BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. EAD-2/DSR/RG/PU/566-567/2016]
______________________________________________________________________
UNDER SECTION 23-I OF SECURITIES CONTRACTS (REGULATION) ACT, 1956
READ WITH RULE 5 OF SECURITIES CONTRACTS (REGULATION) (PROCEDURE
FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 2005.
In respect of:
1. Steelco Gujarat Limited [ PAN: AADCS0880L]
2. Spica Investments Limited [ PAN: AALCS4091F]
In the matter of
STEELCO GUJARAT LIMITED

1.

Securities and Exchange Board of India (hereinafter referred to as 'SEBI') had

observed delayed compliance with respect to minimum public shareholding
requirement by Steelco Gujarat Limited ( hereinafter referred to as SGL), a
company listed on the Bombay Stock Exchange Limited (BSE) and the Vadodara
Stock Exchange Limited (VSE) and its promoter Group viz. Spica Investments
Limited (hereinafter referred to as SIL and collectively referred to as the
'Noticees'), as stipulated under Rule 19A and the proviso to Rule 19A(1) of the
Securities Contracts (Regulation ) Rules, 1957 (hereinafter referred to as SCR
Rules, 1957) read with Clause 40A of the Listing Agreement and Section 21 of the
Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCR Act,
1956).

2.

It was, inter alia, observed that SGL was required to comply with the minimum
public shareholding requirement of at least 25% on or before June 03, 2013.
However, it was observed that SGL had complied with the same only on August 06,
2014 which is with a delay of 14 months. SEBI has, therefore, initiated adjudication

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proceedings against the Noticees for the alleged violation of the provision of law in
the matter.
Appointment of Adjudicating Officer
3.

The undersigned has been appointed as the Adjudicating Officer vide order dated
November 10, 2014, under Section 23I of SCR Act, 1956 read with Rule 3 of
Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 2005 (hereinafter referred to as the SC(R)
Adjudication Rules)to inquire into and adjudge under Section 23 E and 23 H of the
SCR Act, 1956 against the Noticees for the alleged violation of the provisions of
law.

Show Cause Notice, Reply and Personal Hearing

4.

Show Cause Notices dated December 09, 2014 (hereinafter referred to as SCNs)
were issued to the Noticees in terms of Rule 4 of the said SC(R) Adjudication Rules
requiring them to show cause as to why an inquiry should not be held against them
for the alleged violation of provisions of law. Vide letter dated December 25, 2014, a
common reply was submitted by the Noticees in the matter. Therefore, in the
interest of natural justice and in order to conduct an inquiry as per Rule 4 (3) of the
said SC(R) Adjudication Rules, an opportunity of personal hearing was granted to
the Noticees on January 08, 2016. Accordingly, the authorized representative (AR)
attended the hearing on the scheduled date on behalf of the Noticees. The AR
reiterated the submissions so made by the Noticees in their reply dated December
25, 2014 and further sought time to file the authority letter for Spica Investments
Ltd. Accordingly, the AR was advised to file the same on or before January 15,
2016. Vide e-mail dated January 12, 2015, Spica investments Ltd has submitted the
said authorization letter in the matter.

Consideration of Issues, Evidence and Findings

5.

I have carefully perused the charges leveled against the Noticees as per the SCNs,
written submissions made by the Noticees and the material as available on record.
The issues that arise for consideration in the present case are:
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(a) Whether the Noticees have violated the provisions of Section 21 of the
SCR Act, 1956 and proviso to Rule 19 A (1) of the SCR Rules, 1957 read with
Clause 40A of the Listing Agreement?
(b) Do the violations, if any, on the part of the Noticees attract any penalty
under Section 23 E and 23 H of the SCR Act, 1956?
(c) If yes, what should be the quantum of penalty?
6.

Before proceeding further, it will be appropriate to refer to the relevant provisions of

the SCR Rules, 1957, SCR Act, 1956 and Listing Agreement which read as under:SCR Rules, 1957:
Continuous Listing Requirement 19A. (1) Every listed company other than public sector company shall maintain
public shareholding of at least twenty five per cent :
Provided that any listed company which has public shareholding below twenty five
per cent, on the commencement of the Securities Contracts (Regulation)
(Amendment) Rules, 2010, shall increase its public shareholding to at least twenty
five per cent, within a period of three years from the date of such commencement,
in the manner specified by the Securities and Exchange Board of India.
Explanation: For the purposes of this sub-rule, a company whose securities has
been listed pursuant to an offer and allotment made to public in terms of subclause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty
five per cent, public shareholding from the date on which the public shareholding in
the company reaches the level of twenty five percent in terms of said sub-clause.
(2) .......
(3) ......."
SCR Act, 1956:
"Conditions for listing.
21. Where securities are listed on the application of any person in any recognised
stock exchange, such person shall comply with the conditions of the listing
agreement with that stock exchange."

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Listing Agreement:
40A. Minimum level of public shareholding
(i) The issuer company agrees to comply with the requirements specified in Rule
19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
(ii) .......
7.

I find from the SCN that SGL is a company listed on the BSE and VSE. Further, it
was noted that pursuant to the Securities Contracts (Regulation) (Amendment)
Rules, 2010 which came into effect from June 04, 2010, all the listed companies
were required to comply with the minimum public shareholding requirement of at
least 25% as prescribed under Rule 19A of the SCR Rules, 1957 read with Clause
40A of the Listing Agreement on or before June 03, 2013 i.e. within a period of
three years from the date of commencement of the said Securities Contracts
(Regulation) (Amendment) Rules, 2010. However, it was observed that SGL had
complied with the minimum public shareholding requirement only on August 06,
2014 i.e. with a delay of 14 months. Therefore, it was alleged that the Noticees had
violated the provisions of Section 21 of the SCR Act, 1956 and proviso to Rule
19A(1) of the SCR Rules, 1957 read with Clause 40A of the Listing Agreement.

8.

Vide letter dated December 25, 2014, the Noticees had submitted their common
reply in the matter and admitted the delay of 14 months in complying with the
minimum public shareholding requirement. Further, the Noticees have submitted
that the shareholding of the promoters had increased to 3,33,08,398 equity shares
constituting 78.26% during February 2002 to June 2002 in view of the promoters
commitment to bring equity in terms of Clause No. 12 of Other Terms & Conditions
of Rehabilitation Scheme approved by (Board for Industrial & Financial
Reconstruction) BIFR in August 2001. As regards the equity shares of SGL, the
Noticees submitted that it was traded below par value for a long time. Throughout
the financial year ending March 31, 2014, equity shares of SGL were traded on
BSE at ` 4.60 or below and closed at ` 5.10 per share on December 24, 2014.The
Noticees also submitted that as per the latest audit sheet, the carried forward
losses of SGL stood at ` 80.08 Crores as on March 31, 2014. The Noticees further
submitted that 100% shareholding of the promoters were pledged with the lenders
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in terms of Corporate Debt Restructuring Scheme approved on June 27, 2012 and
the approval for de-pledging of 3.26% of the total share capital of SGL held by the
Promoters towards off-loading the same for the purpose of achieving minimum
public shareholding was granted by all consortium bankers by April 2014. The
Noticees stated that fresh issue of shares could be made at par value only since
Company Law Board generally does not allow issue of shares at a discount
exceeding 10%.
9.

The Noticees further submitted as follows:

a) Issuance of shares to public through prospectus: In view of trading of shares
below par value and book value being much less than face value without track
record of profit earning, public would not be interested to subscribe for shares at
par value.
b) Offer for sale of shares held by promoters to public through prospectus: Public
would not have responded favorably to the offer for sale of shares held by
promoters to public through prospectus since shares of SGL were being traded
below par value for a long time.
c) Sale of shares held by promoters through the secondary market in terms of
SEBI circular CIR/MRD/DP/05/2012: As 100% of the promoters shares were
pledged with the bankers of SGL, who were not initially willing to reduce their
security, the promoters shareholding could not be reduced by way of sale in
secondary market or by sale to public through prospectus. Furthermore, daily
volumes of shares transactions were limited that practically it would have been
impossible to liquidate excess shareholding of promoters in the market.
d) Institutional placement programme (IPP) in terms of Chapter VIIIA of SEBI
(Issue of Capital and Disclosure Requirements, 2009: In view of carried forward
losses and shares being traded below par value, institutions would not have
been interested in subscribing for the Company par value
e) Right issue to Public Shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares, whether present or future, that may
arise from such issue: In view of carried forward losses and shares being traded

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below par value, consistently shareholders would not have been interested to
subscribe shares at par value
f) Bonus issue to Public Shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares, whether present or future that may
arise from such issue: In view of carried forward losses and consequent nonavailability of free reserves, SGL could not issue bonus shares.
g) Compliance of Minimum Public Shareholding in line with the guidelines on Offer
for Sale (OFS) of shares by promoters to through the stock exchange
mechanism:
i. Your

goodselves

through

Western

regional

officer

vide

letter

WRO/OW/LDS/MPS/1520/2013 dated April 23, 2013, was kind enough to call

us for a personal meeting on May 08, 2013.
ii. To understand our issued related to compliance and timeline for compliance
as also consider to grant relaxation, if needed, the company vide its letter
dated May 01, 2013 explained the difficulties being faced by it for the
compliance of minimum public shareholding.
iii. At the meeting of May 08, 2013 patient hearing was given to us and we were
advised to request consortium bankers to buy 3.26% of the total equity capital
to enable the promoter to off load the same to comply with the minimum
public shareholding requirement.
iv. In line with the advice of your good selves as above, the board of Directors at
its meeting held on May 22, 2013 approved the same and on May 28, 2013
request was sent to lead bankers.
v. Ultimately after receiving approvals from all the seven consortium bankers
and de-pledging of the shares during April 2014, (i) the promoters had
undertaken an OFS on the BSE on June 30, 2014, where the promoter could
off load only 39711 shares resulting into reduction of promoter shareholdings
from 78.26% to 78.17%. (ii) In second OFS held on August 06, 2014, the
promoter could off load balance excess 1347321 shares. Thereby, the
promoter shareholding reduced to 75% on August 06, 2014. (iii) Keeping in
view aforesaid minimum public shareholding compliance, the Whole Time
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Member, SEBI vide order No. WTM/PS/39/CFD/OCT/2014 dated October 21,

2014 has been kind enough to revoke the directions issued vide the interim
order dated June 04, 2013 against SGL, its directors, Promoter and promoter
group with effect from October 21, 2014."
10. I have carefully perused the material available on record and the submissions made
by the Noticees. I note that the amended provisions of Rule 19A of the Securities
Contracts (Regulation) (Amendment) Rules, 2010 commenced from June 03, 2010,
requiring every listed company to increase its minimum public shareholding to at
least 25% within a period of three years from the date of commencement of the said
Rules. The shareholding of the promoters of SGL had increased to 3,33,08,398
equity shares, constituting 78.26% during February 2002 to June 2002. However, it
is an admitted fact that, the Noticees were able to comply with the minimum public
shareholding requirement only on August 06, 2014, resulting in a delay of 14
months. Further, I do not find any merit in the reasons provided by the Noticees for
their delayed compliance with the said requirement. I find that the said requirement
of having 25% minimum public shareholding commenced from June 03, 2010 and
all the companies listed on the stock exchanges were required to comply with the
same. I find that if SGL had taken appropriate steps to increase its minimum public
shareholding to 25% within the stipulated three years timeline as prescribed under
the said Rules i.e. June 03, 2013, the said delay would not have occurred.
Therefore, I conclude that the Noticees by complying with the said requirement
with a delay of 14 months, have violated the provisions of Section 21 of the SCR
Act, 1956 and proviso to Rule 19 A (1) of the SCR Rules, 1957 read with Clause
40A of the Listing Agreement.

11. The present proceeding has arisen from a single cause of action (i.e. for belated
compliance of Minimum Public Shareholding requirement by a listed company which is
a listing condition under Rule 19A of the SCR Rules, 1957). For the aforesaid violation,
two provisions of the SCR Act, 1956 viz. Section 23E and Section 23H have been
invoked against the Noticees. I have carefully perused both the provisions which are
also reproduced as under;
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23E. Penalty for failure to comply with provision of listing conditions or

delisting conditions or grounds. - If a company or any person managing
collective investment scheme or mutual fund, fails to comply with the listing
conditions or delisting conditions or grounds or commits a breach thereof, it or
he shall be liable to a penalty not exceeding twenty-five crore rupees."
23H. Penalty for contravention where no separate penalty has been
provided - Whoever fails to comply with any provision of this Act, the rules or
articles or bye-laws or other regulations of the recognised stock exchange or
directions issued by the Securities and Exchange Board of India for which no
separate penalty has been provided, shall be liable to a penalty which may
extend to one crore rupees."
12. Upon perusal of aforesaid provisions, it is observed that for the violation of listing
conditions, monetary penalty has been prescribed under Section 23E of the SCR Act,
1956. Further, from a plain reading of Section 23H of the SCR Act, 1956, it is clear that
the same is a residuary provision and is attracted for violations for which no separate
penalty has been provided in the SCR Act, 1956. Therefore, I am of the view that for
the violation of listing conditions, monetary penalty as prescribed under Section 23E of
the SCR Act, 1956 is only attracted.

13. While determining the quantum of penalty under Section 23 E of the SCR Act,
1956, it is important to consider the factors stipulated in Section 23 J of the SCR
Act, 1956, which reads as under:23J. While adjudging the quantum of penalty under section 23-I, the adjudicating
officer shall have due regard to the following factors, namely:
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of the
default;
(c) the repetitive nature of the default.

14. I observe, from the material available on record, that it is not possible to quantify,
any gain or unfair advantage accrued to the Noticees or the extent of loss suffered
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by the investors as a result of the said default. I note that the said default is not
repetitive in nature.

ORDER
15. In view of the above, after considering all the facts and circumstances of the case

and exercising the powers conferred upon me under Section 23-I of the SCR Act,
1956 read with Rule 5 of the SCR Rules, 1957, I hereby impose a penalty of
` 25,00,000/- (Rupees Twenty Five Lakhs Only) under Section 23 E of the SCR
Act, 1956 on the Noticees viz. Steelco Gujarat Limited and Spica Investments
Limited, to be paid jointly and severally, by them. In my view, the aforesaid penalty
is commensurate with the defaults committed by the Noticees.
16. The above penalty amount shall be paid by the Noticees through a duly crossed
demand draft drawn in favour of SEBI Penalties Remittable to Government of
India and payable at Mumbai within 45 days of receipt of this order. The said
demand draft shall be forwarded to the Division Chief, Corporate Finance
Department, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A,
G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400 051.
17. In terms of the Rule 6 of the SC(R) Adjudication Rules, copy of this order is sent to
the Noticees and also to Securities and Exchange Board of India.

Date: April 29, 2016

D. SURA REDDY
GENERAL MANAGER &
ADJUDICATING OFFICER

Place: Mumbai

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