Shareholders of Godfrey Phillips India have rejected the company's proposal for a related party transaction to annually export unmanufactured tobacco worth up to Rs 1,000 crore to Philip Morris Products SA.
Philip Morris Products SA is a member entity of the group to which Philip Morris Global Brands Inc, USA -- a promoter shareholder of the company.
As many as 57.94 per cent of the shareholders present at Godfrey Phillips India's annual general meeting on September 1 voted against the "material related party transaction between the company and Philip Morris Products SA".
The proposal was to continue supplying unmanufactured tobacco to Philip Morris Products SA on an arm's length pricing and non-exclusive basis, subject to the condition that the aggregate value of the sale/export of the unmanufactured tobacco is up to Rs 1,000 crore in a financial year.
The resolution was supported by only 42.06 per cent of the total votes polled in the AGM.
An ordinary resolution is passed by a simple majority. However, it received less than the required number of the total votes polled, hence, it was rejected, according to a Scrutinizer's Report shared by the company to the bourses last week.
For the quarter ending June 2023, Philip Morris Global Brands Inc, which owns cigarette brands including - Marlboro, Benson & Hedges - has 25.10 per cent of the equity share of Godfrey Phillips India.
The approval was sought by Godfrey Phillips India following Regulation 23 of the market regulator Sebi's Listing Regulations, which mandates that if any transaction with a related party during a financial year exceeds Rs 1,000 crore or 10 per cent of the annual consolidated turnover as per the last audited financial statements, requires prior approval of the members by an ordinary resolution.
According to Godfrey Phillips India, in the previous years, it has been carrying out the sale/export of unmanufactured tobacco to Philip Morris Products S.A.
"However, the projected value of transactions during the current financial year is expected to breach the materiality threshold as prescribed under SEBI Listing Regulations and hence, the approval of the Members is being sought," it said.
The agreement provides for automatic renewal for a successive one-year period unless either party provides to the other party written notice of the non-renewal of the agreement.
The said proposal was opposed by proxy advisory firm IiAS, which had recommended voting against the proposal. It said the transactions are operational in nature, in the ordinary course of business and will be carried out at arm’s length.
"However, we note that the approval does not have a fixed tenure – the agreement between the two companies will be automatically renewed every year. We are unable to support the resolution as the resolution is valid in perpetuity. We believe shareholders must get a chance to periodically review such transactions," it had said.
The proxy advisory firm had also advised the shareholders to vote against two other resolutions such as - reappointing Nirmala Bagri as an Independent Director and appointment of Ajay Vohra as a Non-Executive Independent - for five years.
However, both resolutions were approved by Godfrey Phillips India's shareholders.
Godfrey Phillips India is the flagship company of Modi Enterprises. It makes popular cigarette brands like Four Square, Red and White, Cavanders, Tipper and North Pole.
It also manufactures and distributes brand Marlboro under a license agreement with Philip Morris. It has also expanded its business interests in confectionary and retail and operates 24Seven.