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Reliance Communications Ltd.

BSE: 532712 Sector: Telecom
NSE: RCOM ISIN Code: INE330H01018
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VOLUME 6566584
52-Week high 21.65
52-Week low 1.66
P/E
Mkt Cap.(Rs cr) 548
Buy Price 1.96
Buy Qty 71676.00
Sell Price 1.98
Sell Qty 53363.00
OPEN 2.06
CLOSE 2.06
VOLUME 6566584
52-Week high 21.65
52-Week low 1.66
P/E
Mkt Cap.(Rs cr) 548
Buy Price 1.96
Buy Qty 71676.00
Sell Price 1.98
Sell Qty 53363.00

Reliance Communications Ltd. (RCOM) - Director Report

Company director report

Dear Shareowners

Your Directors present the 14th Annual Report and the audited financialstatement for the financial year ended March 31 2018.

Financial results

The financial results of the Company for the year ended March 31 2018 is summarisedbelow:

Particulars

Financial Year ended March 31 2018

* Financial Year ended March 31 2017

` in crore US$ in million** ` in crore US$ in million**
Total income 2231 342 3537 545
Gross profit /(Loss) before depreciation amortisation and exceptional items 264 41 347 54
Less:
Depreciation and amortization 200 31 216 33
Profit/ (Loss) before Tax 64 10 131 21
Less: Provision for:
Current tax / Excess provision for Tax of earlier years 1 0.15 - -
Deferred Tax charge/ (credit) - - (94) (14)
Profit / (Loss) after tax 63 10 225 35
Profit / (Loss) after tax from Discontinued Operations (9933) (1524) (2021) (312)
Other Comprehensive Income
Re-measurement Gain/ (Loss) of defined benefit plans (Net of tax) 3 0.46 (1) (0.15)
Total Comprehensive Income (9867) (1514) (1797) (277)
Add : Balance brought forward from previous year (7163) (1099) (5366) (827)
Profit available for appropriation - - - -
Balance carried to Balance Sheet (17030) (2613) (7163) (1104)

*Figures of previous year have been regrouped and reclassified wherever required.

** Exchange Rate ` 65.175 = US$ 1 as on March 31 2018 (` 64.85 = US$ 1 as on March 312017).

Financial Performance

During the year under review your Company has earned income of ` 2231 crore against `3537 crore in the previous year. The Company has incurred a loss of ` 9867 crore(including loss from discontinuation of wireless business of ` 9933 crore) for the year ascompared to loss of ` 1797 crore in the previous year. The performance and financialposition of the subsidiary companies and associate companies are included in theconsolidated financial statement of the Company and presented in the Management Discussionand Analysis Report forming part of this Annual Report.

Dividend

During the year under review the Board of Directors has not recommended dividend onthe equity shares of the Company. The Dividend Distribution Policy of the Company isannexed herewith as Annexure A to this Report.

Business Operations

The Company together with its subsidiary Global Cloud Xchange Limited (GCX) is aleading global communications services provider with businesses including a vast globalsubsea network; a global on-net Cloud ecosystem; extensive India and global enterprisebusiness; India Data Center Business (IDC) and India National Long Distance Business(NLD).

The Company specializes in Enterprise telecommunications service provider and is at theforefront of enabling digital revolution across India and globally with focus on theEmerging Markets of Asia Pacific and the Middle East. The Company continues to build onits global platform designed to power the future digital ecosystem. Based on one of themost extensive subsea and terrestrial fiber optic networks in the world and a globalservices platform the Company is putting together the very fabric that will deliver thenext generation of applications and services to Enterprises Carriers OTTs and governmententities.

Scheme of Arrangements

1. Sistema Shyam Teleservices Limited

The Board of Directors of the Company at its meeting held on October 31 2017 took onrecord the Orders of Hon'ble High Courts for demerger of Indian Telecom business ofSistema Shyam Teleservices Ltd (SSTL) into the Company and allotted 10% equity of theCompany to SSTL as per Scheme. Under the terms of the agreement entered into between theCompany and SSTL the Company acquired the telecommunications business of SSTL includingits licenses. In addition the Company acquired 30 MHz of the most valuable and superior800 / 850 MHz band spectrum ideally suited for 4G LTE services and other evolvingtechnologies. This resulted in extension of the validity of Company's spectrum portfolioin the 800 / 850 MHz band in eight important Circles (Delhi Gujarat Tamil NaduKarnataka Kerala Kolkata UP-West and West Bengal) by a period of 12 years i.e. from2021 to 2033.

2. Reliance Telecom Limited

The Board had approved the Scheme of Arrangement for demerger of Wireless Undertakingof Reliance Telecom Limited a wholly owned subsidiary company into the Company on June24 2016. The Hon'ble High Court of Judicature at Bombay had sanctioned the said Scheme onOctober 27 2016. The Company has applied to the Department of Telecommunications (DoT)for its approval to the Scheme which is condition precedent before giving effect to theScheme. The Scheme would be made effective upon receiving the approval of the DoT.

3. Demerger of Wireless undertaking to Aircel Group

The Board had approved the demerger and transfer of Wireless Business including theinvestments held by the Company in its subsidiary companies to Aircel Limited and DishnetWireless Limited by way of Scheme of Arrangement (Scheme) on September 14 2016. In viewof legal and regulatory uncertainties which caused inordinate delay in receipt of relevantapprovals for the Scheme the parties to the merger agreement agreed to lapse Scheme andaccordingly withdrawn the Scheme from National Company Law Tribunal in October2017.

Debt Restructuring Plan and Asset Monetisation

As reported in previous year the lenders of the Company and its subsidiaries namelyReliance Telecom Limited and Reliance Infratel Limited (RCom Group) at their meeting heldon June 2 2017 constituted a Joint Lenders Forum ("JLF") with State Bank ofIndia as the Convener and invoked the SDR Scheme for RCom Group in accordance with thethen guidelines issued by RBI.

RCom Group has taken several significant and constructive steps to reduce debt andliabilities and improve the long-term sustainability. RCom Group has worked closely withall the Lenders and their advisors to run a competitive process in a transparent mannerto monetize the wireless spectrum towers fiber media convergence nodes (MCNs) realestate assets and other asset(s)/undertaking(s) including development of prime real estateasset situated at Navi Mumbai.

The Company expects the transactions to close in a phased manner by last quarter of2018. The proceeds comprise primarily of cash payment and include transfer of deferredspectrum installments payable to the Department of Telecommunication (DoT). The Companywill utilise the proceeds of the monetisation of this cash deal solely for pre-payment ofdebt to its lenders. Post success of proposed asset monetization your Company'scontinuing operations will comprise of stable and profitable B2B focused businessesincluding Indian and Global Enterprise Internet Data Centres and the largest privatesubsea cable network in the world.

During the year under review Hon'ble National Company Law Tribunal (NCLT) Mumbai hadoverruled the objections of the Company and lenders represented by State Bank of India aslead member vide its order dated May 15 2018 and admitted applications filed by anoperational creditor for its claims against the Company and its subsidiaries - RelianceTelecom Limited (RTL) and Reliance Infratel Limited (RITL) thereby admitting the CompanyRTL and RITL to debt resolution process under the Insolvency and Bankruptcy Code 2016(IBC). As a consequence Interim Resolution Professionals (IRPs) were appointed in theCompany RTL and RITL vide NCLT's orders dated May 18 2018. The Company along with thelenders filed an appeal before Hon'ble National Company Law Appellate Tribunal (NCLAT)challenging the orders of NCLT admitting the Company to IBC proceedings. The Hon'bleNCLAT vide its order dated May 30 2018 stayed the order passed by NCLT andconsequently the Board stands reinstated.

Management Discussion and Analysis

Management Discussion and Analysis Report for the year under review as stipulated underRegulation 34(2)(e) of the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015 (Listing Regulations) is presented in aseparate section forming part of this Annual Report.

Non Convertible Debentures

During the year under review the Company has not issued any Non-ConvertibleDebentures.

Deposits

The Company has never accepted any deposit from the public falling within the ambit ofSection 73 of the Companies Act 2013 ("the Act") and the Companies (Acceptanceof Deposits) Rules 2014.

Particulars of Investments

Pursuant to the provisions of Section 186 of the Act the details of the Investmentsmade by the Company are provided in the unabridged standalone financial statement underNotes No. 2.03 and 2.08.

Subsidiary and Associate Companies

The performance and financial position of the major subsidiary companies are presentedin Management Discussion and Analysis Report forming part of this Annual Report. Also areport on the performance and financial position of each of the subsidiary companies andassociate companies as per the Act is provided in the consolidated financial statement.The Policy for determining material subsidiary companies can be accessed on the Company'swebsite at the link http://www.rcom.co.in/Rcom/about-us/investor-relations/corporate-governance.html.

Consolidated Financial Statement

The Audited Consolidated Financial Statement for the financial year ended March 312018 incorporating the results of the operations of all subsidiary companies andassociate companies have been prepared in accordance with Indian Accounting Standard (IndAS) - 110 on ‘Consolidated Financial Statement' read with Ind AS-28 on‘Investments in Associates and Joint Ventures' notified under the Act read with theAccounting Standards Rules as applicable and same is in compliance with the Companies Act2013.

Directors

During the year under review the Board of Directors have appointed Smt. Chhaya Viraniand Smt. Ryna Karani as Independent Directors w.e.f. November 11 2017. The Company hasalso appointed Shri Manikantan V. Chief Financial Officer (CFO) and Shri Suresh Rangacharas Directors of the Company w.e.f October 2 2017 and November 11 2017 respectivelyliable to retire by rotation. Shri Punit Garg President Telecom Business has beenappointed as an Executive Director of the Company w.e.f October 2 2017. The Board ofDirectors at their meeting held on July 18 2018 has proposed Smt. Manjari Kacker NonIndependent Director for appointment as an Independent Director of the Company based onher fulfilling criteria of independence as provided under Section 149(6) of the Act.

In terms of the provisions of the Companies Act 2013 no director of theCompany retires by rotation at the ensuing AGM. The Company has received declarations fromall the Independent Directors of the Company confirming that they meet the criteria ofindependence as prescribed under the Act and Listing Regulations. The details of programmefor familiarization of Independent Directors with the Company nature of the industry inwhich the Company operates and related matters are placed on the website of the Company atthe link http://www.rcom.co.in/Rcom/about-us/investor-relations/corporate-governance.html.

Key Managerial Personnel

During the year under review Shri Punit Garg President Telecom Business was appointedas the Executive Director and Shri Manikantan V CFO was elevated and appointed asDirector and CFO of the Company. Shri Prakash Shenoy Company Secretary ceased as Managerof the Company w.e.f. October 18 2017.

Evaluation of Directors Board and Committees

The Company has devised a policy for performance evaluation of the individualdirectors Board and its Committees which includes criteria for performance evaluation.Pursuant to the provisions of the Act and Regulation 17(10) of Listing Regulations theBoard has carried out an annual performance evaluation of its own performance theindividual directors as well as the evaluation of working of the Committees of the Board.The Board performance was evaluated based on inputs received from all the Directors afterconsidering criteria such as Board composition and structure effectiveness of processesand information provided to the Board etc. A separate meeting of the Independent Directorswas also held during the year for evaluation of the performance of non-independentDirectors performance of the Board as a whole and that of the Chairman. The Nominationand Remuneration Committee has also reviewed the performance of the individual directorsbased on their knowledge level of preparation and effective participation in Meetingsunderstanding of their roles as directors etc.

Policy on appointment and remuneration for Directors Key Managerial Personnel andSenior Management Employees

The Nomination and Remuneration Committee of the Board has devised a policy forselection and appointment of Directors Key Managerial Personnel and Senior ManagementEmployees and their Remuneration. The Committee has formulated the criteria fordetermining qualifications positive attributes and independence of a Director which hasbeen placed on the Company's website. The policy on the above is attached as Annexure B.

Directors' Responsibility Statement

Pursuant to the requirements under Section 134(5) of the Act with respect to Directors'Responsibility Statement it is hereby confirmed that: i. In preparation of the annualaccounts for the financial year ended March 31 2018 the applicable Accounting Standardshad been followed along with proper explanation relating to material departures if any;ii The Directors had selected such accounting policies and applied them consistently andmade judgments and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Company as at March 31 2018 and of the loss of theCompany for the year ended on that date; iii The Directors had taken proper and sufficientcare for the maintenance of adequate accounting records in accordance with the provisionsof the Companies Act 2013 for safeguarding the assets of the Company and for preventingand detecting fraud and other irregularities; iv The Directors had prepared the annualaccounts for the financial year ended March 31 2018 on a ‘going concern' basis; vThe Directors had laid down internal financial controls to be followed by the Company andsuch financial controls are adequate and are operating effectively and vi The Directorshad devised proper systems to ensure compliance with the provisions of all applicable lawsand that such systems are adequate and operating effectively.

Contracts and Arrangements with Related Parties

All contracts/ arrangements/ transactions entered into by the Company during thefinancial year under review with related parties were on an arm's length basis and in theordinary course of business. There were no materially significant related partytransactions made by the Company with Promoters Directors Key Managerial Personnel orother designated persons which may have a potential conflict with the interest of theCompany at large. All Related Party Transactions were placed before the Audit Committeefor approval. Omnibus approval of the Audit Committee was obtained for the transactionswhich were of a repetitive nature. The transactions entered into pursuant to the omnibusapproval so granted were reviewed and statements giving details of all relatedparty transactions were placed before the Audit Committee on a quarterly basis. The policyon Related Party Transactions as approved by the Board is uploaded on the Company'swebsite at the link http://www.rcom.co.in/Rcom/about-us/investor-relations/corporate-governance.html. None of theDirectors has any pecuniary relationships or transactions vis--vis the Company.

Material Changes and Commitments if any affecting the financial position of theCompany

Except as disclosed in this report there were no material changes and commitmentsaffecting the financial position of the Company which have occurred between the end of thefinancial year and the date of this report.

Meetings of the Board

A calendar of Meetings is prepared and circulated in advance to the Directors. Duringthe year Nine Board Meetings were held details of which are given in the CorporateGovernance Report forming part of this report.

Audit Committee

The Audit Committee of the Board consists of Independent Directors namely Shri R. N.Bhardwaj Chairman Shri A. K. Purwar Prof. J. Ramachandran Shri Deepak Shourie Smt.Ryna Karani Smt. Chhaya Virani and Non Independent Directors Smt. Manjari KackerShri Punit Garg Shri Manikantan V as members. During the year all the recommendationsmade by the Audit Committee were accepted by the Board.

Auditors and Auditors' Report

At the 12th Annual General Meeting (AGM) held on September 27 2016 M/s. Pathak H.D.& Associates Chartered Accountants were appointed as the statutory auditors of theCompany to hold office till the conclusion of the 17th AGM. Pursuant to the provisions ofSection 139 of the Act and the Companies (Audit and Auditors) Rules 2014 M/s. PathakH.D. & Associates Chartered Accountants the Statutory Auditors of the Company havebeen appointed as Auditors for a term of 5 years. The Company has received a confirmationfrom the said Auditors that they are not disqualified to act as the Auditors and areeligible to hold the office as Auditors of the Company. The Auditors in their report tothe members have given a qualified opinion and the response of Board with respect to it isas follows: Considering all factors including admitting the companies to debt resolutionprocess under the IBC the Company with a view to reflecting fairly the position for thepurpose of presentation in respect of the Company's obligation for interest and withoutimplying in any way that the terms of lending by the banks and other lenders are alteredhas not provided interest of ` 3055 crore (` 3609 crore in case of consolidated)during the year. Had the Company provided interest the loss would have been higher by `3055 crore (` 3609 crore in case of consolidated) for the year ended March 31 2018.

The observations and comments given by the Auditors in their report read together withnotes on financial statements are self explanatory particularly Note No. 2.50 ( standalonefinancials) and Note No. 2.54 (consolidated financials) and hence the same to be treatedas explanation provided under Section 134 of the Act. The audited financial statementdrawn up both on standalone and consolidated basis for the financial year ended March 312018 in accordance with the requirements of the Ind-AS Rules.

Cost Auditors

Pursuant to the provisions of the Act and the Companies (Cost Records and Audit) Rules2014 the Board of Directors have appointed M/s. V. J. Talati & Co. Cost Accountantsas the Cost Auditors to conduct cost audit for the telecommunications businesses of theCompany for the financial year ending March 31 2019 subject to the remuneration beingratified by the shareholders at the ensuing AGM of the Company.

Secretarial Standards

During the year under review the Company has complied with the applicable SecretarialStandards issued by The Institute of Company Secretaries of India.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Board of Directors had appointedM/s. Ashita Kaul & Associates Company Secretaries in Practice to undertake theSecretarial Audit of the Company. There is no qualification reservation or adverse remarkmade in their Secretarial Audit Report submitted to the Company. The Secretarial AuditReport is attached herewith as Annexure C.

Extract of Annual Return

Extract of the Annual Return as on March 31 2018 of the Company in Form - MGT-9 isattached herewith as Annexure D.

Particulars of Employees and related disclosures

(a) Employees Stock Option Scheme

During the year under review the Company has not granted any Options to the employeesof the Company. Employees Stock Option Scheme (ESOS) was approved and implemented by theCompany and Options were granted to the employees under "ESOS Plan 2008" and"ESOS Plan 2009" in accordance with earlier guidelines applicable to ESOS.

During the year under review ESOS Plan 2008 has completed ten years tenure and all itsoutstanding Options were lapsed.

The ESOS Compensation Committee of the Board monitors the Employees Stock OptionScheme. The existing ESOS Scheme and Plan are in compliance with the Securities andExchange Board of India (Share Based Employee Benefits) Regulations 2014 (SEBI ESOSRegulations). The Company has received a certificate from the auditors of the Company thatthe ESOS Plan 2009 has been implemented in accordance with the SEBI ESOS Regulations andas per the resolution passed by the members of the Company authorising issuance of thesaid Options. The other details as required under SEBI ESOS Regulations are disclosed onCompany's website at www. rcom.co.in/investorrelations/corporategovernance.

(b) Other Particulars

In terms of the provisions of Section 197(12) of the Act read with Rule 5 of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 (the Rules)as amended a statement showing the names and other particulars of the employees drawingremuneration in excess of the limits set out in the said Rules are provided in theAnnexure to the Directors' Report. Disclosures relating to the remuneration and otherdetails as required under Section 197(12) of the Act read with Rule 5(1) of the Rules arealso provided in the Annual Report which forms part of this Report.

However having regard to the provisions of Section 136 of the Act the Annual Reportexcluding the aforesaid information is being sent to all the members of the Company andothers entitled thereto. The said information is available for inspection at theregistered office of the Company on all working days except Saturdays between 11.00 A.M.and 1.00 P.M. upto the date of the Annual General Meeting. Any member interested inobtaining the same may write to the Company Secretary. Upon receipt of such request theinformation shall be furnished.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo

As the Company does not carry on any manufacturing activity being a telecommunicationsservice provider most of the information of the Company as required under Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules 2014 are notapplicable. However the information as applicable has been given in the Annexure Eforming part of this Report.

Corporate Governance

The Company has adopted the "Reliance Group-Corporate Governance Policies and Codeof Conduct" which sets out the systems process and policies conforming to theinternational standards. The report on Corporate Governance as stipulated under Regulation34(3) read with Para C of Schedule V of the Listing Regulations is presented in separatesection forming part of this Annual Report A Certificate from the auditors of the CompanyM/s. Pathak H.D. & Associates Chartered Accountants conforming compliance to theconditions of Corporate Governance as stipulated under Para E of Schedule V of the ListingRegulations is enclosed to this Report.

a) The disclosures required under Schedule V of the Act as applicable to Shri PunitGarg as an Executive Director are given below:

(i) Remuneration comprises of salary allowances and other perquisites - Rs.233 Lakhsper annum.

(ii) Details of fixed component and performance linked incentives along with theperformance criteria - Annual increment / performance linked incentive as may be decidedby the Board of Directors pursuant to recommendation of the Nomination and RemunerationCommittee based on his performance and the performance of the Company and as per theCompany Policy.

(iii) Service contracts notice period severance fees - He has a binding servicecontract with functions and duties of an Executive Director.

(iv) Stock option details if any and whether the same has been issued at a discountas well as the period over which accrued and over which exercisable – Not Applicable.

b) The disclosures required under Schedule V of the Act as applicable to ShriManikantan V. as a Director and Chief Financial Officer are given below:

(i) Remuneration comprises of salary allowances and other perquisites - Rs.178 Lakhsper annum.

(ii) Details of fixed component and performance linked incentives along with theperformance criteria - Annual increment / performance linked incentive as may be decidedby the Board of Directors pursuant to recommendation of the Nomination and RemunerationCommittee based on his performance and the performance of the Company and as per theCompany Policy.

(iii) Service contracts notice period severance fees - He has a binding servicecontract with functions and duties of a Director and Chief Financial Officer.

(iv) Stock option details if any and whether the same has been issued at a discountas well as the period over which accrued and over which exercisable – Not Applicable

Whistle Blower (Vigil Mechanism)

In accordance with Section 177 of the Act and the Listing Regulations the Company hasformulated a Vigil Mechanism to address the genuine concern if any of the directors andemployees. The details of the same have been stated in the Report on Corporate Governanceand the policy can also be accessed on the Company's website.

Risk Management

The Company has constituted a Risk Management Committee consisting of majority ofdirectors and senior managerial personnel of the Company; however this mandatoryprovisions of Listing Regulations are not applicable to the Company. The details of theCommittee and its terms of reference etc. are set out in the Corporate Governance Reportforming part of this Report. The Company has a robust Business Risk Management frameworkto identify evaluate business risks and opportunities. This framework seeks to createtransparency minimize adverse impact on the business objectives and enhance Company'scompetitive advantage. The business risk framework defines the risk management approachacross the enterprise at various levels including documentation and reporting. Theframework has different risk models which help in identifying risks trend exposure andpotential impact analysis at a Company level as also separately for business segments.

Compliance with provisions of Sexual Harassment of Women at workplace (PreventionProhibition and Redressal) Act

2013

The Company is committed to uphold and maintain the dignity of women employees and ithas in place a policy which provides for protection against sexual harassment of women atwork place and for prevention and redressal of such complaints. During the year no suchcomplaints were received.

The Company has also constituted an Internal Compliance Committee under the SexualHarassment of Women at workplace (Prevention Prohibition and Redressal) Act 2013

Corporate Social Responsibility

The Company has constituted Corporate Social Responsibility Committee in compliancewith the provisions of Section 135 of the Act read with the Companies (Corporate SocialResponsibility Policy) Rules 2014. The Corporate Social Responsibility Committee hasformulated a Corporate Social Responsibility Policy (CSR policy) indicating the activitiesto be undertaken by the Company. The CSR policy may be accessed on the Company's websiteat the link; http://www.rcom.co.in/Rcom/about-us/investor-relations/corporate-governance.html. The CSR Committee consists of Smt.Manjari Kacker as Chairperson Shri R. N. Bhardwaj Prof. J. Ramachandran Shri DeepakShourie Shri A. K. Purwar Shri Punit Garg Shri Manikantan V. Smt. Ryna KaraniSmt. Chhaya Virani Directors as members of the Committee.

The annual report on CSR activities is annexed as Annexure F.

Orders if any passed by Regulators or Courts or Tribunals

Except as disclosed in this report no orders have been passed by the Regulators orCourts or Tribunals impacting the going concern status and the Company's operation.

Internal Financial Controls and their adequacy

The Company has in place adequate internal financial controls across the organisation.The same is subject to review periodically by the internal audit cell and by the auditcommittee for its effectiveness.

During the year such controls were tested and no reportable material weakness in thedesign or operation were observed.

Business Responsibility Statement

Business Responsibility Report for the year under review as stipulated under theListing Regulations is presented in separate section forming part of this Annual Report.

Acknowledgement

Your Directors express their sincere appreciation for the cooperation and assistancereceived from shareholders debenture holders bankers financial institutions regulatorybodies debenture trustee and other business constituents during the year under review.The Directors express their sincere thanks to the lenders of the Company for continuoussupport during the year. Your Directors also wish to place on record their deep sense ofappreciation for the commitment displayed by all executives officers and staff and lookforward to their continued support in future.

For and on behalf of the Board of Directors

Anil Dhirubhai Ambani

Chairman

Mumbai

July 18 2018