Order in the matter of Haryana Financial Corporation Limited

WTM/GM/CFD/12/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 11(1), 11(2)(j), 11(4) AND 11B OF THE SEBI ACT 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 HARYANA FINANCIAL CORPORATION LIMITED.

BACKGROUND –

1.1 Haryana Financial Corporation Limited (“HFCL”) is a listed public sector company, which was established under the State Financial Corporations Act, 1951, as a Statutory State Financial Corporation. The shares of HFCL are listed on BSE Limited (“BSE”).

1.2 Rule 19A(3), which was inserted in the Securities Contracts (Regulation) Rules, 1957 (“SCR Rules”) w.e.f. August 9, 2010 (vide the Securities Contracts (Regulation) (Second Amendment) Rules, 2010), states – “Continuous Listing Requirement. 19A. (3) Notwithstanding anything contained in this rule, every listed public sector company shall maintain public shareholding of at least ten per cent.: Provided that a listed public sector company – (a) which has public shareholding below ten per cent, on the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of three years from the date of such commencement; (b) whose public shareholding reduces below ten per cent, after the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of twelve months from the date of such reduction.”

Order in the matter of Haryana Financial Corporation Limited

1.3 The public shareholding in HFCL as on August 9, 2010, was less than ten per cent. Accordingly, as per Rule 19A(3)(a) of the SCR Rules, HFCL had time till August 8, 2013 to increase its public shareholding to at least ten per cent.

1.4 Under the erstwhile Clause 40A of the Listing Agreement, Securities and Exchange Board of India (“SEBI”) had specified the following methods by which listed companies could achieve minimum public shareholding, viz. – i. Issuance of shares to public through prospectus; ii. Offer for sale of shares held by Promoters to public through prospectus; iii. Sale of shares held by Promoters through the secondary market i.e. OFS through Stock Exchange; iv. Institutional Placement Programme (IPP); v. Rights Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their rights entitlement; vi. Bonus Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their bonus entitlement; vii. Any other method as may be approved by SEBI on a case–to–case basis.

1.5 SEBI passed an Interim Order dated October 14, 2013 (“Interim Order”) against HFCL for failing to ensure compliance with minimum public shareholding norms as stipulated under Rule 19A(3) of the SCR Rules, within the due date i.e. August 8, 2013. The Interim Order was passed without prejudice to the right of SEBI to take any other action against HFCL and its Directors in accordance with law. The Interim Order was to be treated as a show cause notice by HFCL and its Directors for action contemplated in paragraph 11 thereof.

1.6 Thereafter, an email dated March 8, 2018 was sent by SEBI requesting HFCL to provide details for ensuring compliance with minimum public shareholding norms. HFCL was advised to submit its reply by March 15, 2018. Subsequently, a reminder e–mail was also sent to HFCL on April 24, 2018. However, no reply has been received by SEBI till date.

1.7.1 Rule 19A(1) of the SCR Rules was amended w.e.f. August 22, 2014 (vide the Securities Contracts (Regulation) (Second Amendment) Rules, 2014), to read as under – “19A. (1) Every listed company shall maintain public shareholding of at least twenty five per cent. Provided that every listed public sector company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2014, shall increase its public shareholding to at least twenty five per cent, within a period of three years, in the manner as may be specified by the Securities and Exchange Board of India.”

1.7.2 Consequently, Rule 19A(3) was omitted from the SCR Rules w.e.f. August 22, 2014.

1.8 Thereafter, Rule 19A(1) of the SCR Rules was further amended w.e.f. July 3, 2017 (vide the Securities Contracts (Regulation) (Third Amendment) Rules, 2017), to read as under – “19A. (1) Every listed company shall maintain public shareholding of at least twenty five per cent. Provided that every listed public sector company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2014, shall increase its public shareholding to at least twenty five per cent, within a period of four years, in the manner as may be specified by the Securities and Exchange Board of India.”

1.9 As observed from the abovementioned amendments to Rule 19A(1) and Rule 19A(3) of the SCR Rules, a listed public sector company has time till August 21, 2018 to increase its public shareholding to at least twenty five per cent. Further, the earlier requirement of at least ten per cent is no longer stipulated. Therefore, as on date, HFCL is not in violation of minimum public shareholding norms as stipulated under Rule 19A(1) of the SCR Rule.

1.10 However, it is noted that prior to the abovementioned amendment to Rule 19A(1) of the SCR Rules w.e.f. August 22, 2014, HFCL had failed to ensure compliance with minimum public shareholding norms as stipulated under the erstwhile Rule 19A(3) of the SCR Rules for the period from August 9, 2013 to August 21, 2014.

1.11 The shareholding in HFCL as on March 31, 2018 (as obtained from the BSE website) is provided below:

TABLE A – SHAREHOLDING IN HFCL (SOURCE: BSE WEBSITE) SR. NO. NAME NO. OF SHARES % OF SHARES A. PROMOTER/ PROMOTER GROUP 1. STATE GOVERNMENT* 20,20,11,650 97.90 2. SIDBI 43,26,550 2.10 B. PUBLIC SHAREHOLDING 0.00 0.00 C. TOTAL (A + B) 20,63,38,200 100.00 *The State Government is holding shares in the name of the Governor of Haryana.

ORDER –

2.1 In view of the above, I, in exercise of the powers conferred on me under Sections 11(1), 11(2)(j), 11(4) and 11B of the SEBI Act read with Section 12A of the Securities Contracts (Regulation) Act, 1956, hereby revoke the directions issued vide the Interim Order dated October 14, 2013 against HFCL and its Directors with immediate effect.

2.2 The mandate to maintain minimum public shareholding was introduced through amendments made in the year 2010, to the SCR Rules. It is reiterated that HFCL failed to ensure compliance with minimum public shareholding norms as stipulated under the erstwhile Rule 19A(3) of the SCR Rules for the period from August 9, 2013 to August 21, 2014. I do not find any justifiable reason for HFCL to have delayed compliance with the requirement to maintain minimum public shareholding. Hence, SEBI may consider initiating any action as deemed fit.

2.3 This Order shall come into force with immediate effect.

2.4 A copy of this Order shall be served on the recognized Stock Exchanges and Depositories for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: April 26, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA