Order in the matter of Money Matters Financial Services Limited

1. The company namely Money Matters Financial Services Limited (hereinafter referred to as ‘Money Matters’) earlier known as Dover Securities Limited had come out with rights issue in February, 2009 wherein each equity shareholder was eligible for allotment of two equity shares for every one equity share held and one detachable warrant for every one equity share allotted to them. The draft letter of offer filed by Money Matters to the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had given an option to the holders of detachable warrants to convert the same into one equity share after the expiry of 6 months, 9 months, 12 months, 15 months and 18 months from the date of its allotment.

2. Thereafter, SEBI received a letter dated December 06, 2010 from Money Matters, intimating thereby the relinquishment of 1,35,15,208 warrants of the promoters on October 11, 2010. From the same, it was observed by SEBI that a resolution dated December 16, 2009, was passed by the warrant holders, whereby the warrant exercise period was altered and extended by 42 months i.e., to 60 months from the date of allotment. SEBI prima facie found that the period of the warrants was changed by the warrant holders and the company without the approval of the general body of shareholders of Money Matters.

3. Accordingly, SEBI vide its letter dated April 29, 2011 (hereinafter referred to as the ‘notice’), advised Money Matters to initiate process to inform all the remaining warrant holders, who have not exercised these warrants, to exercise the same and convert them into equity shares within three months. The notice further asked Money Matters to explain as to why appropriate action, as may be deemed fit, should not be initiated against it in terms of the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and the regulations framed thereunder.

4. Money Matters vide its letter dated May 31, 2011 replied to the notice and requested for an opportunity of hearing. In the meantime, Money Matters filed an appeal before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as ‘SAT’) on August 16, 2011 seeking for the quashing of the order issued by SEBI. After considering the appeal, the Hon’ble SAT directed SEBI to grant a hearing to Money Matters within two weeks, and pass a final order in the matter within a month. Due to certain official exigencies, SEBI approached Hon’ble SAT praying for the extension of the time limit, by four weeks, i.e., of the time granted to SEBI to hear Money Matters and pass an order within four weeks from then. Hon’ble SAT considered the request and allowed the application of SEBI, vide its order dated February 17, 2012.

5. Accordingly, an opportunity of personal hearing was granted to Money Matters on February 27, 2012. On the date scheduled for hearing, Money Matters appeared through its authorized representatives namely Mr. Ashok Agarwal, Senior Vice President, Mr. Harish Agrawal, Vice President and the Company Secretary, Mr. Balveer Singh Chaudhary, the Chartered Accountant, the Advocate, Mr. Vinay Chauhan, and made the submissions. During the course of hearing, Money Matters was asked to provide certain details relating to the case, for which it sought seven days’ time. Money Matters filed the written submissions vide its letter dated March 02, 2012.

6. The submissions of Money Matters, made during the oral hearing as well as in its reply and written submission, are summarized in brief below: - On December 15, 2007, the Board of Directors of Money Matters decided in favour of rights’ issue to the shareholders of the company along with detachable warrants. Though no approval of shareholders in the general meeting was required for the rights issue under Section 81(1) of the Companies Act, 1956, as a matter of abundant caution, the Board of Directors decided to seek the approval of general body of shareholders. - On January 12, 2008, the shareholders of Money Matters passed the resolutions regarding the rights issue and detachable warrants in the Extra Ordinary General Meeting. The shareholders had specifically and categorically authorized the Board to, inter alia, accept and give effect to such modification, changes, variations, deletions, additions, etc., as regards the terms and conditions of the issue as the board may decide in its absolute discretion in the best interest of the company, without being required to seek any further consent or approval of the shareholders. - Money Matters filed the Draft Letter of Offer on July 26, 2008 with SEBI and the stock exchange, for the rights issue to the existing shareholders of the company.

After receipt of the final observation of SEBI on the Draft Letter of Offer, on February 21, 2009, the Board of Directors in its meeting approved the Letter of Offer to be dispatched to the shareholders of the company. - Thereafter, the rights issue was successfully completed and the Board of Directors of Money Matters in its meeting held on March 27, 2009 allotted the shares and the detachable warrants to the shareholders of the company. - On October 27, 2009, the Board of Directors of the company in its meeting resolved to extend the tenure for conversion of the warrants from 18 months to 60 months i.e., by a period of 42 months subject to the approval of the warrant holders. - Then the Board of Directors constituted a ‘Warrant Conversion Committee’ for the purpose of allotment of shares against the conversion of warrants and also to decide about any changes/ modification in respect of the terms of the warrant conversion, subject to the necessary approvals with the consent of the warrant holders of the company. The approval of the shareholders of Money Matters prior to the carrying out of modification in the terms of the warrants was dispensed with. - On December 16, 2009, the warrant holders in their meeting approved the extension of the tenure of the warrants by a period of 42 months wherein the detailed schedule for conversion of warrants was approved. - The detachable warrants issued were part of the Rights Issue for which the Letter of Offer was duly filed with SEBI, which provided for the procedure to be followed for modification in terms of warrants.

The procedure for modification inter alia required compliance of two conditions viz., obtaining of the consent of the warrant holders by a Special Resolution passed at a meeting of the warrant holders and also that the modification should be acceptable to the company. These conditions have been complied with before modifying the terms of the warrants. - There was no need for seeking any clarification from SEBI before changing the tenure of warrants. - The warrant holders are none other than the shareholders of the company. At the relevant point of time, the warrant holders who approved in favour of the modification of the exercise period were holding 94.90% shares in the company. Further, no complaint from any of the shareholders regarding modification of exercise period of warrants has been received by Money Matters. - The promoters of Money Matters had relinquished all their rights in relation to 1,35,15,208 warrants allotted to them on October 11, 2010 and have not converted even a single warrant since allotment. As on date all the outstanding warrants are held by the public shareholders only. - They had acted in consonance with the applicable provisions of law and no approval from the general body of shareholders was required for altering the warrant exercise period from 18 months to 60 months. - The relevant provisions of the SEBI Act and the regulations under which the captioned letter has been issued and the directions are proposed to be passed against, have not been spelt out. - As per the extant regulatory regime also, there is no embargo on the alteration in the terms of the issue of specified securities.

In the present matter also, the terms of the warrants issue was altered by the company after seeking approval of the warrant holders at a duly convened meeting, in which they have unanimously decided to extend the tenure.

7. I have carefully considered the notice issued to Money Matters, the reply and the written submission made by Money Matters. Considering the same, the issue that arises for my consideration is: Whether the period of conversion of the warrants could be altered by the warrant holders and the company without approval of the general body of shareholders of Money Matters?

8. Whether the period of conversion of the warrants could be altered by the warrant holders and the company without approval of the general body of shareholders of Money Matters?

a. I note that Money Matters had came out with the rights issue wherein each equity shareholder was eligible for an allotment of two equity shares for every one equity share held by them and for every one equity share allotted on rights basis, the allottee was to receive one detachable warrant. A resolution was passed by the shareholders of Money Matters, in this regard. I note that no approval of shareholders was required to be taken for the rights issue under Section 81(1) of the Companies Act, 1956. Money Matters had given an option to the holders of the detachable warrants to convert the same into one equity share after the expiry of 6 months, 9 months, 12 months, 15 months and 18 months.

b. I note that the rights issue was successfully completed and 1,80,00,400 equity shares and an equal number of detachable warrants were allotted to the equity shareholder. The table below brings out the details of the pre-issue and post-issue shareholding pattern in Money Matters. Pre-issue no. Pre-issue Post-issue no. of Post-issue of shares held shareholding shares held shareholding Promoter 56,65,939 62.95% 1,91,81,147 71.04% Public 33,34,261 37.05% 78,19,453 28.96% Total 90,00,200 2,70,00,600

It is seen that all the shareholders of Money Matters had not applied for the rights issue. The holdings of such shareholders are as under: Pre-issue no. of Pre-issue Post-issue no. of Post-issue shares shareholding shares shareholding 11,70,831 13.01% 11,70,831 4.34% c. I observe that 1,80,00,400 warrants were subscribed in total in the rights issue. Out of these, 1,35,15,208 warrants constituting 75.08% were subscribed by the promoter group. Further, 44,85,192 warrants constituting 24.92% were subscribed by the public shareholders.

Later on, the warrant exercise period was altered and extended by 42 months i.e., to 60 months from the date of allotment, by way of a resolution passed by the warrant holders of Money Matters.

d. At this stage, I note that the rights issue was made by Money Matters under the provisions of erstwhile SEBI (Disclosure and Investor Protection) Guidelines, 2000. I observe that issuance of detachable warrants is not recognized under the provisions of the Companies Act, 1956. Further, there was no explicit provision in the SEBI (Disclosure and Investor Protection) Guidelines, 2000, governing issuance of detachable warrants.

However, under Clause 13.2.1 of the Guidelines for Preferential Issues in the SEBI (Disclosure and Investor Protection) Guidelines, 2000, I note that such instruments i.e., detachable warrants were permitted to be issued. It is seen that Clause 13.2.1 of the Guidelines for Preferential Issues relates to the issuance of specified securities by way of a preferential issue and provided that the tenure of convertible securities shall not exceed 18 months from the date of their allotment. I note that in order to maintain uniformity, SEBI decided to treat warrants as an instrument, irrespective of the mode of their allotment i.e., preferential issue, rights issue or otherwise. Accordingly, the tenure for warrants specified under the Guidelines for Preferential Issue were also applied to warrants issued along with public/ rights issue as a matter of procedure.

e. While keeping this discussion in mind, I note that the detachable warrants can be issued along with public/ rights issue of securities under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as well. I have considered the submission of Money Matters regarding Regulation 24 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. However, SEBI (Disclosure and Investor Protection) Guidelines, 2000 was the relevant law prevailing at that time.

f. I have seen the list of warrant holders who had attended the meeting held on December 16, 2009 for extension of the warrant conversion period, the same has also been reproduced below for reference: Name of Attendee No. of % of total No. of Equity % of total paid Category Warrants O/S warrants shares held up capital Rajesh Sharma 63,21,159 35.12% 89,71,159 33.23 Promoter Ramesh Chandra Sharma-HUF 2,14,681 1.19% 3,04,681 1.13 Promoter Ramesh Chandra Sharma 11,927 0.07% 16,927 0.06 Promoter Money Matters 69,55,514 38.64% 98,71,453 36.56 Promoter Seema Sharma 11,927 0.07% 16,927 0.06 Promoter Sub Total 1,35,15,208 75.08% 1,91,81,147 71.04 Promoter Suresh Gattani 215 0.00% 305 0.00% Public Gayatri Gattani 238 0.00% 338 0.00% Public Badrikedar Corporate Services 4,79,806 2.67% 7,19,709 2.67% Public Pvt. Ltd. Gainful Multitrade Pvt. Ltd. 9,04,511 5.02% 12,83,706 4.75% Public Lilly Saldenha 2,200 0.01% 0 0.00% Public Jigyasa Properties Pvt. Ltd. 16,43,874 9.13% 24,65,811 9.13% Public Roopam Multitrade Pvt. Ltd. 13,00,000 7.22% 19,50,000 7.22% Public Sub Total 43,30,844 24.06% 64,19,869 23.78% Public Total 1,78,46,052 99.14% 2,56,01,016 94.82% Total O/s Warrants/ No. 1,80,00,400 100.00% 2,70,00,600 100% of equity shares as on 16/12/2009 From the above, I note that 99.14% of the total outstanding warrant holders in all had attended the meeting and voted in favour of the resolution. Further, these warrants holders who had attended the meeting also hold 94.82% (post issue) & 86.15% (pre-issue) of the total paid-up equity share capital of the company namely Money Matters. I have also seen the analysis of the table as provided by Money Matters and note that out of the 356 public category shareholders only 181 shareholders subscribed to the right issue and were issued 24.92% (44,85,192) warrants out of the total number of 1,80,00,400 outstanding warrants. Out of 181 public category warrant holders as mentioned above, 7 entities holding, 24.06% i.e., 96.54% (public category warrant holders) attended the meeting of warrant holders and voted in favour of the resolution.

g. Considering the above discussion, the answer to the issue framed above can be said to be in affirmative in the present set of facts. It is seen that the public category shareholders were holding 28.96% of the total paid-up equity share capital of Money Matters. Out of this, 23.78% i.e. 82.10% (public category shareholders) attended the meeting of warrant holders and voted in favour of the resolution for extending the period of conversion of warrants.

9. In view of the above discussion, I, therefore, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992, I hereby dispose of the notice dated April 29, 2011, without any directions.

DATE : 22/MARCH/2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA