Order in the matter of Vintron Informatics Limited
- Order No.WTM/PS/32/CFD/SEPT/2014
Ratio decidendi
The rule this decision rests on
A company that has come out of BIFR and been discharged from SICA is not exempted from the minimum public shareholding requirement under Rule 19A(1) of the SCRR unless the discharge order expressly grants that exemption. A rehabilitation scheme's reliefs do not extend to MPS compliance where the BIFR order does not say so, so the company must comply with MPS when it leaves BIFR's purview, and any period allowed for compliance under the scheme does not excuse continued non-compliance after it expires. A company that has not complied with Rule 19A's MPS requirement by the date of the interim direction, and remains non-compliant thereafter, is in violation of that rule, notwithstanding the transitional notice period given after the rule's insertion. A court order restraining promoters from transferring their shareholding to third parties does not excuse a listed company's non-compliance with MPS, because such an order does not bar other permitted methods of achieving compliance, such as institutional placement, rights or bonus issues, or promoters forgoing their entitlement. A company facing difficulty with its proposed method must seek SEBI's approval for it, and failure to do so is a relevant failure. Where a listed company's MPS violation is established and continuing, it is necessary for regulatory purposes to confirm the interim directions against the company, its directors and its promoters and promoter group under Section 19 of the SEBI Act read with Sections 11(1), 11(2)(j), 11(4) and 11B of that Act and Section 12A of the SC(R)A.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
WTM/PS/32/CFD/SEPT/2014 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 Vintron Informatics 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. Vintron Informatics 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 6.40%. The shares of the Company are listed on the Bombay Stock Exchange Limited ('BSE'), Calcutta Stock Exchange Limited and Delhi Stock Exchange Limited.
3. The Company vide its letters dated June 17, 2013 and September 04, 2013 replied to the interim order. Thereafter, an opportunity of personal hearing was afforded to the Company on October 14, 2013, when Mr. N. Kumar, Advocate appeared as authorised representative of the Company and made submissions. The submissions of the Company are as under: a. The Company is a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA') and is registered with the Hon'ble Board for Industrial and Financial Reconstruction ('BIFR') since June 25, 2003. The Company was declared a sick company under the SICA on February 01, 2007. Pursuant to the same, a scheme for rehabilitation was approved on June 02, 2009 by BIFR.
b. As on the date of the BIFR order, the paid up share capital of the Company was ₹5,85,58,000 and the public shareholding therein constituted to be 70.03% in the total paid up share capital of the Company. c. As per the revival scheme, an amount of ₹1,450 lakh was brought in by the promoters/ directors through their associate concerns. Further, in terms of the BIFR order, 7,25,00,000 equity shares were allotted to the promoters on January 29, 2010, by way of conversion of loan and thereby the minimum public shareholding got reduced to 5.27%. The said allotment of shares was subject to a lock-in for a period of three years from the date of allotment. d. Thereafter, the operational results of the Company improved and the net worth of the Company became positive. BIFR vide its order dated December 02, 2010, discharged the Company from the purview of SICA/ BIFR. The BIFR also ordered that the rehabilitation scheme as approved shall be under implementation till the period for which the revival scheme was approved and the reliefs and concessions granted therein continued to be available to the Company and its promoters till March 31, 2014. As per the revival scheme, the Company is exempted from maintaining the required minimum public shareholding of 25% till the period of rehabilitation. e. In the meantime, the Hon'ble Delhi High Court in its order dated September 07, 2012, in a matter against the Company and its promoters has restrained the promoters of the Company to not to transfer, in any manner, their shareholding in the Company to any third person.
It has been said that the promoters of the Company are contesting the aforesaid case on merits and are bound to obey the orders of the Hon'ble High Court of Delhi. f. Despite these, the promoters of the Company had initiated the process to comply with the requirements of achieving MPS immediately after the lock-in period in the shares expired and accordingly appointed a merchant banker to advise it and for taking the necessary steps for achieving the MPS. It was decided that once some progress is made, the Company and its promoters shall approach the Hon'ble High Court of Delhi for seeking permission to sell the holding to the extent of complying with the MPS requirements. However, considering the conditions of the secondary market and feedbacks from market intermediaries, the merchant banker have not been able to make any headway in the desired direction.
4. I have considered the replies of the Company and the submissions made in the personal hearing. I note that the Company was a sick company for which the BIFR had sanctioned a rehabilitation scheme. I have also perused the order dated June 02, 2009, passed by BIFR and the sanctioned rehabilitation scheme. It is noted that vide BIFR order dated December
02, 2010, the Company was discharged from the purview of SICA/ BIFR. The Company has argued that it is exempted by the order of BIFR from the requirement of maintaining the MPS at 25% till the end of rehabilitation period i.e. till March 31, 2014. I have perused the order of Hon'ble BIFR dated December 02, 2010 and find that no such exemption was granted to the Company/ promoters from operation and applicability of SCRR including MPS requirement under Rule 19A(1) of SCRR. Therefore, I find the above submission of the Company to be incorrect. In the absence of any such exemption from complying with the MPS norms, the Company should have taken steps to comply with the same when it came out of BIFR.
Even if it is assumed that the Company had time till March 31, 2014 (i.e. the end of the rehabilitation period), five (5) months have elapsed since then and the Company is still not compliant with the MPS requirements. 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 on the date of interim order which the Company has clearly failed to comply till date.
5. Further, the Company while relying on the order dated September 07, 2012 of Hon'ble High Court of Delhi has submitted that the Company and its promoters have been restrained to not transfer in any manner, their shareholding in the Company to any third person. However, it is to be noted that SEBI has stipulated three (3) more methods (for complying with MPS) in addition to OFS on August 29, 2012. Further, the order of Hon'ble High Court of Delhi does not bar the Company from availing other available methods of compliance with the MPS requirements including Institutional Placement Programme/ rights issues/ bonus issue to the public shareholders, with promoters/ promoter group shareholders forgoing their rights entitlement, etc. In case the Company was experiencing any difficulty, it could have approached SEBI with its proposed method, for approval. I note that the Company has not approached SEBI for any guidance.
6. In view of the above, I hereby find that the Company has failed to comply with the MPS requirements prescribed vide such statutory provisions within the stipulated timeline. The Company is also in continuous violation of these norms.
7. Considering the above violations of the Company and the continuous nature of such violations, it becomes necessary for SEBI, for proper regulation of the securities market, to confirm the directions issued against the Company, its directors and promoters/promoter group. Further, for such contravention, SEBI may also initiate other action, as appropriate in law, against the Company, its directors and promoters/ promoter group.
8. In view of the foregoing, 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 Vintron Informatics Limited, its directors, promoters and promoter group.
9. This Order shall remain in force till further directions.
10. 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: September 02, 2014 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
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