expenses Auditors remuneration Bank Charges & Commission Newspaper, Books & Periodicals Computer Expenses Conveyance Consultancy Fees House Keeping Expenses Internet Expenses Insurance charges Postage & Courier Professional & Legal Charges Membership Fees Miscellaneous Expenses Printing & Stationery Preliminary Expenses W/off Rent Repairs & Maintainance Refreshment Expenses Seminar & Training Expenses Travelling Expenses Telephone Expenses Vehicle Hire Expenses Vehicle Running & Maintenance Expenses Wages to Temporary Staff TOTAL 63,250 9,088 4,603 102,000 5,028 275 1,078 11,824 24,012 98,690 319,848 FOR THE YEAR ENDED 31.3.2007 (Rs.) 61,732 2,727 665 93,226 7,791 596 2,372 3,595 1,001,612 14,337 28,181 46,490 1,263,324

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MTNL
MILLENNIUM TELECOM LIMITED
CASH FLOW STATEMENT
AS AT 31.3.2008 (RUPEES) CASH FLOW FROM OPERATING ACTIVITIES Net Profit before tax and extraordinary items Adjustment for non cash items/items to be disclosed seperately: Interest Income Prior Period Items Amortisation Depreciation OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES INCREASE IN WORKING CAPITAL CASH GENERATED FROM OPERATIONS Extra Ordinary Items Income Tax refund received Income Tax paid NET CASH FLOW FROM OPERRATING ACTIVITIES (A) CASH FLOW FROM INVESTING ACTIVITIES: Purchase of Fixed Assets Sale of Fixed Assets Interest received NET CASH FLOW FROM INVESTING ACTIVITIES (B) CASH FLOW FROM FINANCE ACTIVITIES: Proceeds from Issue of Share Capital Unsecured Loan taken Repayment of Unsecred Loan NET CASH FROM FINANCING ACTIVITIES (C) NET INCREASEASE IN CASH AND CASH EQUIVALENT (A+B+C) CASH AND CASH EQUIVALENTS AS AT 1st April, 2007 (OPENING BALANCE) CASH AND CASH EQUIVALENTS AS AT 31st March, 2008 (CLOSING BALANCE) Sd/S.R.Sayal Company Secretary Sd/Peeyush Agrawal Chief Operating Officer Sd/Anita Soni Director 3,584,321 (4,317,984) 6,732 413,815 (313,116) 3,680,006 3,366,890 8,100,000 (4,733,110) 471,061 471,061 (5,204,171) 37,593,796 32,389,625 AS AT 31.3.2007 (RUPEES) 512,212 (2,169,051) 1,001,612 393,515 (261,712) (127,058) (388,770) (388,770) (388,770) 37,982,566 37,593,796

Sd/R.S.P Sinha Chairman

AS PER OUR ATTACHED REPORT OF EVEN DATE For M/s Kapadia & Biradar Chartered Accountants Sd/Mr. Biradar Partner PLACE : MUMBAI DATED : 23-08-2008 128

MTNL
SCHEDULE-R - PART - A SIGNIFICANT ACCOUNTING POLICIES
1. Basis of presentation of financial statements : The financial statements are prepared under the historical cost convention, on the basis of going concern and in accordance with generally accepted accounting principles in India and as per the provisions of the Companies Act, 1956. Fixed assets: Fixed assets are stated at cost (Gross block) less accumulated depreciation. Depreciation: Depreciation on fixed assets has been provided on straight-line method at the rates and in the manner prescribed in schedule XIV to the Companies Act, 1956. Amortization Preliminary Expenses has been fully written off. Income recognition: All incomes have been recognized on accrual basis. Interest on deposit with banks is recognized on day-to-day basis. Foreign Currency Transactions: The company has made a Payment of Rs.81,00,000/- towards in foreign Currency for DTS Contract with EGS to a French consulting firm for Comprehensive Technical and Business consultancy services Of MTL's International Submarine Cable Project. Provision for Current & Deferred Tax: Provision for current tax has been made on the basis of estimated taxable income for the current accounting year in accordance with the Income Tax Act, 1961. Deferred tax resulting from timing differences between the book and the taxable profits for the year is accounted for, using the tax rates & the laws that have been substantively enacted as of the balance sheet date. Deferred tax assets is recognized and carried forward only to the extent there is reasonable certainty that this would be realized in future. Retirement benefits: No provision for retirement benefits has been made since there are no employees. sd/S.R.Sayal Company Secretary sd/Peeyush Agrawal Chief Operating Officer sd/Anita Soni Director sd/R.S.P Sinha Chairman

2. 3.

4. 5.

6.

7.

8.

for M/s Kapadia & Biradar Chartered Accountants Sd/Mr. Biradar Partner PLACE: MUMBAI DATED : 23-08-2008 129

MTNL
SCHEDULE-R - PART - B NOTES TO ACCOUNTS
1. In the opinion of Board of Directors, current assets, loans & advances, have value on realization in the ordinary course of the business at least equal to the amounts at which they are stated and provision for all known liabilities has been made in the accounts. The entire equity share of the Company is held by Mahanagar Telephone Nigam Ltd, the holding company & its nominees. Contingent liabilities include I) Guarantee given by Banks of Rs. 2.00 crores & II) As Regards Income Tax of Rs.29,82,670/- pertaining to Assessment Year 2005-2006 as per the Demand notice received from Income Tax Department. The company has filed an appeal against the Assessment Order and the appeal is pending against Commissioner of Income Tax III) As Regards of Sub Marine Cable Project, Payment to Consulting Firm M/s Axiom is pending upto Rs.4,39,00,000/4. Payment to Auditors include Current year a) b) c) 5. 6. 7. Audit Fees Certification Fees Service Tax Rs. 34,500/Rs. 28,750/Previous Year Rs. 30,000/Rs. 25,000/Rs. 6,732/-

2. 3.

No payments to Creditors include payment to Small Scale Industries. Unsecured Loans include amount due to holding company. Related Party Disclosures as per AS 18: a) b) c) d) e) Name of the related party Description of the relationship Description of the transaction Volume of the transactions in monetary terms Outstanding item pertaining to related parties as at the balance sheet date. i) Due from MTNL a) Sundry Debtors b) Other Current Assets ii) Due to MTNL : : : : Rs.1,36,37,395 Rs.1,74,213 Rs. 16,63,945 Rs.2,30,816 : : : : MTNL Holding Company NIL NIL

iii) Unsecured Loan from MTNL

130

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8. The Computation of Earnings per share Net Profit/ (Loss) for the year including provision for taxation in Rs. Average number of equity shares Basic & Diluted EPS in Rs. 9. : : : Rs.16,26,844 28,75,880 Re.0.57/-

Previous years figures have been recast & regrouped wherever necessary.

10. The payments of Rs.1,13,21,000/- made for the purpose of submarine cable project is shown as deferred revenue expenses since the project is in progress and it has not been written off because the project has not started to earn any revenue. 11. The liaison officer appointed by MTL has an additional income of pension of Rs.5870 from IIT Post Office, the total income of the officer is coming as Rs.1,72,440/- which is not exceeding the taxable limit when he saves up to Rs.1,00,000/-. So the TDS has not been deducted from his consultancy fees.

sd/S.R.Sayal Company Secretary

sd/Peeyush Agrawal Chief Operating Officer

sd/Anita Soni Director

sd/R.S.P Sinha Chairman

for M/s Kapadia & Biradar Chartered Accountants

Sd/Mr. Biradar Partner

PLACE : MUMBAI DATED : 23-08-2008

131

MTNL

ANNEXURE TO DIRECTORS' REPORT dk;kZy;

egkfuns'kd ys[kkijh{kk] Mkd o nwjlapkj

'kke ukFk ekxZ] lehi iqjkuk lfpoky; fnYyh&110402
lR;eso t;rs

OFFICE OF THE DIRECTOR GENERAL OF AUDIT, POST AND TELECOMMUNICATIONS

Sham Nath Marg (Near Old Secretariat) Delhi-110 402
Confidential No. Report-II/F-112/MTL/A/cs/2007-08/343

To, The Chairman, Millennium Telecom Limited, Mumbai. Subject : Non-Review Certificate on the accounts of Millennium Telecom Limited for the year ended on 31 March 2008. Sir, I am enclosing a Non-Review Certificate on the accounts of Millennium Telecom Limited for the year ended on 31st March, 2008 for information and necessary action.

Yours faithfully,

(J.N. GUPTA) Director General of Audit (P&T) Telephone : 23812666, 23814533 Telegram : CENOFF.DELHI Fax : 91-11-23813822

132

MTNL
COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 619 (4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF MILLENNIUM TELECOM LIMITED, MUMBAI FOR THE YEAR ENDED 31 MARCH 2008

The preparation of financial statements of Millennium Telecom Limited for the year ended 31 March 2008 in accordance with the financial reporting framework prescribed under the Companies Act, 1956 is the responsibility of the Management of the Company. The Statutory Auditor appointed by the Comptroller and Auditor General of India under Section 619 (2) of the Companies Act, 1956 is responsible for expressing opinion on these financial statements under Section 227 of the Companies Act, 1956 based on independent audit in accordance with the auditing and assurance standards prescribed by their professional body the Institute of Chartered Accountants of India. This is stated to have been done by them vide their Audit Report dated 23 August 2008. I, on the behalf of the Comptroller and Auditor General of India, have decided not to r.;view the report of the Statutory Auditor on the accounts of Millennium Telecom Limited for the year ended 31 March 2008 and as such have no comments to make under Section 619 (4) of the Companies Act, 1956.

For and on the behalf of the Comptroller and Auditor General of India

(J.N. Gupta) Director General of Audit (P&T)

133

MTNL MAHANAGAR TELEPHONE (MAURITIUS) LTD.

INDEPENDENT AUDITORS REPORT TO THE MEMBER OF MAHANAGAR TELEPHONE (MAURITIUS) LTD. REPORT ON THE FINANCIAL STATEMENTS
We have audited the financial statements of MAHANAGAR TELEPHONE (MAURITIUS) LTD, set out on pages 5 to 18, which comprise the balance sheet at 31 March 2008 and the income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the requirements of the Mauritian Companies Act 2001. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair representation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibilites Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements on pages 5 to 18 give a true and fair view of the financial position of the company at 31 March 2008 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the Mauritian Companies Act 2001. Other matter This report, including the opinion, has been prepared for and only for the company's members, as a body, in accordance with Section 205 of the Mauritian Companies Act 2001 and for no other purpose. We do not in, giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 134

MTNL
Report on Other Legal and Regulatory Requirements We have no relationship with or interests in the company other than in our capacity as auditors. We have obtained all the information and explanations we have required. In our opinion, proper accounting records have been kept by the company as far as it appears from our examination of those records.

MOORE STEPHENS Chartered Certified Accountants

A. ROGBFER FCCA Chartered Certified Accountants

PORT LOUIS MAURITIUS

135

MTNL
MAHANAGAR TELEPHONE (MAURITIUS) LTD.
Income statement for the year ended 31st March 2008
Note Turnover Cost of sales (Appendix I) Gross profit Personnel expenses Licence fee Reversal of ICTA Special account fee Administrative expenses (Appendix II) Marketing expenses Depreciation Profit / (Loss) from operations Other income Net finance income / (expense) Profit / (Loss) before taxation Taxation Profit / (Loss) after taxation Earnings/(Loss) per share 13 4 10 11 12 2 2008 Rs 188,823,889 (78,906,653) 109,917,236 (8,667,169) (20,743,188) 20,131,657 (42,281,020) (7,774,354) (41,574,236) 9,008,926 10,314 (561,637) 8,457,603 (7,480,365) 977,238 0.00 2007 Rs 168,992,043 (87,884,385) 81,107,658 (5,900,092) (22,083,008) (33,033,641) (6,289,774) (23,931,674) (10,130,531) 87,941 497,905 (9,544,685) 450,455 (9,094,230) (0.02)

136

MTNL
MAHANAGAR TELEPHONE (MAURITIUS) LTD. Balance sheet
as at 31st March 2008
Note ASSETS Non-Current Assets Property , plant and equipment Deferred taxation 3 4 Rs 3 379,546,791 9,464,576 389,011,367 Current Assets Trade and other receivables Cash and bank balances 5 6 120,491,229 42,904,073 163,395,302 TOTAL ASSETS EQUITY & LIABILITIES Capital & Reserves Share capital Accumulated losses Shareholders' interests Current Liabilities Trade and other payables Bank overdraft 9 6 115,896,154 115,896,154 TOTAL EQUITY & LIABILITIES 552,406,669 226,649,284 720,671 227,369,955 560,537,401 7 8 494,187,544 (57,677,029) 436,510,515 391,821,713 (58,654,267) 333,167,446 552,406,669 106,885,927 28,263,296 135,149,223 560,537,401 Rs 408,443,237 16,944,941 425,388,178 2008 Rs 2007 Rs

Sd/Director

Sd/Diector

137

MTNL
MAHANAGAR TELEPHONE (MAURITIUS) LTD. Cash flow statment
for the year ended 31st March 2008
Note 2008 Rs 8,457,603 2007 Rs (9,544,685)

Profit before taxation Adjustments for:Depreciation Interest payable Interest received Operating profit before working capital changes Increase in trade and other receivables (Decrease) / Increase in trade and other payables Cash generated from operations Interest received Interest paid Net cash flows from operating activities Cash flows from Investing activities Purchase of property, plant and equipment

41,574,236 (1,608,244) 48,423,595 (13,605,302) (110,753,130) (75,934,837) 1,608,244 (74,326,593)

23,931,674 54,381 (832,949) 13,608,421 (70,770,277) 194,710,397 137,548,541 832,949 (54,381) 138,327,109

(12,677,790) (87,004,383)

(271,832,682) (133,505,573)

Cash flows from financing activities Issue of share capital Net Increase / (Decrease) in cash and cash equivalents Movements in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Net Increase / (Decrease) in cash and cash equivalents 6 27,542,625 42,904,073 15,361,448 38,481,747 27,542,625 (10,939,122) 102,365,831 15,361,448 122,566,451 (10,939,122)

138

MTNL MAHANAGAR TELEPHONE (MAURITIUS) LTD.

Notes to and forming part of the financial statements
for the year ended 31st March 2008
1. INCORPORATION Mahanagar Telephone (Mauritius) Ltd is a private limited Company incorporated in Mauritius on 14 November 2003. The address of the registered office is MTML Tower, 30 Dr Eugene Laurent Street, Port Louis. The main activity of the Company is to provide telecommunication services. 2. ACCOUNTING POLICIES The principal accounting policies adopted by the company are as follows:(a) Basis of preparation

Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards.

Basis of measurement
The financial statements have been prepared on a historical cost basis.

Functional and presentation currency

The financial statements are presented in Mauritian rupee (Rs) which in the Company's functional currency.

Use of estimates and judgement

The financial statements are prepared in accordance with International Financial Reporting Standards and the generally accepted accounting principles that require the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. (b) Operating leases Payments made under operating leases are recognised in the income statement on a straightline basis over the term of the lease. (c) Revenue recognition Revenue relates to telephone services, data communication services, phone cards and other corollary services. Revenue is recognised on an accrual basis and is net of discount. International revenue is derived from outgoing calls from Mauritius and from payments by foreign network operators for calls and other traffic that originate outside Mauritius but which use the Company's network.

139

MTNL
The Company pays a proportion of the international traffic revenue it collects from its customers to transit and destination network operators. These revenues and costs are stated gross in the financial statements. Amount payable and receivable from the same foreign network operators are shown net in the balance sheet where a right of set off exists. (d) Taxation Income tax on the profit or loss for the year comprises of current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be realised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (e) Cash and cash equivalents Cash comprises cash at bank and in hand, demand deposits and bank overdrafts. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. (f) Finance income and expense Finance income comprises interest income and foreign exchange gains. Interest income is recognised as it accrues, using the effective interest method. Finance expenses comprises interest expense and foreign exchange losses. Interest expense is recognised in the income statement as it accrues using the effective interest method. (g) Financial instruments and associated risks

Fair Value
The carrying amounts of the Company's financial assets and liabilities approximate their fair values.

Associated risks
The Company's activities expose it to various types of risk in the normal course of its business. The following summary is not intended to be comprehensive summary of all risks.

Credit risk
At balance sheet date there was not significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

Currency risk
The Company is exposed to foreign currency risk on its transactions that are denominated in currencies other than Mauritian rupee. 140

MTNL
Interest rate risk
The Company's income and operating cash flows are substantially independent of changes in market interest rates. The Company's only significant interest earning financial asset is cash at bank. Interest income may fluctuate in amount, in particular due to changes in interest rates. (h) Provisions A provision is recognised in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. (i) Related parties For the purpose of these financial statements, parties are considered to be related to the company if they have the ability, directly or indirectly, to control the company or exercise significant influence over the company in making financial and operating decisions, or vice versa, or where the company is subject to common control or common significant influence. Related parties may be individuals or other entities. (j) Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. When parts of an item of property, plant or equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Subsequent costs
The cost of replacing part of an item of property, plant or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the branch and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in income statement as incurred.

Depreciation
Depreciation is recognised in income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Additions during the year bear a due proportion of the annual depreciation charge.

141

MTNL
The annual depreciation rates used for the purpose are as follows: Computer equipment 16.21 % Furniture, fixtures and fittings 6.33 % Office equipment 4.75 % Motor vehicles 10.00 % Plant and equipment 10.00 % Gains and losses on disposal of property, plant and equipment are determined by reference to their written down value and are included in determining operating profit. (k) Financial instruments

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through income statement, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial instrument is recognised if the company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the company's contractual rights to the cash flows from the financial assets expire or if the company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the company's obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash balances and call deposits. Bank overdraft is included as a component of cash and cash equivalents for the purpose of the cash flow statement.

Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment. (l) Foreign currencies Transactions in foreign currencies are translated to Mauritian rupee at the exchange rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the balance sheet date and gains or losses on transaction are recognised in the income statement. (m) Impairment The carrying amounts of the company's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement in the period in which the impairment is identified. 142

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3. PROPERTY, PLANT AND EQUIPMENT Computer equipment Rs Cost At 01 April 2007 Additions At 31 March 2008 DEPRECIATION At 01 April 2007 Charge for the year At 31 March 2008 NET BOOK VALUE At 31 March 2008 At 31 March 2007 4. TAXATION The Company is liable to income tax at a rate of 15% (2007: 22.50%) on its profit as adjusted for tax purposes. 2008 Rs Current tax charge Deferred tax charge Total tax expense in income statement 7,480,365 7,480,365 8,457,603 1,268,640 15,518 6,196,207 7,480,365 2007 Rs (450,455) (450,455) (9,544,685) (2,147,554) 47,650 1,649,449 (450,455) 16,494,486 450,455 16,944,941 (14,268,918) 30,392,018 821,841 16,944,941 460,233 161,644 621,877 115,753 74,208 189,961 431,916 344,480 Furniture, Office fixtures equipment and fittings Rs Rs 478,391 1,214,628 1,693,019 62,699 52,841 115,540 1,577,479 415,692 270,043 335,519 605,562 25,759 18,242 44,001 561,561 244,284 Motor vehicles Rs 2,259,738 2,259,738 336,328 214,675 551,003 1,708,735 1,923,410 Plant and equipment Rs 429,131,324 10,965,999 440,097,323 23,615,953 41,214,270 64,830,223 375,267,100 405,515,371 Total

432,599,729 12,677,790 445,277,519 24,156,492 41,574,236 65,730,728 379,546,791 408,443,237

Reconciliation of effective taxation

Profit / (Loss) before taxation Income tax at 15% / 22.50% Non-allowable expenses Tax rate differential

Deferred tax assets

At 01 April 2007 Movement during the year At 31 March 2008 16,944,941 (7,480,365) 9,464,576 (36,189,991) 44,535,240 1,119,327 9,464,576 143

Deferred tax assets are analysed as follows:

Accelerated capital allowances Tax losses Provision for bad debts

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5. TRADE AND OTHER RECEIVABLES 2008 Rs Trade receivables Other receivables and prepayments 115,076,844 5,414,385 120,491,229 6. CASH AND BANK BALANCES 2008 Rs Cash in hand and at bank Bank overdraft Cash and cash equivalents in the cash flow statement 7. STATED CAPITAL 2008 Rs Ordinary shares of no par value 8. ACCUMULATED LOSSES 2008 Rs At 01 April 2007 Loss for the year At 31 March 2008 9. TRADE AND OTHER PAYABLES 2008 Rs Trade creditors Other creditors 72,357,542 43,538,612 115,896,154 10. PROFIT/(LOSS) FROM OPERATIONS Profit/(Loss) from operations is arrived at after charging the following items:2008 Rs Staff Costs Depreciation on property, plant and equipment Directors' emoluments Auditors' remuneration Number of employees at end of the year 144 8,667,169 41,574,236 10,000 90,000 16 2007 Rs 5,900,092 23,931,674 20,000 158,000 15 2007 Rs 155,375,997 71,273,287 226,649,284 (58,654,267) 977,238 (57,677,029) 2007 Rs (49,560,037) (9,094,230) (58,654,267) 494,187,544 2007 Rs 391,821,713 42,904,073 42,904,073 2007 Rs 28,263,296 (720,671) 27,542,625 2007 Rs 105,207,140 1,678,787 106,885,927

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11. OTHER INCOME 2008 Rs Other income 12. NET FINANCE INCOME / (EXPENSE) 2008 Rs Interest income Foreign exchange gain Finance income Interest expense Foreign exchange lossess Finance expense Net finance (expense) / income 13. EARNINGS/(LOSS) PER SHARE The calculation of earnings/(loss) per share is based on net profit/(loss) for the year after taxation attributable to ordinary shareholders and on the number of shares in issue throughout the two years ended 31 March 2008. 14. RELATED PARTY TRANSACTIONS 2008 Rs The Company had the following transactions with related parties. Directors fees Remuneration and other short term benefits to key management personnel All related party transactions are priced on commercial terms and conditions. 16. COMMITMENTS (a) Operating leases Leases as lessee The future aggregate minimum lease payments under non-cancellable operating leases are as follows: BTS sites Rs Within one year Between one year and five years Over five years 3,912,000 15,570,000 11,482,000 30,964,000 145 Buildings Rs 3,263,192 11,098,368 5,549,184 19,910,744 Total Rs 7,175,192 26,668,368 17,031,184 50,874,744 10,000 2,321,847 20,000 2,225,044 2007 Rs (2,169,881) (2,169,881) (561,637) 1,608,244 1,608,244 2007 Rs 832,949 832,949 (54,381) (280,663) (335,044) 497,905 10,314 2007 Rs 87,941

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(b) Bank guarantee There is a contingent liability not provided for in the accounts in respect of guarantees given to third parties amounting to Rs 7,931,909 ( 2007: Rs 6,853,038). (c) Capital commitments Capital expenditure contracted and not provided for in the accounts amount to Rs 51,774,394. 16. HOLDING COMPANY The holding Company is Mahanagar Telephone Nigam Ltd, a Government of India Enterprise. 17. FINANCIAL SUMMARY 2008 Rs Issued and Fully Paid Up Stated capital Accumulated losses Profit / (Loss) before taxation Profit / (Loss) after taxation 494,187,544 (57,677,029) 8,457,603 977,238 391,821,713 (12,534,940) (9,544,685) (9,094,230) 269,255,262 (49,560,037) (17,836,949) (13,420,803) 2007 Rs 2006 Rs

MAHANAGAR TELEPHONE (MAURITIUS) LTD.

Secretary's Certificate under Section 166(d) of the Companies Act 2001 In accordance with Section 166(d) of the Companies Act 2001, we certify that to the best of our knowledge and belief, the Company has filed with the Registrar of Companies, all such returns as are required of the Company under the Companies Act 2001. For and on behalf of Company secretary

146

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MAHANAGAR TELEPHONE (MAURITIUS) LTD. Schedules to the Income Statement for the Year ended 31st March, 2008
2008 Rs. 1. Cost of sales ICTA Special account fee Carrier charges IPLC charges IUC charges 14,356,443 19,903,584 7,234,326 37,412,300 78,906,653 2. Personnel expenses Salaries and allowances Other benefits 8,120,756 546,413 8,667,169 3. Licence fee PLMN PSTN ILD Microware Spectrum ISP 8,000,004 8,000,004 1,999,992 1,000,008 1,693,180 50,000 20,743,188 4. Administrative expenses Meeting expenses Directors fees Rental accomodation Rental BTS sites Rental of building Rental of stores Company Licence Electricity Water charges Motor vehicle running expenses 147 124,951 10,000 1,242,307 4,472,478 2,774,592 74,666 6,000 9,816,749 14,024 997,933 116,974 20,000 1,125,599 4,758,884 2,774,592 8,000 6,179,048 708,164 8,000,004 8,000,004 1,999,992 1,000,008 3,024,000 59,000 22,083,008 5,235,097 664,995 5,900,092 16,533,254 23,500,052 5,043,337 42,807,742 87,884,385 2007 Rs.

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Vehicle hire charges Repairs and maintenance - mess Fuel for BTS Repairs and maintenance - office Overseas travelling expenses Repairs and maintenance - shop Printing Stationery Communication expenses Bank charges Library books Horticulture expenses Computer consumables and repairs Professional charges General expenses Entertainment Cuttlery expenses Repairs for office equipment Commission and brokerage fees Office insurance Security charges Rates and taxes Provision for bad debts 957,775 321,213 93,216 770,340 128,986 876,333 202,906 1,702,906 488,794 2,807 10,300 187,308 347,084 130,124 103,450 21,783 53,887 6,931,489 102,926 538,326 1,313,189 7,462,178 42,281,020 Marketing expenses Electricity for shops Gifts Rent of shops Call centre charges Printing expenses Publicity and advertisement Website development and maintenance 25,746 515,329 3,074,820 110,710 4,038,149 9,600 7,774,354 11,500 1,918,400 195,791 4,160,083 4,000 6,289,774 921,061 263,236 181,863 303,975 179,777 424,857 91,179 1,099,524 951,147 21,953 21,777 406,146 177,255 138,517 8,557 25,169 7,375,527 199,050 626,144 273,042 3,652,624 33,033,641

148

MTNL ECS MANDATE FORM

MAHANAGAR TELEPHONE NIGAM LTD. REGD OFFICE: JEEVAN BHARTI BUILDING, TOWER I, 12TH FLOOR, 124, CONNAUGHT CIRCUS, NEW DELHI - 110 001
For shares held in Physical Mode Please complete the form and mail to the Company Shares held in Electronic Mode should inform respective DPs Dear Sir/Madam, Change in mode of payment to ECS I hereby consent to have the amount of dividend on my equity shares credited through the Electronic Clearing Service (ECS). The particulars are:1. 2. 3. 4. 5. Folio No./Client ID No._______________________________________ (folio No. given in equity share certificate(s)/Customer ID Nos. given by your DPs) Shareholder's Name___________________________________________ Shareholder's Address____________________________________________________________ Income Tax Permanent Account No. _________________________________ Particulars of the Bank Bank Name_____________________________________________

Branch name and address_____________________________________________________________ Telephone Nos. of Bank_______________________________________________________________ The 9 digit code number of the Bank and branch appearing on the MICR cheque issued by the bank:_____________________________ (please attach the photocopy of a cheque or a cancelled bank cheque issued by your bank for verifying the accuracy of the code number) Account type (please tick) Savings Current Cash Credit

Account number : _____________________________ (as appearing on the MICR cheque book) 6. Date from which the mandate should be effective:_______________________

I hereby declare that the particulars given above are correct and complete. If the transaction is delayed or not effected at all for reasons of incomplete or incorrect information or non-availability of ECS facility with company's banks at my place/city, I would not hold the Company/Registrar & Share Transfer Agents of the Company responsible. I also undertake to advise any change in the particulars of my account to facilitate updation of records for purpose of credit of dividend amount through ECS). Signature of the first/sole shareholder Place: Date:

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150

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MAHANAGAR TELEPHONE NIGAM LIMITED
Registered Office : Jeevan Bharti, Tower-I, 12th floor, 124, Connaught Circus, New Delhi 110 001

PROXY
NAME DP-Id*................................ FOLIO NO. NO. OF SHARES Client Id*................................

I/We...............of.................in the district of...........being member(s) of Mahanagar Telephone Nigam Ltd. hereby appoint Shri/Smt...of....in the district of....or failing him/her, Shri/Smt........of........in the district of......as my/our proxy to attend and vote on my/our behalf at the 22nd Annual General Meeting of the Company to be held on 26th September, 2008 at 3.00 P.M. or any adjournment thereof. Date........... Signature...........

Note: 1. The proxy need NOT be a member 2. The Form signed across the revenue stamp of requisite value should reach the Companys Registered Office at least 48 hours before the meeting. *Applicable in the case of shares held in electronic form. Please note that no gifts of any sort would be distribted at the AGM

MAHANAGAR TELEPHONE NIGAM LIMITED

Registered Office : Jeevan Bharti, Tower-I, 12th floor, 124, Connaught Circus, New Delhi 110 001

ADMISSION SLIP
NAME DP-Id*................................ FOLIO NO. NO. OF SHARES Client Id*................................

I hereby record my presence at the 22nd Annual General Meeting of Mahanagar Telephone Nigam Ltd. being held at FICCI Golden Jubilee Auditorium, Tansen Marg New Delhi - 110 001 on 26th September, 2008 At 3.00 P.M.. Signature of Member/Proxy NAME OF PROXY, IF APPLICABLE (IN BLOCK LETTERS) 1. Members/proxies are requested to bring the duly signed Admission Slip to the meeting and hand it over at the Registration Counter. *Applicable in the case of shares held in electronic form. Please note that no gifts of any sort would be distribted at the AGM 151