Order in the matter of Delisting of Equity shares of Pagita Leasing and Finance Company Ltd

Under Section 11(1) and 11 B of the Securities and Exchange Board of India Act, 1992 read with Regulation 25A of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.

In the Matter of Delisting of Equity Shares of Pagita Leasing and Finance Company Ltd.

Background –

1. The matter has come before me pursuant to an application letter dated January 25, 2020, along with letters dated March 03, 2020 and June 26, 2020 (collectively referred to as the “Application”) under Section 25A of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 (the “Delisting Regulations”), whereby Pagita Leasing and Finance Company Ltd. (“Pagita”/ the “Applicant Company”) has sought relaxation/exemption from the application of certain provisions of the Delisting Regulations.

Order in the Matter of Delisting of Equity Shares of Pagita Leasing and Finance Company Ltd.

2. It is gathered that the Delisting Committee of BSE by way of its Order dated December 12, 2016 compulsorily delisted the shares of the Applicant Company from the exchange. The Delisting Committee of BSE in the above Order inter alia directed that— “ 4.2 On account of compulsory delisting of all listed equity shares of the Company in terms of Regulation 23 (3) of Delisting Regulations, the promoters of the Company are liable to acquire delisted equity shares from the public shareholders by paying them the value determined by the Valuer appointed by the Exchange. 4.3 The names and addresses of the company and its promoters as available and the fair value determined by the Valuer appointed by the Exchange be included in a Public Notice to be Issued in terms of Regulation 22 (6) (a) of the Delisting Regulations. 4.4 On account of the compulsory deflating, the Company, its whole time directors, its promoters and the companies which ąre promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting in terms of Regulation 24 of Delisting Regulations.

4.5 Further, the company is hereby directed to ensure compliance with various directions contained in SEBI Circular No. SEBI/HO/CFD/DCR/CIR/P/2016/81 dated September 7, 2016 including the following:  Non-transferability by the Company, by way of sale, pledge, etc., of any of the equity shares;  Freezing of equity shares and corporate benefits thereof held by the promoters/promoter group;  the promoters and whole-time directors of the Company shall not be eligible to become directors of any listed company till the time the promoters of the Company provide an exit option to the public shareholders in terms of value determined by the valuer. 4.6 In the interest of investors and as advised by SEBI, the securities of the Company shall be moved to the Dissemination Board for a period of 5 years.” 3. The Applicant Company went in appeal to the Hon’ble SAT against the above-mentioned Order of BSE. The Hon’ble SAT by way of its Order dated May 03, 2019 allowed the appeal and quashed the Order dated December 12, 2016 of BSE. Further, the Hon’ble SAT directed the Delisting Committee, BSE to proceed in the matter after giving an opportunity of hearing to the Applicant Company.

Pursuant to this, the Applicant Company, went before BSE and requested to be allowed to voluntarily delist. BSE informed the Applicant Company that since it had almost 100% promoter shareholding and wished to voluntarily delist, it would have to seek exemption from the provisions of voluntary delisting by making an application to SEBI. Thus, it is in this background that the Applicant Company by way of its Application has come before SEBI.

Personal Hearing and Submissions of the Applicant Company –

4. To consider the prayer made by the Applicant Company, an opportunity of personal hearing was granted to the Applicant Company on October 22, 2020 through video conferencing. The Applicant Company entered appearance through Shri. Arup Dasgupta, Advocate. The authorised representative made submissions and placed the grounds for exemption from the application of provisions of the Delisting Regulations.

Further to the personal hearing, written submissions dated October 28, 2020 have also been received from the Applicant Company. 5. A summary of the submissions made by the Applicant Company in its Application, the personal hearing on October 22, 2020 and the written submissions dated October 28, 2020 is placed hereunder: 5.1. The Applicant Company was incorporated in 1984, and around 1990 there was a change in the promoter group, whereby the Geeta group of companies transferred their stake to the Patil family, which continues to be the promoter(s) of the Applicant Company. The holding of the Patil family is 99.96 % (2,44,900 shares) and 0.04% (100 shares) is held by an employee in the Applicant Company. The shareholding pattern of the Applicant Company is as under: Sr. No. Name of the Shareholder No of Shares Percentage of Held Holding 1. Lingraj Shantalingappa Patil 1,35,450 55.29 2. Padmaja Patil Lingraj 70050 28.59 3. S.S. Patil (HUF) 10000 4.08 4. Siddling Patil 4400 1.08 5. Shobha Patil 15000 6.12 6. Padmaja Patil 10000 4.08 7. B.J. Karandikar 100 0.04 Total 245000 100

5.2. It has been submitted by the Applicant Company that they be allowed to delist under Regulation 27 of the Delisting Regulations. The Applicant Company has submitted that it satisfies the conditions stipulated in Regulation 27(1) for the application of the said provision. 5.3. In the alternative, it has been submitted that they be allowed to voluntarily delist as per the provisions of the Delisting Regulations. With respect to the exemption from the provisions of voluntary delisting, it has been submitted that – a. since, the promoter shareholding is 99.96%, there are effectively no public shareholders, and as such in respect of the Applicant Company the provisions of voluntary delisting are redundant; and b. no prejudice would be caused to public interest, as there are no public shareholders. 5.4. A specific question was posed during the personal hearing, asking if any prior application to voluntarily delist its shares from the stock exchange(s) had been filed by the Applicant Company. In this respect, it was submitted that no such application had been filed by the Applicant Company.

Consideration

6. Before proceeding with the consideration of the relaxation/exemption sought for by the Applicant Company, it would be relevant to place herein a chronology of events relevant to the present matter :

Sl. No. Date Details 1. July 13, 1984 Incorporated as a company with the registered office in Mumbai.

2. Company listed on the Bombay Stock Exchange (BSE). Total number of shares listed were 2,45,000 with a face value of Rs. 10. 2. In or around 1990 Change of promoters from Geeta Group of Companies to the Patil family. The holding of the Patil family is 99.96 % (2,44,900 shares) and 0.04% (100 shares) is held by an employee in the Applicant Company. 4. 2002 Company suspended by BSE. 5. February 12, 2016 Circular from BSE providing the process for the revocation of suspension. 6. December 12, Order of the Delisting Committee of BSE, 2016 compulsorily delisting the Company. 7. May 03, 2019 Hon’ble SAT’s Order allowing the appeal and quashing the Order dated December 12, 2016 of BSE, and further directing the Delisting Committee, BSE to proceed in the matter after giving an opportunity of hearing to the Applicant Company.

7. It has been prayed by the Applicant Company that it be considered for relaxation under Regulation 27 of the Delisting Regulations. In the alternative, it has been prayed by the Applicant Company that it be allowed to voluntarily delist under Chapter-III of the Delisting Regulations. 8. Regulation 5 in Chapter- III of the Delisting Regulations provides that a company “may delist its equity shares from all the recognised stock exchanges where they are listed or from the only recognised stock exchange where they are listed:

Provided that all public shareholders holding equity shares of the class which are sought to be delisted are given an exit opportunity in accordance with Chapter IV.” Chapter- IV of the Delisting Regulations, which deals with Exit Opportunity, requires certain steps to be taken by a company seeking to voluntarily delist, namely issuance of public notices/announcements, appointment of merchant banker to arrive at valuation of shares, offer of buyback of shares to the public shareholders at the rate/value determined by the merchant banker etc. Further, Regulation 19 in Chapter- IV of the Delisting Regulations inter alia states that “where the offer …. is not successful as per regulation 17, the offer shall be deemed to have failed and no equity shares shall be acquired pursuant to such offer.” Regulation 17 inter alia provides that an offer made under Chapter-III shall be deemed to be successful if a) the shareholding of the promoter (along with the persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, is more than 90% of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; and b) at least twenty five per cent of the public shareholders holding shares in demat mode participated in the Book Building process, which can be obviated if the acquirer and merchant banker are able to demonstrate that they have delivered the letter of offer to all the public shareholders with proof of delivery.

9. It is the case of the Applicant Company that since, almost 100% of the equity is with the Promoters there are effectively no public shareholders, and as such, no scope for a buy-back of the shares from such public shareholders. Accordingly, it has been prayed by the Applicant Company that it be allowed to voluntarily delist under the provisions of Chapter-III of the Delisting Regulations by granting it relaxation from the application of the conditions of buy-back as aforesaid. 10. To consider the Application for exemption as submitted by the Applicant Company, which has almost 100% promoter shareholding, it would be relevant to look at the Minimum Public Shareholding (“MPS”) norms, as they evolved from the time of the Company’s listing on BSE till the order of compulsory delisting by BSE. 11. In this regard, it is stated that till 2001 the requirement of minimum public float was only an initial requirement. In May, 2001 SEBI, by way of a circular, directed stock exchanges to amend Clause 40 A of the Listing Agreement to provide that the companies listed should maintain the minimum level of non-promoter holding, as required at the time of listing, on a continuous basis.

Further in 2003, SEBI came out with the SEBI Delisting Guidelines which provided for voluntary delisting by companies from stock exchanges as well as compulsory delisting of a company by stock exchanges. It is noted that the amendment brought in May 2001 resulted in the MPS requirements to be maintained on a continuous basis, differing for various companies depending on the threshold applicable to them at the time of listing. Accordingly, in the year 2006, SEBI made the requirement that all listed companies, with the exception of some companies, were to have 25% MPS on a continuous basis. Further to this, in June 2010, the SCRR was amended and the MPS requirement for all listed companies or companies seeking to list was set at 25%. The companies who fell below this threshold were required to achieve 25% MPS within a period of three years i.e., June 03, 2013.

12. The chronology of the relevant events in respect of the Applicant Company show that the transfer to the present promoters happened in the year 1990, while the company’s shares were being traded on BSE. Subsequently, in the year 2002, the Applicant Company was suspended by BSE from trading. Further, by way of Circular dated February 12, 2016, BSE brought out a compliance methodology for companies that remained suspended from trading, including the Applicant Company, for the revocation of suspension by completing certain formalities. Lastly, on December 12, 2016, BSE passed the order compulsorily delisting the Applicant Company. 13. It is noted that the Applicant Company was suspended from trading in 2002. Since, 2002 many changes have progressively taken place in the MPS norms, and in 2010 it came to be crystallised that the MPS applicable to companies should be 25%. Further, a time period of three years i.e., till June 13, 2013, was provided to the companies who had not reached the 25% MPS mark to satisfy the said condition. It is noted that the legal regime governing delisting has been designed on the premise that all companies would have a minimum of 25% public shareholders, and as such, all processes involved in delisting have been framed in view of that threshold. In the present matter, 2,44,900 shares i.e., 99.96 % of the total shareholding in the Applicant Company is held by members of the Patil family, who fall in the promoter group, and 100 shares i.e., 0.04% of the total shareholding in the Applicant Company is held by an employee, who falls in the public shareholder category. So, any attempt by the Applicant Company to provide exit to the public shareholder(s) would evidently not meet the requirement of the participation of at least twenty five per cent of the public shareholders in the Book

Building process; and as such, the offer would not be successful and the delisting would not be possible. 14. The essential purpose of the Delisting Regulations is the protection of the interest of the public shareholders of those companies where the promoters are seeking to delist the shares of the company. The Delisting Regulations ensure protection of the public shareholders by laying down procedures to arrive at a fair exit offer price, participation of public shareholders in the process of passing the resolution, keeping the offer open for stipulated period etc. 15. I agree with the substantial submission of the Applicant Company that no prejudice would be caused to the interests of the securities markets if any relaxation/exemption is granted to the Applicant Company for voluntary delisting, as the Company has only one public shareholder, an employee. 16. In view of the above, I find that applying in full the processes/requirements contemplated in the Delisting Regulations on the Applicant Company, whose shareholding pattern has remained unchanged since 2002 and has practically no public shareholders, would be onerous and contrived. I am, therefore, inclined to relax the conditions that are standing in the way of voluntary delisting of the Applicant Company.

Order

17. For the aforesaid reasons, in the interest of the securities market and the investors and in exercise of powers under Sections 11(1) and 11B of the SEBI Act, 1992 read with Regulation 25A of the SEBI (Delisting of Equity Shares) Regulations, 2009, I hereby grant the Applicant Company i.e. Pagita Leasing and Finance Company Ltd., relaxation from the requirement of providing exit offer under Regulation 6(b) and incidental / consequential requirements thereof and to proceed with delisting subject to the following conditions:

a. The Applicant Company shall issue a public announcement in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchange, i.e. BSE, is located, disclosing, inter-alia, that the Company is 99.96 % promoter held and is seeking delisting from BSE, pursuant to this order, within a period of one month from this order.

b. Apart from the public announcement mentioned above, the Applicant Company shall write to Mr. B.J. Karandikar, who holds 100 shares, at his last known address to tender his shares, if desired.

c. In case Mr. B.J. Karandikar expresses his desire to exit, the Applicant Company shall provide an exit opportunity to him. For this purpose, the Applicant Company should take up a valuation exercise to provide exit to the said public shareholder.

d. Thereafter, the Applicant Company shall approach the Stock Exchange for guidance and the exchange shall do the needful to allow the Company to get delisted.

e. The exercise of delisting shall be completed within a period of 6 months from the date of this order.

f. The delisting will be subject to the restrictions contained in regulation 30(1) (a) of the Delisting Regulations.

18. A copy of this order shall also be served to BSE for information and necessary action. 19. The Application along with related correspondence of the Applicant Company stands disposed of accordingly.

PLACE: MUMBAI G. MAHALINGAM DATE: December 21, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA