BSE:509966 | NSE:VSTINDEQ | 58888:vst | IND:Cigarettes | ISIN code:INE710A01016 | SECT:Tobacco
The Directors of your Company have pleasure in presenting before you the Annual Report together with the Audited Statements of Accounts for the year ended 31st March, 2018.
Financial Results (Rs. Lakhs)
Revenue from Operations
Profit after Tax
Retained earnings brought forward from previous year 29008
Balance available for Appropriation
Amount transferred to General Reserves
Dividend paid *
Corporate Dividend Tax thereon
Balance in retained earnings
* Note :- The financial statement for financial year 2017-18 are prepared under Ind AS (Indian Accounting Standard) for the first time. The financial statement for financial year 2016-17 has been reinstated in accordance with Ind AS for comparative information.
Earnings Per Share (Rs.)
Dividend Per Share (Rs.)
- Value creation during the decade has been Compounded Annual Growth Rate (CAGR), 11.4% in Earnings Per Share (EPS) and 14.1% in Dividend Per Share (DPS).
The Board has approved and adopted a Dividend Distribution Policy and the same is disclosed on the Company’s website at http://www.vsthyd.com/iZ Dividend-Distribution-Policy.pdf.
The Directors are pleased to recommend a dividend of Rs.77.50 per equity share of Rs.10 each on the paid up equity share capital of the Company, for consideration and approval of Members at the Annual General Meeting (AGM). It is proposed to carry forward an amount of Rs.900 lakhs to General Reserve.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities, based on market capitalization, are required to formulate a Dividend Distribution Policy.
MATERIAL CHANGES AND COMMITMENTS
Except as disclosed elsewhere in the Report, there have been no material changes and commitments made between the end of the financial year of the Company and the date of this Report.
The paid up Equity Share Capital as on 31st March, 2018 was Rs.1544.19 lakhs. The Company has neither issued shares with differential rights as to dividend, voting or otherwise nor issued shares (including sweat equity shares) to the employees or Directors of the Company, under any Scheme.
No disclosure is required under Section 67(3)(c) of Companies Act, 2013 in respect of voting rights not exercised directly by the employees of the Company as the provisions of the said Section are not applicable.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
Your Company has formulated a Corporate Social Responsibility Policy with the objective to promote inclusive growth and equitable development of identified areas by contributing back to the society. Over the years, your Company has been involved in social activities like provision of clean water etc.
Your Company has been actively discouraging child labour involvement in tobacco growing/processing. Your Company has also facilitated installation of solar lights in the tobacco growing areas in association with the village panchayats.
Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, the Corporate Social Responsibility (CSR) Committee of the Board of Directors was formed to recommend the policy on Corporate Social Responsibility and monitor its implementation. The CSR policy is available on the Company’s website at : www.vsthyd.com/i/CSRPolicy.pdf. Your Company has initially decided to focus on “Sanitation” as a key area.
The Company has with the help of Gramalaya, a non-profit organization constructed toilets in individual homes (of farmers living) in and around Jogulamba-Gadwal and Medak districts of Telangana where your Company has its operations, under the ‘Swachh Ghar’ programme of your Company. In addition to construction of toilets, the villages and the communities in the area are also sensitized about the importance of health & sanitation. Over 1,200 toilets have already been constructed during the financial year and your Company has plans to extend it further to other houses in the same area and thereafter extend it to other areas. Your Company has also taken up the identified project of installing more than 300 solar street lights in villages in the above Districts. The CSR Policy and the Annual Report on CSR activities is annexed herewith as “Annexure B” and forms part of this Report.
BUSINESS RESPONSIBILITY REPORT
The Listing Regulations mandates inclusion of Business Responsibility Report (BRR) as part of the Annual Report for top 500 listed entities based on market capitalization. In compliance with the Regulation, the BRR is provided as part of this Annual Report.
RELATED PARTY TRANSACTIONS
There were no related party transactions during the year except that in the ordinary course of business and on arms length basis. There were no materially significant related party transactions between your Company and the Directors, Promoters, Key Managerial Personnel and other designated persons which may have a potential conflict with the interest of your Company at large.
Form AOC-2 for disclosure of particulars of contracts/arrangements, entered into by your Company with related parties is annexed herewith as “Annexure C” and forms part of this Report.
Pursuant to the provisions of the Companies Act, 2013 and Listing Regulations, the performance evaluation of the Board, the Committees of the Board and individual Directors has been carried out. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.
Nomination and Remuneration Committee has formulated a policy relating to remuneration of directors, key managerial personnel and other employees which has been approved by the Board.The Remuneration Policy and the criteria for determining qualification, position attributes and independence of a director are stated in the Corporate Governance Report.
MEETING OF INDEPENDENT DIRECTORS
The performance of the Non-Executive Director, the Chairman and the Board as a whole is done by the Independent Directors in their exclusive Meeting as per the policy formulated by the Board in this regard. In addition, the Independent Directors in such Meeting also review their role, functions and duties under the Companies Act, 2013 and the flow of information from the management.
In terms of Section 177 of the Companies Act, 2013, the Company has formulated a Whistle Blower Policy as a vigil mechanism to encourage all employees and directors to report any unethical behavior, actual or suspected fraud or violation of the Company’s ‘Code of Conduct and Ethics Policy’ which also provides for adequate safeguard against victimization of person who use such mechanism and there is a provision for direct access to the chairman of the Audit Committee in appropriate/exceptional cases. The details of the Whistle Blower Policy is given in the Corporate Governance Report and also posted on the Company’s website at : www.vsthyd.com/i/WhistleBlower Policy.pdf.
DIRECTORS AND KEY MANAGERIAL PERSONNEL Directors retiring by rotation Mr. Ramakrishna V. Addanki
In accordance with Article 93 of the Articles of Association of your Company, Mr. Ramakrishna V. Addanki retires from the Board and being eligible, offers himself for re-election. Your Board recommends his re-appointment.
Mr. Ramakrishna V. Addanki, a nominee of Raleigh Investment Company Limited, a British American Tobacco (BAT) group Company, has been appointed as a Director of the Company with effect from 21st April, 2015 and by the Members at their Meeting held on 12th August, 2015 and re-appointed at their Meeting held on 2nd August, 2017.
Mr. Ramakrishna V. Addanki,  is a Commerce graduate from Osmania University and an associate member of the Institute of Cost Accountants of India and has over 24 years of experience in the tobacco industry. Having started his career in India, Mr. Addanki for the past 19 years has been with British American Tobacco Group in different countries with experiences in finance and general management. Mr. Addanki is currently the Area Director - South Central Europe based in Romania, covering 10 markets including Romania, Bulgaria and Former Yugoslavia. Prior to this he was the General Manager for the Group’s Adria cluster headquartered in Croatia, covering markets of Bosnia, Herzegovina and Slovenia. Before this assignment, he was the Finance Director for Group’s subsidiary in Turkey and before that was the CEO of the Group’s business in the Czech Republic and was responsible for the Czech Cluster as a whole. He specializes in finance and general management functions.
He is not a Member of any Committee of the Board and is not a Director of any other Company in India.
Mr. Addanki does not hold any shares in the Company and is not related to any other Director of the Company.
Directors’ Retirement/ Resignation/Appointments Mr. Raymond S. Noronha
Mr. Raymond S. Noronha resigned as Director and Chairman of your Company to be effective from the close of business hours on 12th April, 2018. The Board of Directors place on record their deep appreciation of the outstanding contribution made to your Company by Mr. Raymond S. Noronha.
Mr. N. Sai Sankar
Mr. N. Sai Sankar retired as Managing Director of your Company with effect from the close of business hours on 27th November, 2017. The Board of Directors place on record their deep appreciation of the contribution made to your Company by Mr. N. Sai Sankar.
Mr. Devraj Lahiri
The Board of Directors of your Company (“the Board”) at its Meeting held on 20th April, 2016 on the recommendation of Nomination & Remuneration Committee appointed Mr. Devraj Lahiri as Deputy Managing Director of the Company, with effect from. 1st July, 2016 to 27th November, 2017 (both days inclusive) and was approved by the Members at the Annual General Meeting held on 11th August, 2016. At the Meeting of the Board of Directors held on 31st October, 2017 on the recommendation of the Nomination & Remuneration Committee, Mr. Devraj Lahiri was appointed as Managing Director of the Company subject to the approval of the Members. He shall also be a Key Managerial personnel under Section 203 of the Companies Act, 2013.
Mr. Devraj Lahiri,  is a Commerce Graduate from St. Xavier’s College, Kolkata and Masters in Business Administration from Indian Institute of Social Welfare and Business Management, Kolkata. He joined the Company in the year 2001 and has made significant contributions during his association with the Company. He was elevated to the level of Marketing Head and was appointed as Wholetime Director of the Company with effect from 1st August, 2011. He is a Member of the Corporate Social Responsibility Committee, Committee of Directors and Stakeholders Relationship Committee of the Company and is also a director on the board of The Tobacco Institute of India. He has been instrumental in the growth of the Company and has successfully launched various new brands. Mr. Lahiri does not hold any shares in the Company and is not related to any other Director of the Company.
A suitable Resolution is being put up for your approval.
Mr. Pradeep V. Bhide
The Board of Directors of your Company at its Meeting held on 12th April, 2018 on the recommendation of the Nomination & Remuneration Committee appointed Mr. Pradeep V. Bhide as an Additional Director of the Company with effect from 12th April, 2018.
Mr. Pradeep Bhide,  is a former Senior lAS Official and former Secretary in the Ministry of Finance. He spent 27 years in the Indian Government/ Administrative Service, and has worked both at National and State levels.
Mr. Bhide was Secretary of the Department of Revenue, Ministry of Finance from 2007-2010. He has also held other senior roles in the Ministry, including Joint Secretary and subsequently Secretary, Department of Disinvestment and Deputy Secretary, Department of Economic Affairs. In addition, he has also served as Special Secretary, Ministry of Home Affairs, and as Advisor to India’s Executive Director to the International Board for Reconstruction and Development in Washington D.C.
Mr. Bhide was Managing Director of the Apex Cooperative Marketing Society for Handloom (APCO) from 1981-1983, and was Managing Director for listed fertiliser manufacturer Godavari Fertilisers from 1997-2002. Since retiring from Government service in 20I0, Mr. Bhide has been active in the private sector, serving in a number of Non-Executive roles, primarily in Indian listed companies and subsidiaries of multinational companies across a variety of industries. Mr. Bhide is Chairman of the Hyderabad-based, privately-owned venture capital group APIDC Venture Capital Ltd. He presently is a Director for Heidelberg Cements (India) Ltd., GlaxoSmithKline (India) Pharmaceuticals Ltd., NOCIL Ltd., Tube Investments India Ltd., L&T Finance Holdings Ltd., L&T Finance Ltd., BILT Paper B.V. and, in addition, he has served as Advisor on the India Advisory Board for Joshi Technologies International Inc., Deutsche Telekom and Citibank (India). Mr. Bhide obtained his B.Sc. in Chemistry (Hons.) in 1970 and his LL.B in 1973, both from Delhi University. He later obtained his M.B.A. with specialisation in Financial Management from Indira Gandhi National Open University in 2002.
Mr. Bhide does not hold any shares in the Company and is not related to any other Director of the Company.
A suitable Resolution is being put up for your approval.
At the Annual General Meeting held on 12th August, 2014, the Members of your Company appointed Ms. Mubeen Rafat and Mr. S. Thirumalai as Independent Directors under the Companies Act, 2013 for a period of five years with effect from 12th August, 2014 and 1st October, 2014 respectively.
All Independent Directors have given declarations as required under Section 149(7) that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. None of the Independent Directors are related to any other Director of the Company.
Key Managerial Personnel
The Managing Director Mr. Devraj Lahiri, the Chief Financial Officer Mr. Anish Gupta and the Company Secretary Mr. Phani K. Mangipudi are the Key Managerial Personnel as per the provision of the Companies Act, 2013.
DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to Section 134(5) of the Companies Act, 2013 your Directors confirm that :
1. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
2. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as on 31st March, 2018 and of the statement of profit and loss and cash flow of your Company for the period ended 31st March, 2018;
3. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
4. the annual accounts have been prepared on a going concern basis.
5. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and were operating effectively; and
6. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems were adequate and operating effectively.
SIGNIFICANT & MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS
There are no significant or material orders passed by the Regulators, Courts or Tribunals which impact the going concern status of the Company and its future operations. However, Members’ attention is drawn to the following :
TAXATION i. Income Tax Financial Services Business
Your Company had diversified into Financial Services Business and Foods Business in the early nineties. Subsequently in the year 1998-99, your Company incurred a total loss of Rs.38.67 crore in the financial services business of which Rs.29.70 crore was claimed as loss under the head “Income from Business” and Rs.8.97 crore was claimed as a capital loss under the provisions of the Income Tax Act.
The Income Tax Appellate Tribunal allowed the entire amount of Rs.38.67 crore as a capital loss. It may be noted that the department had treated the entire loss as a “Speculation Loss”.
Your Company has filed an appeal before the then Hon’ble High Court of Andhra Pradesh which has been admitted. The matter is yet to be heard.
Further in connection with its divestment from the Foods Business in the financial year 1999-00, your Company had incurred a total loss of Rs.53.68 crore, of which Rs.44.18 crore was claimed as a loss under the head “Income from Business” and Rs.9.50 crore was claimed as a capital loss under the provisions of the Income Tax Act. The Income Tax Department has disallowed the entire amount excepting Rs.5.70 crore which was allowed as a capital loss. The Commissioner of Income Tax (Appeals) further allowed Rs.11.24 crore out of the balance amount of Rs.47.98 crore, on appeal before him and the same was upheld by the Income Tax Appellate Tribunal. Your Company has preferred an appeal against the above order before the then Hon’ble High Court of Andhra Pradesh.
Consequent to the above orders, the Income Tax Department had issued consequential orders under Section 154 of the Income Tax Act demanding Rs.28.86 crore (revised) which was paid by your Company.
ii. Luxury Tax
The Hon’ble Supreme Court by its judgement dated 20th January, 2005 set aside levy of luxury tax on tobacconists by various states. The Court had also directed the Companies to pay back to the state any amount of luxury tax recovered from the customers after obtaining stay orders from the Court. The Department has alleged that your Company has failed to pay an amount of Rs.34.86 crore being the luxury tax collected from customers by your Company after passing of the interim order dated 1st June, 1999, to the then undivided State Government of Andhra Pradesh which is in violation of the said judgement dated 20th January, 2005 and filed the contempt petition against the then Managing Director of your Company. The contempt charges were dismissed by the Hon’ble Supreme Court in March, 2010.
The State decided to continue with the legal proceedings for recovery of luxury tax from your Company by substituting the Company’s Managing Director with your Company as the Respondent. The Supreme Court appointed an independent Auditor to examine and verify the accounts of your Company for the period 1st April, 1999 to 20th January, 2005 and submit their report as to whether any sum was collected by your Company towards luxury tax during the operation of the Stay Order dated 1 st April, 1 999. The Auditor forwarded its report to the Supreme Court endorsing your Company’s stand. The Supreme Court, after examining the report of the Auditor, disposed off the petition with an observation that no contempt lies against your Company. However, the State Government has been given an opportunity to issue a show cause notice to your Company for refund of the luxury tax collected after obtaining interim order from the Supreme Court. Show cause notice should be backed and supported by the evidence the department wishes to rely upon in support of its case and is subject to contest by the parties as per Law.
The Commercial Tax Department has issued a show cause notice and reply to the same has been filed by your Company. The matter was adjudicated on 11th March, 2017 and an Assessment Order, A.O.No.4208 RC No.LT/SEC/01/1/1001/1996-97 dated 13th February, 2017 was passed by the department confirming the demand. Against the same, a Writ Petition in WP No. 8240 of 2017 was filed by your Company in the High Court of Judicature at Hyderabad praying to issue a writ of certiorari quashing the above mentioned Assessment Order. The matter came up for admission on 9th March, 2017 before the Hon’ble High Court of Telangana & Andhra Pradesh. The Hon’ble High Court was pleased to admit the Writ but at the same time remanded the matter to be adjudicated by the Appellate Authority as factual information was also involved and directed the Petitioners to file the appeal within two weeks from the date of receipt of the Order. Your Company approached the Hon’ble Supreme Court and had withdrawn the SLP and filed an appeal with a delay of one day before the Appellate Authority. The said Appellate Authority had issued a show cause notice to your Company asking why the delay of one day in filing the appeal should be condoned and against which your Company has approached the Hon’ble High Court of Telangana & Andhra Pradesh for condonation of delay of one day. The matter is pending before the said High Court.
iii. Entry Tax
Several High Courts in the country including those of Andhra Pradesh, Kerala, Tamil Nadu and Assam have struck down the levy of entry tax on the ground that it is violative of Article 301 and not saved under Article 304(b) of the Constitution, as it is not compensatory in the manner required in terms of the Supreme Court judgement in the case of M/s. Jindal Stainless Limited. Thereafter, several states such as Uttar Pradesh, Bihar, West Bengal, Haryana and Assam have attempted to re-introduce entry tax by amending the original Acts, sparking a fresh round of legal challenges in the high courts. Most of the appeals filed by the various states and individual companies have been clubbed together.
The Hon’ble Supreme Court in the batch of cases headed by Jai Prakash
Associates Vs the State of MP has referred a number of vital questions on levy of entry tax, to the Constitutional Bench in terms of Article 145(3) of the Constitution.
The Hon’ble Supreme Court constituted a 9 Judges Bench and heard the matter and vide its Judgment dated 11th November, 2016 held that relevant State Entry Tax matters are not violative on compensatory grounds but if the Act is found to be discriminatory, then it is violative of Article 304(a) of the Constitution. Certain tests have been laid out in the aforesaid judgement, namely, discrimination and local area applicability to ascertain whether the respective state acts are unconstitutional or not and remanded the matter to be heard by the Regular Bench of the Supreme Court. Your Company believes, based on legal advice, that it has defendable grounds on merits and intends to file necessary petitions if required before the regular bench of the Supreme Court or the respective State High Courts and contest the matter on the grounds of discrimination and local area.
The Single Bench of Hon’ble High Court of Calcutta struck down the levy of entry tax imposed by the State Government of West Bengal in the case of Bharti Airtel and others and aggrieved by the same, the State Government has preferred an appeal before the Division Bench. On identical grounds, the Single Bench of Hon’ble High Court of Calcutta allowed the Writ Petition in favour of your Company with a direction to file implead petition and an early hearing petition before the division bench.
Your Company, as directed, has filed an implead petition and an early hearing application which is pending before the Division Bench of High Court of Calcutta. Subsequently the State of West Bengal amended the Entry Tax Act to give retrospective effect of levy on locally manufactured goods in order to avoid discrimination of local and outside manufacturers. There was also an amendment to the State Finance Act and effect of the same being that all Entry Tax matters to be heard by the Tribunal. Hence your Company intends to file an application before the Tribunal to contest the West Bengal Entry tax matter.
Your Company has filed fresh petitions before the Allahabad and Ranchi High Courts to contest the entry tax matter pertaining to Uttar Pradesh and Jharkhand and also filed amendment petitions before the High Court of Patna and Guwahati to contest the matters pertaining to Bihar and Assam Entry Tax.
a. Wrapping Materials
The Excise department claimed a sum of Rs.3.62 crores on the ground that Gay Wrappers (printed paper used for wrapping cigarette packets) had been manufactured and consumed by your Company without payment of duty during the period April 1996 to March 2002. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore had allowed your Company’s appeal against the said demand and set aside the demand of the Excise Department. An appeal against the said Order was filed by the Excise Department and the Hon’ble Supreme Court was pleased to allow the appeal by way of remand to CESTAT to decide the matter afresh and pass an order on merits. The Hon’ble
CESTAT heard the matter and allowed the appeal in favour of your Company. Against the CESTAT’s order, the department filed an appeal before the Supreme Court and when the matter came up for admission, the Hon’ble Supreme Court tagged your Company matter to be heard along with another identical matter pending before it.
b. Cigarette manufacture in North Eastern states
The Excise Department had demanded a sum of Rs.31.20 crore along with interest of Rs.12.69 crore from the Company’s former contract manufacturers consequent upon the judgement of the Hon’ble Supreme Court upholding the withdrawal of exemptions granted in the North Eastern states. Thereafter, a total sum of Rs.39.06 crore was paid to the Department. A Division Bench of the Gauhati High Court confirmed the judgement of the single judge and held that interest was also payable for the period 1st August, 2003 to 7th February, 2006 on the principal amount already repaid. Appeals have been filed in the Supreme Court against the said judgements of the Gauhati High Court which were admitted but no stay of the said judgements was granted.
c. Tobacco Refuse
Your Company has been receiving periodical show cause notices demanding recovery of duty on cut tobacco used in the manufacture of tobacco refuse together with interest and penalty thereon from January 2005 to October 2013, amounting to Rs.15.92 crore. All the pending appeals before CESTAT in this matter until October 2013 were allowed in favour of your Company. Against the said orders, the department preferred an appeal before the Hon’ble Supreme Court on which hearing is pending. Show cause notices for subsequent period have been received and same are pending before original authority.
d. Service Tax
Your Company has received show cause notices from the Excise Department seeking to deny CENVAT credit availed on service tax paid by various service providers on the ground that the same are not in relation to the manufacture of final products. Upon adjudication, credit on most of the services were allowed in favour of your Company, however some of them are contested by the department before CESTAT. Cross appeal has been filed by your Company before CESTAT. One of the appeals filed by your Company for the period April 2008 was heard and allowed by CESTAT by way of remand to the original authority to be decided in light of earlier judicial pronouncements.
PUBLIC INTEREST LITIGATION (PIL)
i] The two PILs filed in the Madras High Court and the Andhra Pradesh High Court against the Central Government and the cigarette manufacturers including your Company, seeking strict implementation of Cigarettes and Other Tobacco Products (Prohibition of Advertisement And Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 (COTP Act) and Rules are pending.The Madras High Court disposed off the PIL on the lines that the Government has to take necessary steps to build laboratories to check the tar and nicotine content in the cigarettes.
ii) Your Company has been impleaded in the petition filed in the Supreme Court by an NGO called ‘Centre for Transforming India’ against the Union of India along with other cigarette manufacturers, Tobacco Institute of India, Bidi Manufacturers and Bidi Manufacturers’ Association seeking prohibition/ban of the manufacture, storage and sale of all forms of tobacco within the territory of India.
iii) A PIL was filed before the Uttarakhand High Court in India relating to printing of Tar-Nic contents on cigarette packets. The High Court passed an Order allowing the petition and directing ban on sale of loose cigarettes without printing health warning. The Court has also ordered ban on sale of cigarettes in the state of Uttarakhand if the union does not prescribe safe or maximum permissible limit of nicotine & tar contents in each cigarettes or label or package.
A review petition has been filed by your Company along with others against the order and it was disposed off by the High Court of Uttarakhand in favour of your Company.
Petitions have also been filed in other courts such as High Court of Jabalpur, National Green Tribunal, Delhi seeking ban on sale of cigarettes and before High Court of Madhya Pradesh, Indore Bench seeking directions to mention tar and nicotine content on cigarette packs by the manufacturers and a PIL before the High Court of Mumbai seeking directions that the Insurance Companies shall not invest in the cigarette companies.
The suit for infringement and passing off filed by ITC Limited against your Company alleging that your Company had violated ITC Limited’s ‘Gold Flake’ trade mark by using a deceptively similar get up and trade dress consisting of a combination of red and gold colors, on its ‘Special’ brand of cigarettes is still pending in the Hon’ble Calcutta High Court and the trial is yet to begin. ITC’s application for temporary injunction was refused by the single bench of the Hon’ble Calcutta High Court. Appeal was filed by ITC, and the Division Bench without allowing the appeal, directed the hearing of the Suit to be expedited. Your Company, however, has been directed to submit the sales figures of the ‘Special’ brand of cigarettes every month to the Court, which is being duly complied with.
FINANCIAL SERVICES BUSINESS
The Company Petition filed by the Official Liquidator in the Hon’ble High Court of Andhra Pradesh seeking directions against some of the ExDirectors of ITC Agro Tech Finance and Investments Limited (ITCATF), the Company in liquidation, into which one of the subsidiaries of your Company, viz. VST Investments Limited was amalgamated, to file a Statement of Affairs is still pending.
In terms of the Order dated 10th July, 2007 the Division Bench of the Hon’ble High Court of Andhra Pradesh had directed the Regional Director, Department of Corporate Affairs, Chennai to conduct an investigation and submit a report showing the persons who promoted ITCATF and the persons who were responsible in conducting its affairs until its winding up. A comprehensive report was prepared and filed in the Court by the Regional Director in July 2008. Further, the Division bench, against the appeal filed by one of the Ex-Directors of ITCATF, remanded the matter to the Company Judge to decide afresh keeping in view the report submitted by the Regional Director. All the matters are still pending final adjudication.
THE CIGARETTES AND OTHER TOBACCO PRODUCTS (PROHIBITION OF ADVERTISEMENT AND REGULATION OF TRADE AND COMMERCE, PRODUCTION, SUPPLY AND DISTRIBUTION) ACT, 2003 (COTPA)
i. In view of the provisions of COTPA various restrictions such as ban on advertising in print and visual media, ban on outdoor advertising, regulation of in-store advertising, prohibition of sale of cigarettes to persons below the age of 18 years, etc. have been in force. Printing of pictorial warnings on cigarette packets, which came into effect from 31st May, 2009 were further revised with effect from 1st December, 2011. A new set of pictorial warnings were notified to come into force with effect from 1st April, 2013. In October, 2014 the Government notified a new set of pictorial warning covering 85% of the front and back side of the packets with effect from 1st April, 2015. However, after extension, the same have now been implemented from 1st April, 2016 and is being duly complied with by your Company.
ii. Some Tobacco manufacturers have challenged various provisions of COTPA and Rules made thereunder in different high courts across the country. The Union Government filed transfer petitions in the Hon’ble Supreme Court seeking to transfer 31 pending writ petitions from various high courts to the Hon’ble Supreme Court. All the transfer petitions were allowed and the writ petitions have thus been moved to the Hon’ble Supreme Court, for final adjudication.
iii. Your Company had also filed a writ petition before the then Hon’ble High Court of Andhra Pradesh challenging The Cigarettes and Other Tobacco Products (Packaging & Labelling) Rules, 2006 and the Amendment Rules 2008, on the grounds inter alia that they are ultra vires of COTPA and therefore the notifications issued there under (including those seeking implementation of graphic health warnings) should be quashed. The said writ petition has been admitted but no interim orders were passed by the Hon’ble Court.
iv. The Government of India, Ministry of Health and Family Welfare on 13th January, 2015 as part of pre-legislative consultation invited views and comments from the stakeholders and the public on the proposed Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Amendment Bill, 2015 which proposes further restrictions on the industry and more stringent penalty provisions. Your Company as a stakeholder has expressed objections to the said amendment bill.
v. Before the High Court of Karnataka, a Writ Petition was filed by Tobacco Institute of India (TII) on behalf of your Company and other manufacturers against the proposed notification dated 15th October, 2014 by Health Ministry to print health warning on both sides of the pack occupying 85% of space. The 85% health warning to come into effect from 1st April, 2016. Your Company also filed a Writ Petition before the High Court bench at Dharwad against the implementation of 85% health warning. The Hon’ble Supreme Court on hearing a PIL filed by Health for Millions, constituted a Bench before the Karnataka High Court to hear all the matters relating to graphical health warning. The Writ Petitions filed by TII and your Company are being heard before the Bangalore Bench. The Bench continuously heard the matters till 28th February, 2017 and the Karnataka Bench held on 15th December, 2017 that the amendment made to the Packaging Rules imposing 85% graphic health warning is ultra vires the Constitution. Against the said Judgment, the aggrieved parties filed SLP before the Supreme Court seeking stay and the same was granted. The matter is scheduled for hearing shortly.
The Government of Andhra Pradesh had filed a land grabbing case against your Company in 1991 in relation to a piece and parcel of vacant land which has been under possession and occupation by your Company for over four decades. By its judgement dated 28th July, 2010, the Special Court had held that your Company is not a land grabber but had given the State Government the right to initiate proceedings to recover possession of the land at some future date. Against this part of the judgement, your Company had filed a writ petition before the Hon’ble High Court of Andhra Pradesh to expunge that part of the Order giving such liberty to the Department despite the fact that your Company has already been declared not to be a land grabber. The writ petition is still pending. The State Government has also filed a writ petition in the Hon’ble High Court of Telangana and Andhra Pradesh seeking to set aside the said judgement of the Land Grabbing Court. An interim Order was passed restraining your Company from changing the status of the land or creating any third party interest therein. Your Company has taken all the necessary steps for speedy disposal of the above writ petitions which are pending before the Court.
One more case of land grabbing was filed by the then Government of Andhra Pradesh against your Company in the year 1989 on a piece of land along with building called ‘Lal-e-Zar’, before the Special Court and in the year 2010, the Special Court passed a judgment stating that your Company is not a land grabber. After 7 years, the Government of Telangana filed an appeal before the Hon’ble High Court of Telangana and Andhra Pradesh seeking a direction from the court that the nature of the land should not be altered and no third party interest to be created. Your Company filed a counter and a vacate stay application. Order was pronounced on the vacate stay petition allowing your Company to continue to carry on construction activities, subject to the Writ Petition and not to create any third party rights.
PARTICULARS OF EMPLOYEES
The information required pursuant to Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company, are annexed herewith as “Annexure D”“ and forms part of this Report. The statement containing particulars of employees as required under Section 197 of the Act read with Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is provided in a separate annexure forming part of this Report. However, in terms of Section 136 of the Act, the Report and Accounts are being sent to the Members and others entitled thereto, excluding the information on employees’ particulars which is available for inspection by the Members at the Registered Office of the Company during business hours on working days of the Company up to the date of the ensuing AGM. In case any Member is interested in obtaining a copy thereof, such Member may write to the Company Secretary of the Company.
The Nomination and Remuneration Committee of the Company has affirmed that the remuneration is as per the Remuneration Policy of the Company.
Your Directors take this opportunity to record their deep appreciation of the continuous support and contribution from all employees of your Company.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of Companies Act, 2013 and Rule 12(1) of Companies (Management and Administration) Rules, 2014, an extract of Annual Return in Form MGT-9 is annexed as “Annexure E## and forms part of this report.
M/s. B S R & Associates LLP, Chartered Accountants, were recommended for appointment as the Statutory Auditors of the Company to hold office from the conclusion of the 85th AGM to the conclusion of the 90th AGM. In terms of the first proviso to Section 139 of the Companies Act, 2013, the Auditors’ appointment has to be ratified at every AGM. Accordingly, the appointment of M/s. B S R & Associates LLP, Chartered Accountants, Firm’s Registration Number:116231W/W-100024 as the statutory auditors of the Company, is placed for ratification by the Members. The Company has received a certificate from M/s. B S R & Associates, LLP to the effect that they are not disqualified from continuing to act as Auditors and would be in accordance with the provisions of Section 139 and 141 of the Companies Act, 2013 and Companies (Audit and Audit Rules), 2014. The Report given by the Auditors on the financial statements of the Company is part of the Annual Report. There has been no qualification, reservation or adverse remark or disclaimer in their Report. During the year under review, the Auditors had not reported any matter under Section 143(12) of the Companies Act, 2013 and hence, no detail is required to be disclosed under Section 134(3)(ca) of the Companies Act, 2013.
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company had appointed Dr. K.R. Chandratre, Company Secretary in Whole-time Practice, as Secretarial Auditor of the Company for the financial year 2017-18. The Secretarial Audit Report is annexed herewith as “Annexure F” and forms part of this Annual Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
Information in accordance with clause (m) of sub-section (3) of Section 134 of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014 is given in the “Annexure G” forming part of this Report.
Your Company has stopped accepting fresh deposits for several years now. As on 31st March, 2018, your Company does not have any deposits for the purpose of its business.
Despite adverse market conditions, your Company is well placed to exploit opportunities through innovative new brand launches, coupled with expansion of operational areas.
The Directors are grateful to all valuable stakeholders of the Company viz., customers, shareholders, dealers, vendors, banks and other business associates for their excellent support rendered during the year. The Directors also acknowledge the unstinted commitment and valued contribution of all employees of the Company.
On behalf of the Board,
RAYMOND S. NORONHA
DIN : 00012620
Dated this 12th day of April, 2018
Azamabad, Hyderabad - 500 020
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