vote recommendations for 2011 nnual eneral eeting · list of proposals received from shareholders...

HINDALCO INDUSTRIES LIMITED VOTE RECOMMENDATIONS FOR 2011 ANNUAL GENERAL MEETING

Industry: Aluminum

Meeting date & time: September 23, 2011, Friday 2.30 p.m. IST

Meeting venue: Ravindra Natya Mandir, P. L. Deshpande Maharashtra Kala Academy, Prabhadevi, Mumbai- 400 025

Stock codes NSE BSE

Exchange HINDALCO 500440

Reuters HALC.NS

Bloomberg HNDL:IN

List of Resolutions

Res # Resolution Title Managem

ent InGovern

1. Adoption of Accounts For For*

2. Declaration of Dividend For For

Reappointment of Directors

3. Mr. Madhukar Manilal Bhagat For Against

4. Mr. Chaitan Manbhai Maniar For Against

5. Mr. Sangram Singh Kothari For Against

6. Re-appointment of Auditors For Against

8. Payment of Commission to Non-Executive Directors

For For

9. Amendment to the Articles of Association For For

10. Increase in Borrowing Limits For For*

11. Revision of Remuneration of Mr. D. Bhattacharya as Managing Director

For For*

12. Increase in Number of Shares of ESOS-2006 For For

List of Proposals Received from Shareholders

7. Appointment of Mr. Ram Charan as a Director

For For

(For* = Shareholders advised to seek clarifications from the company)

Corporate Governance

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Vote Recommendations

September 2011

InGovern

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Resolution No.1: Adoption of Accounts

Management Recommendation : FOR

InGovern Recommendation : FOR*

Text of Resolution(s) (Item no.1) To receive, consider and adopt the Audited Balance Sheet as at 31st March, 2011 and Profit and Loss Account for the year ended on that date, the Report of the Directors and the Auditors thereon. InGovern Analysis and Recommendation The Report of the Independent Auditor dated 30 May, 2011 from Singhi & Co., Chartered Accountants (registration number: 302049E) states that the financial statements of the company have been prepared in accordance with the accounting standards that are mandatory in India and it does not contain any qualifications. However it contains certain notes of the Auditors that:

1) The Company had recorded goodwill on acquisition of Novelis in 2007-08. Global economic crisis resulted in an impairment loss of goodwill of Rs. 3597 crores in 2008-09. This amount was adjusted against Business Reconstruction Reserve (BRR) account created as per a Scheme approved by the Bombay High Court. The Company is of the belief that such an economic crisis will not occur again in future. During 2010-11, Novelis gave a record performance in terms of revenues and profits and is expected to grow rapidly in future. It was able to refinance debt upto the tune of USD 4.8 billion (Rs. 22,560 crores approx., assuming 1 USD = Rs. 47) out of which a return of capital of USD 1.7 billion (Rs. 7990 crores approx.) has been made to recapitalization of the Company. As a result, the impairment loss of goodwill of Rs. 3597.30 has been reversed in 2010-11. Since the impairment loss had been adjusted against BRR, the reversal of the same loss has also been adjusted against BRR. Further interest cost of Rs.158.01 crores has also been adjusted with BRR instead of Profit and Loss account as per the Scheme of Arrangement approved by the High Court of Mumbai. Had the aforesaid treatment been not done than the reported net profit of the group for the year of Rs.2,456.37 crores would have been Rs.5,895.66 crores.

We note that the adjustment done has significantly impacted the net profits of the Company. We advise shareholders ensure that the Company carries out due research before taking such an action and analyses the long-term as well as short-term implications of the same on the Company’s profitability and financials.

2) The consolidated financial statements of the Group has been prepared without incorporating the accounts of Idea Cellular Limited (Idea), an associate, as Idea has not been able to adopt its accounts for the year ended March 31, 2011 due to exceptional circumstances. The share of profit


of Idea accounted in the consolidated accounts of the Company for the year ended March 31, 2010 was Rs. 66.01 crores which is not significant when compared with the Company’s consolidated net profits of Rs. 3925.47 crores for the same period. We recommend shareholders raise concern that the Board should disclose the exact exceptional circumstances due to which the accounts of Idea couldn’t be adopted and what are the steps the management has taken to avoid such situation in future. We recommend that the Board ensures that financial statements of all the subsidiaries/associates/joint ventures are audited and consolidated in future.

3) During the year, Duty Entitlement Pass Book and Vishesh Krishi Gram Udyog Yojna licenses for Rs 48.43 crores, purchased by the Company from market and used for payment of custom duty on import of raw material, were purportedly claimed to be fake and are being investigated by Directorate of Revenue Intelligence (DRI). The Company has voluntarily paid entire amount to the Custom authorities with interest of Rs. 10.11 crores. The total amount paid Rs. 58.54 crores has been charged to Profit & Loss account during the year. The Company has initiated legal action against the seller. We recommend shareholders raise concern and seek clarifications as to what measures the Company has taken to make sure that such frauds don’t recur in future.

However, since no qualifications have been found, we recommend shareholders vote FOR the resolution.


Resolution No.2: Declaration of Dividend


InGovern Recommendation : FOR Text of Resolution(s) (Item no.2) To declare and sanction the payment of Dividend on Equity Shares of the Company for the financial year 2010-2011 InGovern Analysis and Recommendation The details of dividend in the last 2 years are:

Year Ended 31st March Unit 2011 2010

Interim Dividend per share Rs. Nil Nil

Proposed Final Dividend per share Rs. 1.50 1.35

Total Dividend per share Rs. 1.50 1.35

Total Dividend payout Rs. Crore 287.70 259.91

Dividend Tax Rs. Crore 46.78 43.48

Dividend and Tax as % of Profit After Tax % 13.61 7.72

The company does not have a stated dividend policy with any ceiling on the dividend to be paid as a percentage of the profits. The Company has a debt-equity ratio of 0.95:1. We note that the payout of 13.61% (Dividend and Tax as % of the net profits) will not result in a strain on its financials. Hence, we recommend that shareholders vote FOR this proposal.


Resolution No.3 to No.5: Reappointment of Directors


InGovern Recommendation : AGAINST Text of Resolution(s)

(Item no.3) To appoint a Director in place of Mr. Madhukar Manilal Bhagat, who retires from office by rotation and being eligible, offers himself for re-appointment. (Item no.4) To appoint a Director in place of Mr. Chaitan Manbhai Maniar, who retires from office by rotation and being eligible, offers himself for re-appointment. (Item no.5) To appoint a Director in place of Mr. Sangram Singh Kothari, who retires from office by rotation and being eligible, offers himself for re-appointment. InGovern Analysis and Recommendation We note that candidates seeking re-election are eminently qualified persons with extensive experience that is relevant for serving on the Board of this Company. We normally recommend that shareholders vote AGAINST reappointment of directors who attend less than 75% of Board Meetings, or have not discharged their duties as director. Also we check the compliance with Clause 49, Annexure ID (1) of the Listing Agreement requiring that no Independent Director has served on the Board for a period of more than 9 years in aggregate. Though the guideline in Clause 49 is non mandatory, in our opinion, serving as an Independent Director on the Board of the Company beyond the duration of 9 years is likely to affect the Director’s independence. Also, the Voluntary Guidelines of MCA in, VG I B.2 (i) require that no Independent Director serves on the Board of the Company for more than 6 years consecutively. The details of Directors of Hindalco Industries Ltd. as at March 31, 2011 are given in table below:


x: Member; c: Chairman;

H: Held; A: Attended; NA: Not Applicable

Name

Chai

rma

n

MDExec

utive

Non -

Exec

utive

Inde

pend

ent

Aud

it

Share

holde

r

Griev

ance

Mr. Kumar Mangalam Birla c x

Mrs. Rajashree Birla x

Mr. A. K. Agarwala x

Mr. S. S. Kothari x x

Mr. C. M. Maniar x x x x

Mr. M. M. Bhagat x x c

Mr. K. N. Bhandari x x x x

Mr. N. J. Jhaveri x x x

Mr. Ram Charan x x

Mr. D. Bhattacharya x x

StatusCommittee

s

Name

Indian

Public

Comp

anies

Other

Membe

rships

Other

Chairp

ersons

hips

AGM

H A % H A % H A %

Mr. Kumar Mangalam Birla 10 0 0 Yes 6 6 100%

Mrs. Rajashree Birla 6 1 0 Yes 6 4 67%

Mr. A. K. Agarwala 5 0 0 Yes 6 5 83%

Mr. S. S. Kothari 0 0 0 No 6 0 0%

Mr. C. M. Maniar 15 6 1 Yes 6 5 83% 6 5 83% 4 4 100%

Mr. M. M. Bhagat 4 2 1 Yes 6 6 100% 6 6 100%

Mr. K. N. Bhandari 12 1 1 Yes 6 6 100% 0 0 1 1 100%

Mr. N. J. Jhaveri 8 1 3 Yes 6 5 83% 6 5 83%

Mr. Ram Charan NA NA NA NA NA NA

Mr. D. Bhattacharya 4 0 1 Yes 6 6 100%

Other Directorships &

Committee

Board

Meetings

Audit Shareholder

Grievance


Mr. M. M. Bhagat, aged 78, is an Independent Director of the Company. He was appointed in 1996 and has been on the Board for a period of 15 plus years which is exceeding the maximum limit of 9 years as per Clause 49, Annexure ID (1) of the Listing Agreement. Though the guideline in Clause 49 is non mandatory, in our opinion, serving as an Independent Director on the Board of the Company beyond the duration of 9 years is likely to affect the Director’s independence. He is on the Board of 4 other Public companies in India. He is the Chairman of Audit Committee of which he has attended all of the 6 meetings held during the year. He has also attended all of the 6 Board meetings held during the year. We normally recommend shareholders vote AGAINST re-appointment of directors who attend less than 75% of Board and/or Committee meetings, or have seen not to have contributed to the meetings. Since he has not complied with all guidelines regarding re-appointment of Directors, we recommend shareholders vote AGAINST the re-appointment. Mr. C. M. Maniar, aged 75, is an Independent Director of the Company. He was appointed in 1982 and has been on the Board for a period of 29 plus years which is exceeding the maximum limit of 9 years as per Clause 49, Annexure ID (1) of the Listing Agreement. Though the guideline in Clause 49 is non mandatory, in our opinion, serving as an Independent Director on the Board of the Company beyond the duration of 9 years is likely to affect the Director’s independence. He is on the Board of 15 other Public companies in India. He is a member of Audit as well as Shareholder’s Grievance Committees. He has attended 5 out of 6 (i.e., 83%) meetings of the Audit Committee and all of the 4 meetings of Shareholders’ Grievance Committee, held during the year. He has also attended 5 out of 6 (i.e., 83%) Board meetings held during the year. We normally recommend shareholders vote AGAINST re-appointment of directors who attend less than 75% of Board and/or Committee meetings, or have seen not to have contributed to the meetings. Since he has not complied with all guidelines regarding re-appointment of Directors, we recommend shareholders vote AGAINST the re-appointment. Mr. S. S. Kothari, aged 90, is an Independent Director of the Company. He was appointed in 1988 and has been on the Board for a period of 23 plus years which is exceeding the maximum limit of 9 years as per Clause 49, Annexure ID (1) of the Listing Agreement. Though the guideline in Clause 49 is non mandatory, in our opinion, serving as an Independent Director on the Board of the Company beyond the duration of 9 years is likely to affect the Director’s independence. He is not on the Board of any other Public company in India. He has not attended any of the 6 Board meetings held during the year. Also, he had not attended the last AGM. We recommend shareholders vote AGAINST re-appointment of directors who attend less than 75% of Board and/or Committee meetings, or have seen not to have contributed to the meetings. Since he has not complied with all guidelines regarding re-appointment of Directors, we recommend shareholders vote AGAINST the re-appointment. We also note that the company doesn’t have any Nomination Committee. According to VG I A.3 (i) of the Voluntary Guidelines issued by Ministry of Corporate Affairs in 2009, the


company should have a Nomination Committee comprising of majority of Independent Directors, including its Chairman. Also, the Company doesn’t have any Remuneration Committee. According to VG I C.2 (i) of the Voluntary Guidelines issued by Ministry of Corporate Affairs in 2009, the company should have a Remuneration Committee comprising of at-least 3 members, majority of whom should be Non-Executive Directors, with at-least 1 Independent Director. Hence, we recommend that shareholders should insist that a Nomination Committee and a Remuneration Committee are constituted.


Resolution No.6: Re-appointment of Auditors


InGovern Recommendation : AGAINST Text of Resolution(s)

(Item no.6) To appoint the Auditors of the Company to hold office from the conclusion of this Meeting until the conclusion of the next Annual General Meeting of the Company and to fix their remuneration, and for the purpose, to pass the following Resolution, which will be proposed as an Ordinary Resolution: “RESOLVED THAT pursuant to the provisions of Section 224 and other applicable provisions, if any, of the Companies Act, 1956, Messrs Singhi & Co. (Registration No. 302049E), Chartered Accountants, Kolkata, the retiring Auditors, be and is hereby re-appointed as the Auditors of the Company to hold office from the conclusion of this Meeting until the conclusion of the next Annual General Meeting of the Company and that the Board of Directors of the Company be and is hereby authorized to fix their remuneration for the said period and reimbursement of actual out of pocket expenses, as may be incurred in performance of their duties.” InGovern Analysis and Recommendation The auditors have not provided a Certificate of Independence required of them. We note that a total Auditor’s Remuneration of Rs. 33.05 crores (on consolidated basis) was paid during FY 2010-11. However, the Company has not provided a breakup of the remuneration and hence we cannot comment that the scope of the services that they render to the Company is entirely audit services or not. We recommend shareholders raise concern that details of the Auditors’ Remuneration is mentioned in the Schedules to the financial statements in future so as to ensure that the payment of the remuneration will not affect the auditor’s independence. Also, we note that the same audit firm has been certifying the financial statements prior to 12 years, i.e., before 1999-2000. This is in violation of Clause IV C (i) of the Voluntary Guidelines for Corporate Governance issued by the Ministry of Corporate Affairs, Government of India in December 2009, which states that the company should rotate its statutory auditor at least once in 5 years. Also, Mr. Anil Gupta, the Audit partner has been auditing the accounts prior to 12 years, i.e., before 1999-2000. This is in violation of Clause IV C (i) ) of the Voluntary Guidelines for Corporate Governance issued by the Ministry of Corporate Affairs, Government of India in December 2009 which requires that the audit partner gets rotated every 3 years. We recommend shareholders raise this concern and ensure that the Company appoints entirely independent auditors in future. Since all the guidelines regarding auditors’ appointment have not been followed, we recommend shareholders vote AGAINST the resolution.


Proposal Received from Shareholders:

Resolution No.7: Appointment of Mr. Ram Charan as a Director


InGovern Recommendation : FOR Text of Resolution(s) (Item no.7) To appoint a Director in place of Mr. Ram Charan, who was appointed as an Additional Director on the Board of the Company under Article 140 of the Articles of Association of the Company (hereinafter referred to as the “Articles”) and Section 260 of the Companies Act, 1956 (hereinafter referred to as the “Act”) and who holds office only up to the date of this Annual General Meeting and in respect of whom, the Company has received a notice in writing along with a deposit of Rs 500/- pursuant to Section 257 of the Act from a member signifying her intention to propose Mr. Ram Charan as a candidate for the office of Director and in that behalf, to consider and if thought fit to pass the following Resolution, which will be proposed as an Ordinary Resolution : “RESOLVED THAT pursuant to the relevant provisions of the Articles and the Act including, interalia, Section 257 and 260, Mr. Ram Charan be and is hereby elected and appointed as a Director of the Company, liable to retire by rotation.”

InGovern Analysis and Recommendation Mr. Ram Charan, aged 71, is being appointed as an Independent Director of the Company w.e.f. February 12, 2011. He is a Doctorate from Harvard Business School. He has also served as a faculty of Harvard Business School. Considering his background and vast experience in business and commercial circles, the Board feels that it will be beneficial for the Company to continue to avail of his services as a Director of the Company. He is not on the Board of any other public company in India. However, the shareholders should verify his letter of appointment to see if it specifies the remuneration, including sitting fees, commission and stock options etc, if any, to be paid to him. Since all guidelines regarding directors’ appointment have been followed, we recommend shareholders vote FOR this resolution


Resolution No.8: Payment of Commission to Non-Executive Directors


InGovern Recommendation : FOR Text of Resolution(s)

(Item no.8) To consider and if thought fit, to pass the following Resolution which will be proposed as a Special Resolution: “RESOLVED THAT pursuant to the provisions of Sections 198, 309 (4) and other applicable provisions, if any, of the Companies Act, 1956 (hereinafter referred to as the “Act”), consent of the Company be and is hereby accorded to the payment of, in addition to sitting fees for attending the meetings of the Board and/or Committees thereof and reimbursement of expenses, in accordance with the relevant provisions of the Articles of Association of the Company, to the Directors of the Company other than the Managing Director and Executive Director(s), commission at a rate not exceeding one percent of net profits of the Company in each year calculated in accordance with relevant provisions of the Act, without any monetary limit, but subject to such ceiling if any, per annum, as the Board may from time to time fix in that behalf and the same to be divided amongst them in such manner as the Board may, from time to time, determine, for a period of five years commencing from financial year 2011-2012. “ InGovern Analysis and Recommendation

At the AGM of the Company held on 28th July, 2006 the members had approved the payment of remuneration to Non-Executive Directors of the Company in the form of commission on net profits. The said approval expires on 31st March 2011 and a fresh approval of the shareholders is required for payment of commission to Non-Executive Directors of the Company as mentioned in the Resolution. The Board proposes to pay commission to the Non-Executive Directors, at a rate not exceeding 1% of net profits of the Company, for a period of five years w.e.f. FY 2011-12. As per the VG I C.1.2 (i) of the Voluntary Guidelines issued by Ministry of Corporate Affairs in 2009, the total Compensation to NEDs to the Revenues of the company should be less than 0.5% and the Compensation to NEDs to the Net Profits of the company should be less than 1%. Although these guidelines are not mandatory, we recommend shareholders ensure that these limits are adhered to and these amounts are disclosed as a part of the financial statements. Also, the company should decide on the minimum percentage of meetings that a Director should attend before being eligible for any commission. According to VG I C.1.3 (i) of the Voluntary Guidelines issued by Ministry of Corporate Affairs in 2009, the minimum percentage is 75%. However, since all other guidelines have been followed, we recommend shareholders vote FOR the resolution.


Resolution No.9: Amendment to the Articles of Association



(Item no.9) To consider and if thought fit to pass the following Resolution which will be proposed as a Special Resolution: “RESOLVED THAT pursuant to Section 31 and other applicable provisions, if any, of the Companies Act, 1956 (hereinafter referred to as the “Act”) including any statutory modification(s) or re-enactment(s) thereof, the Articles of Association of the Company (hereinafter referred to as the “Articles”), be and are hereby amended in the following manner: 1. In the Interpretation Clause at the end of the existing interpretation of “Dividend” in Article

2, the following shall be inserted: “Financing Documents shall mean the agreements, as amended or restated from time to time, entered into inter alia, by the Company with the lenders and/or the security trustee and/or the facility agent for obtaining financial assistance and loan facilities for the development, design, procurement, ownership, construction, commissioning, operation and maintenance of an aluminum smelter-power plant complex at Bargawan, District- Singrauli, Madhya Pradesh comprising of inter alia 359,000 tonne per annum of Aluminum Smelter having 360 (three hundred and sixty) pots.”

2. After the existing Article 78 of the Articles, the following new Article 78A shall be inserted:

Notwithstanding anything contained in these Articles, the Company and its shareholders/ members: (a) Will cause the Company to comply with the provisions of the Financing Documents; and (b) Shall not take any action that: (i) is inconsistent with, or contravenes, the provisions of the Financing Documents; or (ii) shall prejudice the rights of the lenders under the Financing Documents. Any action taken by the Company and/or its members/shareholders that is inconsistent with, or contravenes, the provisions of the Financing Documents, shall be void ab initio.”

3. The existing Article 127, be and is hereby deleted. InGovern Analysis and Recommendation The Company has executed the Common Rupee Loan Agreement with the consortium of lenders for an amount of Rs. 7,875 Crores to part finance the Mahan Aluminum Green Field


Project. To comply with the provisions of Financing Documents, certain amendments in the Articles of Association are required. The definition of the Financing Documents is added in the Interpretation Section of the Articles and a new Article 78A is proposed to be inserted. Also, since majority of the Directors are Independent Directors, Article 127 regarding holding of qualification shares is proposed to be deleted. The proposed alterations will not affect the interest of the minority shareholders nor will they affect the Company’s financials and operations in an adverse manner. Hence, we recommend shareholders vote FOR the resolution.


Resolution No.10: Increase in Borrowing Limits


InGovern Recommendation : FOR* Text of Resolution(s)

(Item no.10) To consider, and if thought fit, to pass the following Resolution which will be proposed as an Ordinary Resolution: “RESOLVED THAT supplemental to the Resolution passed at the Forty-Sixth Annual General Meeting of the Company held on 12th July, 2005 and pursuant to Section 293(1)(d) of the Companies Act, 1956 (hereinafter referred to as the “Act”) and all other enabling provisions, if any, of the Act and Article 73 & 74 of the Articles of Association of the Company (hereinafter referred to as the “Articles”) consent of the Company be and is hereby granted to the Board of Directors of the Company, to borrow for and on behalf of the Company, from time to time as they may consider fit, any sum or sums of money, in any manner and without prejudice to the generality thereof, by way of loans, advances, credits, acceptance of deposits or otherwise in Indian Rupees or any other foreign currency, from any bank(s) or financial institution(s), other person or persons and whether the same be unsecured or secured, and if secured, whether by way of mortgage, charge, hypothecation, pledge or otherwise in any way whatsoever, on, or in respect of all or any of the Company’s assets and properties including uncalled capital, stock in trade (including raw materials, stores, spares and components in stock or in transit) notwithstanding that the monies so borrowed together with the monies, already borrowed if any by the Company (apart from temporary loans and credits obtained from the Company’s bankers in the ordinary course of business) may exceed the aggregate of the Company’s Paid Up Capital and Free Reserves i.e. reserves not set apart for any specific purpose, provided that the total amount so borrowed by the Directors and outstanding at any time shall not exceed Rs. 20,000 Crores (Rupees Twenty Thousand Crores Only) over and above the aggregate of the Paid Up Capital and Free Reserves”. InGovern Analysis and Recommendation The Company is in requirement of additional funds due to a number of modernization/expansion schemes and green-field projects lined up. For this reason, the Board has proposed to increase the borrowing limits from the present Rs. 10,000 crores over and above the aggregate of Company’s paid-up Capital and Free Reserves, to Rs. 20,000 crores. However we find that the Company has not utilized the full borrowing limit since the past two years. The total loans funds, i.e., secured and unsecured loans of the Company (from standalone basis) were at Rs. 7171.50 crores as at March 31, 2011 and Rs. 6356.90 crores as at March 31, 2010 which are lower than the earlier sanctioned limit of Rs. 10,000 crores. Also, the Company has not disclosed the exact amount of funds it needs for the above mentioned purposes, on basis of which the exact required borrowing limit can be calculated. If the company borrows upto the


proposed limit of Rs. 20,000 crores over and above the aggregate of Company’s paid-up Capital and Free Reserves, its Debt-Equity ratio (from standalone basis) will increase to 0.92:1 from the current 0.24:1. We recommend shareholders raise this concern and ensure that the Board maintains the Debt-Equity ratio at a prudent level in future. However, since other guidelines have been followed, we recommend shareholders vote FOR the resolution.


Resolution No.11: Revision of Remuneration of Mr. D. Bhattacharya as Managing Director


InGovern Recommendation : FOR* Text of Resolution(s) (Item no.11) To consider and if thought fit, to pass the following Resolution which will be proposed as a Special Resolution: “RESOLVED THAT in partial modification of the relevant resolutions passed at the Fiftieth Annual General Meeting held on 18th September, 2009 and pursuant to the provisions of Sections 198, 309, 310, Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956 (hereinafter referred to as the “Act”), including any statutory modification(s) or re-enactment(s) thereof, consent of the Company be and is hereby accorded: 1. To the revision of the Basic Salary from Rs. 50,00,000 (Rupees Fifty Lacs) to Rs. 58,00,000 (Rupees Fifty Eight Lacs) per month; 2. To the revision of the Special Allowance from Rs. 45,00,000 (Rupees Forty Five Lacs) to Rs. 55,00,000 (Rupees Fifty Five Lacs) per month; 3. To the revision of the Annual Performance Bonus linked to achievement of targets from Rs. 5,50,00,000 ( Rupees Five Crores Fifty Lacs ) to Rs. 10,00,00,000 (Rupees Ten Crores) per annum; 4. To the Long Term Incentive Compensation (LTIC) as per the scheme applicable to Senior Executives of the Company and/or its Subsidiaries and/or any other Incentive applicable to Senior Executives of the Aditya Birla Group; as may be decided by the Board of Directors of the Company from time to time for the remainder of tenure of Mr. D. Bhattacharya i.e. upto 1st October, 2013 subject to the limit prescribed in Part II of the Schedule XIII to the Act and subject to the consequential variation or increase in the remuneration due to revision in the terms of his remuneration as aforesaid, the other terms and conditions of his appointment remaining the same, as approved at the Annual General Meeting of the Company held on 18th September 2009. 5. That although considering the provisions of Section 314(1) of the said Act, Mr. D. Bhattacharya would not be holding any office or place of profit by his being a mere director of the Company’s subsidiaries, approval be and is hereby granted to Mr. D. Bhattacharya to accept sitting fees/directors’ fee for attending the meetings of the Board of Directors or committees of such subsidiary companies, wherever he is member and any such payment made to him is ratified.


InGovern Analysis and Recommendation Mr. D. Bhattacharya, aged 62, is the Managing Director of the Company. He was appointed as the Managing Director of the Company in 2003 after the retirement of Mr. A. K. Agarwala as a Whole-time Director. He is on the Board of 4 other public companies in India. He has attended all of the 6 Board meetings held during the year. The Board has proposed to revise his Basic Salary, Special Allowances as well as his Annual Performance Bonus as mentioned in the resolution. The revised Annual Performance Bonus of Rs. 10 crores, being proposed to be paid to him is higher than the existing limit of Rs. 5.50 crores. The Board has also proposed to have the authority to decide the Long Term Incentive Compensation (LTIC) and other Incentives payable to him, from time to time. We recommend shareholders ensure that the Board justifies as to why such a high increment in Performance Bonus is being given and also, discloses the performance criteria on basis of which the exact amount of Performance Bonus and Incentives (LTIC) payable to him will be decided. Also, as Mr. Bhattacharya is on the Board of a few subsidiary companies of the Company, he is entitled to receive sitting fees/directors’ fee for attending the Board/Committee meetings. We recommend shareholders ensure that he is not paid any Salary, apart from Commission and Sitting fees, from any of the subsidiary companies where he is a Director on the Board unless an approval is sought for the same. However, since all other guidelines have been followed, we recommend shareholders vote FOR the resolution.


Resolution No.12: Increase in Number of Shares of ESOS-2006



(Item no.12) To consider and if thought fit, to pass the following Resolutions which will be proposed as Special Resolutions: “RESOLVED THAT in partial modification of the Resolution passed by Postal Ballot dated 23rd January, 2007 approving the proposal for introduction of an Employee Stock Option Scheme-2006 (ESOS- 2006), the total/maximum number of equity shares of Re. 1/- each to be allotted on exercise of rights attached to the options granted under the ESOS-2006 framed by the Company under the authority vested in terms of the aforesaid resolution be enhanced and amended wherever they occur in the aforesaid resolution and the ESOS-2006 from 34,75,000 to 64,75,000, provided all other terms and conditions governing the ESOS-2006 shall remain unchanged, in accordance with the provisions of the ESOS-2006 and Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (SEBI Stock Option Guidelines). RESOLVED FURTHER that pursuant to the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 (hereinafter referred to as the “Act”) read along with the provisions contained in the SEBI Stock Option Guidelines (including any statutory modification(s) or re-enactment(s) thereof, the Articles of Association of the Company and Regulations/Guidelines prescribed by any other relevant authority from time to time to the extent applicable and subject to such other approvals, permissions and sanctions as maybe necessary and subject to such conditions and modifications as may be considered necessary by the Board of Directors of the Company (hereinafter referred to as the “Board” which term shall be deemed to include any Committee constituted or to be constituted by the Board including the Compensation Committee), or as may be prescribed or imposed while granting such approvals, permissions and sanctions, which may be agreed to by the Board in its sole discretion, the consent of the Company be and is hereby accorded to the Board to create, offer, issue and allot at any time, to or for the benefit of such person(s) who are in the permanent employment of the Company in the management cadre, whether working in India or out of India including any Whole-time/Executive Director(s) and also in such permanent employment of the subsidiary company(ies) in the management cadre, whether working in India or out of India including any Whole-time/Executive Director(s) as may be decided solely by the Board under the ESOS-2006, such number of equity shares and/or equity linked instruments including Employees Stock Option (hereinafter referred to as Options) and/ or any other instruments or securities (hereinafter collectively referred to as “Securities”) of the Company which could give rise to the issue of equity shares not exceeding 64,75,000 equity shares of Re.1/- each of the Company, at such price, in such manner, during such period, in one or more


tranches and on such terms and conditions as the Board may decide in accordance with the Regulations or other provisions of law as may be prevailing at the relevant time. FURTHER RESOLVED that the new equity shares to be issued and allotted in the manner aforesaid, shall rank pari passu in all respects with the then existing equity shares of the company (including payment of dividend). RESOLVED FURTHER that for the purpose of creating, offering, issuing, allotting and listing of Securities, the Board be and is hereby authorized on behalf of the Company to do all such acts, deeds, matters and things as it may in its absolute discretion, deem necessary, usual, proper or desirable for such purpose and with liberty to the Board on behalf of the Company to settle any question, difficulty or doubt whatsoever, as may arise with regard to the creation, offering, issuing and allotment of shares without requiring the Board to secure any further consent or approval of the members of the Company. FURTHER RESOLVED that the Board be and is hereby authorized to delegate all or any of its powers to any Committee of Directors of the Company to give effect to the aforesaid Resolution.” InGovern Analysis and Recommendation The Company had introduced Employee Stock Option Scheme-2006 in accordance with SEBI stock option guidelines. The scheme mentioned that maximum number of shares to be issued should not exceed 34,75,000 equity shares of face value Rs. 1 each. The Board has already granted 28,38,649 Options to its eligible employees as per relevant provisions of the scheme. In order to enable the Company to grant further options in future years under the ESOS, the Board proposed to increase the maximum number of shares from 34,75,000 to 64,75,000 and make appropriate amendments to the ESOS-2006 in this regard. The existing Authorized Capital of the Company has adequate provision for allotment of Equity Shares that may be issued pursuant to ESOP. We recommend voting AGAINST any resolution for any stock dilution plan, including issue of ESOPs, if:

There is excessive dilution of existing shareholdings;

Executive directors use this as a means of compensation to reward only themselves;

The pricing of the ESOPs or any stock issue is irrational;

The vesting of the ESOPs is immediate or of a very short timeframe. As at March 31, 2011, there were 1,914,944,163 subscribed and paid-up equity shares of the Company, so introduction of 30,00,000 new shares under this scheme won’t cause any significant dilution (around 0.15% only) to the existing shareholders. Also, the newly introduced shares under this option will be offered to the employees of the Company and its subsidiaries, including the Whole-time Directors which signify that the scheme is not devised to


reward only the Executive Directors. Since all guidelines have been followed, we recommend shareholders vote FOR the resolution.


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