Order in respect of Bhilai Engineering Corporation Limited[SAT Appeal No.:410/2018]

WTM/PS/120/CFD/DEC/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 Bhilai Engineering Corporation Limited Date of Hearing: July 08, 2015 Appearances: For Noticee: Mr. Narayan Parekh, Company Secretary Mr. Sanjay Shringarpure, Company Secretary For SEBI: Dr. Anitha Anoop, Deputy General Manager, Mr. Pradeep Kumar, Assistant General Manager, Mr. 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. In terms of the said rule, listed companies are statutorily mandated to have a minimum of 25% shareholding by the public. 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. Bhilai Engineering Corporation 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 (hereinafter referred to as ‘BSE’), Calcutta Stock Exchange Limited and on the erstwhile Madhya Pradesh Stock Exchange Limited. The scrip of the Company is suspended for trading at BSE.

3. The Company vide its letter dated June 26, 2013, submitted that the Company wishes to opt for delisting and requested for the procedure to be complied with. Thereafter, in the interest of justice, the Company was afforded an opportunity of personal hearing on July 09, 2014, however, the same was deferred due to certain administrative exigencies. Later the Company vide its letter dated August 11, 2014, submitted as under: a. The Company is engaged in the business of acquiring and executing turnkey contracts, building contracts, manufacturing of mechanical engineering equipment for heavy industries, manufacturing of chemical fertilizer, processing of agro based products and generation of power through wind mills. b. The Company had come out with public issue in the year 1983. Thereafter, the shares of the Company were listed on BSE, Calcutta Stock Exchange Limited and Madhya Pradesh Stock Exchange Limited. The total issued, subscribed and paid up capital of the Company is ₹4,71,93,200 divided into 47,19,320 equity shares of ₹10 each. The shareholding pattern of the Company is as under: Particulars No. of shares %age No. of shareholders Promoters 47,11,430 99.83 33 Public 7,890 0.17 5 47,19,320 100.00 38 c. The trading in the shares of the Company was suspended at BSE due to non-compliance of the listing agreement, with effect from October 01, 2002 and the same is still continuing. There is no trading in the shares of the Company on the remaining two stock exchanges. d. Out of the total number of public shareholders (i.e. 5), two (2) shareholders (holding 7,649 equity shares) are identified and the remaining three (3) shareholders (holding balance 241 equity shares) are not identifiable/ untraceable. The Company is in the process of tracing these three (3) public shareholders.

e. The methods provided to enable the companies to become MPS compliant are not feasible to it as its shares were suspended since 2002 and there were no takers/ buyers for its shares due to the adverse capital market conditions. Further, as the promoters and the promoter group of the Company had the intention to delist the shares of the Company from the stock exchange, off-loading/ selling shares to the public through prospectus/ offer for sale or by way of any other method would have complicated the issue and the desired results would not have been achieved. The rights/ bonus issues to the public shareholders was also not practicable and viable. f. In view of the same, delisting of the shares of the Company from all the stock exchanges is the only practicable and viable route available to the Company. The promoters and promoter group of the Company wish to delist the shares of the Company, however, due to the restriction imposed by the interim order, the Company could not proceed further in the matter. g. Considering the total public shareholders i.e. 5, the case of the Company falls under Chapter VII (i.e. Special Provision for Small Companies and Delisting by Operation of Law) of the SEBI (Delisting of Equity Shares) Regulations, 2009 and it will not have to follow the procedure mentioned in Chapter IV of the SEBI (Delisting of Equity Shares) Regulations, 2009.

The Company vide this letter requested for six (6) months’ time for carrying out the delisting process. The Company further submitted that it will attempt to pass the special resolution for voluntary delisting. It also said that in case the Company is not successful in passing the ‘Special Resolution’ then it may be permitted to proceed further on the basis of the Board Resolution passed by the Board of Directors of the Company.

4. Another opportunity of personal hearing was granted to the Company on July 01, 2015 which was later rescheduled for July 08, 2015. In the said hearing, Mr. Narayan Parekh and Mr. Sanjay Shringarpure (both Company Secretaries) appeared as authorised representatives of the Company for the personal hearing and made oral submissions. The representatives also requested liberty to file the written submissions. The Company vide its letter dated July 10, 2015, filed the written submissions, which were taken on record.

5. Vide letter dated July 10, 2015, the Company while reiterating its willingness for voluntary delisting, inter alia submitted as under: a. Delisting of the shares of the Company from all the stock exchanges is the only practicable and viable route available to the Company. b. By acquiring the 7,649 shares from the two shareholders out of total five shareholders, the shareholding of the promoters will be 99.99% of the total shareholding. c. The shares remaining with the three shareholders who are not identified/ untraceable are only 241 shares. The Company vide the said letter requested for six months’ time for carrying out the delisting procedure and permission for the promoters to purchase the shares of the public shareholders.

6. I have considered the interim order passed in the matter against the Company, its promoters and directors, the submissions made by the Company vide its replies, the oral submissions made during the personal hearing and the material available on record. The interim order was issued against the Company as it was non-compliant with the provisions of Rule 19A of the SCRR and Clause 40A of the Listing Agreement read with Section 21 of the Securities Contract (Regulation) Act, 1956 (‘SCRA’), by not maintaining atleast the minimum level (of 25%) of public shareholding as of June 03, 2013. As per the filing of the shareholding pattern of the Company for the quarter ended March 2015, as seen in the BSE website, the promoters held 99.83% and the public shareholders held 0.17%. The filing of the shareholding pattern of the Company for the quarter ended June 2015, shows that the shareholding of the promoter and promoter group has increased to 100% and the public shareholding has reduced to nil. The Company has not submitted any disclosures in this respect. However, from a perusal of the shareholding pattern for the respective quarters, it appears that the public shareholders have been reclassified in the promoter category.

From the above, it can be seen that the Company was non-compliant with the MPS requirements at the time of passing of the interim order and such non-compliance continues till date.

7. The Company in its reply/ communication and in the personal hearing had stated that it proposed to delist its equity shares from the BSE and other stock exchanges where its scrip is listed. I note that the Company had informed SEBI about this proposal on June 26, 2013. Thereafter, the Company has reiterated the same vide its letter dated August 11, 2014 and July 10, 2015 and submitted that the Company’s promoters have desired to acquire the shares (i.e. 0.17% of the total equity) held by the public shareholders and to delist the shares of the Company. The Company proposed to delist the shares of the Company, in terms of Chapter VII of the Delisting Regulations.

8. As regards the submissions of the Company regarding ‘delisting’, I note that the Company has not taken any step towards the delisting prior to June 04, 2013. I also note that the Company has not fixed any timelines for the purposes of completing the delisting process. In view of the same, the submission of the Company regarding delisting of its shares does not warrant any consideration as the same does not appear to be a serious proposal. Further, the fact that the public shareholding has reduced to nil in the quarter ended June 2015, suggest that the Company has no plans of complying with the MPS requirements.

9. In view of the non-compliance by the Company with the MPS requirements, till date, in the breach of Rule 19A of the SCRR and Clause 40A of the Listing Agreement read with Section 21 of the SCRA, such non-compliance being continuous in nature and also the fact that the Company has failed to take concrete steps towards the proposed delisting, it becomes necessary for SEBI, for the proper regulation of the securities market, to confirm the directions issued against the Company, its directors and promoters/ promoter group. Further, considering the non-compliance by the Company with the MPS norms and also the fact that such violations are being continued by them, SEBI may also initiate other action, as appropriate in law, against the Company, its directors and promoters.

10. 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 confirm the directions issued vide the interim order dated June 04, 2013 against Bhilai Engineering Corporation Limited.

11. This Order shall remain in force till further directions.

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

Date: December 29th, 2015 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA