WTM/PS/ 54/CFD/SEPT/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 SANATHNAGAR
ENTERPRISES 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.

Sanathnagar Enterprises Limited (hereinafter referred to as "the Company") is one of

such companies against whom the interim order was passed. The equity shares of the
Company are listed on the Bombay Stock Exchange Limited ("BSE") and the Delhi
Stock Exchange Limited (DSE).

3.

The submissions of the company filed vide letter dated June 14, 2013 and written
submission dated July 16, 2015 to SEBI stated as follows:a. The shares of the Company was suspended from BSE and DSE from 2003 onwards.
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b. The name of the company was changed from Bakelite Hylam Limited to
Sanathnagar Enterprises Limited in 2009. The Company was registered as a sick
company in September 2001 before BIFR which vide its order dated August 22,
2005, sanctioned a rehabilitation scheme providing for a) capital reduction to the
extent of 90% of capital b) capital infusion by the promoters by preferential
allotment and c) de-merger of the company into three companies. The said order
was affirmed by Appellate Authority of Industrial and Financial Reconstruction
(AAIFR).
c. The Company gave effect to the scheme. However, these corporate actions are not
reflected in the records of the BSE and DSE. The company has reduced its paid up
capital by 90% on June 30, 2005 and thereafter issued further capital to the new
promoters. As per the scheme, majority of the promoter holding was transferred to
the incoming promoter, Lodha group. Sizeable increase of promoters holding was
under the scheme of rehabilitation. The shareholding pattern prior to and post the
reduction of capital and preferential issue and post de-merger is as follows:Prior
to
PostPostReduction
Reduction
preferential
of capital
of Capital
Issue
No
of %
of No
of %
of No
of
%
Shares
holding Shares
holding Shares
77,76,104*
60,475@
Promoters 66,82,255 54.59 6,68,226 54.59
81
Total
=8504805

Post
demerger
No
of
%
Shares

2,908,037 92.32

(60,475)
transferred
Public 55,56,709

Total

45.41 5,55,670

1,22,38,964 100

45.41

12,23,896 100

*issued on Sep 2005; % issued on May 2006

@ by transfer
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15,00,000%
Total
19,95,195 19 2,41,963 7.68
10,50,00,00
100 31,50,000 100
0

d. The increase in promoter shareholding from 54.59 % to 92.32 % is pursuant to the

subscription/allotment/transfer of shares from the company under the BIFR order
read with AAFIR order. Therefore, no ex-parte order could have been passed
against the company.
e. The company was discharged from BIFR in September 2008. Thereafter, the
Company vide letter dated May 21, 2009 and July 14, 2009 requested BSE for
revocation of the suspension.
f. Meantime, the Company passed resolution for delisting the shares much before
June 4, 2010 when the MPS requirement was stipulated. The Company vide its
letter dated May 20, 2010 had written to BSE stating its intention to delist its shares.
Thereafter, the company in in its letter dated June 17, 2010 to BSE, stated that it
had already made application for delisting from BSE. In view of the suspension of
trading, the Company could not go ahead with delisting.
g. Therefore, the Company followed up with BSE for revocation of suspension by
providing additional information and clarifications vide letters dated January 12,
2015, March 3, 2015, March 10, 2015 and March 30, 2015. The Company has
cleared all its dues to BSE including the listing fees. The Company is compiling the
documents as per the last request from BSE and is confident of revocation of
suspension. In view of the non-availability of information relating to shareholding
pattern for the period prior to 2000, the Company is not able to provide to BSE the
same. Therefore, the Company has vide letter dated August 26, 2015 sought for the
access of BSE data for the period prior to 2000 which is yet to be replied by BSE.
Immediately thereafter, the promoters will opt for offer for sale (OFS) through
stock exchange for compliance of MPS requirement.
h. The external market conditions is reflected in GDP slipping down from 9% to 4.8%
which is further reflected in investors lack of confidence and their resultant staying
away from primary and secondary market in 2012-13.
i. In view of the external, internal circumstances, and suspension of trading, the
Company was not able to comply with any of the methods prescribed in Clause 40A
of Listing Agreement, for reduction of promoters holding.
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j. Hence, the Company vide letter February 11, 2013 made a request to SEBI under
clause 40A(ii)(g) of Listing Agreement, for permitting the reduction of promoters
holding through negotiated deal with interested persons as envisaged in section 108
of the Companies Act, 1956. However, SEBI passed the interim order.
k. Though promoters are willing to dilute their holding, in view of the facts and
circumstance, they are handicapped from complying with the MPS norms.
l. The Company seeks a period of ten months for compliance of MPS subject to the
necessary clearances from BSE for revocation of suspension.
4.

Pursuant to the interim order, SEBI vide e-mail dated May 27, 2015 intimated that the
Company is given an opportunity of hearing on July 2, 2015.

5.

Mr. Yogesh Vadhwana, the Advocate for Lodha Group, Mr. Sharatkumar Shetty,
Company Secretary, Mr. Uday Nair, Chartered Accountant, Mr. Prakash Shah,
Advocate attended the personal hearing on July 2, 2015, for the Company and made
oral submissions. It was submitted that the company was under BIFR and the scrip is
under suspension in BSE. The Company is taking efforts to revoke the suspension and
the only available mode before the company for compliance of MPS can be through
OFS. The Company sought one weeks time for filing written submissions. The
Company thereafter vide letter dated July 16, 2015 filed the written submissions.

6.

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 failed to maintain
the minimum public shareholding of 25% as mandated under rule 19A of the SCRR
and Clause 40A of the Listing Agreement read with section 21 of the Securities
Contract (Regulation) Act, 1956 ("SCRA").

7.

SEBI had issued circulars dated December 16, 2010, February 08, 2012 and August
29, 2012, in order to suitably amend Clause 40A of the Listing Agreement by
specifying the manner in which public shareholding may be raised to the prescribed
minimum level. The amended Clause 40A of the Listing Agreement, inter alia,
provided the following methods for complying with the MPS requirements:
a. Issuance of shares to the public through prospectus,
b. Offer for sale of shares held by promoters to public through prospectus,
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c. Sale of shares held by promoters through Stock Exchange Mechanism i.e.

OFS through Stock Exchange,
d. Institutional Placement Programme,
e. Rights Issues to public shareholders, with promoters/ promoter group
f. shareholders forgoing their rights entitlement,
g. Bonus Issues to public shareholders, with promoters/ promoter group
shareholders forgoing their bonus entitlement,
h. Any other method as may be approved by SEBI, on a case to case basis.

8.

From the shareholding pattern as on June 2013, filed by the Company in BSE, I find
that the following persons are disclosed as the shareholders belonging to the promoter
and promoter group of the Company.

1
2
3
4
5
6
7

9.

Promoter group shareholders

N P S Shinh
Manita Shinh
Continuous Forms (Calcutta) Ltd
Paraswanath Residential Paradise Pvt Ltd
Paraswanath Residential Paradise Pvt Ltd
Microtec Constructions Pvt Ltd
Arihant Premises Pvt Ltd
Total

No of shares
14,955
3,150
53,985
27,10,837
1,23,691
426
993
29,08,037

Percentage of
shareholding
0.47
0.1
1.71
86.06
3.93
0.01
0.03
92.32

As on June 3, 2010 the promoter holding in the company was 92.32 % and public
shareholding was 7.68 % which is much less than the required MPS. The company
did not deny the non-compliance of the MPS requirement within the stipulated time or
as on this date. As on June 30, 2015, the position of shareholding of promoters and the
public remain the same.

10. I note that the Company vide letter dated February 11, 2013, requested for SEBIs
permission for the reduction of promoters holding through negotiated deal under
clause 40A(ii)(g) of Listing Agreement. No material was placed before me to show
that the said permission has been granted by SEBI.

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11. As submitted by the Company, the shares of the Company stood suspended from DSE
and BSE w.e.f. January 09, 2002 and February 3, 2003 respectively.
12. I find from the copy of the Order dated August 22, 2005 passed by BIFR that the
company was registered as a sick company in September 2001 and BIFR vide the
above said order sanctioned a rehabilitation scheme in respect of the Company. It may
be noted that as per the submission of the company it was discharged from BIFR in
September 2008.
13. However, the company has not brought to the notice of SEBI any modified scheme or
any order from the Honble BIFR to the effect that they exempt the Company from the
compliance of MPS requirement. In terms of section 32 of the SICA, the provisions of
the said Act, rules or schemes made there under shall have effect notwithstanding
anything inconsistent therewith contained in any other law. In view of non-production
of material showing any such exemption as mentioned above, the Company was
required to comply with the MPS norms within the due date i.e., June 03, 2013. This is
admittedly not done by the Company.
14. Instead, the Company at the time of personal hearing, maintained that in view of the
suspension of the trading, it could not go ahead with OFS. It stated that once the
suspension of trading is revoked by BSE, it will opt for OFS and comply with MPS
requirement. It further submitted in the written submissions that it had taken necessary
efforts for revocation of suspension. It may be noted that it is the responsibility of the
Company to have the suspension revoked. Moreover, the status of the company as
suspended from the Stock Exchange cannot be an excuse for non-compliance of the
MPS requirement.
15. Hence, the request sought in the written submissions for extension by ten months time
for compliance of MPS requirement cannot be acceded to. Rule 19A of the SCRR and
Clause 40A of the Listing Agreement, do not provide for extension of time limits
prescribed therein.
16. Considering the fact that the Company has not complied 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 me, to confirm the directions issued vide the interim
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order against the Company, its directors and promoters/promoter group. Further, for
proper regulation of the securities market and in view of the continuing nature of the
violations committed by the Company, SEBI may also initiate other action, as
appropriate in law, against the Company, its directors and promoters.
17. 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, Sanathnagar Enterprises Limited, its directors, promoters and
promoter group.
18. This Order shall remain in force till further directions.
19. Copy of this Order shall be served on the stock exchanges and depositories for their
information and necessary action.

Date :Sep 29th, 2015

PRASHANT SARAN

Place: Mumbai

WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

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