EXPLANATORY STATEMENT
(PURSUANT TO SECTION 102 OF THE COMPANIES ACT, 2013)
The Explanatory Statement pursuant to Section 102 of the Companies Act, 2013 ("the Act"), given hereunder sets out all material facts relating to the special business mentioned at Item Nos. 4 to 8 of the accompanying Notice dated June 5, 2017. As additional information, the Explanatory Statement also contains material facts pertaining to ordinary business mentioned at Item No. 3 of the said Notice:
Item No. 3
This explanatory statement is provided though statutorily not required as per Section 102 of the Act.
Deloitte Haskins & Sells, LLP, Chartered Accountants (ICAI Firm Registration No.117366W/W-100018)("DHS"), had been the Auditors of the Company since FY2006-07 and at the Sixty Ninth Annual General Meeting ("AGM") held on July 31, 2014 the Company appointed DHS as the Auditors of the Company to hold office from the conclusion of the Sixty Ninth AGM till the conclusion of the Seventy Second AGM of the Company to be held in the year 2017, subject to the ratification of their appointment at every AGM by the Members.
As per the provision of Section 139(2) of the Companies Act, 2013 ("the Act") read with Rule 6 of the Companies (Audit and Auditors) Rules, 2014 ("Rules"), no listed company can appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years. Section 139 of the Act has also provided the Companies a period of three years from the date of commencement of the Act i.e. April 1, 2014 to comply with this requirement.
In view of the above, it is proposed to appoint B S R & Co. LLP, Chartered Accountants, (Firm Registration No.101248W/W- 100022) ("BSR"), as the Auditors of the Company for a period of five years commencing from the conclusion of the Seventy Second AGM till the conclusion of the Seventy Seventh AGM to be held in the year 2022, subject to ratification of their appointment at each AGM to be held after the Seventy Second AGM, if so required under the Act.
As per the requirement of the Act, BSR have confirmed that the appointment if made would be within the limits specified under Section 141(3)(g) of the Act and they are not disqualified to be appointed as Auditor in terms of the provisions of Section 139 and 141 of the Act and the Rules.
In view of the above and pursuant to the Rule 3 of the Companies (Audit and Auditors) Rules, 2014, BSR being eligible to act as Auditors of the Company and based on the recommendation of the Audit Committee at its Meeting held on April 18, 2017, the Board recommends the Resolution set forth at Item No. 3 for approval by the Members.
The Company has in place a Policy for pre-approval of services to be rendered by the Auditors across its subsidiaries by the Audit Committee to ensure that the Auditors function in an independent manner. Members' attention is drawn to the details on fees paid to the Auditors for services rendered by them in the Notes forming part of the Financial Statement.
None of the Directors, Key Managerial Personnel or their relatives are concerned or interested, financially or otherwise in the Resolution at Item No. 3 of the Notice.
Item No. 4
In accordance with the past practice of appointing the Tata Sons Limited Chairman as a Director and Chairman of the Company and based on the letter of Tata Sons Limited dated January 13, 2017, the Board of Directors ('the Board') has appointed Mr Natarajan Chandrasekaran as an Additional Director and Chairman of the Company on January 17, 2017. Pursuant to the provisions of Section 161 of the Act, and the rules framed thereunder and the Articles of Association of the Company, Mr Chandrasekaran would cease to hold office at the ensuing AGM but would be eligible for appointment as a Director. Notice under Section 160 of the Act has been received from a Member signifying his intention to propose Mr Chandrasekaran's appointment as a Director.
Mr. Chandrasekaran (aged 54 years) holds a Bachelors' Degree in Applied Science and Masters' degree in Computer Applications from Regional Engineering College, Tamil Nadu. He joined Tata Consultancy Services ("TCS") on January 27, 1987 and was Chief Executive Officer and Managing Director from 2009-17. He has over 30 years of experience in the software industry and business operations. Mr Chandrasekaran rose through the ranks at TCS to become CEO and Managing Director. Under his leadership, the TCS has maintained its industry leadership position and TCS generated total revenues of US$16.5 billion in 2015-16 and consolidated its position as the largest private sector employer in India and the country's most valuable Company. TCS has also been placed among the "Big 4" most valuable IT services brands worldwide, ranked as one of the World's Most Innovative Companies by Forbes and recognized as a Global Top Employer by the Top Employers Institute across 24 countries.
In addition to his professional career at Tata, Mr Chandrasekaran was also appointed as a Director on the Board of India's Central Bank, the Reserve Bank of India in 2016. He has also served as the Chairperson of the Information and Communication Technology Industry Governors at the World Economic Forum, Davos in 2015-16.
Mr Chandrasekaran is recipient of several awards and recognition in business and academics communities. He was awarded as "Business leader of the year" at the ET awards for Corporate Excellence in the year 2016. In 2014-15, he was voted as one of CNBC TV 18 - 'Indian Business Icons', awarded CNN- IBN Indian of the Year 2014 in business category and the "Best CEO for 2014" by Business Today for the second consecutive year. He was also voted as Best CEO 2010-15 by Institutional Investor's Annual All-Asia Executive Team rankings. He was conferred with the Honorary Doctorate by JNTU, Hyderabad, India (2014). He was also conferred with the Honorary Doctorate from Nyenrode Business University, Netherland's top private business school in 2013. Mr. Chandrasekaran has also been conferred honorary degrees by many Indian universities such as the Gitam University, Vishakapatnam, Andhra Pradesh (2013), KIIT University, Bhubaneswar, Odisha (2012) and the SRM University, Chennai, Tamil Nadu (2010).
He joined the Board of Tata Sons Limited in October 2016 and was appointed Chairman in January 2017. Mr Chandrasekaran also chairs the Board of several group operating companies, including Tata Steel, Tata Power, Indian Hotels, and Tata Consultancy Services (TCS). Mr Chandrasekaran is an active member of India’s bilateral business forums including USA, UK, Australia and Japan. He also served as the Chairman of NASSCOM, the apex trade body for IT services firms in India in 2012-13. Brief Information of Mr Chandrasekaran is given in the Annexure attached to the Notice.
Mr Chandrasekaran is eligible to be appointed as a Director in terms of Section 164 of the Act. A declaration to this effect and his consent to act as Director has been received from Mr Chandrasekaran. Mr Chandrasekaran, once appointed, will be liable to retire by rotation and will be subject to Tata Group Policy on Retirement of Directors adopted by the Company. The Board considers it desirable that the Company should continue to avail of the services of Mr Chandrasekaran and accordingly commends the Resolution at Item No. 4 for approval by the Members.
Mr Chandrasekaran is not related to any other Director of the Company. Except for Mr Chandrasekaran no other Director, Key Managerial Personnel or their relatives are concerned or interested in Item No. 4 of the Notice.
Item No. 5
The Board of Directors ("the Board"), based on recommendation of Nomination and Remuneration Committee ("NRC"), have appointed Mr Om Prakash Bhatt as an Additional Director as also an Independent Director of the Company on May 9, 2017.
Mr Bhatt has given his declaration to the Board that he meets the criteria of independence as provided under Section 149(6) of the Act and is eligible to be appointed as an Independent Director in terms of Section 164 of the Act. He has also given his consent to act as Director.Mr Bhatt (aged 66 years) is a graduate in Science and a post graduate in English Literature. He has served as Chairman, State Bank Group, which includes State Bank of India (SBI), India's largest commercial bank; five associate banks in India; five overseas banks; SBI Life, the country's largest private life insurer; SBI Capital Markets, India's leading investment bank; SBI Fund Management; and other subsidiaries spanning diverse activities, from general insurance to custodial services. Mr. Bhatt led SBI during challenging times. Under his leadership, SBI rose on the global list rankings of Fortune 500. He was also Chairman of Indian Banks' Association, the apex body of Indian banks and has served as India's economic diplomacy as government's nominee on the India-US CEO Forum, Indo-French CEO Forum and Indo-Russia CEO Forum, forging links with a cross section of the world's business leaders. He was nominated Banker of the Year by Business Standard and Indian of the Year for Business in 2007 by CNN-IBN.
In the opinion of the Board, Mr Bhatt, fulfills the conditions specified in the Act and the Rules made thereunder for appointment as Independent Director and he is independent of the management.
The terms and conditions of appointment of Independent Director shall be open for inspection by the Members at the Registered Office of the Company on all working days, except Saturdays, during business hours upto the date of the Meeting.
The Board considers it desirable that the Company should continue to avail of the services of Mr Bhatt and accordingly commends the Resolution at Item No. 5 for approval by the Members.
Mr Bhatt is not related to any other Director of the Company. Except for Mr Bhatt not other Director, Key Managerial Personnel or their relatives are concerned or interested in Item No. 5 of the Notice.
Item No. 6
The Members at the 71st Annual General Meeting held on Tuesday, August 9, 2016 had vide Special Resolution No. 8 approved the appointment of Mr Satish Borwankar, Executive Director (Quality) of the Company for a period commencing from July 1, 2016 to July 15, 2017, including the terms of remuneration payable to him.
Based on the recommendation of the NRC, the Board of Directors at its Meeting held on May 31, 2017 approved of the re-appointment of Mr Borwankar as Executive Director and designated him as Chief Operating Officer and extended his term of Executive Directorship for a period of two years i.e. from July 16, 2017 to July 15, 2019, subject to shareholders approval. In view of his past performance in his role as Executive Director (Quality) the Board of Directors have enhanced his role by designating him as the Executive Director and Chief Operating Officer and will now be accountable to ensure an end to end view on the entire operations of the Company, focusing on quality improvement, supply chain performance, cost reduction and management of new product launches. This would enable the Company to unleash its sales potential and successfully manage the turnaround plan which is so critical to the Company's growth and sustainability. The proposed remuneration payable to Mr Borwankar during his extended tenure of 2 years is similar in all respects to the approval by the shareholders as mentioned above, except for the increase in salary scale from Rs. 7,00,000/- per month to Rs. 8,00,000/- per month to enable the Company to increase salary annually with an increment limited to 20% of the Basic Salary as per the approved terms.
Considering the various business cycles wherein the Company may have a situation of inadequate profits as calculated under the provisions of Section 198 of the Act in any financial year during a period of 2 years w.e.f. July 16, 2017, the approval for the payment of remuneration being sought would include the payment of minimum remuneration as per the terms stated in the Resolution No. 6 of the Notice.
Pursuant to the provisions of Section 197 of the Act, the remuneration payable to any one managing director or whole time director shall not exceed 5% of its profits as calculated under Section 198 of the Act and if there is more than one such director then the remuneration to them shall not exceed 10% of such profits. In case of loss or inadequacy of profits as per Section 198 of the Act, a company may pay remuneration within the limits prescribed under Schedule V of the Act based on its effective capital, subject to shareholders' approval vide Special Resolution which would be valid for a period of 3 years. Further, any sums paid in excess of the statutory limits become refundable to the Company and is held in trust for the Company by the said director, unless the Company waives the recovery of the said amount by way of a Special Resolution passed by the members and such waiver is approved by the Central Government.
The Company recorded a net profit of Rs. 7,556.56 crores on a consolidated basis and recorded a loss of Rs. 2,479.99 crores on a standalone basis for the financial year ended March 31, 2017. Further, as per the provisions of Section 198 of the Act, the Company on a standalone basis, had a loss of Rs. 2,564.03 crores for the said financial year. Whilst the Company has taken several initiatives to turnaround and improve its performance in FY2017-18, it may be likely that the Company may have a scenario wherein there are inadequacy of profits under the said provisions of the Act in any of the financial years during the 2 years' period from the date of his re-appointment. As a matter of abundant caution Members' approval is being sought for payment of minimum remuneration as defined in the said Resolution. For details pertaining to the reasons for losses in its Standalone Financial statement for FY2016-17 and steps taken to improve the performance of the Company, please refer to Point Nos.
1 and 2 of Item III on 'Other Information' in the Statement containing Additional Information as required under Schedule V of the Act provided below.
Based on the Company's Effective Capital of Rs. 14,253.13 crores as at March 31, 2017, the Company is permitted to pay, on an individual basis, the Executive Director a maximum remuneration of Rs. 5.20 crores for FY 2017-18 in case if the Company has inadequate profits in the financial year. The Executive Directors' remuneration would be within the said limits in case of no/inadequacy of profits during their said tenure.