Order in the matter of Brady and Morris Engineering Company Limited

WTM/PS/59/CFD/NOV/2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM : PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Section 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 Brady & Morris Engineering Company Limited 1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') 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. Brady & Morris Engineering Company Limited (hereinafter referred to as 'the Company') is one such company against whom the interim order was passed. The shares of the Company are listed on the Bombay Stock Exchange Limited ('BSE').

3. The Company vide its letter dated June 20, 2013 filed its reply to the interim order. Thereafter, an opportunity of personal hearing was afforded to the Company on September 19, 2013, when Mr. Pavan G. Morarka, Chairman and Mr. R.K. Sharma, Director appeared and made submissions. The submissions of the Company are as under: a. The Company has a paid up capital of only 2,25,00,000 and its shares are very thinly traded. Further, due to carry forward losses, it was not possible for the Company to come out either with a bonus issue or a rights issue as the market and financial condition was not favourable. b. The promoters of the Company had sold 1,60,000 equity shares representing 7.11% of the paid up share capital of the Company on May 20, 2013 in open market to Transparent Agro Private Limited and others in order to comply with the MPS requirement as mandated by Clause 40A of the listing agreement. c. The Company and Transparent Agro Private Limited have intimated the sale of excess promoter shareholding to BSE through letters dated May 20, 2013 and June 01, 2013.

d. The Company also requested SEBI to withdraw the directions issued in paragraph 17 of the interim order.

4. I have considered the reply of the Company and the submissions made during the personal hearing. The company has submitted that it had complied with the MPS requirements within the stipulated period. According to the Company, its scrip is very thinly traded and due to carry forward losses and market/ financial conditions, it was not favourable for the company to come out either with a bonus issue or a rights issue. I note that the promoters of the Company had sold 1,60,000 equity shares representing 7.11% of the paid up share capital of the Company on May 20, 2013 in open market to Transparent Agro Private Limited and others. Pursuant to the same, the promoters' holding was reduced to 73.75%.

5. SEBI had issued circulars dated December 16, 2010, February 08, 2012 and August 29, 2012, in order to align the requirements in the Listing Agreement to specify the manner in which public shareholding may be raised to the prescribed minimum level. These circulars inter alia provided the following methods for complying with the MPS requirements: 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 the secondary market 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.

I note that the method adopted by the Company do not find place in any of the approved modes as seen above.

6. The sale of 7.11% of the paid up share capital in the open market by the Company is not a prescribed mode of compliance in terms of the above referred circulars. Nor has the Company sought specific permissions from SEBI for this sale in the open market. 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.

7. I am not convinced with the reasons submitted by the Company for not adopting methods mentioned in the circulars for bringing the shareholding of the public shareholders in the Company at the stipulated minimum level of 25%. 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 with its proposed method for approval, which the Company has clearly failed to do. Therefore, I find it necessary to refer the present case for adjudication in order to levy suitable monetary penalty against the Company and its promoters for not adopting the methods available for complying with the MPS requirements as stipulated in the circulars discussed above. 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 Section 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.

8. Therefore, I do not find it necessary to continue with the directions issued vide the interim order against the Company, its directors, promoters and promoter group, as suitable action has been directed, as mentioned above, against the Company/ its promoters. 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 revoke the directions issued vide the interim order dated June 04, 2013 against the company, Brady & Morris Engineering Company Limited, its directors, promoters and promoter group, with immediate effect.

9. 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: November 05, 2013 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA