Order in the matter of Batliboi Limited- minimum public shareholding requirement

WTM/PS/71/CFD/OCT/2015 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 Batliboi 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. In terms of the said rule, listed companies are statutorily mandated to have a minimum of 25% shareholding by the public. 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. Batliboi 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') and National Stock Exchange Limited (‘NSE’). The promoter group of the Company held 81.73% of the equity capital as on June 04, 2013. The public shareholding therefore was at 18.27%, which was below the MPS norms as stipulated under 19A of the SCRR.

3. SEBI had prescribed various methods and means to enable the non-compliant listed companies to comply with the MPS norms. In this regard, the Company had made an application dated April 22, 2013 to the SEBI in terms of clause 40A(ii)(g) of the Listing Agreement and paragraph 3 of the SEBI Circular dated August 29, 2012, proposing offload of the shares of the promoters in the secondary market, in order to achieve the MPS. This proposal of the Company was considered and acceded to by SEBI vide letter dated May 17, 2013, subject to certain conditions. Vide this letter, considering the trading volume in the scrip, it was also advised to the Company to explore other options, as well, to meet the MPS requirement within the specified timelines.

4. The Company vide its letter dated May 31, 2013, submitted that after the approval of SEBI, the promoters of the Company had commenced divesting shares in the secondary market from May 21, 2013, after making requisite announcement to the Stock Exchange. However, given the thin volumes, the promoters were able to sell only 923 shares out of the total number of 19,32,000 shares, to be divested.

Vide this letter, the Company sought approval of SEBI for transfer of shares by the promoters to two trusts, in order to achieve MPS. It was said that the promoters have contemplated transferring the excess shares to two trusts, the trustees of these trust will sell such shares within two years, in the manner as may be stipulated and utilise the sale proceeds entirely for advancement of charitable and philanthropic activities. It was also said that the promoters and the trustees of the said trusts will submit the undertakings and declarations, as may be required.

5. SEBI vide its letter dated June 03, 2013, intimated the Company that the request for approval for transfer of shares by promoters to the charitable trusts, in order to comply with the MPS requirements was not acceded to, as the conditions set out for the same were not met by it. The Company vide its letter dated June 03, 2013, replied to the SEBI letter and had undertaken to create an irrevocable trust on the specified terms and conditions and to transfer the excess shares to the new trust so created in order to achieve the MPS requirements. Vide this letter, the Company had also asked for the approval of the revised proposal.

6. In the meantime, SEBI had passed the interim order. The Company vide its letters dated June 13, 2013 and September 23, 2013, submitted the reply to the interim order and requested for consideration of the pending proposal. The Company also requested for an opportunity of personal hearing. The submissions of the Company, in brief are as under: a. The Company and the promoters were desirous of achieving the MPS in accordance with the SCRR, however, despite best efforts, the same was not achieved. The Company had sought approval of SEBI for offloading the shares held by the promoters in the secondary market on an ongoing basis, which was duly granted. However, as the scrip of the Company was placed under the ‘periodic call auction category’, the volumes had dwindled considerably making it difficult for the promoters to divest the shares. The Company had requested BSE to shift the scrip to the normal category for few days in order to facilitate divesting promoters’ shares in the market. However, the same was not acceded to. b. The Company then vide letter dated May 31, 2013, had sought SEBI’s approval for transferring the excess shareholding of the promoters to the ‘Bhogilal Leherchand Foundation’ and ‘Leherchand Uttamchand Trust Fund’, which are engaged in charitable and philanthropic activities. However, the approval was declined by SEBI. The Company vide its letter dated June 03, 2013, had agreed to creation of new trust and transfer of shares to the new trust and again sought approval for the revised proposal.

7. Before proceeding further, in the interest of justice, the Company was afforded an opportunity of personal hearing on January 20, 2014. The date of hearing was later postponed to January 29, 2014, when Mr. Nirmal Bhogilal, Chairman and Managing Director of the Company and Ms. Nilima Amre, Assistant Manager of the Company appeared and made oral submissions based on the reply dated June 13, 2013. As the request/ proposal of the Company was pending consideration with SEBI, the hearing was adjourned, till a definite view is taken on such proposal.

8. The Company vide its letters dated January 30, 2014 and February 11, 2014, again made a request for the approval of SEBI for transfer of shares by the promoters to a new trust in order to achieve MPS. It also submitted the salient features of the trust to be formed for transferring the promoters’ excess shareholding and said that the trustees will sell the shares in one or more tranches, at the earliest, looking at the market opportunity and in the best interest of the trust.

9. On consideration of the proposal of the Company, SEBI vide its letter dated May 23, 2014, acceded to the proposal of transferring the excess shares to an independent Trust and imposed the following conditions: a. The Trust shall be irrevocable and independent. b. The Trust shall undertake only philanthropic activities. c. The trustees of the Trust shall be a public sector bank or a public financial institution. d. The trust deed shall specifically state that the purpose of the trust is to utilize atleast 90% of the proceeds from the sale of shares and incidental incomes, if any and on fulfilling the purpose, upon extinguishment shall be transferred to the trusts which shall utilise those funds only for philanthropic activities.

e. The trustees shall effect sale of the trust property within a period of two years from the date of transfer of securities to the Trust. f. Promoters shall not have any beneficial interest in the Trust. g. The trustees shall have the sole and exclusive power to exercise voting rights attached to the shares of the companies forming part of the trust property. h. Transfer of excess shares to the Trust shall be solely for the purpose of complying with MPS requirements.

The letter also mentioned that ‘A copy of the Trust deed shall be submitted to SEBI before the shares are transferred to the trust. Modifications, if any, to the trust deed shall be carried out only with prior approval of SEBI’.

10. Thereafter, vide letter dated October 16, 2014, the Company submitted that in accordance with the approval dated May 23, 2014, regarding formation of independent and irrevocable Trust, it has appointed L&T Infrastructure Finance Company Limited (a public financial institution under Section 4A(2) of the Companies Act, 1956) to act as Trustee. Thereafter, the Company vide its another letter dated March 23, 2015, submitted a copy of the Trust Deed executed between Mr. Nirmal Bhogilal and L&T Infrastructure Finance Company Limited for the trust namely ‘Karunya Trust’ (hereinafter referred to as the ‘Trust’).

11. In pursuance of the same, one more opportunity of personal hearing was granted to the Company on July 14, 2015. However, the same was later postponed to July 27, 2015, on the request of the Company. On the date fixed, Mr. Nirmal Bhogilal, Chairman and Managing Director of the Company, Mr. Anand Sharma, Vice President of the Company and Mr. K.K. Shah appeared for the personal hearing and made oral submissions.

12. I have considered the proposal of the Company made vide letters dated May 31, 2013 and June 03, 2013, the letter of SEBI dated May 23, 2014, the submissions made by the Company vide letter dated March 23, 2015, the document annexed therewith and the material available on record.

13. I note that the Company has constituted the Trust, as per the approval granted by SEBI. As per the trust deed the objects of the Trust is ‘to constitute a private irrevocable trust that shall apply the amount raised from the sale proceeds towards the projects mentioned in ….. to be undertaken by the Beneficiaries

– “Leherchand Uttamchand Trust Fund” and “Bhogilal Leherchand Foundation”. As per the shareholding pattern of the Company disclosed to BSE, for the quarter ended June 30, 2015, the promoters’ holding is at 81.64% and the public shareholding is at 18.36%. The Company has requested for permission to transfer the promoters excess shareholding to the Trust in order to comply with the MPS requirements. Considering the constitution of Trust as per the conditions set by SEBI, the promoters can be permitted to transfer the shareholding in excess of the maximum permissible promoter shareholding to the Trust. Therefore, I find it reasonable and appropriate to modify the directions issued vide the interim order to the extent that the same does not affect or prejudice the Company/ its promoters’ from transferring the excess shareholding to the Trust.

14. In view of the foregoing, 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 issue the following directions which are in modification of the directions issued vide the interim order dated June 04, 2013 :

(i) The direction issued in paragraph 17(b) of the interim order dated June 04, 2013 stands modified to the extent that it shall not hinder the transfer of excess shareholding of the promoters to the Trust. The Company shall complete the process of transfer of shares to the Trust within a period of two (2) months from the date of this order and shall report the same within fifteen (15) days from the date of transfer of the shares. (ii) The proposed transfer to the Trust shall be done in strict compliance of the approval granted by SEBI vide letter dated May 23, 2014. (iii) On such transfer within the period stipulated above, the interim directions against the Company, its directors, promoter/ promoter group shall stand vacated. However, the directions contained in paragraph 17 of the interim order dated June 04, 2013 shall be re-imposed/ revived immediately (without the need for passing of a separate order) in case the transfer process of the shares of the Company is not successful within the period directed in sub paragraph (i) above or the trust is not able to sell the shares so transferred within a period of two (2) years from the date of transfer.

(iv) L & T Infrastructure Finance Company Limited, the Trustee, shall strictly act in terms of the SEBI letter dated May 23, 2014 and submit quarterly compliance reports to SEBI including the manner of usage of the funds and sale of shares.

15. This Order shall come into force with immediate effect.

16. The aforesaid directions are issued without prejudice to the right of SEBI to initiate action as contemplated in paragraph 18 of the interim order in case the transfer process of the shares of the Company is not successful within the period as directed in paragraph 14(i) above.

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

Date: October 19th, 2015 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA