Rachit Desai

November 23, 2018by Rachit.Desai Rachit.Desai No Comments

The Importance of Planning in an Organisation

Planning helps an organization to improves upon organizational performance by streamlining operations, optimizing time management, and appropriately leveraging resources efficiently and effectively to achieve goals.
The process begins with reviewing the current operations of the organization and identifying what needs to be improved operationally for future growth.
From there, planning involves envisioning the results the organization wants to achieve and determining the steps necessary to arrive at the intended destination–success, whether that is measured in financial terms, or goals that include being the highest-rated organization in customer satisfaction.

Efficient Use of Resources

All organizations, large and small, have limited resources. The planning process provides the information top management needs to make effective decisions about how to allocate the resources in a way that will enable the organization to reach its objectives. Productivity is maximized, and resources are not wasted on projects with little chance of success.

Establishing Goals

Setting goals that challenge everyone in the organization to strive for better performance is one of the key aspects of the planning process. Goals must be aggressive, but realistic. Organizations cannot allow themselves to become too satisfied with how they are currently doing–or they are likely to lose ground to competitors. The goal setting process can be a wake-up call for managers that have become complacent. The other benefit of goal setting comes when forecast results are compared to actual results. Organizations analyze significant variances from forecast and take action to remedy situations where revenues were lower than plan or expenses higher

Team Building

Planning promotes team building and a spirit of cooperation. When the plan is completed and communicated to members of the organization, everyone knows what their responsibilities are, and how other areas of the organization need their assistance and expertise in order to complete assigned tasks. They see how their work contributes to the success of the organization as a whole and can take pride in their contributions. Potential conflict can be reduced when top management solicits department or division managers’ input during the goal setting process. Individuals are less likely to resent budgetary targets when they had a say in their creation

Creating Competitive Advantages

Planning helps organizations get a realistic view of their current strengths and weaknesses relative to major competitors. The management team sees areas where competitors may be vulnerable and then crafts marketing strategies to take advantage of these weaknesses. Observing competitors’ actions can also help organizations identify opportunities they may have overlooked, such as emerging international markets or opportunities to market products to completely different customer groups.

Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan.

October 11, 2018by Rachit.Desai Rachit.Desai No Comments

Best practices and approach to a reconciliation process

A regular review of your accounts can help you identify problems before they get out of hand. Reconciling your account also helps you identify account management or administrative issues that need attention. Performing reconciliation on a regular basis assists in the verification of flaws in the accounting documents of the organization as well as help in consistently tracking the cash flow of the company. Most of the time balances in books of vendor and customer is different. Accounting reconciliation is a way to keep the balances in a synchronise.

If there is to be reconciliation, first there must be truth.

Primarily, there are two ways to reconcile an account: Reviewing documents and Reviewing analytics;

Documentation Review

Documentation review is a common process of accounting reconciliation. This process reviews the appropriate amount for each transaction and determines whether the balance in the account matches the actual amount spent.

Analytics Review

Analytics review is another common process that individuals or business can use for reconciling an account. Under this process, businesses estimate the actual balance that should be in the accounts based on previous account activity levels. This process is important for businesses to check for fraudulent activity or balance sheet errors.

Reconciliation can benefit a company in following ways;

Eliminates accounting errors

Example – Accounting reconciliation on monthly basis is a great way to keep your bookkeeping identical to what is recorded at your bank or financial institution. It can help catch errors, which can easily happen on either side. And ultimately it will help eliminate those errors and keep them from happening again.

Keeps surprises from hitting your account

Example – Suppose you pay a check to a vendor and that vendor delays cashing it for months and months. Would you even remember that it was going to be deducted from your business account? If you reconcile your account each month, you can keep track of all transactions. Even ones that might be delayed.

Keeps your business account balances correct

Example – Human error can lead to deposit errors at your bank, which could have dire effects on your business and reputation. Imagine being short of cash in an important account that pays a portion of your expenses? Monthly accounting reconciliation can keep it from happening. Which leads to our next benefit regarding your bills.

Keeps your bills paid

Example – If you have bills and expenses that are automatically deducted from any of your accounts, then keeping track of all transactions and reconciling balances each month can keep you from having an overdraft or missing a payment.

Best Time to Reconcile

It’s wise to review your accounts at least monthly. For high-volume businesses or situations with a higher risk of fraud, you may need to reconcile your transactions even more often.

Why Need Reconciliation?

Finding actual balance in accounts
Inspect fraudulent activity and to prevent financial statement errors
Highlight delay in clearance of check
Discourages embezzlement or frauds
Improved internal control over the company’s cash
Difficult to compare multiple transactions
Susceptible to a countless of errors

Example- Reconciliation process comparison

Work to stop something from happening is easier and better than having to try to resolve it later.

Catch Fraud Before It’s Too Late

Make any signs of fraud your priority when reconciling the transactions made in your bank account –

Were legitimate checks that you issued duplicated or changed, resulting in more money leaving your checking (Bank/cash) account?
Were cheques issued without authorization?
Are there unauthorized transfers out of the account, or has anybody made unauthorized withdrawals?
Does the account have any missing deposits?

Ankush Lohiya
Senior Consultant

September 7, 2018by Rachit.Desai Rachit.Desai No Comments

Everything You Need To Know About NCLT Process Under Insolvency Code

The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by Parliament in the year 2016, and is one of the most important and major economic reform that has taken place in the country in recent times providing for insolvency resolution process in a time bound manner.

The banking industry has long been burdened by bad loans, and pose a significant macro-economic risk. On the other hand, in recent times the Government of India has been emphasizing on easing the process of carrying out business in India. Hence, the IBC was framed with the intention to expedite & simplify the process of Insolvency and Bankruptcy proceedings in India, ensuring fair negotiations between Debtor and Creditor by removing the asymmetry of debt and default information.

National Company Law Tribunal

The Ministry of Corporate Affairs (‘MCA’) on 1st June 2016 notified the constitution of the Adjudicating authority(“AA”) National Company Law Tribunal (‘NCLT’), having territorial jurisdiction over the place where the registered office of a corporate person is located, for the insolvency and bankruptcy resolution u/s 408 of the IBC. Hence the (NCLT) is a part of the Companies Act, 2013 which replaces the Company Law Board (CLB). National Company Law Appellate Tribunal (‘NCLAT’) was constituted as the Appellate Authority under the Code.

The mandate of the NCLT is to enforce the insolvency code.

1.1 Impact of the constitution of NCLT and NCLAT on the Company Law Litigation

Single Window:

The newly constituted tribunals will replace the existing Company Law Board (‘CLB’), the Board of Industrial and Financial Reconstruction (‘BIFR’) and its appellate authority. Thus, the unnecessary fragmentation and multiplicity of the proceedings before various courts and tribunals in the same matter will now be curbed. The powers and jurisdiction previously reserved for the Central Government, the CLB or the High Courts have been consolidated and assign to a single authority, thereby simplifying the dispute adjudication process.

Class Action Claims :

Shareholders are allowed to file class action suits before the NCLT, against the company, directors or auditors for the breach of provisions of the Companies Act. This remedy will be crucial for the minority shareholders who seek redressal against arbitrary/oppressive decisions of their management.

Greater Field Impact:

Contrary to 5 benches under CLB, NCLT will commence with 11 benches, with the Principal Bench being in New Delhi. This will ensure wider reach for adjudicating company law matters in India.

Speedy Disposal of Cases:

The NCLT and the NCLAT are under a mandate to dispose of cases within a time limit of 180 days with an extension of 90 days for sufficient reasons to be recorded, which is expected to ensure the speedy disposal of cases.

The constitution of the NCLT as a single forum to deal with Company Law matters is a welcome move to various stakeholders as it is aimed at providing a speedy and efficient disposal of the matters. In addition, it will also help in taking the load off the overburdened High Courts.

Any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the NCLAT. Every such appeal under shall be filed within thirty days before the NCLAT, subject to the proviso.

Any person aggrieved by an order of the NCLAT may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.

An entire set of Rules govern the working of the NCLT, which are notified by Ministry of Corporate affairs, vide notification dated 21^st July, 2016. It may be noted that NCLT Rules 2016 consists of a set of 165 Rules divided in 20 parts along with applicable forms for applications/ petitions, schedule of fees and list of documents to be attached with various applications/ petitions, etc.

Introduction to Insolvency & Bankruptcy Board of India and the Code

Insolvency and Bankruptcy Board of India (IBBI) was also established on 1^st October, 2016 u/S 188(1) of IBC, to oversee the work of insolvency and bankruptcy of corporate persons, firms and individuals.

The IBC confers powers to the IBBI under various sections of the Code, to make regulations governing Insolvency Professionals, Insolvency Professional Agencies, Insolvency Resolution Process for Corporate Persons, liquidation, Information Utilities etc. Thus, IBBI is a unique regulator: regulates a profession as well as processes. Right from laying down regulations for minimum curriculum for the qualifying examination of the insolvency professionals, to specifying minimum eligibility requirements for their registrations, and carry out inspections and investigations in IPAs, etc., grievance redressal of IPs, IPAs and Information Utilities, all functions are under the purview of the IBBI.

Moreover, the Central Government has been conferred powers under clauses (c ), (d), (e) and (f) of sub-section (1) of section 239 read with sections 7,8,9 and 10 of the IBC, to make Rules which are applicable to the Adjudicating Authority for IBC cases, i.e. National Company Law Tribunal.

Although IBBI has been conferred powers to regulate the processes of insolvency and bankruptcy, the actual work is handled mainly by Insolvency Professionals (IPs). IPs are regulated by Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, and are members of Insolvency Professional Agency(IPA), which is any person registered with the IBBI under Section 201 as an IPA. IPA is also regulated by the IBBI under Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016.

2.1 Insolvency Professional (IPs)

Insolvency professionals are persons enrolled under section 206 with an IPA as member, and registered with the IBBI u/s 201.

Pre-registration course is mandatory before a professional is enrolled with the IBBI as an IP.

Where any insolvency resolution, fresh start, individual or corporate bankruptcy process or liquidation process has been initiated, it shall be the function of an IP to take such actions as may be necessary as per the relevant provisions of the Code.

Eligibility Criteria for CAs to Register as an IP:

As per Regulation 3 of the IBBI(IP) Regulations, 2016, the Board shall conduct a ‘Limited Insolvency Examination’ to test the knowledge and practical skills of individuals in the areas of insolvency, bankruptcy and allied subjects. As per Regulation 5 of the same, the eligibility to be registered as IP is granted if:

He has passed the National Insolvency Examination;
He has passed the Limited Insolvency Exam, and has 15 years of experience in management, after he received a bachelor degree from a university established or recognized by law; or
He has passed the Limited Insolvency Examination and has ten years of experience as –
- A chartered accountant enrolled as a member of the Institute of Chartered Accountants of India,
- A Company Secretary enrolled as a member of the Institute of Company Secretaries of India,
- A Cost Accountant enrolled as a member of the Institute of Cost Accountants of India, or
- An advocate enrolled with a Bar Council.

The IBBI(IP)Regulations, 2016 specify the code of conduct for IPs.

2.2 Insolvency Professional Agency (IPAs)

The application, registration, renewal, grant, rejections etc. regarding IPAs is governed by the IBBI(IPA) Regulations, 2016. Currently there are three insolvency professional agencies registered with the Board; promoted by three statutory regulators of professions – ICAI, ICSI (Institute of Company Secretaries of India) and ICAI (Institute of Cost Accountants of India),”

The basic function of an IPA is to grant membership to persons who fulfil all requirements set out in its bye-laws on payment of membership fee; suspend or cancel the same if required safeguard the rights, privileges and interests of member IPs;

It is pertinent to note that since the word used is ‘person’ in the definition of IP, IP can be only an individual, LLP, partnership firm or a company.

2.3 Information Utilities [IUs]

Information utility is a person registered with IBBI and is an information network which would store financial data like borrowings, default and security interests among others of firms. IUs are regulated by the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017. The utility would specialize in procuring, maintaining and providing/supplying financial information to businesses, financial institutions, adjudicating authority, insolvency professionals and other relevant stake holders.

It is mandatory for financial creditors (banks which provide loans to the company)to provide financial information to the information utility. When they initiate insolvency proceedings against the defaulting firm (known as corporate debtor), the utilities may help as they would act as a centralised platform for accessing data.

Unlike financial creditors, it is optional for the operational creditor (Suppliers of goods and services) to provide financial information to the utility.

2.4 Insolvency Professional Entities [IPEs]

IPEs are kind of boutique firms, the sole objective of whom is to provide support services to IPs, who are either partners or directors of IPE.

The minimum net worth of the IPEs must be Rs 1 crore while majority of share capital or partners’ capital must be held or contributed by partners or directors who are IPs. Majority of directors or partners are required to be insolvency professionals.

Scheme of IBC

The provisions of the IBC are applicable to Individuals, Partnership and Proprietorship Firms, Limited Liability Partnerships, Companies and personal guarantors to corporate debtors, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.

The provisions relating to Corporate i.e., Limited Liability Partnerships and Companies have been notified and in force w.e.f. 1^st December, 2016. The provisions related to Individuals and Unlimited Partnership Firms – the Part III of IBC, 2016 are yet to be notified.

3.1 Understanding the Corporate insolvency resolution Process (CIRP):

Part II of IBC deals with insolvency resolution and liquidation for corporate persons. It is applicable to corporate persons, which means a company as defined in clasue (20) of section 2 of the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the LLP Act, 2008, or any other person incorporated with limited liability under any law for the time being in force but shall not include a financial service provider.

The basic idea of the new law is that when an enterprise (individual, firm or corporate) defaults, the control shifts to Committee of creditors. They have specified time limit to evaluate proposals for resuscitating (rehabilitating) the enterprise or taking it to liquidation. Decisions are required to be taken in a time bound manner so that there are greater chances that the enterprise is saved as a going concern and productive resources of economy can be put to best use.

Corporate Insolvency Resolution Process (CIRP) is regulated by Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2017. It can only be initiated when the minimum amount of default is rupees is one lakh or such higher amount as may be notified by the Central Government which shall not exceed one crore rupees.

The following persons can initiate Corporate Insolvency Resolution Process:

Financial Creditor (by itself or jointly with other creditors), on occurrence of default, can file the application.
Operational Creditor, after giving 10 days notice to the Corporate Debtor, on default or no response to such notice, can file the application.
The Corporate Debtor himself may also initiate the Corporate Insolvency Process.

In the above, Creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.

Corporate debtor means a corporate person who owes a debt to any person.

Default means non-payment of debt when whole or any part or instalment of the amount of the debt has become due and payable and is not repaid by the debtor or the Corporate debtor.

The IP will be initially appointed as Interim Resolution Professional, and will form a Committee of Creditors and with their concurrence, efforts will be made to evolve and finalize plan to revive the corporate person. The resolution professional shall act as the Chairperson of the meeting of the Committee. All the decisions of CoC shall be taken by vote of not less than 66.67% of voting share of Financial Creditors. Related Party should be excluded in determining the 66.67% of voting share.

Committee of Creditors (CoC) term is used for the group of persons who form the financial creditors of the corporate debtor.

Application shall be made to the NCLT with regard to CIRP in a petition as per the format of Form No. 5 as notified by the NCLT Rules, 2016. Every document to be filed with the NCLT is to be prepared in a specified format, with the detailed specifications of font, margins, type of paper to be used language, copies to be made, etc. are all notified in the Rules. 14 days from the date of such admission of the application, an Insolvency Professional is appointed. This IP is either as proposed by the applicant or as appointed by the Adjudicating Authority, and will manage the affairs of Corporate Debtor till the date of appointment of Resolution Professional by CoC.

The officers and managers of the Corporate Debtor, shall report to Interim Resolution Professional. In case of any non-cooperation from Corporate Debtor, he may file an application to Adjudicating Authority for necessary instructions. Then, Adjudicating Authority shall direct accordingly.

In the first Meeting of the CoC, either Interim Resolution Professional is confirmed as the Resolution Professional or other Insolvency Professional may be appointed as Resolution Professional.

Thus the actual work of CIRP shall be done by the IRP/RP under the supervision of CoC and NCLT.

The process is required to be completed in 180 days from date of application by NCLT to initiate CIRP as per Sec 12(1) of the IBC. This period can be extended if RP files application to the AA, by a maximum period od 90 days.

After admission of application, AA shall pass order for moratorium u/s 14, prohibiting the corporate debtor to undertake certain actions for a specified period of time, and also cause public announcement of the CIRP.

The RP can invite prospective resolution applicant/s, who fulfil such criteria as may be laid down by him with the approval of C0C, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as maybe specified by the Board. Resolution Plan means a plan proposed by a Resolution Applicant for insolvency resolution of the Corporate Debtor as a going concern.

Resolution applicant means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made by the RP u/s 25(2)(h) of the IBC.

The RP shall prepare an Information Memorandum as per Sec 29, which shall contain all relevant information for formulating a resolution plan.

There is a new amendment inserted u/s 29A, which renders certain persons ineligible to be resolution applicants, these people include undischarged insolvents, willful defaulters, convicted offenders, disqualified directors, person who has an account of the corporate debtor under his control, or of whom such person is the promoter, classified as NPA as per RBI norms, atleast a period of 1 year has lapsed since the date of such classification till the date if commencement of CIRP. None of the conditions of this section shall apply to a financial entity who is not a related party of the corporate debtor. Sec 29A is one very important amendment which has brought about many restrictions on the person eligible to be a resolution applicant, and has resulted into reduction of undue advantage to persons with personal interest in the corporate debtor.

As per sub-section (1) of Sec 30, a resolution applicant may submit a resolution plan to the RP prepared on the basis of the information memorandum. The RP shall present to the committee of creditors for its pproval, such resolution plans that confirm the conditions prescribed under the section. If the CoC confirms the plan by voting in favour by not less than sixty-six percent of voting share, the same shall be submitted to the AA by the RP. The AA may accept or reject the plan as per Sec 31.

The first step is to make efforts to revive and restart the corporate person by preparing the resolution plan. If that does not work, next process is liquidation, i.e. extinction of the corporate person. The AA shall pass an order for liquidation in following cases:

Resolution plan required u/s 30(6) of IBC is not received in time
AA rejects the resolution plan u/s 31 for non-compliance of the requirements specified
Before approval of the plan, the RP intimates to NCLT the decision of CoC to liquidate the corporate debtor
If resolution plan approved by AA is contravened by Corporate Debtor, any person other than corporate debtor whose interests are prejudicially affected by such contravention, may make application for liquidation order.

Fast Track CIRP : A speedy process of CIRP has also been designed for certain small corporates u/s 55(2) of IBC.

Emerging Opportunity for Professionals

As India’s banks try and resolve the bad loans that pose a significant macroeconomic risk, insolvency professionals stand to get a big career boost. Chartered accountants, cost accountants and company secretaries are said to be rushing to get themselves qualified—and this is said to be just the beginning. If the bankruptcy process unfolds as it’s meant to, thousands of insolvency professionals will be needed to oversee the process and run distressed assets as part of debt resolution.

Considering the opportunities under the IBC and IBBI along with NCLT the Chartered Accountants in practice can get following opportunities:

Interim Resolution Professional (IRP)/Resolution Professional (RP):

After the eligibility of qualification as mentioned before, 50 hours training is mandatory before CA can work as IP. IP can initially work as Interim Resolution Professional (IRP) and thereafter can be confirmed by CoC as Resolution Professional (RP) and can complete the entire CIRP.

The IRP plays a pivotal role in the process of CIRP. He practically substitutes the management of the corporate debtor, and all including the board of directors have to report to him and run as per his directions. It is a great burden to take the responsibility to be an RP, and he has to act ethically, in their fiduciary capacity.

His duties shall include

(a) collecting all information relating to the assets, finances and operations of the corporate debtor for determining its financial position, 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;

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed;

(e) file information collected with the IU, if necessary;

(f) take control and custody of any asset over which the corporate debtor has ownership rights

Appointment of resolution professional:

(1)The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors.

(2) The committee of creditors, may, in the first meeting, by a majority vote of not less than sixty-six per cent of the voting share of the financial creditors, either resolve to appoint the IRP as a RP or to replace the IRP by another RP.

RP also has similar, in fact more important role to play since he has to run the company which is under CIRP, and put up his best to resolve the insolvency in a time bound and efficient manner.

Duties of Resolution Professional include:

(1) to preserve and protect the assets including the continued business operations of the corporate debtor.

For that purpose, the resolution professional shall undertake the following actions, namely: –

(a) take immediate custody and control of all the assets of the corporate debtor

(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings;

(d) appoint accountants, legal or other professionals;

(e) maintain an updated list of claims;

(f) convene and attend all meetings of the CoC;

(g) prepare the information memorandum;

(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors to submit a resolution plan or plans.

(i) present all resolution plans at the meetings of the CoC;

Many banks are increasingly tapping such insolvency professionals from all three institutes including ICWA, ICAI and ICSI. Institutes also approach lenders, offering their services with a list of qualified insolvency professionals.

The IPAs will develop professional standards, code of ethics and the first level regulator for insolvency professional members. This will lead to development of a competitive industry for such professionals.

Insolvency Professional (representing members of CoC)

As per clause (c) of sub-section (6) Sec 21, where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or agent to act for all financial creditors, each financial creditor may appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the CoC to the extent of his voting share.

Also, as per the newly inserted sub-section (6A) of Section 21, as per clause (a) where the financial debt is in the form of securities or deposits and the terms of the financial debt provide for the appointment of a trustee or agent to act as authorized representatives for all financial creditors, the trustee may be appointed.

As per clause (b), where the financial debt is owed to a clas of creditors exceeding the number as specified, the IRP shall make an application to the AA along with the list of all financial creditors, containing the name of an IP, other than the IRP, to act as their representative who shall be appointed by the AA before the first meeting of CoC.

Further as per clause (c ), where a financial debt is represented by a guardian, executor or administrator, such person shall act as authorized representative of the creditors.

As per Sec 25A of the IBC, The role of an IP representing any member/s of CoC is to make decisions favourable to the member whom they represent, by exercising their right to vote in the decision making process. They also have the right to require the RP to furnish any financial information. Also, there are many duties that the authorized representatives have to follow, which include circulating the agenda and minutes of the meetings of the CoC, and not to act against the interest of the financial creditor he represents. The authorized representative is supposed to file with the CoC, anyinstructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that appropriate voting instructions of the financial creditor he represents is correctly recorded by the IRP/RP.

IP as Liquidator

When the company is to be liquidated as per IBC provisions, the AA may replace the RP in case

the resolution plan submitted by original RP is rejected on failure to meet the requirements as per IBC,
the IBBI recommends replacement of RP based on reasons to be recorded
the RP fails to submit their written consent.

The Liquidator has many rights and duties as per Sec 35 of the IBC. He shall act as per instructions of AA, apart from the powers as per the Code which include verifying all claims of creditors, take custody or control over assets, property, effects and actionable claims, take such measures to protect and preserve, if required, sell the assets and properties, and overall to carry on the business for its beneficial liquidation.

Representing the petitioner or respondent in IBC cases

When CIRP is initiated, there has to be representation both from the petitioner as well as the respondent. Both these roles can be justified or practicing CA.

IBC is a new area mainly replacing SICA Act. BIFR and AAIFR were mainly located in New Delhi. There were handful of professionals taking care of representations of sick companies as well as that of financial institutions and creditors. While IBC is being adjudicated by the NCLT having 11 benches plus the principal bench across many states, it is a huge area of practice for the professionals. CAs can also appear before the NCLT in the cases of IBC. This will not only enhance the oratory skill of the CAs but also will give an understanding to the CAs about the procedural aspects of the courts and accordingly it will sharpen their skill in representation before other authorities. Thus under Insolvency and Bankruptcy Code, CAs can represent the financial creditor, operational creditor or a corporate debtor as petitioner or as respondent. This being a new area competitive edge of the advocate shall not create any complication for the practicing CAs and accordingly it will give a level playing field to all CAs to work in the said area.

Forensic Audit of cases under IBC

Upon appointment as IP of any corporate debtor, if he feels that there are fraudulent transactions or the transactions which have been entered into by the corporate debtor for the benefits of the promoters or their relatives, then forensic audit may be called for. Forensic audit is a special skill to be developed by CAs and is required which can be completed within a specific timeframe. This is a lucrative area for CAs. However, it requires intense hard work, special insight and proper presentation so as to cover each aspect of the forensic audit.

It is in the nature of investigative audit, entrusted with the specific objectives of unearthing preferential transactions, extortionate credit transactions, unexplained transactions, transactions defrauding creditors, etc. as per the IBC Regulations.

Registered Valuer

Upon clearing an exam conducted by the Registered Valuer Organisation, any practicing CA (over and above other professionals as mentioned in Rules), having experience as required, can become registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017. All valuations of assets, shares, etc. as and when required under the Code are to be carried out by this Registered Valuer.

Assitant to the IP

Recently IBBI has also come out with a special course designed for the professionals who cannot work as RP or IRP but can get extensive training as specified by IBBI and upon completion of the said training they can work as Assistants to the RP/IRP. This is because of the fact that in large cases the mid sized companies the RP himself cannot control the entire business. More so, each industry has its own strength and weaknesses which cannot be immediately grabbed by the RP so that a well competent and qualified team is required to assist the RP. Thus, this is one area for CAs who can work as Assistants to RP and after qualifying they can become a matured RP.

Advisor to RP/CoC

A practicing CA can also be an advisor to the RP or CoC in an on-going CIRP. In a short span of about 18 months it has been observed that number of legal questions are being faced by the RP as well as CoC. Thus, number of statutory authorities are also preferring their interlocutory applications before the NCLT against the RP or COC, corporate debtor and accordingly there has to be a proper representation required by RP as well as COC. Thus, CAs in practice can also explore this area to represent before NCLT on behalf of RP/COC.

CA representing matters of Companies Act in NCLT

All other matters which have to be adjudicated under the authority of the NCLT, have to have representations by professionals, both from petitioner as well respondents’ side. A practicing CA is very well qualified to represent the clients in matters like restoration of struck off companies, amalgamations, mergers and demergers, oppression and mismanagement, etc.

Advisor to Resolution Applicant

It has been observed that a resolution plan is required to be prepared by a seasoned professional so that the overall required concessions and reliefs as envisaged by the resolution applicant can be granted in right spirit. More so, resolution applicant has also to take a call of correct value to be offered to various class of creditors, so proper projections are required to be made so that in long run there shall be a viability of the project. For this also CAs in practice can play a pivotal role in advising various resolution applicants for submitting proper resolution plan.

With Part III of IBC being made applicable, there will be many opportunities in insolvency resolution of individuals and partnership firms and the constitution of their adjudicating authority – Debt Recovery Tribunal

Komal Majmudar
Chartered Accountant

August 22, 2018by Rachit.Desai Rachit.Desai No Comments

Time to make big changes in business processes rather than just incremental, for Innovations

Thinking about how you could improve your current business processes? Perhaps you are not thinking big enough! Rather than simply making incremental improvements to your current processes as you react to issues coming up, start thinking big and envisage some real innovations that could drive your organization to bigger and better things.

Business processes are the strategic and operational assets your company uses to help it deliver products and services consistently, effectively and efficiently. They are the backbone that integrates your operations and enables you to be competitive and profitable. Business Process Management (BPM) is a powerful tool business can use to keep all aspects of operations running optimally

Think of a business as an engine and BPM as a tool to fine-tune every component of that engine in order to achieve maximum performance and you’ve got the idea. A BPM program enables companies to process more with higher quality, less waste and less effort. This is particularly advantageous for startups and other companies faced with tight budgets that need to reach profitability quickly.

Often, we look to change our processes in response to perceived problems within the business. Perhaps a competitor has been able to reduce their costs and therefore offer services at a lower rate than you can justify, or maybe your customers are complaining about slow delivery times. Rather than just repair the business processes that impact these specific areas, maybe it is time to think out of the box and look for process changes that could leapfrog you ahead of the competition rather than simply catching up to them.

BPM to be extended for Innovation

Business Process Management (BPM) can be the driver of innovation, but to do this it needs to be elevated from its standard position as the ‘process surveillance’. BPM can be responsible for business transformation, but often its role is restricted to managing current processes and tinkering with these in order to ‘keep the lights on’. BPM needs to go beyond simply fixing what is broken and start pushing the boundaries of accepted best practice and create new ways of thinking and working.

Concentrating on current best practice is not going to give you any sort of competitive advantage, your competitors are almost certainly following these practices. Thinking outside of the box with your processes, and creating new best practice first, will give you a critical head-start.

Move responsibility for Continual Service Improvement to the business

For enabling a business process manager to concentrate on innovation, it is essential that responsibility for the gradual improvement of current processes, which is still a critical facet of business improvement, be moved out into the enterprise. This will free up time that can be used to concentrate on big strategic changes that could be game changers for the business.

Research paper from Gartner urges business process managers to stop tinkering and start innovating in order to elevate the value of BPM within the enterprise by changing it from a project-based process to one that spawns creativity and innovation

Think outside the box

One way to do this is, when faced with a problem that needs to be solved, look outside of the box and seek the bigger business opportunity. When you are directed to work on solutions that are merely maintaining current capability, push back and try to redefine these initiatives so that they can deliver enhanced business value rather than simply solving an existing problem.

By continually identifying business process opportunities that can enhance productivity and profitability you will be able to put BPM much higher on the radar at the management level of the enterprise.

Another way to identify opportunities for BPM to prove its worth in the organization is to envisage your target state and work backwards. What do you need to put in place in order for your desired state to be reached? What are the barriers that you will need to remove in order to reach that state? Often, upon examination, you will find that these barriers are the result of habits that evolved into processes. With new technology and automation opportunities, it is very likely that some of these processes are no longer needed but are still being used out of habit. These redundant processes are prime opportunities for improvement.

Krishnagopal Soni
Chartered Accountant

May 17, 2018by Rachit.Desai Rachit.Desai No Comments

Talent Management

Talent management takes hard work and dedication. It is not enough to recruit qualified candidates; successful talent management is to have a skilled workforce and complete succession plan without and destructive gaps that would cost the company if an employee were lost. The best way to retain employees is to establish a talent management pool and motivate them by establishing goals that resonate with personal goals. This will improve productivity and performance.

Nowadays, Talent management is one of the biggest challenges facing the organization; and according to the Human Resource survey, “the single greatest challenge in workforce management is creating or maintaining their companies’ ability to compete for talent.” Studies have shown that the demand for talented labors in the coming years is going to increase, while the supply will drop.

There is no doubt that technology and globalization have changed our lives, as they have led to increased competition on talent. Thus, the potential growth of organizations worldwide depends on the ability of companies to ensure that the right people with the right skills are in the right place at the right time and focused on the right activities. For these reasons, talent management has been elevated to the top of strategic human resources management challenges, acquiring the highest priority across all organizations.

However, when it comes to talent management initiatives, executives can no longer try to avoid it inside the organization, since an ineffective talent management program means that organizations are performing behind their competitors. Besides, the study results show that improper talent management results in high employee turnover rates, loss of productivity, and other negative impacts.

Therefore, a strategic talent management system inside the organization helps the company to drive business change and create a competitive advantage. By identifying and developing high quality replacements for a small number of positions designated as key to current and future organization success, companies are shifting from being reactive to being proactive.

“Great vision without great people is irrelevant”

Preeti Barua
HR Consultant

May 15, 2018by Rachit.Desai Rachit.Desai No Comments

What is Budget? And why it is needed?

Budget is an operational plan, for a definite period usually a year. Expressed in financial terms and based on the expected income and expenditure. The importance of establishing and sticking to a household budget is known by most of us as we always make sure that household expenditures don’t exceed income during the month, forcing families and individuals to have to borrow money or use credit cards in order to make ends meet.

The same principles apply to managing business finances.

Business budgeting helps reduce the uncertainty that often accompanies expense and cash flow forecasting, providing executives with a fiscal framework for all of the company’s financial decisions.
It acts as a mechanism for translating fiscal objectives into projected monthly spending pattern by offering a useful format for communicating fiscal objectives.
It enhances fiscal planning and decision-making process by clearly recognizes controllable and uncontrollable cost areas.
It helps to identify problem areas and facilitates effective solution along with facilitating timely feedback on utilization of budget.
Budgeting acts as a means for aligning, measuring and recording financial success with objectives of organization.

Key points to be considered while preparing budget

Flexibility and synthesis: – Budgeting should be synthesis of past, present and future along with necessary flexibility where ever required so as to synchronize with overall organizational goals and objectives
Organizational structure: – Need a sound organizational structure with clear line of authority and responsibility. It should be in the form of statistical standard laid down in the specific numerical terms taking into consideration organization structure.
Charts of accounts: -Designed to be consistent with the organizational future planning taking into consideration future course of action and control over all activities in the organization. Revenues and expenses must be reported by responsibilities areas, thus providing historical data that are valuable for planning and providing budgetary control for evaluation as performance can be compared to plans.
Managerial support: -Essential for the budgetary program. Budgeting should be product of joint venture and cooperation of executive/department head at different level of management. Budgeting is usually done at the departmental level, it must be valued by top administration. Managers must be willing to devote their time and energy to the budgeting process.
Formal budgeting process and procedures: – Should be available in budget manual, in which objective are clarified and instructions for budget development are discussed. – Calendar of budgeting activities with the schedule for each stage of program is presented.

Benefits of Budgeting

Taking the time to create a business budget may offer many potential benefits to your company, including these four:

You can predict when cash shortfalls may occur, enabling you to plan in advance whether you will need to secure financing, tap into a line of credit or make adjustments to your payables schedule.
You can plan large expenditures (including CAPEX) more strategically, rather than being caught unprepared when these needs arise.
You can reduce interest expense by planning financing needs well in advance.
You will have a better handle on your cash flow, which will increase your overall financial control.

Krishnagopal Soni
Chartered Accountant

April 5, 2018by Rachit.Desai Rachit.Desai No Comments

Employee Performance Management – Making it a reality in your organization

The role of HR in the present scenario has undergone a change and its focus is on evolving such functional strategies which enable successful implementation of the major corporate strategies. In a way, HR and corporate strategies function in alignment.

Today, HR works towards facilitating and improving the performance of the employees by building a conducive work environment and providing maximum opportunities to the employees for participating in organizational planning and decision-making process

Performance management is a much broader and a complicated function of HR, as activities such as joint goal setting, continuous progress review and frequent t communication, feedback and coaching for improved performance, implementation of employee development programmes and rewarding achievements.

Performance management system includes the following actions.

Developing clear job descriptions and employee performance plans which includes the key result areas (KRA’) and performance indicators.
Selection of right set of people by implementing an appropriate selection process.
Negotiating requirements and performance standards for measuring the outcome and overall productivity against the predefined benchmarks.
Providing continuous coaching and feedback during the period of delivery of performance.
Identifying the training and development needs by measuring the outcomes achieved against the set standards and implementing effective development programs for improvement.
Holding quarterly performance development discussions and evaluating employee performance on the basis of performance plans.
Designing effective compensation and reward systems for recognizing those employees who excel in their jobs by achieving the set standards in accordance with the performance plans or rather exceed the performance benchmarks.
Providing promotional/career development support and guidance to the employees.
Performing exit interviews for understanding the cause of employee discontentment and thereafter exit from an organization.

Effective performance management system includes the following components:

Performance Planning: Performance planning is the first crucial component of any performance management process which forms the basis of performance appraisals. Performance planning is jointly done by the appraisee and also the reviewee in the beginning of a performance session. During this period, the employees decide upon the targets and the key performance areas which can be performed over a year within the performance budget., which is finalized after a mutual agreement between the reporting officer and the employee.
Performance Appraisal and Reviewing: The appraisals are normally performed twice in a year in an organization in the form of mid reviews and annual reviews which is held in the end of the financial year. In this process, the appraisee first offers the self-filled up ratings in the self-appraisal form and also describes his/her achievements over a period of time in quantifiable terms. After the self-appraisal, the final ratings are provided by the appraiser for the quantifiable and measurable achievements of the employee being appraised. The entire process of review seeks an active participation of both the employee and the appraiser for analyzing the causes of loopholes in the performance and how it can be overcome. This has been discussed in the performance feedback section.
Feedback on the Performance followed by personal counseling and performance facilitation: Feedback and counseling is given a lot of importance in the performance management process. This is the stage in which the employee acquires awareness from the appraiser about the areas of improvements and also information on whether the employee is contributing the expected levels of performance or not. The employee receives an open and a very transparent feedback and along with this the training and development needs of the employee is also identified. The appraiser adopts all the possible steps to ensure that the employee meets the expected outcomes for an organization through effective personal counseling and guidance, mentoring and representing the employee in training programmes which develop the competencies and improve the overall productivity.
Rewarding good performance: This is a very vital component as it will determine the work motivation of an employee. During this stage, an employee is publicly recognized for good performance and is rewarded. This stage is very sensitive for an employee as this may have a direct influence on the self-esteem and achievement orientation. Any contributions duly recognized by an organization helps an employee in coping up with the failures successfully and satisfies the need for affection.
Performance Improvement Plans: In this stage, fresh set of goals are established for an employee and new deadline is provided for accomplishing those objectives. The employee is clearly communicated about the areas in which the employee is expected to improve and a stipulated deadline is also assigned within which the employee must show this improvement. This plan is jointly developed by the appraisee and the appraiser and is mutually approved.
Potential Appraisal: Potential appraisal forms a basis for both lateral and vertical movement of employees. By implementing competency mapping and various assessment techniques, potential appraisal is performed. Potential appraisal provides crucial inputs for succession planning and job rotation.

“Don’t lower your expectations to meet your performance. Raise your level of performance to meet your expectations”

Swati Tirpude
HR Consultant

February 25, 2018by Rachit.Desai Rachit.Desai No Comments

The Role of Attitude and Aptitude in Success of Career

When people have the right attitude, they are both motivated and adaptable which makes them more open to learning new skills. With the right attitude and enough effort most new skills can be mastered quickly. Whereas improving attitude is often about changing behaviors which is always much more difficult to do, as people need to want to change and without the right attitude this is unlikely to happen.

Several elements play a vital role in achieving success, but it all starts where attitude meets aptitude. If you have the right attitude but lack the required aptitude, success can be difficult. Attitude defines how you work or proceed toward your goal. Aptitude, on the other hand, defines how much potential you have to learn specific skills or gain knowledge that will help you achieve your goal. Here is an insight into the different roles your attitude and aptitude play in defining your success.

Role of Attitude

Attitude is the key to success because it can push you forward or slow you down. It all starts with how you view yourself in a specific environment. Is there a right attitude recipe for success? Right attitude means knowing what you are capable of accomplishing. Ambition, determination, and commitment fuel the right attitude, also known as a positive attitude or go-getter attitude. As per the Human Resource Survey it is been revealed that 46% of hired people are likely to fail in the first 12-18 months on the job. The high failure rate is not because they lack skills or knowledge, but due to lack of right attitude. The three essential elements of attitude according to the study are:

Temperament: Work temperament is an important aspect that helps people to establish their goals and achieve them. It is been revealed that 15% of people at work, experience failure because of a lack of proper work temperament. Work temperament refers to a positive attitude and a strong personality.
Emotional Intelligence:In a highly stressful work environment, emotional intelligence plays a vital role. It is been noticed that 23% of employees are unable to manage their own emotions or assess the emotions of colleagues. This inability to manage emotions breeds a negative attitude, which, in turn, can destroy your confidence.
Motivation:It is the key to success! Some people are motivated by others while some people find ways to self-motivate themselves. On the other hand, lack of motivation can lead to low work efficiency and have a negative impact on the overall performance. If you are motivated, in control of your emotions, and have a positive temperament, sky will definitely not be the limit for you.

Role of Aptitude

In a constantly changing work environment, aptitude is crucial if you want to taste success.

The thought of the day is “it is not your aptitude, but your attitude, that determines your success altitude”

Preeti Berua
HR Consultant

January 6, 2018by Rachit.Desai Rachit.Desai No Comments

Hurdles in NBFC Sector Growth in India

NBFC sector is being stifled with regulation and there is immediate need for moving it away from the Banking Regulator. The mind-set and objectives of Reserve Bank of India (RBI) which are applicable to banks are also been mandated in regulating NBFCs which is indirectly hurting the NBFC sector main goal “which is to supplement the role of the banking sector in meeting the increasing financial needs of the corporate sector, delivering credit to the unorganized sector and to small local borrowers”.

RBI hurting the liquidity need of various industries by not differentiating between Bank’s & NBFC’s

Operations of Banks and NBFCs differ from each other, so must be assessed differently taking into consideration the type of issue which differ for financial regulation. RBI is restricting NBFCs sector growth by applying banking thinking for them and is thereby hampering access to credit for the firms who obtain financing from NBFCs.

RBI is not taking into consideration and differentiating the reasons and factors associated with market failures of banks and NBFCs. In case of banks, the market failure is consumer protection of unsophisticated depositors which is governed by banking regulation whereas in case of NBFC, RBI is not considering that there are no unsophisticated depositors in case of NBFC’s.

One of the major issues faces by NBFC is lack of trust even though registration of NBFC is mandatory from RBI. Main reason behind that mindset has been because some institutions somehow obtains false registration certificate and get involved in scams and made money out of people’s trust.

General public mindset towards Banking & NBFC sector

People tend to believe more in banks as they find it more trustworthy mainly due to following factors like when anyone deposit money in a bank, he can go and withdraw the principal at any time he wants. Even for fixed deposits, the principal is protected in the case of premature withdrawal.

However, the scenarios are different from the NBFC point of view whose deposits mainly come from term loan or a bond/debenture. Say anyone buy a 3 years Reliance Industry debenture in the debt market, in that case he cannot withdraw it at par before the debenture matures. i.e. If you go with the debenture to the offices of Reliance Industries before the 3 years are up, Reliance Industries has no legal obligation to repay the loan amount in the debenture. He can only get your principal and interest payments as per the terms of the debenture and not a minute before that. Hence there are no unsophisticated depositors who may need their money immediately on demand, there is no consumer protection angle from deposits received by NBFC. But RBI still continues to regulate NBFCs like banks, requiring them to keep liquid funds (in government securities) and also recognise problematic loans and keep capital against it. This defeats the very purpose why NBFCs are prohibited from taking deposits callable at par from household. RBI is not taking into consideration that banks can easily raise financial resources at low cost through deposits, savings and current accounts. But being NBFC cannot or find it difficult to raise capital through deposits as it usually lacks the availability of low-cost funds.

Negative publicity related to NBFC

The recent scams in NBFC have snatched away the trust of common people from NBFC. In past scam like major NBFC investment fraud involving a whopping Rs 980 crore and arrested three directors of a company and an assistant sub-inspector of police for allegedly cheating about 2 lakh people across the country. Further it is hard to digest that in past there were around 22,000 firms which were not registered as NBFCs which have committed financial frauds.

This has resulted into fund raising problem as it has gradually become more difficult and challenging, specially, for the small and medium sized NBFCs. NBFCs generally have no access to low cost funds. Riddled with scams and weighed down by toxic loans, most large banks are shying from lending directly to customers. Instead, they are lending to non-banking finance companies (NBFCs), which, in turn, are servicing corporate and retail customers.

Conclusion

The framework for governing banks and NBFCs is so different that the same regulator cannot do it. India has a few large and stable businesses which banks can lend to. However, the major economic growth will come from new businesses which are small and risky. The small entrepreneur who start a new line of business will face liquidity shocks (will/or prone to miss a few of the regular installments). As long as such entrepreneurs are not being funded with household safe savings, there is nothing wrong in that. For banks, the market failure is consumer protection of unsophisticated depositors. This is the reason why we have detailed banking regulation. If there are no unsophisticated depositors in a lending institution, regulating them like banks is wrong, and harms the economy.

Ashish Sharma
Senior Consultant

December 26, 2017by Rachit.Desai Rachit.Desai No Comments

Overview of Engineering & Capital Goods Industry

Capital goods and engineering market growth is directly correlated with the way industrialization and economic development progresses. The overall upward trend in sectors like steel, automotive, power, oil & gas, refinery is driving the demand in the engineering sector. It is assumed that by 2020, revenue from engineering research and design segment would have increased fourfold.

Following is the chart which displays the overall engineering & capital goods industry

The overall analysis based on Porters 5 forces of the industry provides us with valuable inputs of trend. Diversification both geographically and sector wise is observed. Overall focus has changed towards value addition towards the products. Competition has intensified with few international players entry as a result of De- licensed engineering sector. Following is industry study based on Porter’s 5 forces.

Threat of substitutes is low.
Cut throat competition has resulted in low bargaining power of suppliers.
Capital intensive industry & goodwill of existing players nullifies the possibility of new entrants.
Intense competition targeting pricing, experience, quality & quantity.
Buyers bargaining power is low due to technology driven industry

Following the chart displays the key categories of engineer exports

Way forward the outlook of the overall industry looks very bright due to following reasons.

Elimination of tariffs protection on capital goods
Reduction of custom duty on range of engineering equipment’s
Government push for 100% electrification and infrastructure development all over India
Approval of SEZ’s across India acting as octane buster for engineering sector
Make in India drive may result into global auto majors ramping up the value of components they source from India.
Various tax holiday schemes.
Private sector participation in defense sector
Power transmission and distribution is set to increase on growth in power generation and privatization of distribution

Sources: www.ibef.org

Ashish Sharma
Senior Consultant

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