Nestle India Rejects Royalty Hike, Stays at 4.5%

New Delhi, Jun 12 (PTI) FMCG major Nestle India on Wednesday said it will continue to pay royalty to its parent firm at the existing rate of 4.5 per cent of net sales after its proposal to hike it was rejected by shareholders.

The company's board at its meeting approved continuation of payment of general licence fees (royalty) at the existing rate of 4.5 per cent to Société des Produits Nestlé S.A. (licensor) and recommended to the members of the company for their approval, Nestle India said in a statement.

In April this year, Nestle India's board had approved increasing royalty payment to its parent firm by 0.15 per cent per year for the next five years, thereby enhancing it to 5.25 per cent of net sales.

It had proposed to implement the increase from July 1, 2024. Subsequently, it had sought approval from its shareholders as an ordinary resolution through a postal ballot.

However, the shareholders rejected the proposal last month with 57.18 per cent of the total votes against the ordinary resolution and 42.82 per cent of the votes in favour.

The ordinary resolution was not passed due to lack of requisite majority of votes in favour of the resolution. Only the independent directors voted and executive directors recused.

"The board...on the recommendation of the audit committee...approved continuation of payment of general licence fees (royalty) by the company to Société des Produits Nestlé SA .. at current rate of 4.5 per cent, net of taxes, of net sales of the products sold by the company as per the terms and conditions of the existing general licence agreements with the licensor…,” Nestle India said in a regulatory filing.

Further, the same has been recommended for approval of the members of the company by way of an ordinary resolution at the 65th AGM, it added.

“Following high standards of corporate governance, including shareholder rights, the aforesaid approval of members shall be sought by the company every five years in compliance with the applicable laws and regulations,” the company added.

Besides, the board approved appointment of Sidharth Kumar Birla as an Independent Non-Executive Director of the company.

Birla's appointment is with effect from June 12, 2024 for a term of five years.