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LEGAL ASPECTS OF BUSINESS
PROJECT WORK Group 2
Analysis of Directors Report
Sector: Civil Aviation
Companies: SpiceJet & JetAirways
Presented By:
Ashish Chopra 12PGDM013
Avineet Sadani 12PGDM014
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Managerial Remuneration
As per companies act, 1956, managerialremuneration should include all the payment andbenefit whichever is being incurred by the company
on behalf of its management. It might include: Salaries
Commission
RFA
Life insurance policies
Membership fee club
Cost of car facilities
Any other allowances or benefits
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Section 198 Companies Act, 1956
Total managerial remuneration not to exceed11% of Net profits
Remuneration of directors cannot be deducted
from gross profits This percentage is exclusive of fees paid for
meetings under section 309(2)
In the case of inadequate profits, except for thefees to be paid for the meetings, no otherremuneration needs to be provided
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Section 309(2) Directors
A director may receive remuneration by way of afee for each meeting of the Board, or acommittee
They can be paid on a monthly basis
Continued to be paid until 2 years or remainderof term of office, whichever is less
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Section 387 Managers
The manager of a company may, subject to theprovisions of section 198, receive remuneration
either by way of a monthly payment, or by way ofa specific percentage, ofthe net profits
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Spicejet
Compensation committee 3 Directors
Since the company reported losses during the
year, they did not pay any remuneration to theirdirectors except for the sitting fees for themeetings
This is in accordance with Section 309(2) of
Companies act 1956
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Pay split-up of the executive director
of the company
Basic Salary - Rs.2,71,250 per month
Conveyance Allowance - Rs.10,000 per month
Supplementary Allowance - Rs.324,325 permonth
Other Allowance - Rs.135,625 per month
Medical reimbursement - Rs.15,000 per annum
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Jet Airways
Compensation committee 5 Non-executive Directors
Remuneration Policy for Non-executive Directors:
Sitting Fees - The Non-executive Directors are paid SittingFees of 20,000 for each Board and Committee Meetingattended by them.
Commission - In any year that the Company makesadequate profit, a fixed sum is payable as Commission to the
Non-executive Directors, with the prior approval of theMembers.
Due to the losses made by the Company for the year ended31st March, 2012, no Commission is payable to the Non-executive Directors for the financial year 2011-12
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Benefits & Remuneration
For the Executive Director
The remuneration of the Executive Director is
recommended by the Remuneration andCompensation Committee after taking intoaccount the experience, qualifications, dutiesand responsibilities and prevailing industry
practices
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Net Profits
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Section 349 in The Companies Act, 1956
In computing for the purpose of section 348, thenet profits of a company in any financial year-
Credit shall be given for the sums specified insub- section (2), and credit shall not be givenfor those specified in sub- section (3); and
The sums specified in sub- section (4) shall bededucted, and those specified in sub- section (5)shall not be deducted.
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Section 349 in TheCompanies Act, 1956
Jet Airways Spice Jet
(3) In making thecomputation aforesaid,credit shall not be given
for the following sums:-
(a) profits, by way ofpremium, on shares ordebentures of the company,
which are issued or sold bythe company;
(b) profits on sales by thecompany of forfeited shares;
(c) profits of a capital natureincluding profits from the saleof the undertaking
(d) profits from the sale of anyimmovable property or fixedassets of a capital naturecomprised in the undertaking
Securities Premium inBalance Sheet (Reserves
and Surplus)
Profit on Sale and LeaseBack of Engines (onlyamount exceedingW.D.V. in Profit andLoss Statement)
Complied
Securities Premium inBalance Sheet (Reserves
and Surplus)
Profit on sale of aircraftunder sale and leaseback arrangements (onlyamount exceedingW.D.V. in Profit andLoss Statement)
Complied
*(d) Point to note:
Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof, credit shall be given for so much of the excess
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Jet Airways
Clause (a): Profits, by way of Premium, on shares ordebentures of the company, which are issued or sold by thecompany;
Reserves and Surplus : Securities Premium Account
Clause (d): Profits from the sale of any immovable propertyor fixed assets of a capital nature
Non-Operating Revenues
Particulars 31st Mar, 2012 31st Mar, 2011As per last Balance Sheet 141,418 141,418
Particulars 31st Mar,
2012
31st Mar,
2011
Profit on Sale and Lease Back of
Engines
7,609 -
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Spice Jet
Clause (a): Profits, by way of Premium, on shares ordebentures of the company, which are issued or sold by thecompany;
Reserves and Surplus
Securities Premium Account
Particulars 31st Mar,
2012
31st Mar,
2011
Opening balance
Add: Premium Received duringthe year on account of
Add: Reversal of premium on
redemption of FCCBs
6,316.80
-
-
2,200.77
2,246.96
1,372.54
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Section 349 in TheCompanies Act, 1956
Jet Airways Spice Jet
(4) In making thecomputationaforesaid, thefollowing sums shall
be deducted:-(a) all the usual workingcharges;
(b) directors'remuneration;
(c) bonus or commissionpaid or payable to
any member of thecompany' s staff, or to anyengineer, technician orperson employed orengaged by the company,
whether on a whole- time
or on a part- time basis;
Aircraft Fuel ExpenseAircraft Lease Rentals
Employee ExpensesEmployee BenefitExpensesSalaries, Wages,
Bonuses, Allowances
Complied
Aviation Turbine FuelLease Charges Aircraftand Engines
Salaries, Wages, BonusEmployee BenefitExpensesContribution to PF
GratuityLegal and ProfessionalFees
Complied
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Section 349 in TheCompanies Act, 1956
Jet Airways Spice Jet
(f) interest on debentures
issued by the company;
(g) interest on mortgagesexecuted by the company
(h) interest on unsecured
loans and advances;
(i) expenses on repairs,whether to immovable or tomovable property, providedthe repairs are not of acapital nature;
(k) depreciation to theextent specified in section350;
Finance Cost
Interest Expense
Aircraft Maintenance
Depreciation+On Tangible Assets+On Intangible Assets
Complied
Interest to Others
Interest to Banks
Repairs andMaintenance+Building+Plant and Mach.Aircraft Repair andMaintenance
Depreciation andAmortization Expense
Complied
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Section 349 in TheCompanies Act, 1956
Jet Airways Spice Jet
(m) any compensation or
damages to be paid invirtue of any legalliability, including aliability arising from abreach of contract;
(n) any sum paid by wayof insurance against therisk of meeting anyliability such as isreferred to in clause (m);
(o) debts considered badand written off oradjusted during the yearof account.
Aircraft Insurance andother Insurance
Bad debts written off
Complied
Aviation InsurancePersonal AccidentInsurance
Complied
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Section 349 in TheCompanies Act, 1956
Jet Airways Spice Jet
(5) In making the
computationaforesaid, thefollowing sums shallnot be deducted:-
(a) the remuneration
payable to the managingagent;
(c) any compensation,damages or paymentsmade voluntarily
(d) loss of a capital natureincluding loss on sale ofthe undertaking or any ofthe undertakings of thecompany or of any part
thereof not including anyexcess
Loss on sale of FixedAssets other thanAircraft (only amountexceeding W.D.V. inProfit and Loss
Statement)
Complied
Loss on sale of assets(only amount exceedingW.D.V. in Profit andLoss Statement)
Complied
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SCHEDULE XIV - RATES OF DEPRECIATION UNDER
COMPANIES ACT,1956
Straight Line Method (%)
S. No Nature of Asset Percentage
1.2.
3.
4.
5.
6.
Aircrafts/ AeroplaneOffice Equipment
Computers
Furniture and Fixtures
Motor Vehicles
Plant and Machinery
5.60%4.75%
16.21%
6.33%
9.50%
4.75% - 5.28%
Section 350 in TheCompanies Act, 1956
Jet Airways Spice Jet
Depreciation at the ratespecified in ScheduleXIV(mentioned below)
Complied as per thetable shown below
(Aircraft depreciatedon S.L.M. w.e.f. 1st
April, 2010)
Complied as per thetable shown below
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Dividends
Rate recommended by board of directors andapproved by shareholders in AGM.
Jet Airways
Reported a net loss of Rs.123,610 lakhs after tax
in the year 2011-12, hence no dividend wasdeclared, complying with the provisions ofsection 205 of Companies Act.
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The company has also declared that they wouldtransfer the unclaimed dividend lying in their
account since 7 years to Investor Education and
Protection Fund, complying with section 205C Accordingly, the due dates for transfer of the
unclaimed dividend to IEPF are as follows:
Financial Year Due Date for transfer
2004-05 26thSeptember 2012
2005-06 19th September 2013
2006-07 26th September 2014
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SpiceJet
Reported a net loss of Rs.6,0576.80 lakhs aftertax in the year 2011-12
Hence no dividend was declared, complying withthe provisions of section 205 of Companies Act
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Foreign Exchange Earnings
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Foreign Exchange Earnings
According to Section 217-Boards ReportCompanies Act, 1956,
(1) There shall be attached to every balance sheetlaid before a company in general meeting, areport by its Board of directors, with respect to:
(e) the conservation of energy, technologyabsorption, foreign exchange earnings and outgo,in such manner as may be prescribed
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Earnings in foreign exchange classified under thefollowing heads:
(I)Export of goods calculated on F.O.B. basis;
(II)Royalty, know-how, professional and consultationfees;
(III)Interest and dividends; and
(IV)Other income, indicating the nature thereon.
Activities relating to exports; initiatives taken to increaseexports ; development of new export markets for products
and services ;and export plans; Total foreign exchange used and earned
Earnings in foreign exchange from professional fees shouldbe on accrual basis
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Jet Airways
Jet airways has abided to Companies Act 1956,Sec 217(1)(e) and included the ForeignExchange Earnings and Outgoings in the notes
forming a part of the balance sheet and P&Laccount.
The total net gain and loss on each transactionhas been mentioned in the profit and loss
account for the year ended 31st march 2012.
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The company also made additional disclosures with
respect to all the transactions of foreign exchange
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SpiceJet
Foreign Exchange Earnings & Outgo:
The Company had foreign exchange earnings of
Rs.591.56 million while the outgoings were Rs.8,831.29 million during the year under review
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Compliance with the Act: Liabilities side of the balance sheet
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Assets side of the balance sheet
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The following has been included in the P&L account
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As more detailed in note 26 of the financial statements,the Company has not accounted for the foreignexchange differences on foreign currency borrowings tothe extent they are regarded as an adjustment to
interest cost as defined under paragraph 4(e) ofAccounting Standard 16 Borrowing Costs, as requiredunder the said standard. In the absence of informationrelating to interest on comparable local borrowings, weare unable to comment on the consequential effect of the
above on the loss for the year ended March 31, 2012. Hence the auditors could not provide a clear comment
on the consequences of the loss.
Auditors Report
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Conclusion about Foreign Exchange Earnings
Hence, both the companies have complied with theprovisions section 217(1)(e) of the companies act
1956.All the expenditure and income has been shown inthe P&L account. The unamortised amount and otheramount has also been mentioned in the balance sheet ofthe company.
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Technology Absorption
As Per Section 217(1)(e) of companies act1956:
A Report By Board Of Directors, with respect tofollowing must be attached:
Conservation Of EnergyTechnology AbsorptionForeign Exchange Earnings And OutgoIn A Prescribed Manner
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SpiceJet
As Per Section 217(1)(e) of companies act1956:
Section 11 of directors report highlight the
following:
Management highly conscious of criticality of
conservation of energy at all operational levelsEnergy efficient systems implementedSubject matter stated and disclosed as perprescribed manner
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Jet Airways
As Per Section 217(1)(e) of companies act 1956:
Company has embraced the best operational, technological &maintenance practices & recommendations to reduce fuel burnContinuous modernization of fleet
regular replacement of older aircrafts by new ones to improve fuelefficiencyMonitoring weight on board & continuous implementation of weightreduction programIntegrated emissions management system -> monitoring & optimizing the
use aviation turbine fuelCarbon footprint assessment for both direct & indirect emissions as pergreenhouse gas protocol standard developed by world resources institute(WRI) and world business council for sustainable development (WBCSD)
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Conclusion in terms of Technology Absorption
Clearly jet airways has been more stringent andproactive:
Embraced best operational, technological & maintenancepractices
Modernized fleet with older aircraft retiredWeight monitoring system for catering, cabin & galley items Development of items to monitor after consumptionCarbon foot print assessment as per standards of greenhousegas protocol
While both, spice jet & jet airways comply with section 217(e) of companies act, jet airways has been more proactive andclear in its technology absorption initiatives
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