Order in the matter of Mudra Lifestyle Limited

WTM/PS/47/CFD/NOV/2014 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 Mudra Lifestyle 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. Mudra Lifestyle 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 National Stock Exchange of India Limited ("NSE").

3. The Company, vide letters dated June 18, 2013 and June 24, 2014, inter alia made the following submissions to the interim order :

(a) The Company is a public limited company incorporated in the year 1986 and is operating in the textile industry for the last 28 years. (b) In 2011, E-Land Asia Holdings Pte Ltd. ("the new promoter") acquired 65.84% stake in the Company in accordance with and in compliance with the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 1997. Pursuant to the acquisition, the continuing promoters, namely, Mr. Murarilal Agarwal, Mr. Ravindra Agrawal and Mr. Vishwambharlal Bhoot ("the original promoters") held 19.95% of the shareholding in the Company. (c) As a result of the acquisition, the aggregate shareholding of the new promoter and original promoters in the Company became 85.79%. The new promoter and original promoters are parties to a Shareholder's Agreement ("the SHA") dated October 10, 2010 and in terms of clause 2.6.1 thereof, the original promoters were obligated to ensure compliance with the provisions of the SCRA if the public shareholding falls below the minimum shareholding threshold of 25%. However, the original promoters failed to fulfil their obligations under the SHA and breached the terms thereof.

(d) The Company made repeated efforts in requesting the original promoters to dilute their shareholding in the Company in order to meet the MPS requirements, but there has been no action on their part. (e) The Company always was and continues to be committed to stay compliant with the MPS requirements. (f) The Company is informed that the original promoters have appointed a merchant banker for exploring the options for complying with the MPS requirements. (g) The delay in complying with the MPS requirements was because of the internal discord and disagreement between the new promoter and the original promoters. The parties had entered into a settlement agreement dated July 01, 2013 ("the settlement agreement") in order to resolve their differences and come to a consensus on various matters including the compliance with the MPS requirements. Vide this settlement agreement, the original promoters have agreed to reduce their shareholding in the Company by 10.80% in order to bring the aggregate shareholding of the new promoter and original promoters to 75%. (h) BSE and NSE have categorised the Company for trading in the periodic call auction and the call auction, respectively, due to very low trading volumes.

Therefore, it is proving to be difficult to find buyers for the shares of the Company. (i) The Company has also incurred huge financial losses in the past three financial years leading to erosion of its net worth. The Company's networth was in the negative as at March 31, 2014. This led to drop in the market price of the shares below par value of Rs.10/- on occasions in the recent past. Accordingly, issuance of bonus shares is also not possible. The Company is presently under the corporate debt restructuring mechanism in order to restructure debts. (j) They would be renewing their efforts to get the original promoters to dilute their holding in line with the SHA and the settlement agreement. 4. The Company was afforded an opportunity of personal hearing on June 26, 2014, when it was represented by its Advocate, Mr. Ravichandra S. Hegde, Mr. Jung Ho Hong (Director), Mr. Ashutosh Sheth (Company Secretary) and other representatives. The learned advocate submitted that the original promoters would be divesting a part of their shareholding in an offer for sale in order to comply with the MPS requirement.

He requested that the personal hearing in the matter be adjourned.

5. Thereafter, the Company, vide e-mail dated September 29, 2014, stated that the original promoters have collectively divested 51,80,000 equity shares through the offer for sale mechanism and thereafter the aggregate promoters' shareholding in the Company is 3,59,92,395 shares constituting 74.999% in the Company. As requested by the Company, another opportunity of personal hearing was afforded to it on October 09, 2014, when Mr. Jung Ho Hong and Mr. Ashutosh Sheth appeared and submitted that the offer for sale undertaken by its promoters during September 2014 was successful and consequently the Company had achieved compliance with the MPS requirement.

6. I have considered the submissions made by the Company and other material available on record. The interim order was issued against the Company, its directors, promoters and promoter group as the Company was not compliant with the MPS requirements. As per the submissions and facts available on record, the Company was compliant with the MPS requirements till the quarter ended June 2011. In this regard, I note from the disclosure of 'Share Holding Pattern' of the Company for the quarter ended June 2011, that E-Land Fashion China Holdings Limited (one of the Company's promoter's) was holding 1,20,00,000 shares constituting 25% of the equity voting capital in the Company. The total promoter group's shareholding at that relevant period was at 65.87%. Subsequently on July 23, 2011, the aforesaid promoter had acquired 20% shareholding, which had increased the promoter group's shareholding to 85.87%. Therefore, from the above, it can be found that the Company became non-compliant with the MPS requirements on July 23, 2011. This default has continued till the Company achieved compliance during September 2014.

7. The amended provisions of rule 19A of the SCRR came into effect from June 04, 2010. In terms of rule 19A(2), "Where the public shareholding in a listed company falls below twenty five per cent. at any time, such company shall bring the public shareholding to twenty five per cent. within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India.". The Company was therefore mandated to achieve compliance with the minimum public shareholding requirements on or before July 22, 2012 {i.e., twelve months' period from July 23, 2011 (the date when the shareholding fell below 25%)}. This is not admittedly done.

8. As per the records available, the Company has achieved compliance with the said norms belatedly on September 26, 2014 through an offer for sale of shares made by three of the Company's promoters. Though the Company has submitted that the internal disagreements between the original promoters and the new promoter were the reasons for the delay in compliance, such delay in complying with the statutory requirements cannot be condoned. Moreover, the statutory provisions mandating the listed companies to achieve minimum public shareholding, do not contain exemptions or relaxations. However, 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 against the Company, its promoters and directors. 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 under paragraph 18 of the interim order, the case be referred for adjudication proceedings under sections 23E and 23H of the SCRA.

9. 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, Mudra Lifestyle 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.

10. 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 : November 24, 2014 Place : Mumbai