WTM/SR/CFD/13/03/2017. Case: In Re: Bombay Rayon Fashions Limited Vs. Securities and Exchange Board of India
| Case Number | WTM/SR/CFD/13/03/2017 |
| Judges | S. Raman, Whole Time Member |
| Issue | Securities And Exchange Board Of India Act, 1992 - Sections 11(1), 11(2)(j), 11(4), 11B, 19; Securities Contracts Regulation Act, 1956 - Sections 12A, 21 |
| Judgement Date | March 09, 2017 |
| Court | Securities and Exchange Board of India |
Order:
S. Raman, Whole Time Member
Background -
1.1 Bombay Rayon Fashions Limited ("Bombay Rayon") is a company incorporated under the Companies Act, 1956, on May 21, 1992. The Registered Office of Bombay Rayon is at D-1st Floor, Oberoi Garden Estates, Chandivali Farms Road, Chandivali, Andheri (East), Mumbai-400072. The shares of Bombay Rayon are listed on BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE").
1.2 Vide letter dated November 8, 2012, SEBI directed the CEO/Managing Director alongwith Company Secretary/Compliance Officer of Bombay Rayon to ensure adherence with the requirement of minimum public shareholding of 25%, in listed companies. The aforesaid letter inter alia stated -
1. "... Ministry of Finance vide Notifications dated June 4, 2010 and August 9, 2010, amended the Securities Contracts (Regulation) Rules, 1957 ("SCRR") to provide for minimum and continuous public shareholding requirements in listed companies. This was done with a view that a dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices.
2. Accordingly, all listed companies (other than PSUs) shall have minimum 25% public shareholding and whose public shareholding is less than 25%, shall raise the same to the minimum by June 3, 2013.
3. Under Clause 40A of the Listing Agreement, SEBI has specified the following methods which listed companies can avail to achieve the said minimum public shareholding:
i. Issuance of shares to public through prospectus;
ii. Offer for sale of shares held by Promoters to public through prospectus;
iii. Sale of shares held by Promoters through the secondary market i.e. OFS through Stock Exchange;
iv. Institutional Placement Programme (IPP);
v. Rights Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their rights entitlement;
vi. Bonus Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their bonus entitlement;
vii. Any other method as may be approved by SEBI on a case-to-case basis."
1.3 Vide letters dated January 21, 2013 and May 31, 2013, Bombay Rayon replied to the SEBI letter dated November 8, 2012, inter alia stating the following -
"... The current shareholding of the Promoters and Non-Promoters in the Company is as under:
The company intended to increase the public shareholding to 25% in order to comply with the amendment to Rule 19A(1) of the SCRR pursuant to the Government notification dated June 04, 2010 whereby listed companies are required to maintain a public shareholding of at least 25%.
......
"We hereby assure you that the Company shall comply with the requirement of MPS by June 03, 2013."
Ad-Interim Ex Parte Order dated June 4, 2013 -
1.4 Vide an Order dated June 4, 2013 ("Interim Order"), SEBI issued the following directions against Bombay Rayon, which on the basis of details furnished by NSE and BSE, was found to have failed to meet the minimum public shareholding requirement by June 3, 2013 [Refer to point 2 of paragraph 1.2], -
17. "Hence, in exercise of the powers conferred upon me by virtue of Section 19 and under Sections 11(1), 11(2)(j), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") read with Section 12A of Securities Contracts (Regulation) Act, 1956 ("SCRA"), pending passing of the final order in these cases, I hereby:
a. Direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc. with respect to the excess of proportionate promoter/promoter group shareholding in the above mentioned non - compliant companies, till such time these companies comply with minimum public shareholding requirement.
i. For the purpose of above direction, proportionate promoter/promoter group shareholding shall be computed on the basis of the public shareholding in the company; e.g. if public shareholding in a company after the deadline is less than 25%, say 10%, in such case, the proportionate promoter shareholding would be 30% (i.e. three times the existing public shareholding). Thus the excess promoter/promoter group holding i.e. 60%, shall be frozen till the minimum public shareholding requirement is complied with.
ii. In case of more than one entity in the promoter/promoter group in a company, the excess promoter holding for the purpose of taking action shall be computed on a proportionate basis. For illustrating the example above, if there are three promoters; A, B and C with shareholdings of 45%, 35% and 10% respectively; the excess promoter holding of 60% shall be allocated as follows:
1. A: (60% multiplied by [45%/45%+35%+10%]) = 30.00%
2. B: (60% multiplied by [35%/45%+35%+10%]) = 23.33%
3. C: (60% multiplied by [10%/45%+35%+10%]) = 06.67%
Total = 60.00%
b. Prohibit the promoter/promoter group and directors of these non - compliant companies from buying, selling or otherwise dealing in securities of their respective companies, either directly or indirectly, in any manner whatsoever, except for the purpose of complying with minimum public shareholding requirement till such time these companies comply with the minimum public shareholding requirement.
c. Restrain the shareholders forming part of the promoter/promoter group in the non - complaint companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement.
d. Restrain the directors of non - compliant companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement.
18. This order is without prejudice to the right of SEBI to take any other action, including the following against the non - compliant companies, their promoters and/or directors or issuing such directions in accordance with law:
a. Levying monetary penalty under adjudication proceedings;
b. Initiating criminal proceedings by way of prosecution proceedings;
c. Moving the scrip to trade - to - trade segment;
d. Excluding the scrip from F&O segment;
e. Any other action/direction as may be deemed appropriate.
19. The Board/Audit Committee of these non - compliant companies shall, at the end of each quarter, submit compliance report to the stock exchanges where the shares of company are listed, giving the extent to which compliance has been achieved and the efforts taken therefor....
20. The entities/persons against whom this Order is being passed may file their replies, if any, within 21 days from the date of this Order. The entities mentioned herein may also, if they so desire, indicate in their replies whether they wish to avail of the opportunity of personal hearing before SEBI on a date and time to be fixed on a specific request.
21. For the purpose of paragraph 18 above, this Order shall be treated as show cause notice."
Confirmatory Order dated December 11, 2015 -
1.5 Pursuant to the Interim Order dated June 4, 2013, Bombay Rayon filed its reply vide letter dated June 24, 2013, inter alia stating:
a. "The Company vide its letter dated May 31, 2013, had intimated SEBI about the steps taken by it for achieving the requirements of minimum public shareholding of 25%.
b. The Company had made constant endeavours to ensure compliance with the minimum public shareholding norms, inter alia through offer for sale route.
c. It is confident about achieving the requirement of minimum public shareholding by July 2013."
1.6 Thereafter, SEBI received a letter dated January 13, 2014, from the State Bank of India, Industrial Finance Branch ("SBI"), stating the following -
"We would like to bring to your kind attention that Bombay Rayon has been facing financial stress resulting in delay in servicing its debt obligations. Consequently, the debt facilities of Bombay Rayon were restructured by Lenders numbering 24 Banks under the CDR mechanism and we, State Bank of India, have been appointed as the Monitoring Institution for the same. The Final CDR Package for Bombay Rayon was approved by the CDR Empowered Group ("CDR - EG") and the Letter of Approval (LOA) was issued by the CDR Cell on 27th September, 2013.
In accordance with the CDR Guidelines, the pledge of the following shares has been stipulated as part of the CDR package in the LOA:
* 17,00,000 equity shares held by Ms. Vinita Agarwal - currently exclusively charged to SBI.
* 40,00,000 shares owned by Reynolds Shirting Ltd. currently exclusively charged to SBI.
* 17,50,000 shares owned by B.R. Machine Tools Pvt. Ltd. - currently exclusively charged to Axis Bank.
* Pledge of 97,24,207 unencumbered shares of Bombay Rayon owned by the Indian Promoters.
We would like to state that the present Promoter/Promoter Group shareholding in the Company is 92.27%. As per Rule 19(2)(b) and Rule 19(A) of SCRR amended in 2010, at least 25% of each class or kind of equity shares or debentures convertible into equity shares issued by a listed company should be held publicly. Hence, the maximum permissible shareholding for the Promoter/Promoter Group is 75%. Due to financial distress, the Company has been unable to comply with the stated guidelines despite sustained efforts. We understand that due to the non - adherence, the Company is barred from pledging...
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