Proxy advisory urges ITC shareholders not to ratify auditors’ re-appointment

Proxy advisory Stakeholders Empowerment Services (SES) has asked shareholders of ITC Ltd to vote against the company’s proposal to ratify the appointment of Deloitte Haskins & Sells as statutory auditors for FY16-17. The proposal will be put to vote at the company’s annual general meeting on July 22.

SES believes that ITC’s appointment of Deloitte for a five-year term in 2014 violated The Companies Act 2013, which caps the number of years that auditors of the same “auditor network” can be appointed to a company.

Kolkata-headquartered ITC, which has five lines of business — FMCG, Hotels, Paperboards and Speciality Papers, Packaging, Agri-business and IT — features in the bellwether S&P BSE Sensex. It has a market capitalisation of ₹2.03 lakh crore.

In a report, SES said, “Prior to the appointment of Deloitte Haskins & Sells, AF Ferguson & Co were the Statutory Auditors of the company for 14 years.

“Deloitte Haskins & Sells and AF Ferguson & Co are members of Deloitte Touche Tohmatsu Group.” This gives the “auditor network” a combined tenure of 21 years as statutory auditors of ITC, SES added.

The proxy advisory firm said ITC appointed Deloitte Haskins & Sells as statutory auditors for a five-year term in 2014, but this appointment itself was invalid because, according to Section 139(2) of the Act, any auditor who has had a tenure of 10 years or more as on April 1, 2014 cannot be re-appointed for more than three years.

As the appointment itself is invalid, the ratification proposed at the AGM should be voted down as well, the advisory said. SES had flagged this concern about the invalidity of the auditor’s appointment before last year’s AGM as well.

An official spokesperson for ITC responded to BusinessLine’s query on this saying, “Deloitte Haskins & Sells, chartered accountants, the auditors of the company since 2009-10, were appointed at the 103rd AGM as the auditors of the company, to hold such office for a period of five years till the conclusion of the 108th annual general meeting, following due processes laid down in statute. Messrs Deloitte Haskins & Sells have provided to the company their certificate of eligibility for such appointment which was taken on record prior to the audit committee and the board of directors recommending their appointment to the shareholders.”

The SES report has also questioned the autonomy of five of the eight independent directors on ITC’s board — Sunil Mathur, P Ramanujam, SH Rehman, Anil Baijal and M Shankar. 

Sunil Mathur and P Ramanujam have been associated with ITC for more than 10 years, while all named above except M Shankar hold equity of over ₹1 crore in ITC, SES found. “While legally they may still be classified as independent,” the report said, “SES believes that the directors have lost their independence on ethical grounds.”

To this, the company spokesperson said, “All independent directors of the company have been appointed with the approval of the shareholders, following due processes laid down in the statute. Independent directors have also provided confirmations to the company that they meet the criteria of ‘Independence’ as prescribed under the Companies Act, 2013, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.”

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