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

Managerial Remuneration
As per companies act, 1956, managerial remuneration should include all the payment and benefit 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

Section 198 Companies Act, 1956

Total managerial remuneration not to exceed 11% 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 the fees to be paid for the meetings, no other remuneration needs to be provided

Section 309(2) Directors

A director may receive remuneration by way of a fee for each meeting of the Board, or a committee They can be paid on a monthly basis Continued to be paid until 2 years or remainder of term of office, whichever is less

Section 387 Managers

The manager of a company may, subject to the provisions of section 198, receive remuneration either by way of a monthly payment, or by way of a specific percentage, of the net profits

Spicejet
Compensation committee 3 Directors Since the company reported losses during the year, they did not pay any remuneration to their directors except for the sitting fees for the meetings This is in accordance with Section 309(2) of Companies act 1956

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 per month Other Allowance - Rs.135,625 per month Medical reimbursement - Rs.15,000 per annum

Jet Airways
Compensation committee 5 Non-executive Directors Remuneration Policy for Non-executive Directors: Sitting Fees - The Non-executive Directors are paid Sitting Fees of 20,000 for each Board and Committee Meeting attended by them. Commission - In any year that the Company makes adequate profit, a fixed sum is payable as Commission to the Non-executive Directors, with the prior approval of the Members. Due to the losses made by the Company for the year ended 31st March, 2012, no Commission is payable to the Nonexecutive Directors for the financial year 2011-12

Benefits & Remuneration

For the Executive Director The remuneration of the Executive Director is recommended by the Remuneration and Compensation Committee after taking into account the experience, qualifications, duties and responsibilities and prevailing industry practices

Net Profits

Section 349 in The Companies Act, 1956

In computing for the purpose of section 348, the net profits of a company in any financial year Credit shall be given for the sums specified in sub- section (2), and credit shall not be given for those specified in sub- section (3); and The sums specified in sub- section (4) shall be deducted, and those specified in sub- section (5) shall not be deducted.

Net Profits as per Section 349 and Section 350 of the Companies Act, 1956
Section 349 in The Companies Act, 1956 Jet Airways Spice Jet

(2) In making the computation of net profits of a company in any financial year, credit shall be given for the following sums:- bounties and subsidies received from any Government, or any public authority

Export Incentives Complied

Export Incentives Incentives Received Complied

Section 349 in The Companies Act, 1956

(3) In making the computation aforesaid, credit shall not be given for the following sums:-

Jet Airways Securities Premium in Balance Sheet (Reserves and Surplus)

Spice Jet Securities Premium in Balance Sheet (Reserves and Surplus)

(a) profits, by way of premium, on shares or debentures of the company, which are issued or sold by the company;

Profit on Sale and Lease Back of Engines (only (b) profits on sales by the company of forfeited shares; amount exceeding W.D.V. in Profit and (c) profits of a capital nature Loss Statement) including profits from the sale
of the undertaking

Profit on sale of aircraft under sale and lease back arrangements (only amount exceeding W.D.V. in Profit and Loss Statement)

(d) profits from the sale of any Complied immovable property or fixed assets of a capital nature comprised in the undertaking

Complied

*(d) Point to note: Provided that where the amount for which any fixed asset is sold exceeds the writtendown value thereof, credit shall be given for so much of the excess

Jet Airways
Clause (a): Profits, by way of Premium, on shares or debentures of the company, which are issued or sold by the company; Reserves and Surplus : Securities Premium Account
Particulars As per last Balance Sheet 31st Mar, 2012 141,418 31st Mar, 2011 141,418

Clause (d): Profits from the sale of any immovable property or fixed assets of a capital nature Non-Operating Revenues
Particulars
Profit on Sale and Lease Back of Engines

31st Mar, 2012 7,609

31st Mar, 2011 -

Spice Jet
Clause (a): Profits, by way of Premium, on shares or debentures of the company, which are issued or sold by the company; Reserves and Surplus Securities Premium Account
Particulars Opening balance Add: Premium Received during the year on account of Add: Reversal of premium on redemption of FCCBs 31st Mar, 2012 6,316.80 31st Mar, 2011 2,200.77 2,246.96 1,372.54

Section 349 in The Companies Act, 1956 (4) In making the computation aforesaid, the following sums shall be deducted:(a) all the usual working charges; (b) directors' remuneration; (c) bonus or commission paid or payable to any member of the company' s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole- time or on a part- time basis;

Jet Airways

Spice Jet

Aircraft Fuel Expense Aircraft Lease Rentals

Aviation Turbine Fuel Lease Charges Aircraft and Engines Salaries, Wages, Bonus Employee Benefit Expenses Contribution to PF Gratuity Legal and Professional Fees Complied

Employee Expenses Employee Benefit Expenses Salaries, Wages, Bonuses, Allowances

Complied

Section 349 in The Companies Act, 1956

(f) interest on debentures issued by the company; (g) interest on mortgages executed by the company (h) interest on unsecured loans and advances; (i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature; (k) depreciation to the extent specified in section 350;

Jet Airways Finance Cost Interest Expense

Spice Jet Interest to Others Interest to Banks Repairs and Maintenance +Building +Plant and Mach. Aircraft Repair and Maintenance

Aircraft Maintenance

Depreciation +On Tangible Assets +On Intangible Assets Complied

Depreciation and Amortization Expense Complied

Section 349 in The Companies Act, 1956 (m) any compensation or damages to be paid in virtue of any legal liability, including a liability arising from a breach of contract;

Jet Airways

Spice Jet

(n) any sum paid by way Aircraft Insurance and of insurance against the other Insurance risk of meeting any liability such as is referred to in clause (m); Bad debts written off (o) debts considered bad and written off or Complied adjusted during the year of account.

Aviation Insurance Personal Accident Insurance

Complied

Section 349 in The Companies Act, 1956

(5) In making the computation aforesaid, the following sums shall not be deducted:-

Jet Airways

Spice Jet

(a) the remuneration payable to the managing agent;

(c) any compensation, damages or payments made voluntarily (d) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess

Loss on sale of Fixed Assets other than Aircraft (only amount exceeding W.D.V. in Profit and Loss Statement) Complied

Loss on sale of assets (only amount exceeding W.D.V. in Profit and Loss Statement) Complied

Section 350 in The Companies Act, 1956 Depreciation at the rate specified in Schedule XIV (mentioned below)

Jet Airways Complied as per the table shown below (Aircraft depreciated on S.L.M. w.e.f. 1st April, 2010)

Spice Jet Complied as per the table shown below

SCHEDULE XIV - RATES OF DEPRECIATION UNDER COMPANIES ACT,1956 Straight Line Method (%)
S. No 1. 2. 3. 4. 5. 6. Nature of Asset Aircrafts/ Aeroplane Office Equipment Computers Furniture and Fixtures Motor Vehicles Plant and Machinery Percentage 5.60% 4.75% 16.21% 6.33% 9.50% 4.75% - 5.28%

Dividends
Rate recommended by board of directors and approved 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 was declared, complying with the provisions of section 205 of Companies Act.

 The company has also declared that they would transfer 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 2004-05 2005-06 2006-07 Due Date for transfer 26thSeptember 2012 19th September 2013 26th September 2014

SpiceJet
Reported a net loss of Rs.6,0576.80 lakhs after tax in the year 2011-12 Hence no dividend was declared, complying with the provisions of section 205 of Companies Act

Foreign Exchange Earnings

Foreign Exchange Earnings

According to Section 217- Boards Report Companies Act, 1956, (1) There shall be attached to every balance sheet laid before a company in general meeting, a report by its Board of directors, with respect to:
(e) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed

Earnings in foreign exchange classified under the following heads: (I)Export of goods calculated on F.O.B. basis; (II)Royalty, know-how, professional and consultation fees; (III)Interest and dividends; and (IV)Other income, indicating the nature thereon. 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 Earnings in foreign exchange from professional fees should be on accrual basis

Jet Airways
Jet airways has abided to Companies Act 1956, Sec 217(1)(e) and included the Foreign Exchange Earnings and Outgoings in the notes forming a part of the balance sheet and P&L account. The total net gain and loss on each transaction has been mentioned in the profit and loss account for the year ended 31st march 2012.

The following has been mentioned in the balance sheet of the company as 31st march 2012.

The company also made additional disclosures with respect to all the transactions of foreign exchange

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

Compliance with the Act: Liabilities side of the balance sheet

Assets side of the balance sheet

The following has been included in the P&L account

Auditors Report
As more detailed in note 26 of the financial statements, the Company has not accounted for the foreign exchange differences on foreign currency borrowings to the extent they are regarded as an adjustment to interest cost as defined under paragraph 4(e) of Accounting Standard 16 Borrowing Costs, as required under the said standard. In the absence of information relating to interest on comparable local borrowings, we are 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.

Conclusion about Foreign Exchange Earnings

Hence, both the companies have complied with the provisions section 217(1)(e) of the companies act 1956.All the expenditure and income has been shown in the P&L account. The unamortised amount and other amount has also been mentioned in the balance sheet of the company.

Technology Absorption
As Per Section 217(1)(e) of companies act 1956:

A Report By Board Of Directors, with respect to following must be attached: Conservation Of Energy Technology Absorption Foreign Exchange Earnings And Outgo In A Prescribed Manner

SpiceJet
As Per Section 217(1)(e) of companies act 1956: Section 11 of directors report highlight the following: Management highly conscious of criticality of conservation of energy at all operational levels Energy efficient systems implemented Subject matter stated and disclosed as per prescribed manner

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 burn Continuous modernization of fleet regular replacement of older aircrafts by new ones to improve fuel efficiency Monitoring weight on board & continuous implementation of weight reduction program Integrated emissions management system -> monitoring & optimizing the use aviation turbine fuel Carbon footprint assessment for both direct & indirect emissions as per greenhouse gas protocol standard developed by world resources institute (WRI) and world business council for sustainable development (WBCSD)

Conclusion in terms of Technology Absorption

Clearly jet airways has been more stringent and proactive: Embraced best operational, technological & maintenance practices Modernized fleet with older aircraft retired Weight monitoring system for catering, cabin & galley items Development of items to monitor after consumption Carbon foot print assessment as per standards of greenhouse gas protocol While both, spice jet & jet airways comply with section 217 (e) of companies act, jet airways has been more proactive and clear in its technology absorption initiatives