Independent Directors raise red flag on royalty payments to Foreign Parent Company

Holcim™s plan to charge two per cent of revenues as royalty from subsidiaries ACC and Ambuja Cement has hit a roadblock, as independent directors of Ambuja Cement have sought details of the technology transfer involved. The proposal was taken up by the board at its quarterly-results meeting last week but a decision was postponed till an independent consultant gave its report.

Holcim, which owns close to 50 per cent stake in both ACC and Ambuja Cement, has proposed to raise the royalty for technology transfer from 0.5 per cent of revenues to two per cent. If implemented, the payout from Ambuja Cement and ACC would be ~500 crore a year.

However, Holcim™s higher royalty plan failed to pass muster at the Ambuja Cement board meeting, as independent directors led by veteran corporate lawyer M L Bhakta and economist Omkar Goswami asked for more details on the exact nature of the technology being transferred by Holcim to its subsidiary.

As a majority of these (royalty payments) are related-party transactions and need proper justification, it was recommended by the Independent Directors that such payouts be subject to shareholder voting requiring special resolution. There is no legal bar on paying royalty to foreign parent companies.

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