Hindustan Zinc Limited (“Com pany “) is a company incorporated under the provisions of the Companies Act, 1956. The Company is engaged in exploring, extracting and processing of minerals. The Company’s operations include five zinc-lead mines, four zinc smelters, one lead smelter, one zinc-lead smelter, eight sulphuric acid plants, one silver refinery plant, six captive thermal power plants and four captive solar plants in the state of Rajasthan. In addition, the Company also has a rock phosphate mine in Matoon, near Udaipur in Rajasthan and zinc, lead, silver processing and refining facilities in the state of Uttarakhand. The Company also has wind power plants in the states of Rajasthan, Gujarat, Karnataka, Tamil Nadu and Maharashtra and solar power plants in the state of Rajasthan. The equity shares of the Company are listed on the Stock Exchanges viz. BSE Limited and National Stock Exchange of India Limited.
Current structure of the Company is as under:
The management of the Company, through this scheme has proposed the transfer of an amount of INR 1,03,83,15,26,729 standing to the credit of the General Reserves, as appearing in books of accounts of the Company as on the Appointed Date, to the credit of the Retained Earnings of the Company for the previous financial years.
The Company has already provided for the depreciation for the purposes of calculating the transferrable amount to the retained earnings.
Restructuring of the group can be depicted as under:
Key features of the above transactions:
Key features | Transaction: Re-organisation of Reserves |
Appointed Date | Date of filling of certified copy of approving authority being NCLT with ROC |
Effective Date | Date of filling of certified copy of approving authority being NCLT with ROC |
Jurisdictional Authority(ies) | National Company Law Tribunal, Jaipur Bench Registrar of Companies – Jaipur Regional Director – Jaipur |
Consideration | No consideration shall be discharged by the Company for reorganization of the reserve of the Company |
Accounting Treatment | In the books of the Company – debit General Reserve account against the credit to Retained Earnings account |
Taxation | No adverse tax implications |
There would be no change in the shareholding pattern of the company pre and post scheme.
Resultant structure post approval of the Scheme is as under:
Purpose of reserve reorganizations:
- Over the years, the Company has built up significant reserves through transfer of profits to the reserves in accordance with the provisions of the erstwhile Companies Act, 1956 and erstwhile rules notified thereunder, namely, the Companies (Transfer of Profits to Reserves) Rules, 1975. Companies Act 2013 does not mandate a company to transfer fixed percentage to the general reserve and same is at the discretion of the management of the company.
- Steady growth in sales volume, balanced capital expenditure for continuing operations has helped the Company achieve a strong track record of generating cash flows. With healthy business practices in place, the Company expects that it will continue its growth trajectory and its business operations will keep generating incremental cash flow over the coming years.
- The Company is of the view that the funds represented by the General Reserves are in excess of the Company’ s anticipated operational and business needs in the foreseeable future, thus, these excess funds can be utilized to create further shareholders’ value, in such manner and to such extent, as the Board of the Company in its sole discretion, may decide, from time to time and in accordance with the provisions of the Act and other Applicable Law.
Commercial considerations:
- Considering there is no capital outflow for reorganization of reserve of the company, no adverse tax implication would be levied. Also, there are no accumulated reserves in the books of the Company, there is no adverse tax liability on the Company and no further compliance in relation to same.
- Further, post the Scheme, Company would be able to distribute profits to the shareholders out of retained earnings thereby increasing focus from the investors from long term investment perspective.
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