Legal compliance by Bajaj Auto, Maruti Suzuki

Project Submission - LAB Automobile Industry

Group 1: Akanksha Pamnani Alok Baid Ankit Batra Ankita Agarwal Anubhav khanna Anuraag Gambhir Dhairya Kinariwala

Table of Contents
Technology Absorption ........................................................................................................................... 2 Bajaj Auto ............................................................................................................................................ 2 Maruti Suzuki ...................................................................................................................................... 3 Dividends................................................................................................................................................. 6 Bajaj Auto ............................................................................................................................................ 6 Maruti Suzuki Ltd ................................................................................................................................ 9 FOREIGN EXCHANGE EARNINGS AND OUTGO ...................................................................................... 12 Remuneration of directors.................................................................................................................... 16 Bajaj auto .......................................................................................................................................... 19 Board of directors............................................................................................................................ 21 Maruti Suzuki................................................................................................................................... 24

Technology Absorption
Law says (Section 217 of the companies Act of 1956) a report by its Board of directors, with respect to the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed

Bajaj Auto
Research and Development and technology absorption

Products
Pulsar 200 NS A new platform of engine and vehicle was designed to carry forward the legacy of the Companys most successful brand Pulsar, into the future. This vehicle is designed to further enhance and sharpen the street sports image of the Pulsar brand. The vehicle is powered by a high performance 4 valve liquid cooled engine with triple spark ignition, delivering 23.5 Ps, with a 6 speed gear box. This provides the vehicle with excellent and thrilling performance as well as efficiency. The vehicle is equipped with state-of-the-art features like perimeter frame with high lateral rigidity, low slung central muffler, nitrox mono shock rear suspension, all adding up to providing excellent handling and riding pleasure. KTM 200 This model extends the new platform of engine and vehicle co-designed by Bajaj and KTM from 125cc into a 200cc. Unlike KTM125, this product is aimed for Indian as well as European markets. The vehicle is powered by a high performance 4V liquid cooled engine delivering 25 Ps, with a 6 speed gear box suitably mated to the power characteristics of the engine. The engine has electronic fuel injection. The vehicle is equipped with state-of-the-art features like radial calipers for front disc brakes, inverted front forks, cast aluminum swing arm and radial tyres at both front and back. BM-150 The BM-150 moves the highly successful BM-100, the number one bike in Africa, to the next level. This product brings the power of 150cc to the utility segment of the market. It has a sturdy frame designed to do duty under demanding usage and terrain conditions and wide tyres to complement. The BM-150 has been well received in the export markets. BM-100 The BM-100 complements the BM-150 to bring in features like electric start in order to enhance the utility of the product. The strong frame and modern engine make it very robust. The BM-100 and BM-150 together address competitors from the 100 to 150 cc segments.

Process
R&D has been working on improving its operations in a number of areas as listed below: l Manpower: R&D has been expanding its team size in areas of design, analysis and validation in order to keep up with the rapidly expanding aspirations of the Company. This year, R&D expanded its manpower strength by about 12%. l Facilities: R&D continued to enhance its design, computing and validation facilities. The efforts on the establishment of validation facilities have enabled R&D to develop durable and refined products like the new Pulsar 200 NS. l Total Productivity Management

(TPM): R&D continues to vigorously pursue the TPM way of thinking and working. This has yielded excellent results in quality management of design and validation process. The TPM approach has also been effective in the lead time reduction on the various critical processes in R&D by elimination of waste.

Maruti Suzuki
(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is annexed as Annexure A)

Annexure A
Information in accordance with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, and forming part of the Directors Report for the year ended 31st March 2012.
. Efforts in brief made towards technology absorption, adaptation and innovation

Design of components and systems including design review process. Component and sub component level localisation, development and testing of parts for existing and new models Capabilities enhanced in component and vehicle evaluation, benchmarking and design optimisation Capabilities being further enhanced in area of alternative fuels. Value Engineering (VE) at the time of new model Design to maximise cost benefit Capability enhanced in the development of new Technologies at affordable prices.

Benefits derived as a result of the above efforts The Company was able to achieve high level of localisation in all the models resulting in reduction of cost. The Company was also able to offer new technologies benefiting its customers. The Company has also worked significantly in the areas of fuel efficiency and weight reduction

Technology inducted The Company has been a pioneer in offering latest technologies at affordable prices to its customers. As a market leader, the Company intends to keep this momentum in future. Some of the steps taken in this direction are as under: The all new powerful and light weight K14 engine was introduced in Ertiga. The engine is an extension of the successful K-series line-up. New Swift and Swift DZire were made equipped with detent pin technology for improving the shift comfort. This has helped in enhancing the customer satisfaction New Swift, Swift DZire and Ertiga were made equipped with new generation Anti-lock Braking System (ABS) which is the smallest and lightest system in the Companys line-up. New technology Engine Drag Control (EDC) was introduced which proves the technological superiority of the Companys vehicles.The EDC prevents locking of driving wheels due to

engine braking, thereby ensuring the drivability and steerability while braking in slippery conditions New Swift and DZire were made equipped with the latest 3rd generation wheel bearing units. It brings a reduction of over 20 per cent in weight over first generation unit with additional advantages of controlled pre-loading, enhanced rigidity and improved bearing performance Fuel efficiency of the vehicles being the prime focus, Variable Value Timing (VVT) was introduced in gasoline versions of new Swift, new DZire and Ertiga to improve the fuel efficiency and performance. Other measures like valve train friction reduction in K12 and K14 engines and introduction of low viscosity engine oils in diesel engines have been taken to improve the fuel efficiency. The Company has always been the forerunner in implementing new environment friendly measures. New Swift and Swift DZire are compliant with On Board Diagonosis (OBD) -II Regulations and thus are much ahead of the requisite time of implementation of these regulations i.e. April 2013.

Dividends
Bajaj Auto
1. Law says The Company must provide for depreciation (including arrears of depreciation) before declaring dividends.

Source: Annual Report 2012 Bajaj Auto From the above financials it is clear that Bajaj Auto has been compliant with the law on providing for depreciation before declaring dividends. 2. Dividends can be paid in cash only (Payment of dividends by cheque or dividend warrants amounts to payment of dividend in cash). As per the annual report of Bajaj Auto:

Here it is clear that the company has made electronic transfers for the payment of dividends which is in accordance with the law.

3. The company must transfer from the profit of its reserves the following minimum amount before declaring dividends, at the rates mentioned below
Per cent rate of dividend proposed 10% - 12.5% 12.5%-15% 15%-20% 20% and above Min % of profits to be transferred to reserves 2.5% 5% 7.5% 10%

From the Annual Report:

The dividend has been declared for Rs. 45 per share, i.e. 450%. Here as we can clearly see the Transfer to Reserves is Rs. 301 crores. The profit after tax for the company is Rs. 3004.05 crore. Clearly 10% of 3004.05 crore is 300.405 crore and the amount transferred to reserves is more than 10% (301 crore).

4. The rate of dividend is recommended by the Board of Directors and is declared by the shareholders in the AGM. As per the Annual Report:

We can see that this law has also been followed by the company.

5. The dividends must be paid or the warrants in respect thereof posted to the shareholders, within 30 days from the date of declaration. As per the Annual Report of Bajaj Auto Ltd

The company has correctly indicated that the dividend will be paid and the warrants dispatched between 23-25 July 2012. This is within 30 days of the AGM being held by the company.

6. Unclaimed Dividend

The company has followed all legal procedures in the case of unclaimed dividends as well.

Maruti Suzuki Ltd

1. Law says The Company must provide for depreciation (including arrears of depreciation) before declaring dividends.

Source: Maruti Suzuki Annual Report 2012 The company has clearly accounted for depreciation before declaring dividends. 2. Dividends can be paid in cash only (Payment of dividends by cheque or dividend warrants amounts to payment of dividend in cash). As per the Annual Report of Maruti Suzuki , no details have been provided as to how the dividend payment will be carried out. The only details are regarding queries that the investors may have about the dividend payment and grievances relating to the same. As per the Annual Report:

3. The company must transfer from the profit of its reserves the following minimum amount before declaring dividends, at the rates mentioned below
Per cent rate of dividend proposed 10% - 12.5% 12.5%-15% 15%-20% 20% and above Min % of profits to be transferred to reserves 2.5% 5% 7.5% 10%

As per the attached figure below we understand that the Profit After Tax for the company was 16352 crore and it has transferred Rs. 1635 crore (10%) to reserves.

4. The rate of dividend is recommended by the Board of Directors and is declared by the shareholders in the AGM. As per the Annual Report of Maruti Suzuki

5. The dividends must be paid or the warrants in respect thereof posted to the shareholders, within 30 days from the date of declaration. As per the attached figure above the payment of dividends has been proposed to be done within 30 days of the AGM, subject to approval by the board and shareholders. 6. Unclaimed Dividends

Foreign Exchange Earnings And Outgo

LAW 1: As per Section 217 (1)(e) of the Companies Act 1956 In exercise of the powers conferred by section 642 read with clause (e) of sub-section (1) of section 217 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following rules, namely :1. (1) these rules, may be called the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988. (2) They shall come into force on the 1st day of April, 1989. 2. Every company shall, in the report of its board of directors, disclose particulars with respect to the following matters namely:A. Conservation of energy: (a) Energy conservation measures taken; (b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy; (c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods; (d) Total energy consumption and energy consumption per unit of production as per Form A of the Annexure in respect of industries specified in the Schedule thereto. B. Technology absorption: (e) Efforts made in technology absorption as per Form B of the Annexure C. Foreign exchange earnings and outgo: (f) Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans; (g) Total foreign exchange used and earned. LAW II: As per clause 4D (e) of Part ii of Schedule VI of Companies Act 1956 The law states that following information to be included by way of note to accounts: Earnings in foreign exchange, classified under heads: (i)Exports (F.O.B. basis) (ii)Royalty, know-how, professional and consultation fees (iii)Interest and dividend

(iv) Other income, indicating the nature thereof. Maruti Suzuki India Limited complies with Section 217 1(e) and makes the following disclosure(activities relating to exports; initiatives taken to increase exports, development of new export markets for products and services ; and export plans, total foreign exchange used and earned) in the Directors report.

As stated in Law II, they have stated in notes to accounts the earnings in foreign exchange under different heads and each have been shown below from their annual report.

Bajaj Auto Limited also complies with Section 217 1(e) and makes the disclosure relating to foreign exchange earnings and outgo but unlike Maruti Suzuki India Limited they do not specifically mention the activities relating to exports under separate heads of initiatives taken to increase exports, development of new export markets for products and services; and export plans, total foreign exchange used and earned in its Annual Report.

As stated in Law II, they have stated in notes to accounts the earnings in foreign exchange under different heads and each have been shown below from their annual report.

Remuneration of directors
(Section 309 of The Companies Act, 1956)

(1) The remuneration payable to the directors of a company, including any managing or whole- time director, shall be determined, in accordance with and subject to the provisions of section 198 and this section, either by the articles of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting 1[ and the remuneration payable to any such director determined as aforesaid shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity: Provided that any remuneration for services rendered by any such director in any other capacity shall not be so included if(a) the services rendered are of a professional nature, and (b) in the opinion of the Central Government, the director possesses the requisite qualifications for the practice of, the profession. (2) A director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof, attended by him: Provided that where immediately before the commencement of the Companies (Amendment) Act, 1960 , (65 of 1960.) fees for meetings of the Board and any committee thereof, attended by a director are paid on a monthly basis, such fees may continue to be paid on that basis for a period of two years after such commencement or for the remainder of the term of office of such director, whichever is less, but no longer. (3) A director who is either in the whole- time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other: Provided that except with the approval of the Central Government such remuneration shall not exceed five percent of the net profits 1. Ins. by Act 31 of 1965, s. 42 (w. e. f. 15- 10- 1965). 2. Subs. by Act 65 of 1960, s. 113, for sub- sections (2) and (3). for one such director, and if there is more than one such director, ten per cent for all of them together. (4) A director who is neither in the whole- time employment of the company nor a managing director may be paid remuneration- either (a) by way of a monthly, quarterly or annual payment with the approval of the Central Government; or (b) by way of commission if the company by special resolution authorises such payment: Provided that the remuneration paid to such director, or where there is more than one such director, to all of them together, shall not exceed-

(i) one per cent. of the net profits of the company, if the company has a managing or whole- time director, a managing agent or secretaries and treasurers or a manager; (ii) three per cent. of the net profits of the company, in any other case: Provided further that the company in general meeting may, with the approval of the Central Government, authorize the payment of such remuneration at a rate exceeding one per cent. or, as the case may be, three per cent of its net profits. (5) The net profits referred to in sub- sections (3) and (4) shall be computed in the manner referred to in section 198, sub- section (1). (5A) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company. (5B) The company shall not waive the recovery of any sum refund- able to it under sub- section (5A) unless permitted by the Central Government. (6) No director of a company who is in receipt of any commission from the company and who is either in the whole- time employment 1. Subs. by Act 31 of 1965, s. 42, for sub- section (4) (w. e. f. 15- 10- 1965 ). 2. Ins. by Act 65 of 1960, S. 113. of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company. (7) The special resolution referred to in sub- section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time: Provided that no renewal shall be effected earlier than one year from the date on which it is to come into force. (8) The provisions of this section shall come into force immediately on the commencement of this Act or, where such commencement does not coincide with the end of a financial year of the company, with effect from the expiry of the financial year immediately succeeding such commencement. (9) The provisions of this section shall not apply to a private company unless it is a subsidiary of a public company.

Section 198 of Companies Act Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits

(1) The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company, to its directors and its 2[***] manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year computed in the manner laid down in sections 349 3[and 350], except that the remuneration of the directors shall not be deducted from the gross profits. 4[***] (2) The percentage aforesaid shall be exclusive of any fees payable to directors under sub-section (2) of section 309. (3) Within the limits of the maximum remuneration specified in sub-section (1), a company may pay a monthly remuneration to its managing or whole-time director in accordance with the provisions of section 309 or to its manager in accordance with the provisions of section 387. 5(4) Notwithstanding anything contained in sub-sections (1) to (3), but subject to the provisions of section 269, read with Schedule XIII, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (2) of section 309, except with the previous approval of the Central Government. Explanation.For the purposes of this section and sections 309, 310, 311, 6[***] 381 and 387, remuneration shall include, (a) any expenditure incurred by the company in providing any rent-free accommodation, or any other benefit or amenity in respect of accommodation free of charge, to any of the persons specified in sub-section (1); (b) any expenditure incurred by the company in providing any other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid; (c) any expenditure incurred by the company in respect of any obligation or service which, but for such expenditure by the company, would have been incurred by any of the persons aforesaid; and

(d) any expenditure incurred by the company to effect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the persons aforesaid or his spouse or child.

Bajaj auto

Board of directors In keeping with the commitment of the management for the principle of integrity and transparency in business operations for good corporate governance, the Companys policy is to have an appropriate blend of executive and independent directors to maintain the independence of the Board, and to separate the Board functions of governance and management. Composition As on 31 March 2012, the Board of Bajaj Auto consisted of sixteen directors, of whom four directors were executive. Nine out of twelve non-executive directors were independent. The Board has no institutional nominee directors. According to clause 49, if the chairman is executive or a promoter, at least one half of the Board should consist of non-executive, independent directors. As Table 1 below shows, this provision is met at Bajaj Auto. Non-executive directors compensation The Board of Directors at its meeting held on 26 March 2011 had partially revised the directors remuneration policy with effect from 1 April 2011 and accordingly non-executive directors of the Company with effect from 1 April 2011 are being paid, in addition to the sitting fee of ` 20,000 per meeting for every meeting of the Board and its committees, commission at the rate of ` 100,000 per meeting of the Board and its committees attended by them, subject to the overall ceiling of one percent of net profits. In terms of the said approvals given by the Board of Directors and shareholders, one independent director viz. Nanoo Pamnani will be paid ` 1,000,000 as commission for the year 2011-12 in consideration of the services rendered by him during the year 2011-12 at the request of the management. The company did not have a stock option programme for the non-executive directors during the year under review. Board procedures During 2011-12, the Board of Directors met six times: on 18 May 2011, 14 July 2011, 16 September 2011, 20 October 2011, 19 January 2012 and 27 March 2012. The gap between any two meetings has been less than four months. The Board meeting held on 27 March 2012 was done with Video Conferencing facility in terms of the circulars issued by Ministry of Corporate Affairs. Attendance record of directors Table 1: Composition of the Board and attendance record of directors for 2011-12

Remuneration of directors Pecuniary relationship or transactions of non-executive directors 1. J N Godrej is a director and shareholder of Godrej & Boyce Manufacturing Company Limited, which is a vendor to Bajaj Auto. Purchases of goods from this company have been in the ordinary course of business and, for the year ended 31 March 2012, amounted to ` 4.42 crore. 2. Shekhar Bajaj is a director of Bajaj Electricals Ltd. During the year under review, the total value of transactions between Bajaj Auto and Bajaj Electricals Ltd., which has been in the ordinary course of business, amounted to ` 0.17 crore. 3. Shekhar Bajaj is a director of Hind Musafir Agency Limited, an accredited travel agency. During the year under review, the total value of services availed of by Bajaj Auto from Hind Musafir Agency Limited, which has been in the ordinary course of business, amounted to ` 15.67 crore. 4. The register of contracts maintained by the Company under Section 301 of the Companies Act, 1956, contains record of the transactions entered into with the above companies. The register is signed by all the directors present at the respective Board meetings. 5. A statement showing the disclosure of transactions with related parties as required under Accounting Standard 18 is set out separately in this Annual Report. Criteria of making payments to non-executive directors Non-executive directors of the Company play a crucial role in the independent functioning of the Board. They bring in an external perspective to decision-making, and provide leadership and strategic guidance while maintaining objective judgment. They also oversee corporate governance framework of the Company.

Non-executive directors Non-executive directors are paid sitting fees and commission on net profits as separately stated in this report.

Executive directors Executive directors are entitled to superannuation benefits payable in the form of an annuity from the Life Insurance Corporation of India which forms part of the perquisites allowed to them. No pension is paid by the Company. The company has no stock option plans for the directors and hence, it does not form a part of the remuneration package payable to any executive and/or non-executive director. During the year under review, none of the directors was paid any performance-linked incentive. In 2011-12, the Company did not advance any loans to any of the executive and/or nonexecutive directors. Table below gives details of the remuneration paid or payable to directors during 2011-12.

The total remuneration calculated for the above comes out to be Rs. 31,75,60,034. The Profit After Tax mentioned in the report is Rs. 3004.05 Crore, hence the 11% of the same comes out to be Rs. 330,44,55,000.

PAT 11% of PAT Total Remuneration Total Remuneration < 11% of Annual Profit

Rs. 30040500000 Rs. 3304455000 Rs. 317560034

Hence, the total remuneration is less than 11% of the total profit for the same financial year and the company follows the law. NOTE: The total remuneration is calculated based only for the remunerations of Directors, as the company nowhere mentions the remunerations for its managers.

Maruti Suzuki

The composition of the board of Maruti Suzuki is as under:

Remuneration to directors Table 3 gives details of the remuneration for the financial year ended 31st March 2012. The Company did not advance any loans to any of its directors in the year under review. The performance criteria for the purpose of payment of performance linked bonus as defined by the board for the whole-time directors including managing director is as under: a) Actual achievement in terms of growth in sales, profit, etc. as compared to the previous year; b) Actual achievement of growth as compared to the budget approved at the beginning of the year; and c) Growth of market share of the Companys products as compared to key competitors in the industry. No employee of the Company is related to any director of the Company.

Remuneration of the non-executive directors Members of the Company had approved payment of remuneration by way of commission to non-executive directors at a sum not exceeding 1 per cent of the net profits of the Company subject to a ceiling of `10 million per annum. As approval was valid for a period of five years, a fresh proposal is being put up before the members for their approval in the forthcoming annual general meeting. The payment of commission is based on criteria such as attendance at the board/ board level committee meetings, time devoted, current trends prevailing in the industry, etc. Sitting fee is also paid to the non-executive directors for attending board and committee meetings.

The total remuneration calculated for the above comes out to be Rs. 9,64,71,157. The Profit After Tax mentioned in the report is Rs. 16352 Million; hence the 11% of the same comes out to be Rs. 179,87,20,000. PAT 11% of PAT Total Remuneration Rs. 16352000000 Rs. 1798720000 Rs. 96471157

Total Remuneration < 11% of Annual Profit Hence, the total remuneration is less than 11% of the total profit for the same financial year. NOTE: The total remuneration is calculated based only for the remunerations of Directors, as the company nowhere mentions the remunerations for its managers. Analysis: Therefore, Both the companies abides by the remuneration laws mention by the Companies Act , but only mention the remunerations of their Directors and not managers.