REPORT ON ITC LIMITED

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Introduction

ITC was founded in the year 1910 with the name Imperial Tobacco Company of India
Limited succeeding W.D & H.O. Wills. At that time it was a British owned company, which
was steadily converted into an Indian company and later changed its name to India Tobacco
Company Limited in 1970. Today the company’s name is ITC Limited without any full form
attached to it. The registered office of the company is in Kolkata, West Bengal.

The vision of the company is “to create growing value for the Indian economy and
stakeholders of the company by giving world-class performance.”(ITC, 2018)

The mission is “to enhance wealth generating capability of the enterprise in globalizing
environment, delivering superior and sustainable stakeholder value.”(ITC, 2018)

Yogesh
Deveshwar
(Chairman)

Sanjiv Puri
(CEO & MD)

Nakul Anand Rajiv Tandon

(Executive (CFO & Executive
Director) Director)
(ITC, 2018)

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ITC Limited is a company that has been successful despite having diversified product mix.
The sectors that ITC deals with are FMCG goods, Tobacco, Personal Care, Education &
Stationery products, Lifestyle, Matchsticks and joss sticks, Hotel industry, Agriculture,
Printing and many others. The reason behind success of the company is that the company has
never compromised on their quality. The company has taken care of ISO quality certification,
Hazard Analysis Critical Control Points methodology and Product Quality Ratings Systems’
for assuring that customers get the desired quality. ITC has also focused on Research and
Development where they have a department called ITC Life Sciences and Technology Centre
that does research towards the area of Agriculture Science and Biosciences. ITC is amongst
the first few companies to publish Sustainability in compliance.

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Subsidiaries of ITC are:

Major Subsidiaries
ITC Infotech, Surya Nepal Pvt. Ltd., Land base India Ltd., Russell Credit Limited, Srinivasa
Resorts Limited, Fortune Park Hotels Limited, and Welcome Hotels Lanka Limited.

Other Subsidiaries
ITC Hotels, ITC Paperboards and Specialty Paper Division, Park Hyatt Goa Resort & Spa,
Bay Islands Hotels Limited, Technico Pty Limited, BFIL Finance Ltd, North East Nutrients
Pvt. Limited, Balan Natural Food Pvt. Ltd. and many more.

Operational Joint Ventures

 Maharaja Heritage Resorts Limited
 ITC Essentra Limited

Listed Associate Companies

 Gujarat Hotels Limited
 International Travel House Limited

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Corporate Social Responsibility

Philosophy

“ITC believes that the performance of a company has to be measured by its contribution to
building economic, social and environmental capital towards boosting societal
sustainability.”(ITC, 2018)

Implementation

ITC’S CSR programs are implemented through the following:

 Company personnel
 External Implementing Agencies
 ITC Education Trust
 ITC Rural Development Trust
 ITC Sangeet Research Academy
 ITC Bhadrachalam Education Trust
 Tribeni Tissues Education Society
 and other Trusts, Foundations and Section 8 companies that may be established by
the company from time to time

The Social Investments Program of ITC

The Social Investments Program of ITC has recognized the following stakeholder groups:

1. Rural groups in the company’s working areas face huge challenges in ensuring the
sustainability of their farming systems.
2. Communities near their production units who need sustainable solutions for additional
income opportunities.
3. State and Central governments who persuade Public-Private-People Partnerships.

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Major Initiatives by ITC

 For greater awareness and acceptance of sustainability amongst corporates, ITC

has joined hands with the Confederation of Indian Industry and launched CII-ITC
Centre of Excellence for Sustainable Development in 2006. The Centre has been
taking various initiatives to transform Indian business by creating awareness,
building capacity and giving thought leadership.

 ITC’s Watershed development for soil & moisture conservation programme

covers 14 states across the country, covers over 9,32,800 acres, benefiting
2,94,100 households.

 ITC’S Agro Forestry Programme combined with Afforestation Programme covers

more than 6,87,800 acres of land. These programmes have also helped fight the
issue of unemployment by providing over 125 million person-days of
employment. The plantations made by these programmes have helped sequester
more than 5400 KT of CO2 in 2016-17 which has helped ITC’S carbon positive
status over the last 13 years.

 E-Choupals are a network of village internet kiosks that enable farmers who are
de-linked from the formal market, to access real time information regarding the
weather and price and gain knowledge that can boost farm productivity and
quality and help manage risk. E-Choupal by ITC is the largest initiative, since
2000. They are present across 10 states through 6100 kiosks and reach to more
than 4 million farmers in more than 35000 villages.

 ITC’s livestock development initiative targets marginal households and gives

services such as artificial insemination, animal feed and healthcare management to
increase the productivity of their animals and improve milk quality.

 ITC’s Women’s Empowerment Initiative is targeted towards women from

economically weaker sections of rural area and aims to create sustainable

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 livelihoods through micro-enterprises or assistance with loans to pursue income
generating activities.

 ITC’s Primary Education Programme aims at strengthening government primary

schools by increasing enrollments, improving learning outcomes, providing age-
appropriate infrastructural facilities and encouraging sanitation and hygiene.

 ITC’s skill and vocational training initiative focuses on the most marginalised
sections of communities. They aim to make the potential job seekers employable
by teaching them market relevant skills in sectors such as hospitality, automotive,
electrical, computer, construction, tailoring, beautician and bedside nursing.

 To combat the issue of open defecation, ITC’s Health & Sanitation Programme
supports building and usage of low-cost family-owned toilets in the rural areas.

 ITC’s Well-being out of Waste (WOW) programme in line with the `Swachh
Bharat’ campaign aims to create awareness among general public about the
“Reduce-Reuse-Recycle” approach.(ITC, 2018)

(ITC, 2018)

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(ITC, 2018)

(ITC, 2018)

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Ethical Practices:

India Tobacco Company Limited (ITC Limited) has framed its policies of code ethics and
business conduct under the frame of Regulation 17 (5) (a) of SEBI Regulation, 2015 which is
applicable to all the board of directors, senior management personnel’s and employees of the
company.

ITC Ltd. mentioned in its Preamble of Code of Conduct that it is mainly derived from three
rudimentarily interlinked characteristics: (1) Good corporate governance, (2) Good corporate
citizenship and (3) Exemplary personal conduct. The main value that lies under corporate
philosophy of ITC Ltd. is the “trusteeship”. ITC Ltd. believes that the company has been
given to them on the trust of the stakeholders making it a responsibility for the company to
ensure that there is protections of rights and interests of shareholders. With taking care of
shareholders, ITC Ltd. is also a good corporate citizenship. It considers the society as a
stakeholder in the company.

Corporate Governance Policy: ITC has framed certain policies of Corporate Governance
which clearly defines the duties and authorities of directors, senior management and
employees who have to strictly adhere to all the policies made by the company.

Good Corporate Citizenship: ITC ensures that good corporate citizenship is the prerequisite
while following the code of conduct. It includes some of the main topics like:
 Dealing with people in the organization
 Gender-Friendly Workplace
 To maintain good relationships with Suppliers and Customers.
 Legal Compliance
 Health and Safety
 Sustainable Environment Policies.

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Personal Conduct: ITC ensures that the director, senior management and the employees are
ethical, honest and loyal to their work and are not following the means of fair dealing
(avoiding unfair practices like manipulation of prices). They need to act in the means of
interest of the Company and prefer the things which is constructive to the company. They
mainly focus on adhering to these policies:

 Avoidance of Conflict of Interest amongst employees

 Transparency and Accountability in the company
 Confidentiality of information
 Protection and Proper use of Company’s Assets
 Sustainable use of company facilities
 The directors and senior management should lead by an example

Waivers and Non-adherence of Policies: Any waiver or non-adherence of provision of this

Code of Conduct should be brought in attention of the immediate reporting authority, as
appropriate.

Duties of Independent Directors: At ITC Ltd., the Independent Directors have to abide by
the following duties as per the Schedule IV of the Companies Act, 2013 and also
modifications made to them subsequently which were incorporated in accordance with the
Clause 49. Some of the duties are:

 Attending all the general meetings of the company, attend all the meetings by Board
of Directors and Board Committees in which he is a member.

 Should be regularly informed about the activities taking place regularly in the
company whether it be relation to internal environment or external environment.

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Whistle-blower policy: The Whistle-blower policy is made in order that it invigorates the
directors and the employees to raise voice towards the unethical practices, fraud or violation
of company’s code of conduct which may affect the company’s operations, profitability and
reputation. From this policy, their main motive is to create an environment where employees
feel secure to report such events to their immediate authority.

ITC Ltd. also looks at some of the other ethical practices when looking at a perspective other
than from management are:

 Sustainability Policies
 Information Technology E-waste Policies
 Food Products Policies
 Policy on Related Party Transactions.

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Corporate Governance Rules and Regulations

According to ITC, Corporate Governance means the way a company should work to enhance
wealth maximization. It also believes that stakeholders should be satisfied.

ITC’s corporate governance includes the freedom of management to do business with certain
responsibilities and accountability. The fundamental pillars of ITC’s governance are
trusteeship, transparency, control, accountability, ethics and empowerment.

ITC has a 3-tiered board and each board is assigned with a responsibility

A) Board of Directors - Strategic Supervision

B) Executive Management - Strategic Management
C) Executive Management - Strategic Business Unit

Board Members
The board at ITC comprises of 4 executive and 9 independent directors. These independent
directors are professionals. The non-executive directors are not more than 1/3rd of the total.
The strength should be 5-18 directors. The directors are appointed/reappointed for 3-5 years
with the consent of the shareholders, 1/3rd of the directors retire through rotation.

Board Meetings
They have to meet atleast 6 times a year. The gap between two meetings should not be more
than 4 months (Clause 49). Usually they conduct meetings at the beginning of the year.
Crucial as well as non-crucial matters have to be presented in the meetings. These include
audit reports, risk management practices, safety issues, succession of senior managers, show
cause, demand, court proceedings, defaults/overdrafts, product liability, disposals etc.

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Other Committees

1. Audit Committee

Includes 6 non-executive directors. Its main functions are: -

• Ensuring efficiency and effectiveness of all operations.

• Preserving assets and providing for liabilities.
• Disclosing necessary and reliable information.

2. Remuneration Committee
It includes 5 non-executive directors. Its main functions are: -

• Recommendations on the compensation of the board of directors and senior level

management.

• Administering the Employee Stock Exchange Schemes.

3. Investors Grievance Committee

It includes 5 non-executive directors. Its main function are: -

• It is responsible for redressing the grievances of shareholders and other investors.

• It takes care of sub division, transfer/allotment of shares, duplication of share certificates
and others.

4. Corporate Management Committee

It includes all the executive directors as well as 6 members from the senior management. Its
main functions are: -

• Taking care of the company’s strategic management.

• Obtaining the board’s approval for the same.

5. Sustainability Committee
It includes the chairman and 5 non-executive directors. Its main functions are: -

• To integrate environmental strategies with business objectives.

• To monitor the strategic policies of the company in compliance with sustainability.

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Clause 49

• It includes ITC’s commitment to sustainable development, health, safe environment,

gender equality, workplace transparency, audibility, legal compliance etc.

• The financial reports are published in the newspapers and the company’s website.
• Unqualified financial statements are presented in meetings.
• Directors are explained all business-related matters, risk and procedures, new initiatives,
changes in the global economy, political environment etc.

• The whistleblower policy is such that every employee can bring any type of unethical
behaviour to the notice of the authority and this is conveyed to the head of corporate human
resources.

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ITC – Violation of Ethical Code of Conduct (FERA Violation Case)

Most of ITC’s legal troubles were connected by its association with the US based Suresh and
Devang Chitalia (Chitalias). ITC started the “Bukhara” chain of restaurants in the US, jointly
with its subsidiary ITC International and some NRI doctors. But the venture incurred huge
losses and to keep its commitment of 25% return, ITC sought the asylum of the Chitalias
which came to be known as the “Bukhara deal”. As compensation for making good the above
losses, the Chitalia took over the “Bukhara” and $4 million dollars transferred and routed
through various shell and bogus companies established in US, Switzerland and Germany.

Being one of the largest exporters in India, ITC started exporting rice to Sri Lanka after the
exports to West Asia broke down due to the Gulf War. But ITC was forced to import the rice
back to India as the Colombo Parliament didn’t accept the poor quality and rotting rice. Such
an import was against the provisions of FERA. This wasn’t the only dubious transaction
which ITC entered into. After the Bukhara incident, ITC had setup many shell (bogus)
companies with the help of Chitalias. Using these companies and artificial hiking of import
prices and swindling of excess funds, over invoicing of export orders and compensating the
difference through the Chitalias, ITC was involved in a major number of money laundering
deals with the Chitalias which ITC Global (the company funding the over invoicing of
exports) ultimately couldn’t fund.

Later during the mid-1990s, the Chitalias turned against ITC and approached British
American Tobacco (BAT), the former parent company of ITC complaining of the debts. BAT
appointed Lovelock and Lewes to probe into the financial irregularities at ITC. They
confirmed the charges against ITC together with the role of the Chitalias in the losses and
misappropriations.

In response, the Chitalias filed a lawsuit against ITC in the US Judicial System to recover its
dues and alleged ITC of using them to float shell companies to route exports and exposed
ITC in the “Bukhara deal”.

After a thorough investigation and numerous raids, ITC was found violating the FERA in the
following instances –

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 1. Payment to non-resident shareholders in case of certain settlements without the
permission of RBI (violation of Section 8(1) and 9(1)(a) of FERA)
2. Under-invoicing of exports of $1.35 million (violation of Section 16(1)(b) and 18(2))
3. Unauthorised transfer of funds of $0.5 million outside India by suppressing facts
regarding tobacco deal (violation of Section 48)
4. Counter trade premium of $0.2 million amounting between 3 and 4 % of total
business of $1.3 billion (violation of Section 8(1))
5. Debts of $25 million due to over invoicing coffee and cashew exports during 1992-93
to the Chitalias (violation of Section 9(1)(c) and Section 26(6))

Amongst the battle of suits and counter-claims between ITC and the Chitalias in the US and
Singapore, the Chitalias approached the Indian Government to act as approvers against ITC
in the FERA violations in exchange of being granted immunity from prosecution in India. A
few directors and senior executives at ITC followed Chitalias suit and agreed to disclose
sensitive information related to the FERA case in exchange of immunity. The Government of
India granted them immunity under section 360 of the Indian Criminal Procedure Act. ITC
Global was directed by the Singapore High Court to repay its debt of over $49 million and
ITC’s support was also sought.

As a result, ITC got entangled in a mess due to “Gross Mismanagement at the Corporate
Level”. Industrialists agreed that poor Corporate Governance practices at ITC led to this
problem. The nominees of the Financial Investors and BAT never actively participated in the
company’s affairs, giving the ITC nominees a free reign. A few others were of the opinion
that the overly complex legal system of India and archaic acts like FERA were also to be
blamed for the ITC fiasco.

Aftermath –

ITC took drastic steps in the board meeting held on November 15, 1996. It inducted three
independent, non-executive directors on the board and appointed an interim management
committee. It repealed the powers of the existing Committee of Directors. A chief vigilance
officer reporting independently to the board was appointed. The management and Corporate
Governance practices were restructured in 1997.

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However, in 1997, all the persons serving the ITC’s board during 1991-94 including the
nominees of the Financial Investors and BAT were issued show cause notices in connection
with the FERA violations. These notices were related to the Bukhara restaurant deal and the
irregularities in ITC’s deals with ITC Global.

The suits in the US courts fell in favor of ITC against the Chitalias. The Chitalias extended a
deal for settlement where the Chitalias accepted the judgement in exchange of ITC dropping
some of its objections against the Chitalias.

ITC violated yet another FERA section by extending help to ITC Global to deal with the debt
of $49 million as it failed to take the prior permission of RBI before entering into such a
foreign exchange transaction. ITC responded to the show cause notice and created
contingency funds.

After a troubled decade during the mid-90s, the company was successful in maintaining
leadership in its core business through superior value and international competitiveness in
quality and cost due to its reformed Corporate Governance practices. (MBAKnol, 2018)

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Ethical Dilemmas –

ITC’s main business has been the manufacture and sale of Tobacco products, namely
cigarettes. It has been noticed by many industry analysts that ITC may not be sustainable as
the product is detrimental to human health. This has been a major concern in the past for ITC
stakeholders on whether the business should be continued as cigarettes is one of the premier
product lines of ITC.

The Government of India has also come under the scanner for its stake in tobacco companies
including ITC through insurance companies like LIC and UTI when a PIL was filed under the
Bombay HC for the same.(Sukumar, 2018) LIC has since justified the investments saying
that it’s a routine investment decision made in order to improve the policyholders’ returns.
(Phadnis, 2017)

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Our perspective about the company’s ethical and governance practices.

ITC has many subsidiaries and associate companies under its realm, parent company being
BAT. ITC is dealing in various segments starting from the tobacco industry to the hotel
industry, and therefore is dealing with various stakeholders. ITC has fulfilled all its Social
responsibilities but at the same time it has violated some serious laws such of RBI, FERA and
also put the stakeholders in jeopardy –which at the first place should not have happened if
effective corporate governance would have been implemented. The primary reason of such
in-effective corporate management is because of independent acts regardless of BAT and
other associate companies.

We feel that corporate governance should be such that, it should keep the stakeholders first
before taking any decision, and to some extent. The ITC has not been entirely successful in
that feat.

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References and Bibliography
ITC. (2018). ITCPORTAL. Retrieved from https://www.itcportal.com/about-
itc/values/vision-mission.aspx
ITC. (2018). Retrieved from https://www.itcportal.com/sustainability/index.aspx
MBAKnol. (2018). Retrieved from https://www.mbaknol.com/management-case-
studies/case-study-fera-violations-by-itc/
Sukumar, R. (2018). Retrieved from
https://www.hindustantimes.com/columns/should-the-government-have-a-
stake-in-tobacco-companies/story-KDzdVLdm1xblQlThv28QcI.html
Phadnis, A. (2017). Retrieved from https://www.business-
standard.com/article/companies/investment-in-itc-in-interest-of-public-
welfare-says-lic-117062301076_1.html

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