DEPUTY GENERAL MANAGER

CORPORATION FINANCE DEPARTMENT

DIVISION OF ISSUES AND LISTING

(Direct) : 22842826

(Board) : 22850451- 56, 22880962 - 70 (Extn.: 367)

Fax : 22045633

E-mail : neelamb@sebi.gov.in

CFD/DIL/SC/18500/2004

August 23, 2004

 Shri Vikas Srivastava

Authorised Representative, MphasiS BFL Ltd.

Managing Partner, Luthra & Luthra

Chartered Accountants

A 16/9, Vasant Vihar,

New Delhi – 110 057.

Dear Sir,

Sub.: Request for an Interpretive Letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003 in relation to the interpretation of ‘proviso to clause 9.1’ of Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

This is with reference to the letter dated July 28, 2004 from MphasiS BFL Ltd. (MBFL) and your letter dated August 10, 2004 seeking "Interpretive Letter" in respect of whether the beneficial exception, as given under proviso to clause 9.1 of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (hereinafter referred to as the ESOS Guidelines), would be available to the option holders of MsourcE Corporation, a US unlisted subsidiary of MphasiS Corporation, which in turn is a wholly owned US unlisted subsidiary of MBFL, an Indian listed company, if the said option holders are granted options in MBFL as a part of the consideration for the proposed merger of MsourcE Corporation with MphasiS Corporation.

It is represented by MBFL, inter alia, vide the letters under reference that MphasiS Corporation, which holds 69.14% of the paid-up capital of MsourcE Corporation, is in the process of acquiring the remaining 30.86% of the paid-up capital of MsourcE Corporation held by its minority shareholders and merging MsourcE Corporation into MphasiS Corporation. Pursuant to the above, MBFL has obtained the approval of its

shareholders to issue shares of the company and pay cash, as consideration, to the minority shareholders of MsourcE Corporation. It has also obtained the approval of its shareholders to grant, as a part of the said proposed merger, stock options in MBFL to the option holders of MsourcE Corporation, being the employees of the MphasiS BFL Group, in lieu of the options held by them in MsourcE Corporation. MBFL has also sought the approval of Foreign Investment Promotion Board, Ministry of Finance, Government of India for the same. In respect of the options held in MsourcE Corporation, it is also represented by MBFL that, in case of some of the option holders, a period of more than one year has already lapsed since the date of grant of the options, while in case of others, less than one year has lapsed. In view of the above, MBFL have sought the aforementioned interpretation under SEBI (Informal Guidance) Scheme, 2003.

The representations have been examined and we would like to inform you that, in consonance with the ESOS Guidelines, MBFL is eligible to grant options to the option holders of MsourcE Corporation only if the said option holders fall within the purview of clause 2.1.1 (c) of the ESOS Guidelines. The instant case of proposed merger of MsourcE Corporation into MphasiS Corporation, as represented by MBFL vide the letters under reference, is covered by proviso to clause 9.1 of the ESOS Guidelines. Hence, we would further like to inform you that only such option holders, as are eligible to be granted options under the ESOS Guidelines, are eligible to avail of the benefit under proviso to clause 9.1 of the ESOS Guidelines. The period of holding of options granted by MsourcE Corporation by such option holders may therefore be adjusted against the minimum vesting period of one year of the options to be granted to them in MBFL.

This position is based on the representations made to the Division of Issues and Listing in the letters dated July 28, 2004 and August 10, 2004. Different facts or conditions might require a different result. This letter expresses the Division’s position on enforcement action only. It does not express decision of the Board on the questions presented.