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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.
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2.
Kusum Iron & Steel 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").
3.
An opportunity of personal hearing was afforded on July 02, 2015, when Mr. Ramesh
Chandra Mishra, the Company Secretary and Mr. Loknath Mishra, Advocate appeared on
behalf of the Company and made oral submissions. It was submitted that as on September
2014 the MPS requirement had been complied with by the Company though without following
the permitted modes. As requested, liberty was granted to file written submissions.
4.
The Company, thereafter, vide letter dated September 14, 2015 filed the written
submissions wherein the Company stated as follows a. The paid up capital of the company consists of 24,08,000 equity shares of face value
of 10 each. The promoters holding reached to 77.89% due to forfeiture of 30,67,600
shares on August 8, 1998 by operation of law.
b. Since the company is suspended with effect from November 12, 2001, the Company
is not able to disinvest the shares as per the methods included in SEBI circular dated
December 16, 2010.
c. After obtaining the proper valuation report, 94,250 equity shares of promoters
consisting of 3.92% were sold off market to the persons belonging to the public at
large and not connected to the promoter. Thereby the promoter holding has come
down to 73.97%.
d. The Company has already initiated the process of revocation of suspension of trading.
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 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"). 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
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amended Clause 40A of the Listing Agreement, inter alia, provided the following methods for
complying with the MPS requirement:
a. Issuance of shares to the public through prospectus,
b. Offer for sale of shares held by promoters to public through prospectus,
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
shareholders forgoing their rights entitlement,
f. Bonus Issues to public shareholders, with promoters/ promoter group
shareholders forgoing their bonus entitlement,
g. Any other method as may be approved by SEBI, on a case to case basis.
6.
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.
S.No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Name of promoters
37,550
13,050
35,545
24,445
80,005
91,005
64,905
70,400
52,500
46,700
43,000
13,000
55,000
15,000
13,100
3,000
30,000
60,000
52,500
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1.56
0.54
1.48
1.02
3.32
3.78
2.7
2.92
2.18
1.94
1.79
0.54
2.28
0.62
0.54
0.12
1.25
2.49
2.18
20
21
22
23
24
25
26
27
28
29
30
31
7.
10,000
13,000
20,150
24,000
3,000
4,000
4,000
2,04,000
2,04,700
2,29,900
1,90,700
1,67,345
18,75,500
0.42
0.54
0.84
1
0.12
0.17
0.17
8.47
8.5
9.55
7.92
6.95
77.89
As on June 3, 2013 the promoter holding in the company was 77.89% and public
shareholding was 22.11 % which is less than the required MPS. The Company had submitted
that 94,250 equity shares of promoters consisting of 3.92% were sold in off market to the
persons belonging to the public at large and not connected to the promoter. In this regard, I
note from the details submitted by the RTA of the Company that the following promoters
had transferred shares in off-market to Avinash Capital (P) Limited and Madan Lal Kansal:
(a) Sushil Kumar Agarwala (sold 3000 shares), Raj Kumar Modi (sold 10,000 shares),
Ramesh Kumar Agarwala (sold 13,100 shares) and Anita Dhanawat (sold 13,000
shares) sold a total of 39,100 shares to Avinash Capital Markets (P) Limited; and
(b) Neem Chand Sushi Kumar (sold 20,150 shares), Sohanlal Ramesh Kumar (sold 24,000
shares), Naresh Kumar Agarwala & Sons. (sold 3000 shares), Pawan Kumar Agarwala
& Sons. (sold 4000 shares) and Ramesh Kumar Agarwala & Sons. (sold 4000 shares)
sold a total of 55,150 shares to Madan Lal Kansal.
8.
As on June 30, 2015, the shareholding of promoters is said to have reduced to 73.97%
Name of promoters
No. of shares
Naresh Kumar A
Sanjay Kumar A
Manoj Kumar Ag
Kailash Kumar A
37,550
13,050
35,545
24,445
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% of shareholding
1.56
0.54
1.48
1.02
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
9.
80,005
91,005
64,905
70,400
52,500
46,700
43,000
55,000
15,000
30,000
60,000
52,500
13,000
2,04,000
2,29,900
1,90,700
1,67,345
20,000
26,000
40,000
30,000
88,700
17,81,250
3.32
3.78
2.7
2.92
2.18
1.94
1.79
2.28
0.62
1.25
2.49
2.18
0.54
8.47
9.55
7.92
6.95
0.83
1.08
1.66
1.25
3.68
73.97
seen that few persons are removed and new persons are added in the list of promoters. The
Company has not made any disclosures in this regard. BSE had informed SEBI vide email
dated November 30, 2015 that trading of companys shares were suspended since August 24,
1998 for non-compliance with listing agreement. BSE further stated that the company had not
informed the method adopted for complying and that no disclosures were made under the
Takeover Regulations and PIT Regulations.
10.
The company stated that as it was suspended with effect from November 12, 2001, it
was not able to disinvest the shares as per the methods prescribed by the SEBI Circulars.
Therefore, during the period of September 2014, the promoters sold off market 94,250 equity
shares consisting of 3.92% of total equity capital to the persons belonging to the public,
thereby the promoter holding came down to 73.97%. It may be noted that it is the
responsibility of the Company to have the suspension revoked. Moreover, the status of the
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company as suspended from the Stock Exchange cannot be an excuse for non-compliance
of the MPS requirement. The company has not brought to my notice that it took any effort
for revocation of the suspension of trading. Off market sale by promoters is not an approved
method of MPS compliance unless the same was approved in appropriate cases by SEBI under
the case to case basis method prescribed under Clause 40A of the Listing Agreement. In the
instant case, the promoters have sold off market 3.92% of shares after the due date of MPS
compliance. It is also noteworthy that several companies had approached SEBI with a request
to permit them for open market sale so as to achieve compliance of MPS requirements and
SEBI had granted permissions to many such companies in appropriate cases. Considering the
facts and circumstances of the case, it is quite clear that the Company had the primary
responsibility to comply with the MPS requirement by adopting the methods available to it as
discussed in paragraph 6 above. In case the Company was experiencing any difficulty it
should have approached SEBI before due date of compliance, with its proposed method for
approval, which the Company has clearly failed to do.
11.
Paragraph 17(b) of the interim order, prevents promoters/directors from buying and
selling or dealing in securities of the company except for the purpose of complying with the
MPS requirement. The promoters/promoters group can sell the shares only as per the
methods prescribed under the various circulars discussed in paragraph 6 above. By selling
the shares off market, the promoter who have sold the shares have violated the interim order
as well. As already mentioned above, there is no clarity as how new promoters came in to the
Company. Therefore, the reduction by 3.92% cannot be considered for MPS compliance.
12.
In view of the above, company cannot be considered to have complied with MPS
norms as on date. The Company may have to adopt methods recognized by SEBI for this
purpose. 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 order against the Company,
its directors and promoters/promoter group. Further, for proper regulation of the securities
market and the continuing nature of the violations committed by the Company, SEBI may
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also initiate other action including action for adopting an unapproved method and also for
breach (transferring shares while under restraint) of the interim order, against the Company,
its directors and promoters.
13.
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,
Kusum Iron and Steel Limited, its directors, promoters and promoter group.
14. This Order shall remain in force till further directions.
15. 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
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