Order in the matter of Neycer India Limited

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 Neycer 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. Neycer India Limited (hereinafter referred to as "the Company") is one such company against whom the interim order was passed.

3. The Company vide letter dated July 07, 2014 filed its reply to the interim order, inter alia stating the following : a) The Company is listed on the Bombay Stock Exchange Limited ("BSE") and the Madras Stock Exchange Limited ("MSE"). b) The Company was a 'sick company' since 1992. It has been declared as a sick company by the Board of Industrial Finance and Reconstruction ("BIFR"). The BIFR sanctioned a scheme for revival of the Company vide Order dated November 16,

1994 (SS-94). As SS-94 failed to revive the Company, the Company approached the BIFR and a Modified Rehabilitation Scheme ("MRS") was sanctioned vide Order dated October 17, 2008. c) The Company has commenced implementation of the Scheme by August 2010 and the Company has taken all necessary steps for implementation of the BIFR's Order. The steps taken by the Company to implement the Scheme was furnished to the BSE vide Company's letter dated April 16, 2014. However, necessary steps for restructuring of the capital as specified in the Order is pending, awaiting the receipt of requisite listing approvals from BSE. Once the capital restructuring is completed coupled with the current year's working (year ended March 31, 2014), the net-worth of the Company is expected to turn positive. d) The trading in the equity shares of the Company was suspended by BSE with effect from December 21, 2004 due to non-compliance with the Listing Agreement. As the Company fulfilled all the conditions of listing, BSE revoked the suspension on July 17, 2012. e) As regards non-compliance with the MPS requirements, the Company maintained the following percentages of public shareholding since 2010 till 2014 : Category 31.03.2010 31.03.2011 31.03.2012 31.03.2013 31.03.2014 Promoters 77.99% 77.99% 77.99% 77.99% 72.43% Public 22.01% 22.01% 22.01% 22.01% 27.57%

Though there has been no increase in the public shareholding from 2010-2013, the Company had during the financial year 2013-2014 undertaken capital restructuring in line with the MRS sanctioned by the BIFR, through :  reduction of 80% of the share capital on August 27, 2013  allotment of 89,30,000 shares on September 06, 2013 Hence, from September 06, 2013, the Company is in compliance with clause 40A of the listing agreement and rule 19A of the SCRR.

f) The Company had not wilfully defaulted/delayed in complying with clause 40A of the listing agreement and rule 19A of the SCRR. BIFR vide Order dated November 16, 1994 had directed the Company to convert the loans granted by its holding company into equity shares. Accordingly, the Company issued 40,00,000 shares to its promoter shareholder/holding company as under :  On March 29, 1995, the Company allotted 20,00,000 shares by conversion of loan brought in by its promoters; and  On January 15, 1998, the Company had allotted 20,00,000 shares to its promoter towards conversion of loan brought in by its promoters.

The shareholding pattern of the Company pre and post the aforesaid allotment changed as under: Category Pre-allotment Post-allotment Allotment on 29.03.1995 Promoters 36.26% 67.28% Public 63.74% 32.12% Allotment on 15.01.1998 Promoters 67.28% 77.99% Public 32.12% 22.01% g) On account of the above allotment, the promoters' shareholding exceeded beyond 75%. However, the Company was not in a position to initiate any action for increase of public shareholding to atleast 25% as it was focussing on its revival. h) The said shares were allotted by the Company towards the loans infused by the holding company, which were originally brought in by the promoter of the Company to meet the urgent payment demands of the creditors, statutory dues and for making payments to workers. i) Therefore, the aforesaid further issue of shares were undertaken by the Company in compliance with the BIFR Order to revive the Company and not to garner any advantage on account of disproportionate stake in the Company as compared to the public. j) The Company had specifically obtained an exemption from the rigorous application of the provisions of the listing agreement and the laws propounded by SEBI till the rehabilitation of the Company was completed under the Scheme sanctioned by BIFR. The relevant portion of MRS approved by BIFR is in point no. 10(H)(2) sub-point no.4 of Proposed Package of Reliefs/Concession, which stated:

"To waive the non-compliance of Clause 40A, 35, 49 and other relevant Clauses of the Listing Agreement relating to Corporate Governance and other Stock Exchange Compliance etc for the past periods since the records of the Company were reportedly fully damaged due to natural calamity".

The Company also referred to Point no.10(H)(3) sub-point no.4 Proposed Package of Reliefs/Concession, which stated : "To permit the company extension of time beyond the stipulated period of Stock Exchange Regulations to dilute the promoter's/investor's shareholding till completion of the period of implementation especially as the additional allotments are essential for the company's revival".

k) The Company, citing exemptions granted by BIFR, requested SEBI to -  remove the freeze on the voting rights and corporate benefits with respect to shares held by the promoters;  allow the promoters/promoter group to buy/sell or otherwise deal in the securities of the Company;  remove the restraint on the shareholders who are promoters/promoter group of the Company from holding any new position as a director in any other listed company;  remove the restraint placed on the directors of the Company from holding any new position as a director in any other listed company.

4. The Company was afforded an opportunity of personal hearing on July 10, 2014, when its representative Ms. Swetha, Practising Company Secretary, appeared and reiterated the submissions made by the Company in its reply dated July 07, 2014. As requested by the representative, the personal hearing in the matter was adjourned to enable the Company to make further submissions.

5. Thereafter, in the personal hearing held on November 14, 2014, the Company, through its aforesaid representative, appeared and filed written submissions dated November 12, 2014, which were taken on record. The following submissions were made therein: a) The reason for the shareholding pattern as submitted by the Company not reflecting in the BSE website was because BSE had not granted listing approvals for the issue and reduction of share capital. The Company has finally received the listing approval from BSE on September 25, 2014 with effect from September 15, 2014. b) The shareholding pattern of the Company as on September 30, 2014 as per BSE is as under : Category As on 30.09.2014 Promoters 72.43% Public 27.57% c) The Company is now following up with BSE for correction of records for previous quarters since September 2013. d) The Company is therefore compliant with SCRR from September 2013. The delay was due to the revival steps being taken as per BIFR Order dated November 16, 1994 and the Company relied on the relaxation granted in the said BIFR Order. e) The delay was only due to the circumstances and not malafide. The Company requested SEBI to condone the delay and not to levy penalty as the Company was able to revive itself financially only recently and the promoters had suffered heavily to revive the company.

During the personal hearing, the Company was advised to submit the following :

(a) The time lines set by BIFR for completing the rehabilitation; (b) Whether there was an advertent delay on the part of the Company for completing the rehabilitation? (c) The exact dates when the Company allotted the shares on preferential basis and when it had applied to BSE for listing the same.

The Company was also afforded liberty to submit written submissions, if any along with the above details.

6. Thereafter, the Company vide letter dated November 21, 2014, inter alia submitted the following with respect to the details/queries sought in the personal hearing:

(a) "Query 1 : Was there a time limit for the Company to comply with the BIFR Order?" Response : The BIFR vide Order dated October 06, 2008 sanctioned the MRS for revival of the Company. In the MRS, item 11 dealt with expected timeline for the Company to achieve financial viability of the Company and stated that: "11.1 The financial projections viz., statement of profitability, cash flow statements, projected Balance Sheets with assumptions, DSCR workings etc. are attached herewith. The Net Worth of the company is envisaged to turn positive by 2008-09 itself. The company's entire Accumulated Losses are however, expected to be completely wiped off during the period of rehabilitation i.e. by 2010-2011...."

However, the Company could not complete its revival process by 2010-2011, as it faced setbacks while importing required machinery for manufacturing. Hence, the Company approached BIFR for revising the MRS. The revision to MRS as required by the Company were considered by BIFR and allowed. The summary of proceedings before BIFR on June 28, 2010 was attached. The Company continued to implement the MRS as sanctioned on October 06, 2008 and the revisions sanctioned thereafter for its revival.

The net worth continued to remain negative and the primary reason was that the manufacturing plant of the Company situated in Vadalur region of Tamil Nadu was damaged in the cyclone of December 2011. The same was presented before BIFR in the hearing held on March 19, 2014. The matter is under review by BIFR and the directors are cooperating with BIFR to revive the Company at the earliest.

(b) "Query 2 : Was there an inadvertent delay in compliance by the Company with the BIFR Order" There were delays in reviving the Company within the original time frame estimated under MRS approved by BIFR in its order dated October 06, 2008 due to external factors beyond the control of the Company. However, BIFR has been notified of the same and revision in the MRS was furnished before BIFR and the same was approved.

(c) "Query 3 - What was the exact date of application to BSE?" Following the capital restructuring (i.e., reduction of share capital and allotment of shares on a preferential basis to non-promoter shareholders) undertaken by the Company, it applied for listing on October 03, 2013. However, BSE had advised the Company to file a revised application with further information. The same was filed on March 30, 2014.

7. I have considered the submissions made by the Company and other material available on record. 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).

8. The Company has contended that it has complied with the MPS requirements as on September 06, 2013, when in compliance with the MRS, it had reduced its capital and allotted shares on September 06, 2013. The Company has stated that though it had made the application for listing of shares during October 2013, BSE had advised it to file a revised application with further information. The Company states that it had filed the revised application with BSE on March 30, 2014 and that BSE had granted listing approval on September 25, 2014 with effect from September 15, 2014. However, it is noted that BSE vide letter dated September 25, 2014, while informing the Company of the approval for the equity shares to be dealt with on BSE, did not specifically state that the approval was with effect from September 15, 2014. Accordingly, the date of BSE's letter i.e., September 25, 2014 can be taken as the date of approval for listing. Pursuant to the same, the public shareholding in the Company was at 27.57%. Therefore, September 25, 2014 can be taken as the date of compliance by the Company with the MPS requirements. Further, from the filings of the shareholding pattern of the Company for the quarters ended September 2013, December 2013, March 2014, June 2014, September 2014 and December 2014, it is seen that the Company is compliant with the MPS norms only from the quarter ended September 2014.

9. The Company has also stated that it is following up with BSE for correcting the disclosures of shareholding pattern for previous quarters since September 2013 as it claims that it had complied with MPS requirements as on September 06, 2013. In this regard, I note that BSE (vide email dated January 22, 2015) has inter alia informed SEBI that the Company vide letter dated September 19, 2014 had submitted revised shareholding pattern for the quarters December 2013 to June 2014 and that the same was not taken on record as the Company did not provide reason for such revision. In view of the same, the above contention cannot be accepted.

10. Further, I also note that the Company has admitted that it could not complete its revival process by 2010-2011. In this regard, I note that the BIFR vide Order dated October 06, 2008 has sanctioned the Modified Rehabilitation Scheme (MRS) with amendments as directed vide its Order. As cited by the Company, I refer to item 11 (Financial Viability) of the MRS, which is reproduced below : "11.1 The financial projections viz., statement of profitability, cash flow statements, projected Balance Sheets with assumptions, DSCR workings etc. are attached herewith. The Net Worth of the company is envisaged to turn positive by 2008-09 itself. The company's entire Accumulated Losses are however, expected to be completely wiped off during the period of rehabilitation i.e. by 2010-2011...."

In terms of the said MRS, the period of rehabilitation is stated to be till 2010-2011. Therefore, the Company was expected to come out of its sickness and be revived by March 31, 2011. However, the Company has admitted that its networth continued to be negative. Thus, it appears that the timelines granted under this MRS could not be complied with by the Company. Though, the Company states that it has brought the same to the knowledge of the BIFR, the Company has not referred to any other Order of the BIFR which has sanctioned a further scheme with extended timelines. I have also referred to the Order dated May 21, 2014 of the BIFR, which has inter alia issued directions to the Monitoring Agency to file a Progress Report on the implementation of the sanctioned scheme by the Company and fixed a date of hearing.

11. The Company has also referred to the following clause {clause 10(H)(2)(4)} of the MRS. The relevant portion of MRS approved by BIFR is in point no. 10(H)(2) sub-point no.4 of Proposed Package of Reliefs/Concession, which stated: "To waive the non-compliance of Clause 40A, 35, 49 and other relevant Clauses of the Listing Agreement relating to Corporate Governance and other Stock Exchange Compliance etc for the past periods since the records of the Company were reportedly fully damaged due to natural calamity".

A reading of the above clearly mentions that non-compliances were waived with respect to certain clauses of the Listing Agreement including clause 40A for "past periods" only. Therefore, this does not give any exemption to the Company from future compliances.

I also note that clause 10(H)(2)(7) of the MRS states "To permit the Company extension of time beyond the stipulated period in the SEBI guidelines/Regulations to dilute the promoter's/investor's shareholding, till completion of the period of implementation, especially as the additional allotments are essential for the company's revival. " The Company has cited clause 10(H)(3)(4) of the MRS which provides for a similar relief but in respect of regulations of the stock exchanges. However, as stated in the above provision, the extension of time allowed to the Company for diluting the promoters' shareholding is available only till completion of period of implementation, i.e., by 2010-2011. The Company cannot, in the absence of any Order of BIFR further extending the time period or granting exemption from such compliances, seek support from such provisions for justifying its delay in complying with the MPS requirements. Beyond March 31, 2011, the Company cannot claim exemptions from compliances with the MPS provisions under the MRS.

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 obtain listing permission from BSE only on September 25, 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, Neycer 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 : February 16, 2015 Place : Mumbai