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TMI Blog2013 (12) TMI 584X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of a few. The appellant intended to violate law by raising shareholding of P&G Group substantially beyond 75 per cent benchmark and thereafter by relegating Poddar Group to ostensible stature of a public shareholder and once appellant had intentionally broken law, P&G Group proposed to offer an insignificant 4.9 of their shares to public - The Appellant does not comply with the requirement of 25% of public shareholding by adopting a simple and straight forward approach and offering the shortfall in 25% public shareholding to the public through one of the methods elucidated by SEBI - The appellant should comply with requirement of 25 per cent of public shareholding by adopting a simple and straight forward approach and offering shortfall in 25 per cent public shareholding to public through one of methods elucidated by SEBI, or which gets approval of SEBI – Decided against Appellant. - 65 of 2013 - - - Dated:- 3-7-2013 - JOG SINGH, J. For the Appellant : Somasekhar Sundaresan, Ravichandra S. Hegde and Abishek Venkatraman. For the Respondent : J.J. Bhatt and Ajay Khaire. ORDER:- PER : Jog Singh The present appeal is filed by Gillette India Limited, her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing,- (i) .. (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition". 5. As a result of this transfer, the holding of the Poddar Group would go down to 8.9%. This would be followed by termination of the SHA and amendments to the Articles of Association of the company, as a result of which the Poddar Group would be classified as an ordinary public shareholder and would lose all its rights and control over the Appellant as promoter. 6. Respondent no. 1 first passed an order dated November 7, 2012 rejecting the Application of the Appellant against which the Appellant preferred appeal no. 26 of 2013 before this Tribunal. The appeal was filed on the ground that no cogent reasoning had been given in the order on the basis of which the Application had been rejected. This Tribunal indeed found that to be the case and, hence, remanded the matter back to Respondent no. 1 on February 22, 2013 ordering it to pass a speaking order on the request made by the Appellant. The present appeal has been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s status as a promoter and take on that of an ordinary shareholder. 10. Finally, it is submitted by the Appellant that the proposed transaction is in accordance with the letter and the spirit of Rule 19A of the SCRA. In the last phase of the Appellant's proposed transaction, once the Poddar Group joins the ranks of a public shareholder, the Appellant will cause the P G Group, who shall then be holding 79.9% of the issued share capital, to sell or otherwise dilute 4.9% of their shareholding in the Appellant company in the manner prescribed by the Respondent No.1 for achieving minimum public shareholding. In this context, it is stated that even after categorically making provisions for the dilution of 4.9%, the Respondent No. 1 has gone on to state that the proposed transaction "does not involve any offer and/or allotment of shares to the public shareholders" whereas, the proposed transaction contemplates an offer of 1,596,676 equity shares of the Appellant to the public shareholders albeit indirectly. It would meet the objective of increased public float and avoidance of concentration of stock in the hands of a few persons is, therefore, the contention of the Appellant. 11. We s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease its public shareholding to minimum of 25% within a period of three years from June 4, 2010, i.e., the date on which the Securities Contract (Regulation) (Amendment) Rules, 2010 came into force. 14. It is also submitted by the Respondent No. 1 that the amendment of 2010 also introduced the definitions of public and public shareholding in the SCRR. These have been reproduced below for the sake of convenience :- 2(d) "public" means persons other than - (i) the promoter and promoter group; (ii) subsidiaries and associates of the company. Explanation.- For the purpose of this clause the words "promoter" and "promoter group" shall have the same meaning as assigned to them under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. 2(e) "public shareholding" means equity shares of the company held by public and shall exclude shares which are held by custodian against depository receipts issued overseas.' 15. The Respondent No. 1 further submits that it issued a Circular dated December 16, 2010 to amend Clause 40A of the Listing Agreement providing for certain methods to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed shareholding structure which is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair price." 18. We have heard the learned counsel for both parties at length and gone through the appeal as well as all the documents annexed thereto. 19. Before dealing with the merits of the case, we find it necessary to first delve deep into the history of this requirement of minimum public shareholding to bring out the true import and object of the Rule. Now, companies in order to get their shares listed on a stock exchange must fulfill certain criteria prescribed in the SCRR. The SCRR requires listed companies comply with all conditions as mentioned in the listing agreement executed between the company and the stock exchange concerned. The first amendment to the SCRR was introduced on June 4, 2010, raising the minimum public shareholding requirement to 25% as a pre-requisite to getting listed with any recognized stock exchange. For companies which were already listed but did not meet the 25% criterion, it was ordained that they would gradually increase their public shareholding at the rate of 5% per annum. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause of reasons peculiar to it", the Chairman would be authorised "to approve a specific solution on a case to case basis to meet the larger objective of attaining minimum public shareholding and market integrity". 24. As discussed above, the Appellant made an application proposing a method to achieve the requisite public shareholding in the company as per Circular dated August 29, 2012 which stated clearly that SEBI would have the discretion to accept or reject any new proposal put forth by a listed company on a case to case basis. In our opinion, the Appellant seems to have overlooked, whether deliberately or inadvertently, the fact that the underlying philosophy behind the requirement of a minimum public holding of 25% is prevention of concentration of shares in the hands of a few market players by ensuring a sound and healthy public float to stave off any manipulation or perpetration of other unethical activities in the securities market which would unfortunately be the irrefragable consequence of the reins of the market being in the hands of a few. 25. It is pertinently noted that in the proposition put forth by the Appellant, the entire idea behind having a specific perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past few years. The SEBI cannot be made a party to such an unlawful scheme as the one proposed by the Appellant. 27. The Tribunal also notes the delay on part of the Appellant to come up with a proposal to achieve the minimum public shareholding. It is clear from the records that the first amendment to the SCRR was made on June 4, 2010 and that the Appellant waited for more than two years to draw up the scheme as presented in Application dated October 10, 2012. A feeble attempt at explaining the aforesaid delay was made by the Appellant at the hearing of this Appeal, the submission made was two fold :- (i) First, it was stated that a long period of 3 years had been granted by the Respondent to achieve the required minimum public shareholding, and the Appellant was well within its right to make the Application on October 10, 2012. (ii) Second, the Appellant submitted that SEBI itself delayed the process by coming out with Circulars every six months. 28. With respect to the first submission of the Appellant, it is our considered view that on the Respondent No. 1 first amending the SCRR by increasing the minimum public shareholding in listed companies to 25% on June 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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