Order in the matter of Delisting of Equity Shares of Ronson Traders Limited

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 RONSON TRADERS LTD.

Background -

1. Ronson Traders Limited (“RTL” / “Applicant” / “the company”), is a Non-Banking Financial Company incorporated under the Companies Act, 1956 on October 16, 1982, having its registered office at 9/1, R. N. Mukherjee Road, 5th Floor, Kolkata - 700 001. The equity shares of the applicant are listed on Calcutta Stock Exchange Limited (“CSE”).

2. Securities and Exchange Board of India (“SEBI”) received an application dated December 06, 2019 (“Application”) from RTL seeking exemption / relaxation under Regulation 25A of the SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”) from strict enforcement of Regulation 27 of Delisting Regulations. Additional information and clarifications were also submitted by the applicant vide letters dated December 26, 2019, February 14, 2020 and June 15, 2020.

3. Gist of the submissions made by the applicant vide the application and the letters dated December 26, 2019, February 14, 2020 and June 15, 2020, is given below:

a. The equity shares of the company were listed on CSE during the year 1993.

Order in the matter of Ronson Traders Limited b. The company’s paid up share capital comprises of 5,73,000 equity shares of the face value of Rs. 10 each. Out of these, 5,52,180 equity shares representing 96.37% are held by the promoters and promoter group. The remaining 20,820 shares representing 3.63% are held by 13 public shareholders.

c. As on March 31, 2019, net worth of the company stood at Rs.72.55 crores.

d. Though the company has been categorised as ‘active’ by CSE, its equity shares have not been traded on CSE since 1997.

e. Regulation 27 of the Delisting Regulations permits delisting of equity shares of a small company from all recognised stock exchanges without having to follow the extensive procedure under Chapter IV of the Delisting Regulations, subject to the fulfilment of criteria specified therein.

f. The company meets the eligibility criteria specified in Regulation 27(1)(b) and (c) of the Delisting Regulations, but fails to meet the criteria specified under Regulation 27(1)(a) pertaining to net worth.

g. The shareholding of the promoter / promoter group has always been above 90% since the year 2010 and currently, promoter / promoter group holds 96.37% of equity shares in the company.

h. Due to lack of liquidity of the shares on CSE, there are no takers for the shares, especially to the extent required to reduce promoter’s holding from 96.37% to 75%.

i. Though the company has only 13 public shareholders holding 20,820 shares (3.63%), company pays a hefty listing fee to CSE and is also required to fulfil additional compliances required by SEBI.

j. The company understands that delisting of the equity shares of the company is a practical move, financially.

k. Due to lack of liquidity of equity shares of the company, the investments of public shareholders had become illiquid. Delisting will provide these 13 public shareholders an opportunity to liquidate their shares at a fair market value in terms of the formula prescribed under the Delisting Regulations.

l. If an exemption from Regulation 27(1)(a) of the Delisting Regulations is not allowed, the company shall be forced to follow the extensive procedure under Chapter IV of the Delisting Regulations that shall cause additional financial burden on the company.

m. Since the company has only 13 public shareholders holding only 3.63% of the equity shares of the company, relaxing the condition under Regulation 27(1)(a) of the Delisting Regulations will not adversely impact these investors’ interests.

n. Delisting of the company’s equity shares by way of the process prescribed under Regulation 27 of the Delisting Regulations is the only practical and viable route available to the company.

o. As regards the steps taken to comply with Minimum Public Shareholding (“MPS”) requirement, company submitted that since there are only 13 public shareholders and the CSE is non-operational and the company is not listed on any nationwide stock exchange, there is no investor interest in the shares of the company and hence, various methods prescribed by SEBI to achieve MPS compliance were not feasible.

p. In terms of SEBI circular No. CIR/MRD/DSA/18/2014 dated May 22, 2014, companies that are exclusively listed on de-recognised / non-operational stock exchanges were permitted to voluntarily delist and pursuant to Para 3(iii) of the said circular, requirements of MPS prescribed under Rule 19(2)(b) and 19A of Securities Contracts (Regulation) Rules, 1957 (“SCRR”) shall not be applicable to such companies.

q. In view of the above, the company has sought the following exemptions to enable it to undertake proposed delisting in accordance with Regulation 27 of Delisting Regulations:

i. Exemption from Regulation 27(1)(a) of the Delisting Regulations - the company meets the criteria of paid up share capital of less than Rs. 10 crores but has net worth of Rs.72.55 crore, which is in excess of the specified criteria of Rs.25 crores.

ii. Exemption from Minimum Public Shareholding requirement - The company has also sought exemption from Rule 19(2)(b) and 19A of SCRR, since no purpose is likely to be served by asking promoters to first bring down their holding to 75% and then to acquire it back fully to enable delisting.

Consideration

4. Before I proceed with my consideration, I find it appropriate to quote the regulatory provisions relevant in the matter:

Delisting Regulations “Delisting from only some of the recognised stock exchanges 6. A company may delist its equity shares from one or more recognised stock exchanges where they are listed and continue their listing on one or more other recognised stock exchanges, subject to the provisions of these regulations and subject to the following – (a) …….., (b) if after the proposed delisting, the equity shares do not remain listed on any recognised stock exchange having nationwide trading terminals, exit opportunity shall be given to all the public shareholders holding the equity shares sought to be delisted in accordance with Chapter IV.” “Conditions and procedure for delisting where exit opportunity is required 8(1).………………. (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;” “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. (2) For seeking exemption under sub-regulation (1), the promoter or the acquirer or the company shall file an application with the Board, supported by a duly sworn affidavit, giving details for seeking such exemption and the grounds on which the exemption has been sought. (3) The promoter or the acquirer or the company, as the case may be, shall along with the application referred to under sub-regulation (2) pay a non-refundable fee of rupees fifty thousand, by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by RBI or] by way of a banker’s cheque or demand draft payable in Mumbai in favour of the Board. (4) The Board may after affording reasonable opportunity of being heard to the applicant and after considering all the relevant facts and circumstances, pass a reasoned order either granting or rejecting the exemption or relaxation sought as expeditiously as possible.” “Special provisions in case of small companies

27. (1) Equity shares of a company may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV, if,- a) the company has a paid up capital not exceeding ten crore rupees and net worth not exceeding twenty five crore rupees as on the last date of preceding financial year; b) the number of equity shares of the company traded on each such recognised stock exchange during the twelve calendar months immediately preceding the date of board meeting referred to in subregulation (1B) of regulation 8 is less than ten per cent of the total number of shares of such company: Provided that where the share capital of a particular class of shares of the company is not identical throughout such period, the weighted average of the shares of such class shall represent the total number of shares of such class of shares of the company; and c) the company has not been suspended by any of the recognised stock exchanges having nation-wide trading terminals for any noncompliance in the preceding one year; (2) [Deleted] (3) A delisting of equity shares may be made under sub regulation (1) only if, in addition to fulfilment of the requirements of regulation 8, the following conditions are fulfilled:- (a) the promoter appoints a merchant banker and decides an exit price in consultation with him; (b) the exit price offered to the public shareholders shall not be less than the floor price determined in terms of sub-regulation (2) of regulation 15 of these regulations read with clause (e) of sub regulation (2) of regulation 8 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; (c) the promoter writes individually to all public shareholders in the company informing them of his intention to get the equity shares delisted, indicating the exit price together with the justification therefore and seeking their consent for the proposal for delisting;

(d) the public shareholders, irrespective of their numbers, holding ninety percent or more of the public shareholding give their consent in writing to the proposal for delisting, and have consented either to sell their equity shares at the price offered by the promoter or to remain holders of the equity shares even if they are delisted; (e) the promoter completes the process of inviting the positive consent and finalisation of the proposal for delisting of equity shares within seventy five working days of the first communication made under clause (c); (f) the promoter makes payment of consideration in cash within fifteen working days from the date of expiry of seventy five working days stipulated in clause (e). (4) The communication made to the public shareholders under clause (c) of sub-regulation (3) shall contain justification for the offer price with particular reference to the applicable parameters mentioned in regulation 15 and specifically mention that consent or the proposal would include consent for dispensing with the exit price discovery through book building method. (5) The concerned recognised stock exchange may delist such equity shares upon satisfying itself of compliance with this regulation.” 5. From the material available on record, I note that the applicant has been listed on CSE since 1993 and the shareholding of the promoters and promoter group remained at around 90% since 2010. Subsequently, shareholding of the promoters and promoter group entities in the company increased from 92.04% to 96.37% in the year 2018-19 pursuant to a scheme of amalgamation involving merger of GMB Investments Private Limited with Deepshikha Trading Company Private Limited.

6. While the company’s shares continued to be listed, I note that the promoters’ shareholding in the company has been more than 90% and there has not been any trading in the shares of the company for a long time. The company, although being listed, has continuously failed to comply with the MPS requirement. I note that the company has sought relaxation from Regulation 27(1)(a) of Delisting Regulations and Rule 19(2)(b) and 19A of SCRR, vide the instant application.

7. As regards the non-compliance with MPS requirements, the company submitted that it has not taken any steps to comply with MPS requirements, as the securities of the company were listed only on CSE, on which no trading was going on. The company has also submitted that none of the methods to achieve MPS specified by SEBI could be undertaken as there was no investor interest and there were only 13 public shareholders holding 3.63% shares. In this connection, I note that the SEBI circular CIR/MRD/DSA/18/2014 dated May 22, 2014, inter-alia, exempted companies which were listed exclusively on de-recognised / non-operational stock exchanges from the requirements of ‘Minimum Public Shareholding’ prescribed in Rules 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 and Clause 40A of the Listing Agreement, for the purpose of enabling such companies to opt for voluntary delisting. I note that the spirit of the circular is to facilitate voluntary delisting by the companies that are listed exclusively on the non-operational stock exchanges.

8. In view of the above and considering the special circumstances of this case and the interest of the public shareholders of the company, I deem it a fit case to relax the requirements of Regulation 8(1B)(i) of Delisting Regulations, with respect to its compliance with MPS, as the company is seeking voluntary delisting of its equity shares.

9. I note that the company, in its application has also sought exemption from Regulation 27(1)(a) of the Delisting Regulations, i.e. from one of the criteria to be fulfilled to be eligible for delisting under special provisions applicable for small companies. As per the company’s submission, it meets all the criteria specified under Regulation 27(1) except that of the net worth. I note that Regulation 27 (1)(a) prescribes that, to be eligible for delisting under the special provisions without following the procedure prescribed under

Chapter IV of the Delisting Regulations, a company’s paid up share capital shall not exceed ten crore rupees and its net worth shall not exceed twenty five crore rupees. While the applicant has a paid up share capital of Rs.57.30 lakhs and meets the criteria prescribed in the special provisions, company’s net worth as on March 31, 2019 of Rs.72.55 crores, exceeds the limit of Rs. 25 crore specified in Regulation 27 of Delisting Regulations.

10. I note that Chapter IV of the Delisting Regulations provides for an elaborate procedure for companies opting for voluntary delisting. The requirements specified therein, inter-alia, include, making a public announcement, appointment of a merchant banker, depositing the consideration amount in an escrow account, dispatching letter of offer to public shareholders, book-building mechanism for price discovery, procedure for acceptance, rejection and counter offer, minimum level of participation required and criteria to consider the offer successful, payment of consideration etc. However, a company, which meets the criteria specified in Regulation 27 need not comply with these elaborate procedures prescribed in Chapter IV and may instead follow the relaxed procedure wherein the requirements regarding book building, public announcement, escrow account etc. are dispensed with. Apart from the procedural requirements, the substantial requirement that is provided in Chapter IV is the book building mechanism for price discovery, i.e., where the shareholders get to participate in the bidding process to discover the delisting price.

11. In order to undertake delisting under the relaxed framework provided in Regulation 27, a company has to meet all the criteria specified therein, including that of the paid up share capital and net worth. In the instant case, the applicant has submitted that it satisfies all the criteria specified in Regulation 27 except that of net worth. I note that the net worth of the applicant as per the latest available audited accounts is around Rs.72.55 crore as against the limit of Rs. 25 crore specified in Regulation 27.

12. I note that the purpose of the relaxed framework for delisting provided in Regulation 27 is to enable small companies having lesser public shareholding to get delisted with minimum procedural formalities while ensuring adequate protection of the rights of public shareholders. In the instant case, the company is listed only in CSE, where trading has not been operational for quite some time and the company has very little public shareholding, i.e., 20,820 shares representing 3.63% of shares held by 13 public shareholders.

13. In the instant case, I note that the investments of the public shareholders in the company have remained frozen and their exit opportunity has been denied for want of trading and liquidity in the shares. The company seeks to provide exit to public shareholders in line with the relaxed procedure prescribed under Regulation 27 instead of the detailed procedure laid down in Chapter IV, although the company’s net worth exceeds the limit prescribed therein. In this regard, I note that there are only 13 shareholders in the public category holding 3.63% shares. Considering the same, I am of the view that the detailed procedural requirements specified in Chapter IV including public announcement, escrow account, letter of offer etc. could be substituted in the instant case, with the relaxed procedural requirements specified in Regulation 27, subject to additional safeguards, as deemed necessary to protect the interest of the investors. In my view, enabling delisting of the company, albeit with some relaxations, would be in the overall interest of the public shareholders of the company.

14. While considering relaxations from strict enforcement of requirements under Regulation 27(1) of the Delisting Regulations, it becomes necessary to ensure that granting such relaxations does not prejudice the rights of public shareholders. Accordingly, in the interest of investors and the securities market, I am inclined to grant the company relaxation from strict enforcement of Regulation 27 of Delisting Regulations, subject to certain conditions.

15. I find that the requirement in Chapter IV of the Delisting Regulations, of depositing the consideration payable in the escrow account, helps to ensure timely payment of consideration to the public shareholders. Accordingly, I find it appropriate to prescribe the same as one of the additional conditions accompanying the relaxation being granted to the applicant.

16. I also observe that the book building mechanism for price discovery, i.e., where the shareholders get to participate in the bidding process to discover the delisting price, is an important requirement prescribed under Chapter IV of Delisting Regulations ensuring shareholder participation in price discovery. I view it as one of the key requirements in protecting rights of public shareholders and hence find it appropriate to mandate the same in the instant case also. However, considering that the company has only 13 public shareholders and is listed only on a non-operational stock exchange, formal online reverse book building mechanism provided by stock exchanges may be dispensed with in the matter and the company, instead may seek the indicative prices from the shareholders by way of post / courier.

17. Considering the size of the public shareholding (3.63%) and number of public shareholders (13) and the status of the company as exclusively listed on CSE, I am of the view that the other procedural requirements prescribed in Chapter IV may not be of much relevance in the instant case.

Conclusion

18. The Applicant is a company listed only on CSE, and there has not been any trading in shares of the company thereon since 1997. In such a scenario, the public shareholders in the company have been denied the benefit of listing, i.e. an opportunity to exit by liquidating their investments at a reasonable price. Considering that the company is not listed in any operational stock exchange having nationwide trading terminals, the instant proposal by the company to voluntarily delist from CSE could probably be the only ray of hope to the public shareholders to liquidate their investment in the applicant company. While the company has been non-compliant with the MPS requirements, I strongly feel that such a non-compliance should not stand in the way of enabling public shareholders to liquidate their investments. Further, having regard to the facts and circumstances in the instant case and that the company is listed only on a regional stock exchange and has only 13 public shareholders, allowing it to follow the simpler mode of delisting provided in Regulation 27 of the Delisting Regulations with adequate safeguards, in my view, would serve the ends of justice and would be in the interest of all stakeholders concerned.

Order

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. Ronson Traders Limited, relaxation from the applicability of Regulation 8(1B)(i) (limited to the extent of compliance with minimum public shareholding norms) and Regulation 27(1)(a) (with regard to the net worth requirement) for the specific purpose of seeking voluntary delisting of its equity shares, subject to the following conditions:

a. The Company is in compliance with provisions of all other applicable laws.

b. The company shall initiate voluntary delisting of its equity shares within a period of 1 month from the date of this Order and shall complete the process of voluntary winding up within a period of one year from the date of this order.

c. The company shall obtain valuation of its equity shares from two independent peer reviewed chartered accountants and the floor price for the delisting shall not, in any case, be lower than the higher of the two valuations.

d. The company shall write to all the public shareholders intimating them of the proposed delisting and the floor price so determined and shall also seek from them the indicative price at which they are willing to offer their shares in the delisting.

e. The company shall determine the final offer price in consultation with the merchant banker, after having due regard to the floor price and the prices indicated by the shareholders and intimate the final offer price to the public shareholders.

f. The company shall comply with the requirement of Escrow Account as specified in Regulation 11 of the Delisting Regulations.

g. If the company is unable to obtain evidence of delivery of the offer letters to all the public shareholders, it 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.

h. The letter of offer sent to all public shareholders and the advertisement as provided in clause (g) above as well as the explanatory statement to special resolution shall indicate the valuation obtained as per clause (c) above and the rationale for the offer price to be paid to investors, in the event of company proceeding with the delisting.

i. The offer price shall be paid to tendering shareholders only through banking channels through crossed account payee cheque / crossed demand draft / electronic banking channels to enable audit trail.

j. Pursuant to delisting of company’s equity shares, the promoters shall continue to accept shares tendered by any remaining public shareholder, 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.

k. Subject to the above, the company shall comply with all other applicable conditions, stipulated in the Delisting Regulations.

20. The above direction is without prejudice to the right of SEBI to take any other appropriate action for other non-compliances.

21. Copy of this order shall also be served to CSE for information and necessary action.

22. The Application dated December 06, 2019 along with related correspondences stands disposed of accordingly.

G. MAHALINGAM PLACE: MUMBAI WHOLE TIME MEMBER DATE: June 19, 2020 SECURITIES AND EXCHANGE BOARD OF INDIA