Tt Co. Private Limited (Tt Co.) was established in 2017 by Mr. Jeff Martens, who had a keen interest in watches and believed that a timepiece should…

Tt Co. Private Limited (Tt Co.) was established in 2017 by Mr. Jeff Martens, who had a keen interest in watches and believed that a timepiece should combine quality, innovation and meaningful design. He started the business on a small scale with the objective of developing reliable and well-designed watches that could respond to changing customer preferences. Over the years, Tt Co. has grown from a small watchmaking venture into an established manufacturer and seller of digital watches. Guided by Martens's vision, the company draws inspiration from people who have achieved excellence in their respective fields and seeks to reflect similar standards in its products. Each timepiece is developed within the company's workshops and undergoes testing at different stages of the manufacturing process to ensure the required standards of quality and craftsmanship. As the business expanded, Tt Co. strengthened its product range through continuous innovation, a better understanding of customer requirements and increasing use of digital channels. The growth of the company has also been supported by its nine-member Board of Directors, which oversees the company's strategic direction, operations and governance. Building on this growth, the company is now planning to introduce a new digital watch as part of the next phase of its product strategy. To evaluate the commercial potential of the new watch, Tt Co. has prepared a product life-cycle budget covering the costs expected to be incurred from product development through manufacturing, marketing, distribution and customer service. Management estimates that 2,40,000 watches will be manufactured and sold over the product's life cycle at a selling price of ₹ 500 per watch. The estimated life-cycle costs and related activity information are provided in Annexure 1. While reviewing the life-cycle budget, management became particularly concerned about how the cost of the new watch should be controlled. The product design team pointed out that although a significant portion of expenditure would actually be incurred during manufacturing, distribution and other later stages, many of these costs would effectively be committed much earlier through decisions relating to product specifications, materials, production processes and design. Management is therefore considering whether greater emphasis should be placed on cost management during the planning and design stage, rather than attempting to control costs only after production has commenced. The focus on the design stage also raised an important financial reporting issue. During the financial year ended 31 March 2026, Tt Co. incurred substantial expenditure in researching and developing the new watch. From April 2025 to September 2025, the company carried out research to assess the technical and commercial feasibility of the proposed product. The expenditure incurred during this period was charged to profit or loss. Following encouraging research results, the project moved into the development stage. From October 2025, management concluded that the new watch was technically feasible and commercially viable and formally committed the financial and technical resources necessary to complete its development. Development activities continued during the remainder of the financial year, and the watch is expected to be launched in the next few months. Expenditure incurred from October 2025 on qualifying development activities has been recognised as an intangible asset in the financial statements. While reviewing the financial statements, Mr. Martens questioned the different accounting treatment. In his view, both the research expenditure and the subsequent development expenditure relate to the design of the same watch. He has therefore asked the finance team to explain why expenditure incurred during the research stage was recognised immediately in profit or loss, whereas qualifying expenditure incurred during the development stage was capitalised as an intangible asset. While the new product is being prepared for launch, Tt Co. is also reviewing the channels through which its watches are sold and distributed. The company has developed a highly interactive website through which it sells its watches directly to customers. In addition to direct sales, Tt Co. uses independent dealers to expand its market reach. ABC Limited, an authorised dealer of Tt Co.'s umbrella brand watches, sells these watches through E-Square, an electronic commerce operator. E-Square collects the consideration from customers for supplies made through its platform and subsequently settles the amounts with ABC Limited. These different modes of online selling have led the finance team to consider their implications of the GST law. Tt Co. Ltd. is witnessing significant expansion in its business operations and intends to strengthen its Board to meet the requirements of its growing business. The Articles of Association of the company presently provide that the maximum number of directors shall not exceed 11. The company currently has nine directors on its Board. The management now proposes increasing the total number of directors to 17. Alongside these strategic, commercial and governance developments, the finance team is finalising Tt Co.'s financial statements for the year ended 31 March 2026 in accordance with Ind AS. During its review of the accounting policies relating to property, plant and equipment, management noted that plant and equipment are carried under the cost model, whereas owner-occupied property is measured using the revaluation model. Revaluation increases relating to owner-occupied property are generally recognised in other comprehensive income, although in specified circumstances the impact may be recognised in profit or loss. Management also observed that depreciation on plant and equipment, as a percentage of its carrying amount, is considerably higher than that on owner-occupied property. These differences in accounting treatment attracted the attention of Mr. Martens. He questioned whether applying different measurement models, depreciation rates and recognition treatments to assets that all appear to be “property or equipment” is consistent with the requirement to apply accounting policies consistently. He has therefore asked the financial controller to explain the rationale for these treatments under the applicable Ind AS. Particulars Cost/ Other information R&D and design cost ₹ 80 lakh Manufacturing – variable cost per watch ₹ 120 Manufacturing – variable cost per batch ₹ 4,000 Watches per manufacturing batch 300 Manufacturing – fixed cost ₹ 112 lakh Marketing – variable cost per batch ₹ 24 Watches per marketing batch 96 Marketing - fixed cost ₹ 8 lakh Distribution – variable cost per watch ₹240 Distribution - fixed cost ₹ 45 lakh Customer service – variable cost per watch ₹10 **Question 3.8:** In the light of the given circumstances, analyse the provisions of the Companies Act, 2013 and ADVISE the Tt Co. Ltd., on the following : 1. Whether the company can increase the number of directors from 9 to 17 under the existing provisions of the Act; 2. The maximum number of directors that a company may ordinarily appoint and the circumstances, if any, in which the prescribed limit can be exceeded; 3. The approval required for appointing directors beyond the prescribed limit; and 4. Whether any amendment to the Articles of Association would be necessary in the given case. Explain the procedure and approvals involved. Give reasons in support of your answer with reference to the relevant provisions of the Companies Act, 2013.