Order in respect of Herman Milkfoods Limited

WTM/PS/139/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 Herman Milkfoods Limited

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. Herman Milkfoods 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 22, 2013, replied to the interim order and submitted its shareholding pattern as on March 31, 2013. The Company in its letter also referred to an Order of the Company Law Board, New Delhi, dated February 21, 2013, in the matter of IFCI Limited Vs. Herman Milkfoods Limited wherein the Company Law Board had directed the Company to maintain status quo on the fixed assets and shareholding as on the date of order till next date of hearing i.e. April 01, 2013.

4. Before proceeding further, an opportunity of personal hearing was afforded to the Company on July 01, 2015, which was later rescheduled to July 08, 2015. Mr. Ravinder Garg, the director of the Company vide his e-mails dated June 23, 2015 and July 07, 2015, expressed his inability to attend the personal hearing on the date fixed due to certain medical reasons. Mr. Ravinder Garg also filed the written submissions dated June 23, 2015, on behalf of the Company, while stating that the Company is maintaining MPS of 25% as per the listing agreement and requested that its name be excluded from the list of companies which have not complied with the requirement of maintaining MPS requirements. Along with the written submissions, the Company also submitted a copy of the Order of the Company Law Board, New Delhi, dated August 13, 2014. The said order states that the status quo order dated February 21, 2013, is subject to the decision of SEBI, if any, over the shareholding pattern of the Company. Mr. Ravinder Garg, the director of the Company later vide his another e-mail dated July 16, 2015, requested to adjourn the personal hearing for four weeks.

5. Considering the request, another opportunity of personal hearing was granted to the Company on August 17, 2015. On the date fixed, the Company failed to turn up for the personal hearing. As the Company had claimed that the public shareholding is maintained at 25% and no information regarding the procedure followed by it for compliance with MPS requirements was available on record, SEBI vide an e-mail dated September 09, 2015, advised the Company to submit the details regarding the date and manner in which the promoter shareholding was reduced to 66.67% along with the supporting documents. However, no reply was received from the Company. In view of the same, it is considered that further opportunities to the Company to file reply/ personal hearing would not be required. Accordingly, I proceed to decide the matter on merits on the basis of the material available on record.

6. While proceeding further, I have considered the interim order passed in the matter against the Company, its promoters and directors and the submissions made. 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 March 2013 (available at the BSE website), the promoters had held 93.47% and the public had held 6.53%. The Company was therefore in violation of the MPS requirements.

7. The Company in its submissions has stated that it is maintaining the MPS of 25% as per the listing agreement and requested that its name be excluded from the list of companies which have not complied with the MPS requirements. In this regard, the shareholding pattern of the Company for the quarter ended June 2013 is perused and from the same, it is noted that the promoters’ held 66.97% and the public held 33.03%. From the BSE website, it is seen that the Company has maintained the same shareholding pattern till December 2014, which is the latest shareholding pattern available.

8. I note that the Company has not submitted anything to show as to how the promoters’ shareholding was brought down to 66.97% in the quarter ended June 2013, despite being asked. For proceeding further, the shareholding pattern for the quarter ended March 2013 and June 2013 have been analysed and from the same following is noted:

Quarter March 2013 June 2013 Promoter No. of shareholders 103 81 Number of shares 92,18,000 66,04,386 Percentage holding 93.47 66.97 Public No. of shareholders 13,749 13,759 Number of shares 6,44,220 32,57,834 Percentage holding 6.53 33.03

It is noted that the promoters’ shareholding had reduced by 26,13,614 shares during the quarters of March 2013 and June 2013. However, no announcements or disclosures were made by the Company, in this regard. It is also seen that the details regarding the promoters and promoter group is not available on the BSE website. The Company vide its letter dated June 23, 2015, has submitted the details of the promoters for the quarter ended March 31, 2013, according to which the number of promoters are 81. However, in the absence of any other detail and reply from the Company, it is difficult to verify the procedure adopted by the Company for complying with the MPS requirements.

9. Considering the facts and circumstances of the case, it is clear that the Company had the responsibility to comply with the MPS requirement by adopting the methods available to it. The absence of any submissions and announcements/ disclosures, raises serious doubt on the method of compliance with the MPS requirements by the Company. In view of the same, it is 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, 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, Herman Milkfoods Limited, its directors, promoters and promoter group.

11. Copy of this Order shall be served on the stock exchanges and depositories for their information and action that may deem fit and necessary in this case.

Date: January 20th, 2016 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA