Order in the matter of Starcom Information Technology Ltd.

WTM/PS/75/CFD/FEB/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 Starcom Information Technology 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. Starcom Information Technology 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 vide letter dated June 24, 2013 filed its reply inter alia submitting the following: (a) As on date, the subscribed and paid-up equity share capital of the Company is Rs.5,00,06,000/-comprising of 50,00,600 fully paid-up equity shares of Rs.10/-. (b) The Company was in compliance with the MPS requirement on the date of the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010. (c) Pursuant to a share purchase agreement, Mr. Ziaulla Sheriff, promoter of the Company, had on February 03, 2011, acquired 35,60,280 fully paid-up equity shares of Rs.10/- each, representing 71.20% of the total equity share capital of the Company from the erstwhile promoters through bulk deal on the BSE at an average price of Rs.20.40/- per fully paid-up equity share. The share purchase agreement dated February 02, 2011 triggered the open offer in accordance with regulation 10 and 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("the Takeover Regulations"). In the open offer made on July 11, 2011, the promoter had further acquired 8,76,175 fully paid-up equity shares of Rs.10/- representing 17.52% of the total equity of the Company.

Consequent to the above acquisitions, the promoter's shareholding increased to 88.72%. (d) Rule 19A(2) of the SCRR {and not rule 19A(1)} is applicable to the Company, as the Company was compliant earlier and had become non-compliant only on July 21, 2011 when the public shareholding fell below 25% because of the acquisition of shares by its promoter through the share purchase agreement and the open offer. Therefore, in terms of rule 19A(2), the Company had time till July 21, 2012 to raise its public shareholding. (e) The promoter had acquired the Company to implement his plans of venturing into Information Technology ("IT") business. Post the acquisition, the promoter with the help of experienced IT professionals got into the act of implementing the business plan by exploring joint venture, collaborations and strategic alliances that would fit into the core business plan of the Company. The Company has also appointed professional directors with finance background to provide guidance to the board to assist in strategising and implementing the plans. The aforesaid plans are currently under progress but no definitive agreements have been signed due to 'due diligence' issues.

As a result, the Company is not able to firm up the financing plan and therefore the Company and its promoter are not able to comply with the MPS requirement within the stipulated period. (f) The promoter also attempted to achieve compliance with MPS requirement on June 05, 2013 by offering 6,86,005 fully paid-up equity shares representing 13.72% of total equity under Offer for Sale ("OFS"). However, response was negligible as bids were received for only 29 shares.

While stating that the Company and its promoter are committed to comply with the MPS requirements in accordance with the methods specified for the purpose, they requested SEBI to vacate the interim directions and not to initiate further proceedings.

4. The Company was afforded an opportunity of personal hearing on July 03, 2014, when Mr. Ramakant Kini, Mr. Supreme Waskar, Mr. Pradumnya Patil and Mr. Laxminarayan Purohit appeared and made submissions. As requested by the representatives, the personal hearing was adjourned by 45 days. In the further hearing held on August 14, 2014, the representatives submitted the Company's letter dated August 13, 2014 and inter alia stated that the Company's promoter intends to offer shares for sale on August 21, 2014. As further requested by them, the hearing in the matter was adjourned. Thereafter, the Company vide letter dated September 04, 2014 inter alia submitted the following : (a) As on June 30, 2013, Mr. Ziaulla Sheriff, the sole promoter of the Company holds 44,36,426 equity shares representing 88.72% of the total equity shares of the Company.

(b) To comply with the MPS requirements, the promoter undertook two Offers for Sale (first OFS on June 05, 2013 and the second OFS on August 27, 2014). Post such offers, the promoter's shareholding was reduced to 38,36,857 equity shares representing 76.72%. According to the Company, despite such efforts by its promoter, the minimum public shareholding level of 25% could not be complied with. (c) The promoter needs to further dilute 86,407 equity shares in order comply with MPS requirement. (d) Considering the facts like difficult financial position of the Company, insufficient reserves and small size of the issue to the comply with MPS, a bonus issue or an institutional placement programme or OFS seemed to be a difficult task for the Company. (e) The promoter, with due permission of the board, proposes to sell his stake to an investor through secondary market transaction and sought the approval of SEBI to offload 86,407 equity shares held by him in the secondary market to 'an investor' for complying with the MPS requirement.

5. I have considered the submissions made by the Company and other material available on record. The interim order was issued against the Company as it was non-compliant with the provisions of rule 19A of the SCRR and Clause 40A of the Listing Agreement read with section 21 of the Securities Contract (Regulation) Act, 1956 ("SCRA"), by not maintaining atleast the minimum level (of 25%) of public shareholding as of June 03, 2013 (the time line before which such compliance was to be achieved). The Company has contended that it was compliant with the MPS requirements stipulated under rule 19A when the same was notified and that it became non-complaint only after the acquisitions made by its present promoter. Therefore, even as per the Company, it was supposed to have complied with the MPS requirements in terms of rule 19A(2) on or before July 20, 2012. Admittedly, compliance with MPS requirement has not been achieved till this date by the Company. According to the Company, two offers for sale made by its promoter were not successful.

6. The Company has cited its poor financial position, insufficient reserves and the small size of the issue as the reasons for the Company not being able to achieve compliance. However, the SCRA and SCRR do not provide for exemption or relaxation of such continuous listing requirements. As long as the Company remains listed, it should comply with the applicable law including the continuous listing requirement stipulated under rule 19A of the SCRR.

7. The Company, vide its letter dated September 04, 2014, has requested permission for its promoter to sell his stake (i.e. 86,407 equity shares) to an investor through secondary market transaction. This proposal has been made after more than a year of passing of the interim order against the Company for non-compliance with the MPS norms. Such proposal should have been made before June 03, 2013 for being considered by SEBI. Further, this is a quasi-judicial proceeding, wherein such proposals cannot be considered. As observed, the Company has taken steps (two OFS -first OFS on June 05, 2013 and the second on August 27, 2014) towards compliance only after the due date (i.e., June 03, 2013).

8. Considering the non-compliance by the Company with the MPS requirements till date in breach of rule 19A of the SCRR and Clause 40 A of the Listing Agreement read with section 21 of the SCRA, and such non-compliance being continuous in nature, it becomes necessary for SEBI, to confirm the directions issued vide the interim order against the Company, its directors and promoters/promoter group. Further, in respect of the continuous nature of the violations committed by the Company and for proper regulation of the securities market, SEBI may also initiate other action, as appropriate in law, against the Company, its directors and promoters.

9. 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 confirm the directions issued vide the interim order dated June 04, 2013 against the company, Starcom Information Technology Limited, its directors, promoters and promoter group.

10. This Order shall remain in force till further directions.

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 : February 27th, 2015 Place : Mumbai