Order in respect of Gandhidham Spinning and Manufacturing Company Limited

WTM/PS/103/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 Gandhidham Spinning and Manufacturing Company Limited Date of Hearing: July 08, 2015 Appearances: For Noticee: Mr. P. M. Jain, Mr. Sandeep Jain, Mr. Anand Rawal. 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. 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. Gandhidham Spinning and Manufacturing Company 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’). The scrip of the Company is suspended for trading.

3. The Company vide its letter dated June 21, 2013, replied to the interim order. Before proceeding further, an opportunity of personal hearing was afforded to the Company on July 10, 2014. However, the same was deferred due to certain administrative exigencies. Thereafter, another opportunity of personal hearing was granted to the Company on July 01, 2015, which was later rescheduled to July 08, 2015. In the hearing, Mr. P. M. Jain, Mr. Sandeep Jain and Mr. Anand Rawal appeared on behalf of the Company and made oral submissions. The representatives also submitted the written submissions which were taken on record.

4. The submission of the Company, in brief, were as under: a. The Company was incorporated on December 21, 1962, for the purposes of providing employment to migrants and development of the Kutch area, post partition. The Company set up a spinning unit. b. The Company could not achieve the targeted production which had resulted in higher cost of production for most of its years of operation. Therefore, the operations of the Company had remained unviable for a long period. Consequently, meeting day-to-day expenditure was made impossible. c. The present promoters of the Company had acquired the previous promoter holding in the year 2003-2004. The acquisition was through tendering and highest bidders were allowed to take over the Company through transfer of holdings. Upon getting news of acquisition, certain old workers of the Company became active and caused negativity. The same coupled with the ongoing Court cases desisted the present promoters’ to consider any proposal in the Company. The promoters’ then planned projects at an alternate site with the name and style of ‘Strands Textile Mills Pvt. Limited’ in Kandla SEZ. d. During the period of closure and transfer, the Company was referred to BIFR.

However, the scheme failed to restart the operations of the Company. As most of the assets of the Company have now become obsolete, revival of the mill is not possible and the Company is not been able to re-start the operations. Further, the promoters’ do not have an immediate project plan in the Company. e. The promoters now hold 33,11,360 shares amounting to 98.82% and 39,640 shares amounting to 1.82% is the public shareholding in the Company. The Company is suspended w.e.f. April 26, 1999 and there has been no trading in the shares of Company since 15 years. The shares of the Company are still in physical mode and the Company has no major source of income, except some rentals. There are no permanent employee on the rolls of the Company. The Company does not have any complaint from its existing shareholders despite regularly being sent the annual reports. f. At the time of acquisition, the present promoters had floated an open offer (i.e. in November 2003) to buy the shares from the existing shareholders. However, only 2 applications of 25,050 shares were received. Out of these two, one application for 25,000 was from New India Assurance Co. Limited.

The same shows that the open offer had received very poor response from the shareholders. The majority of the shareholders are either non-existent at the address available or must have died (as the shares were allotted 50 years back). g. The public shareholders in the Company are only 0.45%. The Company in order to check the status of the shareholders had decided to send the annual report for the year 2014, through registered post with acknowledgment due. The same revealed that 50% of the public shareholders are not traceable and the annual report forwarded to these through the registered post were returned. h. Due to the eroded networth of the Company and poor financial health, the available methods for MPS compliance would not generate any public interest. i. The Company vide its letter dated June 21, 2013, had wished to delist. However, vide submissions made on July 08, 2015, the Company requested exemption from meeting the listing requirement of minimum 25% public shareholding.

5. While proceeding further, I have considered the interim order passed in the matter against the Company, its promoters and directors. The interim order was issued against the Company as it had failed to maintain the MPS of 25% as mandated under Rule 19A of the SCRR and Clause 40A of the Listing Agreement read with section 21 of the Securities Contract (Regulation) Act, 1956 (‘SCRA’). As per the shareholding pattern of the Company for the quarter ended September 2015, as seen in the BSE website, the promoter hold 98.82% and the public holds only 1.18%. The Company is therefore in violation of the MPS requirements.

6. I note that the Company has not taken any steps towards the compliance with the MPS norms due to various reasons as stated in its submissions dated June 21, 2013 and written submissions filed on July 08, 2015. Considering the facts and circumstances of the case, it is clear that the Company has not complied with the MPS requirements till date in breach of Rule 19A of the SCRR and Clause 40 A of the Listing Agreement read with Section 21 of the SCRA, and such non-compliance being continuous in nature, it becomes necessary for SEBI, to confirm the directions issued vide the interim order against the Company, its directors and promoters/ promoter group. Further, for proper regulation of the securities market and in view of the continuing nature of the violations committed by the Company, SEBI may also initiate other action, as appropriate in law, against the Company, its directors and promoters.

7. 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 the Company, Gandhidham Spinning and Manufacturing Company Limited, its directors, promoters and promoter group.

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

9. Copy of this Order shall be served on the Stock Exchanges and Depositories for their information and necessary action.

Date: December 10, 2015 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA