Mumbai Hindustan Unilever Ltd (HUL) has approached the National Company Law Tribunal (NCLT) to seek approval for a plan to transfer more than Rs2,100 crore from general reserve to profit and loss (P&L) account, said two people familiar with the development.
The maker of consumer staples such as Surf Excel detergent powder and Dove soap, decided to transfer Rs2,187.33 crore from its general reserve to its P&L account in January 2016. Shareholders approved the move in a court-convened meeting in June 2016.
However, the plan is stuck as the regional director of the ministry of corporate affairs, as well as the Registrar of Companies, whose permissions are required to transfer the funds into the P&L account, are yet to clear it. To enable the transfer, the company has approached the tribunal to seek its approval.
“Both RD and RoC have submitted their separate replies in the scheme matter filed by the Hindustan Unilever,” one of the people cited above said, requesting anonymity. “We are waiting for the hearing and it’s for the tribunal to decide whether to approve the company scheme or not.”
A spokesperson for Hindustan Unilever confirmed that it has approached the tribunal. “The scheme is currently pending for sanction by the NCLT. Since the matter is pending with the tribunal, we will be unable to comment on the merits of the matter,” the spokesperson added.
The company, in a written response to Mint’s queries, further said that after the implementation of the scheme, the money will be returned to shareholders. “The company has built up significant reserves over the years through the transfer of profits to the general reserves pursuant to the provisions of the erstwhile Companies Act, 1956,” the spokesperson said.
“Given HUL’s strong financial position and track record of cash generation, the funds represented by such accumulated general reserves is seen to be in excess of the company’s current and anticipated needs,” the spokesperson said.
“In view of this and to uphold good corporate governance, HUL had proposed a scheme between the company and its shareholders to give effect to the proposed transfer and its subsequent payout. The scheme, besides being shareholder friendly, will also drive the efficiency of the company’s balance sheet,” the spokesperson added.
Emailed queries to the ministry of corporate affairs, its regional director for the western region and the Registrar of Companies remained unanswered till press time.
Paras Savla, a partner at audit and consulting firm KPB and Associates, said that unlike under the old Companies Act, it is not mandatory for the company to transfer part of the profits to the general reserves prior to the declaration of dividend under the Companies Act of 2013. Hence it seems that there is no need to maintain the general reserve for the purpose of dividend distribution.
Hindustan Unilever reported a net profit of Rs4,490 crore on a revenue of Rs34,487 crore in the year ended 31 March 2017.