Order in respect of SIEL Financial Services Ltd

WTM/PS/31/CFD/AUG /2014 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 SIEL Financial Services 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. SIEL Financial Services 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 Madhya Pradesh Stock Exchange Limited and Calcutta Stock Exchange Limited.

3. The Company vide letter dated June 17, 2013 read with its letter dated May 17, 2013 filed its reply inter alia stating that - (a) The Company was originally incorporated as "Titawi Sugar Works Limited" in the year 1990 under the Companies Act, 1956. The name of the company was subsequently changed to Shriram Agro-Tech Industries Limited. The Company commissioned the Solvent Extraction Plant at Dewas, Madhya Pradesh and raised capital through a public issue by issuing 53,75,007 equity shares of 10/-each at a premium of 10/- per share. The public issue was subscribed by around 26,000 shareholders who collectively held 49.77% of the issued shares and the balance 50.23% was held by SIEL Limited (presently known as Mawana Sugars Limited), the promoter of the Company.

(b) The Solvent Extraction Plant was shut down in 1995 in view of continuing heavy losses in operations. Due to heavy continuous losses, 50% of the Company's net worth was eroded and the Company became a potentially sick company. When the losses continued and the Company was likely to become a sick industrial company, the Board of Directors decided to merge another company "SIEL Financial Services Limited", a wholly owned subsidiary of Mawana Sugars Limited with Shriram Agro- Tech Industries Limited (the erstwhile name of the Company).

(c) As a result of such merger, the net worth of the Company became positive and the reference to BIFR was abated. Post-merger, the name of the company i.e., Shriram Agro-Tech Industries Limited was changed to 'SIEL Financial Services Limited'.

(d) The shareholder of SIEL Financial Services Limited (entity pre-merger), i.e., Mawana Sugars Limited was issued shares of the Company in pursuance of the merger, which resulted in the increase of promoter shareholding to 93.56%. Presently, the public shareholders (numbering 20,000) in the Company hold 6.44% of the equity shares.

(e) After the closure of Solvent Extraction Plant, there has been no activity at all of any kind in the Company. The Company has remained defunct all these years without income from any source. The Company has also not paid dividends since its inception. The trading in the shares of the Company are negligible and the share price has also come down gradually. The lowest quoted price was 0.50/-during the year 2000. However, after the announcement of the MPS guidelines, some unscrupulous entities started trading in the Company's shares, raising the share price artificially to 6.34/- per share as on date.

(f) The promoter of the Company, i.e., Mawana Sugars Limited, is faced with serious financial difficulties and has become a sick company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and is operating under the monitoring of CDR mechanism of RBI and BIFR.

(g) Under these circumstances, the Company is not in a position to comply with the MPS requirements through rights issue, bonus issue, Offer for Sale. Neither the Company nor the promoter have any wherewithal to incur any expenditure to provide an exit route to the existing shareholders. However, the promoter could consider exploring the possibility of off-loading part of its shareholding to some un-connected persons in an off-market trade if so approved by SEBI.

4. The Company sought exemption from compliance with the MPS norms and permission to explore the possibility of an off-loading shares in off-market at negotiated price. The Company, vide letters dated February 03, 2014, March 14, 2014 and May 07, 2014, reiterated the request for sale of 20% promoter's stake at negotiated price to interested investors.

5. The Company was also afforded an opportunity of personal hearing on July 09, 2014, when it was represented by its authorised representative, Mr. Naveen Jain, who reiterated the submissions of the Company made in its replies. As requested, the representative was also granted liberty to file written submissions.

6. The Company filed its additional submissions vide e-mail dated July 19, 2014. However, as certain facts (year when company was incorporated, number of shares issued in its IPO) stated therein were at variance with its submissions dated May 17, 2013, the Company was advised to forward submissions with correct facts. Thereafter, the Company submitted its corrected written submissions vide e-mail dated August 01, 2014, inter alia stating that the Company was incorporated in the year 1990 and that 26,75,000 shares were issued to the public in its IPO. According to the Company, the public held 49.77% and the remaining shareholding i.e., 27,00,000 equity shares (50.23%) were held by the promoter (Mawana Sugars Limited). The Company also reiterated its request for seeking exemption from the compliance with the MPS norms and to allow it to explore the possibility of off-loading part of its promoters' stake to un-connected persons in off-market trade at negotiated price.

7. 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 was non-compliant with the provisions of rule 19A of the SCRR and Clause 40A of the Listing Agreement read with section 21 of the Securities Contract (Regulation) Act, 1956 ("SCRA"), by not maintaining atleast the minimum level (of 25%) of public shareholding as of June 03, 2013 (the time line before which such compliance was to be achieved). Admittedly, this contravention still continues. The amended provisions of rules 19A of the SCRR came into force with effect from June 04, 2010, offering a time period of three years (i.e., on or before June 03, 2013) for a listed company to maintain public shareholding of atleast 25%. The Company has not taken any steps to comply with the MPS requirements even after passing of the interim order.

8. The Company has citied its poor financial position and that of its promoter for its failure to comply with the MPS norms and requested for exemption from complying with the same. It is to be noted that the relevant statute does not provide for exemption or relaxation of such continuous listing requirements. As long as the Company remains listed, it should comply with the applicable law including the continuous listing requirement stipulated under rule 19A of the SCRR. The Company has also submitted that its promoter has proposed that it could consider exploring the possibility of off-loading part (20%) of its shareholding to an interested investor at negotiated price. In this regard, the Company/promoter may note that this is not the appropriate forum for dealing with such requests. Moreover, a reading of the above submission made vide the Company's relies including its letter dated May 07, 2014, would indicate that the same is not a definite proposal, as the promoter is still 'exploring' the possibility of off-loading shares. A concrete proposal with complete details has not even been submitted thereafter.

9. 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 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 the continuous 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, SIEL Financial Services 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.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date : August 26th, 2014 Place : Mumbai