Order in respect of Kusum Iron and Steel Limited[SAT Appeal No.110/2017]

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 KUSUM IRON AND STEEL LIMITED

Appearance: For the Company – Mr. Ramesh Chandra Mishra, Company Secretary and Mr. Loknath Mishra, Advocate For SEBI – Dr. Anitha Anoop, Deputy General Manager, Mr. N. Murugan, Assistant General Manager and 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. Kusum Iron & Steel Limited (hereinafter referred to as "the Company") is one of such companies against whom the interim order was passed. The equity shares of the Company are listed on the Bombay Stock Exchange Limited ("BSE"). 3. An opportunity of personal hearing was afforded on July 02, 2015, when Mr. Ramesh Chandra Mishra, the Company Secretary and Mr. Loknath Mishra, Advocate appeared on behalf of the Company and made oral submissions. It was submitted that as on September 2014 the MPS requirement had been complied with by the Company though without following the permitted modes. As requested, liberty was granted to file written submissions. 4. The Company, thereafter, vide letter dated September 14, 2015 filed the written submissions wherein the Company stated as follows - a. The paid up capital of the company consists of 24,08,000 equity shares of face value of ₹10 each. The promoters holding reached to 77.89% due to forfeiture of 30,67,600 shares on August 8, 1998 by operation of law. b. Since the company is suspended with effect from November 12, 2001, the Company is not able to disinvest the shares as per the methods included in SEBI circular dated December 16, 2010. c. After obtaining the proper valuation report, 94,250 equity shares of promoters consisting of 3.92% were sold off market to the persons belonging to the public at large and not connected to the promoter.

Thereby the promoter holding has come down to 73.97%. d. The Company has already initiated the process of revocation of suspension of trading. 5. I have considered the submissions made by the Company and other material available on record. The interim order was issued against the Company as it failed to maintain the minimum public shareholding 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"). SEBI had issued circulars dated December 16, 2010, February 08, 2012 and August 29, 2012, in order to suitably amend Clause 40A of the Listing Agreement by specifying the manner in which public shareholding may be raised to the prescribed minimum level. The amended Clause 40A of the Listing Agreement, inter alia, provided the following methods for complying with the MPS requirement: a. Issuance of shares to the public through prospectus, b. Offer for sale of shares held by promoters to public through prospectus, c. Sale of shares held by promoters through Stock Exchange Mechanism i.e. OFS through Stock Exchange, d. Institutional Placement Programme, e. Rights Issues to public shareholders, with promoters/ promoter group shareholders forgoing their rights entitlement, f. Bonus Issues to public shareholders, with promoters/ promoter group shareholders forgoing their bonus entitlement, g. Any other method as may be approved by SEBI, on a case to case basis.

6. From the shareholding pattern as on June 2013, filed by the Company in BSE, I find that the following persons are disclosed as the shareholders belonging to the promoter and promoter group of the Company. S.No. Name of promoters No. of shares % of shareholding 1 Naresh Kumar Agrawala 37,550 1.56 2 Sanjay Kumar Agrawala 13,050 0.54 3 Manoj Kumar Agrawala 35,545 1.48 4 Kailash Kumar Agarwala 24,445 1.02 5 Neem Chand Mitruka 80,005 3.32 6 Jagdish Prasad Agarawala 91,005 3.78 7 Ashok Kumar Agrawala 64,905 2.7 8 Sohanlal Agrawala 70,400 2.92 9 Beena Mitruka 52,500 2.18 10 Usha Mitruka 46,700 1.94 11 Anita Mitruka 43,000 1.79 12 Anita Dhanawat 13,000 0.54 13 Indra Devi Agrawala 55,000 2.28 14 Anita Mitruka 15,000 0.62 15 Ramesh Kumar Agrawala 13,100 0.54 16 Sushil Kumar Agrawala 3,000 0.12 17 Sapna Mitruka 30,000 1.25 18 Dropadi Devi Agrawala 60,000 2.49 19 Indra Devi Agrawala 52,500 2.18

20 Raj Kumar Modi 10,000 0.42 21 Kusum Modi 13,000 0.54 22 Neem Chand Sushil Kumar 20,150 0.84 23 Sohanlal Ramesh Kumar 24,000 1 24 Naresh Kumar Agrawala & Sons 3,000 0.12 25 Pawan Kumar Agrawala & Sons 4,000 0.17 26 Ramesh Kumar Agrawala & Sons 4,000 0.17 27 Mitruka Tea Co. Pvt. Ltd. 2,04,000 8.47 28 Annapurna Plantions Pvt. Ltd. 2,04,700 8.5 29 Idea Sale Pvt. Ltd. 2,29,900 9.55 30 Brind Niketan Pvt. Ltd. 1,90,700 7.92 31 Simco Merchandise Pvt. Ltd. 1,67,345 6.95 Total 18,75,500 77.89

7. As on June 3, 2013 the promoter holding in the company was 77.89% and public shareholding was 22.11 % which is less than the required MPS. The Company had submitted that 94,250 equity shares of promoters consisting of 3.92% were sold in off market to the persons belonging to the public at large and not connected to the promoter. In this regard, I note from the details submitted by the RTA of the Company that the following promoters had transferred shares in off-market to Avinash Capital (P) Limited and Madan Lal Kansal: (a) Sushil Kumar Agarwala (sold 3000 shares), Raj Kumar Modi (sold 10,000 shares), Ramesh Kumar Agarwala (sold 13,100 shares) and Anita Dhanawat (sold 13,000 shares) sold a total of 39,100 shares to Avinash Capital Markets (P) Limited; and (b) Neem Chand Sushi Kumar (sold 20,150 shares), Sohanlal Ramesh Kumar (sold 24,000 shares), Naresh Kumar Agarwala & Sons. (sold 3000 shares), Pawan Kumar Agarwala & Sons. (sold 4000 shares) and Ramesh Kumar Agarwala & Sons. (sold 4000 shares) sold a total of 55,150 shares to Madan Lal Kansal. 8. As on June 30, 2015, the shareholding of promoters is said to have reduced to 73.97% as per the details below: Serial Name of promoters No. of shares % of shareholding No. 1 Naresh Kumar A 37,550 1.56 2 Sanjay Kumar A 13,050 0.54 3 Manoj Kumar Ag 35,545 1.48 4 Kailash Kumar A 24,445 1.02

5 Neem Chand Mitr 80,005 3.32 6 Jagdish Prasad A 91,005 3.78 7 Ashok Kumar Ag 64,905 2.7 8 Sohanlal Agarw 70,400 2.92 9 Beena Mitruka 52,500 2.18 10 Usha Mitruka 46,700 1.94 11 Anita Mitruka 43,000 1.79 12 Indra Devi Agar 55,000 2.28 13 Anita Mitruka 15,000 0.62 14 Sapna Mitruka 30,000 1.25 15 Dropadi Devi Ag 60,000 2.49 16 Indra Devi Agar 52,500 2.18 17 Kusum Modi 13,000 0.54 18 Mitruka Tea Co P. 2,04,000 8.47 19 Idea Sale Pvt. Ltd. 2,29,900 9.55 20 Brind Niketan Pvt. Ltd. 1,90,700 7.92 21 Simco Merchandise 1,67,345 6.95 22 Sohanlal Ramesh Agar 20,000 0.83 23 Ramesh Kumar Agar 26,000 1.08 24 Seema Agarwala 40,000 1.66 25 Manoj Kumar Agarwala 30,000 1.25 26 Payal Mitruka 88,700 3.68 Total 17,81,250 73.97 9. On perusal of the shareholding patterns as mentioned in the tables above, it can be seen that few persons are removed and new persons are added in the list of promoters. The Company has not made any disclosures in this regard. BSE had informed SEBI vide email dated November 30, 2015 that trading of company’s shares were suspended since August 24, 1998 for non-compliance with listing agreement.

BSE further stated that the company had not informed the method adopted for complying and that no disclosures were made under the Takeover Regulations and PIT Regulations. 10. The company stated that as it was suspended with effect from November 12, 2001, it was not able to disinvest the shares as per the methods prescribed by the SEBI Circulars. Therefore, during the period of September 2014, the promoters sold off market 94,250 equity shares consisting of 3.92% of total equity capital to the persons belonging to the public, thereby the promoter holding came down to 73.97%. It may be noted that it is the responsibility of the Company to have the suspension revoked. Moreover, the status of the company as ‘suspended from the Stock Exchange’ cannot be an excuse for non-compliance of the MPS requirement. The company has not brought to my notice that it took any effort for revocation of the suspension of trading. Off market sale by promoters is not an approved method of MPS compliance unless the same was approved in appropriate cases by SEBI under the case to case basis method prescribed under Clause 40A of the Listing Agreement.

In the instant case, the promoters have sold off market 3.92% of shares after the due date of MPS compliance. It is also noteworthy that several companies had approached SEBI with a request to permit them for open market sale so as to achieve compliance of MPS requirements and SEBI had granted permissions to many such companies in appropriate cases. Considering the facts and circumstances of the case, it is quite clear that the Company had the primary responsibility to comply with the MPS requirement by adopting the methods available to it as discussed in paragraph 6 above. In case the Company was experiencing any difficulty it should have approached SEBI before due date of compliance, with its proposed method for approval, which the Company has clearly failed to do. 11. Paragraph 17(b) of the interim order, prevents promoters/directors from buying and selling or dealing in securities of the company except for the purpose of complying with the MPS requirement. The promoters/promoters group can sell the shares only as per the methods prescribed under the various circulars discussed in paragraph 6 above.

By selling the shares off market, the promoter who have sold the shares have violated the interim order as well. As already mentioned above, there is no clarity as how new promoters came in to the Company. Therefore, the reduction by 3.92% cannot be considered for MPS compliance. 12. In view of the above, company cannot be considered to have complied with MPS norms as on date. The Company may have to adopt methods recognized by SEBI for this purpose. Considering the fact 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 me, 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 the continuing nature of the violations committed by the Company, SEBI may also initiate other action including action for adopting an unapproved method and also for breach (transferring shares while under restraint) of the interim order, against the Company, its directors and promoters.

13. 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, Kusum Iron and Steel Limited, its directors, promoters and promoter group.

14. This Order shall remain in force till further directions. 15. 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: January 20th, 2016 Place: Mumbai