Order in the matter of Delisting of Equity Shares of Polygenta Technologies Limited

ORDER UNDER SECTION 11(1) AND 11 B OF THE SEBI 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 POLYGENTA TECHNOLOGIES LTD.

Background – 1. Securities and Exchange Board of India (“SEBI”) received an application dated December 11, 2017 (“Application”) from Perpetual Global Technologies Ltd. (hereinafter referred to as “PGTL"/ "Applicant Promoter” / “applicant”) of M/s Polygenta Technologies Ltd ("the company"/ "PTL" / “Polygenta”) under regulation 25A of SEBI (Delisting of Equity Shares) Regulations, 2009 ("Delisting Regulations") seeking relaxation from the strict enforcement of Regulation 8(1B)(i) of the Delisting Regulations and that the Applicant Promoter may be permitted to propose a delisting of equity shares of the Company.

2. Post receipt of the Application, in accordance with regulation 25A(5) of the Delisting Regulations, the Applicant Promoter was provided an opportunity to make submissions in person. The personal hearing took place on September 25, 2018 for which the Applicant Promoter was represented by Advocates from Argus Partners- Mr. Krishnava Dutt and Ms. Adity Chaudhary. Facts relevant to the case, as borne out from the application made by the Applicant Promoter, grounds for the request made, and the oral submissions made, are summarized as follows: (i) Polygenta Technologies Ltd. was incorporated in the year 1981 as a private limited company in the name of “Maskara Polytex Private Ltd.” The shares of the Company got listed on BSE in the year 1995. Name of the company was changed to its current name in the year 2001. PGTL i.e. the Applicant promoter, is a company incorporated in Mauritius and is the promoter of the company. PGTL is a technology company and is engaged in the sustainable polyester industry and owns proprietary and patented recycling technology. As per the company’s

Order in the matter of Polygenta Technologies Ltd.

submissions, the Applicant, who is classified as a promoter of the Company, is a technology company with a broad based shareholding structure and whose shareholders are internationally reputed investors and funds (including investment from funds who have investors such as International Finance Corporation, part of World Bank, Swedfund, Proparco, Temasek, Aloe Environment Fund II etc.) and is engaged in the sustainable polyester industry and owns proprietary and patented recycling technology.

(ii) In the year 2010, PGTL, along with person acting in concert, made an open offer and became the promoter of the company and the then existing investors (except Mr. Subodh Maskara, erstwhile promoter) ceased to be promoters. Erstwhile promoter ceased to be promoter of the company in the year 2013. (iii) The shareholding pattern of the company is as follows: Shareholding pattern of the Company Sr. Category of the No. of fully paid % of No. Shareholder up equity shares shares held held a. Promoter and Promoter 11,71,54,908 75% Group b. Public 2,55,26,636 16.34% c. Non – Promoter- Non 1,35,25,000 8.66% Public (Shares by employee Trust ) Total 15,62,06,544 100% (iv) In 1997, the company implemented a mechanical process to manufacture PET chips and partially oriented yarn by re-processing secondary post industrial recovered PeT polyester waste. The technical failure of the technology led to huge financial loses and eventually the company was referred to the BIFR in 2002 as per provisions of Sick industrial companies (Special Provisions) Act, 1985 (SICA). In 2006, Company identified a technical solution to its operational deficiencies and began its efforts to raise capital to implement the solution at the Nashik Plant. Applicant had invested and/or arranged for approximately Rs. 540 cr. of investment in equity and debt in the company over the last nine years. Due to the infusion of capital by applicant, the net worth of the company turned positive and eventually the company came out of BIFR.

(v) Again, in the year 2013, company reported substantial erosion of capital by more than 50 % to BIFR. Despite the continuous losses suffered by the company, applicant continued to support the company by investing in the company.

(vi) In the year 2014-15, the company was in dire need of the working capital requirements. The company was not able to raise the resources externally and accordingly, applicant had no option but to inject fresh funds by way of subscribing 1,01,55,893 compulsorily convertible preference shares (CCPS) of the company to the tune of Rs. 47.73 crore. Upon conversion of CCPS, the applicant shareholding became 75.43% and accordingly, the applicant transferred 6,78,735 equity shares constituting 0.43% share capital to Ventureast Life Fund III after receiving SEBI approval vide letter dated April 26, 2017. After this transfer, the company became compliant with the minimum pubic shareholding norms issued by SEBI.

(vii) The ESOP trust of the company was established in February 2011 and holds 8.66% equity capital of the company. On October 28, 2014, SEBI (Share Based Employee Benefits) Regulations, 2014 were notified and thereafter, on February 25, 2015, the Securities Contracts (Regulation) (Amendment) Rules, 2015 ("SCRR Amendment Rules") were introduced amending Rule 19A of the SCRR. This amendment in law mandated that shareholding of the ESOP were to be excluded from the public shareholding from October 28, 2017 and consequently the Company became non-compliant of the MPS requirement as per 19A of SCRR. Company made efforts to distribute the shares of the ESOP Trusts, but it failed due to instability in the management of the company.

(viii) The Applicant and the company started to explore options to achieve the minimum public shareholding of 25% in accordance with SEBI Circular CIR/CFD/CMD/14/2015 dated November 30, 2015. Meanwhile, around 2016, again the company was in requirement of further working capital. Unfortunately, by then, there were no external financial institutions willing to invest in the company except the applicant. Applicant already had taken enough exposure in debt of the company and would be prevented to take further equity exposure due to MPS requirement. The manufacturing plant needed to scale up the capacity in order to achieve economies of scale, which needed further investment and support.

(ix) Shares of the company are hardly traded and traded turnover on BSE ranged from 0.0001% to 0.0019%. Company is loss making company and its book value is also negative. The company has to incur heavy costs to continue running a listed entity and there is no financial and operational sense to keep the company listed. In September 2017, in view of the aforesaid issues it became clear to the applicant that the only option left to address all issues is to delist the company by making a voluntary offer as per delisting regulations.

(x) As the promoter had sold equity shares of the company to comply with MPS requirement during the last six month period, the company could not apply for voluntary delisting of the shares as per Regulation 4(1)A of Delisting Regulations. Accordingly, the applicant filed an application dated September 25, 2017 seeking permission to propose a delisting of equity shares of the company prior to the expiry of six months as mentioned in Regulation 4(1A) of Delisting Regulations. However prior to the response of SEBI, BSE vide email dated October 26, 2017 levied a penalty of Rs.5000 per day and froze the equity shares of the promoter/promoter group for non-compliance of MPS requirements under SCRR due to automatic reclassification of the shares held by ESOP trust from October 28, 2017. Now being in breach of the MPS requirement automatically with effect from October 28, 2017 the company is prevented from undertaking a voluntary delisting of its shares from BSE due to Regulation 8(1B)(i) of the Delisting Regulations read with Regulation 38 of the Listing Regulations.

(xi) In the event the Company is unable to delist its shares, the company’s financial suffering will increase and may prevent a possible turnaround. Further, delisting of shares of the company would be beneficial for both the company as well as its shareholders.

3. Subsequently, in response to certain queries from SEBI, the Applicant Promoter made submissions vide letter dated March 08, 2019. The questions addressed by SEBI and a summary of the replies filed are recorded below:

(i) What is the Company's networth and profits (losses) for the last three financial years? Response: For the last 3 (three) financial years i.e. financial years ended March 31, 2016, March 31, 2017 and March 31, 2018, the Company has had a negative net worth and has incurred losses. The details are as follows:

(in Rs. crore) Financial Years Ended March 31, March 31, March 31, Particulars 2016 2017 2018 Equity Share Capital 156.21 156.21 156.21 Reserves and Surplus -192.98 -219.13 -273.76 Net worth as per Companies -117.55 -36.77 -62.92 Act, 2013 (in Rs. crore) Financial Years Ended March 31, March 31, March 31, Particulars 2016 2017 2018 Profits/(losses)before exceptional -62.29 -48.50 -38.74 items Exceptional items 3.56 22.36 -16.29 Profits/ (losses) after exceptional -58.74 -26.14 -55.03 items Taxes - - - Profit / Loss after tax -58.74 -26.14 -55.03 (ii) What is the total number & percentage of public shareholders holding shares in demat mode?

Response: The details of shareholding of the Company as of December 31, 2018 are as follows:

Category of Total no. of equity Equity shares in Equity shares in shareholder shares dematerialised physical form form Percen Perce Perce Number Number Number tage ntage ntage Promoter& 11,71,54,908 75.00 11,71,54,908 100 0 0 Promoter Group

Public 2,55,26,636 16.34 67,72,745 26.53 1,87,53,891 73.47

Non- 1,35,25,000 8.66 0 0.00 1,35,25,000 100 Promoter, Non-Public Sharesheld Total 15,62,06,544 100 12,39,27,653 79.34 3,22,78,891 20.66 by Polygenta (iii) As per the chronology of events submitted by the Applicant, as of February Stock 24, 2015 when convertible preference shares were allotted and as of January Option 25, 2017 when shareholding was sought to be reduced from 75.43% to 75%, Trust the Share Based Employee Benefit Regulations ("SBEB Regulations") was already in place (since October 28, 2014). Why were no efforts made to increase public shareholding since October 28, 2014 when the company was aware that on account of the SBEB Regulations, the holding by the ESOP Trust would not be treated as 'public' and that steps would need to be taken within 3 years for the company to be MPS compliant? Regulation 31(2)(b)(iii) of the SEBI (Share Based Employee Benefits) Regulations, 2014 ("SBEB Regulations") as originally notified, provided that shares held by a trust which are shown either as 'promoter' or 'public' shareholding could continue to show them as such for a time period of 5 (five) years from the date of notification of the SBEB Regulations i.e. till October 2019. The time period of 5 (five) years was reduced to 3 (three) years in regulation 31(2)(b)(iii) of the SBEB Regulations with effect from September 18, 2015 vide SEBI (Share based Employee Benefits) (Amendment) Regulations, 2015. Further, SCRR Amendment Rules, notified on February 25, 2015, also reduced the time period to 3 (three) years. Hence, as on the date of allotment of 1,01,55,893 (one crore one lac fifty five thousand eight hundred ninety three)

compulsorily convertible preference shares ("CCPS") by the Company i.e. as on February 24, 2015, as per the SBEB Regulations, the Company had time till October 2019 to take steps in order to ensure compliance with minimum public shareholding with regard to the shares held by a trust set up by the Company for implementing employee benefit schemes ("ESOP Trust").

It is only because of the requirement of reclassification of the shareholding of the ESOP Trust from 'public' to 'non-promoter non-public' category that the Company currently is not satisfying the minimum public shareholding requirement.

The following table shows the percentage of the shares traded during 2013 to 2018:

Year No. of equity shares traded % of outstanding through BSE shares 2018 82,030 0.0525% 2017 252 0.0002% 2016 510 0.0003% 2015 1,221 0.0008% 2014 2,477 0.0016% 2013 293 0.0019%

It is evident from the above data that the shares of the Company are infrequently traded.

The Company had been incurring heavy financial losses every year in the recent past. In fact, as the net worth of the Company had eroded by more than 50% (fifty percent), reports were filed with the Board for Industrial and Financial Reconstruction in accordance with the Sick Industrial Companies (Special Provisions) Act, 1985 for consecutive years i.e. the financial years ending on March 31, 2013, March 31, 2014 and March 31, 2015. The net worth continued to be negative even thereafter. Due to the severe financial challenges that the Company has faced over the years, the Company was unable to substantially attract and/or retain talent at a senior management level. Between 2013 and 2017, there have been 2 (two) CEOs, 5 (five) CFOs and 2 (two) COOs resignations, and numerous other changes in senior management, and there has also been numerous changes in the junior-management and staff. The churn in top level management made it impossible to arrive at a proper allocation formula linked with the performance.

Furthermore, there would be significant tax implications on the employees as the listed price of the shares (considered for tax calculation) has been much higher than the allotment price being considered, and this did not make compensation through shares an attractive compensation structure for the employees. This is because on the one hand the employees would have to acquire shares of the Company which has a negative net worth and the book value of whose shares is negative, and on the other hand the employees would have to pay income tax under the Income Tax Act, 1961 on the difference between the market price and the amount actually paid by the employee.

With respect to the above explanation and the assumptions made therein, the following tables provide the book value of shares of the Company, average of the high and low prices of the equity shares of the Company and potential tax liabilities on the employees, and the assumptions made for the above illustration:

Table A: Book value of shares Particulars December December December December 31, 2014 31, 2015 31, 2016 31, 2017 Net worth (in Rs. crore) -16.484 -30.867 -52.054 -91.211 No. of shares 14.61 15.62 15.62 15.62 outstanding (fully diluted) (Nos. in crore) Book value per share at Negative Negative Negative Negative the end of the calendar year (Rs /shares)

Table B: Average of the high and low prices of the equity shares of the Company* Calendar Years Particulars 2014 2015 2016 2017 High price (Rs/share) 52.30 20.50 16.75 16.25 Low price (Rs/share) 19.45 16.85 15.50 13.00 Average of high and low prices A 35.88 18.68 16.13 14.63 (Rs/share) * For the sake of simplicity, average price has been taken for calculation

Table C: Potential tax implication on the employees Calendar Years Particulars 2014 2015 2016 2017 Assumed ESOP Grant Price B 1.00 1.00 1.00 1.00 Market price at the time of C 35.88 18.68 16.13 14.63 (Rs/share) grant assumed to be (A) above (Rs/share)

C less Perquisite value (Rs/share) 34.88 17.68 15.13 13.63 B Taxation for an individual D 10.46 5.30 4.54 4.09 in the highest tax bracket (Rs/share) 1046 530 454 409 Tax as a % of Grant Price % % % %

Given the dire financial condition of the Company, it was not in a position to offer any financial assistance to the employees to purchase shares of the Company under an employee benefit scheme.

In addition to the above, failure to raise funds from external sources forced the Applicant to continue to provide sustenance funding to the Company by way of external commercial borrowings ("ECB") for its operations. The total funds infused by way of ECB by the Applicant in the Company from April 2014 till December 2018 aggregates to Rs. 156.14 crore (Rupees one hundred fifty six point one four crore).

Financial Year Ended (In Rs. crore) Financial Year Ended March 31, 2015 55.50 Financial Year Ended March 31, 2016 25.78 Financial Year Ended March 31, 2017 36.78 Financial Year Ended March 31, 2018 28.01 April 2018 to December 2018 10.07 Total 156.14

The aforesaid loans taken by the Company depressed the real value of the shares, and the employees realised this. It would have been de-incentivising to try to allot ESOP shares to employees (i.e. something employees saw as decreasing in value) in such a scenario. Certain senior employees were already concerned about the low book value of the shares and hence were not keen to subscribe to the shares and pay tax on the allocation. Further, even though the Applicant discussed with quite a few eligible employees, including the CEO whose appointment letter specifically provided for the grant of employee stock option shares, none of the said persons agreed to accept the said shares due to the abysmally dire financial state of the Company and the consequential yet non-commensurate tax liability.

The Applicant approached various investors including private equity funds, strategic investors and family offices such as IFU from Denmark in July 2015, Vis Vires Capital in 2015, Beatona from Saudi Arabia, Danone in early 2016, Aster Capital in 2016, Altos Capital in 2017, Kock Family in 2017, and Indorama in mid-2017. It also engaged various investment bankers at various points during this time in India as well as internationally to reach out to investors for raising funds such as MentorCap Management Private Limited in 2015, Business Governance Solution in 2016 and THIS Advisory, London in June 2017. However, continued losses and negative net-worth turned to be some of the major bottlenecks as cited by investment bankers/ investors in our efforts to raise funds.

The Company already being in negative net worth, any further debt would further burden the Company. Further, any incremental equity would also not be possible due to the minimum public shareholding requirement. Therefore, the only option left to address all the aforesaid issues was to delist the Company by making a voluntary delisting offer to the public shareholders of the Company in accordance with the Delisting Regulations.

(iv) Is the ESOP Trust in compliance with the provisions of regulation 3(11) & (12) of the SEBI (Share Based Employee Benefits) Regulations, 2014? All the shares held by the ESOP Trust have been gifted to the ESOP Trust. Details of the shares gifted are as follows: S.N. Date of gift Name of person gifting No. of equity shares 1. M arch 16, 2011 Applicant gi7f4te,2d5 ,000 Director of Company (i.e. Marc 2. J uly 5, 2012 6,00,000 Lopresto) 3. J anuary 2, 2014 Applicant 55,00,000 TOTAL 1,35,25,00 0 Since the shares acquired by the Trust were by way of gift and not secondary acquisition, in terms of explanation 3 to regulation 3(11) of the SBEB Regulations, the ceiling limit does not apply to the ESOP of the company. For the same reason, regulation 3(12) requiring sale of un-appropriated inventory of shares not backed by grants within a period of 5 years from the regulations coming into force, does not apply to the company.

Delisting Regulations and scope of SEBI's powers 4. The requirement to maintain Minimum Public Shareholding ("MPS") in a listed company was explicitly laid out by way of insertion of Rule 19A in the Securities Contracts (Regulation) Rules, 1957 ("SCRR") with effect from June 04, 2010. Rule 19A(1) and 19A(4) read as follows: "Continuous Listing Requirement. 19A. (1) Every listed company other than public sector company shall maintain public shareholding of at least twenty five per cent.: ... (4) Where the public shareholding in a listed company falls below twenty-five per cent in consequence to the Securities Contracts(Regulation) (Amendment) Rules, 2015, such company shall increase its public shareholding to at least twenty-five per cent in the manner specified by the Securities and Exchange Board of India within a period of three years, as the case may be, from the date of notification of:

(a) the Depository Receipts Scheme, 2014 in cases where the public shareholding falls below twenty five per cent as a result of such scheme; (b) the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 in cases where the public shareholding falls below twenty-five per cent, as a result of such regulations."

5. The procedure relating to voluntary delisting of a company's equity shares is governed by the provisions of SEBI (Delisting of Equity Shares) Regulations, 2009. However one of the essential conditions relating to granting permission to voluntarily delist is recorded in Regulation 8(1B) of the Delisting Regulations, which reads as follows: "(1B) The board of directors of the company while approving the proposal for delisting shall certify that : (i) the company is in compliance with the applicable provisions of securities laws; (ii) the acquirer or promoter or promoter group or their related entities, are in compliance with sub-regulation (5) of regulation 4; (iii) the delisting is in the interest of the shareholders."

Further, regulation 25A reads as follows: "Power to relax strict enforcement of the regulations. 25A. (1) The Board may, for reasons recorded in writing, grant relaxation from strict enforcement of any of the requirements of these regulations, if the Board is satisfied that the relaxation is in the interests of investors in securities and the securities market. ..."

6. I have perused the facts and circumstances of the case. I have also examined the scope of the powers of the Board under Regulation 25A of the Delisting Regulations. Under Regulation 25A, the Board has the power to relax strict enforcement of the regulations, if it is satisfied that the relaxation is in the interests of the investors in securities and the securities market and while doing so, the reasons for grant of relaxation need to be recorded in writing. This would imply that the Board is empowered to relax the rigors of the requirements under the Delisting Regulations on a case to case basis, upon being satisfied that such relaxation would serve the interest of investors of the company and the securities market as a whole.

Issues for consideration

7. The short question that arises in the context for consideration is whether the company can be allowed to voluntarily delist under the provisions of the Delisting Regulations while it is not in compliance with Rule 19A of SCRR, given the facts and circumstances of the case? If yes, how can the interest of the public shareholders of the company be protected?

8. MPS norms were framed with the objective of ensuring greater dispersed shareholding in publicly traded companies and higher participation of non-promoter shareholders. The objective has been clearly stated in the Press Release dated June 04, 2010, issued by the Ministry of Finance, Government of India, in inter alia the following words: "A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. Further, the larger the number of shareholders, the less is the scope for price manipulation." 9. Regulation 8(1B)(i) of the Delisting Regulations requires the company proposing to make a voluntary delisting to certify that it is in compliance with “applicable provisions of securities laws”. This provision, read with Rule 19A of the SCRR (also recorded above), indicates that a company which is non-MPS compliant (thereby said to be not compliant with “applicable provisions of securities laws”) cannot seek voluntary delisting. In the context of consideration of such delisting applications made by MPS non-compliant companies, it is relevant to make certain observations.

Firstly, delisting should not serve as an easy option that can be chosen by such companies to avoid MPS non-compliance. At the same time, preventing delisting of companies which are in a state of financial distress and/or having low public shareholding stifles the interest of the public shareholders. Furthermore, voluntary delisting is a preferable option from the perspective of investors as the public shareholders get to participate in the reverse book building process to arrive at a fair and acceptable exit price. In cases of non-compliance with MPS norms, SEBI in the past, has allowed certain MPS-non-compliant companies to go ahead with voluntary delisting, taking into consideration certain peculiar facts of the applicant company. In fact, the powers conferred on SEBI under regulation 25A of the Delisting Regulations to relax the applicability of provisions of the Regulations and Rule 19 (7) of the SCRR permitting SEBI to waive or relax the strict enforcement of listing requirements under the SCRR is indicative of the legislative intent for SEBI to take a pragmatic view of cases, keeping the interest of investors as the predominant consideration.

Therefore, there is a need to balance the interest of the public shareholders vis-à-vis a strict interpretation of Regulation 8(1B)(i) of the Delisting Regulations, so as to enable the shareholder to realize the best value of the shares while allowing such relaxations in suitable cases. The relaxations given to such companies to initiate voluntary delisting may accompany certain conditions in the form of directions under Section 11B of the SEBI Act, 1992.

10. In the instant case, the immediate cause of the breach of MPS norms by the company is the reclassification of ESOP Trusts as being non-public and non-promoter in nature. This condition was introduced post the notification of the SBEB Regulations. The relevant provisions of the regulations are as follows: “Implementation of schemes through trust. 3. (9) For the purposes of disclosures to the stock exchange, the shareholding of the trust shall be shown as ‘non-promoter and non-public’ shareholding. Explanation: For the removal of doubts, it is clarified that shares held by the trust shall not form part of the public shareholding which needs to be maintained at a minimum of twenty five per cent as prescribed under Securities Contracts (Regulation) Rules, 1957.

These regulations make it clear that shares held by ESOP trusts can neither be categorized as public nor as promoter held. Regulation 31(b)(iii) of the SBEB Regulations as initially notified on October 28, 2014 mandated that companies which are non-compliant with the MPS norms on account of the change in law would have 5 years to increase their public shareholding i.e. companies would need to comply by October 28, 2019. Vide Securities Contracts (Regulation) (Amendment) Rules, 2015 notified with effect from February 25, 2015, Rule 19A(4) was inserted mandating that the time for increasing public shareholding would be only 3 years from the date of notification of the SBEB regulations. Subsequently, SEBI, vide Securities and Exchange Board of India (Share based Employee Benefits) (Amendment) Regulations, 2015, notified with effect from September 18, 2015, also reduced this time period to 3 years. Thus, as of 2015, the period within which MPS must be achieved was advanced to October 2017, thereby giving the company only two more years to be compliant with MPS requirements.

11. I note that the current promoter of the company, i.e. the Applicant, became promoter from 2010 pursuant to an open offer having acquired shares and taken control from the erstwhile promoter of PTL. The company had repeated runs with financial losses, having been under the BIFR framework at least once. The company's financial performance continued to be poor even after its takeover by the applicant promoter. From the records submitted by the company and other available records, it is seen that the company has been making losses continuously and has negative net worth.

12. In the case of Polygenta, available records show that in 2014-15, post allotment of convertible preference shares, promoter holding was at 75.43% i.e. an excess of 0.43%. This was rectified in 2017 by transferring the excess promoter holding to a financial investor with SEBI approval. However as of October 2014, the company’s ESOP Trust held 8.66% shares of the company. I note that prior to the SBEB regulations, ESOP trust holdings constituted a legally valid component of public shareholding. However, the Amendment rendered the company as being non-compliant with MPS norms to the extent of 8.66%. This breach of MPS norms has arisen due to the operation of law and is not a result of an intentional breach by the promoter.

13. Considering that SBEB Regulations and SCRR afforded sufficient time period within which any non-compliance of MPS can be remedied, the question that arises is whether Polygenta’s non-compliance is justifiable in the facts and circumstances of the case. While addressing this, it needs to be borne in mind, that the period for remedying the breach in MPS norms, had been reduced by two years after the reclassification was introduced. Therefore, the company, in 2015 had only 2 years to identify potential means to reduce a sizeable portion of promoter shareholding. The available records indicate that the company was in financial distress from 2014- 15 onwards. The applicant promoter has also been able to show from records that the company’s management was unstable. Added to the above, I find merit in the company’s additional submission that the employees would also not be interested in the company’s shares due to the concomitant problem of disproportionately high tax on shares the book value of which is very low. I also note that trades in the shares of Polygenta during the last 5 years have not been more than 1 % of the outstanding shares of Polygenta.

14. The company further stated that by voluntarily delisting the company, it would be able to infuse equity capital by increasing promoter holding and reducing regulatory costs thereby enabling a potential turnaround. For the public shareholders, the reverse book building mechanism in voluntary delisting gives them an option to get a price better than what may be available in an otherwise illiquid market. However if the public shareholders foresee better financial future for the company, they would be free not to participate in the voluntary delisting process. As per available records, there are no investor grievances also pending against the company. Thus in my opinion, voluntary delisting would be a better alternative in the investors’ interest, when compared to the options of compelling MPS compliance through enforcement measures or compulsory delisting.

15. Be it as it may, I have also noted that the company has not submitted any evidence indicating efforts made to comply with MPS requirements in line with any of the methods laid down in SEBI Circular No. CIR/CFD/CMD/14/2015 dated November 30, 2015. I also note that even though the ESOP Trust was created in February 2011, the company has also not submitted any documentary evidence to indicate that it has, in fact, framed an ESOP scheme and granted options to any employees. I have also taken note of Clause 5.1.5 in the Trust Deed, which, empowers the Trustees to, inter-alia, transfer the remainder of the Trust Property to any person with or without consideration. Considering all the above facts, it cannot be ruled out that the Trust was merely an entity created to bypass the MPS requirements and to park the excess shares held by promoters.

16. The company, currently, has a public shareholding of 16.34% as against the minimum requirement of 25%. In case of companies undertaking voluntary delisting while being compliant with MPS requirements, the promoters are required to acquire at least 15% of total shareholding from the public to deem the delisting offer to be successful in terms of Regulation 17 of Delisting Regulations. In other words, promoters of an MPS compliant company would need to acquire at least 60% of the public shareholding (i.e.15% of total shareholding out of the 25% total public shareholding), to make the delisting offer successful. However, in the instant case, if the company is allowed to proceed with the delisting by treating ESOP Trust as part of the promoter shareholding or if the Trust is allowed to tender shares to promoters as part of delisting process, the promoters would have to acquire only 6.34% shareholding from public to reach the minimum threshold of 90% as provided in Regulation 17 of Delisting Regulations, 2009. This, if allowed unconditionally, would indirectly incentivize the MPS violation. Hence, it is appropriate to impose certain conditions upon the company and promoters, while relaxing the requirements for voluntary delisting, as indicated under the heading “Directions”.

17. Another major concern in case of a company getting delisted is whether the public shareholders are given the fair price, especially when the shares are not widely traded to reflect its actual worth. In the given case, the company is continuously loss making and its shares are scarcely traded and the annual trading volumes during the last few years have not touched 1 % of the outstanding shares. It is also observed from the submissions of the company that a turnaround is possible with further infusion of capital. I have also noted that the revenues of the company for the last 5 quarters ending June 2019 showed steady increase (increased from Rs.19.09crore for the quarter ended June 2018 to Rs.30.02 crore for the quarter ended June 2019). I have also noted that company’s quarterly losses have reduced from Rs.8.28crore for the quarter ended June 2018 to Rs.1.65crore for the quarter ended June 2019. Thus, the possibility of a turnaround in near future cannot be ruled out in the instant case. In such a scenario, it becomes imperative that the public shareholders opting for exit are paid fair value for the shares tendered by them, after taking into account the value attributable to the possible turnaround in near future. Hence, I find it appropriate to impose additional conditions with respect to valuation to ensure that the public shareholders opting for exit are paid a fair price for their shares. 18. The applicant has also prayed for issuing directions to BSE Ltd (“BSE”), to revoke its order issued vide email dated October 26, 2017 levying penalty and ordering a freezing of the shares of the applicant promoter. I note that the company has not been compliant with the MPS norms and has not resorted to any of the methods prescribed in SEBI circular No. CIR/CFD/CMD/14/2015 dated November 30, 2015 to comply with the MPS requirements. Accordingly, BSE has taken penal action as stipulated in SEBI circular No. CFD/CMD/CIR/P/2017/115 dated October 10, 2017 for the said non-compliance. In this regard, in view of para 11 of the aforesaid SEBI circular dated October 10, 2017, the applicant may approach BSE for suitable relaxation. Upon receipt of such request, BSE may consider the same on merits.

Directions: 19. For the aforesaid reasons, in the interest of investors in securities and in exercise of powers under sections 11(1) and 11B of the SEBI Act,1992 and regulation 25A of the SEBI (Delisting of Equity Shares) Regulations, 2009, I find it appropriate to grant the company i.e. Polygenta Technologies Ltd., relaxation from the applicability of regulation 8(1B)(i) (limited to the extent of compliance with minimum public shareholding norms) for the specific purpose of seeking voluntary delisting of its equity shares, subject to the following conditions: (i) The Company is in compliance with provisions of all other applicable laws. (ii) The Applicant shall initiate voluntary delisting of its equity shares within a period of 6 months from the date of this Order. (iii) The applicant shall obtain valuation of its equity shares from two independent peer reviewed chartered accountants and the delisting price to be paid to the investors, as discovered through reverse book building process shall not be lower than the higher of the valuations so obtained. (iv) The Applicant shall cause to publish a newspaper advertisement in one national newspaper in English and in newspapers in local vernacular in each State where its public shareholders are residing, as per the address contained in its records.

(v) The advertisement as provided in Para (iv) above as well as the explanatory statement to special resolution shall indicate the valuation obtained as per Para (iii) above and shall also state that the higher of the price discovered in reverse book building and the valuation as obtained in Para (iii) above, shall be paid to investors, in the event of company proceeding with the delisting. (vi) The offer price shall be paid to tendering shareholders only through banking channels through crossed account payee cheque / crossed demand draft / internet banking channels to enable audit trail. (vii) In addition to compliance with the applicable provisions of Delisting Regulations, the delisting offer shall be considered as successful only if the promoters acquire at least 60% of the remaining public shareholding; (viii) The shares held by ESOP Trust shall not constitute public shareholding for the purpose of aforesaid acquisition of 60%; (ix) Pursuant to delisting of Polygenta’s equity shares, the promoters shall continue to accept shares tendered by any remaining public shareholder holding such equity shares, for up to a period of two years from the date of delisting, at the same price at which the earlier acceptance of shares was made and in a manner that provides bank record of payment.

(x) Subject to the above, the Applicant shall comply with all other conditions, including those pertaining to determination of the offer price, stipulated in Chapter IV of the SEBI (Delisting of Equity Shares) Regulations, 2009.

(xi) Copy of this order shall also be displayed on the company’s website and the web link thereto shall be included in the notice of special resolution sent to shareholders.

20. The Application dated December 11, 2017 stands disposed of accordingly.

DATE: August 21, 2019 G. MAHALINGAM PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA