Order in the matter of Parshwanath Corporation Limited

WTM/PS/63/CFD/JAN/2015 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 Parshwanath Corporation 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 (hereinafter referred to as '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. Parshwanath Corporation 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').

3. The Company filed its replies to the interim order, vide letters dated June 14, 2013, June 18, 2013, July 09, 2013, November 18, 2013, December 19, 2013, February 18, 2014 and April 24, 2014. Thereafter, an opportunity of personal hearing was afforded to the Company on July 23, 2014, when Mr. Kaushikbhai C. Patel, Chartered Accountant, Mr. Shantibhai R. Sanghavi, Practising Company Secretary and Mr. Chandrakant A. Shah, Compliance Officer of the Company appeared and made oral submissions. During the personal hearing, the representatives submitted that the Company is taking steps to resolve the issues with BSE and sought sixty day's time to comply with the MPS requirements. The request of the Company was considered and the matter was adjourned to September 24, 2014. Due to certain administrative exigencies, the hearing was rescheduled to September 26, 2014. In the meantime, the Company vide its letter dated September 20, 2014, filed its written submissions which were taken on record.

The hearing was later adjourned to October 27, 2014, on the request of the Company. In the meantime, the Company vide its letter dated October 07, 2014, stated that it has complied with the MPS requirement by allotting the bonus shares to the public shareholders and listing application for the said bonus issue has been filed with BSE. Vide its letter, the Company also requested SEBI to pass necessary order without insisting on their personal presence before SEBI, considering their letters and necessary documents.

4. The submissions of the Company inter alia are as follows: a. The Company is having paid up capital of 3 Crores divided into 30,00,000 equity shares of 10 each. There are in all 2,408 public shareholders. The Company besides having not many transactions on the stock exchange is also a company which has not declared any dividend since last 15 years. b. Initially, the Company in order to comply with the MPS requirement and considering various aspects, requested its promoters to dilute their holding by disposing of shares in open market. Accordingly, the promoters of the Company had sold 1,29,526 shares as on May 31, 2013 in open market through BSE, which is less than 0.5% of the paid up capital of the Company. c. Thereafter, the promoters and directors of the Company had discussed in detail the options available to it, in order to ensure compliance with the MPS requirements. In the facts and circumstances, the issue of 'bonus shares' was considered to be a preferred option. The Board of Directors then in their meeting on May 06, 2013 discussed and passed the resolution to issue 'bonus shares' in the proportion of one new equity shares for every five equity shares held by the public shareholders. d. Thereafter, at the Extra Ordinary General Meeting held on May 31, 2013, the shareholders of the Company had decided to issue 'bonus shares' in the ratio of 5:1, to public shareholders in order to comply with the MPS requirement.

During the meeting, it was also decided to give one fully paid share (instead of fractional coupon) to shareholders (26 in number) entitling to less than one share with a view to avoid administrative procedure and unnecessary hardship to small shareholders. As a result of such resolution, 1,31,770 equity shares were issued which had to be allotted to the shareholders. However, the allotment could not be made because of interim order. e. For making allotment of 'bonus shares', it was asked by BSE to fix the record date after getting the necessary exemption/ approval from SEBI, about dilution of the shares by way of sale and issue of 'bonus shares'. Thus allotment of 'bonus shares' was held up. f. After the sale of shares by promoters and issue of bonus shares, the promoters' holding would be 74.76% and the public shareholding would be 25.24%. g. The Company convened the Board Meeting on September 23, 2014, for allotment of bonus shares to the public shareholder only and has taken steps of making listing application to BSE.

5. I have considered the reply and the submissions made by the Company. The Company has submitted that it had examined various methods to comply with the MPS norms. As per the submissions of the Company, the promoters had sold 1,29,526 equity shares representing less than 0.5% of the paid up share capital of the Company as on May 31, 2013 in open market, on the floor of the exchange. SEBI in order to confirm the submissions of the Company had asked BSE to provide the details. In response, BSE has stated that 1,29,126 shares of the Company were sold on three dates i.e. May 22, 2013, May 23, 2013 and May 24, 2013 by two promoters namely Mr. Rushabh Navnitbhai Patel and Mr. Navnitbhai Chunibhai Patel. Further, from the shareholding pattern for the quarter ended June 2013, it has been noted that the shareholding on one Mr. Chunibhai D. Patel (a promoter of the Company) has decreased by 400 shares as compared to the shareholding pattern for the quarter ended March 2013. However, due to the unavailability of the PAN of Mr. Chunibhai D. Patel, BSE could not confirm the date of such trade. Further, the shares sold in open market by the promoters of the Company comes to around 4.3% of the paid up capital (i.e. 1,29,526/ 3,00,000 shares) and not 0.5% as argued by the Company. The above manner of selling of shares in the open market is not one of the approved methods prescribed by SEBI.

6. Thereafter, the Company in order to comply with the MPS norms had passed the resolution dated May 06, 2013, to issue 'bonus shares' in the proportion of one equity shares for every five equity shares held by the public shareholders. However, the allotment of 'bonus shares' could not be made as BSE had asked the Company to fix the record date after getting the necessary exemption/ approval from SEBI, about the sale of shares by way of sale in open market and issue of 'bonus shares'. I note that the Company in its submission has requested relaxation for not approaching SEBI for previous approval for disposal of shares and requested to condone the delay.

7. In this regard, I note that SEBI had issued circulars dated December 16, 2010, February 08, 2012 and August 29, 2012, in order to align the requirements in the Listing Agreement to specify the manner in which public shareholding may be raised to the prescribed minimum level. These circulars inter alia provided the following methods for complying with the MPS requirements: a. Issuance of shares to the public through prospectus, b. Offer for sale of shares held by promoters to public through prospectus, c. Sale of shares held by promoters through the secondary market i.e. OFS through Stock Exchange, d. Institutional Placement Programme, e. Rights Issues to public shareholders, with promoters/ promoter group shareholders forgoing their rights entitlement, f. Bonus Issues to public shareholders, with promoters/ promoter group shareholders forgoing their bonus entitlement, g. Any other method as may be approved by SEBI, on a case to case basis.

Though the issue of shares in a bonus issue is an approved method, the sale of shares in open market by the promoter is not a prescribed mode for compliance with the MPS requirements. Nor has the Company sought specific prior permissions from SEBI for this sale in the open market. It is also noteworthy that several companies had approached SEBI at an early stage, with a request to permit them for open market sale so as to achieve compliance of MPS requirements before the due date (i.e. June 03, 2013) and SEBI had granted permissions based on the facts and circumstances of respective case.

8. I note that the Company has now achieved the compliance through bonus shares. The shareholders approval to allot bonus shares is dated May 31, 2013. I note that SEBI vide its letter dated March 05, 2014 has permitted the Company to allot the bonus shares within 30 days so as to comply with the requirements of MPS. During the personal hearing dated July 23, 2014, the Company submitted that it is taking steps to resolve the issue with BSE and also sought 60 days time to comply with the requirements of MPS. The Company has allotted bonus shares on September 23, 2014, based on the record date of September 20,

2014. BSE vide its email dated December 23, 2014 has stated that the listing approval to the bonus shares has been granted vide letter dated October 20, 2014. However, it is yet to receive the application for trading approval of the said bonus shares. I note from the shareholding pattern as available on the website maintained by BSE that the public shareholders now hold 25.25% of the equity shares in the Company.

9. From the aforesaid discussion, it is clear that the Company did not comply with the MPS requirements on or before June 03, 2013, i.e., the prescribed due date. The Company vide its letters has provided detailed explanation for the delay. Having gone through the same, I note that the Company initially had adopted an unapproved method and had started taking effective steps for compliance only from May, 2013. If it had taken those steps much earlier, it could have avoided the delay in complying with the MPS. I note that the amended provisions of rules 19 and 19A of the SCRR came into force with effect from June 04, 2010, offering a time period of three years (i.e., on or before June 03, 2013) for a listed company to maintain public shareholding of atleast 25%.

10. As mentioned above, the Company was able to achieve compliance only by the quarter that ended September 30, 2014. Such delay by the Company in complying with the MPS norms is not acceptable. Further, the Company had also offloaded the shares by an unapproved mode. In view of the said non-compliances, I am of the considered view that the case be referred for adjudication proceedings under Sections 23E and 23H of the SCRA. As the Company has achieved compliance now, as discussed above, I find it appropriate and reasonable to vacate the directions issued vide the interim order against the Company, its promoters and directors.

11. 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, Parshwanath Corporation 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.

12. Copy of this Order shall be served on the stock exchanges and depositories for their information and necessary action.

DATE: January 07, 2015 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA