Order in respect of Bagalkot Udyog Limited

WTM/PS/72/CFD/OCT/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under sections 11(1), 11(2)(j), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with section 12A of the Securities Contracts (Regulation) Act, 1956 in the matter of non-compliance with the requirement of minimum public shareholding by listed companies In respect of Bagalkot Udyog Limited

Date of personal hearing: July 13, 2015 Appearance: For Bagalkot Udyog Limited: (1) Mr. Sureshkumar A. Sharma, Director and (2) Mr. Pramod Sharma, Director. For SEBI: (1) Dr. Anitha Anoop, Deputy General Manager, (2) Mr. T. Vinay Rajneesh, Assistant General Manager and (3) Rohan Vijay, Assistant Manager.

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") had passed an interim Order dated June 04, 2013 (hereinafter referred to as "the interim order ") with respect to 105 listed companies who did not comply with the Minimum Public Shareholding ("MPS") norms as stipulated under rules 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as "SCRR") within the due date i.e., June 03, 2013. The interim order was passed without prejudice to the right of SEBI to take any other action, against the non-compliant companies, their promoters and/or directors or issuing such directions in accordance with law. The interim order was to be treated as a show cause notice by those companies for action contemplated in paragraph 18 thereof.

2. Bagalkot Udyog Limited (hereinafter referred to as “the Company”) is one such company against whom the interim order was passed. The equity shares of the Company are listed on the Bombay Stock Exchange Limited (“BSE”).

3. The Company was afforded an opportunity of personal hearing on July 03, 2015 and July 13, 2015. In the personal hearing held on July 13, 2015, the Company was represented by its directors, M/s. Suresh Sharma and Pramod Sharma, who stated that the Company had filed its reply dated July

01, 2015 and requested that the same be considered. The following are the submissions of the Company made in its reply dated July 01, 2015:

(a) Mr. Ajay Kanoria is the promoter and member of the promoter group in terms of latest disclosure made by the Company under clause 35 of the Listing Agreement. (b) The promoter and promoter group of the Company holds 64,88,392 fully paid up equity shares having face value of Re.1/- each comprising 76.25% of the paid-up equity capital of the Company. (c) A Rehabilitation Scheme for the Company was sanctioned by the Hon’ble Board for Industrial and Financial Reconstruction (BIFR), vide Order dated September 20, 2007 in Case No. 28/2000. By reason of the demerger of the Cement Division under the Scheme, the original equity shares of Rs.8,50,84,060 representing 85,08,406 numbers of paid-up equity shares of Rs.10/- each were de-rated by 90% to bring the same in consonance with the remaining assets of the Company. As a result, the equity share capital of the Company reduced to Rs.85,08,406/- representing 85,08,406 fully paid-up equity shares having face value of Re.1/-each. (d) In consideration of the demerged cement division, the shareholders of the Company were issued one equity share of paid-up value of Rs.10/- each of the resulting/transferee company (i.e. Bagalkot Cement & Industries Limited) to every 100 equity shares of Rs.10/- each held by the shareholders of the Company. (e) The shareholding of the promoter and promoter group in the Company was and continued to be 76.25% of its paid-up share capital. The public shareholding remained below the minimum public shareholding of 25%. (f) To avoid being non-compliant with the MPS requirements and the listing agreement with BSE, the Company filed M.A. No. 517 dated October 01, 2013 before the Hon’ble BIFR seeking permission to delist its equity shares from the BSE in terms of section 18(5) & (9) of the Sick Industrial Companies (Special Provisions) Act, 1985 (“the SICA”). The M.A. was allowed and the Order was passed on December 23, 2013 by the Hon’ble BIFR permitting the Company to delist its shares from the BSE. This Order is exempt in terms of regulation 3(2) of the SEBI (Delisting of Equity Shares) Regulations, 2009 (“the Delisting Regulations”) from the application of the Delisting Regulations. (g) The BIFR vide its Order dated December 23, 2013 has apart from permitting the promoters of the Company to delist its shares from the BSE, further observed:

“As a consequence of delisting of the equity shares of the sick company M/s. Bagalkot Udyog Limited, SEBI to withdraw its Order dated 04.06.2013 and SEBI is restrained from adjudicating or taking action on the show cause notice issued under the said order against the company/the promoters of the company or the Director (including independent directors, if any) of the company, with immediate effect.” (h) The Company requested SEBI to drop the SCN issued vide the interim order. (i) With respect to its implementation of the BIFR Order, the Company submitted that – 1. It sent a letter dated April 25, 2014 to the BSE informing them of the BIFR Order and that it would soon initiate the delisting procedure and exit option. 2. Vide another letter dated June 30, 2014, it has requested BSE to inform the documents which were required for filing before, during and after the delisting and exit option. 3. In response to BSE’s e-mail informing the documents that were required and advise to share the process the Company would be following for delisting the equity shares, the Company vide letter dated July 25, 2014 submitted the details of the proposed activity which were planned by it/its promoters. 4. BSE, vide e-mail dated September 17, 2014, asked the Company to pay delisting fees of Rs.15 lakh plus service tax of 12.36%. As the Company is a sick company and had no source of income or assets, the Company, vide letter dated November 08, 2014, requested for waiver of the delisting fees. However, BSE had not responded in writing regarding the waiver of fees. (j) According to the Company, the above action on its part showed its genuine efforts to go-ahead with the delisting and exit option to the shareholders of the Company pursuant to the BIFR Order. (k) In view of the Order of the BIFR, the Company requested SEBI to withdraw the SCN.

The representatives also reiterated the above submissions during the personal hearing.

4. I have considered the interim order as passed against the Company, the submissions of the Company made vide reply dated July 01, 2015 and the oral submissions made during the personal hearing. As per the interim order, the Company is a ‘suspended company’ and non-compliant with the MPS norms. The Company has stated that the Hon’ble BIFR has allowed it to delist its equity shares. In this regard, I have perused the Order dated December 23, 2013 passed by the Hon’ble BIFR. The relevant portion of the said Order is reproduced below:

“27.22 ………………… The Bench therefore sanctioned the Modified Scheme, hereafter called as Modified Sanctioned Scheme (MSS-13), in exercise of the powers conferred on it under section 18(5) read with section 18(9) of SICA, 1985, for the rehabilitation of the Company. The Modified Sanctioned Scheme shall come into force with immediate effect with the following amendments to be incorporated in the MDRS:- ……………… (iii) In view of the observation made by the Bench at para-27.21 above, the promoters of the sick company (M/s Bagalkot Udyog Ltd) is permitted to delist its shares from the BSE and further directs deletion of the requirement of listing of the equity shares on the BSE of the Resulting Company (M/s Bagalkot Cement & Industries Limited) with proper Exit Option to purchase the existing public holding of equity shares of both the Companies by their respective promoters at the face values. Accordingly, clauses 10(e) a n d (f) of SS-07 are to be modified to read as under: (i) Clause 10(e): To delist the shares of BUL from BSE after giving an exit option to the shareholders of BUL at face value by the promoters of the company. (ii) Clause 10(f): BCIL’s promoters to give an exit option to the shareholders of BCIL at face value. (iv) As a consequence of delisting of the equity shares of the sick company M/s Bagalkot Udyog Ltd, SEBI to withdraw its Order dated 04.06.2013, and SEBI is restrained from adjudicating or taking action on the show cause notice issued under the said order against the company / the promoters of the company or the Director (including independent directors, if any) of the company, with immediate effect. (v) Accordingly, MA No.517/ 2013 filed by the company stand disposed off.”

5. I note that Hon’ble BIFR has allowed the Company to delist from BSE and has also exempted Bagalkot Cement & Industries Limited (the resultant company i.e. demerged entity) from the requirement of listing its equity shares with proper exit option to purchase the existing public holding of equity shares of both the companies by their respective promoters. The Hon’ble BIFR has also observed that till then, SEBI shall not take any coercive action against the sick company (i.e. Bagalkot Udyog Limited), its promoters and directors. The clauses of the Sanctioned Scheme were accordingly directed to be modified as mentioned in the Order of the Hon’ble BIFR as reproduced above. The Hon’ble BIFR has also observed “As a consequence of delisting of the equity shares of the sick company M/s Bagalkot Udyog Ltd, SEBI to withdraw its Order dated 04.06.2013, and SEBI is restrained from adjudicating or taking action on the show cause notice issued under the said order against the company / the promoters of the company or the Director (including independent directors, if any) of the company, with immediate effect.” I note that in terms of section 32 of the SICA, the provisions of the said Act, rules or schemes made there under shall have overriding effect on other laws. SEBI Act is not a statute exempted from the applicability of section 32 of the SICA. Further, in terms of section 32 of the SEBI Act, the provisions of the SEBI

Act shall be in addition to, and not in derogation of the provisions of any other law for the time being in force.

6. Accordingly, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(2)(j), 11(4) and 11B thereof and section 12A of the Securities Contracts (Regulation) Act, 1956, hereby issue the following directions:

(i) In terms of the Order dated December 23, 2013 passed by the Hon’ble BIFR, the interim order dated June 04, 2013 passed by SEBI in respect of the Company would stand withdrawn immediately (without the need for passing of any separate order) after the equity shares of the Company are delisted from BSE. In the meanwhile, SEBI shall not take any coercive action including action, as contemplated under paragraph 18 of the interim order, against the Company, its promoters and promoter group and directors. (ii) The interim order or the directions issued thereunder shall not cause any hindrance to the delisting process, if any, initiated or to be initiated by the Company/its promoters in terms of the BIFR Order.

7. Copy of this Order shall be served on the stock exchanges and depositories for their information and necessary action.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: October 19th, 2015 Place: Mumbai