Order in the matter of Sayaji Hotels Limited

WTM/PS/101/CFD/DEC/2015 SECURITIES AND EXCHANGE BOARD OF INDIA 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 norms by the listed companies. In respect of SAYAJI HOTELS LIMITED

1. Sayaji Hotels Limited (hereinafter referred to as ‘the Company’) is a company incorporated on April 05, 1982 under the provisions of the Companies Act, 1956. The Corporate Identification Number (CIN) of the Company is L51100GJ1982PLC005131. The registered office of the Company is situated at Sayaji Hotels Limited, Opp. Rajshree Talkies, Near Kala Ghoda, Sayajiganj, Vadodara, PIN- 390005, Gujarat. The equity shares of the Company are listed on the National Stock Exchange of India Limited (‘NSE’), the Bombay Stock Exchange Limited (‘BSE’) and Ahmedabad Stock Exchange.

2. As per the shareholding pattern of the Company as available in the website of the BSE for the quarter ended June 30, 2015, it is noted that the public shareholding in the Company is at 20.08%. It was noted that during February 2013, the Company's promoter, Mr. Raoof Razak Dhanani had acquired 27.16% stake in the Company from one Clearwater Capital Partners Cyprus Limited and triggered an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘the Takeover Regulations’). The open offer was completed on September 11, 2013. Pursuant to the completion of the open offer, the total promoters’ shareholding increased from 67.47% to 79.90% (with public shareholding at 20.10%) on October 03, 2013. The said public shareholding is less than the mandated 25% under Rule 19A of the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as 'SCRR') read with Section 21 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ‘SCRA’).

3. In this context, it is important to refer to the provisions governing the minimum public shareholding (hereinafter referred to as ‘MPS’) in companies, the methods prescribed by the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) for listed companies to achieve compliance with such norms and the need for such MPS in listed companies.

a. The SCRA was enacted to prevent undesirable transactions in securities by regulating the business of dealings therein, and by providing for certain other matters connected therewith. Further for carrying out the mandate of the SCRA, the SCRR was framed by the Central Government. Section 21 of the SCRA mandates the compliance, by all listed companies, of the conditions of the listing agreement with the stock exchange. The SCRR inter-alia, prescribes the requirements which have to be satisfied by companies for the purpose of getting their securities listed on any stock exchange in India.

b. The SCRR was amended vide notification of the Securities Contracts (Regulation) (Amendment) Rules, 2010 ('First amendment') by the Central Government dated June 04, 2010 and amended once again vide Securities Contracts (Regulation) (Second Amendment) Rules, 2010 ('Second amendment') in terms whereof Rule 19(2)(b) was amended and a new rule; Rule 19(A) was introduced to the SCRR respectively. The amended provisions of rule 19(2)(b) and the newly inserted rule 19(A) of the SCRR are reproduced below for reference: Requirements with respect to the listing of securities on a recognised stock exchange. 19 (2) ………… (b) (i) At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or (ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees: Provided that the requirement of post issue capital being more than four thousand crore rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub-rule 2 of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement: Provided further that the company, referred to in sub clause (ii), shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India. Continuous Listing Requirement.

19A. (1) Every listed company [other than public sector company] shall maintain public shareholding of at least twenty five per cent.: Provided that any listed company which has public shareholding below twenty five percent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India. Explanation: For the purposes of this sub-rule, a company whose securities has been listed pursuant to an offer and allotment made to public in terms of sub-clause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty five per cent public shareholding from the date on which the public shareholding in the company reaches the level of twenty five percent in terms of said sub-clause. (2) Where the public shareholding in a listed company falls below twenty five per cent at any time, such company shall bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India.

(3) Notwithstanding anything contained in this rule, every listed public sector company shall maintain public shareholding of at least ten per cent.: Provided that a listed public sector company- (a) which has public shareholding below ten per cent, on the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of three years from the date of such commencement; (b) whose public shareholding reduces below ten per cent, after the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of twelve months from the date of such reduction. [Emphasis supplied] c. In terms of the amended provisions of Rules 19(2)(b) and 19A of the SCRR, all listed companies in the private sector were mandated to achieve and maintain the MPS of 25% of each class or kind of equity shares or debentures convertible into equity shares issued by such companies.

Those companies with public shareholding of less than 25% were required to achieve the same, within a period of three years from the date of commencement of the first amendment i.e. by June 03, 2013 in the manner specified by SEBI.

d. In terms of Rule 19A(2) of the SCRR, the listed companies, which had 25% public shareholding as on June 04, 2010 and the same falls below 25% at any time, such companies should bring the public shareholding to 25% within a maximum period of twelve months from the date of such fall in the manner specified by SEBI.

e. In order to align the requirements in the Listing Agreement with the requirements as specified in Rule 19(2)(b) and Rule 19A of SCRR and to specify the manner in which public shareholding may be raised to the prescribed minimum level, SEBI issued a Circular No CIR/CFD/DIL/10/2010 dated December 16, 2010 to suitably amend Clause 40A of the Listing Agreement. This circular provided the following methods for complying with the MPS requirement: i. Issuance of shares to the public through prospectus; ii. Offer for sale of shares held by promoters to public through prospectus; iii. Sale of shares held by promoters through the secondary market;

f. Thereafter, SEBI issued another Circular dated February 08, 2012 which inter-alia provided that listed companies may achieve the MPS requirement through Institutional Placement Programme (‘IPP’). With a view to further facilitate listed companies to comply with the MPS requirements within the time specified in the SCRR, SEBI issued the Circular dated August 29, 2012, which specified the following additional methods to comply with the MPS requirements: i. Rights Issues to public shareholders, with promoters/ promoter group shareholders forgoing their rights entitlement. ii. Bonus Issues to public shareholders, with promoters/ promoter group shareholders forgoing their bonus entitlement. iii. Any other method as may be approved by SEBI, on a case to case basis.

g. The said measures and methods were taken/ initiated to ensure that listed companies comply with the MPS norms before the due date and comply strictly in accordance with the prescribed methods.

4. The rationale behind the insertion of rule 19A in the SCRR, can be noted from the press release dated June 4, 2010, issued by the Ministry of Finance, Government of India, which inter alia states that ‘A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. Further, the larger the number of shareholders, the less is the scope for price manipulation.’. Further, the availability of a minimum portion/ number of shares (floating stock) of the listed securities with the public ensures that there is a reasonable depth in the market and the prices of the securities are not susceptible to manipulation. Moreover a dispersed shareholding structure is also essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. I also note the following observations made by the Hon'ble Securities Appellate Tribunal in the order dated July 03, 2013 passed in the matter of Gillette Limited Vs. SEBI (Appeal No. 65 of 2013):

‘24. ................ In our opinion, the Appellant seems to have overlooked, whether deliberately or inadvertently, the fact that the underlying philosophy behind the requirement of a minimum public holding of 25% is prevention of concentration of shares in the hands of a few market players by ensuring a sound and healthy public float to stave off any manipulation or perpetration of other unethical activities in the securities market which would unfortunately be the irrefragable consequence of the reins of the market being in the hands of a few. 25. It is pertinently noted that in the proposition put forth by the Appellant, the entire idea behind having a specific percentage of 25 involving a large number of the members of the public in the shareholding of listed companies, is eclipsed by the Appellants trying their best to part with as little of the promoters’ shareholding as possible. ...........’ 5. As regards the alleged non-compliance by the Company with the MPS norms, the following important facts need to be noted: a. One Ms. Sadhana G. Karode vide her complaint dated August 18, 2015 alleged that pursuant to the open offer made in the year 2013, the promoters’ stake had increased to 79.90% and instead of bringing it down, the promoters had further increased the stake in the Company to 79.92%. b. The Company in its submissions dated August 28, 2015, submitted that the promoters’ holding increased due to the open offer made by the promoters in the year 2013. The promoters had initiated certain steps in the year 2013 for complying with the MPS norms, however, due to non-favorable market conditions for the ‘Offer for Sale’ (OFS), ‘Institutional Placement Programme’, etc., the promoters had to postpone the plan. c. The Company vide the said letter also stated that on August 12, 2015, the promoters have informed it that one ‘Systematix Corporate Services Limited’ has been appointed as Merchant Banker to advise for complying with the MPS requirement in accordance with SEBI Regulations.

In view of the same, the promoters are expected to comply with the MPS requirement shortly. d. The promoter group holds 4.91% equity shares in excess which has to be divested in order to comply with the MPS norms. e. The Company vide its e-mail dated November 19, 2015, submitted that it has discussed with a few Merchant Bankers for OFS for complying with MPS requirement. The Merchant Bankers on analyzing the volume in the scrip of the Company (i.e. on average 729 shares per day from the period starting from October 01, 2013 to October 31, 2015) have suggested that OFS may not be successful as the window for OFS will be open for one day only and for complying with MPS requirement, the promoters have to sell about eight lakh shares. f. The Company is searching for a prospective investor who can invest in the shares of the Company and thereby the Company will comply with MPS requirement, in near future.

6. From the above facts, I find as under: a. The public shareholding in the Company fell below the mandatory minimum of 25% on October 03, 2013. b. In terms of the rule 19A(2) of the SCRR, the Company had to bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by SEBI. c. The date for achieving compliance with the MPS requirement was therefore on or before October 02, 2014. Though, it is seen from the shareholding pattern as on September 30, 2015 that the public shareholding in the Company is less than the minimum stipulated level of 25% by 4.91%, it is to be noted that the Company is non-compliant with the MPS norms.

7. In view of the discussion, I find that the public shareholding of the Company was more than 25% as on June 04, 2010 and the same had fallen below 25% thereafter i.e., October 03, 2013. It is observed that the public shareholding has not been brought to 25% within a period of twelve months. The Company even after passing of twelve months has not taken any concrete steps for compliance with the MPS norms. In view of the discussion, I am of the opinion that the persons/ entities forming part of the promoter/ promoter group and the directors of Sayaji Hotels Limited are mainly responsible for the non-compliance.

8. In relation to the above, the following is also observed from the ‘Letter of Offer’ dated August 05, 2013 (para 2.2.10): “… In the event that equity shares accepted in the Open Offer are such that shareholding of the Acquirer together with the Persons Acting in Concert result in the shareholding exceeding the maximum non-public shareholding, the Acquirer and the PAC will, in accordance with Regulation 7(4) of the Regulations, facilitate the Target Company to raise the level specified for continuous listing as per the Listing Agreement with the stock exchanges where the equity shares of the Target Company are listed within the specified time in Securities Contract (Regulation) Rules, 1957 (“SCRR”) and in accordance with the prescribed procedure under Clause 40A(ii) of the Listing Agreement and in compliance with the Regulations.” However, no concrete steps have been taken by the Company to comply with the MPS norms. From a perusal of the shareholding pattern for the quarter ended September 30, 2014, it is noted that the Company had 20 promoters. Further, from the quarter ended September 30, 2015, it is noted that the Company has 22 promoters. The date of MPS compliance by the Company was October 02, 2014 and the said non-compliance is still continuing. In view of the same, all the promoters (as per the quarter ended September 30, 2015) are equally responsible for complying with the MPS norms.

It is also noted from shareholding pattern of the Company for the quarter ended September 2014, that one Ms. Rabiabai Dhanani was holding 0.12% as promoter of the Company. As per the information obtained from the Registrar and Transfer Agent (RTA) of the Company, it is noted that Ms. Rabiabai Dhanani had transferred her entire holding to one M.P. Agro Industries Limited on December 08, 2014 i.e. after the due date of MPS compliance i.e. October 02, 2014. Therefore, till such time she was holding the shares in the Company, she had to comply with the MPS norms. In view of the alleged failure to comply with the MPS norms by the Company, Ms. Rabiabai Dhanani needs to be included among other promoters in respect of the restrictions imposed in this order.

9. It is important to note that SEBI had passed an interim order dated June 04, 2013, against 105 listed companies who did not comply with the MPS as stipulated under rule 19A of the SCRR within the due date i.e., June 03, 2013. In all these companies, the promoters’ shareholding was in excess of 75% and consequently the MPS was less than the stipulated 25%. Such order was confirmed against companies who continued to be non-compliant with the MPS norms and SEBI has also initiated further action against them.

10. I note that the promoters/ promoter group of non-compliant companies would have an advantage on account of their disproportionate stake compared to the public in their respective companies and also place them in a more advantageous position as compared to the promoter/ promoter groups of the compliant companies on account of violating the regulatory requirements prescribed in the SCRR by the Central Government and as specified by SEBI.

11. As such, in order to ensure an equitable participation of the promoter/ promoter group and the directors qua the public shareholders in the affairs of a private sector listed company and also provide a level playing field for the promoter/ promoter groups of these companies with the promoter/ promoter groups of the other companies that have already complied with the above-mentioned provisions of SCRR and in the manner as specified by SEBI, it is imperative that this balance be restored and the disproportionate advantage arising out of non-compliance of the minimum public shareholding requirement not be permitted to be vested with the promoter/ promoter group. In view of the discussion above, in the interest of all investors and the orderly development of the securities market, it is necessary to pass suitable directions against the promoter/promoter group and directors of, while not adversely affecting the interests of the public shareholders

12. In view of the foregoing, I, in exercise of the powers conferred upon me by virtue of section 19 and under Sections 11(1), 11(2)(j), 11(4) and 11(B) of the Securities and Exchange Board of India Act, 1992 read with section 12A of Securities Contracts (Regulation) Act, 1956, pending passing of the final order, hereby: a. direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc. with respect to the excess of proportionate promoter/ promoter group shareholding (including persons allegedly shown as public shareholders) in the Company, till such time the Company complies with the minimum public shareholding requirement.

i. For the purpose of above direction, proportionate promoter/ promoter group shareholding shall be computed on the basis of the public shareholding in the company; e.g. if public shareholding in a company after the deadline is less than 25%, say 10%, in such case, the proportionate promoter shareholding would be 30% (i.e. three times the existing public shareholding). Thus the excess promoter/ promoter group holding i.e. 60% shall be frozen till the minimum public shareholding requirement is complied with. ii. In case of more than one entity in the promoter/ promoter group in a company, the excess promoter holding for the purpose of taking action shall be computed on a proportionate basis. For illustrating the example above, if there are three promoters; A, B and C with shareholdings of 45%, 35% and 10% respectively; the excess promoter holding of 60% shall be allocated as follows: 1. A:- (60% multiplied by [45%/45%+35%+10%]) = 30.00% 2. B:- (60% multiplied by [35%/45%+35%+10%]) = 23.33% 3. C:- (60% multiplied by [10%/45%+35%+10%]) = 06.67% Total = 60.00% Based on the above, the excess shareholding of the promoters (including persons allegedly shown as public shareholders) of the Company that should be frozen is presented in the following table:

S.No. Name of the promoter/ Shareholding (as Excess shareholding shareholder on Sept. 30, 2015) to be frozen 1 Late Sajid Dhanani 13.90 3.43 2 Nasim Sujit Desai 3.58 0.88 3 Anisha Dhanani 15.09 3.72 4 Suchitra Dhanani 1.83 0.45 5 Kayum Dhanani 0.67 0.17 6 Habibunisha Dhanani 0.63 0.16 7 Abbas A Sheikh 0.29 0.07 8 Sadika Memon 0.29 0.07 9 Sharmimbabu Dhanani 0.29 0.07 10 Bipasha Dhanani 0.29 0.07 11 Shamim Sheikh 0.24 0.06 12 Rafiqunisha Merchant 0.10 0.02 13 Abdul Razak Dhanani 0.29 0.07 14 Raoof Dhanani 27.24 6.72 15 Gulshanbanu Menon 0.10 0.02 16 Nasim Dhanani 0.10 0.02 17 Jamila Dhanani 0.05 0.01 18 Mansur Memon (having 100 shares only) 0.00 0.00 19 Ahilya Hotels Limited 14.01 3.46 20 Liberty Const. & Leasing Limited 0.69 0.17 21 Bharat Equity Services Limited 0.01 0.00 22 M.P. Agro Industries Limited 0.24 0.06 TOTAL 79.93 19.72 b. prohibit the promoters/ promoter group including Ms. Rabiabai Dhanani and the directors of the Company from buying, selling or otherwise dealing in securities of Company, either directly or indirectly, in any manner whatsoever, except for the purpose of complying with minimum public shareholding requirement till such time the Company complies with the minimum public shareholding requirement.

c. restrain the shareholders forming part of the promoter/ promoter group from holding any new position as a director in any listed company, till such time the Company complies with the minimum public shareholding requirement;

d. restrain the directors of Company from holding any new position as a director in any listed company, till such time the Company complies with the minimum public shareholding requirement.

13. This order is without prejudice to the right of SEBI to take any other action, including the following against the Company, their promoters including Ms. Rabiabai Dhanani and directors, or issuing such directions in accordance with law:

a. Levying monetary penalty under adjudication proceedings; b. initiating criminal proceedings by way of prosecution proceedings c. moving the scrip to trade-to-trade segment; d. excluding the scrip from F&O segment; e. any other action/direction as may be deemed appropriate.

For the above purpose, this Order shall be treated as a show cause notice and the above persons may show cause as to why such proposed action should not be initiated against them.

14. The Board/ audit committee of the Company shall, at the end of each quarter, submit compliance report, to the stock exchanges where the shares of Company are listed, giving the extent to which compliance has been achieved and the efforts taken therefor.

15. Copies of this order shall be served on the stock exchanges, depositories and the Company to enable them to take necessary steps to implement the order. The stock exchanges and depositories shall collaborate for the purpose of implementing the order. Depositories shall rely on the filings made with the stock exchanges for ascertaining the promoters, their shareholding and public shareholding. Stock exchanges shall provide the aforesaid data to the depositories to enable them to take necessary action as mentioned above.

16. The entities/ persons against whom this order is being passed may file their replies, if any, within 21 days from the date of this order. The entities mentioned herein may also, if they so desire indicate in their replies whether they wish to avail of the opportunity of personal hearing before the Securities and Exchange Board of India at its Head Office at SEBI Bhavan, Plot C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051 on a date and time to be fixed on a specific request.

17. This order shall come into force with immediate effect.

Date : December 10, 2015 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA