KGS

INTEGRITY FIRST

The biggest mistake a small business can make is

to think like a small business.

KGS

Cost

S. No. Topic

1.

Union, Rail Budgets Merged, ending 92-year-old Parliamentary Tradition

2.

Managerial Remuneration under Companies Act 2013

3.

Reliance Jio

4.

Section 8: Non-profit making Company

5.

Consolidation of LLP or Partnership Firm

INDEX

Merger of Union & Rail

Budget- end to 92Years old

legacy

This article highlights

Government Decision to Merge both budgets

Advantages for Mergers

Disadvantages due to Merger

CA Puneet Mehra & Jasdeep Singh Ahuja

KGS

Union, Rail Budgets Merged, ending 92-year-old Parliamentary Tradition Introduction In a sweeping recast of India's annual budget process, the government ended the 92-year-old practice of having a separate rail budget, giving the embattled organization political space to work below the radar and implement the massive reforms needed to turn it around. This will allow budget proposals to be implemented and public spending to kick off from April 1, the first day of the financial year. In other decisions on 21st September 2016, the cabinet also approved the budget proposal to do away with plan and non-plan categorization, redundant after the Planning Commission was abolished. "The union cabinet has decided that from the coming year the rail budget and the general budget will be

amalgamated," FM Arun Jaitley told reporters, adding that all proposals relating to railways will be part of general budget. There will only be one appropriations bill, he said. The government is ready to roll out the changes as the proposal had been under consideration for a while. "The department has held extensive consultations with the financial advisors of various ministries and departments and the revised calendar has been drawn up so there is a state of preparedness that is already in place". With a view to get all the legislative approvals for the annual spending and tax proposals before the beginning of the new financial year on April 1, the Cabinet, headed by Prime Minister Narendra Modi, approved advancing date for presentation of the General Budget by a month instead of present

practice of unveiling it at the end of February.

Cons

The rise and fall: Henceforth, the distribution and allocation of funds to various departments will all go under the finance ministry, which will take decisions according to rise and fall of budget. A fall in the annual budget will mean a similar cut in the railway and other budgets. This will be something unusual for the railways and they might not react supportively to that.

Conditions of government departments: The depleting conditions of the various departments under the government have always been prominent. There is lesser attention paid to the responsibilities and everyone is busy sorting out their own means. Railways might see drastic disadvantage if the merging doesn’t reap the desired result.

Goodbye to privatization: There have previously been talks of privatization of Indian railways in order to improve and develop them with world class facilities and cleanliness. It was not well received earlier and after the merging, there will a complete end to any future chances of privatization. At the efficient hands of government employees, nothing big could be expected.

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Loss for the railways: We know how much our parties love making promises and then reducing price to earn the favor of the voters. Not in their wildest dreams would they want to hike the railway prices and lose the vote bank that flows from commuters. Lesser hikes in price might pose loss for the railways department.

Pros

The scores: During the British rule Railways took up to 85 percent of the yearly budget while now it has gone down to about 15 percent only. Having separate railway budget stopped making sense long ago but the old tradition was not done away with. Scrapping the old for the renewed and better is always a positive change to look upon.

Better policies: Now that the Railway budget will be introduced along with the union budget, there will be less wastage of time when a new policy is to be initiated and implemented. Keeping them separate resulted in a lot of drawbacks and hindrances that had to be faced by the railway ministry before it could decide upon a solution.

Party politics: Minority parties fighting to meet their intentions and ministers of certain states arguing new railways and trains for their region has always been known to result in an everlasting brawl. There will be less of political pressure on the Railway budget and the Centre will have the ultimate hold of the decision making.

Goodbye to annual dividend: When Rail budget had to be introduced separately, the railways needed to pay an annual dividend to render its budgetary support to the government. The railways will be free of this now and the same fund could now be used in better ways for development the conditions of Indian railways.

The huge loss: Our railways are running on loss. There are lesser funds for development plans and most of them are wasted in wrongful manner when there emerges a demand from the regional MLA who promised new trains and stoppages for their location during the time of election. When it goes into the hands of finance ministry, it would mean and absolute end to this and a more commercialized distribution of resources.

Conclusion Also, the 92-year-old practice of presenting a separate budget for Railways has been scrapped and proposals pertaining to it would now form part of the General Budget. This would lead to presentation of a single Appropriation Bill, including the estimates of Ministry of Railways, thereby saving precious time of Parliament by not having to hold separate consideration and passing of two Appropriation Bills. The Cabinet also approved removal of distinction between Plan and Non-Plan expenditure as the present classification resulted in excessive focus on former with almost equivalent neglect to items such as maintenance which are classified as non-Plan. The Cabinet felt it is the total expenditure, irrespective of Plan or Non-Plan, that generates value for the public. Plan expenditure was for the first time presented separately in the budget for 1959-60. Early presentation of Budget would mean that the entire exercise is over by March 31, and expenditure as well as tax proposals come into effect right from the beginning of new fiscal, thereby ensuring better implementation.

MANAGERIAL REMUNERATION UNDER COMPANIES ACT 2013

This article aims to

Details of amendments in Managerial

Remuneration under Companies Act 2013

Managerial Remuneration

under Companies Act 2013

CA Chandan Kumar & Swati Verma

KGS

Managerial Remuneration under Companies Act 2013

Introduction

Analysis of the recent amendment to section II of part II of schedule V relating to managerial remuneration vide

notification no. S.o. 2922(e) dated 12.09.2016 under Companies Act, 2013 by The Ministry of Corporate Affairs has issued a

notification

Section 197(3) of the 2013 Act

“Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, 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 (5) hereunder except in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with the previous approval of the Central Government.

In case the Company is having loss or the profits of the Company are inadequate to pay the requisite amount of remuneration, the Company have to choose either of the two options given below-

1. To comply with SP-II-V of the 2013 Act, or 2. Central Government Approval (in case the Company do not want to follow Schedule V or is not able to

comply it.)

The Limit specified under the ITEM A of SP-II-V has been doubled to give flexibility to the Companies in determining the remuneration to be paid to managerial person. The revised Limits are as under-

(A)

Provided that the above limit shall be doubled if the resolution passed by the Company is Special Resolution.

♥ The ITEM B has been substituted with the new provisions, which are as under-

(B)

“In case of managerial person who is functioning in a professional capacity, no approval of Central Government is required, if such managerial person is not having any interest in the capital of the Company or its holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and not having any direct or indirect interest or related to the directors or promoters of the Company or its holding or any of its subsidiaries at any time during the last two years before or on or after the date of appointment and possesses graduate level qualification with expertise and specialised knowledge in the field in which the company operates;

Provided that any employee of a Company holding shares of the Company not exceeding 0.5% of its paid-up share capital under any scheme formulated for allotment of shares to such employees including Employee Stock

I II

Where the effective capital is Limit of yearly remuneration

(i) Negative or less than 5 Crores 60 Lakhs

(ii) 5 Crores and above but less than 100 Crores

84 Lakhs

(iii) 100 Crores and above but less than 250 Crores

120 Lakhs

(iv) 250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess of Rs. 250 Crore.

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Option Plan or by way of qualification shall be deemed to be a person not having any interest in the capital of the Company.”

“Professional Directors are now can be remunerated without CENTRAL GOVERNMENT APPROVAL irrespective of the limit”

By the insertion of the above provision the MCA has provided the relaxation to the directors who are being appointed in the Company in the professional capacity. In case the director is being appointed in the professional capacity, the Central Government Approval is NOT required to be obtained, even if the remuneration drawn by him is over the double of the limit specified in new ITEM-A and mere passing of special resolution will suffice the purpose. But at the same time, they have to comply with some conditions to avail such exemption, which are as under-

1. Such managerial person shall not have any interest in the capital of the Company, its holding or any of its subsidiaries, either directly or indirectly, and not even through any other statutory structures like company, society, trust, etc.

2. Such managerial person shall not be possessing any direct or indirect interest or relation with any directors or promoters of the Company or its holding company or its subsidiaries at any time during two years before or on or after the appointment, and

3. Such managerial person shall possess graduate level qualification with specialised and expertise in the field or activity as relating to object of the Company.

Exemption to employees-

Employees will not be considered to be interested in the capital of the Company, if he is holding shares of the Company not exceeding 0.5% of its paid-up share capital allotted to him under any scheme formulated for to employees or Employee Stock Option Scheme, or by way of qualification.

♥ The ambiguity regarding, what shall be the manner of determining the remuneration i.e. Ordinary Resolution or Special Resolution is being cleared by replacing the condition earlier clause (iii) of the respective proviso with the following clause-

“an ordinary or a special resolution, as the case may be, has been passed for payment of remuneration as per the limits laid down in item (A) or a special resolution has been passed for the payment of remuneration as per item (B), at the general meeting of the Company for a period not exceeding three years.”

It clearly states that-

♣ For determining the remuneration of the director which has not been appointed in professional capacity, shall be done in the following manner-

In case the remuneration to be paid is in the limit specified in item (A), by way of ORDINARY RESOLUTION.

In case the remuneration to be paid is double to the limit specified in item (A), by way of SPECIAL RESOLUTION.

CA Prakhar Kalani & Kabir Aggarwal

This article aims to highlight:

Introduction

How this will benefit India

How will reliance Jio make profit

How Launch Of Reliance Jio Affected

Competitors

Reliance Jio

KGS

Reliance Jio

Introduction

Jio is a Mumbai-based provider of 4G internet, mobile telephony, broadband services, and digital

services in India. Formerly known as Infotel Broadband Services Limited, Jio provides 4G services on

a pan-India level using LTE technology. The telecom leg of Reliance Industries Limited, it was

incorporated in 2007. The services were beta-launched to Jio's partners and employees on 27 December,

2015 on the eve of 83rd birth anniversary of late Dhirubhai Ambani, founder of Reliance Industries. On

September 5, 2016, Jio commercially launched its 4G services.

How This Will Benefit India

Our Prime Minister Shri Narendra Modi’s inspiring vision of a “Digital India” is one such movement.

Jio is dedicated to realizing our Prime Minister’s vision for 1.2 billion Indians. Jio will give the “power

of data” to each Indian to fulfill every dream and to collectively take India to Global Digital Leadership.

Jio means TO LIVE and to BE ALIVE. The world’s demand for Digital oxygen, that is data, is growing

explosively. Jio’s mission is to meet this exploding need for India, and to take our nation from data

shortage to data abundance. And to enable a Digital Life for a Digital India. A Digital India – where the

Digital Life of no Indian is ever threatened by scarcity, poor quality or unaffordability of data. With the

help this Idea India’s rank in world for mobile broadband internet access will go up among top 10,

which is 155 th in the world in the current period. As we know India has youngest population in the

world so this Idea will help youngster the most, like Give them affordable digital tools. Give them the

skills. Give them the environment. They will surprise us. It is this opportunity to transform India, and

transform the lives of our 1.2 Billion Indians . Jio will take our Nation from data shortage to data

abundance.

How Will Reliance Jio Make Profit Look at this tariff plan:

Everything Jio have done till now is intended at making money. Their tariff plans may look unbelievably awesome, but they will make more money by giving free voice calls than what the other companies make by charging you for it. In India, the monthly average revenue per user (ARPU) the current network providers get is around Rs 150 per month. That is the money they get on average from each user. If you spend over Rs250 per month, you are considered a high value customer. If you are someone who uses over Rs 150 worth of voice calls every month then it is a totally awesome plan for you. But, my point is that other telecom companies make about Rs 150 per month on average from each user by charging for voice, SMS, data and roaming. Jio will be making the same/more amount of money on average from each user even after providing SMS, roaming and voice calls for free, by just pricing things differently.

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Now, if you are a moderately data using person, which plan would you choose? Did you see that there is no plan in-between the Rs 149 and Rs 499 plans? This is basically a psychological trick to get you into the Rs 499 plan. Many people will compare it with the smaller plan and see that you are getting unlimited 4G night data and choose at least the 499 plan.

How Launch Of Reliance Jio Affected Competitors

After eroding around Rs 13,000 crore in market capitalization (m-cap) on 1st September 2016 after Mukesh Ambani, chairman of Reliance Industries (RIL) announced the launch of Reliance Jio from September 05 with an aggressive pricing structure. Telecom stocks - Bharti Airtel,Idea Cellular and Reliance Communications – Shares value dropped on 1st September 2016. On 1st September 2016, Bharti Airtel, the largest loser in terms of m-cap, lost Rs 8,455 crore m-cap, Idea Cellular lost Rs 3,528 crore and RCom eroded Rs 1,182 crore. Basically in simple words with the entrance of Reliance Jio the competition in telecom sector has increased and the companies like BSNL, Airtel, Vodafone etc has to come up with more innovative ideas.

Conclusion

This one of the good inititive taken by reliance. This will help to fulfill inspiring vision of our prime minister on “Digital India”. This technology of reliance is going to help lots of Indians. Internet connectivity will increase all over India. At last it is going to benefit Indians &Nation at large.

This article discusses:

Formation of companies with charitable objects.

Procedure for registration

Main attachments of Form INC.12

Duty of registrar to scrutinise documents

Other statutory provisions

Section 8: Non-profit

making Company

Amit Gupta

KGS

Section 8 Non-profit making Company

The concept of non-profit making company is quite old in India. In erstwhile Companies Act, 1956 it was regulated by Section 25 and that is why it was popular as Section 25 Company. However in Companies Act 2013 provisions related to non-profit making company are given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014. There may be 3-4 forms of a Charitable Organization in India and such organization can be formed/ registered as trusts, societies, or as a non-profit company incorporated under Section 8 of the Companies Act, 2013. Through this article we shall discuss the basic provisions and procedure for incorporation of a non-profit making company as given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.

Meaning of Non-profit making Company

A Non-profit making Company is a Company which:

(a) Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) Intends to apply its profits, if any, or other income in promoting its objects; and

(c) Intends to prohibit the payment of any dividend to its members.

Formation of companies with charitable objects

As per section 8 of Companies Act 2013,where it is proved to the satisfaction of the Central Government that a person or an association of persons want to register themselves under section 8 as a limited company for the furtherance of above mentioned objects, the Central Government may, by licence issued in prescribed manner allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited” , and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.

Procedure for registration of Non-Profit making Company

Procedure for getting License under section 8 for new companies with charitable objects is given in rule 19 of Companies (Incorporation) Rules, 2014. Please find below the process for registration of non-profit making Company under Companies Act, 2013:

1. Obtain Digital Signatures It is compulsorily required to Obtain a Class II Digital Signature Certificate from authorized DSC issuing Company for at least one director to sign the E-forms related to incorporate like form INC.1 and other documents.

2. Obtain Director Identification Number [Section 153] Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number in form DIR.3 to the Central Government in such form and manner and along with such fees as may be prescribed.

3. Name availability for proposed company As per section 4(4) read with Rule-9 of Companies (Incorporation) Rules, 2014, application for the reservation/availability of name shall be in Form no. INC.1 along with prescribed fee of Rs. 1,000/-. In selection of Company name should be in accordance with name guidelines given in Rule-8 of Companies (Incorporation) Rules, 2014.

4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA) Drafting of the MOA and AOA is generally a step subsequent to the availability of name made by the Registrar. It should be noted that the main objects should match with the objects shown in e-Form INC.1.

5. License under section 8 for new companies with charitable objects A person or an association of persons desirous of incorporating a company with limited liability under sub-section (1) of section 8 without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, shall make an application in Form No.INC.12, along with the prescribed fee, to the Registrar for a license under sub-section (1) of section 8.

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Main attachments of Form INC.12 would be as follows:

(a) The draft Memorandum of Association as per form no.INC.13 of the proposed company.

(b) The draft Articles of Association of the proposed company.

(c) The declaration in Form No.INC.14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;

(d) The declaration by each of the persons making the application in Form No. INC.15

(e) An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;

Duty of Registrar to Scrutinise the Documents

If after filling the Requisite forms for incorporation with the Registrar of Companies along with fees, ROC is satisfied with the contents of the documents filed, ROC will issue the Licence in form No. INC.16 under section 8(1) read with rule 19 of Companies (Incorporation) Rules, 2014. Such company registered under section 8 shall enjoy all the privileges and be subject to all the obligations of limited companies.

Other statutory provisions related to Non-Profit making Company

1. Firm as a member of Non-Profit making Company As per section 8(3) a partnership firm may become a member of the non-profit making company registered under section 8. Membership of such firm shall cease upon dissolution of the firm. However, partners of the dissolved firm may continue to be the members of such company in their individual capacity.

2. License for existing companies under Section 8 There is also a provision for conversion of existing Companies into a Non-profit making company under section 8 read with Rule 20 of Companies (Incorporation) Rules, 2014. Likewise a Non-profit making company can also be converted into any other Company by following the procedure given in Rule 21 and 22 of Companies (Incorporation) Rules, 2014. We shall discuss these procedures in some other article.

3. No Change in AOA and MOA A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

4. Revocation of Licence by Central Government As per section 8(6), the Central Government may, by order, after giving the company a reasonable opportunity of being heard, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest and direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly.

5. Winding up of Company As per section 8(7), where a licence is revoked under sub-section (6), the Central Government may, by order, after giving the company a reasonable opportunity of being heard, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section.

6. Penalty for violation of Section 8 If a company makes any default in complying with any of the requirements laid down in section 8, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh (10,00,000) rupees but which may extend to one crore (1,00,00,000) rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five (25,000) thousand rupees but which may extend to twenty-five (25,00,000) lakh rupees, or with both.

This article highlights:

Accounting Standards of Consolidation

Company Consolidation with LLP or

Partnership Firm

Consolidation if LLP is Associate or Joint

Venture

Consolidation of LLP or

Partnership Firm

CA Jitin Girdhar & Vishwas Virmani

KGS

Consolidated Financial Statements-AS 21

Objective

The objective of this standard to lay down principles and

procedures for preparation and presentation of

consolidated financial statements.

These statements are intended to present financial

information about a parent and its subsidiary (ies) as a

single economic entity to show the economic resources

controlled by the group, the obligations of the group and

results the group achieves with its resources.

Scope

1. This Standard should be applied in the preparation

and presentation of consolidated financial statements

for a group of enterprises under the control of a parent.

2. This Standard should also be applied in accounting for investments in subsidiaries in the separate

financial statements of a parent.

3. In the preparation of consolidated financial statements, other Accounting Standards also apply in

the same manner as they apply to the separate financial statements.

4. This Standard does not deal with: (a) methods of accounting for amalgamations and their effects on

consolidation, including goodwill arising on amalgamation (see AS 14, Accounting for

Amalgamations); (b) accounting for investments in associates (at present governed by AS 13,

Accounting for Investments); and (c) accounting for investments in joint ventures (at present

governed by AS 13, Accounting for Investments).

Accounting for Investments in Associates in Consolidated Financial

Statements-AS 23

Objective

The objective of this Standard is to set out principles and procedures for recognising, in the

consolidated financial statements, the effects of the investments in associates on the financial position

and operating results of a group.

Scope

1. This Standard should be applied in accounting for investments in associates in the preparation and

presentation of consolidated financial statements by an investor.

2. This Standard does not deal with accounting for investments in associates in the preparation and

presentation of separate financial statements by an investor.

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Financial Reporting of Interests in Joint Ventures-AS 27

Objective

The objective of this Standard is to set out principles and procedures for accounting for interests in

joint ventures and reporting of joint venture assets, liabilities, income and expenses in the financial

statements of venturers and investors

Scope

1. This Standard should be applied in accounting for interests in joint ventures and the reporting of

joint venture assets, liabilities, income and expenses in the financial statements of venturers and

investors, regardless of the structures or forms under which the joint venture activities take place.

2. The requirements relating to accounting for joint ventures in consolidated financial statements,

contained in this Standard, are applicable only where consolidated financial statements are prepared

and presented by the venturer.

Whether a company is required to consolidate its subsidiary which is a Limited

Liability Partnership (LLP) or a partnership firm?

As per rule 6 of Companies (Accounts) Rules, 2014, under the

heading ‘Manner of consolidation of accounts’ it is provided that

consolidation of financial statements of a company shall be done

in accordance with the provisions of Schedule III to the

Companies Act, 2013 and the applicable Accounting Standards.

It is noted that relevant Indian Accounting Standard i.e., Ind AS

110, Consolidated Financial Statements provides that where an

entity has control on one or more other entities, the controlling

entity is required to consolidate all the controlled entities. Since,

the word ‘entity’ includes a company as well as any other form of

entity, therefore, LLPs and partnership firms are required to be

consolidated. Similarly, under Accounting Standard (AS) 21, as

per the definition of subsidiary, an enterprise controlled by the parent is required to be consolidated.

The term ‘enterprise’ includes a company and any enterprise other than a company. Therefore, under

AS also, LLPs and partnership firms are required to be consolidated.

Accordingly, in the given case, Company is required to consolidate its subsidiary which is an LLP or a

partnership firm.

Consolidation if LLP is an associate or joint venture of Company

If LLP or a partnership firm is an associate or joint venture of Company, even then the LLP and the

partnership firm need to be consolidated in accordance with the requirements of applicable

Accounting Standards.

KGS

Contact Name E-mail Mobile Mr. Anuj Somani anujsomani@kgsomani.com +91 9871098777 Mr. Bhuvnesh Maheshwari bhuvneshmaheshwari@kgsomani.com +91 9810031993

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Disclaimer

• This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed. • Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. • KGS is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such views or opinion.

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