Order in the matter of non-complaince with the requirement of MPS by listed companies in respect of Sundaram-Clayton Limited

WTM/PS/37/CFD/SEPT/2013 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM : PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under section 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 Sundaram-Clayton Limited

1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI') 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 19(A) 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. Sundaram-Clayton Limited (hereinafter referred to as 'the Company') is one such company against whom the interim order was passed. The public shareholding in the Company on the date of the interim order was 20%. The shares of the Company are listed on the Bombay Stock Exchange Limited ('BSE'), the National Stock Exchange of India Limited ('NSE') and the Madras Stock Exchange Limited.

3. The Company filed its replies dated June 17, 2013 and July 12, 2013 to the interim order. An opportunity of personal hearing was afforded to the Company on July 29, 2013, when Mr. V.N. Venkatanathan, Executive VP-Finance of the Company appeared along with Mr. H. Lakshamanan, Executive Director and Mr. R. Raja Prakash, Company Secretary and made submissions. Mr. Anay Khare, Managing Director-Corporate Finance, Axis Capital Limited, was also present in the hearing. Thereafter, the Company vide its letter dated August 05, 2013 submitted the written submissions and the information sought during the personal hearing

4. The Company has submitted that in order to comply with the MPS norms, it had undertaken an issue of its equity shares through an Institutional Placement Programme ('IPP') in terms of Chapter VIII A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. According to the Company, it has allotted 12,64,501 equity shares of `.5/- each on July 11, 2013, after the receipt of in-principle listing approvals (for the shares issued in the IPP, which were tradable from July 18, 2013) from the stock exchanges. The Company has further submitted that one of its promoters also sold 4 equity shares on July 11, 2013 by way of an Offer for Sale ('OFS'). The Company represented that it is now compliant with the MPS norms and requested SEBI to condone the delay in compliance.

5. I have considered the reply and submissions made by the Company. The Company has submitted that it had made sincere efforts for achieving and complying with the MPS requirements. It has been said by the Company that it had convened the Board meeting for IPP issue on February 08, 2013 and the shareholders' approval was taken on March 20, 2013. The delay in coming out with the issue happened because of the declaration which forms part of the Red Herring Prospectus ('RHP') which has to be signed by all the directors of the Company. However, due to certain unavoidable reasons as explained in the reply, the signatures of all the directors could not be taken on the declaration till May 30, 2013. Therefore, according to the company the RHP could not have been filed till that date. It has also been said that the Company had simultaneously completed various other formalities during the period and immediately filed the RHP dated May 31, 2013 with the Registrar of Companies ('RoC'), Tamil Nadu. Thereafter, on obtaining the acknowledgement, the RHP was filed with SEBI and the stock exchanges on June 03, 2013. The issue of IPP opened and closed on June 07, 2013. Further, while the Company was in the process of completing the basis of allocation of shares, it was clarified by SEBI that since the issue was not opened on or before June 03, 2013 (due date of the compliance of MPS norms), the benefit of relaxations given prior to compliance date would not be available to it. Accordingly, the Company vide its letter dated June 17, 2013, informed SEBI that the Company would come up with a fresh IPP issue. Thereafter, the Company again completed all the actions and came up with the fresh issue of IPP by preparing all documents/ agreements/ RHP/ Prospectus etc. It has been further said that during the process, one of the stock exchanges advised the Company that the proposed issue and allotment of 12,64,501 shares by the Company would increase the public shareholding only to 24.999999% and not 25% as required for achieving MPS requirements. After examining the other options available, the Company decided to proceeded with the fresh IPP issue for the issue of allotment of 12,64,501 equity shares and simultaneously one of the promoters opted for the OFS route for the sale of 4 equity shares of the Company to achieve compliance.

6. I have perused the letter dated July 12, 2013 of the National Securities Depository Limited ('NSDL') addressed to the Company, wherein it is stated that 12,64,501 shares of the Company were credited to the demat accounts on July 11, 2013. The NSE and BSE, vide letters dated July 11, 2013, have granted listing and trading permissions to the Company with respect to the shares allotted in the IPP. Pursuant to the aforesaid allotment of shares, the shareholding of the promoter and promoter group in the Company has reduced from 80% to 75%. The public shareholders presently hold 25%, which is the minimum shareholding required to be held by public shareholders in a listed company, under the MPS norms.

7. From the aforesaid discussion, it is clear that the Company has not complied with the MPS requirements on or before June 03, 2013, i.e., the prescribed due date. It was submitted that in order to become MPS compliant, the Board of Directors of the Company had approved further issue of shares pursuant to Section 81(1A) of the Companies Act, 1956 on February 08, 2013, the shareholders had also approved the same on March 20, 2013. However, I note that despite these approvals, the Company had come out with the first IPP issue only on June 07, 2013, which was after the due date, to achieve compliance. The Company vide its letters has provided detailed explanation for the delay. Having gone through the same, I note that the Company had started taking steps for compliance only from February, 2013. If it had taken those steps much earlier it could have avoided the delay. The Company has therefore delayed its compliance with the MPS requirement when it was under notice for three years for achieving such compliance. Considering the above and the fact that the Company has complied with the MPS norms, though belatedly, I do not propose to initiate further action against the Company as contemplated in paragraph 18 of the interim order. However, the Company is warned for its conduct and is advised to ensure compliance with all the applicable laws and regulations administered by SEBI, in letter and spirit.

8. With the above observations, 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 vide the interim order dated June 04, 2013 against the company, Sundaram-Clayton Limited, its directors, promoters and promoter group, with immediate effect.

9. Copy of this Order shall be served on the stock exchanges and depositories for their information and action that may deem fit and necessary in this case.

PLACE: Mumbai PRASHANT SARAN DATE: September 04, 2013 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA