Order in the matter of International Constructions Limited

WTM/GM/CFD/39/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER IN COMPLIANCE WITH THE ORDER OF THE SECURITIES APPELLATE TRIBUNAL DATED NOVEMBER 10, 2017 IN APPEAL NO. 299 OF 2017. IN THE MATTER OF INTERNATIONAL CONSTRUCTIONS LIMITED –

BACKGROUND –

1.1 International Constructions Limited (“ICL”) is a listed company, which was incorporated under the Companies Act, 1956. The shares of ICL are listed on National Stock Exchange of India Limited (“NSE”) and Calcutta Stock Exchange.

AD–INTERIM EX PARTE ORDER DATED JUNE 4, 2013 –

1.2 Vide an Order dated June 4, 2013 (“Interim Order”), SEBI issued the following directions inter alia against ICL and its Directors, Promoters and Promoter Group, on the basis of details furnished by NSE, for having failed to meet the minimum public shareholding requirement by June 3, 2013, – “17. Hence, in exercise of the powers conferred upon me by virtue of Section 19 and under Sections 11(1), 11(2)(j), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Section 12A of Securities Contracts (Regulation) Act, 1956 (“SCRA”), pending passing of the final order in these cases, I hereby: a. Direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc. with respect to the excess of proportionate promoter/promoter group shareholding in the above mentioned non– compliant companies, till such time these companies comply with minimum public shareholding requirement. … b. Prohibit the promoter/promoter group and directors of these non–compliant companies from buying, selling or otherwise dealing in securities of their respective companies, either directly or indirectly, in any manner whatsoever, except for the purpose of complying with minimum public shareholding requirement till such time these companies comply with the minimum public shareholding requirement.

Order in the matter of International Constructions Limited c. Restrain the shareholders forming part of the promoter/promoter group in the non – complaint companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement. d. Restrain the directors of non – compliant companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement. …”

CONFIRMATORY ORDER DATED OCTOBER 15, 2015 –

1.3 Subsequent to the aforementioned Interim Order, ICL filed written submissions before SEBI vide letters dated June 14, 2013 and July 7, 2015 (after availing of an opportunity of personal hearing before SEBI on July 3, 2015). ICL, while informing SEBI that the shares of the Company stood suspended from NSE w.e.f. November 2001, submitted that as and when such suspension of trading is revoked by NSE, it will ensure compliance with minimum public shareholding requirement.

1.4 After considering the aforementioned submissions, SEBI vide an Order dated October 15, 2015 (“Confirmatory Order”) issued the following directions against ICL and its Directors, Promoters and Promoter Group –

6. “The Company’s submission is that it could not comply with the MPS norms as trading in its shares were suspended by NSE and therefore, NSE was not providing the facility for carrying out an Offer for Sale (“OFS”). The Company has assured that once suspension is revoked, it would immediately comply with the requirements and ensure MPS of 25%. In this regard, I note that the trading was suspended during the year 2001 and the Company had adequate time of three years (i.e. from June 4, 2010 till June 3, 2013) to comply with the MPS requirements as mandated under the statute. It appears that the Company has not taken steps towards compliance. However, the Company is at liberty to approach NSE. 7. … 8. 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 confirm the directions issued vide the Interim Order dated June 4, 2013 against the Company, ICL Limited, its Directors, Promoters and Promoter Group.”

SECURITIES APPELLATE TRIBUNAL ORDER DATED NOVEMBER 10, 2017 –

1.5 During the intervening period, ICL made an application for revocation of suspension of trading of its shares before NSE. Vide a letter dated August 17, 2017, NSE rejected the aforesaid application inter alia stating that “there is a disciplinary action against the Promoters of the Company in force for non–compliance with minimum public shareholding requirement.”

1.6 The aforementioned NSE letter dated August 17, 2017, was challenged by ICL and its Directors before the Hon’ble Securities Appellate Tribunal (“SAT”) in Appeal No. 299 of 2017 – International Constructions Limited vs. SEBI. The Hon’ble SAT vide an Order dated November 10, 2017, directed as under –

1. “After the matter was argued for some time, counsel for the appellant seeks to withdraw the appeal with liberty to make a representation to SEBI in relation to the issue regarding compliance of the minimum public shareholding requirement. 2. Accordingly, the appellant is permitted to withdraw the appeal with liberty to make a representation to SEBI. If appellant makes a representation, then SEBI shall consider the said representation and pass appropriate order in accordance with law”

1.7 Thereafter, vide representations dated December 28, 2017 and April 3, 2018, ICL and its Directors, Promoters and Promoter Group inter alia submitted – “(The Company) and its Promoters are desirous of availing the OFS mechanism on NSE to offload the excess promoter shareholding such that the public shareholding is at least 25% of the total paid up capital of the Company. We therefore request you to kindly permit us to comply with this requirement and direct the NSE to permit us to use their online facility to complete the OFS process in order to enable us to meet the minimum public shareholding.”

1.8 Upon receipt of the aforementioned representations, an opportunity of personal hearing was granted by SEBI to ICL and its Directors, Promoters and Promoter Group on June 18, 2018, which was attended by the authorised representative for the aforementioned entities. The authorised representative inter alia reiterated the submissions contained in the aforementioned representations and undertook to submit additional written submissions on behalf of the aforesaid entities. The authorised representative was directed to submit a copy of the last Annual Report filed by the Company.

1.9 Subsequently, vide a letter dated June 27, 2018, ICL and its Directors, Promoters and Promoter Group inter alia submitted as under –

 “Our Company was listed on NSE and the public shareholders are only 85 members.  Our Company of late is mainly doing the business of NBFC with due registration and surveillance of the Reserve Bank of India (“RBI”) by borrowing and lending apart from other contract business.  During the personal hearing: a. We had informed you that we are confident of achieving the minimum public shareholding requirement using the mechanism of OFS. We had also undertaken to explore the compliance of the same through a rights issue only to the shareholders other than the Promoters. However, both these mechanisms would require that NSE revokes the suspension of our securities so that the online mechanism of the stock exchange can be used for OFS and trading/listing permission can be obtained for the fresh shares that are issued. b. We had also undertaken to submit the Annual Report of our Company for the last 3 years so as to indicate that we are a ‘going concern’ and have been making reasonable profits during the last 3 years. Accordingly, we have on 19.6.18 submitted to you the Annual Reports of our company for the last 3 financial years. …  In accordance thereof … we once again request you to kindly permit us to comply with this requirement and direct the NSE to revoke the suspension of trading of the shares of our Company and permit us to use their online facility to complete the OFS process in order to enable us to meet the minimum public shareholding.”

1.10 Vide an e–mail dated June 14, 2018, SEBI sought information from NSE regarding the revocation of suspension of trading of the shares of ICL. In its reply, vide an e–mail dated July 5, 2018, NSE informed SEBI that the revocation of suspension was approved by the Committee of the Exchange and the same was communicated to ICL.

1.11 Subsequently, vide a Circular dated July 6, 2018 having ref. no. 0764/2018, NSE notified that the suspension in trading of the shares of ICL will be revoked with effect from July 16, 2018. Further, the Circular also stated that as per the SEBI (Prohibition on Raising Further Capital from Public and Transfer of Securities of Suspended Companies) Order, 2015 dated July 20, 2015 (“SEBI Order dated July 20, 2015”), the entire promoter shareholding i.e. 31,34,840 equity shares, are under lock–in upto October 15, 2018.

FINDINGS –

2.1 I have considered the representations dated December 28, 2017 and April 3, 2018 along with the written submissions dated June 27, 2018 made by ICL; NSE’s e–mail dated July 5, 2018 and the Circular dated July 6, 2018 along with all relevant material available on record.

2.2 The shareholding pattern of ICL as obtained from the NSE website as on September 30, 2015 (which was also mentioned in the Confirmatory Order dated October 15, 2015) and as on March 31, 2018, is reproduced below –

SHAREHOLDING PATTERN OF ICL DATE PROMOTER GROUP SHAREHOLDING IN % PUBLIC SHAREHOLDING IN % 1. 30.09.2015 86.27 13.73 2. 31.03.2018 86.27 13.73

2.3 It is reiterated that vide Notifications dated June 4, 2010 and August 9, 2010, the Ministry of Finance amended the SCRR including Rule 19A to provide for minimum and continuous public shareholding requirements in listed companies as it was felt that a dispersed shareholding structure was essential for the sustenance of a continuous market for listed securities, to provide liquidity to the investors and to discover fair prices. The aforementioned Notifications mandated all listed companies (other than PSUs) to have minimum public shareholding of 25%. Further, in listed companies where the public shareholding was less than 25%, such companies were mandated to raise the same to the minimum of 25% by June 3, 2013. From the preceding paragraph, it is observed that ICL is yet to ensure compliance with the requirement of minimum public shareholding as stipulated under Rule 19A of the SCRR. In other words, ICL is required to increase its public shareholding to at least 25% from the current shareholding of 13.73%.

2.4 Considering the abovementioned and having due regard to the revocation of suspension of trading by NSE subject to the stipulation of lock–in of the entire promoter shareholding upto October 15, 2018, ICL is directed to take necessary steps in accordance with law, to ensure compliance with the requirement of minimum public shareholding, as directed by SEBI in its Interim Order dated June 4, 2013 and Confirmatory Order dated October 15, 2015.

ORDER –

3.1 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 dispose of the representations dated December 28, 2017 and April 3, 2018 along with the written submissions dated June 27, 2018, filed by ICL and its Directors in accordance with the findings contained in paragraphs 2.1–2.4 of this Order.

Place: Mumbai G. MAHALINGAM Date: July 20, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA