Order in respect of Sayaji Hotels Limited

WTM/PS/38/CFD/MAY/2016 SECURITIES AND EXCHANGE BOARD OF INDIA 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. In respect of SAYAJI HOTELS LIMITED

Date of hearing: April 20, 2016 Appearances: For noticees: Mr. R.S. Loona, Advocate; Mr. Abhishek Borgikar, Advocate and Mr. Amit Saraf, Company Secretary appeared as authorized representative For SEBI: Dr. Anitha Anoop, General Manager; Mr. Pradeep Ramakrishnan, Deputy General Manager; Mr. Pradeep Kumar, 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 December 10, 2015 (hereinafter referred to as the „interim order‟) with respect to Sayaji Hotels Limited(hereinafter referred to as the „Company‟), its promoters and directors as the said company failed to comply with the Minimum Public Shareholding (hereinafter referred to as „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. October 02, 2014. The interim order was passed without prejudice to the right of SEBI to take any other action, against the non-compliant company, its 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 the Company for action contemplated in paragraph 13, thereof.

2. In response, the Company, vide letter dated December 28, 2015, requested for an extension of six week, for submitting the reply and documents which was granted vide SEBI e-mail dated January 07, 2016. Thereafter, the Company vide its letter dated

February 23, 2016, submitted the reply to the interim order, which was taken on record. The submissions made by the Company, in brief are as under:

a. On February 06, 2013, one of the promoters namely Mr. Raoof Razak Dhanani had acquired 27.16% stake in the Company from Clearwater Capital Partners (Cyprus) Limited and had triggered an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 („the Takeover Regulations‟). Accordingly, the promoters had made an offer to the public shareholders of the Company which was completed on September 11, 2013. b. Pursuant to the completion of open offer the total promoters‟ shareholding had increased from 67.47% to 79.90% and public shareholding was decreased to 20.10% on October 03, 2013. Therefore, the public shareholding in the Company fell below the prescribed limit of 25%. The Company was under an obligation to bring the public shareholding upto 25% on or before October 02, 2014. c. There are only limited methods/ routes provided by SEBI to comply with the MPS norms and that it has not been easy to dilute the promoters‟ stake directly or indirectly through prescribed means. The noticees have approached various merchant bankers, professional, etc. to devise means to comply with the MPS requirement but it was advised that the dilution of promoters‟ holding directly or indirectly through the prescribed routes would not be possible.They had undertaken several steps from time to time to increase the public shareholding of the Company but have not succeeded to achieve MPS due to various factors like inadequate market capitalization, insignificant growth prospects, lack of interest by QIBs in IPP, low volume, sudden fall in overall market due to global factors, etc. d. It was advised to them as the Company had incurred losses in the financial year 2014- 2015, has not provided dividend for last 10-12 years therefore no investors would be interested in investment in the hotel industry sector due to recession and lack of returns on investment. It was further advised that „further public offer‟ or „offer for sale‟ (OFS) by the promoters through prospectus could only be possible if the Company has strong profit as well as dividend background. Further, as the route is expensive and time consuming, the noticees had not opted for the same.

e. As the Company has bad dividend history and the Company has incurred losses in the financial year 2014-15, the rights issue might fail due to lack of response from existing shareholders. Further, bonus issue was not considered advisable in view of the Company‟s need for creation of reserves for operational purposes. f. The noticees had approached various Institutional Investors as well as merchant bankers for IPP. However, it was informed that due to factors like bad profit history, bad dividend history, recession in overall hoteling and catering industry, insignificant growth prospects, low volumes in trading, offloading by Clearwater Capital Partners LLC in 2013, death of main promoter Mr. Sajid Dhanani on November 11, 2012, no institutional investors were interested in investing into the Company. g. The noticees had approached various Institutional Investors personally but failed to convince them for investments into the Company. h. Before February 12, 2016, the noticees have tried several times to opt for OFS route, however, it failed due to various factors like the shares of the Company are infrequently traded and the number of trades per day are less than 10 trades. For successful OFS, they had to sell 8,75,000 shares against the average single day volume of 742 shares. The total shares traded during October 01, 2013 to October 31, 2015 (i.e. more than 2 years period) were only 32.50% of the total size of OFS. Therefore, it was not possible to sell 8,75,000 shares in a day considering the trading history of the Company. i. Pursuant to the interim order, the Company had decided to comply with the MPS expeditiously and decided to offload the additional shares through OFS on January 29, 2016. However, considering the sudden fall in the markets due to global factors the Company was constrained to withdraw the OFS on January 27, 2016. j. Again on February 10, 2016, the promoters of the Company decided to launch its OFS on February 12, 2016. On this day the promoters had succeeded to offload only 6,33,265 shares constituting 3.61% of the Company‟s capital and accordingly the promoters holding was reduced from 1,40,00,533 shares constituting 79.92% of the Company to 1,33,67,268 shares constituting 76.31% of the Company.

3. Thereafter, vide letter dated March 12, 2016, Mr. Raoof Razak Dhanani (the promoter of the Company)inter alia stated that the promoters of the Company launched second OFS on March 02, 2016 and March 03, 2016 for 2,66,000 equity shares constituting

1.52% of the total capital of the Company. On such dates the promoters had succeeded to off-load 2,40,658 shares constituting 1.37% of the Company‟s capital. Consequently the promoters shareholding in the Company has come down from 76.31% to 74.93%. According to the Company, it became MPS compliant pursuant to the said OFS. The Company requested SEBI to vacate the directions issued vide theinterim order dated December 10, 2015 considering the compliance of MPS norms and past efforts taken by the noticees.Vide the said letter, the Company also requested for an opportunity of personal hearing before passing any order in the matter.

4. Accordingly, an opportunity of personal hearing was afforded on April 20, 2016, when Mr. R.S. Loona, Advocate; Mr. Abhishek Borgikar, Advocate and Mr. Amit Saraf, Company Secretary appeared and made oral submissions with respect to their attempts for complying with MPS norms. The Company also submitted a list of dates and events to show the steps taken by it and its promoters to comply with the MPS norms.

5. I have considered the interim order, the submissions made by the Company and the material available on record. I note that in the present case, the shareholding of the promoter group increased to 79.90% pursuant to an open offer (which was completed on September 11, 2013) triggered by the acquisition of 27.16% stake in the Company by Mr. Raoof Razak Dhanani and Mrs. Anisha Raoof Dhanani from one Clearwater Capital Partners (Cyprus) Limited (the seller). The relevant portion of the interim order is reproduced herein below for reference: “5. … a. … pursuant to the open offer made in the year 2013, the promoters’ stake had increased to 79.90% and instead of bringing it down, the promoters had further increased the stake in the Company to 79.92%. b. The Company in its submissions dated August 28, 2015, submitted that the promoters’ holding increased due to the open offer made by the promoters in the year 2013. The promoters had initiated certain steps in the year 2013 for complying with the MPS norms, however, due to non-favorable market conditions for the ‘Offer for Sale’ (OFS), ‘Institutional Placement Programme’, etc., the promoters had to postpone the plan. c. The Company vide the said letter also stated that on August 12, 2015, the promoters have informed it that one ‘Systematix Corporate Services Limited’ has been appointed as Merchant Banker to advise for complying with the MPS requirement in accordance with SEBI Regulations. In view of the same, the promoters are expected to comply with the MPS requirement shortly. d. The promoter group holds 4.91% equity shares in excess which has to be divested in order to comply with the MPS norms.

… 6.From the above facts, I find as under: a. The public shareholding in the Company fell below the mandatory minimum of 25% on October 03, 2013. b. In terms of the rule 19A(2) of the SCRR, the Company had to bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by SEBI. c. The date for achieving compliance with the MPS requirement was therefore on or before October 02, 2014. Though, it is seen from the shareholding pattern as on September 30, 2015 that the public shareholding in the Company is less than the minimum stipulated level of 25% by 4.91%, it is to be noted that the Company is non-compliant with the MPS norms.”

6. The Company has submitted that it has complied with the MPS norms by selling 5.13% excess promoter holding in the OFSs undertaken on February 12, 2016, March 02, 2016 and March 03, 2016. As per the shareholding pattern available in the BSE website as on May 10, 2016, the promoter group holds 74.93% and the public shareholders hold 25.07%, which is the minimum requirement of public shareholding stipulated under rule 19A of the SCRR.

7. From the foregoing, it is an admitted position that the Company offloaded the excess promoters‟ stake only on March 03, 2016 and thereby delayed in complying with the MPS norms. I note that the submissions regarding the steps taken by the Company and its promoters to comply with the MPS norms and note that a concrete step (the OFS) was taken towards the compliance was only during February 2016 i.e. after passing of the interim order.

8. I note that the Company has now achieved the compliance with MPS norms through an OFS on March 02, 2016 and March 03, 2016,the public shareholders now hold 25.07% in the Company and is compliant with the MPS requirements as stipulated under Rule 19A of the SCRR read with Clause 40A of the listing agreement. Therefore, it would be appropriate and reasonable to vacate the directions issued against the Company, its promoters and directors.

9. However, the delayed compliance with the MPS requirements by the Company and its promoters i.e. by March 2016,is in violation of the Rule 19A(2) of the SCRR read with Section 21 of the Securities Contracts (Regulation) Act, 1956. In view of the same, I am of the considered view that the case be referred for adjudication. Accordingly, this case is being referred for adjudication under Section 23I of the Securities Contracts (Regulation) Act, 1956 read with the Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties By Adjudicating Officer) Rules, 2005 for imposition of suitable penalty against the Company and its promoters under Sections 23E and 23H of the Securities Contracts (Regulation) Act, 1956. For this purpose, an adjudicating officer shall be appointed by SEBI and he/she shall conduct the inquiry in accordance with the law.

10. With the above observations, 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 vacate the directions issued vide the interim order dated July 22, 2015 against the company, Sayaji Hotels Limited, its directors, promoters and promoter group, with immediate effect.

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

Date: May 17th, 2016 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA