Workbook (Edition 2)

INDEX
PRACTICE CASE STUDIES (from past papers)

PCS 1
PCS 2
PCS 3
PCS 4
PCS 5
MAJOR CASE STUDIES (from module, Chapter 6)
1. SWOT analysis (AMUL) 2-7
2. Functional level strategy (STARBUCKS) 7-9
3. KELLOGG’S CASE STUDY 9-13
4. Michael porter five forces model (MCDONALD’S) 13-16
5. AXA – Creating the New CR Metrics 17-18
6. Indira Gandhi International Airport- Collins Aerospace 18-20
MINOR CASE STUDIES (from module)
MCS 1 22-25
MCS 2 25-30
MCS 3 30-31
MCS 4 31-34
MCS 5 34-36
MCS 6 36-39
MCS 7 39-43
MCS 8 43-46
MCS 9 47-53
MCS 10 53-57
MCS 11 57-60
MCS 12 64-63
MCS 13 63-67
MCS 14 67-69
MCS 15 70-71
MCS 16 72-73
MCS 17 73-76
MCS 18 76-79
MCS 19 79-83
MCS 20 83-86
MCS 21 86-88
MCS 22 88-91
MCS 23 91-93
MCS 24 93-98
MCS 25 98-99
MCS 26 99-101
MCS 27 101-102
MCS 28 102-108
How to write answers in MCS 109-110
What all to carry for the Examination? 111
PRACTICE
CASE STUDIES (5)
Practice Case Study 1
Historically, the pharmaceutical industry has been a profitable one. Between 2002 and 2006, the
average rate of return on invested capital (ROIC) for firms in the industry was 16.45%. Put
differently, for every dollar of capital invested in the industry, the average pharmaceutical firm
generated 16.45 cents of profit. This compares with an average return on invested capital of
12.76% for firms in the computer hardware industry, 8.54% for grocers, and 3.88% for firms in
the electronics industry. However, the average level of profitability in the pharmaceutical
industry has been declining of late. In 2002, the average ROIC in the industry was 21.6%; by 2006,
it had fallen to 14.5%.
The profitability of the pharmaceutical industry can be best understood by looking at several
aspects of its underlying economic structure. First, demand for pharmaceuticals has been strong
and has grown for decades. Between 1990 and 2003, there was a 12.5% annual increase in
spending on prescription drugs in the United States. This growth was driven by favourable
demographics. As people grow older, they tend to need and consume more prescription
medicines, and the population in most advanced nations has been growing older as the post
World War II baby boom generation ages. Looking forward, projections suggest that spending on
prescription drugs will increase between 10 and 11% annually.
Second, successful new prescription drugs can be extraordinarily profitable. For example, Lipitor,
the cholesterol lowering drug sold by Pfizer, was introduced in 1997, and by 2006 this drug had
generated a staggering $12.5 billion in annual sales for Pfizer. The costs of manufacturing,
packing, and distributing Lipitor amounted to only about 10% of revenues.
Pfizer spent close to $500 million on promoting Lipitor and perhaps as much again on maintaining
a sales force to sell the product. This still left Pfizer with a gross profit of approximately $10
billion. Since the drug is protected from direct competition by a twenty-year patent, Pfizer had a
tempoerary monopoly and could charge a high price. Once the patent expired, in 2010, other
firms were able to produce “generic” versions of Lipitor and the price fell substantially within a
year.
Competing firms can produce drugs that are similar (but not identical) to a patent-protected drug.
Drug firms patent a specific molecule, and competing firms can patent similar, but not identical,
molecules that have a similar pharmacological effect. Thus, Lipitor does have competitors in the
market for cholesterol lowering drugs, such as Zocor, sold by Merck, and Crestor, sold by
AstraZeneca. But these competing drugs are patent protected. Moreover, the high costs and risks
associated with developing a new drug and bringing it to market limit new competition. Out of
every 5,000 compounds tested in the laboratory by a drug company, only five entered clinical
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trials, and only one of these will ultimately make it to the market. On an average, estimates
suggest that it costs some $800 million and takes anywhere from ten to fifteen years to bring a
new drug to market. Once in the market, only three out of ten drugs ever recoup their R&D and
marketing costs and turn a profit.
Thus the profitability of the pharmaceutical industry rests on a handful of blockbuster drugs. At
Pfizer, the world’s largest pharmaceutical company, 55% of revenues were generated from just
eight drugs.
To produce a blockbuster, a drug company must spend large amounts of money on research,
most of which fail to produce a product. Only very large companies can shoulder the costs and
risks of doing this making it difficult for new companies to enter the industry. Pfizer, for example,
spent some $7.44 billion on R&D in 2005 alone, equivalent to 14.5% of its total revenues. It is a
established fact that it is difficult to get into the pharma industry.
Although a large number of companies were ranked among the top twenty in the industry in
terms of sales in 2005, most failed to bring standard products to the market. In addition to
spending on R&D, the incumbent firms in the pharmaceutical industry spend large amounts of
money on advertising and sales promotion. While the $500 million a year that Pfizer spends
promoting Lipitor is small relative to the drug’s revenues, it is a large amount for a new
competitor to match, making market entry difficult unless the competitor has a significantly
better product.
There are also some big opportunities on the horizon for firms in the industry. New scientific
breakthroughs in genomics are holding out the promise that within the next decade,
pharmaceutical firms might be able to bring to market new drugs that treat some of the most
intractable medical conditions, including Alzheimer’s, Parkinson’s disease, cancer, heart disease,
stroke, depression, anxiety, stress and AIDS.
However, there are some threats to the long-term dominance and profitability of industry giants
like Pfizer. First, as spending on health care rises, politicians look for ways to limit health care
costs, and there is likelihood of some forms of price control on prescription drugs. Price controls
are already in effect in most developed nations, and although they have not yet been introduced
in the United States, they could be.
Second, twelve of the thirty-five top-selling drugs in the industry lost their patent protection
between 2004 and 2009. By one estimate, some 28% of the global industry’s sales of $307 billion
was exposed to generic challenge in the United States alone, due to drugs going off patent
between 2006 and 2012. It is not clear to many industry observers whether the established drug
companies have enough new drug prospects in their pipelines to replace revenues from drugs
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going off patent. Moreover generic drug companies have been aggressive in challenging the
patents of proprietary drug companies and in pricing their generic offerings.
As a result, their share of industry sales has been growing. In 2005, they accounted for more than
half by volume of all drugs prescribed in the United States, up from one-third in 1990.
Third, the industry has come under renewed scrutiny following studies showing that some FDA
approved prescription drugs, known as COX-2 inhibitors, were associated with a greater risk of
heart attracks. Two of these drugs, Vioxx and Bextra, were pulled from the market in 2004.
Ques. Drawing on the Five Forces Model of Michael E. Porter, explain why the pharmaceutical
industry has historically been a very profitable industry.
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Ques. There are apprehensions in the pharma industry that its profitability, measured
by rate of return on invested capital (ROIC) may decline in the near future. Why
do you think it may occur?
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Ques. What are the prospects and opportunities for the pharma industry going
forward? What are the threats that are discernible?
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Ques. What must pharma industry do to exploit the opportunities? What strategies
should the industry adopt to counter the threats?
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The automobile industry in India is world’s fourth largest, with the country currently being the
world’s 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles in
2018. Indian automotive industry (including component manufacturing) is expected to reach `
16.16 - 18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers dominate the industry
and made up 81% share in the domestic automobile sales in Financial Year 2018-19. Overall,
Domestic automobiles sales increased at 6.71 per cent CAGR during Financial Years between
April 2012 and March 2018 with 26.27 million vehicles being sold in Financial Year 2018-19.
Indian automobile industry has received Foreign Direct Investment (FDI) worth US$, 21.38
billion between April 2000 and March 2019.
Domestic automobile production increased at 6.96 per cent CAGR during the Financial Years
between April 2012 and March 2019 with 30.92 million vehicles manufactured in the country in
Financial Year 2018-19. In Financial Year 2018-19, commercial vehicles recorded the fastest pace
of growth in domestic sales at 17.55% year-on-year, followed by three-wheelers at 10.27 per cent
year-on-year. The passenger vehicle sales in India crossed the 3.37 million units in Financial Year
2018-19 and is further expected to increase 10 million units by Financial Year 2019-20.
The government aims to develop India as a global manufacturing as well as a research and
development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure
Project (NATRIP) Centre as well as a National Automotive Board to act as facilitator between the
government and the industry. Under (NATRIP), five testing and research Centre have been
established in the country since 2015.
The Indian government has also set up an ambitious target of having only electric vehicles being
sold in the country. Indian auto industry is expected to see 8-12% increase in its hiring during
Financial Year 2019-20. The Ministry of Heavy Industries, Government of India has shortlisted 11
cities in the country for introduction of electric vehicles (EVs) in their public transport systems
under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India)
scheme. The first phase of the scheme has been extended to March 2019 while in February 2019,
the Government of India approved the FAME II scheme with a fund requirement of ` 10,000 crore
(US$ 1.39 billion) for Financial Years 2020-22. Number of vehicles supported under FAME scheme
has increased to 192,451 units in March 2018 from 5,197 units in June 2015.
Automotive industry globally is at the cusp of a major transformation. Growing concerns for
environment and energy security clubbed with rapid advancements in technologies for power
train electrification, increasing digitalization, evolution of future technologies and innovative
newer business models and ever-increasing consumer expectations are transforming the
automotive business. One of the key facets of such a change is the rapid development in the field
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of electric mobility which might transform the automotive industry like never before. With an
ambition to be among the top 3 in automobile manufacturing by 2026 (as per the Automotive
Mission Plan 2016-2026), Indian auto industry needs to consider an innovative and pragmatic
approach to ride this transformative wave.
Today, with continued efforts of more than a decade, many major economies such as US, China,
Netherlands, Norway etc. have promoted electrification of vehicles through various fiscal and
non-fiscal incentives and have now gathered momentum in terms of demand, charging
infrastructure and manufacturing eco-system. Such countries are perhaps more ready with pure
electric vehicles to achieve their regulatory and strategic targets.
India has started late on the electrification path and needs a strong policy to catch-up and move
rapidly towards the stated goal of total pure electric technology regime. Pure electric vehicle
penetration currently remains quite low in India due to several reasons including significant
affordability gap and low level of consumers’ acceptance (i.e. lack of demand), low level of
electric vehicle manufacturing activities (i.e. lack of supply), lack of comparable products
(especially in the 2W category), non-existent public charging infrastructure etc.
Taking cognizance of the advancements in the electric vehicle technology, markets development
globally and a dire need to reduce energy demand and de-carbonization of the auto sector in
India NITI Aayog’s transformative mobility report of 2017 has set out a desirable and ambitious
roadmap for pure electric vehicles, wherein, it is said that if India adopts a transformative
solution of shared-connected electric mobility, 100% public transport vehicles and 40% of private
vehicles can become all electric by 2030. This vision needs to be expanded to have a future of all
electric vehicles.
To make sure that this vision is realized, the industry, government and various stakeholders will
need to collaborate and invest. Most importantly, the long-term plan for the country for such an
endeavor will have to be implemented with full conviction, hundred percent commitment and
total perseverance. As the electric vehicle technology is evolving rapidly, it could be possible that
transition to hundred percent electric vehicle regime might evolve earlier than envisaged in the
stated vision. Therefore, the policy will need to be necessarily adaptive while at the same time
must not bring sudden changes so as to allow outcomes in a planned manner and to ensure that
the necessary transformation takes place with the minimum of disruption which may have socio-
economic impact in terms of industrial growth, employment and livelihood of people in the auto-
industry.
Auto-industry will invest with a proper business case even with a certain degree of risk around
market readiness of electric vehicles. In not so distant future, such investments are likely to
turnaround the electric vehicle scenario in an opportunity. Such investments will run into
thousands of crores for the auto-industry towards creating a sustainable market place and a
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robust manufacturing eco-system for electric vehicles. Already, many automobile manufacturers
and auto-component manufacturers in India have launched or announced their plans to develop
electric vehicles and related components. Businesses, including the public sector companies, will
be looking at setting-up the entire supply chain including cell manufacturing in the country.
It is important to understand the consumers’ outlook and concerns as to why growth of market
for electric vehicles has been sluggish. The single major factor for slow penetration of EVs is their
high price which is around 2 to 2.5 times more than a comparable conventional vehicle. The other
important concern of EVs is their range per charge. To offer a higher range, higher battery
capacity in the vehicle is needed which lead to increase in the EV price proportionately and
increases the price gap. At the same time, however, EV offer a significant advantage on operating
cost (running plus maintenance cost) which could be as low as 1/4th of that of a conventional
vehicle. As compared to a personal vehicle, commercial vehicles like taxi fleets, bus fleets, 3-
wheelers run 4 to 5 times longer distance per day. Therefore, for such higher mileage vehicles
savings on operating cost will pay-back the initial high purchase price faster than low mileage
vehicles. Attractive power tariff can play a significant role to offset capital cost of buying EV with
lower operating cost at faster pace. Most of the personal vehicle buyers consider upfront
purchase price, fuel efficiency, maintenance and service cost, comfort features as the key buying
criteria. However, commercial vehicle buyers consider capital expenditure (CAPEX) plus
operational expenditure (OPEX) cost economics as the most important buying criteria.
It may be noted that automobiles have product development gestation of minimum of 3 years
and product manufacturing life-cycle of around 8 to 10 years. Therefore, it is important to
understand the level of effectiveness of each policy measure and acceptability of the policy
measures from a long-term implementation perspective.
In this respect, a mix of policy measures which are equitable, implementable and can be
sustained on a long-term basis with minimum fiscal burden and maximum impact and outreach.
It may be noted that various policy measures have different level of impact on the market and
their criticality. The policy measures which result in acceptance of electric vehicle technology are
the most critical.
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Ques. Explain in detail the components of SWOT analysis and also discuss in
brief the SWOT analysis of present Automobile Industry? (10 marks)
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“In vvvvry like India, electric vehicles are need of the hour”. Outline the
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Ques. “In a country like India, electric vehicles are need of the hour”. Outline the
opportunities for electric vehicles in India.
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Ques. What should be the policy measures and recommendations to provide impetus to
the Electric Vehicle industry that would counter the impending threats.
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Ques. As a Company Secretary, what would be your suggestions for the Government
for increasing the usage of Electric Vehicle in the Country through regulatory
initiatives?
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The growth of shopping via internet had been viewed by Japan's Seven-Eleven convenience store
chain as an opportunity rather than a threat. Because of the conditions in the Japanese market
place, Seven-Eleven Japan was not likely to be able to sell its own food and other Products over
the internet. The company could, however, provide service to a large number of Japanese who
do not have credit cards or who do not have strong aversion to providing credit card information
over the telephone. With over 10,000 outlets in Japan, Seven-Eleven has stores within a short
distance of most of its customers and, in fact, of most Japanese. Their customers tend to visit the
stores frequently for relatively small purchases.
Thus, Seven-Eleven Japan developed a plan to serve as a distribution point for the products of
other companies that were selling over the internet. Customers who wanted goods from an
internet marketeer could order the goods over the internet, and the internet marketeer would
ship the goods to a Seven-Eleven store near to the customer. The store would then give the goods
to the customer when he or she visits the store, accept in cash (as most Japanese customers
prefer) or by credit card, and remit the money to the shipper. The ubiquitous and efficient
delivery services available in Japan would facilitate quick delivery to the stores, which would, in
fact, be easier than locating the often difficult-to-find address of individuals. Seven Eleven would
collect a small fee for this service. More importantly, the stores would bring in additional
potential customers, or bring in regular customers for additional visits. These customers might
buy some of Seven-Eleven's own products in addition to picking-up their internet order.
In November, 1999, the company started this system of handling merchandise for internet
marketeers, delivering goods to customers from their stores, accepting payments from the
customers and remitting the payment to the seller. They entered into agreements with Softbank
Corporation, Tohan book, Yahoo Japan and others to create a venture to sell using a website on
Yahoo Japan. In February, 2000 Seven-Eleven partnered with seven others, including Sony, NEC,
Mitsui trading company and Japan Travel Bureau to distribute a wide range of products, to
provide music and photos online, and to handle booking and sale of tickets. In another venture,
they were involved with internet automobile sales agencies. In July, 2000 they opened a virtual
mall named 7dream.com allowing customers to order goods online and pick-up at the Seven-
Eleven store of their choice. The service proved to be a great success increasing the sales of their
own products while they also collected small fees from the sellers.
In 2001, Seven-Eleven extended this service to Taiwan. The service might also be offered in
additional markets if successful in Taiwan, and if target markets had appropriate characteristics.
In 2004, company opened its first outlet in China through a joint venture with local firms.
Although, a Hong Kong company operates several Seven-Eleven stores in south-eastern China,
this was the first time Seven-Eleven had made an equity investment and operated a store in the
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country. Seven-Eleven (Beijing) Co. expects to open 30 to 50 stores in the Chinese capital by mid-
2005. By 2010, the company plans to have 500 stores in the nation.
Background
The Seven-Eleven chain has a long history of innovation and growth. It was originally a US
company that was subsequently acquired by Japan's Ito-Yokado Co. Ltd. (Ito-Yokado). The
original US Seven-Eleven, owned by a Corporation of the United States, was designed to meet
the needs of the growing number of wage-earner families and single workers in the United States
who worked on non-standard hours. These people often had difficulty in getting to large grocery
stores and supermarkets during the hours that they were open. The increasing affluence in the
United States, particularly among the target customers, suggested that they would be willing to
pay something extra for the convenience of being able to shop at other times, and preferably 24
hours a day. The company opened a number of outlets, carefully selecting the items to be carried,
used centralised purchasing to obtain low prices, monitored sales to improve the mix of products
offered, carefully controlled inventories and used frequent delivery to achieve high turnover in
limited spaces.
In 1973, Seven-Eleven's parent company, Southland Corporation (Southland) saw an opportunity

in the Japanese market where many other companies saw only potential problems. The Japanese
distribution system was very complex with multiple levels of wholesalers and many very small
'Mom and Pop' stores. Compared to the United States, there were twice as many wholesalers
per capita and over twice as many retailers per capita in Japan. Though many of those in the
distribution chain in Japan operated on very small margins, the multiple levels resulted in high
distribution costs. Additionally, all participants in the distribution system were notoriously
reluctant to change distributors or suppliers.
While many foreign markets viewed the Japanese market as too difficult to penetrate, Southland
felt that they could set-up their own marketing chain and operate it more effectively than
Japanese competitors who retained their existing systems. Japanese society appeared to be ripe
for the Seven-Eleven concept. The number of women in the workforce had increased, and most
men worked such long hours that they could not visit stores during the regular hours of
operation. The typical neighbourhood food stores were small and carried a limited range of
products, often specialising in only one type of food (fish, or vegetables, or rice, etc.). Traditional
housewives were accustomed to visiting local shops once in a day to get fresh foods, but the
number of households where women had the time to do so was decreasing. Japan was becoming
increasingly affluent and people had always been willing to pay extra for convenience. The
concentration of the population in a few metropolitan areas and the widespread use of trains
and buses for commuting to major business districts meant that there were many locations with
high traffic volumes.
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Japan was still viewed as a very difficult place to do business if you did not have the right
connections as well as detailed knowledge of the legal, political and social environment.
Southland, therefore, formed a strategic alliance with Ito-Yokado, a large Japanese supermarket
chain operator. The joint venture was highly successful, with Seven-Eleven becoming the largest
convenience store operator in Japan. In an attempt to avoid being acquired by a Canadian
company in 1987, Southland sold its shares of Seven-Eleven Japan to Ito-Yokado.
Seven-Eleven Japan thus became Japanese owned. Subsequent financial problems at Southland
in 1990 led to the US company selling 75% of its stock to Ito-Yokado. In doing so, it turned its
approximately 7,000 company-owned stores in 21 countries over to the Japanese company. (The
name of Southland Corporation, now Japanese-owned, has been changed to Seven-Eleven Inc.)
Under Japanese Leadership

During the period of Japanese ownership from 1987 to the present, the company has enjoyed
remarkable further growth and increasing profitability in Japan, and has expanded its overseas
operations. The number of its stores in Japan has grown from 3,304 in 1987 to over 10,000 in
2004. Sales per store have steadily increased, market share has increased, and earnings have
grown rapidly, with a record profit of over US $1.6 billion in the fiscal year ended February, 2004.
On an average, each store in Japan now attracts 950 customer visits per day.
Seven-Eleven Japan's performance is even more impressive when placed in the context of the
whole industry. Several other Japanese companies, attracted by Seven-Eleven's early success,
formed competing chains. Lawson Inc. is the second largest convenience store franchise
operator, followed by Family Mart. While Seven-Eleven has prospered, the convenience store
sector as a whole has suffered from a slowdown in sales growth. Seven Eleven, however, remains
the market leader.
The company's success appears to have been built on a commitment to innovation. It was the
first in Japan to introduce a point-of-sale (POS) system for merchandising control. It was also the
first to start accepting payments for utility companies, a service now earning commissions on US
$6 billion of such payments per year. It subsequently started handling insurance company
payments, payments for NHK (the national broadcasting company) and others. Also, in 1987, the
company introduced a control system to keep prepared rice food products at 20 degrees
Centigrade through factory, delivery, and in selling cases. They continually upgrade their
information systems (fifth generation via satellite communications.
in 1997) and their warehousing and delivery systems. They continually track sales data so as to
determine the best mix of products and make changes in 70% of their products each year. The
company develops tie-ups with manufacturers and producers, where mutual advantage can be
attained in advertising or offerings. It is increasingly looking overseas for suppliers where superior
products or lower prices for quality products can be obtained.
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Taiwan and Beyond
The overall social, economic, and geographic environment in Taiwan appears to offer excellent
potential for a profitable extension of Seven-Eleven's delivery and payment service for items
ordered on the internet. Taiwan has an even higher population density than Japan, with 611
people per square kilometer in Taiwan compared to 333 people per square kilometer in Japan.
Both countries also have most of their populations concentrated in a few major cities. The ratio
of stores to population is high in both nations, with over 10,000 stores in Japan for catering to its
population of 126 million, and over 3,100 stores in Taiwan for its population of 22 million. Thus,
in Taiwan as in Japan, there is easy access to Seven-Eleven stores for most of the population.
The per capita GDP in Taiwan is only approximately one-third of that in Japan. However, the
Taiwanese also have an aversion to giving out private information over the internet. Many people
cannot, or do not, want to stay at home waiting for delivery services. Thus, it is easier for them
to pick-up items at the convenience stores.
Seven-Eleven Japan has outlets in 19 countries. Only 4 of these countries have more than 500
outlets per country. These are Japan, the United States, Taiwan, and Thailand.
Strategy in China
Seven-Eleven took a conservative approach in entering the Chinese market, determining market
potential by licensing agreements with a Hong Kong firm opened stores in Shenzhen and
Guangzhou. When decided to make an equity investment they did so in the capital city with local
firms as partners. In operations, they will be similar in some ways to the approach in Japan. The
outlet will be open 24 hours per day. It will handle mainly prepared dishes and foodstuffs in lunch
boxes, although handling about 20% fewer items. The per capita income in China is low, but it is
growing rapidly and there are increasing number of busy people with comfortable incomes in the
larger cities.
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Ques. What factors accounted for Seven-Eleven's success in Japan ? Discuss.
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Ques. Does China offer good potential for Seven-Eleven ? Elucidate.
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Ques. Is Seven-Eleven Japan wise in extending its delivery and payment services to
Taiwan ? Justify.
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Ques. If its extension of services to Taiwan is a success, should it extend such services
to the United States, Thailand, or other countries? Elaborate with reasons.
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A great Australian name has gradually but firmly become a global celebrity. The famous
Australian workboot, Blundstone, is worn by many a well-heeled person in Los Angeles, New York
and London. The company has worked hard to survive, counting on innovation, investment, and
clear corporate values and culture to make it into the 21st century. Great public relations and
famous names do no harm. The American male fashion magazine, Men’s Journal, listed the
Blundstone 500 Series as a ‘must-have’. Television presenter Rosie O’Donnell wore a pair to the
opening of The boy from Oz, the Broadway musical starring Australia’s Hugh Jackman, and the
Australian Idol star, Shannon Noll, toured the Tasmanian factory to be fitted with a new pair of
boots. Blundstone is an iconic brand that suits such characters : individualist, running against the
fashion trends and tough in their own right.
Blundstone’s chief, Steve Gunn, noted that the working-class image fits well with the company
philosophy. While the boots have remained close to their working-class roots, they have
ventured in other directions. They are featured in fashion shoots with A$2000 men’s Hugo Boss
suits and A$500 women’s Calvin Klein zipped jackets. In Canada, the company released the
Canada Eh! Boot, selling for about A$260, to celebrate Blundstone’s ten years in that market. The
boot features a maple leaf on the elastic siding of the boot. The boot has even featured in crime
details : in a murder case, the defendant’s barrister noted that a size nine Blundstone boot print
had been found near a murder scene, the defendant denied ever having owned Blundstone
boots.
A long-term association with the iconic Australian tap group, Tap Dogs, has taken the boot far.
Started in 1995, the group is a worldwide hit - always wearing their Blunnies. And it is not by
accident : Blundstone has been sponsors from the beginning. These associationsare not
uncommon. Blundstone also supports the Monash Science Centre’s commitment to science
education and credits this link and others, such as the one with Australia’s high profile science
research institute CSIRO, with its ability to continue its hi-tech innovations that translate into
important intellectual property advantages.
Blundstone sells about 1.6 million pairs of shoes each year, at an average A$100 per pair. The
core product is a solid, high-quality workboot, which far more than 100 years has been aimed at
the working man. Termed ‘the industrial safety market’, the Australian market is worth about
A$150 million per year. Blundstone has a 35 per cent share. But the socalled ‘urbanwear’
category that has created much of the buzz for the brand.
But what is a Blunnie ? It is a tough, rubber soled leather boot with an elastic side panel to allow
users to get it on and off easily. The boots last for years and come in many designs to suit all kinds
of working conditions.
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The Blundstone venture got under way in 1892 when John Blundstone was making boots from a
factory in Hobart and had taken his son into the business. John Blundstone and Son was form in
1902, and in 1932 the concern was purchased by the Cuthbertson family. This brought additional
expertise to the Blundstone brand : the Cuthbertson family company was experienced in tanning
and shoemaking as well. The manufacturing operations were combined under the Blundstone
name and the Cuthbertson name was kept for the tannery enterprise that the Cuthbertsons also
owned.
The Blundstone Group has had a long-held vision and strategy and is explicit about its values
include :
 Respecting the dignity of our people
 Active legal compliance
 Responsible community membership
 Outstanding product quality
 Outstanding customer service
 Non-discriminatory employment
 Safe and healthy workplaces
 Active industry membership.
To this end, Blundstone has entered a sponsorship agreement with the women of the Urapuntja
Artists, an indigenous Australian art community and the art centre of the Utopia homelands in
the Northern Territory. The women artists have design, presentation and merchandising input
into the Women’s Work range of Blundstone boots. In return, the Urapuntja Artists receive
royalty payments and an improved profile, plus business experience and the credibility of joint-
venture success.
A recent launch highlights the Blundstone aims. Called Xtreme, it combines the traditional elastic
sides with a steel cap and a polyurethane moulded sole. The renowned marketing and PR skills
link with the innovation and process efficiency.
One additional unexpected challenge from the move offshore by many Australian footwear
manufacturers is that the suppliers have either moved offshore or stopped that portion of their
businesses. Therefore, Blundstone has had to find alternative sources of materials, often at
higher prices. The company has put a lot of its effort into long-term development and ensuring
survival. Sharon Teuma, who recently became export and corporate marketing manager, with
long-term involvement in new product development at Blundstone, notes that in some ways the
growth and expansion of the company has been at the expense of profits. Other factors, such as
fluctuating conditions in the Australian cattle trade, affect business too. For example, in 2002,
the concern, which has a vertically integrated production process, was stocking up on partly
processed hides, so that it could capitalise on the influx of cattle into Tasmania because of the
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milder conditions there, away from the drought-stricken mainland. Such actions fit with the
firm’s long-term focus.
Blundstone has purchased a rival New Zealand company, John Bull, and used the New Zealand
label to launch two new ranges, Matador and Warrior. Steve Gunn, the country born and bred
Australian CEO of Blundstone, suggested the boots were a marriage of technology and design. As
with the new product launches at Blundstone, the design team was led by Sharon Teuma, who
had had previous hits with Blundstone’s Women’s Work boots, Blunnies For Kids and Mountain
Master. Indeed, the Mountain Master brand grew from a revival of a logo that Teuma found
when she was researching company archives. The Mountain Master is a hi-tech boot range
launched in collaboration with the Australian travel guide company, Lonely Planet. Lonely Planet
has been a huge success in publishing and felt that a collaboration with Blundstone would be a
natural fit. Indeed, Australian backpackers wearing Blundstone boots, had originally literally
taken the Blundstone boot on its global odyssey.
The two companies have compatible brand attributes and plan to push the link-up, with Lonely
Planet providing a booklet, Walk the planet, to be included in the Mountain Master packaging.
There is a fine line, however, between leveraging the firm’s strengths and moving away from
those strengths. Exports have been very successful for the Blundstone. During roughly 19922002,
the percentage of exports had risen from basically zero to about 20 per cent of earnings. The
United States is the biggest market, while Canada, Israel and the UK have worked well too. Many
new products have been developed and released but always around the footwear theme. The
firm has resisted the temptation to diversify the brand into noncore business. Clothing, thought
by some to be the brand natural extension, has been resisted. The move, however, has not been
completely ruled out, so long as any shifts do not damage the Blundstone name.
Blundstone is a poster organisation for proactive strategic business approaches. In 2000, the
Australian government released its recommendations for the textiles, ‘clothing, footwear and
leather industry. Under the government’s long-term plan, the industry was increasingly subjected
to direct foreign competition; over time all trade barriers to imports were being removed.
Therefore, Australian manufacturers, suppliers and retailers competed essentially on the open
market against fierce competitors from places such as China and India. The United States had
taken the approach of limiting clothing imports to their markets using quotas. When the World
Trade Organization required that these quotas be lifted, the US government set about using other
means to protect the local industry. Australia however took the sink or swim approach : compete
head-on or die.
The recommendations took an interesting tack. While towards 2010 report noted that imports
would continue to create an, environment where many enterprises would fail, it also noted that
globalisation and the opening of markets worldwide should give Australian enterprises access, to
overseas markets, in developed and developing countries. So it suggested not only that
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Australian firms could compete against the tide but also that this was an opportunity. Michael
Porter, the strategy guru, notes that a paradox of competing in a global economy lies increasingly
in local changes such as knowledge relationships and motivation that distant rivals cannot match.
The proposed strategy was to achieve an industry environment in Australia that stimulates
innovation and cultural change through a focus on leadership, fostering innovation, effective
supply chain management, overcoming entry barriers and IT.
Blundstone appeared to have taken these directives to heart. A 2002 report by the Tasmanian
Electronic Commerce Centre (TECC) cited Blundstone as a poster company for advancement,
especially in IT. In a case study in its submission to the Tasmanian government, TECC notes that
Blundstone had long been an innovator in the use of technology. For example, its early use of
barcoding and touchscreen terminals for production and inventory management had long helped
in the battle to survive. However, Blundstone realised early on that online services would be a
key in its national and international long-term growth plans. To realise its global aspirations and
service its international customers, the firm know that customers would need to have continuous
access to it. So it looked to provide 24 hour real-time account and service capabilities. Blundstone
realised the importance of using e-commerce as a competitive tool. The approach : think
marketing and customer servicing by online services. Blundstone had as a goal reducing workload
and focusing on technology as a way to add value for both itself, in terms of its brand and product,
and customers, in terms of access, timeliness and efficiency. The firm provides value using the
Internet in three key ways : a website containing its products and distributor contact details, an
online ordering and account system for distributors and an internal online document
management system for staff.
The outcome has been that the electronic trading system allows for a real-time interactive and
integrated online interface with partners and suppliers. The most important outcome, however,
is that the use of IT provides a tangible competitive advantage. By being ahead of the curve in
product innovation, clever marketing and PR and close working relationships with distributors
(which are treated as partners), the firm creates a global network that is hard for competitors to
emulate. These types of relationships, often directly with niche distributors in key exports
markets, are also too expensive for huge footwear concerns to create (and not advantageous to
bother with) and too, complex and costly for smaller firms to implement. The system allows
partners to place and track orders, manage account details and access all invoicing data, all
online, using Blundstone’s infrastructure.
Blundstone has been expanding in specific key ways. It has bought the safety footwear division
Protector Technologies and taken over John Bull in New Zealand, one of its rare direct foreign
investment efforts. In April, after many rumours that the firm would move production offshore,
it invested a further A$2 million in its Hobart factory to make as efficient as possible. The rationale
is partly that the boot is strongly linked to its Australian origins and an Australian boot, ‘Made in
China’, might lose part of its reputation and so dent the brand’s value. Not all agree that this
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would make a difference. Australian customers, for instance : Blundstone has lost domestic sales
to Chinese lookalike imports, so clearly some Australian consumers prefer value in the form of
lower prices over the intrinsic brand and quality advantages of Blundstone. It also constantly
seeks to build its international distribution network, entering distribution alliances with key
partners in key markets.
Blundstone’s market entry success has been adopted by R.M. Williams, a testament to the
‘imitation as flattery’ story. R.M. Williams, along with Akubra and Drizabone, round out the
Australian icon apparel brands. R.M. Williams have chosen the long-term Blundstone distributor
in the US marketplace to distribute their products. Blundstone have used the company, Fletcher
Ltd., for many years. Fletcher has helped Blundstone achieve a strong market presence. Other
key outlets for Blundstone were also adopted by R.M. Williams.
R.M. Williams, however, has a different target market (the products are often three times the
price and fit more the luxury image, especially overseas) and has its own extensive retail network
in Australia and some of its own stores (in New York for example).
It also makes hard decisions when needed : when entering the 2003 Christmas trading period, it
realised there was a stock glut. Production was shut down one day a week from September and
25 workers were made redundant to help ensure the future of the company.
The origin and image of Blundstones link with the quality and uniqueness of the product, which
is why the product seems to appeal in particular international markets. When Greg Cromwell, a
Canadian visitor to Australia, saw the boots, he realised the potential for his home country. With
the help of the Toronto Austrade office, eventually he and a group of partners set up Blundstone
Canada, which operates three stores, a warehouse and a large distribution system. Blundstone
Canada is the authorised Canadian distributor for Blundstone boots.
Steve Gunn, who joined the Tasmanian company as a human resources manager in 1996, was
promoted to CEO in December, 2001. During his first five years at Blundstone, he introduced new
systems and policies, including in-house training and competency systems that were linked to
quality and safety systems. As a result, the company has been able to grow and become more
global. This growth has been organic, through acquisition and with international distribution
alliances. So the company exports to more markets and importantly sources supplies from a wide
range of countries.
A recent report notes that footwear production is almost extinct in Australia except for the
important, albeit niche, market of bootmakers. Most important of these are Blundstone and R.M.
Williams. Hardly a surprise, however, that these should be survivors: Australia’s traditional
strengths have long been connected physically and psychologically to the land, in terms of
primary products and mining related outputs.
Shubhamm Sukhlecha
Ques. Analyze the market entry strategies of Blundstone for global expansion and to
capture global market.
Shubhamm
Shubhamm Sukhlecha
Sukhlecha
Ques. How has Blundstone capitalised on its core strengths to establish the
company as successful shoe maker?
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Ques. How has the firm sought to turn threats into opportunities?
Shubhamm Sukhlecha
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Ques. From the analysis of this case study what are the long-term prospects for the
firm?
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Shubhamm Sukhlecha
Introduction of the TATA Group:
Founded by Jamsetji Tata in 1868, the Tata group is a global enterprise, headquartered in India,
comprising 30 companies across 10 verticals. The group operates in more than 100 countries
across six continents, with a mission ‘To improve the quality of life of the communities we serve
globally, through long-term stakeholder value creation based on Leadership with Trust.’ Tata
Sons is the principal investment holding company and promoter of Tata companies. Sixty-six
percent of the equity share capital of Tata Sons is held by philanthropic trusts, which support
education, health, livelihood generation and art and culture.
In 2017-18, the revenue of Tata companies, taken together, was USD 110.7 billion. These
companies collectively employ over 700,000 people. Each Tata company or enterprise operates
independently under the guidance and supervision of its own Board of directors. There are 28
publicly-listed Tata enterprises with a combined market capitalisation of about USD 145.3 billion
(as on March 31, 2018). Companies include Tata Consultancy Services, Tata Motors, Tata Steel,
Tata Chemicals, Tata Global Beverages, Titan, Tata Capital, Tata Power, Tata Advanced Systems,
Indian Hotels and Tata Communications.
Tata Motors :
Part of the USD 100 billion Tata Group, Tata Motors Limited (BSE:TATAMOTORS), a USD 45 billion
organisation, is a leading global automobile manufacturer of cars, utility vehicles, buses, trucks
and defence vehicles. It is India’s largest-and the only (OEM) offering extensive range of
integrated, smart and e-mobility solutions. Tata Motors strives to bring new products
that fire the imagination of GenNext customers, fueled by state of the art design and R&D centers
located in India, the UK, Italy and South Korea. It has operations in the UK, South Korea, Thailand,
South Africa, and Indonesia through a strong global network of 109 subsidiary and associate
companies, including Jaguar, Land Rover and Tata Daewoo. Internationally, Tata commercial and
passenger vehicles are marketed in countries spread across Europe, Africa, the Middle East,
South Asia, South East Asia, South America, Australia, CIS, and Russia.
In India, Tata Motors’ presence cuts across the length and breadth of the country with a
manufacturing base spread across its biggest industrial hubs; Jamshedpur (Jharkhand), Pune
(Maharashtra), Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and
Dharwad (Karnataka). It is by far the leader in commercial vehicles and the second largest player
in the passenger vehicles market with winning products in the compact, midsize car and utility
vehicle segments. It became the first company from India’s engineering sector to be listed in the
NYSE in September 2004. The company’s objective to expand its international business, both
through organic and inorganic growth routes, has been pretty fast in the recent years.
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Global Recognition
With a portfolio that covers a comprehensive range of cars, trucks, buses, defence vehicles and
more, Tata Motors Limited is recognized as one of the leading automobile manufacturers in the
world today. Commencing operations in 1954 with Commercial Vehicles (CVs) in India, the
company's marque can now be found both on and off-road around the globe. Here’s how Tata
Motors went from being an Indian company to the globally recognized brand that we know today.
Having a presence in over 46 countries around the globe, Tata Motors is without a doubt among
the top 10 CV makers in the world today. Having recently made its debut in Sri Lanka, Tata
Motors’ Nexon is available in both petrol and diesel engine options. It is available in all variants
in 6 colours/Dual Tone colours. • 1991 — Tata Motors entered into a Joint Venture (JV) with Nitol
Motors to set up NITA Company Ltd., the first assembly set up of the company outside India. In
the years to come, Tata Motors grew its assembly operations in different forms across Myanmar,
Vietnam, Bangladesh, Ukraine, South Africa, Kenya, Senegal, Nigeria & Tunisia. • 1993 — Tata
Motors sets up a JV with Cummins Engine Inc. The tie-up enables Tata to introduce powerful
diesel engines with far lesser carbon emissions.
2004 Tata Motors rings the opening bell at the New York Stock Exchange in this year,
marking the listing of the company on the bourse. The company also acquires
South Korean truck manufacturer Daewoo. Together, they unveil the Tata World
Truck range for sale in South Korea, South Africa, SAARC nations and the Middle
East.
2006 Tata Motors joins hands with the Brazil-based Marcopolo S.A. and launched the
Tata Marcopolo Bus in the following years.
2008 Tata Motors sets up Tata Motors Thailand, its first national sales company in
markets around the globe.
2009 Tata Motors acquires the Spanish bus and coach manufacturer Hispano Carrocera.
Starbus and Globus range of buses, manufactured by this new venture, rolled out
in the coming years.
2011 Tata Motors Indonesia was established as a fully owned subsidiary of Tata Motors.
2012 Tata Motors launches its next generation platform of heavy trucks, Tata Prima, in
the markets around the world.
2014 Tata Motors launches its new platform for light trucks and buses, Tata Ultra, in the
international markets.
Tata Motors began manufacturing Passenger Vehicles (PVs) in India in 1991. Just like its CV
division, the PVs segment made its foray into nations around the world in the following years.
Apart from India, the company's new as well as legacy cars are also available in many countries
through exclusive dealerships. Variants of Tata vehicles like the Indica, Indigo, Vista, Manza, Aria,
Bolt, Safari Storme, Tiago, GenX Nano, Sumo, Tigor, Zest, Nexon and Hexa can be purchased in
various countries of Africa, APAC and Latin America, while those of Jaguar and Land Rover are
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available in Europe. Featured below are some of the most important milestones of the PV sector
of Tata Motors that the company achieved in other regions (excluding India).
Asia Pacific Tata Motors PVs make their entry in Nepal in 2003, followed by
Region commencement of operations in Sri Lanka in 2004, Indonesia in 2011,
Bangladesh in 2012, Myanmar in 2013, and Philippines in 2014.
Africa PVs of Tata Motors make their foray into Africa with South Africa in
2004, Tanzania in 2005, Ghana in 2006, followed by Algeria in 2014.
Latin America Tata Motors’ PVs sector begins its operations in Latin America
by venturing into Uruguay in 2014 and Bolivia in 2015.
Europe Tata Motors enters the European market after the acquisition of Jaguar and
Land Rover from Ford Motor Co. in 2008.
Tata Motors’ mission has enabled it to make its presence felt around the globe. Thanks
to its commitment to excellence, the company has set its sights on expanding its CV and
PV operations in several other countries around the world.
CV Production by 2020
Being India’s leading automobile manufacturer, the company has witnessed its sales in
commercial vehicles (CV) segment grow up to 44 percent in 2017-2018. In an attempt to further
improve the productivity and profitability the company has shifted its strategy to focusing on the
CV business to adjust with the transiting times.
FY 2017-2018
According to the Commercial Vehicles domestic sales data, in 2017-2018, 399, 317 units
of CVs were sold as compared to 325,211 units in 2016-2017 (Growth of 23 percent
in FY18 against industry growth of 21 percent). In terms of market share, it got increased
to 44.2 percent in FY18 from 43.5 percent in FY17.
FY2018-2020
The company has revealed that it will be investing ` 3,000 crores in the commercial vehicle
business until over the next two years. This investment will be utilized to develop new
products; to upgrade the existing ones that will meet the upcoming emission standards; to
debottleneck the production processes so that the flow of product is not limited and increasing
demands can be met.
BS-VI
With BS-VI coming soon, the capital expenditure will totally be used for meeting emission
standards and is expected to consolidate the Commercial Vehicles business further. It is evident
that key purchase criteria continue to be on payload and fuel efficiency, with specific focus on
total cost of ownership. To tackle this equation, the company is not only working on
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reducing the cost of diesel vehicles but are also considering alternate fuel options to satisfy
the needs of the customers.
Fleet Telematics
In March 2015, Tata Motors became the first OEM to adopt Telematics — an efficient
way for automobiles to be designed, driven and managed. It is a global trend that has been
changing the International automobile market due to strong regulations on road safety,
emissions and fuel efficiency. This year, it became the 1st vehicle manufacturer in India to install
1,00,000 advanced telematic systems on its commercial vehicles under the Tata Fleetman brand
name. With over 1,200 workshops, Tata Fleetman is gearing up for the next level of fleet
telematics with advanced trip/journey management features that cater to the complex
requirements of sectors like e-commerce.
Some of the features introduced to the Indian market through Tata Fleetman include :
• Emergency SOS — A panic button in vehicles through which the driver can send
an SOS message to the transport owner in an emergency.
• Trip Management — A versatile tool to track and evaluate individual vehicle trips
in real time. Trip Management helps achieve significant improvements in fleet utilization
and reduction in communication costs and idle times
• Driving Assessment — Since drivers are the most important resource factor of transport
operations, the driving assessment solution continuously evaluates drivers on a range
of parameters impacting safety and economy. Suitable consultancy and retraining is
then employed to improve overall fleet economy and safety record.
• Vehicle health management — A solution which helps remotely monitor vehicle
health, including quick fault detection and rectification before it can lead to consequential
failures.
This launch was done in response to growing market needs for better fleet control and greater
fleet utilisation. Tata Fleetman generates rich fleet insights and goes on to collaborate with
the customer to offer specific interventions towards improvement in the utilisation, performance
and safety of the fleet. This has resulted in happy and satisfied customers who have benefited
from these implementations. With all these technological advancements, company assumes that
Telematics will allow their customers to manage their transport fleets efficiently and safely.
Sustainable Buses
Tata Motors has always led the Indian auto motor industry in terms of producing vehicles
of exemplary design, integrating new technology into their offerings while capturing the needs
of the Indian customer. But more importantly, as we continue to progress in creating cars of
global standards, we also seriously consider and work towards ‘sustainable transport.’
Sustainability has grown in importance over the last decade owing to environmental changes that
are gradually brought about by traffic congestion and pollution. Besides having detrimental
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effects on the environment, the congested, complex urban transport system poses as a problem
to the development agenda of the nation. Hence, the Government of India has opened its doors
to the planning and development of 100 smart cities. This will promise a safer transport system,
better mobility and also inch closer to a cleaner environment.
Given its low costs of operation and high passenger capacity, a majority of the population rely on
buses to commute. Therefore, it is important that buses too, undergo a green makeover to be in
line with India’s plan of smart cities. Hence, the company is pushing towards electric
buses with cleaner options for fuel while constantly designing and producing vehicles that cut
CO2 emissions that will in turn reduce our environmental footprint across all transport segments.
Thus, the company offers a future ready range of buses and continues working with the
government on the promise of sustainability to create cleaner options for mass public
transportation.
Training India’s Largest Driver Network

As India’s leading truck manufacturer, Tata Motors has the largest fleet of small, medium and
heavy trucks on road today. Making truck drivers an integral part of the Tata Motors ecosystem.
Five years ago, in an endeavor to give back to the truck drivers, Tata Motors launched the
Institute of Driving, Training and Research (IDTR) in Pune through a joint venture with the Central
Institute of Road Transport. A part of Tata Motors’ CSR initiatives, IDTR’s main objective is to
improve the quality of life for truck drivers. Its dedicated driver training programmes help to
improve road safety and to enhance employment prospects for rural youth.
However, India’s need for more skilled transporters means that it is necessary to increase
the number of such training institutions. Keeping this in mind, the Ministry of Skill Development
and Entrepreneurship plans to open an additional 500 small driving training institutes to skill
more drivers across India. Tata Motors’ Truck Driver Training Program is an initiative that
also has strong sustainability aspects. Tata Motors will be able to build a larger pool of
trained drivers to operate vehicles that are being sold every year. Sales of these vehicles
would also increase if more drivers turn transport entrepreneurs. Vehicle performance will
also be healthier with properly trained drivers at the helm. Most importantly, road safety
will improve for all concerned.
Shubhamm Sukhlecha
Ques. Present a commentary on the company’s foray into the Global Market.
Shubhamm
Shubhamm Sukhlecha
Sukhlecha
Ques. “SWOT Analysis is a powerful developmental tool”. Elaborate the above
statement with respect to the case study.
Shubhamm Sukhlecha
Shubhamm Sukhlecha
Ques. Identify the different strategies adopted by Tata Motors to remain competitive
in the years to come.
Shubhamm Sukhlecha
Shubhamm Sukhlecha
Ques. What factors have led to the current position of TATA Motors? What conclusion
can be drawn from this case study?
Shubhamm Sukhlecha
Shubhamm Sukhlecha
Case Studies Practice
1
Page
MAJOR
CASE STUDIES (4)
SHUBHAMM SUKHLECHA (CA, CS, LLM)

Major CS 1
SWOT ANALYSIS : THE FULCRUM OF STRATEGIC DECISION MAKING

 Introduction
2
All businesses have goals that involve creating a sustainable competitive advantage over their competitors. This
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requires companies to develop effective business strategies that exploit their operational advantages over competitors,
while minimizing their disadvantages. SWOT Analysis is very important tool for starting of new projects, ensuring their
proper progress by monitoring their stages of development and implementing changes in the project, whenever required.
This tool allows multidimensional analysis of the current subject’s conditions of a business organisation as well as
internal (usually controllable) and external (usually uncontrollable or difficult to control) factors to maximize the benefits
minimize negative consequences of certain actions and, the most importantly to ascertain that whether the objective is
attainable or not. An effective strategic development procedure that links internal organizational strengths and
weaknesses, with external opportunities and threats, is SWOT (strengths, weaknesses, opportunities, and threats)
analysis.
SWOT Analysis is a technique which helps to gain insight into the past and find solutions for sake of current or future
blemish, useful for an existing company as well as a new plan. SWOT analysis helps to reduce weaknesses, while
maximizing strong sides of the company.
 Strategic planning and Decision making – How SWOT works
A SWOT analysis is a useful tool for brainstorming, strategic planning and decision making. Strategic decision-making
is the process of charting a course of action based on long-term goals and a longer term vision. Strategic decision
making aligns short-term objectives with long-term goals, and a mission that defines the company’s bigger picture of
the purpose of its existence. Short term goals are expressed in quantifiable milestones that assist in gauging the success
and in ensuring adherence to the organisation’s vision.
It is to be noted that SWOT analysis does not cover the entire business, so management should be cautious at the time
of strategic decision making. To be successful, businesses must utilize their strengths, improve upon their weaknesses,
and guard against their external threats and residual, internal vulnerabilities. Simultaneously, companies need to
evaluate their external environment to identify and exploit new opportunities before their competitors. The brief
components of SWOT analysis are as under:
 Building on Strengths
The first step in conducting a SWOT analysis involves identifying the strengths a company possesses relative to its
competitors. Strengths come from the knowledge, abilities, and resources available to the firm that gives it a comparative
advantage in the industry. The capability to obtain resources, the quality of those resources, and the effective and
efficient allocation of resources plays a pivotal role in creating a competitive advantage. Moreover, a company’s ability
to adapt to environmental changes in order to maintain sustainable growth, and to create or penetrate new markets can
be its potential strengths. Some of the major strengths are excellent sales staff with strong knowledge of existing
products, good relationship with customers, good internal communications, successful marketing strategies, and
reputation for innovation etc.

 Minimising Weaknesses
Second, a business needs to identify the vulnerabilities within its organization that competitors could exploit.
Weaknesses are any limitation or deficiency in the firm’s resources and competencies that could hinder its performance.
Common sources of a company’s weaknesses include ineffective management, insufficient resources, inefficient
3
processes, and obsolete technology, high rental costs, obsolete market research data, Cash flow problems, holding too
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much stock, poor record keeping etc.
 Seizing Opportunities
The third step requires a business to determine potential opportunities to be pursued in the industry. There may be
plentiful business opportunities in an industry that may call for pondering over the opportunities by the management of
a company while evaluating their effectiveness. A company must clearly define the type of goods or services it proposed
to offer, the targeted market for the goods or services, resources and other facilities needed for production of goods or
services, projected returns and the magnitude of risk involved. Potential opportunities can result from identifying an
overlooked market segment, changing industry regulations, advancements in technology, and improvements in buyer
or supplier relations, loyal customers, high customer demand of the company’s product etc. Moreover, a business can
exploit the weaknesses of the competitors by targeting and attacking their frail positions to gain market share.
 Counteracting Threats
Finally, every SWOT analysis requires a business to identify its potential threats. Any situation that puts a company in
an unfavourable position or impedes its efficient operations can be classified as a threat. To adequately identify these
situations, the organization needs to evaluate its industry’s macro-environment and assess the industry’s social,
economic, political, technological, natural, and international segments. For instance, changes in consumer preferences
or advancements in technology can render a product or service obsolete. Additionally, economic and regulatory changes
or the exhaustion of natural resources can make production infeasible. Global competitors are entering in to the
company’s market which tends to increase competition in domestic market.
 Objectives of SWOT Analysis
l To make a summary analysis of external and internal factors.
l To prepare strategic options with reference to the risks and problems to be addressed.
l To conduct a sales forecast in agreement with market conditions and study the capabilities of the company in general.
l To identify key items for the management of the organization, which involves establishing priorities for actions which
in turn helps in strategic decision making.
l Thoroughly diagnose the company: strengthen the positive points, improvement areas and growth opportunities etc.
l Internal environment (Strengths and Weaknesses) – the integration and standardization of processes, the elimination
of inefficiencies and focus on the core aspects of the business.
l External environment (Opportunities and Threats) – to have reliable and trustworthy data, to receive information quickly
to support management in strategic decision making and to reduce errors.
The SWOT analysis is one of the most popular tool for defining an organisation’s strategic action. The beauty of SWOT
is its internal scrutiny of the organisation’s capabilities, followed by environmental scanning to identify appropriate
opportunities and threats. However, it has its flaws:

l No straightforward methodology has been proposed to identify strengths and weaknesses.

l There is no indication of causality among the strengths and weaknesses, nor are they ranked into any hierarchy.
l The SWOT analysis is typically a one-time event lacking mechanisms for acting upon and monitoring the changes in
strengths and weaknesses over the longer term.
4
 Case Study
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Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) is India’s largest food product marketing organisation. It
is the apex organisation of the Diary Cooperatives of Gujarat popularly known as AMUL which aims to provide
remunerative returns to the farmers and also serve the interest of consumers by providing quality products. AMUL is
considered as one of the most well recognized and iconic brands in the country. It operates through 61 sales offices
and has a network of 10000 dealers and 10 lakh retailers. Its product range comprises milk, milk powder, health
beverages, ghee, butter, cheese, Pizza Cheese, Ice cream, Paneer, chocolates and traditional Indian sweets etc.
Based on the above information, do the SWOT analysis of AMUL?
SWOT Analysis of a Renowned Dairy Business - AMUL
Following is the SWOT analysis of AMUL, a strong and dominant brand in the dairy business.
Investment in Technology; Market Share, Production High Operational Costs, Lack of success in portfolio
Capacity, Quality, Brand value, Large Consumer Base expansion, legal issues
Strength Weakness
High Milk Consumption, Global Expansion, Product Increasing Competition, growing trends of veganism
Portfolio Expansion Threats
Opportunities
 Strengths of AMUL
Investment in Technology
Amul has experienced exponential growth in the last few decades. The company is continually investing in adaptive and
revolutionary technologies within the dairy industry.
Market Share
Amul has transformed itself into the market leader of milk and dairy products in the country. Amul has expanded its ice
cream product and business portfolio by opening standalone Amul ice cream stores all over the country.
Production Capacity
Amul is one of the largest manufacturers of milk and dairy products in the world. The company is managed by the
Gujarat Co-operative Milk Marketing Federation Limited, which is a dairy producers cooperative which supplies the
company with almost 18 million liters of milk daily.
Quality
One of the primary reasons for Amul being one of the most trusted brands in Indian and having a strong and loyal
consumer base is its quality. Amul has never faced any significant issues pertaining to its quality within the Indian
market. The company has also maintained transparency concerning its quality control practices.
Strong Brand Value

Amul is one of the most recognizable and valuable brands in India. The Amul girl, the company’s mascot which features
on its advertisements is one of the oldest and most iconic brand mascots which Amul uses even today.
Large Consumer Base
The company has a large consumer base which spreads across the urban and rural regions of the country.
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This wide-reaching consumer base has allowed the company to maintain distinct leverage over its competitors
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 Weaknesses of AMUL
High Operational Cost
Amul has a high operational cost due to its massive size and complex structure. This can become problematic for the
company if the company experiences fall in demand.
The company also heavily depends on the dairy unions and communities for its supply of milk. As the needs of the dairy
community are changing with them demanding higher prices for their produce. These issues can add up to the
operational cost of the company and lower its profit margins.
Lack of Success in Certain Areas of Portfolio Expansion
Amul has expanded its product portfolio to add products such as butter, ghee, buttermilk, flavored milk, ice cream,
chocolates, cheese, creams, sweets and more.
However, not every product of Amul within its portfolio has same amount of success.
Frequent Legal Issues
The company has faced legal issues in the recent past wherein Amul chose to advertise its products while disparaging
the brand and products of its rivals. This caused the company a lot of embarrassment and has also contributed to
tarnishing the public image of the company.
 Opportunities for AMUL
High per capita Milk consumption
India is a high milk consuming nation with milk and dairy products being an essential component of the Indian diet. India
has 130 crore population which is only increasing. This growth in population and high milk consumption opens up
opportunities for AMUL to expand its production capacities and acquire new consumers.
International Expansion
AMUL can serve global markets. The brand can expand into overseas markets such as the Middle-East and the Asian
markets by aggressively targeting Indian expats living in these countries.
Expansion of Product Portfolio
AMUL can invest in research and development or adopt a mergers and acquisition strategy to expand its product line.
AMUL has an extensive distribution network which can be used to sell its new products into the market, and the
substantial brand value and trust of the consumers will also enable easier acceptance from the consumers.
 Threats for AMUL
Increasing Competition
AMUL is facing increasing competition in milk and dairy products sector from brands such as Mother Dairy, Kwality Ltd,
HUL and other local players. AMUL is also facing increasing competition within the ice cream market from Kwality Walls,
Baskin Robins, Havmor, London Dairy and other domestic brands.

Growing trend of Veganism in India

Many people in India are turning towards veganism, which implies that these people do not consume dairy or dairy
products. This can impact the demand for Amul’s milk and dairy products if the popularity of veganism increases and
spreads across different parts of the country.
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 Findings of SWOT Analysis of AMUL
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As per the SWOT analysis of AMUL, the company can easily identify and analyse the internal and external factor which
help it to take the strategic decisions. The company can achieve a dominant global position by maintaining its quality
standards, investing in advertising and promotions and localizing products as per the taste of the international markets.
Thus, it has the opportunity to go ‘Glocal’, i.e. think globally but act locally.
 What are the quick tips, you will suggest for a successful SWOT analysis?
Following are the tips for a successful SWOT analysis
l Keep SWOT short and simple, but remember to include important details. For example, if the staff in an organisation
is a strength, include specific details, such as specific skills and experience possessed by the concerned staff members,
as well as why they are strengths and how they can help to meet the goals of the organisation.
l When SWOT analysis is completed, prioritise the results by listing them in order of the most significant factors that
affect the business to the least.
l Obtain multiple perspectives for those SWOT analysis that have been given a final shape and implemented; Ask for
input from various stakeholders like employees, suppliers, customers and partners.
l Apply SWOT analysis to a specific issue, rather than to the entire business. Then after conduct separate SWOT
analysis on individual issues and combine them.
l Look at where business is now and think about where it might be in the future.
l Consider the competitors and have a realistic assessment of the organisation’s competitive strength in the industry.
l Think about the factors that are essential to the success of an organisation and the products or any other services, like
superior after sale services, free delivery, warranty / guarantee etc. an organisation can offer customers that may exert
an impact on the competitors, in order to have a competitive advantage. It is essential to take into consideration the
factors relating to competitive advantage while conducting the SWOT analysis.
l Use goals and objectives from overall business plan in SWOT analysis.
 Conclusion
The business world is highly competitive, traditional industries are getting shocked by the rise of the technology
businesses, thousands of start-ups blooming every day while thousands of businesses withering every day. The key to
the survival of the business is the strategy an organisation adopts and implements.
SWOT analysis helps the organisation to specify the objectives of the business venture or project and identifying the
internal and external factors that are favourable and unfavourable to achieve that objectives. Identification of SWOT is
important because they may be of immense assistance in chalking out the business plan to meet the objectives of the
business.
The significance of SWOT analysis is that it provides a good way for companies to examine both positive and negative
attributes within a single analysis, determining how best to compete in the market at large. SWOT assists the

management to map out the best possible opportunity well in advance which helps business to begin planning to deliver
a quality solution and to make a marketing plan.
 References:
l https://blog.advisor.lk/wp/2017/09/21/strategic-planning-decision-making-swot/
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l https://www.superheuristics.com/swot-analysis-of-amul/
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l https://www.heflo.com/blog/swot/purpose-of-swot-analysis/
l https://ceopedia.org/index.php/Importance_of_swot_analysis
l https://www.business.qld.gov.au/starting-business/planning/market-customer-research/swot-analysis/uses
Major CS 2
FUNCTIONAL LEVEL STRATEGIES –AN EFFECTIVE TOOL TO ACHIEVE ORGANIZATIONAL GOALS

 Introduction
In a highly competitive business environment and unattainable economic situation managers are increasingly seeking
for strategies, approaches to accomplish, improve and sustain organizational performance and competitive advantage.
Strategy and its formulation play a vital part in the firm’s management process. The strategy gives the direction that a
business has in mind and which way they want to achieve their goals. Amongst the many strategies implemented in
firms, competitive strategy has been proven as an essential tool globally for any business to remain in the competitive
market environment and become stronger. Competitive strategy means consciously choosing to carry out activities
differently or to perform different activities than competitors to survey a unique mix of value.
Present business environment is characterized by high levels of competition, dynamism and technological sophistication.
This is especially challenging to organizational managers since they have to design and implement strategies that can
achieve and sustain competitive advantages. Consequently, the topic functional level strategy plays a pivotal role as
organizations aim at gaining industry leadership.
 Case Study
In 2017, a chain of coffee retailer, closed a decade of astounding financial performance. Sales had increased from $700
million to $8 billion and net profits from $40 million to $600 million. In 2017, The Company’ was earning a return on
invested capital of 25 %, which was impressive by any measure, and the company was forecasted to continue growing
earnings and maintain high profits through to the end of the decade. How did this come about?
Thirty years ago Company was a single store in its local Market selling premium roasted coffee. Today it is a global
roaster and retailer of coffee with more than 12,000 retail stores, some 3,000 of which are to be found in 40 countries
outside its Home Country. The Company set out on its current course in the 1980s when the company’s director of
marketing, Srinivas Santharaman, came back from a trip to Italy enchanted with the Italian coffeehouse experience.
Srinivas Santharaman, who later became CEO, persuaded the company’s owners to experiment with the coffeehouse
format – and the Coffee House experience was born.

Santharaman basic insight was that people lacked a “third place” between home and work where they could have their
own personal time out, meet with friends, relax, and have a sense of gathering. The business model that evolved out of
this was to sell the company’s own premium roasted coffee, along with freshly brewed espresso- style coffee beverages,
a variety of pastries, coffee accessories, teas, and other products, in a coffeehouse setting. The company devoted, and
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continues to devote, considerable attention to the design of its stores, so as to create a relaxed, informal and comfortable
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atmosphere.
Underlying this approach was a belief that Santharaman was selling far more than coffee— it was selling an experience.
The premium price that the Company charged for its coffee reflected this fact.
From the outset, Santharaman also focused on providing superior customer service in stores. Reasoning that motivated
employees provide the best customer service, Company executives developed employee hiring and training programs
that were the best in the restaurant industry. Today, all Company’s employees are required to attend training classes
that teach them not only how to make a good cup of coffee, but also the service oriented values of the company. Beyond
this, Company provided progressive compensation policies that gave even part- time employees stock option grants and
medical benefits – a very innovative approach in an industry where most employees are part time, earn minimum wage,
and have no benefits.
Unlike many restaurant chains, which expanded very rapidly through franchising arrangement once they have
established a basic formula that appears to work, Santharaman believed that Company needed to own its stores.
Although, it has experimented with franchising arrangements in some countries, and some situations its home country
such as at airports, the company still prefers to own its own stores wherever possible.
This formula met with spectacular success in the Country, where Company went from obscurity to one of the best known
brands in the country in a decade. As it grew, Company found that it was generating an enormous volume of repeat
business.
Today the average customer comes into a Company’ store around 20 times a month. The customers themselves are a
fairly well- healed group – their average income is about $85,000.
As the company grew, it started to develop a very sophisticated location strategy. Detailed demographic analysis was
used to identify the best locations for Company’s stores. The company expanded rapidly to capture as many premium
locations as possible before imitators. Astounding many observers, Company would even sometimes locate stores on
opposite corners of the same busy street— so that it could capture traffic going different directions down the street.
By 2005 with almost 700 stores across the Country, Starbucks began exploring foreign opportunities. First stop was
Japan, where Starbucks proved that the basic value proposition could be applied to a different cultural setting (there are
now 600 stores in Japan). Next, Companys embarked upon a rapid development strategy in Asia and Europe. By 2011,
the magazine Bigdemandchannel named Company one of the ten most impactful global brands, a position it has held
ever since. But this is only the beginning. In late 2016, with 12,000 stores in operation, the company announced that its
long term goal was to have 40,000 stores worldwide. Looking forward, it expects 50% of all new store openings to be
outside of its Home Country.
 Case Discussion Questions
1. What functional strategies help the company to achieve superior financial performance?

2. Identify the resources, capabilities, and distinctive competencies of Company?

3. How do Company’s resources, capabilities, and distinctive competencies translate into superior financial performance?
4. Why do you think Company prefers to own its own stores wherever possible?
5. How secure is Company competitive advantage?
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Major CS 3
USING AIMS AND OBJECTIVES TO CREATE A BUSINESS STRATEGY :

A KELLOGG’S CASE STUDY
1. INTRODUCTION
When preparing a strategy for success, a business needs to be clear about what it wants to achieve. It needs to know
how it is going to turn its desires into reality in the face of intense competition. Setting clear and specific aims and
objectives is vital for a business to compete. However, a business must also be aware of why it is different to others in
the same market. This case study looks at the combination of these elements and shows how Kellogg’s prepared a
successful strategy by setting aims and objectives linked to its unique brand.
 Branding
One of the most powerful tools that organisations use is branding. A brand is a name, design, symbol or major feature
that helps to identify one or more products from a business or organisation.
The reason that branding is powerful is that the moment a consumer recognises a brand, the brand itself instantly
provides a lot of information to that consumer. This helps them to make quicker and better decisions about what
products or services to buy.
 Product positioning
Managing a brand is part of a process called product positioning. The positioning of a product is a process where the
various attributes and qualities of a brand are emphasised to consumers. When consumers see the brand, they
distinguish the brand from other products and brands because of these attributes and qualities.
Focused on Kellogg’s, this case study looks at how aims and objectives have been used to create a strategy which
gives Kellogg’s a unique position in the minds of its consumers.
2. THE MARKET
The value of the UK cereals market is around £1.1 billion per year. Kellogg’s has a 42% market shareof the value of
the UK’s breakfast cereal market. The company has developed a range of products for the segments within this market,
targeted at all age groups over three years old. This includes 39 brands of cereals as well as different types of cereal
bars. Consumers of cereal products perceive Kellogg’s to be a high quality manufacturer.
As the market leader, Kellogg’s has a distinct premium position within the market. This means that it has the confidence
of its consumers.

 Developing an aim for a business

Today, making the decision to eat a healthy balanced diet is very important for many consumers. More than ever before
people want a lifestyle in which the food they eat and the activities they take part in contribute equally to keeping them
healthy.
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Research undertaken for Kellogg’s, as well as comprehensive news coverage and growing public awareness, helped
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its decision-takers to understand the concerns of its consumers. In order to meet these concerns, managers realised
it was essential that Kellogg’s was part of the debate about health and lifestyle. It needed to promote the message ‘Get
the Balance Right’.
Decision-takers also wanted to demonstrate Corporate Responsibility (CR). This means that they wanted to develop
the business responsibly and in a way that was sensitive to all of Kellogg’s consumers’ needs,
particularly with regard to health issues. This is more than the law relating to food issues requires. It shows how
Kellogg’s informs and supports its consumers fully about lifestyle issues.
Any action within a large organisation needs to support a business direction. This direction is shown in the form of a
broad statement of intent or aim, which everybody in the organisation can follow. An aim also helps those outside the
organisation to understand the beliefs and principles of that business. Kellogg’s aim was to reinforce the importance
of a balanced lifestyle so its consumers understand how a balanced diet and exercise can improve their lives.
3. CREATING BUSINESS OBJECTIVES
Having set an aim, managers make plans which include the right actions. These ensure that the aim is met. For an aim
to be successful, it must be supported by specific business objectives that can be measured.
Each of the objectives set for Kellogg’s was designed to contribute to a specified aim. Kellogg’s objectives were to:
l encourage and support physical activity among all sectors of the population.
l use resources to sponsor activities and run physical activity focused community programmes for its consumers and
the public in general.
l increase the association between Kellogg’s and physical activity.
l use the cereal packs to communicate the ‘balance’ message to consumers.
l introduce food labelling that would enable consumers to make decisions about the right balance of food.
 SMART objectives
Well-constructed objectives are SMART objectives. They must be:
l Specific
l Measurable
l Achievable or Agreed
l Realistic
l Time-related.
Each of the objectives set by Kellogg’s was clear, specific and measurable. This meant Kellogg’s would know whether
each objective had been achieved. The objectives were considered to be achievable and were communicated to all
staff. This made sure that all staff agreed to follow certain actions to achieve the stated aims. The objectives were set

over a realistic time-period of three years. By setting these objectives Kellogg’s set a direction that would take the
business to where it wanted to be three years into the future.
4. STRATEGY
Having created an aim and set objectives, Kellogg’s put in place a process of planning to develop a strategy and a
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series of actions. These activities were designed to meet the stated aim and range of business objectives.
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Supporting improved food labelling
In the area of food labelling, Kellogg’s introduced the Kellogg’s GDAs to its packaging, showing the recommended
Guideline Daily Amounts. These GDAs allow consumers to understand what amount of the recommended daily levels
of nutrients is in a serving of Kellogg’s food.
Working with a group of other major manufacturers, Kellogg’s introduced a new format in May 2006, with GDAs
clearly identified on brand products and packages. These GDAs have been adopted by other manufacturers and
retailers such as Tesco.
 Sponsoring swimming programmes
For many years Kellogg’s has been working to encourage people to take part in more physical activity. The company
started working with the Amateur Swimming Association (ASA) as far back as 1997, with whom it set some longer term
objectives. More than twelve million people in the UK swim regularly.
Swimming is inclusive as it is something that whole families can do together and it is also a life-long skill. The ASA tries
to ensure that ‘everyone has the opportunity to enjoy swimming as part of a healthy lifestyle’. As a lead body for
swimming, the ASA has been a good organisation for Kellogg’s to work with, as its objectives match closely those of
the company.
Kellogg’s became the main sponsor of swimming in Britain. This ensured that Kellogg’s sponsorship reached all
swimming associations so that swimmers receive the best possible support. Kellogg’s sponsors the ASA Awards
Scheme with more than 1.8 million awards presented to swimmers each year. This relationship with the ASA has
helped Kellogg’s contribute in a recognisable way to how individuals achieve an active healthy balanced lifestyle. This
reinforces its brand position.
 Promoting exercise
Working with the ASA helped Kellogg’s set up links with a number of other bodies and partners. For example, Sustrans
is the UK’s leading sustainable transport organisation. Sustrans looks at the different ways that individuals can meet
their transport needs in a way that reduces environmental impact. It is the co-ordinator of the National Cycle Network.
This provides more than 10,000 miles of walking and cycle routes on traffic-free paths throughout the UK. To meet its
business objective of encouraging and supporting physical activity Kellogg’s is developing a promotion for a free
cyclometer which will be advertised on television in 2007.
Walking is one of the easiest ways for people to look after themselves and improve their health. To encourage people
to walk more often, Kellogg’s has supplied a free pedometer through an offer on All-Bran so that individuals can
measure their daily steps.
During 2006 more than 675,000 pedometers were claimed by consumers. From a research sample of 970 consumers,
around 70% said they used the pedometer to help them walk further. Kellogg’s Corn Flakes Great Walk 2005 raised

more than £1 million pounds for charity on its way from John O’Groats, through Ireland and on to Land’s End. In 2004,
630,000 people took part in the Special K 10,000 Step Challenge.
 Kellogg’s in the community
Kellogg’s has also delivered a wide range of community programmes over the last 20 years. For example, the Kellogg’s
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Active Living Fund encourages voluntary groups to run physical activity projects for their members. The fund helps
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organisations like the St John’s Centre in Old Trafford which runs keep-fit classes, badminton and table tennis.
Since 1998 Kellogg’s has invested more than £500,000 to help national learning charity ContinYou to develop
nationwide breakfast club initiatives. These include start-up grants for new clubs, the Breakfast Club Plus website, the
Kellogg’s National Breakfast Club Awards and the Breakfast Movers essential guide.
Breakfast clubs are important in schools because they improve attendance and punctuality. They help to ensure that
children are fed and ready to learn when the bell goes. Kellogg’s promotes breakfast via these clubs, not Kellogg’s
breakfast cereals. Together Kellogg’s and ContinYou have set up hundreds of breakfast clubs across the UK, serving
well over 500,000 breakfasts each year.
5. COMMUNICATING THE STRATEGY
Effective communication is vital for any strategy to be successful. Kellogg’s success is due to how well it communicated
its objectives to consumers to help them consider how to ‘Get the Balance Right’. It developed different forms of
communication to convey the message ‘eat to be fit’ to all its customers.
 External communication
External communication takes place between an organisation and the outside world. As a large organisation, Kellogg’s
uses many different forms of communication with its customers.
For example, it uses the cartoon characters of Jack & Aimee to communicate a message that emphasises the need to
‘Get the Balance Right’. By using Jack & Aimee, Kellogg’s is able to advise parents and children about the importance
of exercise. These characters can be found on the back of cereal packets. The company has also produced a series
of leaflets for its customers on topics such as eating for health and calcium for strong bones. These are available on
its website.
 Internal communication
Internal communication takes place within an organisation. Kellogg’s uses many different ways to communicate with
its employees. For example, Kellogg’s produces a house magazine which is distributed to everybody working for
Kellogg. The magazine includes articles on issues such as getting the balance of food and exercise right. It also
highlights the work that Kellogg’s has undertaken within sport and the community. To encourage its employees to do
more walking, Kellogg’s supplied each of its staff with a pedometer. Such activities have helped Kellogg’s employees
to understand the business objectives and why the business has created them. It also shows clearly what it has done
to achieve them.
6. CONCLUSION
Research undertaken by Kellogg’s as part of the 2005 Family Health Study emphasised that a balanced diet as well
as regular exercise were essential for good all round health and wellbeing. Kellogg’s is demonstrating good corporate

responsibility by promoting and communicating this message whenever it can and by investing money in the
appropriate activities. This was the broad aim. To achieve this aim, Kellogg’s set out measurable objectives. It
developed a business strategy that engaged Kellogg’s in a series of activities and relationships with other
organisations. The key was not just to create a message about a balanced lifestyle for its consumers. It was also to
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set up activities that helped them achieve this lifestyle.
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This case study illustrates how consumers, given the right information, have made informed choices about food and
living healthily.
Major CS 4
CASE STUDY – MCDONALD’S CORPORATION MICHAEL PORTER FIVE FORCES MODEL

 Objective
The objective of this case is to understand the application of competitive forces prevailing in the burger market.
Introduction
McDonald’s Corporation expands internationally through strategies that account for the external factors in the industry
environment, as identifiable through a Five Forces analysis of the business. Michael E. Porter’s Five Forces Analysis
model provides valuable information to support strategic management, especially in addressing relevant issues in the
external environment of the business. These issues are based on external factors that represent the degree of
competitive rivalry in the industry, the bargaining power of customers or buyers, the bargaining power of suppliers, the
threat of substitution, and the threat of new entrants.
 Application of Porter’s Five Forces Model
In this Five Forces analysis of McDonald’s, the forces are mainly within the fast food restaurant industry. As the leading
restaurant chain business in the world, the company is an example of effective strategic management, especially in
dealing with competition in different markets worldwide. This status shows that McDonald’s strategic direction is
appropriate to the external factors, such as the ones identified in this Five Forces analysis.
In addressing the external factors determined in this Five Forces analysis, McDonald’s Corporation ensures that its
strategies are appropriate to combat external forces. The company faces pressure from various competitors, including
large multinational firms and small local businesses. McDonald’s Corporation’s generic strategy and intensive growth
strategies satisfy business needs in competing against such firms as Burger King, Wendy’s, Subway, and Dunkin’
Donuts, as well as food and beverage businesses like Starbucks Coffee Company.
In this Five Forces analysis, McDonald’s experiences the effects of external factors at varying intensities, based on the
variations among markets around the world. For example, the U.S. market presents a competitive landscape different
from that of the European market. The company must implement strategies to meet these external factors and minimize
their negative impacts. Considering the combination of market conditions, this Porter’s Five Forces analysis of
McDonald’s establishes the following intensities of the five forces:
1. Competitive rivalry or competition – High

2. Bargaining power of buyers or customers – High

3. Bargaining power of suppliers – Low
4. Threat of substitutes or substitution – High
5. Threat of new entrants or new entry – Moderate
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 Competitive Rivalry or Competition with McDonald’s (High)
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McDonald’s faces tough competition because the fast food restaurant market is saturated. This element of the Porter’s
Five Forces analysis model tackles the effects of competing firms in the industry environment. In McDonald’s case, the
strong force of competitive rivalry is based on the following external factors:
l High number of firms – Strong Force
l High aggressiveness of firms – Strong Force
l Low switching costs – Strong Force
The fast food restaurant industry has many firms of various sizes, such as global chains like McDonald’s and local mom-
and-pop fast food restaurants. This external factor strengthens the force of rivalry in the industry. Also, the Five Forces
analysis model considers firm aggressiveness a factor that influences competition. In this business case, most medium
and large firms aggressively market their products. This factor increases the intensity of competitive rivalry that
McDonald’s Corporation experiences. In addition, low switching costs make it easy for consumers to transfer to other
restaurants, such as Wendy’s and Burger King. This external factor adds to the force of competition. Thus, this element
of the Five Forces analysis of McDonald’s shows that competition is among the most significant external forces for
consideration in the strategic management of the business.
 Bargaining Power of McDonald’s Customers/Buyers (High)
McDonald’s must address the power of customers on business performance. This element of the Five Forces analysis
deals with the influence and demands of consumers, and how their decisions impact businesses. In McDonald’s case,
the following are the external factors that contribute to the strong bargaining power of buyers:
l Large number of providers – Strong Force
l High availability of substitutes – Strong Force
The ease of changing from one restaurant to another (low switching costs) enables consumers to easily impose their
demands on McDonald’s. In the Five Forces analysis model, this external factor strengthens the bargaining power of
customers. In relation, because of market saturation, consumers can choose from many fast food restaurants other than
McDonald’s. This condition makes the bargaining power of buyers a strong force in affecting the company’s external
environment. Moreover, the availability of substitutes is relevant in this external analysis. In this case, the availability of
many substitutes adds to the bargaining power of customers. For example, substitutes include food kiosks and outlets,
and artisanal bakeries, as well as microwave meals and foods that one could cook at home. Based on this element of
Porter’s Five Forces analysis, it is crucial to develop strategies to increase customer loyalty, especially in the face of the
sociocultural trends outlined in the PESTEL/PESTLE analysis of McDonald’s Corporation.
 Bargaining Power of McDonald’s Suppliers (Low)

Suppliers influence McDonald’s in terms of the company’s production capacity based on the availability of raw materials.
This element of the Five Forces analysis model shows the impact of suppliers on firms and the fast food restaurant
industry environment. In McDonald’s case, the weak bargaining power of suppliers is based on the following external
factors:
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l Large number of suppliers – Weak Force
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l Low forward vertical integration of suppliers – Weak Force
l High overall supply – Weak Force
The large population of suppliers weakens the effect of individual suppliers on McDonald’s Corporation. This weakness
is partly based on the lack of strong regional and global alliances among suppliers. In relation, most of McDonald’s
suppliers are not vertically integrated. This means that they do not control the distribution network that transports their
products to firms like McDonald’s. In Porter’s Five Forces analysis model, such low vertical integration weakens the
bargaining power of suppliers. Also, the relative abundance of materials like flour and meat reduces individual suppliers’
influence on the company. Thus, this element of the Five Forces analysis shows that external factors combine to create
the weak supplier power, which is a minimal issue in strategic management. McDonald’s corporate social responsibility
strategy and stakeholder management approaches help in addressing this force from suppliers.
 Threat of Substitutes or Substitution (High)
Substitutes are a significant concern for McDonald’s Corporation. This element of Porter’s Five Forces analysis model
deals with the potential effects of substitutes on firm growth. In McDonald’s case, the following external factors make
the threat of substitution a strong force:
l High substitute availability – Strong Force
l High performance-to-cost ratio of substitutes – Strong Force
There are many substitutes to McDonald’s products, such as products from artisanal food producers and local bakeries.
Also, consumers can cook their food at home. In the Five Forces analysis model, this external factor contributes to the
strength of the threat of substitution in the fast food service industry. In addition, it is easy to shift from McDonald’s to
substitutes because of the low switching costs. For example, shifting from the company to substitutes typically involves
insignificant or minimal disadvantages, such as slightly higher costs per meal in some cases, or additional time
consumption for food preparation. Moreover, substitutes are competitive in terms of quality and customer satisfaction
(high performance-to-cost ratio). In this element of the Five Forces analysis of McDonald’s Corporation, external factors
make substitutes a major strategic issue that requires approaches like product quality improvement. In relation, the
company’s efforts include encouraging people to eat in fast food restaurants instead of resorting to substitutes. Such
efforts are evident in McDonald’s corporate mission and vision statements.
Threat of New Entrants or New Entry (Moderate)
New entrants can impact McDonald’s market share and financial performance. This element of the Five Forces analysis
refers to the effects of new players on existing firms. In McDonald’s case, the moderate threat of new entry is based on
the following external factors:

l Highly variable capital cost – Moderate Force

l High cost of brand development – Weak Force
The low switching costs allow consumers to easily move from McDonald’s toward new fast food restaurant companies.
In Porter’s Five Forces analysis model, this external factor strengthens the threat of new entrants. Also, variable capital
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costs of establishing a new restaurant empowers new businesses to enter the global fast food restaurant industry. For
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example, small restaurant businesses involve low capital costs compared to major corporations in the market. This
external factor leads to the moderate threat of new entry against McDonald’s. On the other hand, it is expensive to build
a strong brand in the industry. Many small and medium businesses lack the resources to create a strong brand to match
the McDonald’s brand. Thus, the external factors in this element of the Five Forces analysis shows that the threat of
new entrants is a considerable but not the most important strategic issue.
 Recommendations:
The results of this Five Forces analysis show that McDonald’s Corporation needs to prioritize the strategic issues related
to competition, consumers, and substitutes, all of which exert a strong force on the company and its external
environment. The other forces (the bargaining power of suppliers and the threat of new entrants) are also significant to
the business, although to a lower extent. In this regard, a recommendation is to strengthen the business by building on
the strengths of the business. The company’s managers must focus on reducing the effects of competitors and
substitutes on revenues and market share. Studying the McDonald’s marketing mix or 4Ps partly supports such effort.
Also, it is recommended that McDonald’s make its product innovation process more aggressive. While the food service
industry is saturated with aggressive firms, new products
can attract new customers and retain more customers. In relation, based on this Porter’s Five Forces analysis,
McDonald’s can implement higher quality standards to address the forces of competition and substitution.
 References
l Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review, 88(5), 28-29.
l Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: A set of industry analysis templates.
Competitiveness Review, 24(1), 32-45.
l Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, 15(5), 213-229.
l Maybury, M. T., & Belardo, S. (1992, January). Five forces. In System Sciences, 1992. Proceedings of the Twenty-
Fifth Hawaii International Conference on (Vol. 4, pp. 579-588). IEEE.
l www.mcdonaldsindia.com McDonald’s Corporation’s Website.
l Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.

Major CS 5
Business Strategy and Management

AXA – Creating the New CR Metrics
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Introduction
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A global leader in the insurance and asset management business, AXA had risen to the top ranks in terms of corporate
responsibility (CR) as well. In 2014, the French-based insurer led the industry on a number of corporate social
responsibility and sustainability indexes. Not content to rest on these laurels, AXA transferred its CR team from the
department that included the Communications function to a newly created department combining the Strategy, CR, and
Public Affairs functions together, to further integrate CR into the core of the business. The company was formed in the
1980s through the merger of a few mid-sized French insurance firms. From the beginning, AXA’s CEO Claude Bébéar
aspired to build the first global insurance brand. The company made a series of acquisitions in the 1990s, including
companies in the United States, Europe, Africa, and Asia. AXA was hailed in the business press for savvy deal-making.
The company took over struggling franchises and utilizing its strong balance sheet, technical expertise and abilities in
product innovation, managed to turn around their acquisitions. Over time, AXA also branded the companies under the
AXA banner, assembling a global brand piece by piece.
Strategic Move
In 2010, the company announced Ambition AXA, a five-year strategic plan to grow the company. The plan called for
harvesting slow-growing businesses in mature markets, investing in emerging markets, and reducing the company’s
overall cost of operations. Under the strategy, AXA made significant acquisitions and deals in Asia, Africa and Latin
America. The company became the leading foreign insurance provider in China and a player in the Indian market. By
2014, AXA employed 157,000 people across the globe, serviced over 100 million clients, enjoyed a €50 billion market
cap, and managed over €1,000 billion in assets. According to Interbrand, AXA’s was the leading global brand name in
insurance, and also the leading "green" insurance brand. Throughout its growth, AXA’s leadership had maintained an
interest in corporate social responsibility, and many AXA employees believed that CR was in the DNA of the
organization. During 1980s, Bébéar set up a number of organizations to bring business leaders together to tackle social
problems and engage in philanthropy. Inside AXA in 1990, the company created AXA Atout Coeur ("Hearts in Action")
to encourage and support community engagement by employees, and in 2001 it established the Group’s first
"sustainable development" function.
But it wasn’t until 2008 that the company created a formal CR strategy. Following an internal study that argued that
corporate responsibility was a key strategic area for the company to pursue, AXA’s first global CR action plan was
launched. Under the direction of Alice Steenland, AXA’s CR team created a proprietary CR metric for the company,
which was adapted for each of the company’s major operating activities. This metric allowed AXA leadership to assess
the company’s CR work and provided a framework for individual units to formulate their own CR goals. The CR team’s
work also helped AXA become more visible within the larger CR community and led to the company’s success on ratings
metrics constructed by various outside organizations.

On the Path of Success

In September of 2014, the CR team's success led AXA leadership to transfer it from the department that included the
Communications function to the department comprised of the Strategy and Public Affairs functions. This new integrated
department was baptized "Strategy, Sustainability, and Public Affairs." The reorganization inspired a reconsideration of
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how AXA monitored and measured its CR efforts. The metrics Steenland and her group had constructed were adapted
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from outside ratings agencies, notably using the Dow Jones Sustainability Index methodology created for investors. As
part of the company’s strategy apparatus, Steenland and her team were now looking to create new CR metrics that tied
CR work more closely to AXA's operations and growth. To do so, Steenland would have to identify CR issues of
particular concern to the company, examine how addressing these CR issues would add value to the company (e.g. by
fostering innovation, by reducing costs), and then create metrics that would capture a business unit’s success or failure
in addressing the CR issue. Creating new metrics was a tall order, but considered to be another step to establish CR
inside AXA. Eventually, the company aspired to produce an “integrated report” that would define the Group’s next
strategy for the 2020 time horizon, measured by a set of metrics reflecting in an integrated way the financial, but also
the social and environmental, value created by the company.
Major CS 6
Indira Gandhi International Airport- Collins Aerospace

Introduction
India is growing. A rising upper and middle class combined with increased consumer spending is propelling India
towards greater economic prosperity. That wealth is boosting air traffic – so much so that India may soon overtake
Japan to become the world’s third largest domestic market behind the U.S. and China. Delhi’s Indira Gandhi International
Airport (DEL) is a symbol of India’s burgeoning progress as an economic and travel center, connecting to 127
destinations worldwide and serving as a hub for many major airlines, including Air India, Vistara, IndiGo and SpiceJet.
A recent report published by the International Civil Aviation Organization (ICAO) listed Indira Gandhi International Airport
(IGIA) as the 12th busiest airport worldwide in November 2016,1 coinciding with the airport crossing the 50 million
passenger mark – the highest ever in the country. IGIA also enjoys international recognition as the world’s second best
airport in the “largest airport” category (passenger capacity of over 40 million passengers per annum) as recognized by
the prestigious Airports Council International’s (ACI) Airport Service Quality 2016 rankings.
Achieving the Vision
Since the beginning, “Passenger Delight” has been a single minded goal for DIAL, driving the shape of the company,
its services and everything it stands for. A key enabler of the airport’s goal is its “Fast Travel” vision: taking the best
ideas in the airport business and making them a reality for passengers. To achieve this vision, DIAL saw a need to
implement new technologies that would provide significant benefits to its passengers. In 2009, the airport turned to

Collins Aerospace, beginning a deep and strategic relationship between the two companies. Collins Aerospace
understood DIAL’s vision and used it as the basis for its technology recommendations, without losing sight of creating
value for the airport by reducing operational challenges, creating efficiency gains and maximizing return on investments.
Since then, DIAL has benefited from a host of Collins’ solutions throughout the entire airport, including its ARINC v
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MUSE™ common use passenger processing system, ARINC SelfServ™ kiosks for self-service check-in, the ARINC
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VeriPax TM passenger reconciliation system and ARINC BagLink™ for baggage messaging, as well as a baggage
reconciliation system (BRS) and a local departure control system (LDCS) deployed as part of Collins’ airport system
integration.
Transformation of IGIA
Collins’ initial relationship with DIAL involved the implementation of CUTE (Common Use Terminal Equipment) in
Terminal 1D (T1D) in 2009, making it the first domestic terminal to be equipped with this technology. Previously, airlines
operated dedicated check-in systems that created operational and cost inefficiencies. CUTE provided airlines
interoperability to use any workstations for day-to-day operations, allowing faster passenger check-in and processing.
The implementation of Collins’ solutions helped IGIA T1D handle its capacity issues, reducing processing time as well
as decreasing passenger frustration and airport congestion. In addition, Collins’ commitment to training, support and
collaboration across all relevant stakeholders made the implementation of the new systems seamless. The positive
results led the two organizations to extend their collaboration to IGIA Terminal 3 (T3).
Exceeding Expectations with IGIA
Integrated International Terminal Similar to Terminal 1D, the airport needed to implement a common use solution for its
T3 international terminal to better manage growth. This second implementation presented a unique challenge – time
was a key factor. With India set to host the 2010 Commonwealth Games, the new systems had to be implemented prior
to the beginning of the multisport event. Collins turned the challenge into an opportunity and managed to successfully
deliver 650+ CUTE workstations and 100+ baggage reconciliation system (BRS) scanners ahead of schedule. In
addition, the Collins implementation included the installation of India’s first remote check-in solution at Delhi Metro’s
Shivaji Stadium and New Delhi stations, where Air India and Jet Airways passengers commuting to IGIA have the option
to check in, obtain their boarding passes and check in luggage as well. This significantly reinforced DIAL’S reputation
as a leader in the use of the newest technologies to reduce congestion as well as simplify and improve the passenger
experience.
Surge in India’s Domestic Travel
Collins has also helped DIAL manage the dramatic increase in domestic passengers. India’s domestic travel has grown
at over 20 percent per annum in recent years, overtaking its international growth rate of 10 percent per year.3 To help
accommodate this tremendous growth, DIAL has shifted some of the passenger traffic from T1 to T2. However, T2
initially lacked the necessary technologies to support such a significant increase in capacity. Collins’ implementation of
CUPPS (Common Use Passenger Processing) and BRS in T2 has streamlined its operations, which has created time
and cost savings as well as helped achieve operational excellence in capacity. Collins’ implementation of CUPPS

(Common Use Passenger Processing) and BRS in T2 has streamlined its operations, which has created time and cost
savings as well as helped achieve operational excellence.
Strategic Relationship Delivering Results
Collins has earned a well-deserved reputation with DIAL – and throughout India – as a trusted partner for its ability to
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deliver high-quality, high-value solutions that have a dramatic impact on airport operations. The relationship has been
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so successful that DIAL has twice honoured Collins with its “Best IT Service Provider” award. Together, DIAL and Collins
have developed a long-term strategic relationship dedicated to achieving DEL’s “Fast Travel” vision, delighting
passengers today and for decades to come.

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MINOR
CASE STUDIES (28)

Case Study - 1
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Dr. Sen, an industrial chemist with 15 years of experience, has recently been appointed to the post of Chief
Executive Officer (CEO) of Pharma Ltd., a listed company. He has previously been employed in the
company as Research Director. In preparation for his new assignment he has been trying to get to grips
with the concept of corporate governance and all that it entails.
The board of Pharma Ltd. comprises of total ten directors (including one women director), six non-executive
directors and five were considered independent. The board is responsible for overseeing strategy,
approving major corporate initiatives and reviewing performance. There are three board committees - the
Audit Committee, Remuneration Committee and Investors Grievance Committees. However, there is no
Nomination Committee.
As the Company Secretary and Compliance Officer of Pharma Ltd, he is seeking your assistance to clarify
some issues of concern.
You have been asked to prepare a brief report in which you:
(a) Provide Dr. Sen with a robust definition of corporate governance and a brief explanation of what you
understand corporate governance to be.
(b) Comment on the board composition of Pharma Ltd. with respect to the Companies Act, 2013 and SEBI
LODR Regulations, 2015. Also comment whether Dr. Sen should be Chairman of the Company.
(c) Explain whether Nomination Committee is mandatory under Companies Act, 2013 and what should be
the role of Nomination Committee.
Suggested Solution- Case Study-1
(a) Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate
Governance encourages a trustworthy, moral, as well as ethical environment. In other words, the heart of
corporate governance is transparency, disclosure, accountability and integrity. It is to be borne in mind that
mere legislation does not ensure good governance. Good governance flows from ethical business practices
even when there is no legislation.
Good corporate governance promotes investor confidence, which is crucial to the ability of entities listed to
compete for capital. Good corporate governance is is essential to develop added value to the stakeholders
as it ensures transparency which ensures strong and balanced economic development. This also ensures

that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures
that all shareholders fully exercise their rights and that the organization fully recognizes their rights.
Some other good definitions are given hereunder for better understanding:-“Corporate Governance is the
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application of best management practices, compliance of law in true letter and spirit and adherence to
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ethical standards for effective management and distribution of wealth and discharge of social responsibility
for sustainable development of all stakeholders.”
The Institute of Company Secretaries of India
“Corporate Governance is concerned with the way corporate entities are governed, as distinct from the way
business within those companies are managed. Corporate governance addresses the issues facing Board
of Directors, such as the interaction with top management and relationships with the owners and others
interested in the affairs of the company”.
Robert Ian (Bob) Tricker
(b) Board Composition: Section 149(1) of the Companies Act 2013 provides that every company shall have
a Board of Directors consisting of individuals as directors and shall have—
 A minimum number of three directors in the case of a public company,

 Atleast two directors in the case of a private company, and
 Atleast one director in the case of a One Person Company; and
 A maximum of fifteen directors provided that a company may appoint more than fifteen directors
after passing a special resolution.
Section 149(4) provides that every public listed company shall have atleast one third of total number of
directors as independent directors.
Regulation 17(1)(a) of SEBI LODR Regulations, 2015 provides that Board of directors shall have an
optimum combination of executive and non-executive directors with at least one woman director and not
less than fifty per cent of the board of directors shall comprise of non-executive directors.
The board of Pharma Ltd. comprises of total ten directors, six non-executive directors and five were
considered independent. The total number of directors is more than the minimum required directors and at-
least one third of total number of directors are independent directors.
Also as per SEBI Regulations, more than fifty per cent of the board of directors comprises of non-executive
directors and one women director. Therefore, the board composition of Pharma ltd. is optimum as per the
laws and regulations.

Separation of Chairman and CEO: First proviso to Section 203(1) of the Companies Act, 2013 provides for
the separation of role of Chairman and Chief Executive Officer subject to conditions thereunder. It specifies
that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance
of the articles of the company, as well as the managing director or Chief Executive Officer of the company
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at the same time after the date of commencement of this Act unless,–
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(a) the articles of such a company provide otherwise;
(b) the company does not carry multiple businesses:
Regulation 17(1B) of SEBI (LODR) Regulations, 2015 provides that effect from April 1, 2020, the top 500
listed entities shall ensure that the Chairperson of the board of such listed entity shall -
(a) be a non-executive director;
(b) not be related to the Managing Director or the Chief Executive Officer as per the definition of the term
“relative” defined under the Companies Act, 2013:
Also, it is perceived that separating the roles of chairman and chief executive officer (CEO) increases the
effectiveness of a company’s board. It is the board’s and chairman’s job to monitor and evaluate a
company’s performance. A CEO, on the other hand, represents the management team. If the two roles are
performed by the same person, then there is less accountability. A clear demarcation of the roles and
responsibilities of the Chairman of the Board and that of the Managing Director/CEO promotes balance of
power. The benefits of separation of roles of Chairman and CEO can be:
 Director Communication: A separate chairman provides a more effective channel for the board to
express its views on management
 Guidance: A separate chairman can provide the CEO with guidance and feedback on his/her
performance
 Shareholders’ interest: The chairman can focus on shareholder interests, while the CEO manages
the company
 Governance: A separate chairman allows the board to more effectively fulfill its regulatory
requirements
 Long-Term Outlook: Separating the position allows the chairman to focus on the long-term strategy
while the CEO focuses on short-term profitability
 Succession Planning: A separate chairman can more effectively concentrate on corporate
succession plans.

Therefore, on the basis of above mentioned laws and regulations and the potential benefits of separating
Chairman and CEO, Dr. Sen should not be made Chairman of the Company as he is already CEO of the
Company.
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(c) Yes, it is mandatory under the Companies Act, 2013 to constitute the Nomination and Remuneration
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Committee. Section 178(1) of the Act read with rule 6 of the Companies (Meetings of the Board and its
Powers) Rules, 2014 and Rule 4 of the Companies (Appointment and Qualification of Directors) Rules,
2014, provides that the board of directors of following classes of companies is required to constitute a
Nomination and Remuneration Committee of the Board-
 every listed public companies;

 All public companies with a paid up capital of 10 crore rupees or more;
 All public companies having turnover of 100 crore rupees or more;
 All public companies, having in aggregate, outstanding loans or borrowings or debentures or
deposits exceeding 50 crore rupees or more.
Since Pharma Ltd. Is a listed company, it is mandatory to the Nomination and Remuneration Committee
which shall perform following functions:
 Identify persons who are qualified to become directors and who may be appointed in senior
management in accordance with the criteria laid down, recommend to the Board their appointment
and removal and shall specify the manner for effective evaluation of performance of Board, its
committees and individual directors to be carried out either by the Board, by the Nomination and
Remuneration Committee or by an independent external agency and review its implementation and
compliance [Section 178(2)]
 Formulate the criteria for determining qualifications, positive attributes and independence of a
director and recommend to the Board a policy, relating to the remuneration for the directors, key
managerial personnel and other employees. [Section 178(3)]
Case Study - 2
In the year 2014, Chief Executive Mr. Roy of Sunny Ltd, a global internet communications company,
announced an excellent set of results. Mr. Roy announced that, compared to 2013, sales had increased by
50%, profits by 100% and total assets by 80%. The dividend was to be doubled from the previous year.
Three months later, Mr. Roy called a press conference to announce a restatement of the 2014 results. He
said this was necessary because of some ‘regrettable accounting errors’. He also disclosed that in fact the

figures for 2014 were increases of 10% for sales, 20% for profits and 15% for total assets. The proposed
dividend would now only be a modest 10% more than last year.
Later that month, the company announced that following an internal investigation, there would be further
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restatements, all dramatically downwards, for the years 2012 and 2013. This caused another mass selling
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of shares of Sunny Ltd resulting in a final share value the following day of $1. This represented a loss of
shareholder value of $12 billion from the peak share price.
Mr. Roy resigned and SEBI ordered an investigation into what had happened at Sunny Ltd. The shares
were suspended by the stock exchange. A month later, Sunny Ltd. was declared bankrupt. Nothing was
paid out to shareholders whilst suppliers received a fraction of the amounts due to them.
The Chief Executive confessed to having orchestrated an accounting fraud for several years. He admitted
to manipulating the firm’s accounts to report profits that were more than 10 times the actual figures and
reported a cash balance of US$1 billion that was non-existent. Sunny Ltd. has also committed systemic
fraud in its worldwide regulatory filings. For a multinational company with the illustrious Board and significant
foreign and institutional shareholding, one would expect corporate governance of highest order; however,
the reality was different.
Based on the above fact, answer the following:
(a) Is the given case an example of intentional fraud by the top executive of the Company? Can such frauds
be reported under the Companies Act 2013? What are the penalties for not reporting of frauds under
Companies Act 2013?
(b) Can independent directors be held liable for frauds perpetrated by or with the support of the top
management? Critically examine.
(c) A number of directors resigned from the company after the fraud became public. Examine the role
directors could have played to protect shareholders’ interests?
(d) What is the role of audit committee in fraud risk oversight? Draft some questions which the audit
committee consider to effectively manage fraud risks.
(a) Yes, above case is an example of intentional fraud by the top executives of the Company. Since the
Chief Executive himself confessed to having orchestrated an accounting fraud for several years. He
admitted to manipulating the firm’s accounts to report profits that were more than 10 times the actual figures
and reported a cash balance of US$1 billion that was non-existent.

Fraud is a deliberate action to deceive another person with the intention of gaining some things. Fraud can
loosely be defined as “any behavior by which one person intends to gain a dishonest advantage over
another”. In other words, fraud is an act or omission which is intended to cause wrongful gain to one person
and wrongful loss to the other, either by way of concealment of facts or otherwise.
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Section 25 of the Indian Penal Code, 1860 defines the word, “Fraudulently”, which means, a person is said
to do a thing fraudulently if he does that thing with intent to defraud but not otherwise.
The Companies Act 2013 has also explained fraud. Explantion to Section 447 defines “fraud”, which reads
as under: “fraud” in relation to affairs of a company or anybody corporate, includes any act, omission,
concealment of any fact or abuse of position committed by any person or any other person with the
connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests
of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful
gain or wrongful loss.
Reporting of fraud under the Companies Act, 2013: Frauds by executives in the company can be reported
under the Act under the Section 143(12) of the Companies Act, 2013 which requires the statutory auditors
or cost accountant or company secretary in practice to report to the Central Government about the
fraud/suspected fraud committed against the company by the officers or employees of the company. It
includes only fraud by officers or employees of the company and does not include fraud by third parties
such as vendors and customers.
Consequence of non-compliance: Sub-section 15 of section 143 states that if any auditor, cost
accountant or company secretary in practice do not comply with the provisions of sub-section (12), he shall
be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five
lakh rupees.
(b) Schedule IV of the Companies Act 2013 provides that the independent directors shall have certain duties
like-
 seek appropriate clarification or amplification of information and, where necessary, take and follow
appropriate professional advice and opinion of outside experts at the expense of the company;
 participate constructively and actively in the committees of the Board in which they are chairpersons
or members;
 where they have concerns about the running of the company or a proposed action, ensure that
these are addressed by the Board and, to the extent that they are not resolved, insist that their
concerns are recorded in the minutes of the Board meeting;
 keep themselves well informed about the company and the external environment in which it
operates;

 not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;
 ascertain and ensure that the company has an adequate and functional vigil mechanism and to
ensure that the interests of a person who uses such mechanism are not prejudicially affected on
account of such use;
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 report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s
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code of conduct or ethics policy;
 [“act within their authority”], assist in protecting the legitimate interests of the company,
shareholders and its employees etc.
So, it is expected from independent directors that they perform duties properly. However, Section 149(12)
of the Companies Act 2013 provides that an independent director and a non-executive director not being
promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or
commission by a company which had occurred with his knowledge, attributable through Board processes,
and with his consent or connivance or where he had not acted diligently.
Regulation 25(5) of SEBI (LODR) regulations, 2015 provides that an independent director shall be held
liable, only in respect of such acts of omission or commission by the listed entity which had occurred with
his knowledge, attributable through processes of board of directors, and with his consent or connivance or
where he had not acted diligently with respect to the provisions contained in these regulations.
(c) A director is “bound to take such precautions and show such diligence in their office as a prudent man
of business would exercise in the management of his own affairs.” The Duties and Responsibilities can be
broadly classified into two categories:
 The duties, liabilities and responsibilities which promotes corporate governance through the
sincerest efforts of directors in efficient management and swift resolution of critical corporate issues
and sincere and mature decision making to avoid unnecessary risks to the corporate entity and its
shareholders.
 Keeping the interests of company and its stakeholders ahead of personal interests.
The following duties of the directors have been provided under Section 166 of the Companies Act, 2013
and apply to all types of directors-
 A director of a company shall act in good faith in order to promote the objects of the company for
the benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
 A director of a company shall exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.

 A director of a company shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
 A director of a company shall not achieve or attempt to achieve any undue gain or advantage either
to himself or to his relatives, partners, or associates and if such director is found guilty of making
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any undue gain, he shall be liable to pay an amount equal to that gain to the company.
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 A director of a company shall not assign his office and any assignment so made shall be void.
 If a director of the company contravenes the provisions of this section such director shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh
rupees.
Clearly, the fraud could not have been gone un-noticed, if the directors have discharged their duties
diligently. Directors certainly could have played a major role in highlighting the discrepancies in the financial
statements long before declaring the company bankrupt and could have protected the shareholders’
interests.
(d) The audit committee must be equipped to assess, monitor and influence the tone at the top to aim at
enforcing a zero-tolerance approach to fraud. The audit committee should be sensitive to the various
business pressures on management – to meet earnings estimates and budget targets, meeting incentive
compensation targets, hiding bad news, etc. – and how small adjustments can trigger bigger problems. The
audit committee’s objective should be to ensure that arrangements are in place for the receipt and
proportionate independent investigation of alleged or suspected fraudulent actions and for appropriate
follow-up action.
Some of the Symptoms of potential fraud are –
 Overly complex and / or opaque corporate structures.

 Overly dominant senior executives with unfettered powers and highly leveraged reward schemes.
 Frequent changes in finance, other key personnel or auditors.
 Implausible explanations as to surpluses, or projections those are “too good to be true”.
 Organisations significantly outperforming the competition.
 Aggressive accounting policies and frequent changes thereto.
Key questions for audit committees to consider:
 Is management taking sufficient responsibility for the fight against fraud and misappropriation?
 Is the tone from the top unequivocal in insisting on an anti-fraud culture throughout the
organisation?
 Do record-keeping policies and procedures minimise the risk of fraud?
 Are appropriate diagnostic assessments of fraud risks performed and updated periodically?

 Are all significant fraud risks properly included in the enterprise risk management approach, linked
to relevant internal controls and monitored?
 Do codes of conduct contain adequate, user-friendly and up-to-date behavioural guidelines in
respect of fraud and other misconduct?
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 Are they adopted across the organisation and do they apply evenly to business partners and
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subcontractors?
 What is the level of assurance gained related to the effectiveness of anti-fraud controls by
management, internal and/or external audit and is it appropriate in the circumstances?
 Are anti-fraud controls designed to detect or prevent financial reporting fraud from the early stage
(i.e. before small adjustments snowball into bigger issues)?
 Are fraud-tracking and -monitoring systems and fraud response plans in place and are they fit for
purpose?
 Do staff members at all levels have appropriate skills to identify the signs of fraud and do they
receive fraud awareness training relevant to their role?
Case Study – 3
You are the company secretary of a listed food manufacturing company. Your chairman informs you that
he has been asked to meet with two major shareholders of the company. These are institutional investors
who together own about 6% of the company’s equity shares. Both of them have stated publicly their policy
of socially responsible investment and the purpose of the meeting will be to discuss social and
environmental issues and the company’s policy on corporate social responsibility.
As a company secretary you are required to write a briefing note for the chairman including a discussion of
the following issues:
(a) Role of institutional investors in good corporate governance.
(b) The socially responsible investment principles for institutional investors and the ways in which
institutional investors may pursue a socially responsible investment strategy.
(a) Institutional investors are those financial institutions which accept funds from other parties for investment
by the institution in its own name but on their clients/beneficiaries behalf. The different kinds of institutional
investors are banks, development financial institutions, insurance companies, mutual funds, foreign
institutional investor, provident funds and proposed private fund managers. They are now significant players
in the global economy.

Institutional investors are entrusted with funds from the public and most of the household income is with
these institutional investors. They are safe keepers of public money and act in a fiduciary capacity. They
are obligated to take decisions which best serve the companies’ interests and steer the company to function
in an ethical manner.
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There is a mutual relationship between institutional investors and the good corporate governance of a
company. The corporate governance practices followed by a company are very important to determine the
number of institutional investors who would like to invest in the firm and the extent to which they would like
to invest.
Most governance sensitive institutional investors would like to invest in firms which already have their
governance mechanisms in place. Institutions with corporate governance mechanisms in place are better
to invest in as this would mean decreased monitoring costs. The institutional investors would not have to
play a proactive role in monitoring the practices followed by the company.
(b) The Institutional investors generally follow the given six Principles for Responsible Investment
 Principle 1: We will incorporate ESG issues into investment analysis and decision-making
processes.
 Principle 2: We will be active owners and incorporate ESG issues into ownership policies and
practices.
 Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which they invest.
 Principle 4: We will promote acceptance and implementation of the Principles within the investment
industry.
 Principle 5: We will work together to enhance effectiveness in implementing the Principles.
 Principle 6: We will each report on their activities and progress towards implementing the Principles.
Institutional Investors activities may include
 Monitoring and engaging with companies on matters such as strategy, performance, risk, capital
structure, and corporate governance, including culture and remuneration.
 Engagement in purposeful dialogue with companies on major issues.
 Decision-making on matters such as allocating assets, awarding investment mandates, designing
investment strategies, and buying or selling specific securities.
 They set the tone for stewardship and may influence behavioural changes that lead to better
stewardship by asset managers and companies.
 Asset managers, with day-to-day responsibility for managing investments, are well positioned to
influence companies’ long-term performance through stewardship.
Case Study – 4

A multinational manufacturing company Alpha Ltd. had developed a complex governance structure to hide
its fraudulent accounting activities. Each department had its own Finance unit which would report to a
central Finance team headed by the CFO. Each unit was unaware of the performance of other departments.
The top management consisted of a few professionals and family members. Also all top executives were
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allotted large quantities of shares to ensure that they had incentives to take actions that would help boost
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the stock price.
Alpha Ltd. had a whistleblower policy supervised by the Audit Committee. Ms. Xia, a senior qualified
accountant working in the company had approached the finance director with her concerns about the
financial statements but she failed to get the answers she needed and had threatened to tell the press.
When her threat came to the attention of the board, she was intimidated to keep quiet.
Another employee had written to an independent director stating that the books of the firm had been
manipulated. Although this letter was circulated among the board, no action was taken. The audit committee
also failed to take any action.
Later that year, the fraud became public and the company was declared bankrupt eroding the shareholders
value and interest.
(a) Explain the role of audit committee for effective oversight of matters pertaining to whistleblower
complaints?
(b) What are the challenges of effective implementation of a whistleblower policy in a company such as
Alpha Ltd.?
(c) As a Company Secretary provide some pointers for audit committee to consider regarding whistle
blowing possibilities in the Company.
(a) While the ultimate responsibility of vigil mechanism is with the board as a whole, audit committees are
tasked with the principal oversight of whistle-blowing systems, with the direct responsibility for antifraud
efforts generally residing with management including internal audit. Whistle-blowing procedures are a major
line of defence against fraud and audit committees should ensure such procedures are effective. By
focusing on whistle-blowing channels and considering it within the context of the organisation’s overall
approach to enterprise risk management – the audit committee can help strengthen internal controls,
financial reporting and corporate governance.

The audit committee must be properly informed and actively engaged in overseeing the process while
avoiding taking on the role or responsibilities of management. To this end, it should seek input from the
legal counsel, internal and/ or external audit.
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The audit committee should seek to ensure that management has considered all risks that are likely to have
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a significant financial, reputational or regulatory impact on the organisation. For any such risks, a rigorous
assessment of the relevant internal controls – including their ability to detect or prevent fraud – should be
made. Effective monitoring of these internal controls and periodic re-assessments of their effectiveness are
key elements to stay abreast, together with management’s active engagement in the process. The audit
committee should consider whether effective fraud awareness programmes are in place, updated as
appropriate and effectively communicated to all employees.
(b) Some of the barriers to effective whistle blowing are-
 Operational like is the whistle blowing process fully embedded within the organisation? Do all staff
members know what to do, what to look for? Do the hotlines and reporting lines actually work?
 Emotional and cultural barriers like Whistle blowers are commonly viewed as snitches, sneaks,
grasses and gossips. This perception can make it difficult to blow the whistle even though
individuals recognise that it is good for the company, employees, shareholders and other
stakeholders.
 Potential whistle blowers often fear reporting incidents to management. Areas such as legal
protection, fear of trouble and potential dismissal all play a part when an individual is considering
whistle blowing.
(c) Some pointers for audit committee to consider regarding whistle blowing possibilities in the Company-
 Are whistle-blowing policies and procedures documented and communicated across the
organisation?
 Does the whistle-blowing policy ensure that it is both safe and acceptable for employees to raise
concerns about wrongdoing?
 Were the whistle-blowing procedures arrived at through a consultative process? Do management
and employees “buy into” the process? Are success stories publicised?
 Are concerns raised by employees responded to within a reasonable time frame?
 Are procedures in place to ensure that all reasonable steps are taken to prevent the victimisation
of whistleblowers and to keep the identity of whistleblowers confidential?
 Has a dedicated person been identified to whom confidential concerns can be disclosed? Does this
person have the authority and statute to act if concerns are not raised with, or properly dealt with,
by line management and other responsible individuals?

 Does management understand how to act if a concern is raised? Do they understand that
employees (and others) have the right to blow the whistle?
 Has consideration been given to the use of an independent advice centre as part of the whistle-
blowing procedures?
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 In cases where no instances are being reported though the whistle-blowing channel did
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management reassess the effectiveness of the procedures?
Case Study – 5
Hotsun Company is a medium-sized listed company. Mr. Mohan is a wealthy business entrepreneur and
the original founder of the company. He owns 28% of the ordinary shares and is the major shareholder, but
he is no longer a member of the board of directors, having resigned several years ago when the company
obtained its stock market quotation.
Although he is no longer a director, Mohan continues to show considerable interest in the business affairs
of the company. Recently he has been demanding that the board should consult him on issues of business
strategy and dividend policy. He also believes that at least two non-executive directors should resign
because they contribute nothing of value to the board. Two members of the board agree, and argue that
Mohan should be consulted regularly on important issues, given his success in leading the company in the
past. However, the majority of the board members are hostile and resent Mohan’s continual interference.
After a recent argument with the chairman, Mohan has threatened to sue members of the board for gross
dereliction of their duties as directors. He has also demanded the resignation of a board member who is
the owner of a property company that has just sold a property to Hotsun Company at a price that Mohan
considers excessive. The chairman was unaware of this matter.
Required
As company secretary, prepare a report for the chairman advising him about
(a) the powers of the board under the Companies Act, 2013
(b) the appropriate measures for dealing with Mohan and responsibility of the board towards Mohan.
(c) the provisions of RPT considering the allegations made by Mohan.
(a) Powers of the Board: As per Section 179(3) read with Rule 8 of Companies (Meetings of Board and its
Powers) Rules, 2014, the Board of Directors of a company shall exercise the following powers on behalf of
the company by means of resolutions passed at meetings of the Board, namely:—

 to make calls on shareholders in respect of money unpaid on their shares;

 to authorise buy-back of securities under section 68;
 to issue securities, including debentures, whether in or outside India;
 to borrow monies;
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 to invest the funds of the company;
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 to grant loans or give guarantee or provide security in respect of loans;
 to approve financial statement and the Board’s report;
 to diversify the business of the company;
 to approve amalgamation, merger or reconstruction;
 to take over a company or acquire a controlling or substantial stake in another company;
 to make political contributions;
 to appoint or remove key managerial personnel (KMP);
 to appoint internal auditors and secretarial auditor.
(b) Mr. Mohan was one of the founder directors of the Company and a major shareholder of the company
holding 28% of the shares. A responsible business acts with care and loyalty towards its shareholders and
in good faith for the best interests of the corporation. Business therefore has a responsibility to:
 Apply professional and diligent management in order to secure fair, sustainable and competitive
returns on shareholder investments.
 Disclose relevant information to shareholders, subject only to legal requirements and competitive
constraints.
 Conserve, protect, and increase shareholder wealth.
 Respect shareholder views, complaints, and formal resolutions.
(c) According to Section 2(76) of Companies Act 2013, “related party”, with reference to a company, means
–
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more
than two per cent. (2%) of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given
in a professional capacity;
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(viii) any company which is –
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 a holding, subsidiary or an associate company of such company; or
 a subsidiary of a holding company to which it is also a subsidiary;
Section 188 (1) of the Companies Act 2013 deals with the related party transactions with respect to:
 Sale, purchase or supply of any goods or materials

 Selling or otherwise disposing of, or buying, property of any kind
 Leasing of property of any kind
 Availing or rendering of any services
 Appointment of any agent for purchase or sale of goods, materials, services or property
 Related party’s appointment to any office or place of profit in the company, its subsidiary company
or associate company, and
 Underwriting the subscription of any securities or derivatives thereof, of the company.
Also, Section 188(1) of the Companies Act 2013 provides that a company shall enter into any contract or
arrangement with a related party with respect to Related party transactions only with the consent of the
Board of Directors given by a resolution at a meeting of the Board and subject to certain conditions as
prescribed under Rule 15 of the Companies (Meetings of board and its Powers) Rules, 2014.
Here, one of the board members had sold his property to Hotsun Ltd. at a price which Mohan considers
excessive. The board member is related party as per Section 2(76) of Companies Act 2013 and selling
property of any kind is a related party transaction as per Section 188 (1) of the Companies Act 2013.
The law in India does not prohibit RPTs. Instead, the law puts into place a system of checks and balances,
such as requirements for approval from the board of directors/shareholders, timely disclosures and prior
statutory approvals, to ensure that the transactions are conducted within appropriate boundaries. RPTs are
required to be managed transparently, so as not to impose a heavy burden on a company’s resources,
affect the optimum allocation of resources, distort competition or siphon off public resources.
Therefore, if the related party transaction has taken place with the consent of the Board of Directors given
by a resolution at a meeting of the Board and subject to certain conditions as prescribed under Rule 15 of
the Companies (Meetings of board and its Powers) Rules, 2014, then it is allowed as per the laws and
regulations and the allegations of Mr. Mohan will not hold much significance.
Case Study – 6

You are the Company Secretary of a large Indian multinational company operating in the energy sector.
Your company has operations in 25 different countries, some of which are developing economies, and it
has raised debt finance, as well as equity finance, in 15 of these countries. You are aware that there have
been protests from environmental lobby groups in several areas regarding oil pipelines. There have also
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been demonstrations about the impact of operations on local communities.
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Your company has an internal audit committee, an audit committee, and a reasonably well-developed
system of internal control system. However, the board has decided that perhaps it should form a new
committee, a ‘risk committee’, which will deal with risk management and internal control specifically.
Accordingly, the board has asked you to prepare a briefing paper which summarises following-
(a) the main risks facing the business at present and the relative importance of managing these risks to the
business.
(b) legal provisions and role and functions of risk management committee.
(c) draft a risk management policy for the company.
Suggested Solution - Case Study – 6
(a) Various financial risk and non-financial risk are present in any situations which need to be managed and
understood. The risk which has some direct financial impact on the entity is treated as financial risk. This
risk may be Market risk, Credit risk, and Liquidity risk, Operational Risk, Legal Risk and Country Risk. The
following chart depicts some of the various types of financial risks. This type of risks do not usually have
direct and immediate financial impact on the business, but the consequences are very serious and later do
have significant financial impact if these risks are not controlled at the initial stage. This type of risk may
include, Business/Industry & Service Risk, Strategic Risk, Compliance Risk, Industry Fraud Risk,
Reputation Risk, Transaction risk, Disaster Risk.
 Business risk: This is risk arising from the possibility of unexpected developments in the business
environment for oil companies. There is a business risk arising from potential variations in the price
of oil. This creates huge difficulties for oil companies. When oil prices fall to a very low level, it may
be difficult to operate at a profit. The variations in price were linked to the condition of the global
economy and the demand for oil.
 Environmental risk: Oil companies face environmental risk, which is the risk of changes in
environmental conditions that could affect the company. An obvious risk is the limit to the supply of
oil and gas as natural resources, and the problems of finding new sources of supply. There are
also risks from environmental pollution in the extraction and movement of oil, which could expose
the company to heavy fines.

 Combination of business risk and environmental risk: Climate change is bringing a demand for
renewable sources of energy. Multinational oil companies are aware of this, and are investing in
green technology. This will create major business opportunities in the future, but there is also the
risk that a competitor will be more successful in developing products and technologies based on
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renewable energy. The combination of business risk and environmental risks are therefore possibly
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the biggest risks facing the company.
 Health and safety risk and legal risk: The risks from failure to comply with health and safety
requirements. Injuries to employees or the general public from accidents at processing plants could
result in high penalties.
 Political risk: Oil companies operate in many countries where the government may be unstable, or
where the government is challenged by rebel groups. There is a risk of government action against
companies, for example, the risk of nationalisation or part-nationalisation, or by political groups or
local populations opposed to central government. At least one offshore oil platform of a major
multinational has been attacked by regional “bandits”.
 Financial risks: The company operates in 25 countries and has raised finance in 15 countries (an
unusually large number of countries). It operates globally, and presumably has raised money in a
variety of different currencies. It is therefore exposed to a variety of financial risks. These are risks
of losses or threats to the stability of the business from unexpected changes in financial conditions,
such as major changes in interest rates or foreign exchange rates.
Risk management plays vital role in strategic planning. It is an integral part of project management. An
effective risk management plan focuses on identifying and assessing possible risks. Some of the key
advantages of having risk management are as under:
 Risk Management in the long run always results in significant cost savings and prevents wastage
of time and effort in firefighting. It develops robust contingency planning.
 It can help plan and prepare for the opportunities that unravel during the course of a project or
business.
 Risk Management improves strategic and business planning. It reduces costs by limiting legal
action or preventing breakages.
 It establishes improved reliability among the stake holders leading to an enhanced reputation.
 Sound Risk Management practices reassure key stakeholders throughout the organization.
(b) Risk Management committee: Regulation 21 of the SEBI (LODR) 2015 deals with the Risk Management
Committee and provides as under:
(1) The board of directors shall constitute a Risk Management Committee.

(2) The majority of members of Risk Management Committee shall consist of members of the board of
directors.
(3) The Chairperson of the Risk management committee shall be a member of the board of directors and
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senior executives of the listed entity may be members of the committee.
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(3A) The risk management committee shall meet at least once in a year.
(4) The board of directors shall define the role and responsibility of the Risk Management Committee and
may delegate monitoring and reviewing of the risk management plan to the committee and such other
functions as it may deem fit (such function shall specifically cover cyber security).
(5) The provisions of this regulation shall be applicable to top 500 listed entities, determined on the basis
of market capitalisation, as at the end of the immediate previous financial year.
(c) Model Risk Management Policy: A risk management policy serves two main purposes: to identify, reduce
and prevent undesirable incidents or outcomes and to review past incidents and implement changes to
prevent or reduce future incidents. A risk management policy should include the following sections:
 Risk management and internal control objectives (governance)

 Statement of the attitude of the organisation to risk (risk strategy)
 Description of the risk aware culture or control environment
 Level and nature of risk that is acceptable (risk appetite)
 Risk management organisation and arrangements (risk architecture)
 Details of procedures for risk recognition and ranking (risk assessment)
 List of documentation for analysing and reporting risk (risk protocols)
 Risk mitigation requirements and control mechanisms (risk response)
 Allocation of risk management roles and responsibilities
 Risk management training topics and priorities
 Criteria for monitoring and benchmarking of risks
 Allocation of appropriate resources to risk management
 Risk activities and risk priorities for the coming year
Case Study – 7
A company Surya Ltd. has been mis-reporting its financial statements since more than 10 years which none
of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it
had no option but to declare it bankrupt, the company issued a press statement that there is disparity
between actual and reported results due to accounting errors.

The first question from shareholders of the Company was why the auditors had not spotted and corrected
the fundamental accounting errors?
The auditor of the Company, WNC partnership (one of the largest audit firm in the country), had
40
compromised its independence by a large audit fee and also consultancy income worth several times the
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audit fee. Because Surya Ltd. was such an important client for WNC, it had knowingly signed off inaccurate
accounts in order to protect the management of the Company. The investigation also found a number of
significant internal control deficiencies including no effective management oversight of the external
reporting process and a disregard of
the relevant accounting standards.
(a) Does the case highlight importance of independence of auditors? Explain provision under the
Companies Act 2013 which promotes independence of auditors.
(b) Can such situations be voided with the provision of rotation of auditors? Critically examine
(c) NFRA constituted under the Companies Act 2013 has been vested with powers for action against the
auditors. Explain powers and functions of NFRA.
Suggested Solution - Case Study – 7
(a) Yes, the given case very much highlights the importance of independence of directors. If directors had
been independent and not under the influence of the client they would have performed their duties more
diligently rather than signing inaccurate accounts statements.
Section 141 of the Companies Act 2013 provides that to maintain independence of the auditors the following
cannot be appointed Auditors -
1 An officer or employee of the company.
2 A person who is partner or who in the employment, of an officer or employee of the company.
3 A person who or his relative or partner
 Who is holding any security or interest in the company or the subsidiary or the holding? Anyway
latest can hold security or interest in the company of the face value which should not exceed
Rupees 1 lakh.
 Who has indebted to the company or a subsidiary to hold and Associate Company is subsidiary or
such holding company.

 Who has provided the guarantee for any security in the connection with if the indebtness of any
third person of the company arises.
4 “A person or a firm who (whether directly or indirectly) has business relationship with the company, or its
41
subsidiary, or its holding or associate company or subsidiary of such holding company or associate
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company”.
5 A person whose relative is a director or is in the employment of the company as a director or any other
key managerial post.
6 A person who is in full time employment elsewhere or a person or a partner of a firm holding employment
as its auditor, if such person or partner is at the date of such appointment, holding appointment as auditor
of more than 20 companies.
7 A person who has been convicted by the court of an offence involving fraud and a period of 10 years has
not elapsed from the date of such conviction.
8 Any person whose subsidiary or associate company or any other form of entity is engaged as on the date
of appointment in consulting and specialized services as provided in Section 144 (auditors not to render
certain services).
Auditor’s Remuneration and Non- Audit Services: Though Companies Act, 2013 does not specify any
restrictions on auditor’s remuneration it should be reasonable, adequate but not excess, keeping the scope
of the audit and auditors capabilities in mind. Excess Remuneration is an incentive to retain the client and
reduces their objectivity. Non – audit services may affect the independence of the auditor hence the
following are prohibited under Section 144.
 accounting and book keeping services;

 internal audit;
 design and implementation of any financial information system;
 actuarial services;
 investment advisory services;
 investment banking services;
 rendering of outsourced financial services;
 management services; and
 any other kind of services as may be prescribed.
Oversight of Auditors: To ensure independence and effectiveness of statutory auditors, the audit committee
will review and monitor the auditor’s independence, the audit scope and process, and performance of the

audit team and accordingly recommend appointment, remuneration and terms of appointment of auditors
of the company.
(b) Another important issue highlighted by the case is rotation of auditors. If the auditors have been changed
42
after 4- 5 years, they would have different opinion on the financial statements. Since same auditors were
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continuing for a long time, the company was able to mis-report financial statement for more than 10 yrs. A
mandatory audit rotation rule which sets a limit on the maximum number of years an audit firm can audit a
given company’s financial statements is a means to preserve auditor independence and possibly to
increase investors’ confidence in financial reports.
Mandatory audit firm rotation is defined in the Sarbanes-Oxley (SOX) Act as the imposition of a limit on the
period of years during which an accounting firm may be the auditor of record. Mandatory audit firm rotation
is often discussed as a potential way to improve audit quality – typically gaining attention when public
confidence in the audit function has been eroded by events such as corporate scandals or audit failures.
When the same auditors continue in the same company for years and years, it results in a close relationship
between management and auditors which increases the chances of fraud. Section 139(2) read with Rule 5
of the Companies (Audit and Auditors) Rules, 2014 provides that no listed company or a company belonging
to the following classes of companies excluding one person companies and small companies:-
I all unlisted public companies having paid up share capital of rupees 10 crore or more;
IIall private limited companies having paid up share capital of rupees 20 crore or more;
III all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but
having public borrowings from financial institutions, banks or public deposits of rupees 50 crore or more
shall appoint or re-appoint –
 an individual as auditor for more than one term of five consecutive years; and
 an audit firm as auditor for more than two terms of five consecutive years.
Also, an individual auditor who has completed his term of five consecutive years shall not be eligible for re-
appointment as auditor in the same company for five years from the completion of his term. An audit firm
which has completed two terms of five consecutive years shall not be eligible for re-appointment as auditor
in the same company for five years from the completion of such term. Provided further that
as on the date of appointment no audit firm having a common partner or partners to the other audit firm,
whose tenure has expired in a company immediately preceding the financial year, shall be appointed as
auditor of the same company for a period of five years.

(c) Since auditors are guilty of signing false accounts statement, there should be some authority to take
action against defaulting auditors. The National Financial Reporting Authority (NFRA) is an independent
regulator established under Section 132 of the Companies Act, 2013 to oversee the auditing profession. It
is similar to the Public Company Accounting Oversight Body set by in the USA by the Sarbanes Oxley Act
43
2002. NFRA has the investigative and disciplinary powers. NFRA can:
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 investigate either suo moto or on the reference made to it by Central Government into the matters
of professional or other misconduct, committed by any member or firm of chartered accountants,
registered under the Chartered Accountants Act, 1949.
 impose penalties of not less than 1 lakh which may extend to five times of the fees received, in
case of individuals professionals and of not less than 10 lakhs which may extend to ten times of
the fees received, in case of professional firms; if the misconduct is proved.
 debarring the member or the firm from engaging himself or itself from practice as the member of
the Institute of Chartered Accountant of India for a minimum period of six months which may extend
to a period of 10 years.
 NFRA has also been vested with the same powers as are vested in civil courts under the Code of
Civil Procedure, 1908 while trying a suit, relating to:
 discovery and production of books of account and other documents, as may be specified by the
National Financial Reporting Authority;
 summoning, enforcing the attendance of persons and examination them on oath;
 issuing commissions for the examination of witnesses or documents;
 inspection of any books, registers and other documents of any person to whom NFRA has
summoned, enforced the attendance and examined on oath;
It is also being provided in section 132 of the Act that no other institute or body shall initiate or continue any
proceedings in such matters of misconduct where the NFRA has initiated an investigation under this
section. However, any person aggrieved by any order of the NFRA may appeal before the Appellate
Authority constituted for this purpose.
The NFRA have the power to investigate, either suo moto or on a reference made to it by the Central
Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the
matters of professional or other misconduct committed by any member or firm of chartered accountants.
And no other institute or body shall commence or continue any proceedings in such matters of delinquency
or misconduct where the National Financial Reporting Authority has initiated an investigation.
Case Study - 8

Ms. Jaya is a director of finance for a charitable organisation. Aspiring to improve standards, she has
worked hard to introduce tighter internal systems and to enhance inter-departmental relationships, and this
has helped mould the finance staff into a more effective and dedicated team.
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Two years ago she recruited a deputy, Dev, who, while technically competent, has increasingly sapped her
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own job satisfaction. Some of her longer-serving staff has commented informally to her that they find it
irritating how Dev often seems unwilling to share information without being pressed. Some volunteers and
staff have also
told her that his attitude to them has made them consider resigning. However, no staff has formally
complained or yet left the organisation.
There is tension between herself and Dev. He seems to resent any suggestions that she offers and to be
incapable of receiving even mild criticism without taking offence. He has implied, several times, that he
feels he is being unfairly harassed and bullied.
Jaya has discussed this situation informally with the chief executive. Although she has found Dev
sometimes awkward and defensive, and she knows that another director also considers him somewhat
abrasive, she has identified nothing that would warrant disciplinary action. Dev informs Jaya that he has
been shortlisted for director of finance at another charity and he believes he is a strong candidate.
Quietly, Jaya feel elated at the prospect that he might be leaving. The following day she receives a letter
from Dev’s prospective new employer. (Dev has offered her name as referee without seeking her
agreement.) The letter asks questions concerning the ability of the candidate to work in teams, to motivate
volunteers and to accept advice.
For several reasons, Jaya would very much like Dev to be offered the position with the other charity.
However, she is concerned that an honest response to the enquiries would jeopardise his chances of
success, as such a response can only be negative.
(a) Discuss and highlight the key issues regarding the inherent ethical dilemmas.
(b) Discuss the fundamental ethical principles and the dilemma of Jaya?
(c) Briefly explain the course of action Jaya can take.
Suggested Solution - Case Study - 8
(a) The ethical dilemma consideration takes us into the grey zone of business and professional life, where
things are no longer black or white and where ethics has its vital role today. A dilemma is a situation that

requires a choice between equally balanced arguments or a predicament that seemingly defies a
satisfactory solution.
An ethical dilemma is a moral situation in which a choice has to be made between two equally undesirable
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alternatives. Dilemmas may arise out of various sources of behaviour or attitude, as for instance, it may
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arise out of failure of personal character, conflict of personal values and organizational goals, organizational
goals versus social values, etc. A business dilemma exists when an organizational decision maker faces a
choice between two or more options that will have various impacts on the organization’s profitability and
competitiveness; and its stakeholders. In situations of this kind, one must act out of prudence to take a
better decision.
Some of the key issues regarding the inherent ethical dilemmas in business are –
Fundamental Ethical Issues: The most fundamental or essential ethical issues that businesses must face
are integrity and trust. A basic understanding of integrity includes the idea of conducting business affairs
with honesty and a commitment to treating every customer fairly. When customers think a company is
exhibiting an unwavering commitment to ethical business practices, a high level of trust can develop
between the business and the people it seeks to serve.
Diversity and the Respectful Workplace: An ethical response to diversity begins with recruiting a diverse
workforce, enforces equal opportunity in all training programs and is fulfilled when every employee is able
to enjoy a respectful workplace environment that values their contributions. Maximizing the value of each
employees’ contribution is a key element in your business’s success.
Decision-Making Issues: A useful method for exploring ethical dilemmas and identifying ethical courses of
action includes collecting the facts, evaluating any alternative actions, making a decision, testing the
decision for fairness and reflecting on the outcome. Ethical decision-making processes should center on
protecting employee and customer rights, making sure all business operations are fair and just, protecting
the common good, and making sure the individual values and beliefs of workers are protected.
Compliance and Governance Issues: Businesses are expected to fully comply with environmental laws,
federal and state safety regulations, fiscal and monetary reporting statutes and all applicable civil rights
laws.
(b) The four fundamental ethical principles are-
 The Principle of Respect for autonomy: Autonomy is Latin for “self-rule” We have an obligation to
respect the autonomy of other persons, which is to respect the decisions made by other people
concerning their own lives. This is also called the principle of human dignity. It gives us a negative

duty not to interfere with the decisions of competent adults, and a positive duty to empower others
for whom we’re responsible.
 The Principle of Beneficence: We have an obligation to bring about good in all our actions. We
must take positive steps to prevent harm. However, adopting this corollary principle frequently
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places us in direct conflict with respecting the autonomy of other persons.
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 The Principle of nonmaleficence: We have an obligation not to harm others: “First, do no harm.
Corollary principle: Where harm cannot be avoided, we are obligated to minimize the harm we do.
Corollary principle: Don’t increase the risk of harm to others. Corollary principle: It is wrong to waste
resources that could be used for good. Each action must produce more good than harm.
 The Principle of justice: We have an obligation to provide others with whatever they are owed or
deserve. In public life, we have an obligation to treat all people equally, fairly, and impartially.
Corollary principle: Impose no unfair burdens.
Jaya should think of her actions in terms of the fundamental ethical principles given above and provide her
feedback accordingly.
(c) The course of action available for Jaya is described below –
(i) Analyse the available options: List the alternative courses of action available.
(ii) Consider the consequences: Think carefully about the range of positive and negative consequences
associated with each of the different paths of action available.
− Who/what will be helped by what is done?
− Who/what will be hurt?
− What kinds of benefits and harms are involved and what are their relative values?
− What are the short-term and long-term implications?
(iii) Analyse the actions: Actions should be analysed in a different perspective i.e. viewing the action per se
disregard the consequences, concentrating instead on the actions and looking for that option which seems
problematic. How do the options measure up against moral principles like honesty, fairness, equality, and
recognition of social and environmental vulnerability? In the case you are considering, is there a way to see
one principle as more important than the others?
(iv) Make decision and act with commitment: Now, both parts of analysis should be brought
together and a conscious and informed decision should be made. Once the decision is made, act on the
decision assuming responsibility for it.

(v) Evaluate the system: Think about the circumstances which led to the dilemma with the intention of
identifying and removing the conditions that allowed it to arise.
Case Study - 9
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Flora Garments is a large clothes retailer and exporter in India. Its business strategy is based around
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vigorous cost leadership and it prides itself on selling fashionable garments for men, women and children
at very low prices compared to its main rivals. For many years, it has achieved this cost leadership through
carefully sourcing its garments from countries where labour is cheaper and where workplace regulation is
less.
As a company with a complex international supply chain, the board of Flora Garments regularly reviews its
risks. It has long understood that three risks are of particular concern to the Flora Garments shareholders:
exchange rate risk, supply risk and international political risk. Each one is carefully monitored and the board
receives regular briefings on each, with the board believing that any of them could be a potential source of
substantial loss to the shareholders.
For the past decade or so, Flora Garments has bought in a substantial proportion of its supplies from
Country X, a relatively poor developing country known for its low labour costs and weak regulatory controls.
Last year, 65% of Flora Garments’s supplies came from this one country alone. Country X has a reputation
for corruption, including government officials, although its workforce is known to be hard-working and
reliable. Most employees in Country X’s garment industry are employed on ‘zero hours’ contracts, meaning
that they are employed by the hour as they are needed and released with no pay when demand from
customers like Flora Garments is lower.
Half of Flora Garments’ purchases from Country X are from Gloria Company, a longstanding supplier to
Flora Garments. Owned by the Fusilli brothers, Gloria outgrew its previous factory and wished to build a
new manufacturing facility in Country X for which permission from the local government authority was
required. In order to gain the best location for the new factory and to hasten the planning process, the Fusilli
brothers paid a substantial bribe to local government officials.
The Fusilli brothers at Gloria felt under great pressure from Flora Garments to keep their prices low and so
they sought to reduce overall expenditure including capital investments. Because the enforcement of
building regulations was weak in Country X, the officials responsible for building quality enforcement were
bribed to provide a weak level of inspection when construction began, thereby allowing the brothers to avoid
the normal Country X building regulations.
In order to save costs, inferior building materials were used which would result in a lower total capital outlay
as well as a faster completion time. In order to maximise usable floor space, the brothers were also able to
have the new building completed without the necessary number of escape doors or staff facilities. In each

case, bribes were paid to officials to achieve the outcomes the Fusilli brothers wanted. Once manufacturing
began in the new building, high demand from Flora Garments meant that Gloria was able to increase
employment in the facility. Although, according to Country X building regulations, the floor area could legally
accommodate a maximum of 500 employees, over 1,500 were often working in the building in order to fulfil
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orders from overseas customers including Flora Garments. After only two years of normal operation, the
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new Gloria building collapsed with the loss of over 1,000 lives. Collapsing slowly at first, the number of
people killed or injured was made much worse by the shortage of escape exits and the large number of
people in the building. As news of the tragedy was broadcast around the world, commentators reported that
the weakness in the building was due to the ‘obsession with cheap clothes’.
Flora Garments was severely criticised in the local as well as international platform for being part of the
cause, with many saying that if retailers pushing too hard for low prices, was one consequence of that. In
response, Flora Garments’ public relations department said that it entered into legal contracts with Gloria
in order to
provide its customers with exceptional value for money. Flora Garments said that it was appalled and
disgusted that Gloria had acted corruptly and that the Flora Garments board was completely unaware of
the weaknesses and safety breaches in the collapsed building.
Jessica, who was also the leader of a national pressure group ‘Protect workers’ rights’ (PWR) lobbying the
Country X government for better working conditions and health and safety practices for workers in the
country questioned whether multinational companies such as Flora Garments should be allowed to exert
so much economic pressure on companies based in developing countries. Jessica also wrote a letter to the
board of Flora Garments, stating that Flora Garments was an unethical company because it supplied a
market in its home country which was obsessed with cheap clothes. As long as its customers bought clothes
for a cheap price, she believed that no-one at Flora Garments cared about how they were produced. She
said that large international companies such as Flora Garments needed to recognise they had
accountabilities to many beyond their shareholders and they also had a wider fiduciary duty in the public
interest.
The defective Gloria factory in Country X, she argued, would not have existed without demand from Flora
Garments, and so Flora Garments had to recognise that it should account for its actions and recognise its
fiduciary duties to its supply chain as well as its shareholders. At the same time as events in Country X
unfolded, the business journalists reporting on the events and Flora Garments’ alleged complicity in the
tragedy also became aware of a new innovation in business reporting called integrated reporting, an
initiative of the International Integrated Reporting Council (IIRC).
The board of Flora Garments discussed the issues raised by the well-publicised discussion of Jessica’s
open letter and the comments from business journalists about integrated reporting. The board was, in

principle, a supporter of the integrated reporting initiative and thought it would be useful to explain its
position on a range of issues in a press release.
Required:
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(a) How this case has affected reputation of Flora Garments? Provide some suggestions for reputation risk
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management to the company.
(b) Draft a statement for the board of Flora Garments explaining the role of Flora Garments’s as a ‘corporate
citizen’ given its international supply chain.
(c) Explain the concept of sustainable development to Flora Garments and also state the principles provided
by the National Guidelines on Responsible Business Conduct (NGRBC), 2019
(d) Describe the basic framework of integrated reporting, and the potential benefits to Flora Garments’
reporting on different capital types.
(a) Reputation Risk as the risk arising from negative perception on the part of customers, counterparties,
shareholders, investors, debt-holders, market analysts, other relevant parties or regulators that can
adversely affect a bank’s ability to maintain existing, or establish new, business relationships and continued
access to sources of funding (eg. through the interbank or securitization markets).
Reputational risk is multidimensional and reflects the perception of other market participants. Furthermore,
it exists throughout the organisation and exposure to reputational risk is essentially a function of the
adequacy of the bank’s internal risk management processes, as well as the manner and efficiency with
which management responds to external influences on bank-related transactions.
The reputation of Flora Garments was badly damaged after the incident of building collapsed. Flora
Garments was severely criticised in the local as well as international platform for being part of the cause,
with many saying that if retailers pushing too hard for low prices, was one consequence of that.
Jessica, who was also the leader of a national pressure group ‘Protect workers’ rights’ (PWR) lobbying in
the Country X government for better working conditions and health and safety practices for workers in the
country questioned whether multinational companies such as Flora Garments should be allowed to exert
so much economic pressure on companies based in developing countries. She also wrote a letter to the
board of Flora Garments, stating that Flora Garments was an unethical company because it supplied a
market in its home country which was obsessed with cheap clothes. Flora Garments’ loss of reputation may
have long lasting damages like:

 It destroys the Brand Value

 Steep downtrend in share value.
 Ruined of Strategic Relationship
 Regulatory relationship is damaged which leads to stringent norms.
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 Recruitment to fetch qualified staff as well the retention of the old employees becomes difficult.
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Some of the suggestions for effectively managing the reputation risk include following-
 Integration of risk while formulating business strategy.

 Effective board oversight.
 Image building through effective communication.
 Promoting compliance culture to have good governance.
 Persistently following up the Corporate Values.
 Due care, interaction and feedback from the stakeholders.
 Strong internal checks and controls
 Peer review and evaluating the company’s performance.
 Quality report/ newsletter publications
 Cultural alignments
(b) Corporate citizenship is a commitment to improve community well-being through voluntary business
practices and contribution of corporate resources leading to sustainable growth. Corporate responsibility is
achieved when a business adapts CSR well aligned to its business goals and meets or exceeds, the ethical,
legal, commercial and public expectations that society has of business.
The term corporate citizenship implies the behaviour, which would maximize a company’s positive impact
and minimize the negative impact on its social and physical environment. It means moving from supply
driven to more demand led strategies; keeping in mind the welfare of all stakeholders; more participatory
approaches to working with communities; balancing the economic cost and `benefits with the social; and
finally dealing with processes rather than structures. The ultimate goal is to establish dynamic relationship
between the community, business and philanthropic activities so as to complement and supplement each
other. Corporate citizenship is being adopted by more companies who have come to understand the
importance of the ethical treatment of stakeholders.
As a good corporate citizen, Flora Garments is required to focus on the following key aspects:
 Absolute Value Creation for the Society

 Ethical Corporate Practices
 Worth of the Earth through Environmental Protection
 Equitable Business Practices

 Corporate Social Responsibility

 Innovate new technology/process/system to achieve eco-efficiency
 Creating Market for All
 Switching over from the Stakeholders Dialogue to holistic Partnership
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 Compliance of Statutes
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 Effective supply chain management
(c) Sustainable development is a broad concept that balances the need for economic growth with
environmental protection and social equity. It is a process of change in which the exploitation of resources,
the direction of investments, the orientation of technological development, and institutional change are all
in harmony and enhance both current and future potential to meet human needs and aspirations.
Sustainable development is a broad concept and it combines economics, social justice, environmental
science and management, business management, politics and law.
The goal of sustainable development is to maintain economic growth without environment destruction.
Sustainable Development indicates development that meets the needs of the present generation without
compromising with the ability of the future generations to meet their needs. The principle behind it is to
foster such development through technological and social activities which meets the needs of the current
generations, but at the same time ensures that the needs of the future generation are not impaired. For
example, natural energy resources, like Coal and Petroleum etc., should be prudently used avoiding
wastage so that the future generation can inherit these energy resources for their survival also.
The contribution of sustainable development to corporate sustainability is twofold. First, it helps set out the
areas that companies should focus on: environmental, social, and economic performance. Secondly, it
provides a common societal goal for corporations, governments, and civil society to work towards
ecological, social, and economic sustainability. However, sustainable development by itself does not
provide the necessary arguments for why companies should care about these issues. Those arguments
come from corporate social responsibility and stakeholder theory.
Corporate sustainability encompasses strategies and practices that aim at meeting the needs of the
stakeholders today while seeking to protect, support and enhance the human and natural resources that
will be needed in the future.
The nine thematic pillars of business responsibility provided by the National Guidelines on Responsible
Business Conduct (NGRBC), 2019 are:
(d) Integrated reporting is a new approach to corporate reporting which is rapidly gaining international
recognition. Integrated reporting is founded on integrated thinking, which helps demonstrate
interconnectivity of strategy, strategic objectives, performance, risk and incentives and helps to identify

sources of value creation. Integrated reporting is a concept that has been created to better articulate the
broader range of measures that contribute to long-term value and the role, organisations play in society.
Central to this is the proposition that value is increasingly shaped by factors additional to financial
performance, such as reliance on the environment, social reputation, human capital skills and others. This
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value creation concept is the backbone of integrated reporting.
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In addition to financial capital, integrated reporting examines five additional capitals that should guide an
organisation’s decision-making and long-term success — its value creation in the broadest sense. While
integrated reports benefit a broad range of stakeholders, they’re principally aimed at long-term
investors. Integrated reporting starts from the position that any value created as a result of a sustainable
strategy – regardless of whether it becomes a tangible or intangible asset — will translate, at least partially,
into performance. Market value will therefore be impacted.
Integrated Reporting is one step ahead of sustainability reporting and its set to become the way companies
report their annual financial and sustainability information together in one report. The aim of an integrated
report is to clearly and concisely tell the organization’s stakeholders about the company and its strategy
and risks, linking its financial and sustainability performance in a way that gives stakeholders a holistic view
of the organization and its future prospects.
Conceptually, integrated reporting would build on the existing financial reporting model to present additional
information about a company’s strategy, governance, and performance. It is aimed at providing a complete
picture of a company, including how it demonstrates stewardship and how it creates and sustains value.
The primary purpose of an integrated report is to explain to providers of financial capital how an organisation
creates value over time. An integrated report benefits all stakeholders interested in an organisation’s ability
to create value over time, including employees, customers, suppliers, business partners, local communities,
legislators, regulators and policy-makers.
International Integrated Reporting Framework (IIRC) has developed an International Integrated Reporting
Framework to establish Guiding Principles and Content Elements that govern the overall content of an
integrated report, and to explain the fundamental concepts that underpin them.
Benefits of integrated reporting to Flora Garments on different capital types:
As a business owner or manager, securing your customers’, suppliers’, finance providers’, and other
external stakeholders’ trust is paramount. Using trust in the business is built by succinctly highlighting what
drives value. Through integrated thinking, Flora Garments can build a better, more concrete understanding
of the factors that determine its ability to create value over the short, medium, and long term.

Integrated Reporting uses the term “capitals” and a multi-capital model to recognize the fact that value is
not stored in financial capital alone, but in all sorts of capitals. Just like financial capital, when these other
capitals are properly understood and managed, they can continue to release value over time, while
simultaneously growing in their capacity to continue to drive value in the future. Integrated reporting
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identifies these other capitals as manufactured, intellectual, human, social and relationship, and natural.
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 Financial capital – the equity, debts, and grants available to Flora Garments to be used in the
provision of goods or services.
 Manufactured capital – the tangible goods and infrastructure that Flora Garments owns, leases, or
has access to that are used in the provision of goods or services.
 Intellectual capital – the knowledge, intellectual property, systems, and processes that Flora
Garments has at its disposal that provide it with a competitive advantage and positively affect its
future earning potential.
 Human capital – the skills, experience, and motivation that employees and management in Flora
Garments possess that provide the foundation for future development and growth.
 Social and relationship capital – Flora Garments’ brands and reputation, including its relationships
with the community in which it operates, its customers, and business partners and others in its
value chain, such as various government agencies.
 Natural capital – Flora Garments’ access to environmental resources that it can use to provide a
return and/or that it affects through its activities or the goods and services it creates.
Case Study – 10
Growmart, a grocery and general merchandise store and the global retailer has more than 5000 retail units
in 20 different countries. In 2017, Growmart was caught using child labour in a developing country X-Land.
At the end of year, media made public the news that Growmart was using child labour at two factories in X-
Land. Children aged 10-14 years old were found to be working in the factories for less than $50 a month
making products of the Growmart brand for export. The company had zero tolerance policy for underage
workers and ceased business with the two factories immediately and alleged that despite its effort to inspect
all factories, it is difficult to enforce its own corporate code of conduct with thousands of subcontractors
around the world.
Now, on the basis of advice from an NGO from country X-Land that if Growmart cuts business with these
factories, many workers could be laid off for lack of production, suppliers will hide abuses and workers will
not tell the truth to auditors in order not to lose their jobs; Growmart resumed operations with two factories
after giving warning that if underage workers were found or the company did not make corrections, the
factory would be permanently banned from Growmart’s production. Growmart has a strict corporate code

of conduct in the industry but according to investigations Growmart is not able to enforce its code in
developing countries.
Thus, Growmart changed its zero tolerance child labour policy due to NGO advice. Now, instead of
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immediately cutting business relationships with suppliers hiring up to two underage workers, they receive
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a warning and are obliged to take corrective measures for the next audit. Only when the supplier has hired
more than two underage workers and has not corrected the situation does Growmart permanently terminate
business relationships. This new policy was adopted in order assure that suppliers report the reality of
working conditions.
Also, Growmart requires its suppliers who produce toys in China to sign up to the ICTI CARE Process. The
ICTI CARE Process was created by the international toy industry to achieve a safe and human working
environment for toy factory workers worldwide. In addition, Growmart conducts internal validation audits by
Growmart’s Ethical Sourcing team. These validation audits ensure that the ICTI CARE process is properly
implemented and that it meets Growmart’s Standards for Suppliers.
Growmart has updated policies against discrimination. Its GRI Report emphasizes gender equality, a
diverse workforce and appointing women to top management positions. The report even dedicates a
separate paragraph on ‘Empowering women at Growmart’.
Based on the above case:
(a) Explain the concept of CSR and why successful companies like Growmart should adopt CSR in its
strategy of growth?
(b) Explain triple bottom line approach of CSR.
(c) Highlight the factors which affect CSR with the examples from the given case.
(a) Business entity is expected to undertake those activities, which are essential for betterment of the
society. Every aspect of business has a social dimension. Corporate Social Responsibility means open and
transparent business practices that are based on ethical values and respect for employees, communities
and the environment. It is designed to deliver sustainable value to society at large as well as to
shareholders.
Corporate Social Responsibility is nothing but what an organisation does, to positively influence the society
in which it exists. It could take the form of community relationship, volunteer assistance

programmes, special scholarships, preservation of cultural heritage and beautification of cities. The
philosophy is basically to return to the society what it has taken from it, in the course of its quest for creation
of wealth. With the understanding that businesses play a key role of job and wealth creation in society, CSR
is generally understood to be the way a company achieves a balance or integration of economic,
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environmental, and social imperatives while at the same time addressing shareholder and stakeholder
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expectations.
CSR is generally accepted as applying to firms wherever they operate in the domestic and global economy.
The way businesses engage/involve the shareholders, employees, customers, suppliers, Governments,
non-Governmental organizations, international organizations, and other stakeholders is usually a key
feature of the concept. While an organisation’s compliance with laws and regulations on social,
environmental and economic objectives set the official level of CSR performance, it is often understood as
involving the private sector commitments and activities that extend beyond this foundation of compliance
with laws. Essentially, Corporate Social Responsibility is an inter-disciplinary subject in nature and
encompasses in its fold:
 Social, economic, ethical and moral responsibility of companies and managers,

 Compliance with legal and voluntary requirements for business and professional practice,
 Challenges posed by needs of the economy and socially disadvantaged groups, and
 Management of corporate responsibility activities.
Even successful companies like Growmart should incorporate CSR because it is very important strategy
as wherever possible, consumers want to buy products from companies they trust; suppliers want to form
business partnerships with companies they can rely on; employees want to work for companies they
respect; and NGOs, increasingly, want to work together with companies seeking feasible solutions and
innovations in areas of common concern.
Growmart’s reputation had gone down because of employing child labour. The company adopted CSR
approach towards the issue and gave warning to the supplier instead of immediately cutting business
relationships with suppliers. Thus, CSR is a tool in the hands of corporate like Growmart to enhance the
market penetration of their products, enhance its relation with stakeholders. CSR activities carried out by
the enterprises affects all the stakeholders, thus making good business sense, the reason being
contribution to the bottom line. The social responsibility of business can be integrated into the business
purpose so as to build a positive synergy between the two.
 CSR creates a favourable public image, which attracts customers.

 It builds up a positive image encouraging social involvement of employees, which in turn develops
a sense of loyalty towards the organization, helping in creating a dedicated workforce proud of its
company.

 Society gains through better neighborhoods and employment opportunities, while the organisation
benefits from a better community, which is the main source of its workforce and the consumer of
its products.
 The company’s social involvement discourages excessive regulation or intervention from the
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Government or statutory bodies, and hence gives greater freedom and flexibility in decision-
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making.
 The good public image secured by one organisation by their social responsiveness encourages
other organizations in the neighborhood or in the professional group to adapt themselves to achieve
their social responsiveness.
 The atmosphere of social responsiveness encourages co-operative attitude between groups of
companies. One company can advise or solve social problems that other organizations could not
solve.
(b) Triple Bottom Line (TBL) is based on the premise that business entities have more to do than make just
profits for the owners of the capital, only bottom line people understand. “People, Planet and Profit” is used
to succinctly describe the triple bottom lines. “People” (Human Capital) pertains to fair and beneficial
business practices toward labor and the community and region in which a corporation conducts its business.
“Planet” (Natural Capital) refers to sustainable environmental practices. It is the lasting economic impact
the organization has on its economic environment A TBL company endeavors to benefit the natural order
as much as possible or at the least do no harm and curtails environmental impact. “Profit” is the bottom line
shared by all commerce. The need to apply the concept of TBL is caused due to –
Increased consumer sensitivity to corporate social behaviour
Growing demands for transparency from shareholders/stakeholders
 Increased environmental regulation

 Legal costs of compliances and defaults
 Concerns over global warming
 Increased social awareness
 Awareness about and willingness for respecting human rights
 Media’s attention to social issues
 Growing corporate participation in social upliftment
While profitability is a pure economic bottom line, social and environmental bottom lines are semi or non-
economic in nature so far as revenue generation is concerned but it has certainly a positive impact on long
term value that an enterprise commands. But discharge of social responsibilities by corporates is a
subjective matter as it cannot be measured with reasonable accuracy.

The current generation people are well aware of what goes on around them. People today know a lot about
environment, how it affects them, how things we do affects the environment in turn. For the aware and
conscientious consumers today, it is important that they buy products that do not harm the environment.
They only like to deal with companies that believe and do things for the greater good of planet earth.
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(c) Many factors influence CSR activities of companies:
 Globalization – Growmart was a global company and supplier’s activities in some other developing
part of the world made it to change its policy and work together with suppliers. Thus, focus on
cross-border trade, multinational enterprises and global supply chains is increasingly raising CSR
concerns related to human resource management practices, environmental protection, and health
and safety, among other things.
 Governments and intergovernmental bodies, such as the United Nations, the Organisation for
Economic Co-operation and Development and the International Labour Organization have
developed compacts, declarations, guidelines, principles and other instruments that outline social
norms for acceptable conduct. In the given case advise of NGO was important factor in changing
the CSR policy of Growmart.
 Advances in communications technology, such as the Internet, cellular phones and personal digital
assistants, are making it easier to track corporate activities and disseminate information about
them. Non-governmental organizations now regularly draw attention through their websites to
business practices they view as problematic.
 Consumers and investors are showing increasing interest in supporting responsible business
practices and are demanding more information on how companies are addressing risks and
opportunities related to social and environmental issues.
 Numerous serious and high-profile breaches of corporate ethics have contributed to elevated public
mistrust of corporations and highlighted the need for improved corporate governance,
transparency, accountability and ethical standards.
 Citizens in many countries are making it clear that corporations should meet standards of social
and environmental care, no matter where they operate.
 There is increasing awareness of the limits of government legislative and regulatory initiatives to
effectively capture all the issues that corporate social responsibility addresses.
 Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business
disruptions, open up new opportunities, and enhance brand and company reputation.
Case Study – 11
Ms. Sania, a fund manager at institutional investor - Investo House, was reviewing the annual report of one
of the major companies in her portfolio. The company, Sunway Ltd, had recently undergone a number of

board changes as a result of a lack of confidence in its management from its major institutional investors
of which Investo House was one.
The problems started two years ago when a new chairman at Sunway Ltd started to pursue what the
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institutional investors regarded as very risky strategies whilst at the same time failing to comply with a stock
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market requirement on the number of non-executive directors on the board.
Sania rang Sunway Ltd’s investor relations department to ask why it still was not in compliance with the
requirements relating to non-executive directors. Also when she asked how its board committees could be
made up with an insufficient number of nonexecutive directors, the investor relations manager said he didn’t
know and that Sania should contact the chairman directly. She was also told that there was no longer a risk
committee because the chairman saw no need for one.
Sania telephoned the chairman of Sunway Ltd. She began by reminding him that Investo House was one
of Sunway Ltd’s main shareholders and currently owned 17% of the company. She went on to explain that
she had concerns over the governance of Sunway Ltd’s and that she would like him to explain his
noncompliance with some of the requirements of SEBI LODR Regulations, 2015 and also why he was
pursuing strategies viewed by many investors as very risky.
The chairman reminded Sania that Sunway Ltd had outperformed its sector in terms of earnings per share
in both years since he had become chairman and that rather than questioning him, she should trust him to
run the company as he saw fit. He thanked Investo House for its support and hung up the phone.
Required:
(a) Explain what an ‘agency cost’ is and discuss the problems that might increase agency costs for Investo
House in the case of Sunway Ltd.
(b) Describe, with reference to the case, the conditions under which it might be appropriate for an
institutional investor to intervene in a company whose shares it holds.
(c) Evaluate the contribution that a risk committee made up of non-executive directors could make to
Sania’s confidence in the management of Sunway Ltd.
(a) Definition of agency costs: Agency costs arise from the need of principals (here shareholders) to monitor
the activities of agents (here the board, particularly the chairman). This means that principals need to find
out what the agent is doing, which may be difficult because they may not have as much information about
what is going on as the agent does. Principals also need to introduce mechanisms to control the agent over

and above normal analysis. Both finding out and introducing mechanisms will incur costs that can be viewed
in terms of money spent, resources consumed or time taken.
Problems with agency costs in Sunway Ltd.
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 Attitudes to risk: The first reason for increased agency costs is that the company’s attitude to risk
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is a major area of concern on which Investo House requires more information, since the risk
appetite appears significantly greater than what would normally be expected in this sector.
 Unwillingness of chairman to be monitored: Agency costs will certainly increase because he is
unwilling to supply any information about the reasons for his policies, certainly indicating arrogance
and also a lack of willingness to accept accountability. This means that Investo will have to find out
from other sources, for example any nonexecutive directors who are on the board. Alternatively
they may contact other investors and take steps to put more pressure on Chairman, for example
by threatening to requisition an extraordinary general meeting.
 Inadequacy of existing mechanisms: Agency costs will also increase because existing mechanisms
for communicating concerns appear to be inadequate. There are insufficient non-executive
directors on the board to exert pressure on the Chairman. There is no risk management committee
to monitor risks. The investor relations department is insufficiently informed and unhelpful. The
Chairman has abruptly dismissed the one-off phone call. Because of the seriousness of the
concerns, ideally there should be regular meetings between Chairman and the major shareholders,
requiring preparation from both parties and increasing agency costs.
(b) The conditions under which it might be appropriate for an institutional investor to intervene in a company
whose shares it holds are-
 Institutional shareholders may intervene if they perceive that management’s policies could lead to
a fall in the value of the company and hence the value of their shares.
 There could be concerns over strategic decisions over products, markets or investments or over
operational performance. Although they can in theory sell their shares, in practice it may be difficult
to offload a significant shareholding without its value falling.
 Institutional investors may intervene because they feel management cannot be trusted like in the
case Chairman has done away a key component of the control system (the risk committee) without
good reason.
 Institutional investors may take steps if they feel that there is insufficient influence being exercised
by nonexecutive directors over executive management.
 Intervention would be justified if there were serious concerns about control systems.
 Even if there is no question of dishonesty, there may be intervention if institutional investors feel
that management is failing to address their legitimate viewpoints.

(c) Importance of Risk Management Committee: Risk committees are considered to be good practice in
most worldwide governance regimes; particularly in situations like this where there are doubts about the
attitudes of executive management. A risk committee staffed by non-executive directors can provide an
independent viewpoint on Sunway Ltd.’s overall response to risk; a significant presence of non-
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executive directors, as required by governance guidelines, would be able to challenge Chairman’s attitudes.
 The committee can pressurize the board to determine what constitutes acceptable levels of risk to
reduce the incidence and impact on the business.
 Once the board has defined acceptable risk levels, the committee should monitor whether Sunway
Ltd. is remaining within those levels, and whether earnings are sufficient given the levels of risks
that are being borne.
 There should be a regular system of reports to the risk management committee covering areas
known to be of high risk, also one-off reports covering conditions and events likely to arise in the
near future. This should facilitate the monitoring of risk.
 The committee should monitor the effectiveness of the risk management systems, focusing
particularly on executive management attitudes towards risk and the overall control environment
and culture.
 A risk management committee can judge whether there is an emphasis on effective management
or whether insufficient attention is being given to risk management due to the pursuit of high returns
Case Study-12
Narmada Limited (The Company) is incorporated as a Private Limited Company under the provision of
Companies Act, 1956 with the Registrar of Companies, Gwalior, Madhya Pradesh. The company is having
its registered office at Plot No.1, First Floor, West Chamber, Gwalior, Madhya Pradesh. Authorized share
capital of the Company is Rs. 5, 00,000/-. The Issued, subscribed and paid up share capital of the Company
is Rs. 5,00,000/-. The main objects of the company are construction of building and housing and also
educational.
A notice of struck off has been received from Registrar of Companies, Gwalior, Madhya Pradesh by the
Narmada Limited. Registrar of Companies, Gwalior, Madhya Pradesh issued a notice on company for non-
compliance of provisions of the Companies Act, 2013 in respect of filing of Annual Returns and Financial
Statements for years 2014-15 to 2017-18 and subsequently the name of the company was struck off in
terms of provision of Section 248(1) of the Companies Act, 2013 read with Rule 7 and Rule 9 of the
Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. Aggrieved
by the order of Registrar of Companies, Gwalior, Madhya Pradesh, Narmada Limited filed an appeal before
National Company Law Tribunal (NCLT), Gwalior under Section 252 of the Companies Act, 2013 and
submitted that the company was in operation and the business activities were carried out by the company

during the period of striking off but the reporting of such activities through Annual Returns and Financial
Statement had not been filed with Registrar of Companies due to inadvertence on part of the management.
You are a Practicing Company Secretary and the Company has hired you as a Consultant to advise
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Narmada Limited on the following, considering the above facts:
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(a) What would be the procedure regarding filing of appeal before National Company Law Tribunal (NCLT)?
(b) State the grounds on which Registrar of Companies can remove the name of a company from Register
of Companies.
(c) Enumerate the categories of Companies which shall not be removed from the Register of Companies
under the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.
Suggested Solution – Case Study-12
(a) Procedure regarding appeal before National Company Law Tribunal
According to Rule 87A of the National Company Law Tribunal Rules, 2016, an appeal under Section 252(1)
or an application under Section 252(3) may be filed before the National Company Law Tribunal (NCLT) in
Form No. NCLT. 9, with such modifications as may be necessary.
Following Documents shall be attached with Form No. NCLT.9:
Copy of Memorandum and Articles of Association
 Copy of list of struck off companies issued by ROC

 Evidence regarding payment of Fee
 Affidavit Verifying the Petition
 Memorandum of Appearance
 Copy of Board Resolution & Vakalatnam
 Sufficient evidence to prove that it has been in operation during striking off and therefore could not
be termed as defunct company
 A copy of the appeal or application, shall be served on the Registrar of Companies and on such
other persons as the National Company Law Tribunal may direct, not less than fourteen days before
the date fixed for hearing of the appeal or application, as the case may be.
 Upon hearing the appeal or the application or any adjourned hearing thereof, the National Company
Law Tribunal may pass appropriate order, as it deems fit.
 Where the National Company Law Tribunal makes an order restoring the name of a company in
the register of companies, the order shall direct that-

 The appellant or applicant shall deliver a certified copy to the Registrar of Companies within thirty
days from the date of the order;
 On such delivery, the Registrar of Companies do, in his official name and seal, publish the order in
the Official Gazette;
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 The appellant or applicant do pay to the Registrar of Companies his costs of, and occasioned by,
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the appeal or application, unless the Tribunal directs otherwise; and
 The company shall file pending financial statements and annual returns with the Registrar and
comply with the requirements of the Companies Act, 2013 and rules made thereunder within such
time as may be directed by the Tribunal.
(b) Grounds on which Registrar of Companies can remove the name of a company from Register of
Companies:
As per Section 248 of the Companies Act, 2013, where the Registrar has reasonable cause to believe that
–
 Company has failed to commence its business within one year of its incorporation
 Company is not carrying on any business or operation for a period of two immediately preceding
financial years and has not made any application within such period for obtaining the status of a
dormant company under section 455 of the Companies Act, 2013
 Subscribers to the memorandum have not paid the subscription which they had undertaken to pay
at the time of incorporation of a company and a declaration to this effect has not been filed within
one hundred and eighty days of its incorporation under Section 10A (1) of the Companies Act, 2013
 Company is not carrying on any business or operations, as revealed after the physical verification
carried out under Section 12(9) of the Companies Act, 2013.
(c) Categories of Companies which shall not be removed from the Register of Companies under the
Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016:
According to Rule 3 of the Companies (Removal of Names of Companies from the Register of Companies)
Rules, 2016 the following categories of companies shall not be removed from the register of companies:
(i) Listed companies;
(ii) Companies that have been delisted due to non-compliance of listing regulations or listing agreement or
any other statutory laws;
(iii) Vanishing companies;

(iv) Companies where inspection or investigation is ordered and being carried out or actions on such order
are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation
are pending in the Court;
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(v) Companies where notices under section 234 of the Companies Act, 1956 or section 206 or section 207
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of the Act have been issued by the Registrar or Inspector and reply thereto is pending or report under
section 208 has not yet been submitted or follow up of instructions on report under section 208 is pending
or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the Court;
(vi) Companies against which any prosecution for an offence is pending in any court;
(vii) Companies whose application for compounding is pending before the competent authority for
compounding the offences committed by the company or any of its officers in default;
(viii) Companies, which have accepted public deposits which are either outstanding or the company is in
default in repayment of the same;
(ix) Companies having charges which are pending for satisfaction; and
(x) Companies registered under section 25 of the Companies Act, 1956 or section 8 of the Companies Act,
2013.
Case Study 13
M/s Jooly Private Limited (Corporate Debtor) is a company incorporated on 01.01.2005 under the provisions
of Companies Act, 1956, having its registered office at Mumbai. The Authorised Share Capital of the
company is Rs. 100, 00, 00,000/- and Paid up Share Capital of the company is Rs. Rs. 99, 00, 00,000/-.
M/s Jemmy Private Limited(Operational Creditor) is a company incorporated on 01.01.2006 under the
provisions of Companies Act, 1956 having its registered office at Kolkata.
M/s Jooly Private Limited approached M/s Jemmy Private Limited for purchase of inputs for his production.
It was specifically agreed that upon procuring the inputs by M/s Jooly Private Limited and raising of invoices
by M/s Jemmy Private Limited , the entire payment for such invoices shall be made in a timely manner. As
per the arrangement, the M/s Jooly Private Limited placed various purchase orders for supply of inputs .
M/s Jemmy Private Limited supplied the goods as per the orders placed by M/s Jooly Private Limited and
raised invoices against the said supply.
The invoices were duly acknowledged by M/s Jooly Private Limited and an amount as part payments were
also made. But thereafter, inspite of various requests made and reminders sent by M/s Jemmy Private
Limited, the M/s Jooly Private Limited had neither responded nor repaid the remaining claim.

On failure to pay the outstanding dues by the M/s Jooly Private Limited, the M/s Jemmy Private Limited
sent a demand notice dated 01.012019 under Section 8 of the Insolvency and Bankruptcy Code, 2016 to
the respondent asking them to make the entire outstanding payments of Rs. 10,00,000/- (Rupees Ten
Lakhs) inclusive of interest within 15 days from receipt of the notice, failing which the M/s Jemmy Private
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Limited shall initiate the Corporate Insolvency Resolution process against the M/s Jooly Private Limited.
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Despite the demand notice, the M/s Jooly Private Limited did not pay the amount demanded, neither raised
any notice of dispute nor replied to the said notice. As a next action M/s Jemmy Private Limited filed an
application before National Company Law Tribunal (NCLT), seeking to unfold the process of Corporate
Insolvency Resolution Process (CIRP).
(a) Who can make application before the Adjudicating Authority on behalf of Operational Creditor and where
to file such application to initiate the Corporate Insolvency process in the given case and also state the
documents needs to be attached with such application under Insolvency and Bankruptcy Code,
2016.Sample Case Studies & Suggested Solutions
(b) Who can appoint Interim Resolution Professional in case Resolution Professional is not appointed by
the Operational Creditor? State the moratorium as envisaged under the provisions of Section 14(1) to (4)
of the Insolvency and Bankruptcy Code, 2016 in relation to the Corporate Debtor.
(c) Enumerate the duties of interim resolution professional during the Corporate Insolvency Resolution
Process (CIRP) specified under Section 18 of the Insolvency and Bankruptcy Code, 2016.
Suggested Solution - Case Study-13
(a) As per Section 6 of the Insolvency and Bankruptcy Code, 2016, where any corporate debtor commits a
default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate
insolvency resolution process in respect of such corporate debtor in the manner as provided under Chapter
II of the Part II of the Insolvency and Bankruptcy Code, 2016. It may be noted that in terms of Section 5(20)
of the Insolvency and Bankruptcy Code, 2016 operational creditor means a person to whom an operational
debt is owed and includes any person to whom such debt has been legally assigned or transferred;
Application to initiate the Corporate Insolvency process may be filed before the Adjudicating Authority. In
terms of Section 5(1) of the Insolvency and Bankruptcy Code, 2016, Adjudicating Authority means National
Company Law Tribunal constituted under section 408 of the Companies Act, 2013.
According to Section 9 of the Insolvency and Bankruptcy Code, 2016, Application for initiation of corporate
insolvency resolution process by operational creditor shall be filed in such form and manner and

accompanied with such fee as may be prescribed. The operational creditor shall, along with the application
furnish following documents-
 A copy of the invoice demanding payment or demand notice delivered by the operational creditor
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to the corporate debtor;
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 An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute
of the unpaid operational debt;
 A copy of the certificate from the financial institutions maintaining accounts of the operational
creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor,
if available;
 A copy of any record with information utility confirming that there is no payment of an unpaid
operational debt by the corporate debtor, if available; and
 Any other proof confirming that there is no payment of any unpaid operational debt by the
corporate debtor or such other information, as may be prescribed.
(b) Adjudicating Authority (National Company Law Tribunal) appoint Interim Resolution Professional in case
Resolution Professional is not appointed by the Operational Creditor.
Section 14 of the Insolvency and Bankruptcy Code, 2016 deals with Moratorium.
Section 14(1) provides that subject to provisions of sub-sections (2) and (3), on the insolvency
commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the
following, namely: -
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor
including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other
authority;
(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any
legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in
respect of its property including any action under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the
possession of the corporate debtor.
Section 14(2) states that the supply of essential goods or services to the corporate debtor as may be
specified shall not be terminated or suspended or interrupted during moratorium period.

As per Section 14(3) the provisions of sub-section (1) shall not apply to –
(a) such transaction as may be notified by the Central Government in consultation with any financial
regulator;
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(b) a surety in a contract of guarantee to a corporate debtor.
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Section 14(4) provides that the order of moratorium shall have effect from the date of such order till the
completion of the corporate insolvency resolution process. It may be noted that where at any time during
the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution
plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section
33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the
case may be.
(c) Section 18 of the Insolvency and Bankruptcy Code, 2016 deals with the duties of interim resolution
professional.
The interim resolution professional shall perform the following duties, namely: -
(a) Collect all information relating to the assets, finances and operations of the corporate debtor for
determining the financial position of the corporate debtor, including information relating to -
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) Receive and collate all the claims submitted by creditors to him, pursuant to the public announcement
made under sections 13 and 15;
(c) Constitute committee of creditors;
(d) Monitor the assets of the corporate debtor and manage its operations until a resolution professional is
appointed by the committee of creditors;
(e) File information collected with the information utility, if necessary; and
(f) Take control and custody of any asset over which the corporate debtor has ownership rights as recorded
in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any
other registry that records the ownership of assets including -

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate debtor;
(iii) tangible assets, whether movable or immovable;Sample Case Studies & Suggested Solutions
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(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments,
insurance policies;
(vi) assets subject to the determination of ownership by a court or authority;
(g) To perform such other duties as may be specified by the Board.
It may be noted that the term “assets” shall not include the following, namely: -
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual
arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector
regulator.
Case Study-14
Kanzra Kysco, a company incorporated and listed in South Korea, is inter-alia engaged in the business of
manufacturing and sale of steel products, automotive parts and fuel cell systems. Kanzra Kysco present in
India through its subsidiaries, i.e. Kanzra Kysco India Private Limited. Kanzra Kysco India Private Limited
a company incorporated in India, is engaged in the business of supply/distribution of processed steel sheets
to automobile original equipment manufacturers (OEMs), or their vendors.
Kanzra Steel, a company incorporated and listed in South Korea, is an integrated iron and steel mining
company inter-alia engaged in manufacture and sale of various steel products such as steel bars, steel
beams, hot and cold rolled steel and plates. Kanzra Steel’s presence in India is largely limited to the supply
of certain raw materials to Kanzra Kysco India Private Limited.
Kanzra Kysco and Kanzra Steel contemplates a merger. The proposed combination under Section 5 of the
Competition Act, 2002 relates to the merger of Kanzra Kysco into Kanzra Steel as a result of which Kanzra
Kysco would cease to exist and Kanzra Steel will be the surviving company. Both Kanzra Kysco and Kanzra
Steel belong to the Kanzra Automobiles Group of South Korea.

(a) As Company Secretary of Kanzra Kysco India Private Limited, advise the Chairman of your Company,
who is seeking your advice, regarding threshold of combination as prescribed under Competition Act, 2002.
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(b) Merger notice under Section 6(2) of the Competition Act, 2002 has been received by Competition
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Commission of India. Assuming yourself as the Chairman of Competition Commission of India, state the
factors that need to be considered while determining the above combination whether such merger is likely
or not likely to have an appreciable adverse effect on competition in India?
(a) The thresholds for the combined assets/turnover of the parties to a combination prescribed under the
Competition Act, 2002 are as follows:
At Enterprise level: The value of combined assets of the combining enterprises exceeds INR 2,000 crores
or the combined turnover of the combining enterprise exceeds INR 6,000 crores, in India. In case either or
both of the combining enterprises have assets / turnover outside India also, then the combined assets of
the combining enterprises value exceeds US$ 1000 million, including at least INR 1000 crores in India, or
combined turnover exceeds US$ 3000 million, including at least INR 3000 crores in India.
At Group level: The group to which the combining enterprise whose control, shares, assets or voting rights
are being acquired, would belong after the acquisition, or the group to which the combining enterprise
remaining after the merger or amalgamation, would belong has either assets of value of more than INR
8000 crores in India or turnover more than INR 24000 crores in India. Where the group has presence in
India as well as outside India then the group has assets more than US$ 4 billion including at least INR 1000
crores in India or turnover more than US$ 12 billion including at least INR 3000 crores in India.
The term ‘Group’ has been explained in the Act. Two enterprises belong to a “Group” if one is in position to
exercise at least 26 per cent voting rights or appoint at least 50 per cent of the directors or controls the
management or affairs in the other.
The above thresholds are presented in the form of a table below:
APPLICABLE TO ASSETS TURNOVER
In India Individual Parties Rs. 2,000 cr. Rs. 6,000 cr.

Group Rs. 8,000 cr. Rs. 24,000 cr.
In India and Outside ASSETS TURNOVER

Total Minimum Total Minimum

Indian Indian
Component
Component
out of Total
out of Total
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Individual parties US$ 1bn. RS. 1000 US$ 3 bn. Rs.3000
cr. Cr.
Group US$ 4bn. RS. 1000 US$ 12 Rs.3000

cr. bn. Cr.
(b) The Competition Act, 2002 envisages appreciable adverse effect on competition in the relevant market
in India as the criterion for regulation of combinations. In order to evaluate appreciable adverse effect on
competition, the Act empowers the Commission to evaluate the effect of Combination on the basis of factors
mentioned in Section 20(4) of the Competition Act, 2002.
Factors to be considered by the Competition Commission of India while evaluating appreciable adverse
effect of Combinations on competition in the relevant market, are as under:
(a) Actual and potential level of competition through imports in the market;
(b) Extent of barriers to entry into the market;
(c) Level of concentration in the market;
(d) Degree of countervailing power in the market;
(e) Likelihood that the combination would result in the parties to the combination being able to significantly
and sustainably increase prices or profit margins;
(f) Extent of effective competition likely to sustain in a market;
(g) Extent to which substitutes are available or are likely to be available in the market;
(h) Market share, in the relevant market, of the persons or enterprise in a combination, individually and as
a combination;
(i) Likelihood that the combination would result in the removal of a vigorous and effective competitor or
competitors in the market;

(j) Nature and extent of vertical integration in the market;
(k) Possibility of a failing business;
(l) Nature and extent of innovation;
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(m) Relative advantage, by way of the contribution to the economic development, by any combination
having or likely to have appreciable adverse effect on competition;
(n) Whether the benefits of the combination outweigh the adverse impact of the combination, if any.
Case Study-15
Amez Inc. is an E-commerce entity incorporated as an agency in India under Section 2 (v) (iii) of Foreign
Exchange Management Act, 1999(FEMA) owned or controlled by a person who is a resident outside India
and conducting the e-commerce business in marketplace based model. As a Practicing Company
Secretary, Amez Inc. sought your advise on possibility of Foreign Direct Investment on e-commerce sector.
Prepare a Policy Paper for Foreign Direct Investment on e-commerce sector, in India.
Foreign Direct Investment (FDI) on e-commerce sector
 100% FDI under automatic route is permitted in marketplace model of e-commerce and FDI is not
permitted in inventory based model of e-commerce.
It may be noted that:
E-commerce means buying and selling of goods and services including digital products over digital &
electronic network.
Inventory based model of e-commerce means an e-commerce activity where inventory of goods and
services is owned by e-commerce entity and is sold to the consumers directly.
Market place based model of e-commerce means providing of an information technology platform by
an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.
E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies
Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office,
branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a
person resident outside India and conducting the e-commerce business.

 Subject to provisions of FDI Policy, e-commerce entities would engage only in Business to
Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.
 Digital & electronic network will include network of computers, television channels and any other
internet application used in automated manner such as web pages, extranets, mobiles etc.
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 Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered
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on its platform on Business to Business (B2B) basis.
 E-commerce marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfillment, call centre, payment collection and other services.
 E-commerce entity providing a marketplace will not exercise ownership or control over the
inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will
render the business into inventory based model. Inventory of a vendor will be deemed to be
controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are
from the marketplace entity or its group companies.
 An entity having equity participation by e-commerce marketplace entity or its group companies, or
having control on its inventory by e-commerce marketplace entity or its group companies, will not
be permitted to sell its products on the platform run by such marketplace entity.
 In marketplace model goods/services made available for sale electronically on website should
clearly provide name, address and other contact details of the seller. Post sales, delivery of goods
to the customers and customer satisfaction will be responsibility of the seller.
 In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity
with the guidelines of the Reserve Bank of India.
 In marketplace model, any warranty/ guarantee of goods and services sold will be responsibility
of the seller.
 E-commerce entities providing marketplace will not directly or indirectly influence the sale price of
goods or services and shall maintain level playing field. Services should be provided by e-
commerce marketplace entity or other entities in which e-commerce marketplace entity has direct
or indirect equity participation or common control, to vendors on the platform at arm’s length and
in a fair and non-discriminatory manner. Such services will include but not limited to fulfilment,
logistics, warehousing, advertisement/ marketing, payments, financing etc. Cash back provided by
group companies of marketplace entity to buyers shall be fair and non-discriminatory. For this
purposes provision of services to any vendor on such terms which are not made available to other
vendors in similar circumstances will be deemed unfair and discriminatory.
 Guidelines on cash and carry wholesale trading of Consolidated FDI Policy Circular 2017 will
apply on B2B e-commerce.
 E-commerce marketplace entity will not mandate any seller to sell any product exclusively on its
platform only.

 E-commerce marketplace entity will be required to furnish a certificate along with a report of
statutory auditor to Reserve Bank of India, confirming compliance of above guidelines, by 30th of
September of every year for the preceding financial year.
 Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security
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and other conditionalities, sale of services through e-commerce will be under automatic route.
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Case Study- 16
Under the scheme of amalgamation, M/S Pro-Prof Limited Liability Partnership (LLP) is proposing to
amalgamate with M/S Queens Private Limited. The scheme of amalgamation filed before the National
Company Law Tribunal (NCLT) for approval.
In view of the above fact, answer the following:
(a) Whether a Limited Liability Partnership can be allowed by the NCLT to amalgamate with a Private
Limited Company under Scheme of Amalgamation? Justify your answer.
(b) Discuss the powers of NCLT to enforce compromise or arrangement of limited liability partnerships as
mentioned under Limited Liability Partnership Act, 2008.
(a) Yes, a Limited Liability Partnership may be allowed by the NCLT to amalgamate with a Private Limited
Company under Scheme of Amalgamation.
Chapter XII (Section 60 to 62) of the Limited Liability Partnership Act, 2008 deals with compromise, or
arrangement of limited liability partnerships. Further, Section 230 to 234 of the Companies Act, 2013 deals
with provisions of compromise, or arrangement of companies.
In the matter of Amalgamation between M/s Real Image LLP (the transferor LLP) with M/s Qube Cinema
Technologies Pvt Ltd. (Transferee Company) and Their Respective Partner Shareholders and Creditors
(CP/123/CAA/ 2018/TCA/157/CAA/2017) the National Company Law Tribunal (Single Bench, Chennai)
vide its Order delivered on 11th June, 2018 in Para 15 inter-alia observed that:
................ “the legislative intent behind enacting both the LLP Act, 2008 and the Companies Act, 2013 is
to facilitate the ease of doing business and create a desirable business atmosphere for companies and
LLPs. For this purpose, both the Acts have provided provisions for merger or amalgamation of two or more
LLPs and companies.”........................
........................ “If the intention of Parliament is to permit a foreign LLP to merge with an Indian company,
then it would be wrong to presume that the Act prohibits a merger of an Indian LLP with an Indian company.

Thus, there does not appear any express legal bar to allow/ sanction merger of an Indian LLP with an Indian
company.”................................................
(b) Section 61 of the Limited Liability Partnership Act, 2008 empowers the National Company Law Tribunal
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(Tribunal) to enforce compromise or arrangement.
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Where the Tribunal makes an order under Section 60 of the Limited Liability Partnership Act, 2008
sanctioning a compromise or an arrangement in respect of a limited liability partnership, it –
(a) shall have power to supervise the carrying out of the compromise or an arrangement; and
(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any
matter or make such modifications in the compromise or arrangement as it may consider necessary for the
proper working of the compromise or arrangement.
If the Tribunal is satisfied that a compromise or an arrangement sanctioned under section 60 cannot be
worked satisfactorily with or without modifications, it may, either on its own motion or on the application of
any person interested in the affairs of the limited liability partnership, make an order for winding up the
limited liability partnership, and such an order shall be deemed to be an order made under section 64 of
the Limited Liability Partnership Act, 2008.
Case Study - 17
ABC Limited is a company engaged in the business of cement exports and it is also specialized in the area
of Enterprise Resource Planning (ERP) implementation offering their services to domestic and overseas
customers.
Enforcement Directorate under Foreign Exchange Management Act (FEMA) carried out the investigation
against the ABC Limited. The investigation also centered around the details of the Promoters and their
shareholdings; how many subsidiaries companies were formed by the appellants in India and abroad for
doing business; details of the share transactions between the promoters of the Company and Non-Resident
Indian(NRI) and the details of loans raised by the ABC Limited for their business purpose etc.
The investigation carried out by Enforcement Directorate has clearly made out a case against ABC Limited
of violation of Section 8 and Section 42 of Foreign Exchange Management Act as well as Foreign Exchange
Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2015.
A complaint has been made by the Enforcement Directorate before Special Director. Special Director
allowed the complaint and held that ABC Limited has contravened the provisions of FEMA as prayed in the
complaint and accordingly imposed a penalty of Rs.5 crores on the Company.

ABC Limited felt aggrieved by the aforementioned order of Special Director and contemplates to file an
appeal. As a Company Secretary of ABC Limited advise the company regarding:
(a) Adjudication and Appeal under Foreign Exchange Management Act, 1999.
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(b) Duty of persons to realise foreign exchange due and Manner of Repatriation as well as Period for
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surrender of realised foreign exchange under Foreign Exchange Management (Realization, Repatriation
and Surrender of Foreign Exchange) Regulations, 2015.
(c) Consequence of contravention of provisions of Foreign Exchange Management Act, 1999 and Rules
and Regulation made thereunder by a company.
Suggested Solution- Case Study 17
(a) Chapter V (Section 16 to 35) of the Foreign Exchange Management Act, 1999(FEMA) deals with the
provisions of Adjudication and Appeal as under:
Adjudicating Authority
For the purpose of adjudication under Section 13 of FEMA (dealing with Penalties), the Central Government
may, by an order published in the Official Gazette, appoint as many officers of the Central Government as
it may think fit, as the Adjudicating Authorities for holding an inquiry in the manner prescribed after giving
the person alleged to have committed contravention under Section 13, against whom a complaint has been
made. Adjudicating Authority shall not hold an enquiry except upon a complaint in writing made by any
officer authorised by a general or special order by the Central Government.
Appeal to Special Director (Appeals)
Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals
against the orders of the Adjudicating Authorities. Every appeal shall be filed within forty-five days from the
date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person
and it shall be in such form, verified in such manner and be accompanied by prescribed fee.
Appeal to Appellate Tribunal
Central Government or any person aggrieved by an order made by an Adjudicating Authority, or the Special
Director (Appeals), may prefer an appeal to the Appellate Tribunal.
Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order
made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person
or by the Central Government and it shall be in such form, verified in such manner and be accompanied by
such prescribed.

Appeal to High Court
Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High
Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to
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him on any question of law arising out of such order.
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(b) Duty of persons to realise foreign exchange due:
A person resident in India to whom any amount of foreign exchange is due or has accrued shall, save as
otherwise provided under the provisions of the Foreign Exchange Management Act, 1999, or the Rules and
Regulations made thereunder, or with the general or special permission of the Reserve Bank of India , take
all reasonable steps to realise and repatriate to India such foreign exchange, and shall in no case do or
refrain from doing anything, or take or refrain from taking any action, which has the effect of securing -
a. that the receipt by him of the whole or part of that foreign exchange is delayed; or
b. that the foreign exchange ceases in whole or in part to be receivable by him.
Manner of Repatriation:
(1) On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring into,
or receive in, India and -
a. sell it to an authorised person in India in exchange for rupees; or
b. retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve Bank;
or
c. use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the manner
specified by the Reserve Bank.
(2) A person shall be deemed to have repatriated the realised foreign exchange to India when he receives
in India payment in rupees from the account of a bank or an exchange house situated in any country outside
India, maintained with an authorised dealer.
Period for surrender of realised foreign exchange:
A person not being an individual resident in India shall sell the realised foreign exchange to an authorised
person, within the period specified below :-
i. foreign exchange due or accrued as remuneration for services rendered, whether in or outside India, or
in settlement of any lawful obligation, or an income on assets held outside India, or as inheritance,
settlement or gift, within seven days from the date of its receipt;

ii. in all other cases within a period of ninety days from the date of its receipt.
(c) According to Section 42 of the Foreign Exchange Management Act, 1999, where a person committing
a contravention of any of the provisions of the Act or of any rule, direction or order made thereunder is a
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company, every person who, at the time the contravention was committed, was in charge of, and was
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responsible to, the company for the conduct of the business of the company as well as the company, shall
be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished
accordingly.
It may be noted that nothing contained in this sub-section shall render any such person liable to punishment
if he proves that the contravention took place without his knowledge or that he exercised due diligence to
prevent such contravention.
Where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder
has been committed by a company and it is proved that the contravention has taken place with the consent
or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other
officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty
of the contravention and shall be liable to be proceeded against and punished accordingly.
or the purposes of section 42 of the Act, “Company” means anybody corporate and includes a firm or other
association of individuals; and “director”, in relation to a firm, means a partner in the firm.
Case Study - 18
XYZ Limited is a company engaged in real estate and construction business. In order to build a land bank
in various parts of India that were likely to see commercial development and anticipating a future upward
trend in land prices in various parts India . XYZ Limited hired the services of Mr. Mahesh to assist in the
process of acquisition of lands.
XYZ Limited issued a detailed offer letter to Mr. Mahesh for purchase of around 100 acres of land at the
maximum price of Rs. 10,00,000/- per acre in different parts of India within a period not exceeding five
years. The said offer was accepted by Mr. Mahesh by a letter of acceptance. Upon exchange of offer and
acceptance, a legally binding and valid contract came to be force between XYZ Limited and Mr. Mahesh.
Mr. Mahesh received from XYZ Limited a sum of Rs. 1000 Crore as a loan/advance for the purchase of
lands as specified in the contract between the parties. Mr. Mahesh purchased various movable and
immovable properties with the funds received from XYZ Limited. Since all the funds could not be directly
invested in land as required by the contract, investments were made by Mr. Mahesh by himself or through
his company in purchase of immovable property, including land, built-up residential and commercial

buildings, etc. and Investment in fixed deposits in name of Mr. Mahesh and PQR Limited(95% shareholding
by Mr. Mahesh) also investment in movable property including bank balance and few vehicles.
In the meantime Director of Enforcement initiated suo moto proceedings under the Prevention of Money
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Laundering Act, 2002(PMLA) and registered a complaint under Sections 3 and 4 of the PMLA and attached
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the property of Mr. Mahesh under the Prevention of Money Laundering Act, 2002.
In view of the above, answer the following question:
(a) Discuss the attachment of property involved in money laundering under PMLA
(b) Explain the extent of punishment prescribed under PMLA.
(c) Discuss Appellate Authority establish under PMLA and what is the time limit to file appeal.
(10 Marks Each)
(a) Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA) deals with the provision of
attachment of property involved in money laundering.
As per Section 5(1) of the PMLA, Where the Director or any other officer not below the rank of Deputy
Director authorised by the Director, has reason to believe (the reason for such belief to be recorded in
writing), on the basis of material in his possession, that
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may
result in frustrating any proceedings relating to confiscation of such proceeds of crime, he may, by order in
writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the
date of the order, in such manner as may be prescribed.
It may be noted that no such order of attachment shall be made unless, in relation to the scheduled offence,
a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973,
or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule,
before a Magistrate or court for taking cognizance of the scheduled offence, as the case may
be, or a similar report or complaint has been made or filed under the corresponding law of any other country.
Further, notwithstanding anything contained in above , any property of any person may be attached , if the
Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of
Section of the PMLA has reason to believe (the reasons for such belief to be recorded in writing), on the

basis of material in his possession, that if such property involved in money-laundering is not attached
immediately, the non-attachment of the property is likely to frustrate any proceeding under the Act.
For the purposes of computing the period of one hundred and eighty days, the period during which the
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proceedings under Section 5 of PMLA is stayed by the High Court, shall be excluded and a further period
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not exceeding thirty days from the date of order of vacation of such stay order shall be counted.;
Section 5(2) states that the Director, or any other officer not below the rank of Deputy Director, shall,
immediately after attachment under sub-section (1), forward a copy of the order, along with the material in
his possession, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed
and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.
Section 5(3) provides that every order of attachment made under sub-section(1) shall cease to have effect
after the expiry of the period specified in sub-section(1) or on the date of an order made under sub-section
(3) of section 8, whichever is earlier.
As per Section 5(4) of PMLA, nothing in this section shall prevent the person interested in the enjoyment
of the immovable property attached under sub-section (1) from such enjoyment. It may be noted that person
interested, in relation to any immovable property, includes all persons claiming or entitled to claim any
interest in the property.
Section 5(5) states that the Director or any other officer who provisionally attaches any property under sub-
section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of
such attachment before the Adjudicating Authority.
(b) Offence of money-Laundering and Punishment for money-Laundering are specified under Section 3 and
4 of the Prevention of Money Laundering Act, 2002 respectively.
Section 3 of the Prevention of Money Laundering Act, 2002 provides that whosoever directly or indirectly
attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime including its concealment, possession, acquisition or use and
projecting or claiming it as untainted property shall be guilty of offence of money-laundering.
It may be further noted that proceeds of crime means any property derived or obtained, directly or indirectly,
by any person as a result of criminal activity relating to a scheduled offence or the value of any such
property.
According to Section 4 of the Prevention of Money Laundering Act, 2002, whoever commits the offence of
money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than
three years but which may extend to seven years and shall also be liable to fine.

It may be noted that where the proceeds of crime involved in money-laundering relates to any offence
specified under paragraph 2 of Part A of the Schedule to the PMLA, shall be punishable with rigorous
imprisonment for a term which shall not be less than three years but which may extend to ten years and
shall also be liable to fine.
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(c) The Director or any person aggrieved by an order made by the Adjudicating Authority under this Act,
may prefer an appeal to the Appellate Tribunal. Appeal has to be filed within a period of forty-five days from
the date of receipt of a copy of the order made by the Adjudicating Authority. Appellate Tribunal may
entertain an appeal after the expiry of the period of forty-five days if it is satisfied that there was sufficient
cause for not filing it within that period.
Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High
Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to
him on any question of law or fact arising out of such order. Thus appeal can be filed before High Court on
any question of law or fact. High Court may, if it is satisfied that the appellant was prevented by sufficient
cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding
sixty days.
Case Study-19
A Corporate Debtor defaulted in the payment to the Operational Creditor, Safe Bank, a foreign bank,
amounting to INR 1,000 crore. A certificate was also furnished by the Safe Bank with regards to the non-
payment of the outstanding amount by the Corporate Debtor and repeated reminders as to the payment of
the debt were made, but such communications could not influence the Debtor to make the payment,
pursuant to which a Statutory Notice was sent by the Operational Creditor under Section 433 and 434 of
the Companies Act, 1956. The reply to such notice denied the existence of any such outstanding debt on
the part of the Debtor.
After, the Insolvency and Bankruptcy Code (the Code) was enacted in 2016, the Operational Creditor
furnished a Demand Notice through his lawyer to the Corporate Debtor under Section 8 of the Insolvency
and Bankruptcy Code, 2016. The Corporate Debtor replied to the notice saying that there existed no
outstanding default on its part and simultaneously, also questioned the validity of the Purchase Agreement.
The Debtor also challenged the validity of sending the Demand Notice through his lawyer.
Aggrieved by the action of the Corporate Debtor, the Operational Creditor approached the National
Company Law Tribunal (NCLT) and applied for the initiation of the Corporate Insolvency Resolution
Process. NCLT rejected the application for initiation of Corporate Insolvency Resolution Process.
Operational Creditor aggrieved by the decision of NCLT, preferred an appeal to the National Company Law
Tribunal (NCLAT), which also upheld the decision of NCLT.

Subsequently, the Operational Creditor approached the Supreme Court for the redressal of its grievance.
In this backdrop, answer the following questions:
(i) Give reasons for the rejection of the application for the initiation of the Corporate Insolvency Resolution
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Process by NCLT and NCLAT citing relevant provisions of the Code.
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(10 marks)
(ii) Discuss whether challenging the validity of the Demand Notice by Corporate Debtor is justified? Discuss
with relevant provisions of the Code.
(5 marks)
(iii) The Supreme Court overruled the orders of NCLT and NCLAT and allowed initiation of Corporate
Insolvency Resolution Process. Discuss reasons for the same with the help of a decided case law.
(10 marks)
(i) The NCLT rejected the application for initiation of the Corporate Insolvency Resolution Process since it
was incomplete as it did not comply with the mandatory requirements of Section 9(3)(c) of the Insolvency
and Bankruptcy Code, 2016 which require a certificate from a financial institution with regards to the
non-payment of the outstanding amount by the Corporate Debtor. The certificate from the Safe Bank itself
was not held to be a certificate from a financial institution as it was a foreign bank which did not fulfill any
of the requirements to qualify as a ‘financial institution’ as per Section 3(14) of the Code. Section 3(14)
defines financial institution as under:
“financial institution” means-
(a) a scheduled bank;
(b) financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
(c) public financial institution as defined in clause (72) of section 2 of the Companies Act,2013 (18 of 2013);
and
(d) such other institution as the Central Government may by notification specify as a financial institution;
NCLAT upheld the NCLT order since the application has to be complete before the initiation of the
Corporate Insolvency Resolution Process and that the appellant failed to comply with the mandatory
requirement of furnishing a certificate by a financial institution in which the Corporate Debtor has its account

with regards that it has failed to pay the outstanding debt. Moreover, it reiterated that the Appellant Bank
was not a ‘financial institution’ as per Section 3(14) of the Code. Also, as it is a mandatory document which
acts as an evidence to the existence of default, it has to be necessarily furnished and without it the
application is incomplete.
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(ii) There was an existence of dispute before the Demand Notice was furnished upon the Corporate Debtor
as per Section 8(2)(a) of the Code which was also raised at the time when a reply to the Statutory Notice
was furnished under Section 433 and 434 of the Companies Act, 1956 by the Respondent.
Section 8(1) of the Code contains provision relating to Demand Notice, it reads as under:
“An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational
debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor
in such form and manner as may be prescribed.”
NCLAT noted that “in the present case, as the notice has been given by an advocate/lawyer and there is
nothing on the record to suggest that the lawyer was authorized by the appellant, and as there is nothing
on the record to suggest that the said lawyer/ advocate hold any position with or in relation to the appellant
company, we hold that the notice issued by the advocate/ lawyer on behalf of the appellant cannot be
treated as notice under Section 8 of the Code. And for the said reason also the petition under Section 9 at
the instance of the appellant against the respondent was not maintainable.
NCLT took cognizance of the Demand Notice which was furnished by the lawyer of the Appellant and noted
that such Demand Notice has to be in compliance with Form 3 under Rule 5 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016. It was also observed that such Demand
Notice was invalid as it has to be furnished as per Form 3 by the Creditor himself or by any authorized
person on his behalf and lawyer cannot come under such purview as there was absence of any authority
by the Operational Creditor.
(iii) Supreme Court in the matter of Macquarie Bank Limited v. Shilpi Cable Technologies Ltd. dated
December 15, 2017 while deciding upon the aforesaid issues, made the following observations:
(a) Section 9(3)(c) of the Code is directory and not mandatory in nature
The Supreme Court observed that a creative interpretation of Section 9(3)(c) is necessary in the present
case as the literal interpretation would be unreasonable and would create hardships for Appellants and
other foreign banks in the future. Also, the requirement of certificate as a
document is not necessary for substantiating the existence of default as it can be proved by other
documents as well. Also, in such cases where such certificates are impossible to furnish, serious

inconvenience will be caused to the innocent persons like Appellant when such requirements are not even
necessary to further the object of the Code.
Section 9(3)(c) has been since amended to read as under,
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“a copy of the certificate from the financial institutions maintaining accounts of the operational creditor
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confirming that there is no payment of an unpaid operational debt 1[by the corporate debtor, if available;]”
(b) A Lawyer can issue a demand notice of an unpaid operational debt on behalf of the operational creditor
In this context, the Supreme Court observed that Section 8 of the Code speaks of an operational creditor
delivering a demand notice and if the legislature had wished to restrict such demand notice being sent by
the operational creditor himself, the expression used would perhaps have been ‘issued’ and not ‘delivered’.
Delivery, therefore, would postulate that such notice could be made by an authorized agent.
The expression ‘practise’ under Section 30 of the Advocates Act, 1961 providing for the ‘Right of advocates
to practice’ is an expression of extremely wide import, and would include all preparatory steps leading to
the filing of an application before a Tribunal.
Court also noted that the non-obstante clause contained in Section 238 of the Code (provisions of the Code
overriding other laws) will not override the Advocates Act, 1961 as there is no inconsistency between
Section 9, read with the Adjudicating Authority Rules and Forms referred to hereinabove, and the Advocates
Act.
SC also considered the judgment in Byram Pestonji Gariwala v. Union Bank of India, (1992) 1 SCC 31. In
this judgment, what fell for consideration was Order XXIII Rule 3 of the Code of Civil Procedure, 1908 after
its amendment in 1976. It was argued in that case that a compromise in a suit had, under Order XXIII Rule
3, to be in writing and “signed by the parties”. It was, therefore, argued that a compromise effected by
counsel on behalf of his client would not be effective in law, unless the party himself signed the compromise.
This was turned down stating that Courts in India have consistently recognized the traditional role of lawyers
and the extent and nature of the implied authority to act on behalf of their clients, which included
compromising matters on behalf of their clients. The Court held there is no reason to assume that the
legislature intended to curtail such implied authority of counsel.
SC also noted that to insist upon the party himself personally signing the agreement or compromise would
often cause undue delay, loss and inconvenience, especially in the case of non-resident persons. It has
always been universally understood that a party can always act by his duly authorized representative. If a
power-of-attorney holder can enter into an agreement or compromise on behalf of his principal, so can
counsel, possessed of the requisite authorisation by vakalatnama, act on behalf of his client. Not to
recognise such capacity is not only to cause much inconvenience and loss to the parties personally, but

also to delay the progress of proceedings in court. If the legislature had intended to make such a
fundamental change, even at the risk of delay, inconvenience and needless expenditure, it would have
expressly so stated.
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Therefore, a conjoint reading of Section 30 of the Advocates Act, 1961 and Sections 8 and 9 of the Code
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together with the Adjudicatory Authority Rules and Forms thereunder would yield the result that a notice
sent on behalf of an operational creditor by a lawyer is in order.
1. Inserted by the Insolvency And Bankruptcy Code (Second Amendment) Act, 2018 dated 17-8-2018
Case Study – 20
‘Taste Bud’ was a restaurant located at leased premises in New Delhi. It had a great reputation, award-
winning chefs and tastefully designed interiors. Much of its business came from executive lunches and
dinners. Following the opening of ‘Heavens’, another excellent restaurant in the nearby vicinity, trading
losses were incurred by Taste Bud and eventually the business became insolvent.
Efforts to either have the rent reduced or to sell the business were unsuccessful. Suppliers of food, bevrages
and utilities were unpaid for supplies provided in the previous 45- 60 days, amounting to around Rs.90,000.
There were rental arrears for one month amounting to Rs.50,000 towards landlord Mr. Deepak (the landlord
had received advance rent for three months, lease deed provided for one-month rent as security and one-
month rent as advance).
Taste Bud also had a secured creditor, ‘Secure Bank’. The bank indicated that it did not wish to appoint a
receiver/ file for insolvency as the accounts were regularly maintained. Taste Bud was managed by Mr.
Kapil, as a sole proprietor. He employed a staff of 10 people, including a chef, an assistant chef, six waiters
and two house-keeping staff. The salaries due to these employees were paid in half since the past three
months.
In light of the above, answer the following questions:
(a) Whether Taste Bud can apply for fresh start process? Give answer with citing reasons.
(b) In priority of payment of debts who will be paid before the wages and unpaid dues of employees of the
bankrupt? How the priority is decided under the IBC 2016?
(c) Who can initiate an insolvency resolution process in this case? Give reasons.
(d) In the above situation if a bankruptcy order is passed against Taste Bud, who shall prepare the list of
creditors? Mention provisions of IBC 2016 in this regard?
(e) Analyse the effect of Bankruptcy Order on secured creditors under the IBC 2016.

(5 marks each)
(a) No, Taste Bud is ineligible for applying for fresh start process.
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Reason : Section 80(2)(c) of the Code provides a Fresh Start Process for individuals under which they will
be eligible for a debt waiver of up to INR 35,000. The individual will be eligible for the waiver subject to
certain limits prescribed under the Code.
Section 80 of the Insolvency and Bankruptcy Code, 2016 provides that a debtor who is unable to pay his
debt and fulfils the conditions as mentioned in sub-section (2) of section 80 shall be entitled to make an
application to the Debt Recovery Tribunal (DRT) for a fresh start process for discharge of his qualifying
debt.
Section 79(19) of the Code defines the meaning of Qualifying Debt. It means amount due, which includes
interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a
liquidated sum either immediately or at certain future time but does not includes
• an excluded debt;
• a debt to the extent it is secured; and
• any debt which has been incurred three months prior to the date of the application for fresh start process;
(b) The first priority of payment shall be for the costs and expenses incurred by the bankruptcy trustee for
the bankruptcy process in full. The Workmen’s dues for the period of twenty-four months preceding the
bankruptcy commencement date and the debts owed to the secured creditors comes after second in
priority.
Reason: Section 178(1) of the Insolvency and Bankruptcy Code, 2016 prescribes the priority of payments
of debts as under:
Notwithstanding anything to the contrary contained in any law enacted by the Parliament or the State
Legislature for the time being in force, in the distribution of the final dividend, the following debts shall be
paid in priority to all other debts –
(a) firstly, the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full;
(b) secondly, –

(i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement date;
and
(ii) debts owed to secured creditors
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(c) thirdly, wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the
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period of twelve months preceding the bankruptcy commencement date;
(d) fourthly, any amount due to the Central Government and the State Government including the amount
to be received on account of Consolidated Fund of India and the Consolidated Fund of a State, if any, in
respect of the whole or any part of the period of two years preceding the bankruptcy commencement date;
(e) lastly, all other debts and dues owed by the bankrupt including unsecured debts.
(c) No one can initiate an insolvency resolution process.
Reason: Here ‘Tast Bud’ is the sole proprietorship concern and the proprietor is named as Mr Kapil. As
mentioned in sub-question (a) above ‘Taste Bud’ is enligible to initiate the insolvency.
Section 6 of the Insolvency and Bankruptcy Code, 2016 provides that where any corporate debtor commits
a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate
insolvency resolution process in respect of such corporate debtor in the manner provided under Chapter II
of Part II of the Code. However, it is to be mentioned here that the case referred above relates to Individual
and not of the CIRP.
(d) Bankruptcy Trustee shall prepare the list of creditors.
Reason: Section 132 of the Insolvency and Bankruptcy Code, 2016 provides that the bankruptcy trustee
shall within fourteen days from the bankruptcy commencement date prepare a list of creditors of the
bankrupt on the basis of,
(i) the information disclosed by the bankrupt in the application for bankruptcy filed by the bankrupt under
Section 118 of the Insolvency and Bankruptcy Code, 2016 and the statement of affairs filed under Section
125 of the Insolvency and Bankruptcy Code, 2016; and
(ii) claims received by the bankruptcy trustee under sub-Section (2) of Section 130 of the Insolvency and
Bankruptcy Code, 2016.
(e) Section 128 of the Insolvency and Bankruptcy Code, 2016 provides that on passing of the bankruptcy
order under Section 126 of the Insolvency and Bankruptcy Code, 2016:

a) the estate of the bankrupt shall vest in the bankruptcy trustee as provided under Section 154 of the
Insolvency and Bankruptcy Code, 2016;
b) the estate of the bankrupt shall be divided among his creditors;
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c) a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not:
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(i) initiate any action against the property of the bankrupt in respect of such debt; or
(ii) commence any suit or other legal proceedings except with the leave of the Adjudicating Authority and
on such terms as the Adjudicating Authority may impose.
Subject to the provisions of Section 123 of the Insolvency and Bankruptcy Code, 2016, the bankruptcy
order shall not affect the right of any secured creditor to realize or otherwise deal with his security interest
in the same manner as he would have been entitled if the bankruptcy order had not been passed: Provided
that no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy
commencement date if he does not take any action to realise his security within thirty days from the said
date.
Case Study – 21
Disqualification of Director
As on 30th November, 2018, the filing status of the financial statement or annual return of ABC Limited for
the last 4 financial year is as under:
Financial Year ended Filling of Financial Filling of Annual Return Date of AGM
31st March Statement
2017-18 Not Submitted Not Submitted 25th September,2018
2016-17 Not Submitted Submitted 5th June,2017
2015-16 Submitted Not Submitted 30th May, 2016
2014-15 Submitted Not Submitted 25th May, 2015
On the basis of above please advise:
i. Due date of the filing of the Financial Statement and Annual Return for the FY2015-16.
ii. On the basis of the above filing status, whether the directors of the company are being disqualified or not
under section 164(2) of the Companies Act, 2013.
iii. Whether the company has made any non-compliance in calling of the AGM.

iv. Consequence to the company for the Non filing of the Financial Statement.
i. Due date of the filing of the Financial Statement and Annual Return for the FY 2015-16.
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As per the Section 137 of the Companies Act, 2013, A copy of the financial statements, including
consolidated financial statement, if any, along with all the documents which are required to be or attached
to such financial statements under this Act, duly adopted at the annual general meeting of the company,
shall be filed with the Registrar within thirty days of the date of annual general meeting.
In the above case the AGM is held on the 30th May, 2016 accordingly, the financial statement of the
company should be filed on or before the 29th June, 2016.
As per section 92 of the companies act, 2013 Every company shall file with the Registrar a copy of the
annual return, within sixty days from the date on which the annual general meeting is held or where no
annual general meeting is held in any year within sixty days from the date on which the annual general
meeting should have been held together with the statement specifying the reasons for not holding the
annual general meeting.
In the above case the AGM is held on the 30th May, 2016 accordingly, the financial statement of the
company should be filed on or before the 29th July, 2016.
ii. On the basis of the above filing status, whether the directors of the company are being disqualified or not
under section 164(2) of the Companies Act, 2013.
As per Section 164 (2) of the Companies Act, 2013, No person who is or has been a director of a company
which –
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on
the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem
continues for one year or more,
shall be eligible to be re-appointed as a director of that company or appointed in other company for a period
of five years from the date on which the said company fails to do so.]
As per the above filing status, the company has not filed the financial statement for the FY 2016 -17 and
2017-19 and the Annual return for the FY 2014-15 and 2015-16. Hence, all the Director of the company are
disqualified. However, in case any director appointed during the FY 2016-17 and 2017-18 will not be
disqualified for appointment or reappointment in any company.

iii. Whether the company has made any non-compliance in calling of the AGM.
As per section 96 of the Companies Act, 2013 every company other than a One Person Company shall in
each year hold in addition to any other meetings, a general meeting as its annual general meeting and shall
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specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between
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the date of one annual general meeting of a company and that of the next:
From the above table it can be seen that the company has call AGM on 05th June, 2017 and the AGM for
the FY 17-18 is called on 25th September, 2018, which is called after the gap of fifteen months which was
expired on 05th September, 2018. However, if the company has taken the prior approval of the registrar of
companies for extension of the date of the Annual general meeting, the company is in compliance with the
law.
iv. Consequence to the company for the Non-filing of the Financial Statement.
As per section 137 of the companies Act, 2013 If a company fails to file the copy of the financial statements
under sub-section (1) or sub-section (2), as the case may be, before the expiry of the period specified
therein the company shall be liable to a penalty of one thousand rupees for every day during which the
failure continues but which shall not be more than ten lakh rupees, and the managing director and the Chief
Financial Officer of the company, if any, and, in the absence of the managing director and the Chief
Financial Officer, any other director who is charged by the Board with the responsibility of complying with
the provisions of this section, and, in the absence of any such director, all the directors of the company,
shall be shall be liable to a penalty of one lakh rupees and in case of continuing failure, with further penalty
of one hundred rupees for each day after the first during which such failure continues, subject to a maximum
of five lakh rupee.
The company has not filed the financial statement for the year 2016-17 and 2017-18 and company is liable
to pay additional fees as per section 403 and the penalty of one thousand rupees for every day during which
the failure continues but which shall not be more than ten lakh rupees.
Case Study-22
Acceptance of Deposit by Private Company
The Promoter of the ABC Private Limited (a Start-up Registered company) incorporated on 20th June, 2016
is willing to accept deposit from its members. The shareholding of Mr. A and Mr. B and Mr. C as on the 31st
March 2017 is as under:
Mr. A Director of the company holding 4000 shares of Rupees 100 per share
Mr. B Friend of Mr. A

Mr. C 3000 Shares of Rupees 100 per share
The Company is not having investment in any Subsidiary Company and Associate Company, the borrowing
from the Financial Institutions as on 31st March, 2017 is Rupees 10 Crores.
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On the basis of the above information, Please advise on the following:
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i. Whether the company can Accept deposit from Mr. A
ii. Whether the company can Accept deposit from Mr. B
iii. Whether the company can Accept deposit from Mr.C?
iv. What will be the maximum limits up to which the deposit can be accepted?
v. Describe the various compliance requirements for the company.
i. Whether the company can Accept deposit from Mr. A
As per the Companies (Acceptance of Deposit) Rules, 2014 any amount received from a person who, at
the time of the receipt of the amount, was a director of the company or a relative of the director of the
Private Company is exempted under the deposit rules. However in such case the director of the company
or relative of the director of the private company, as the case may be, from whom money is received,
furnishes to the company at the time of giving the money, a declaration in writing to the effect that the
amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from
others and the company shall disclose the details of money so accepted in the Board’s report.
Hence the company can accept deposit from Mr. A as he is the Director of the company with No limit on
the amount of deposit, further he need to give declaration on the same.
ii. Whether the company can accept deposit from Mr. B
No, the Company cannot accept deposit from Mr. B as he is not the director, relative of the directors of the
company also he is not the members of the company. The definition of the private company prohibited for
any invitation of the public to subscribe for any securities of the company.
iii. Whether the company can accept deposit from Mr. C
Yes, the company can accept deposit from Mr. C as per MCA notification dated 13th June, 2017, the
provision the provision of clauses (a) to (e) of sub-section (2) of section 73 shall not apply to following class
of private company-

(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid
up share capital, free reserves and securities premium account; or
(B) which is a start-up, for five years from the date of its incorporation; or
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(C) which fulfils all of the following conditions, namely:-
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(a) which is not an associate or a subsidiary company of any other company;
(b) if the borrowings of such a company from banks or financial institutions or anybody corporate is less
than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of
accepting deposits under this section:
In the above case the company is fits in the various conditions placed in the section for private limited
companies for acceptance of deposit. Accordingly, the company can accept deposits from its members up
to the one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium
account.
iv. What will be the maximum limits up to which the deposit can be accepted?
As per rule 3(3) of the Companies (Deposit )Rules, 2014 o No company referred to in sub-section (2) of
section 73 shall accept or renew any deposit from its members, if the amount of such deposits together
with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits
exceeds thirty five per cent of the aggregate of the Paid-up share capital, free Reserves and securities
premium account of the company.
However maximum limit in respect of deposits to be accepted from members shall not apply to following
classes of private companies, namely:-
(i) a private company which is a start-up, for five years from the date of its incorporation;
(ii) a private company which fulfils all of the following conditions, namely:-
(a) which is not an associate or a subsidiary company of any other company;
(b) the borrowings of such a company from banks or financial institutions or any body corporate is less than
twice of its paid up share capital or fiffy crore rupees, whichever is less ; and
(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of
accepting deposits under section 73:

v. Filing requirement:
The companies accepting deposits is required to file the details of monies so accepted to the Registrar in
Form DPT-3.
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Case Study-23
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Notice of Board Meeting
Mr. Sumit, an officer of the Corporate Secretarial Department of the Executive Limited has called the
meeting of the members of the board of the director on 25th April, 2019, and served the notice on 17th
April, 2019 on email as well as through Registered post, later on Mr. Ashok, one of the directors of the
company has challenged the validity of the meeting on the following grounds.
(a) Mr. Sumit was not authorised person to call the meeting.
(b) The Notice was not sent on the letter head of the company
(c) The Notice is not served as per the statutory requirements.
(d) The notice does not to inform about the facility of the video conferencing being provided by the company.
In this back drop answer the following:
i. Whether Mr. Sumit was authorised person to call the meeting? If so give reasons.
ii. Whether it is mandatory to send Notice of the meeting on the letter head of the company?
iii. What are the statutory requirements for serving of notice of board meeting through emails and registered
post?
iv. Whether the facility of the video conferencing is mandatorily required to be provided by the company?
i. Mr. Sumit was authorised person to call the meeting.
As a best practice and a measure of good governance, the Director desirous of summoning a Meeting for
any purpose should send his requisition in writing to convene such Meeting, along with the agenda
proposed by him for discussion at the Meeting, either to –
•- the Chairman or in his absence, to the Managing Director or in his absence, to the Whole-time Director,
or

• the Company Secretary or in his absence, to any other person authorised by the Board in this regard.
“any person authorised by the Board”, whether an officer of the company or any person other than the
officer of the company, should be clearly identifiable.
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It is advised to check whether Mr. Sumit fits under the criteria of the any person authorised by the board.
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ii. The Notice was not sent on the letter head of the company.
As per the secretarial standard on the meeting of the Board of Director (SS-1) and guidance note issued
Theron, The Notice should preferably be sent on the letter-head of the company. Where it is not sent on
the letter-head or where it is sent by e-mail or any other electronic means, there should be specified,
whether as a header or footer, the name of the company and complete address of its registered office
together with all its particulars such as Corporate Identity Number (CIN) as required under Section 12 of
the Act, date of Notice, authority and name and designation of the person who is issuing the Notice, and
preferably the phone number of the Company Secretary or any other designated officer of the company
who could be contacted by the Directors for any clarifications or arrangements.
iii. The Notice is not served as per the statutory requirements.
In case the company sends the Notice by speed post or by registered post, an additional two days shall be
added for the service of Notice.
Addition of two days in case the company sends the Notice by speed post or by registered post is in line
with Rule 35(6) of the Companies (Incorporation) Rules, 2014 which provides that in case of delivery of
Notice of a Meeting by post, the service shall be deemed to have been effected at the expiration of forty
eight hours after the letter containing the same is posted.
However, the requirement of adding two days is applicable only if the Notice is sent to any of the Directors
solely by speed post or by registered post and not by facsimile or by e-mail or any other electronic means.
In case the Notice is sent by facsimile or by e-mail or by any other electronic means to the Directors,
and it is additionally sent by speed post or by registered post to all or any of the Directors, whether pursuant
to their request or otherwise, the additional two days need not be added.
iv. The notice does not inform about the facility of video conferencing being provided by the company.
The Director who desires to participate through Electronic Mode may intimate his intention of such
participation at the beginning of the Calendar Year and such declaration shall be valid for one Calendar
Year [Clause 3(e) read with Clause 3(d) of Rule 3 of the Companies (Meetings of Board and its Powers)
Rules, 2014]. The Notice shall also contain the contact number or e-mail address (es) of the Chairman or

the Company Secretary or any other person authorised by the Board, to whom the Director shall confirm in
this regard. In the absence of an advance communication or confirmation from the Director as above, it
shall be assumed that he will attend the Meeting physically.
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Case Study-24
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Financial Analysis (Capital Budgeting Decisions)
For assessing the two proposals, company’s CFO Sridhar looked at some popular methods and compared
the two projects.
1. Average Rate of Return (ARR) Method
Accounting rate of return is also called the simple rate of return and is a metric useful in the quick calculation
of a company’s profitability. ARR is used mainly as a general comparison between multiple projects as it is
a very basic look at how a project is doing.
Project A:
Average EAT = (Total EAT / Time Period) = Rs 408/5 Cr. = Rs 81.6 Cr.
Average Investment = Total Investment / 2 = Rs 390 /2 Cr. = Rs. 195 Cr.
ARR = (Average EAT ÷ Average Investment) *100 % = 81.6 / 195 * 100 = 41.8%
Project B:
Average EAT = (Total EAT / Time Period) = Rs. 451.92 / 5 Cr. = Rs 90.38 Cr.
Average Investment = Total Investment / 2 = Rs 390 /2 Cr. = Rs. 195 Cr.
ARR = (Average EAT ÷ Average Investment) *100 % = 90.38 / 195 * 100 = 46.34%
Mr. Sridhar observed that both of the projects have very good rate of return and project B is performing
better ARR than Project A. Major drawback of this technique is that it does not consider the time value of
money, which means that returns taken in during later years may be worth less than those taken in present,
and does not consider cash flows, which can be an integral part of maintaining a business. Thus, he must
not solely depend on ARR as the method for selecting the project.
Finally, accounting rate of return does not consider the increased risk of long-term projects and the
increased variability associated with long periods of time.
2. Pay Back Method

This method indicates the time period required to recover the initial investment outlays of the capital
budgeting proposal. The earlier is the sum received, the better it is as per the payback period.
(in Rs Crores)
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Year 1 2 3 4 5
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Annual CFAT Project A 29.8 53.8 125.8 149.8 173.8
Project B 37.8 52.92 75.6 122.4 163.2
Cumulative Project A 29.8 83.6 209.4 359.2 533
CFAT Project B 37.8 90.72 166.32 288.72 451.92
We need to recover our total Investment of Rs. 390 Cr, thus payback period for each project is
1. Project A:
CFAT at end of year 4 = 359.2, CFAT at end of year 5 = 533
Therefore, by interpolation, PB = 4.177 years
2. Project B:
CFAT at end of year 4 = 288.72, CFAT at end of year 5 = 451.92
Therefore, by interpolation, PB = 4.224 years
On evaluating on the basis of Payback Method he found that Project A is performing better than project B.
The payback period does not concern itself with the time value of money. In fact, the time value of money
is completely disregarded in the payback method, which is calculated by counting the number of years it
takes to recover the cash invested.
So before taking the final decision Mr. Sridhar thought of doing more research and analysis. He
remembered about the time value of money concept. He realized that to get the true picture of the projects
he needs to discount the cash inflows. He now thought of using the internal rate of return method which is
quite popular in the corporate sector to identify the best proposal.
3. Internal Rate of Return (IRR) Method
This method indicates the expected rate of return likely to be provided by the capital budgeting proposal.
The project is accepted if the cost of capital is less than the IRR and rejected if it is more than IRR. To
calculate IRR, we use an approximate method where we first calculate fake payback period to estimate the
likely rate of return and then use Annuity table to find the best match.
Project A

Fake Annuity = (Total CFAT) ÷ (Total Time) = 533 / 5 = Rs. 106.6 Cr.
Fake Payback Period= (Total Investment) ÷ (Fake Annuity) = 390/106.6 = 3.658 years
Now he found the PVIF close to 4.22 years in the table giving present value of an annuity of One Rupee
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for 5 years to be between 11 and 12% as shown below.
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In Rs Crores
Year CFAT of PV Factor PV Factor PV Factor PV Factor PV 11% PV 12%

Project A (8%) (11%) (12%) 8%
1 29.8 0.9259 0.9009 0.8929 27.59 26.84 26.61
2 53.8 0.8573 0.8116 0.7972 46.12 43.66 42.89
3 125.8 0.7938 0.7312 0.7118 99.86 91.98 89.54
4 149.8 0.7350 0.6587 0.6355 110.10 98.67 95.19
5 173.8 0.6806 0.5935 0.5674 118.28 103.15 98.61
Total Present Value 401.95 364.30 352.84
Less: Initial Outflow 390.00 390.00 390.00
Net Present Value 11.95 -25.70 -37.16
He observed that the PVIF of 11% and 12% did not give the results, so he tried with 8%.
Now he used interpolation to find the IRR,
IRR = 8 + (402-390) / [11.95-(-25.7)]*3 = 8.95%
Project B
Fake Annuity = (Total CFAT) ÷ (Total Time) = 451.92 / 5 = Rs. 90.38 Cr.
Fake Payback Period= (Total Investment) ÷ (Fake Annuity) = 390/90.38= 4.315 years
Similarly, he found the PVIF close to 4.315 years in the table giving present value of an annuity of One
Rupee for 5 years to be between 4% and 5% as shown below.
in Rs Crores
Year CFAT of PV factor (4%) PV factor (5%) PV (4%) PV (5%)

Project B
1 37.8 0.9615 0.9524 36.34 36.00
2 52.92 0.9246 0.9070 48.99 48.00

3 75.6 0.8890 0.8638 67.21 65.30

4 122.4 0.8548 0.8227 104.63 100.69
5 163.2 0.8219 0.7835 134.13 127.86
Total Present Value 391.3 377.85
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Less: Initial Outflow 390.00 390.00
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Net Present Value 1.3 -12.15
Now he used interpolation to find the IRR,
IRR = 4 + (391.3-390)/ [1.3-(-12.15)]*1= 4.096
He observed that project A conclusively outperforms project B in terms of Internal Rate of Return. On having
a closer look he found out the reason for project A having higher IRR has to do with higher CFAT on account
of full capacity production in the later years. So he was convinced that project A is better and going to
convey this to Mr. Khushiram next day, but he thought that the importance of NPV in capital budgeting
decisions can’t be neglected. Although IRR is an appealing metric to many, it should always be used in
conjunction with NPV for a clearer picture of the value represented by a potential project a firm may
undertake.
Thus before taking the final call he analyzed the projects using NPV method.
4. Net Present Value (NPV) Method
Determining the value of a project is challenging because there are different ways to measure the value of
future cash flows. Because of the time value of money (TVM), money in the present is worth more than the
same amount in the future. This is both because of earnings that could potentially be made using the money
during the intervening time and because of inflation. In other words, a rupee earned Sample Case Studies
& Suggested Solutions 543
in the future won’t be worth as much as one earned in the present.
The discount rate element of the NPV formula is a way to account for this. Companies may often have
different ways of identifying the discount rate. He used the discount rate of 10% which was close to the
company’s expected rate of returns.
Here, PV = Present Value
(In Rs. Crore)

Year CFAT of CFAT of PV factor PV of CFAT of PV ofCFAT of

Project A Project B (10%) Project A Project B
1 29.8 37.8 0.91 27.11 34.40
2 53.8 52.92 0.83 44.65 43.92
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3 125.8 75.6 0.75 94.35 56.7
4 149.8 112.4 0.68 101.86 83.23

5 173.8 163.2 0.62 107.75 101.18
Total PV of Cash Inflow 375.72 319.43
Total PV of Cash Outflow 155.00 3.00
Net PV of Cash Flow 220.72 316.43
Analysis with NPV gave some surprising results, both projects have NPV positive and so both are good
projects to invest in. But Project B had significantly higher NPV than Project A, implying that project B is
more profitable. But this was completely opposite of what he got from the IRR method where he got two
times higher IRR compare to project B.
Faced with completely opposite result from the two methods he was unsure of which project to recommend.
So he decided to study the implications of both the methods that would result in greater future value of the
company and came to the below conclusion.
Conclusion
NPV and IRR are both used in the evaluation process for capital expenditure. Net present value (NPV)
discounts the stream of expected cash flows associated with a proposed project to their current value,
which presents a cash surplus or loss for the project. The internal rate of return (IRR) calculates the
percentage rate of return at which those same cash flows will result in a net present value of zero. The two
capital budgeting methods have the following differences:
1. The NPV method results in a dollar value that a project will produce, while IRR generates the percentage
return that the project is expected to create.
2. The NPV method focuses on project surpluses, while IRR is focused on the breakeven cash flow level
of a project.
3. The NPV method presents an outcome that forms the foundation for an investment decision, since it
presents a dollar return. The IRR method does not help in making this decision, since its percentage return
does not tell the investor how much money will be made.

4. The presumed rate of return for the reinvestment of intermediate cash flows is the firm’s cost of capital
when NPV is used, while it is the internal rate of return under the IRR method.
5. The NPV method requires the use of a discount rate, which can be difficult to derive, since management
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might want to adjust it based on perceived risk levels. The IRR method does not have this difficulty, since
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the rate of return is simply derived from the underlying cash flows.
Due to above reasons, NPV is considered to be a better option for evaluation than IRR. Generally, NPV is
the more heavily-used method, but some also use simple methods like Pay Back and ARR.
We will suggest Mr. Sridhar to recommend the project with higher NPV i.e. project B of outsourcing the
manufacturing to company’s CEO Mr. Khushiram.
Case Study-25
MCL is a public limited company, which has its equity shares listed on both BSE Limited and National Stock
Exchange of India Limited. CPPL is a part of the promoter group of MCL since it is closely held by certain
promoters of MCL. However, currently CPPL neither holds any equity shares in MCL nor has any role in
the management of MCL. The ‘Promoter and Promoter Group’ of MCL collectively hold 65.44% of the total
paid-up capital of MCL, as on date. Being a public listed company, MCL has issued a ‘Code of practice and
procedures for fair disclosure of unpublished price sensitive information (“UPSI”) and code of conduct to
regulate, monitor and report trading by insiders of MCL (“CoC”) in accordance with the SEBI (Prohibition of
Insider Trading Regulations), 2015 (“PIT Regulations”). CPPL now intends to acquire 50,000 equity shares,
constituting 0.06% of the paid-up capital of MCL (“Proposed Acquisition”), which is beyond the thresholds
stipulated by the board of directors of MCL for trading by designated persons. In view of the above facts,
answer the following questions:
a. What category of persons are required to obtain a pre-clearance from the compliance officer of a listed
entity prior to trading?
b. Will CCPL be required to obtain a pre-clearance from the compliance officer of MCL for the Proposed
Acquisition?
c. Does the compliance officer have discretionary powers under the PIT Regulations to reject a pre-
clearance request on any reason it deems fit?
d. Is the compliance officer required to consider certain factors while approving or rejecting an application
seeking pre-clearance for a proposed transaction?
e. Is there any provision in the PIT Regulations that provides for the examination of acts of a compliance
officer?

The following are the findings of the case as given above:
a. Clause 6 of Schedule B of the PIT Regulations states that pre-clearance is required to be obtained only
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by ‘designated persons’ (i.e. employees and connected persons designated as such on the basis of their
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functional role in the organization) if the value of the proposed trades is above such thresholds as stipulated
by the board of directors of the listed company.
b. CCPL will be required to obtain a pre-clearance from the compliance officer of MCL for the Proposed
Acquisition only if it is designated as a ‘designated person’ by the board of directors of MCL, in consultation
with the compliance officer.
c. The compliance officer, under the provisions of the PIT Regulations, is entrusted with ensuring adherence
to the PIT Regulations and in rejecting a pre-clearance request, the compliance officer is required to ensure
compliance in letter and spirit to the PIT Regulations i.e. to ensure that no undue advantage accrues to
certain categories of investors on account of their access to UPSI and not for any ulterior motive.
d. The compliance officer is required to approve or reject a request for pre-clearance after necessary
assessment as per the PIT Regulations and the Code of Conduct of the company. Clause 7 of Schedule
B of the PIT Regulations requires the compliance officer to maintain a list of such securities as a ‘restricted
list’ which is to be used as a basis for approving or rejecting applications for pre-clearance of trades and
Clause 8 requires a compliance officer to have regard to whether a declaration (from the applicant seeking
pre-clearance to the effect that he is not in possession of UPSI) is reasonably capable of being rendered
inaccurate.
e. Regulation 2(1)(c) of the PIT Regulations lays down that the compliance officer acts under the overall
supervision of the board of directors of the listed company or the head of the organization (as the case may
be). Additionally, Clause 1 of Schedule B of the PIT Regulations requires the compliance officer to report
to the board of directors and provide reports to the Chairman of the audit committee/ board of directors.
Hence, any act of the compliance officer may be referred to the board of directors and the audit committee
for examination with the extant laws and relevant facts of the case.
Case Study-26
Priya Limited (“Company”) is an Indian public limited company listed on NSE Limited. The Company was
initially promoted by Mr. Suresh, who together with his wife, Mrs. Raina holds 21.15% of the equity share
capital of the Company as on date. The total promoter and promoter group holding, as on date, is 64.31%
of the shares of the Company. On March 23, 1995, Mr. Suresh entered into a promotional agreement with
M/s. Kochi Corporation Limited (“KCL”), which provides that both parties shall support each other during

the currency of the agreement on all matters coming up before the general meeting of the Company. The
shareholding of Mr. Suresh, Mrs. Raina and KCL, as on date, constitutes 29.91% of the equity share capital
of the Company. Mr. Suresh and his wife have entered into a shareholders’ agreement with M/s. Mumbai
100
Indians under which Mr. Suresh, Mrs. Raina, the Company and M/s. Mumbai Indians undertook to take
such actions as may be necessary to give effect to the provisions of, and comply with their obligations under
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the shareholders’ agreement. Further, it was confirmed in the said shareholders’ agreement that the director
nominated by KCL shall be a promoter director. Another shareholder, Mr. Rohit Sharma, who is also a
director in the Company and holds 4.27% of its equity shares intends to enter into a shareholders’ voting
agreement (“Agreement”) with Mr. Suresh under which both Mr. Suresh and Mr. Rohit Sharma intend to
support each other on all matters coming up before the board and general meetings of the Company. Mr.
Rohit Sharma is not related to the promoter, Mr. Suresh, and was de-classified as a promoter of the Target
Company on May 6, 2012. In view of the above facts, answer the following questions:
a. Would Mr. Suresh, Mrs. Raina and KCL be deemed to be persons acting in concert under the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”)?
b. Would the execution of the Agreement attract Regulation 3(1) of the SAST Regulations which will in
effect require Mr. Suresh to make a public announcement of an open offer?
c. Would the execution of the Agreement attract any other provision of the SAST Regulations that would
require Mr. Suresh to make a public announcement of an open offer?
a. Regulation 2(1)(q) of the SAST Regulations include promoters and members of the promoter group under
the category of persons deemed to be persons acting in concert. Since Mr. Suresh, Mrs. Raina and KCL
are members of the promoter group, they would be deemed to be persons acting in concert in terms of
Regulation 2(1)(q) of the SAST Regulations.
b. Since Mr. Rohit Sharma would be voting with the existing promoters on all matters, he would be deemed
to be a person acting in concert with the promoter group, and thus he would become a part of the promoter
group. Hence, the promoter and promoter group shareholding would increase from 64.31% to
68.58% of the shares of the Target Company, which is well within the limits specified in Regulation 3(1) of
the SAST Regulations (i.e. less than 25% of shares of the target company). Hence, the execution of the
Agreement would not attract the provisions of Regulation 3(1) of the SAST Regulations.
c. Since, by virtue of the Agreement, Mr. Rohit Sharma would exercise control with Mr. Suresh and other
members of the promoter group, such acquisition of control through the proposed Agreement would attract

Regulation 4 of the SAST Regulations. In terms of the same, Mr. Rohit Sharma would be required to make
a public announcement of an open offer.
Case Study-27
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Opex Limited (“Company”) is a public company which has its shares listed on BSE Limited and National
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Stock Exchange of India Limited. The engineering business of the Opex Group is presently held under the
Company and Samaira Engineering Limited (“SEL”), a subsidiary of the Company. The equity shares of
SEL were listed on Ahmedabad Stock Exchange in May, 1965 and were subsequently delisted in June,
2015, in accordance with Chapter III of the SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting
Regulations”). It is proposed to consolidate the engineering business in a single company, for which, the
Company will incorporate a wholly owned subsidiary i.e. New Company (“New Co.”) and will demerge its
engineering undertaking into New Co. It is also proposed to simultaneously either merge SEL into the New
Co. or demerge the engineering undertaking of SEL into the New Co. As a reason for the aforesaid
demerger, New Co. will issue equity shares to the shareholders of the Company and SEL as a consideration
for demerger. In order to implement the identified alternative, the Company, SEL and the New Co. would
enter into a scheme of arrangement under Sections 230-232 of the Companies Act, 2013. The equity shares
of New Co. are proposed to be listed in accordance with the relevant SEBI laws. In view of the above facts,
answer the following questions:
a. Is there any restriction on listing of equity shares that have been delisted by voluntary delisting under
Chapter III of the Delisting Regulations?
b. Would the listing of equity shares issued by New Co. to the shareholders of the Company and SEL be
permissible under the Delisting Regulations?
c. Is there any restriction on listing of equity shares that have been compulsorily delisted under Chapter V
of the Delisting Regulations?
a. Regulation 30(1)(a) of the Delisting Regulations, 2009 provides that an application for listing equity
shares that have been delisted under Chapter III cannot be made until the expiry of a period of 5 years from
the delisting.
b. Since the issuance of equity shares by New Co. are distinct from the equity shares of SEL that were
delisted from the Ahmedabad Stock Exchange in 2015, they can be issued under the Delisting Regulations.

c. Regulation 30(1)(b) of the Delisting Regulations provides that an application for listing equity shares that
have been delisted under Chapter V cannot be made until the expiry of a period of 10 years from the
delisting.
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Case Study - 28
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Bright Mills Company Ltd (the Company) was closed and opened several times for one reason or another
and finally was closed in March, 2014. However, the proceedings were pending under the Sick Industrial
Companies (Special Provisions) Act, 1985. The Bright Mill Mazdoor Morcha, (the trade union) a registered
trade union on 14.03.2017, issued a demand notice on behalf of roughly 3,000 workers under Section 8 of
the Code for outstanding dues of workers. The Company replied to it on 31.03.2017.
The National Company Law Tribunal (NCLT), on 28.04.2017, after considering all the antecedent facts
including suits that have been filed by respondent and referring to pending writ petitions in the High Court
of Delhi, ultimately held that a trade union not being covered as an operational creditor, the petition would
have to be dismissed.
By the impugned order dated 12.09.2017, the National Company Law Appellate Tribunal (NCLAT) did
likewise and dismissed the appeal filed by the trade union and stating that each worker may file an individual
application before the NCLT.
The NCLAT, by the impugned judgment, refused to go into whether the trade union would come within the
definition of “person” under Section 3(23) of the Code. The NCLAT held that a trade union would not be an
operational creditor as no services are rendered by the trade union to the corporate debtor.
Based on the above, answer the following questions:
(a) Who can be termed as ‘Operational creditor’ and what is meant by ‘Operational debt’ under the
Insolvency and Bankruptcy Code, 2016? Whether Trade Union can be treated as ‘person’ under the Code?
(b) Whether you endorse the decision awarded by the NCLT and further affirmed by the NCLAT? Give
reasons in support of your answer.
(c) If you disagree with the award given by NCLT/NCLAT, what you will suggest to the Trade Union?
Suggested Solution- Case Study- 28
(a) Operational Creditor: In terms of section 5(20) of the Code, ‘operational creditor’ means a person to
whom an operational debt is owed and includes any person to whom such debt has been legally assigned
or transferred.

Operational Debt: In terms of section 5(21) of the Code, ‘operational debt’ means a claim in respect of the
provision of goods or services including employment or a debt in respect of the payment of dues arising
under any law for the time being in force and payable to the Central Government, any State Government
103
or any local authority.
Page
Person: Section 3(23) of the Code provides the inclusive definition of the word ‘person’, which includes:
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a trust;
(e) a partnership;
(f) a limited liability partnership; and
(g) any other entity established under a statute, and includes a person resident outside India;
Provisions under the Trade Union Act: Before going to answer, whether Trade Union comes under
the term ‘person’ or not, we have to see the definition of the Trade Union as provided in the Trade Union
Act, 1926.
Section 2(h) of the Trade Union Act provides that ‘Trade Union’ means any combination, whether temporary
or permanent, formed primarily for the purpose of regulating the relations between workmen and employers
or between workmen and workmen, or between employers and employers, or for imposing restrictive
conditions on the conduct of any trade or business, and includes any federation of two or more Trade
Unions.
Further the ‘trade dispute’ has been defined in section 2(g) of the Trade Union Act, as any dispute between
employers and workmen or between workmen and workmen, or between employers and employers which
is connected with the employment or non-employment, or the terms of employment or the conditions of
labour, of any person, and “workmen” means all persons employed in trade or industry whether or not in
the employment of the employer with whom the trade dispute arises.
On a reading of the aforesaid statutory provisions, what becomes clear is that a trade union is certainly an
entity established under a statute – namely, the Trade Unions Act, 1926 and would therefore fall within the
definition of “person” under Sections 3(23) of the Code.

104
(b) No, we do not endorse the decision awarded by the NCLT/NCLAT for the following reasons:
Page
(a) After having discussed in the (a) above, it is clear that a trade union is certainly an entity established
under a statute – namely, the Trade Unions Act, 1926 and would therefore fall within the definition of ‘person’
under Sections 3(23) of the Code.
(b) This being so, it is clear that an ‘operational debt’, meaning a claim in respect of employment, could
certainly be made by a person duly authorised to make such claim on behalf of a workman. Rule 6, Form
5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognises the
fact that claims may be made not only in an individual capacity, but also conjointly.
(c) A registered trade union recognised by Section 8 of the Trade Unions Act, 1926 makes it clear that it
can sue and be sued as a body corporate under Section 13 of that Act. Equally, the general fund of the
trade union, which inter alia is from collections from workmen who are its members, can certainly be spent
on the conduct of disputes involving a member or members thereof or for the prosecution of a legal
proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the
rights arising out of the relation of its members with their employer, which would include wages and other
sums due from the employer to workmen.
(d) NCLAT is not correct in stating that a trade union would not be an operational creditor as no services
are rendered by trade union to corporate debtor. What is clear is that trade union represents its members
who are workers, to whom dues may be owed by employer, which are certainly debts owed for services
rendered by each individual workman, who are collectively represented by trade union. Equally, to state
that for each workman there will be a separate cause of action, a separate claim, and a separate date of
default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from several
workmen to one of them to file such petition on behalf of all.
(e) Even otherwise, we are of the view that instead of one consolidated petition by a trade union
representing a number of workmen, filing individual petitions would be burdensome as each workman would
thereafter have to pay insolvency resolution process costs, costs of the interim resolution professional,
costs of appointing valuers, etc. Looked at from any angle, there is no doubt that a registered trade union
which is formed for the purpose of regulating the relations between workmen and their employer can
maintain a petition as an operational creditor on behalf of its members.

(c) We are of the opinion based on the above discussions that the Trade Union should make an appeal
before the Supreme Court. The above case is based on the recently decided case of the Supreme Court in
the matter of JK Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Company Ltd., Civil Appeal No.
105
20978 of 2017, April 30, 2019, which Apex Court held that a registered trade union which is formed for
purpose of regulating relations between workmen and their employer can maintain a petition as an
Page
operational creditor on behalf of its members.
Senior Advocate appearing on behalf of the appellant took Court through various provisions of the Code
and the Trade Unions Act, 1926, and cited a Division Bench judgment of the Bombay High Court in Sanjay
Sadanand Varrier v. Power Horse India Pvt. Ltd., [2017] 5 Mah LJ 876 to argue that even literally speaking,
the provisions of the Code would lead to the result that a trade union would be an operational creditor within
the meaning of the Code. Even otherwise, a purposive interpretation ought to be granted, as has been done
in various recent judgments to the provisions of the Code, and that therefore, such an application by a
registered trade union filed as an operational creditor would be maintainable.
On the other hand, learned Senior Advocates appearing on behalf of respondent No.1 supported the
NCLAT judgment to argue that as no services are rendered by a trade union to the corporate debtor to
claim any dues which can be termed as debts, trade unions will not come within the definition of operational
creditors. That apart, each claim of each workman is a separate cause of action in law, and therefore, a
separate claim for which there are separate dates of default of each debt. This being so, a collective
application under the rubric of a registered trade union would not be maintainable.
On a reading of the aforesaid statutory provisions, what becomes clear is that a trade union is certainly an
entity established under a statute – namely, the Trade Unions Act, and would therefore fall within the
definition of “person” under Sections 3(23) of the Code. This being so, it is clear that an “operational debt”,
meaning a claim in respect of employment, could certainly be made by a person duly authorised to make
such claim on behalf of a workman. Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 also recognises the fact that claims may be made not only in an
individual capacity, but also conjointly. Further, a registered trade union recognised by Section 8 of the
Trade Unions Act, makes it clear that it can sue and be sued as a body corporate under Section 13 of that
Act. Equally, the general fund of the trade union, which inter alia is from collections from workmen who are
its members, can certainly be spent on the conduct of disputes involving a member or members thereof or
for the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for
the purpose of protecting the rights arising out of the relation of its members with their employer, which
would include wages and other sums due from the employer to workmen.
The Bombay High Court in Sanjay Sadanand Varrier (supra), after setting out various provisions of the
Trade Unions Act, including Section 15, has held:

“13. As can be seen from the said section, Registered Trade Unions can prosecute or defend any legal
proceeding to which the Trade Union or member thereof is a party, when such prosecution or defence is
undertaken for the purpose of securing or protecting any right of the Trade Union as such, or any rights
106
arising out of the relations of any member with his employer or with a person whom the member employs.
In fact, the Trade Union can even spend general funds on the conduct of trade disputes on behalf of the
Page
Trade Union or any member thereof.
14. On a conjoint reading of the provisions of the Companies Act, 1956 and more particularly sections 434
and 439 as well as the provisions of the Trade Unions Act, 1926, we are clearly of the view that looking to
the mandate of sections 13 and 15 of the Trade Unions Act, 1926, there is no doubt in our
mind that a Petition for winding up would be maintainable at the instance of the Trade Union. This is for the
simple reason that section 15(c) and (d) clearly mandates that the prosecution or defence of any proceeding
to which the Trade Union or any member thereof is a party as well as the conduct of trade disputes on
behalf of the Trade Union or any member thereof can be done by the Trade Union. This would clearly go
to show that the Trade Union, for and on behalf of its members can certainly prefer a winding up Petition
as contemplated under section 439 of the said Act. This is for the simple reason that if the workmen have
not been paid their wages and/or salary by the Company, they would certainly be a creditor or creditors as
contemplated under section 439(1)(b) of the Companies Act, 1956. Section 15 clearly mandates that the
Trade Union can take up this cause for and on behalf of its members. Hence, after complying with the
provisions of section 434 of the Companies Act, 1956 the Trade Union would certainly be competent to
present a winding up Petition.”
No doubt, this judgment was in the context of a winding-up petition, but the rationale based upon Section
15(c) and (d) equally applies to a petition filed under the Code.
However, learned counsel appearing on behalf of respondent No. 1 have cited the judgment reported as
Commissioner of Income Tax (TDS), Kanpur and Anr. v. Canara Bank, [2018] 9 SCC 322. This judgment
dealt with the expression “established by or under a Central, State or Provincial Act” contained in Section
194-A(3)(iii) of the Income Tax Act, 1961. After exhaustively reviewing the case law on the subject, this
Court came to the conclusion that the NOIDA authority was established as an authority under the State Act.
While dealing with several judgments of this Court, the Court, in paragraphs 20, 24, and 25, followed
judgments stating that a company incorporated and registered under the Companies Act cannot be said to
be “established” under the Companies Act. The context of Section 3(23) of the Code shows that this
judgment has no application to the definition contained in Section 3(23). Here, a “person” includes a
company in clause (c), and would include any other entity established under a statute under clause (g). It
is clear that clause (g) has to be read noscitur a sociis with the previous clauses of Section 3(23). This
being the case, entities such as companies, trusts, partnerships, and limited liability partnerships are all

entities governed by the Companies Act, the Indian Trusts Act, and the Partnership Act, which are not
“established” under those Acts in the sense understood in Canara Bank (supra) and the judgments followed
by it. The context, therefore, in which the phrase “established under a statute” occurs, makes it clear that a
107
trade union, like a company, trust, partnership, or limited liability partnership, when registered under the
Trade Union Act, would be “established” under that Act in the sense of being governed by that Act. For this
Page
reason, the judgment in Canara Bank (supra) would not apply to Section 3(23) of the Code.
SC observed, even otherwise, we are of the view that instead of one consolidated petition by a trade union
representing a number of workmen, filing individual petitions would be burdensome as each workman would
thereafter have to pay insolvency resolution process costs, costs of the interim resolution professional,
costs of appointing valuers, etc. under the provisions of the Code read with Regulations 31 and 33 of the
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. Looked at from any angle, there is no doubt that a registered trade union which is formed
for the purpose of regulating the relations between workmen and their employer can maintain a petition as
an operational creditor on behalf of its members. We must never forget that procedure is the handmaid of
justice, and is meant to serve justice. This Court, in Kailash v. Nanhku and Ors. [2005] 4 SCC 480, put it
thus:
“28. All the rules of procedure are the handmaid of justice. The language employed by the draftsman of
processual law may be liberal or stringent, but the fact remains that the object of prescribing procedure is
to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the
opportunity of participating in the process of justice dispensation. Unless compelled by express and specific
language of the statute, the provisions of CPC or any other procedural enactment ought not to
be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends
of justice. The observations made by Krishna Iyer, J. in Sushil Kumar Sen v. State of Bihar [(1975) 1 SCC
774] are pertinent: (SCC p. 777, paras 5-6)
“The mortality of justice at the hands of law troubles a judge’s conscience and points an angry interrogation
at the law reformer.
The processual law so dominates in certain systems as to overpower substantive rights and substantial
justice. The humanist rule that procedure should be the handmaid, not the mistress, of legal justice compels
consideration of vesting a residuary power in judges to act ex debito justitiae where the tragic sequel
otherwise would be wholly inequitable. … Justice is the goal of jurisprudence — processual, as much as
substantive.”

29. In State of Punjab v. Shamlal Murari [(1976) 1 SCC 719 : 1976 SCC (L&S) 118] the Court approved in
no unmistakable terms the approach of moderating into wholesome directions what is regarded as
mandatory on the principle that: (SCC p. 720)
108
“Processual law is not to be a tyrant but a servant, not an obstruction but an aid to justice. Procedural
Page
prescriptions are the handmaid and not the mistress, a lubricant, not a resistant in the administration of
justice.”
In Ghanshyam Dass v. Dominion of India [(1984) 3 SCC 46] the Court reiterated the need for interpreting
a part of the adjective law dealing with procedure alone in such a manner as to subserve and advance the
cause of justice rather than to defeat it as all the laws of procedure are based on this principle.”
This judgment was followed by the Constitution Bench decision in Sarah Mathew v. Institute of Cardio
Vascular Diseases and Ors., [2014] 2 SCC 62 [at paragraph 49].
The NCLAT, by the impugned judgment, is not correct in refusing to go into whether the trade union
would come within the definition of ‘person’ under Section 3(23) of the Code. Equally, the NCLAT is not
correct in stating that a trade union would not be an operational creditor as no services are rendered by
the trade union to the corporate debtor. What is clear is that the trade union represents its members who
are workers, to whom dues may be owed by the employer, which are certainly debts owed for services
rendered by each individual workman, who are collectively represented by the trade union. Equally, to
state that for each workman there will be a separate cause of action, a separate claim, and a separate
date of default would ignore the fact that a joint petition could be filed under Rule 6 read with Form 5 of
the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, with authority from
several workmen to one of them to file such petition on behalf of all. For all these reasons, we allow the
appeal and set aside the judgment of the NCLAT. The matter is now remanded to the NCLAT who will
decide the appeal on merits expeditiously as this matter has been pending for quite some time.

How to write answers in MCS?
There can be three types of questions in the examination
Type 1: Case study based (first question of 40 marks)
There is no specific format to answer this question, You will be given a passage for 2-3 pages, which you
have to read and answer the questions given at the end. To have a fair idea about these questions we
have this separate book for case studies (Book 3, Case studies practice book) which has more than 35
case studies, but do not expect any case study to be repeated as it is from this book. In the examination
there will certainly be a new case and you will have to answer it with your presence of mind.
Keep in mind these points while answering the first case study question:
1. Despite this being the first question, It is not suggested to start your paper with this answer,
preferably attend this at the end. Start with those questions where you can score good marks.
(The first question of 40 marks is easy but less scoring).
2. Always answer this question point wise.
3. Underline the key words in the answer.
Type 2: Company Law related question
You might see such a question in your paper or you might not, but you have to be ready for it. You do
not have to prepare anything but just carry a latest bare act of Companies Act, 2013. That will make it
very easy for you to answer any surprise question in the examination relating Company law.
Type 3: Case law based questions
The paper will be substantially dominated by these questions, where you will find questions based on
300(aprox.) case laws in your syllabus. Refer to the past papers to understand the level of question.
These are the most scoring questions in MCS. If you have read the case laws once carefully from
“Yoddha”, then a simple revision from “Saarthi” will do the trick in the examination and help you
answer all the questions comfortably.
Format to answer these questions: (Three pointer format)
 Facts and Question involved:
(The facts of the question and the legal question involved has to be written here)
 Applicable Judgment and Provision:
(The applicable judgment and applicable section has be mentioned and explained here)
 Conclusion:
(after applying the principle of the case law to the facts of the question, what is the final conclusion
has to be written here)
Demo Question:
ABC Limited is an unlisted public Company, is part of ABC group of Companies with its business ranging
from paper to pharmaceutical manufacturing. The Company’s Pharmaceutical manufacturing division
was under scanner of US Foods and Drug Administration (USFDA) and there were pending investigations
against the said unit. As a part of its corporate restructuring, the Board of ABC Limited has decided to
demerge its pharmaceutical manufacturing business to a new Company and merge another paper
manufacturing Company with ABC Limited. A Composite scheme of amalgamation was filed under
section 230 of the Companies Act, 2013 read with the rules thereunder. The National Company Law
Tribunal (NCLT) rejected the Company’s application on the ground that investigations are pending
against the demerged unit. Is the ground for rejection by NCLT justified?
Model Answer:
Facts and Question involved:
ABC Ltd. is in multiple businesses, The company applied to NCLT for approval for demerger, NCLT
rejected the application on the ground that an investigation is pending against the said unit.
So the question which arise here in this case is, whether NCLT can reject a demerger application on the
ground that investigations are pending against the demerged unit.
Applicable Judgment and Provision:
The facts of the above case is similar to MEL WINDMILLS PVT. LTD. v. MINERAL ENTERPRISES LIMITED &
ANR [NCLAT], In this case the NCLT Bengaluru Bench declined to sanction the scheme of demerger on
the ground that several issues were pending finalization and certain investigations were pending in
relation to the business of the demerged company.
The company made an appeal in NCLAT, and NCLAT set aside the order of NCLT and ordered in favour of
the Company and held that any pendency of investigation would not stand as a bar in sanctioning the
proposed scheme of demerger.
Conclusion:
By applying the above principle from the case of MEL WINDMILLS PVT. LTD. v. MINERAL ENTERPRISES
LIMITED & ANR [NCLAT], it is clear that any pendency of investigation would not stand as a bar in
sanctioning the proposed scheme of demerger, hence NCLT is not justified in rejecting the application of
ABC Limited.
ABC Limited can file an appeal with NCLAT to set aside the impugned judgment of NCLT.
What all to carry for the examination?
1. Yoddha (to write the answers)
2. Saarthi (to search the applicable case law)
3. Module (with case numbers matching with our Yoddha)
4. Bare Act of Company Law
5. Case study practice book
6. Dictionary (if feasible)
(Of course apart from these every student is expected to carry
admit card, pen, water bottle and handkerchief.)
“Always remember you are going to succeed in

the examination, just be confident and write to
the best of your efforts. Nothing can stop you. All
the best.”
-Shubhamm Sukhlecha

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INDEX

PRACTICE CASE STUDIES (from past papers)

industry has historically been a very profitable industry.

do you think it may occur?

forward? What are the threats that are discernible?

should the industry adopt to counter the threats?

brief the SWOT analysis of present Automobile Industry? (10 marks)

opportunities for electric vehicles in India.

In 1973, Seven-Eleven's parent company, Southland Corporation (Southland) saw an opportunity

Under Japanese Leadership

capture global market.

company as successful shoe maker?

Training India’s Largest Driver Network

statement with respect to the case study.

in the years to come.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SWOT ANALYSIS : THE FULCRUM OF STRATEGIC DECISION MAKING

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

l No straightforward methodology has been proposed to identify strengths and weaknesses.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Growing trend of Veganism in India

SHUBHAMM SUKHLECHA (CA, CS, LLM)

FUNCTIONAL LEVEL STRATEGIES –AN EFFECTIVE TOOL TO ACHIEVE ORGANIZATIONAL GOALS

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

2. Identify the resources, capabilities, and distinctive competencies of Company?

USING AIMS AND OBJECTIVES TO CREATE A BUSINESS STRATEGY :

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 Developing an aim for a business

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

CASE STUDY – MCDONALD’S CORPORATION MICHAEL PORTER FIVE FORCES MODEL

SHUBHAMM SUKHLECHA (CA, CS, LLM)

2. Bargaining power of buyers or customers – High

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

l Highly variable capital cost – Moderate Force

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Business Strategy and Management

SHUBHAMM SUKHLECHA (CA, CS, LLM)

On the Path of Success

Indira Gandhi International Airport- Collins Aerospace

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

You have been asked to prepare a brief report in which you:

Suggested Solution- Case Study-1

SHUBHAMM SUKHLECHA (CA, CS, LLM)

The Institute of Company Secretaries of India

Robert Ian (Bob) Tricker

 A minimum number of three directors in the case of a public company,

SHUBHAMM SUKHLECHA (CA, CS, LLM)

(b) the company does not carry multiple businesses:

(a) be a non-executive director;

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 every listed public companies;