Order in the matter of REIL Electricals 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 REIL Electricals 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. REIL Electricals India 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 20, 2013, July 06, 2013 and August 12, 2013, wherein the following submissions were inter alia made :

(i) Presently the promoters of the Company and their PACs hold 37,06,550 equity shares representing 98.19% of the issued and paid-up capital. Only a nominal percentage of 1.81% i.e., 68,450 equity shares are held by 389 public shareholders (as per the shareholding pattern as of June 2013) in the Company. (As per the shareholding pattern as on March 31, 2014, there were 392 public shareholders in the Company.)

(ii) Out of the shares held by the public shareholders, only 16,300 equity shares (as per the shareholding pattern as of June 2013) are held in demat mode. The remaining 52,150 equity shares are held in physical mode. (As on March 31, 2014, 16,550 equity shares were held in demat mode.)

(iii) In the last six years, only 4100 equity shares were traded on the stock exchange, which is 0.11% of the total paid-up capital.

(iv) The total revenue of the Company has also reduced from Rs.2985.17 lakhs in March 31, 2011 to Rs.2257.59 lakhs in March 21, 2013. The profit after tax has also reduced from Rs.418.74 lakhs in March 31, 2011 to Rs.118.57 lakhs in March 31, 2013.

(v) The Board of Directors of the Company, in the meeting held on June 09, 2010 had approved the proposal for delisting the shares from the stock exchange. However, the Company did not receive any votes from public shareholders in respect of such proposal. The conditions of regulation 8(1)(b) of the SEBI (Delisting of Equity Shares) Regulations, 2009 ("the Delisting Regulations") could not be satisfied.

(vi) The Company had received letters dated May 02, 2013 from its promoters expressing their intention to voluntarily delist the equity shares of the Company from stock exchange by acquiring upto 68,450 equity shares held by the public shareholders in accordance with the Delisting Regulations and to take all such action and measures as may be necessary in connection with the delisting process at a price to be determined under the Reserve Book Building process as per the said regulations.

(vii) The proposal was approved in the vide a board resolution on May 9, 2013. The proposal was also approved by the shareholders on July 20, 2013, wherein the number of votes cast by public shareholders in favour of the special resolution was greater than two times of the number of votes cast by the public shareholders against such resolution. Hence, the requirement of regulation 8(1)(b) of the Delisting Regulations was satisfied.

(viii) The Company has also, vide letter dated July 31, 2013, applied to BSE seeking in-principle approval and is awaiting the decision.

4. An opportunity of personal hearing was afforded to the Company on January 21, 2014, when Mr. B.S. Sahney (Chairman and Managing Director of the Company), Mr. P.S. Sastry (Company Secretary), Mr. Rahul Porwal and Mr. Lokesh Bhandari from Anand Rathi Advisors

Limited (the merchant banker in respect of the delisting process), appeared and made submissions on the lines of the above said replies. A representation which dealt with the Company's submissions in brief was filed. To a query, the representatives submitted that the Company could not trace a majority of its public shareholders.

5. As the Company has submitted that it could not trace majority of its public shareholders, its present delisting proposal could again be unsuccessful as had happened in the year 2010. In this background, relaxing the directions passed against the Company vide the interim order to enable the Company to proceed with the delisting process might not have served any useful purpose. Therefore, the Company was granted liberty to make efforts to trace its public shareholders before approaching SEBI.

6. Subsequently, the Company vide letters dated March 28, 2014 and April 07, 2014 submitted that it has identified more than 75% of its public shareholders and that it is confident of achieving the required public participation in the delisting offer. This submission was reiterated by the Company (represented by Mr. P.S. Sastry-Company Secretary, Mr. Rahul Porwal and Mr. Lokesh Bhandari from Anand Rathi Advisors Limited) in the personal hearing held on May 16, 2014. The representatives requested time of 4 months to complete the process of delisting.

7. I have considered the submissions made by the Company/promoters vide their replies and the oral submissions made during the personal hearings and other material available on record. The shareholding of the promoter and promoter group in the Company is at 98.19% and the public shareholders hold 1.81%. The promoters of the Company have expressed their intention to acquire the equity shares held by the public shareholders in the Company and to delist the shares from the stock exchange. Considering the fact that the shareholders have approved the proposal for delisting vide their special resolution passed on July 20, 2013 and also the submissions that more than 75% of the public shareholders of the Company have been identified, I am of the considered view that the Company/promoters could be afforded time to complete their delisting process and also suitably relax the directions issued against the Company and its promoter/s who have made the delisting offer. However, it also needs to be noted that the special resolution was passed on July 20, 2013 and therefore in terms of regulation 8(1)(d) of the Delisting Regulations, the final application should be filed within one year of passing of special resolution, i.e., on or before July 19, 2014. In case, the Company is not able to file the final application before the due date, it may have to again take approval from shareholders through a special resolution. I also note that the Company is still awaiting the in-principle approval from BSE. Therefore, considering the above facts and circumstances of the case, I am of the opinion that a period of 6 months be granted to the Company/promoters to conclude their delisting process.

8. 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 issue the following directions :

(i) The direction issued in paragraph 17(b) of the interim order dated June 04, 2013 stands modified to the extent that it shall not hinder the voluntary delisting process initiated by the Company and that its promoters shall be permitted to buy shares of the Company held by public shareholders in their offer for delisting. (ii) The Company shall endeavour to complete the delisting process within a period of 6 (six) months from the date of this Order, and shall report the outcome of the delisting process to SEBI within a period of one month thereafter. (iii) The direction issued in paragraph 17(b) of the interim order dated June 04, 2013 shall be re-imposed immediately (without the need for passing of a separate order) in case the delisting process of the Company is not completed successfully within the period directed in sub-paragraph (ii) above. (iv) The directions contained in paragraphs 17(a), (c) and (d) of the interim order dated June 04, 2013 shall continue to be in effect till such time the Company is delisted from the stock exchanges or till the time the Company becomes compliant with the MPS norms, whichever is earlier.

9. This Order shall come into force with immediate effect.

10. The aforesaid directions are issued without prejudice to the right of SEBI to initiate action as contemplated in paragraph 18 of the interim order in case the delisting process of the Company is not successful within the period as directed above.

11. 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 : 26/MAY/2014 Place : Mumbai