Order in the matter of Plethico Pharmaceuticals Limited

WTM/PS/33/CFD/SEPT/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 Plethico Pharmaceuticals 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. Plethico Pharmaceuticals 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 letter dated June 17, 2013, inter alia submitted that it is actively taking steps to comply with the MPS guidelines and was contemplating issue of bonus shares for such compliance.

4. Thereafter, one Mr. Hitesh Thakar vide letter dated June 12, 2014, stated that he was an independent director of the Company during the period September 09, 2012 to January 16, 2014. He requested SEBI to vacate the restrictions placed on him vide the interim order in view of his cessation as a director in the Company and the subsequent compliance with the MPS norms by the Company.

5. In the interest of justice, the Company was afforded an opportunity of personal hearing on July 02, 2014, when its authorised representatives, Mr. B. Dholakia, Practising Company Secretary and Mr. Hitesh Thakar, Chartered Accountant, appeared and submitted that the Company has complied with the MPS norms and that the same was achieved by invocation of pledge by certain financial institutions. Thereafter, the Company filed its written submissions vide letter dated July 10, 2014 and an e-mail dated August 04, 2014, wherein it inter alia made the following submissions : (a) The Company sought relaxations from SEBI with respect to its proposed bonus issue to only non-promoter shareholders. However, no response was received till date. (b) Financial institutions namely SICOM, Exim Bank, etc. exercised an option to invoke pledge of shares. As a result of invocation of pledge by the lenders namely EXIM Bank, SICOM Limited, Metrochem Industries Limited and Gateway Leasing Private Limited, the Company's promoter shareholding reduced from 77.77% to 72.30% during the period of August 19, 2013 to July 09, 2014. (c) Such reduction was involuntary. Invocation of pledge was expected in view of the Company's default in payment of instalments to the lenders. (d) There were only 29 shareholders present in the Annual General Meeting of the Company out of which 5 were promoters. All the shareholders vote for the resolutions and all resolutions were passed nem con, i.e., no dissent from non-promoter shareholders. (e) The Company has not convened any general meetings or issued any notice for postal ballot and question of exercising voting did not arise. (f) The Company therefore requested SEBI to take a lenient view in the matter.

6. I have considered the submissions made by the Company and other material available on record. The Company has submitted that it had made a request to SEBI seeking relaxation of the conditions prescribed under the ICDR Regulations with respect to its proposal for bonus issue of shares for increasing public shareholding. In this regard, it needs to be noted that the issuance of bonus shares was one of the approved method for complying with the MPS norms for which no separate approval was required to be taken.

7. As regards, compliance with the MPS norms, the Company has submitted that two financial institutions had invoked the pledge on shares, thereby reducing the promoters' shareholding from 77.77% to 73.68%. According to the Company, this had indirectly increased the public shareholding to 26.32%. I note from the shareholding pattern of the Company for the period ended December 31, 2013, that the promoters held 76.94% and the public shareholders were holding 23.06%. As per the shareholding pattern of the Company for the period that ended on March 31, 2014, the promoters' holding is shown as reduced to 73.68% and public shareholders were shown as holding 26.32%.

8. From the above submissions of the Company, it can be noted that the Company did not take concrete steps for achieving compliance with MPS requirements and that compliance has been achieved by invocation of pledge of promoters' shares by financial institutions.

9. 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%. As per the discussions above, the Company was able to achieve compliance only (though through invocation and not through any action of the Company) by the quarter that ended March 31, 2014. Such delay by the Company in complying with the MPS norms is not acceptable. In view of the same, I am of the considered view that the case be referred for adjudication proceedings for adjudicating the Company under Sections 23E and 23H of the SCRA.

10. On considering the facts and circumstances of this case and the discussion 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, Plethico Pharmaceuticals Limited, its directors including Mr. Hitesh Thakar, the promoters and promoter group, with immediate effect. The matter is referred for adjudication proceedings for adjudicating 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: September 03, 2014 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA