Order in the matter of Steelco Gujarat Limited

WTM/PS/39/CFD/OCT/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 Steelco Gujarat 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. Steelco Gujarat 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 Vadodara Stock Exchange Limited ("VSE").

3. The Company filed its reply dated June 20, 2013, inter alia stating the following :

(a) The paid-up share capital of the Company is Rs.7536.95 lakhs comprised of equity share capital of Rs.4254.95 lakhs and preference share capital of Rs.3282 lakhs. (b) All the equity shares of face value Rs.10/- are listed with the BSE and VSE. (c) The shareholding of the Company's promoter, Spica Investments Limited, Mauritius, increased to 3,33,08,398 equity shares of Rs.10/- each in 2002 in view of the promoter's commitment to bring equity in terms of the Rehabilitation Scheme approved by the Board for Industrial and Financial Reconstruction ("BIFR") in August 2001, which resulted in the increase of promoter's shareholding from 26.33% to 78.26%. (d) All the equity shares held by the promoter was pledged with the Consortium Lender Bankers in terms of the approved Corporate Debt Restructuring Scheme ("CDR Scheme") on June 27, 2012. (e) Equity shares of the Company are being traded below par value since long and were being traded below Rs.4.60/- since last six months. (f) The Company has earned a meagre net profit of Rs.17.03 lakhs for the year ended March 31, 2013 as against whopping net loss of Rs.2870.59 lakhs for the previous year ended March 31, 2012. Carried forward losses of the Company stood at Rs.7636.02 lakhs as on March 31, 2013. (g) As the Company Law Board does not allow issue of shares at a steep discount, issue of further equity shares as a rights issue or otherwise to any investor other than promoter may not materialize for the above reasons.

The Company has provided reasons as to why it was not able to comply with the MPS requirements by the methods prescribed by SEBI. The Company also stated that it had taken steps for sale of about 13,87,032 shares of promoter's shareholding to the Consortium Lender Banks.

4. Thereafter, the Company vide letter dated August 22, 2013 inter alia stated that the lead banker (State Bank of India) has communicated its sanction to de-pledge the equity shares in excess of 75% shareholding (i.e., 3.26%) by the promoters. The Company stated that the sanction by the other bankers were underway and that de-pledging would be done shortly. It was further submitted that the Board of Directors of the Company in their meeting held on August 16, 2013 had deliberated and advised that necessary action be taken to liquidate 3.26% shareholding (of promoter) to comply with the MPS requirements.

5. The Company was afforded an opportunity of personal hearing on July 03, 2014, when Mr. N.M. Mohnot (Managing Director of Company) and Mr. Arvind Tambi (Company Secretary) appeared and tendered the Company's letter dated July 03, 2014. Vide this letter, the Company stated that, as the promoter's shares were pledged with the Consortium of Lender Banks for obtaining working capital facilities for the Company in terms of the CDR Scheme, a request was made for de-pledging 3.26% of the shares so pledged. Sanctions for the same from the banks were received during April, 2014. The Company stated that pursuant to the same, the promoter had undertaken an Offer for Sale (OFS) on the BSE. In this OFS, which opened on June 30, 2014, the promoter could off-load only 39,711 shares resulting in the reduction of promoter shareholding from 78.26% to 78.17%. The Company also stated that its promoter intends to undertake another OFS to reduce the remaining 3.17% excess shares for complying with MPS requirements. These submissions were reiterated by the authorised representatives, who also requested that the personal hearing be adjourned by 30 days. In the further hearing held on August 07, 2014, the representatives of the Company orally submitted that in the second OFS, the promoter was able to successfully off-load the remaining excess shareholding. The Company was advised to provide proof for the same along with written submisisons, if any.

6. Subsequently, the Company vide letter dated August 22, 2014 submitted that promoter's shareholding in the Company is reduced to 75% post the successful offers for sale. In the first OFS held on June 30, 2014, 39,711 shares were sold and in the second OFS held on August 06, 2014, 13,47,321 shares were sold, whereby the excess 13,87,032 shares were offloaded. The Company also furnished the shareholding pattern as on August 15, 2014. The Company requested that the directions issued vide the interim order be vacated and not to initiate further action.

7. I have considered the submissions made by the Company and other material available on record including the shareholding pattern furnished by the Company. The amended provisions of rule 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%.

8. The Company was able to comply with the MPS requirement, as stipulated under rule 19A of the SCRR and clause 40A the Listing Agreement read with section 21 of the Securities Contracts (Regulation) Act, 1956 ("the SCRA"), only on August 06, 2014, whereas the due date for such compliance was on June 03, 2013. I also note that BSE has confirmed the successful completion of OFS on August 06, 2014 undertaken by the promoter.

9. Though the Company has cited reasons for this delay, the delay in complying with such statutory requirements cannot be condoned. The above said statutory provisions do not provide for any exemptions from complying with the MPS requirements.

10. On considering the facts and circumstances of this case, I do not find the reasons/submissions offered by the Company with respect to its delay in complying with the MPS requirements, as plausible. However, as the Company has now complied with the MPS requirements as stipulated under rule 19A of the SCRR read with clause 40A of the listing agreement, it would be appropriate and reasonable to vacate the directions issued against the Company, its promoters and directors. In view of the delay of about 14 months in complying with the MPS requirements by the Company, I am of the considered view that the matter be referred for adjudication proceedings under sections 23E and 23H of the SCRA.

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, Steelco Gujarat Limited, its directors, 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 recognised stock exchanges and depositories for their information and necessary action.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Date : October 21st, 2014 Place : Mumbai