Order in the matter of Ganga Papers India limited

WTM/PS/06/CFD/APR/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 Ganga Papers India 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. 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. Ganga Papers India 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 the Ahmedabad Stock Exchange Limited.

3. The Company vide its letter dated June 24, 2013 inter alia made the following submissions: a. The Company was formerly known as Kasat Paper & Pulp Limited. b. The Company commenced its operations in mid-1987 from its factory situated at Bededohal Village, Pune. c. The Company was converted into a public limited company during December 1992/January 1993. d. The shares of the Company are listed on the BSE.

e. Initially the Company was engaged in the business of manufacture of different types of kraft paper including special quality kraft paper and high grade kraft paper. Kraft paper is used for the manufacture of corrugated cartons and boxes. f. The Company increased its production capacities during 1991 and 1993. The Company desired to set-up manufacturing facilities for the manufacture of 10,000 tpa of newsprint and 500 tpa of white writing/printing paper and a co-generation plant of 1.4 MW capactity. In order to part-finance the above project, the Company came out with a public issue in April 1996. g. The operations of the Company were profitable until 1998-1999, where after the downward spiral in the paper industry, more particularly the newsprint sector, adversely affected the profitability of all paper unit including the Company. This recessionary trend continued over the years, compelling the Company to temporarily suspend its operations in January 2003. h. The labour deadlock and prolonged closure of the factory resulting in accumulation of losses and the liabilities rendered the operations of the Company unviable. i. Despite best efforts of the promoters (the former promoters) were unable to inject substantial funds required to resuscitate the Company.

In the meanwhile, the networth of the Company had eroded by the accumulated losses for the financial year ended March 31, 2002. On this basis, a reference was filed with the Board for Industrial and Financial Reconstruction (BIFR) and a case was registered bearing reference no. 109/2003. j. The Company was declared sick on September 19, 2005 by the BIFR and Bank of India (the OA) was appointed as the Operating Agency. A viable DRS was submitted vide OA's letter dated July 26, 2006 based on which the BIFR prepared a Rehabilitation Scheme. The Company has implemented the stipulations under the said scheme. k. Presently, the case is pending before BIFR with respect to 'coal linkage' and 'old dues to the Sales Tax Dept.'. l. Section 22 of the SICA provides for suspension of all legal proceedings, contracts etc in respect of sick industrial companies registered and under process with BIFR. m. During the relevant time, the present promoters namely Mr. Sandeep Kanoria of Ganga Pulp & Paper Pvt. Ltd., an existing profit making company along with its group companies gave an offer to the then promoters of the Company for participating in the management/revival of the Company by way of picking up stake as co-promoter and infusing fresh funds into the Company in the form of equity and unsecured loans for meeting the past liabilities of the Company and ensuring its revival as approved by the BIFR vide Order dated October 31, 2006. n. As per the pre-BIFR Order shareholding pattern, the promoters and promoter group held 21,02,560 shares constituting 39.96%. o. After forfeiture, reduction and consolidation of capital in terms of revival scheme, the share capital of the Company consisted of 2,88,886 equity shares of Rs.10/- each aggregating to Rs.28,88,860/- as against the pre-reduction capital of Rs.2,88,88,600/-. p. As per the BIFR Order, the Company had allotted 5,00,000 equity shares of Rs.10/- each to Stressed Asset Stabilization Fund on December 02, 2006 and 1,00,00,000 equity shares of Rs.10/- each to promoters on January 15, 2007. Consequently, the shareholding of the promoter and promoter group had increased to 94.64%. q. The Company had initiated and concluded all the necessary steps essential to effect the BIFR scheme. r. There was no trading of the shares since December 2001. The trading was suspended by BSE since 2004 due to non-compliance with listing agreement.

However, there has been delay in complying with the norms of BSE for revoking the suspension. The Company is presently in the process of implementing/paying all the statutory dues as applicable to BSE. s. Once suspension is revoked, the Company would adhere to and achieve the compulsory minimum public shareholding norms. t. The Company had continuously made efforts to list all the equity shares issued post BIFR scheme and the trading. u. The Company has endeavoured to work towards the interest of the shareholders and achieving norms as mandated by the SCRA, listing agreement. v. There is no malafide intention of the management in non-adhering to the MPS norms. w. As the Company was a 'suspended company', it did not receive any notice/advise from SEBI.

The Company requested a period of six months from the date of revocation of suspension by BSE, for complying with the MPS norms. The Company also requested SEBI not to initiate any proceedings against it.

4. Thereafter, vide letter dated January 03, 2014, the Company, while stating that available methods for complying with MPS norms were not viable due to market conditions and sought relief afforded by SEBI vide Order dated November 22, 2013 in the matter of Vaarad Venture Limited.

5. Thereafter, vide letter dated January 27, 2014, the Company- a) forwarded copy of the Order dated October 31, 2006 passed by the Hon'ble BIFR sanctioning the Scheme in respect of the Company; b) informed that the Company was still a sick company and under the purview of the BIFR; and c) informed that the Company intends to achieve compliance with the MPS requirements by diluting the promoter shareholding through preferential allotment to non-promoter group or to undertake (after resumption of trading of shares) sale of promopters' shareholding through secondary market to public through OFS or through a combination of both the above proposed methods.

6. Subsequently, the Company vide letter dated February 07, 2014 informed that the change of name of company from Kasat Paper & Pulp Limited to Ganga papers India Limited was duly recorded with the BIFR and BSE. It was also stated that the Company could not comply with MPS norms due to the fact that the trading of its shares was suspended by BSE for non-compliance of listing norms. It was further informed that in terms of the BIFR Order/Scheme, the co-promoters were asked to infuse funds of Rs.10 crore by way of fresh capital due to which the public shareholding went below 25%.

7. Thereafter, vide letter dated December 15, 2014, the Company informed that on November 12, 2014 an Offer for Sale of shares through stock exchange was done which resulted in the public shareholding increased from 5.36% to 25% and that the Company has complied with the MPS requirement. The Company forwarded (1) its 'shareholding pattern' as on September 30, 2014 and December 12, 2014, (2) notices issued by the BSE, (3) disclosure under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and (4) disclosure under the SEBI (Prohibition of Insider Trading) Regulations, 1992. The Company also stated that - a. The Company is a sick company under the purview of BIFR; b. The promoters shareholding increased pursuant to the sanctioning of the scheme for rehabilitation and restructuring of the Company;

c. The Company had examined all options available for complying with the MPS requirement and the same were found unviable due to the fact that BSE had suspended the trading of its shares; d. Pursuant to the revocation of the suspension on trading by BSE with effect from September 16, 2014, the Company was able to obtain approval for the offer for sale. e. The delay in compliance was beyond its control.

The Company requested SEBI to consider the peculiar facts and circumstances of its case and thereby revoke the directions issued against itself, directors, promoters and promoter group without recommending any further action for delay in achieving compliance with the MPS norms.

8. The Company was afforded an opportunity of personal hearing on April 08, 2015, when Mr. Prakash Shah, Advocate, appeared on behalf of the Company and reiterated the submissions made by the Company in its replies. The Advocate submitted a copy of the record of proceedings of the hearing held in respect of the Company on September 04, 2012 before the Hon'ble BIFR.

9. I have considered the interim order, the submissions made by the Company, the material submitted by it, the oral submissions made during the personal hearing and other material available on record.

10. The interim order was issued against the Company as it was non-compliant with the provisions of rule 19A of the SCRR and Clause 40A of the Listing Agreement read with section 21 of the Securities Contract (Regulation) Act, 1956 ("SCRA"), by not maintaining atleast the minimum level (of 25%) of public shareholding as of June 03, 2013 (the time line before which such compliance was to be achieved). The Company has stated that it has complied with the MPS norms as the offer for sale through stock exchange on November 12, 2014 was successful resulting in the increase of public shareholding in the Company from 5.36% to 25%.

11. The Company has submitted that it is a sick company and under the reference of Hon'ble BIFR. It is the contention of the Company that its promoter shareholding increased only because of implementation of the Scheme and that consequent to such increase, the public shareholding in the Company was reduced below 25%. The Company has also forwarded copy of the Order dated October 31, 2006 by which a Scheme for Rehabilitation was finalised for the Company. I have perused this Scheme.

Under paragraph 10 which provides for Relief and Concessions, item IX pertains to Stock Exchanges and SEBI. The said portions are reproduced herein below: "IX. MUMBAI, PUNE & AHMEDABAD STOCK EXCHANGES & SEBI (a) To consider relisting the shares of the Company without any charges, penalty etc on the Company or its promoters/directors; and (b) To consider waiver of all the penalties, interest, charges and any other penal actions on the Company or its directors, officials for non submission of relevant records, forms, documents and accept their late filing on the finalisation of scheme and take the same on record. (c) To consider to grant listing for the additional shares to be issued to the co-promoters/SASF under the revival scheme, besides the new shares to be issued after de-rating to the existing shareholders of the Company".

I also note the following as provided under the Scheme:

"VII. SHAREHOLDERS OF COMPANY To accept from the Company Rs 1/- for every fully paid-up equity share of Rs10/-in cancellation of the shares held by them in KPPL.

The Scheme also granted the Company exemption from the provisions of the Takeover Code to facilitate the allotment of additional equity shares to the proposed co-promoters and their associates.

However, it is noticed that there is no specific relaxation or exemption granted to the Company/its promoters with respect to the compliance with the minimum public shareholding norms as mandated under rule 19A of the SCRR. I also note that the Company had requested SEBI to treat its case in the manner done in the matter of Vaarad Ventures Limited. In this regard, I refer to the Order dated November 22, 2013 passed in the said case and note the following observations made therein: "...... 4. I note that the Company was a sick company for which the BIFR had sanctioned a rehabilitation scheme. I have also perused the order pertaining to the proceedings held on June 25, 2007, passed by BIFR and the sanctioned rehabilitation scheme. I note that as per the sanctioned scheme, the Company had agreed for amalgamation of one Atcomaart Limited with it. For the same, the Company had to issue three equity shares at par against each share held by the shareholders of Atcomart Limited. I note that the Company/ promoters and the new investors had requested for exemption from takeover/ creeping acquisition/ preferential allotment/ limits on promoters holding under SEBI Act/ Rules/ Guidelines etc. or any other concerned body from any deeds and acts which the Company and new investors may undertake to give effect to the rehabilitation scheme. The Company had also requested for exemption from maintaining the guideline of minimum public holding during the rehabilitation period which includes allotment/ transfer/ conversion/ dilution of shares/ warrant during the restructuring period. I note that the scheme which inter alia contains the aforesaid clauses and is still in force/ implementation has been approved".

The Scheme approved in the matter of Vaarad Ventures Limited contained exemptions inter alia with respect to MPS requirement during the rehabilitation period. During the personal hearing, the learned Advocate also submitted that the Company is still under the purview of the BIFR and produced a copy of the Order dated September 04, 2012 of the BIFR. I have perused the said Order/record of proceedings. The said Order has directed the Monitoring Agency (i.e., Bank of India) to examine the proposed Modified Draft Rehabilitation Scheme and submit the same. The learned Advocate did not make any submission with respect to whether any modified scheme was sanctioned which in any manner granted exemption to the Company with respect to compliance with MPS norms. As mentioned above, no such exemption is in place with respect to the Company. Therefore, the Company, being not granted any exemption, was mandated to comply with the MPS norms within the due date i.e., June 03, 2013. This is admittedly not done by the Company.

12. In view of the above, it becomes clear that the Company has delayed in complying with the MPS requirements as it was able to achieve compliance only pursuant to OFS done on November 12, 2014. Though the Company has made submissions regarding its difficulties in achieving compliance within the due date, it is to be noted that the relevant statute does not provide for any exemption or relaxation of the continuous listing requirements mandated under rule 19A of the SCRR unless suitable exemptions/orders are passed under the Sick Industrial Companies (Special Provisions) Act, 1985 ("the SICA"). In terms of section 32 of the SICA, the provisions of the said Act, rules or schemes made there under shall have overriding effect on other laws. Further, in terms of section 32 of the SEBI Act, the provisions of the SEBI Act shall be in addition to, and not in derogation of the provisions of any other law for the time being in force. Without such exemptions granted under law, a listed company shall comply with all applicable laws including the continuous listing requirements as stipulated under the SCRA and SCRR.

13. Considering the fact that the Company has now complied with the MPS requirements as stipulated under rule 19A of the SCRR read with clause 40A of the listing agreement, it would be appropriate and reasonable to vacate the directions issued vide the interim order against the Company, its promoters and directors. However, in respect of the non-compliance of the MPS requirements by the Company within the due date, I am of the considered view that, as contemplated in paragraph 18 of the interim order, the case be referred for adjudication proceedings under sections 23E and 23H of the SCRA.

14. Accordingly, 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, Ganga Papers India Limited, its directors, promoters and promoter group, with immediate effect. The matter is referred for adjudication proceedings under sections 23E and 23H of the Securities Contracts (Regulation) Act, 1956. For this purpose, an adjudicating officer shall be appointed by SEBI in terms of 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, and such adjudicating officer shall conduct the inquiry in accordance with law.

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

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date : April 29, 2015 Place : Mumbai