Order in the matter of Pranavaditya Spinning Mills Limited

WTM/PS/60/CFD/NOV/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 Pranavaditya Spinning Mills 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 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. Pranavaditya Spinning Mills 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 6.24%. The shares of the Company are listed on the Bombay Stock Exchange Limited ('BSE').

3. The promoter of the Company, namely Indo Count Industries Limited vide its letters dated June 24, 2013 replied to the interim order. Vide another letter dated September 24, 2013, the Company also made submissions. Thereafter, an opportunity of personal hearing was afforded to the Company on October 14, 2013, when Mr. R. Sundaram, President (Finance) of the promoter company appeared and made submissions. The submissions of the Company are as under: a. The Company was incorporated on September 12, 1990, due to erosion of networth, the company was referred to Hon'ble Board for Industrial and Financial Reconstruction ('BIFR') in the year 2005 and was admitted as a sick company in the year 2006. As part of the restructuring, the paid up share capital of the Company was written off by 90%. With this, the 1.20 crore equity shares of the Company were reduced to 12 lakh with par value remaining at 10 each, which resulted in reduction of the paid up capital from 12 crore to 1.2 Crore with effect from November 17, 2007. b. With this, the current assets charged to the bankers of the Company remained of no value.

In order to protect the exposure of banks, Indo Count Industries Limited was admitted as co-promoter by BFIR with the consent of the other promoter namely Udani group. Indo Count Industries Limited brought in 18.04 Crore as equity capital into the Company and were allotted 1,80,41,280 equity shares at 10 each on August 13, 2008 and thereby its holding became 93.76% in the Company as per the BIFR order. c. Thereafter, due to loss in the derivative transactions, Indo Count Industries Limited was referred to CDR (Corporate Debt Restructuring) in the year 2008 and a package was sanctioned in December 2008 and the scheme is valid till March 2018. As a part of restructuring all the fixed, current assets and investments of Indo Count Industries Limited were charged to the lenders. The fixed assets of the Company are also charged in favour of the lenders of Indo Count Industries Limited. d. Since, June 04, 2010, Indo Count Industries Limited is making representations to all the lenders and CDR about the need to release the investments so as to dilute the shares. However, no lender was willing to forego their charge on the investment of the Company.

The lenders had advised Indo Count Industries Limited to seek their consent only when its performance is in line with the CDR approved package. e. Indo Count Industries Limited pursuant to the interim order has again approached to all lenders and CDR with a request to permit the sale of the excess shares held by it in the Company and not to impose the condition of sale at or above the book value and allow the market forces to determine the Offer for Sale ('OFS') price. As textile industry is passing through a cyclical trend and has been going through a bad phase, the prices of most of the textile companies are quoting below par. f. The promoter of the Company namely Indo Count Industries Limited in order to comply with the MPS norms, has diluted its holding from 96.76% to 74.53% through OFS mechanism as on September 12, 2013. Pursuant to the same, the promoter's holding was reduced to 74.53%, thereby raising the public shareholding to 25.47%.

4. I have considered the submissions made by Indo Count Industries Limited and the Company during the personal hearing. I note that the Company was a sick company for which BIFR had sanctioned a rehabilitation scheme. Pursuant to the rehabilitation scheme, the holding of Indo Count Industries Limited (one of the promoter's) increased to 93.76% as on August 13, 2008. Thereafter, Indo Count Industries Limited was referred to CDR in the year, 2008 and its fixed, current assets and investments were charged to the lenders. Indo Count Industries Limited has submitted that it had made representations to its lenders and CDR for the permission to sell the excess shares held by it in order to comply with MPS. However, the lenders were not willing to forego their charge on the investments of the Company. Later on, Indo Count Industries Limited again approached the lenders and CDR and managed to get the permission to dilute its holding and undertook the OFS on September 12, 2013.

5. I note that the rule 19A of the SCRR was inserted w.e.f. June, 2010 and the Company was under a three (3) years' notice to achieve compliance with the MPS norm. I find that the Company has definitely delayed in complying with the MPS requirements under the SCRR. The Company is, therefore, warned for the same and is advised to ensure compliance with all the applicable laws and regulations administered by SEBI that govern its activities in the securities market. Considering the facts that the Company was referred to BIFR, the promoter of the Company was referred to CDR and the Company is now compliant with the stipulated MPS level, I do not propose to initiate further action against the Company, its directors, promoters' and promoter group, as contemplated in paragraph 18 of the interim order.

6. 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 issued vide the interim order dated June 04, 2013 against the Company, Pranavaditya Spinning Mills Limited, its directors, promoters and promoter group, with immediate effect.

7. 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.

DATE: November 20th, 2013 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA