Order in respect of Golkonda Engineering Enterprises Limited

WTM/PS/130/CFD/JAN/2016 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 Golkonda Engineering Enterprises Limited Date of Hearing: July 08, 2015 Appearances: For Noticee: Mr. Balveer Singh Choudhary, Chartered Accountant. 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. Golkonda Engineering Enterprises 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 October 22, 2013, replied to the interim order and submitted that there is discrepancy in the figures relating to the number of shares and promoters shareholding of the Company. Vide this letter, the Company also submitted as under: a. The Company is following up with the BSE for rectification of the discrepancy. b. At the time of Initial Public Offering (hereinafter referred to as ‘IPO’) the Company had issued 4,95,070 shares out of which the public shareholding was 29,920 shares i.e. 6.04%. But there was discrepancy in the record of BSE wherein the issued capital was shown as 49,50,000 shares and the public shareholding was shown as 30,00,000 shares i.e. 60.60%. c. One of the lenders to the Company, had granted financial assistance to it subject to the condition that debt equity ratio should be improved. Therefore, unsecured loan was taken by the Company from one of the promoters’ viz. Surana Udyog. The same was converted into equity and shares were allotted on preferential basis to Surana Udyog to the tune of 32,50,000 shares of ₹10/- each amount to ₹3.25 crore. d. The Company had made an application to BSE to list the above shares allotted through preferential allotment, however, BSE rejected the proposal vide its letter dated August 13, 2012. e. Due to the said reasons, the Company was not able to comply with Clause 40A of the Listing Agreement. The Company is in the process of receiving listing approval for 32,50,000 equity shares from BSE shortly. On receipt of such approval, the Company would be able to comply with the Clause 40A of the Listing Agreement by following any of the prescribed methods.

4. The Company vide its letter dated September 15, 2014, submitted as under: a. The Company has decided to cancel 32,50,000 shares allotted to the promoter/ promoter group on preferential basis and has made substantial progress in this regard. The Company has also filed a scheme of arrangement (‘scheme’) for cancellation of the said 32,50,000 shares with the Hon’ble High Court of Judicature of Hyderabad on July 08, 2014. b. The Hon’ble High Court had directed that a meeting of equity shareholders of the Company be convened for the purpose of considering and approving the proposed scheme. In compliance with the order of Hon’ble High Court, the meeting of the equity shareholders was held on September 06, 2014 and the scheme was approved by the shareholders with requisite majority. c. On completion of the scheme for cancellation, the public shareholding of the Company will be 48.03%, which will be in compliance with the extant requirements of MPS.

The Company vide the said letter also submitted that the Company will update SEBI as to when the scheme is approved by the Hon’ble High Court.

5. An opportunity of personal hearing was granted to the Company on July 01, 2015, which was later rescheduled to July 08, 2015. On the date fixed Mr. Balveer Choudhary, Chartered Accountant appeared on behalf of the Company and made oral submissions in the lines of the letter dated September 15, 2014.

6. 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 promoters hold 89.63% and the public holds only 10.37%. The Company is therefore in violation of the MPS requirements.

7. I note the submission of the Company that there are certain discrepancies in the records of BSE relating to the number of shares and promoters’ shareholding of the Company. It has been submitted by the Company that at the time of IPO, the Company had issued 4,95,070 shares out which 29,920 shares i.e. 6.04% were allotted to the public. As per the records of BSE, the promoters’ shareholding in December

2002 was 4,65,150 and the public shareholding was 4,29,920. The same is apparently contradictory to the submissions of the Company. In view of the discrepancy in figures and in the absence of any other cogent source of information, I am proceeding with the shareholding pattern as submitted by the Company.

8. It is noted that the Company had issued 32,50,000 equity shares on preferential basis to the promoters and the same were admittedly not listed on BSE due to the non-receipt of listing approval. The Company vide its letter dated September 15, 2014, has submitted that it has decided to cancel the said 32,50,000 shares allotted to the promoter/ promoter group on preferential basis and a scheme in this regard has been filed with the Hon’ble High Court of Judicature of Hyderabad on July 08, 2014. It has also been said that as per the directions of the Hon’ble High Court, a meeting of the equity shareholders was held on September 06, 2014 and the scheme of cancellation was approved with requisite majority. However, it is clear that for the purposes of Clause 40A of the Listing Agreement and rules 19(2)(b) and 19A, the said 32,50,000 shares do not exist.

9. Considering the facts and circumstances of the case, it is clear that the public shareholding continues to be at 6.04% as per the Company’s own admissions and 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.

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 the Company, Golkonda Engineering Enterprises Limited, its directors, promoters and promoter group.

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: January 08, 2016 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA