SEBI/WTM/SR/CFD/37/07/2017

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

CORAM: S. RAMAN, WHOLE TIME MEMBER

ORDER

UNDER SECTIONS 11 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 COMPLIANCE WITH THE REQUIREMENT OF MINIMUM PUBLIC SHAREHOLDING BY SWARAJ
AUTOMOTIVES LIMITED –

Background –

1.1 Swaraj Automotives Limited (“Swaraj Automotives”) is a company incorporated under the Companies
Act, 1956, on November 20, 1974. The Registered Office of Swaraj Automotives is at C–127, IV Floor,
Satguru Infotech, Industrial Area Phase–VIII, S. A. S. Nagar (Mohali), Punjab – 160071. The shares of Swaraj
Automotives are listed on BSE Limited (“BSE”).

1.2 M/s b4S Solutions Private Limited (“b4S Solutions”) entered into a Share Purchase Agreement (“SPA”) on
October 16, 2015, with M/s Mahindra and Mahindra Limited (“Mahindra & Mahindra”) for acquisition of
17,06,925 equity shares representing 71.19% of Swaraj Automotives.

1.3 As on September 30, 2015, the shareholding pattern in Swaraj Automotives [Source: BSE website] was as
under –

TABLE A
NAME SHARES %
A. PROMOTER/PROMOTER GROUP
MAHINDRA & MAHINDRA LIMITED 17,06,925 71.19
PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION 71,730 2.99
TOTAL 17,78,655 74.18

B. PUBLIC SHAREHOLDING 6,19,058 25.82

TOTAL (A + B) 22,64,078 100.00

1.4 The aforementioned acquisition by b4S Solutions triggered Regulation 3(1) and Regulation 4 of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) thereby
resulting in an Open Offer being made under the said Regulations to the shareholders of Swaraj
Automotives.
Page 1 of 8
1.5 From the Letter of Offer dated January 7, 2016, issued by b4S Solutions in respect of the Open Offer for
acquisition of 6,19,058 [25.82%] equity shares from the shareholders of Swaraj Automotives, the
following is observed –

“3.2.10 Upon completion of the Offer, assuming full acceptances in the Offer and acquisition of Sale Shares
in accordance with the SPA, the Acquirer will hold 23,97,713 equity shares constituting 100.00% of the
present issued, subscribed and paid up equity share capital of the Target Company (Swaraj Automotives).
Pursuant to this Open Offer, the public shareholding in the Target Company will reduce below the minimum
public shareholding required as per the Securities Contracts (Regulation) Rules, 1957 (“SCR Rules”) as
amended and the Listing Agreement, the Acquirer undertakes that it will take necessary steps to facilitate
compliances of the Target Company with the relevant provisions of the SCR Rules as amended, the Listing
Agreement or corresponding provisions of SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 and the Regulations 7(4) and 7(5) of the Takeover Regulations and will reduce the non-
public shareholding within the time period mentioned therein.”

1.6 b4S Solutions acquired the entire equity stake held by the Promoters of Swaraj Automotives, viz.
Mahindra & Mahindra (1706925 equity shares on February 1, 2016) and Punjab State Industrial
Development Corporation Limited (71730 equity shares on December 23, 2015). In addition, b4S
Solutions also acquired 3,38,075 equity shares of Swaraj Automotives under the Open Offer. The entire
process was completed on February 1, 2016 and resultantly, b4S Solutions became the new Promoter of
the Company w.e.f. February 1, 2016.

1.7 Subsequent to the abovementioned, the shareholding pattern in Swaraj Automotives as on March 31,
2016 [Source: BSE website], was as under –

TABLE B
NAME SHARES %
A. PROMOTER/PROMOTER GROUP
M/S B4S SOLUTIONS PRIVATE LIMITED 21,16,730 88.28

B. PUBLIC SHAREHOLDING 2,80,983 11.72

TOTAL (A + B) 23, 97,713 100.00

1.8 Thereafter, SEBI received a letter dated April 24, 2017, from b4S Solutions inter alia stating as under –

“I, R. K. Sharma, being the Promoter Director of b4S Solutions (“Acquirer”) would like to inform you that
the Acquirer made an open offer in terms of Regulations 3(1) and 4 of the Takeover Regulations to acquire
substantial shares and control over the Target Company. The offer process was completed on February 2,

Page 2 of 8
 2016 and subsequent to the completion of open offer, Acquirer became the sole Promoter of the Target
Company with 88.28% shareholding in the Target Company.
As per Rule 19A of the Securities Contracts (Regulations) Rules, 1957, every listed company shall maintain
public shareholding of at least 25%. Where the public shareholding in a listed company is below 25% at
any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months
from the date of such fall. In order to achieve minimum public shareholding, we opted for the process of
sale of shares held by Promoter through Offer for Sale in secondary market.

The Offer for sale was done in the following tranches:

OFFER FOR PRE – PROMOTER PERIOD OF OFFER FOR ACTUAL SHARES SOLD IN PRICE POST –
SALE SHAREHOLDING OFFER FOR SALE MADE OFFER FOR SALE (₹) PROMOTER
SALE FOR SHAREHOLDING
NON – RETAIL RETAIL

1. 21,16,730 15.12.2016 3,18,446 56,600 31,884 150 20,28,286

(88.28%) TO (13.28%) (84.59%)
16.12.2016

2. 20,28,286 05.01.2017 2,30,002 28,000 23,000 160 19,77,286

(84.59%) TO (9.59%) (82.46%)
06.01.2017

3. 19,77,286 30.01.2017 1,79,002 NA 18,915 160 19,58,371

(82.46%) TO (9.59%) (81.68%)
31.01.2017

Subsequent to the Offer for sale, the Promoter shareholding reduced from 88.28% to 81.68%. However,
even after due efforts, the requirement to achieve minimum public shareholding of 25% could not be
attained within the duration of 12 months from the completion of open offer.
I humbly request (SEBI) to please grant us extension of additional one year to achieve minimum public
shareholding in terms of Rule 19A of the SCR Rules. …”

1.9 Vide an e–mail dated May 4, 2017, SEBI replied to b4S Solutions inter alia informing the entity as under –

“… The SCR Rules does not provide power to SEBI for extension of time for compliance with minimum public
shareholding requirements in terms of Rule 19A of (the said Rules). …”

Page 3 of 8
Findings –

2.1 The Ministry of Finance, vide Notifications dated June 4, 2010 and August 9, 2010, amended the
SCRR to provide for minimum and continuous public shareholding requirements in listed
companies as it was felt that a dispersed shareholding structure was essential for the sustenance
of a continuous market for listed securities, to provide liquidity to the investors and to discover fair
prices.

2.2 The amended provisions of Rule 19(2)(b) and the newly inserted Rule 19(A) of the SCRR are
reproduced below for reference:

“Requirements with respect to the listing of securities on a recognised stock exchange.

19 (2) …
(b) (i) At least twenty five per cent of each class or kind of equity shares or debentures convertible
into equity shares issued by the company was offered and allotted to public in terms of an offer
document; or
(ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity
shares issued by the company was offered and allotted to public in terms of an offer document if
the post issue capital of the company calculated at offer price is more than four thousand crore
rupees:
Provided that the requirement of post issue capital being more than four thousand crore rupees
shall not apply to a company whose draft offer document is pending with the Securities and
Exchange Board of India on or before the commencement of the Securities Contracts (Regulation)
(Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub -rule 2 of rule
19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such
commencement:
Provided further that the company, referred to in sub clause (ii), shall increase its public
shareholding to at least twenty five per cent, within a period of three years from the date o f listing
of the securities, in the manner specified by the Securities and Exchange Board of India.

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 percent, 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 Indi a.
Page 4 of 8
 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 sub-clause (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) Where the public shareholding in a listed company falls below twenty five per cent at any time,
such company shall bring the public shareholding to twenty five per cent within a maximum period
of twelve months from the date of such fall in the manner specified by the Securities and Exchange
Board of India. [Emphasis supplied]
(3) Notwithstanding anything contained in this rule, every listed public sector company shall
maintain public shareholding of at least ten per cent.:

Provided that a listed public sector company-

(a) which has public shareholding below ten per cent, on the date of commencement of the
Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public
shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board
of India, within a period of three years from the date of such commencement;
(b) whose public shareholding reduces below ten per cent, after the date of commencement of the
Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public
shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board
of India, within a period of twelve months from the date of such reduction.”

2.3 A result of the aforementioned Notifications was that all listed companies (other than PSUs) were
mandated to have minimum public shareholding of 25%. Further, as per Rule 19A(2) of the SCR
Rules, where the public shareholding in listed companies falls below 25% at any time, such company
shall bring the public shareholding to 25% within a maximum period of 12 months from the date of
such fall in the manner specified by SEBI.

2.4 The methods by which listed companies shall ensure compliance with the requirement of 25%
minimum public shareholding were specified by SEBI under the erstwhile Clause 40A of the Listing
Agreement [presently Regulation 38 of the Listing Regulations; See also SEBI Circular no.
CIR/CFD/CMD/14/2015 dated November 30, 2015], viz. –

a. Issuance of shares to public through prospectus;

b. Offer for sale of shares held by Promoters to public through prospectus;
c. Sale of shares held by Promoters through the secondary market i.e. OFS through Stock Exchange;
d. Institutional Placement Programme (IPP);
Page 5 of 8
 e. Rights Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their
rights entitlement;
f. Bonus Issues to public shareholders with Promoters/Promoter Group shareholders foregoing their
bonus entitlement;
g. Any other method as may be approved by SEBI on a case–to–case basis.

2.5 As noted from the preceding paragraphs –

a. The public shareholding in Swaraj Automotives fell below the minimum permissible level of
25% on February 2, 2016.
b. As per the requirement contained under Rule 19A(2) of the SCR Rules, Swaraj Automotives
was required to bring the public shareholding to 25% in the manner specified by SEBI,
within a maximum period of 12 months from the date of such fall.
c. Accordingly, the date for ensuring compliance with the minimum public shareholding
requirement was on February 1, 2017.
d. Swaraj Automotives opted for the process of sale of shares held by its Promoter through Offer
for Sale in secondary market for ensuring compliance with the minimum public shareholding
requirement.
e. However, as on March 31, 2017, the public shareholding in Swaraj Automotives was at
18.32%, which continues to remain at that level as on date, clearly indicating non–
compliance by the said Company with the minimum public shareholding requirement.

2.6 I find that the aforementioned non–compliance by Swaraj Automotives with the minimum public
shareholding requirement, is in breach of Rule 19A of the SCR Rules and Clause 40A of the Listing
Agreement [presently Regulation 38 of the Listing Regulations; SEBI Circular no.
CIR/CFD/CMD/14/2015 dated November 30, 2015] read with Section 21 of the Securities Contracts
(Regulation) Act, 1956 (“SCR Act”).

2.7 Accordingly, it is necessary to pass suitable directions against the Promoter and Directors of Swaraj
Automotives in the interests of investors and the orderly development of the securities market
including for preventing the Promoter exercising its rights through shares held in excess of the
minimum public shareholding requirements.

Page 6 of 8
Order –

3.1 In view of the foregoing and in exercise of the powers conferred upon me in terms of Section 19 read
with Sections 11(1), 11(2)(j), 11(4) and 11B of the SEBI Act, 1992 (“SEBI Act”) and Section 12A of the
SCR Act hereby issue the following directions, against Swaraj Automotives Limited –

A. Direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split,
etc. with respect to the excess of proportionate Promoter shareholding in the Company, till
such time the Company complies with the minimum public shareholding requirement.

i. For the purpose of above direction, proportionate Promoter shareholding shall be

computed on the basis of the public shareholding in the company; For example, if
public shareholding in a company after the deadline is less than 25%, say 10%, in such
case, the proportionate Promoter shareholding would be 30% (i.e. three times the
existing public shareholding). Thus, the voting rights and corporate benefits with
respect to the excess Promoter shareholding i.e. 60%, shall be frozen till the minimum
public shareholding requirement is complied with.

In the instant proceedings, the public shareholding as on March 31, 2017, is 18.32%.
Accordingly, the proportionate Promoter shareholding would be three times the
existing public shareholding i.e. 54.96%. Thus, the voting rights and corporate benefits
with respect to the excess Promoter shareholding i.e. (81.68 – 54.96) = 26.72%, shall
be frozen till the minimum public shareholding requirement is complied with.

B. Prohibit the Promoter and the Directors of the Company from buying, selling or otherwise dealing
in securities of Company, either directly or indirectly, in any manner whatsoever, except for the
purpose of complying with minimum public shareholding requirement till such time the Company
complies with the minimum public shareholding requirement;

C. Restrain the shareholders forming part of the Promoter from holding any new position as a
Director in any listed company, till such time the Company complies with the minimum public
shareholding requirement;

D. Restrain the Directors of Company from holding any new position as a Director in any listed
company, till such time the Company complies with the minimum public shareholding
requirement.

Page 7 of 8
3.2 This Order is without prejudice to the right of SEBI to take any other action, including the following against
the Company, its Promoters and Directors, or issuing such directions in accordance with law including –

i. Levying monetary penalty under adjudication proceedings;

ii. Initiating criminal proceedings by way of prosecution proceedings;
iii. Moving the scrip to trade-to-trade segment;
iv. Excluding the scrip from Futures & Options segment;
v. Any other action/direction as may be deemed appropriate.

3.3 For the above purpose, this Order shall be treated as a Show Cause Notice and the above persons may
show cause as to why such proposed action should not be initiated against them.

3.4 The Board/Audit Committee of the Company shall, at the end of each quarter, submit compliance report,
to the stock exchange where the shares of Company are listed, giving the extent to which compliance has
been achieved and the efforts taken in that respect.

3.5 Copies of this Order shall be served on the Stock Exchanges and Depositories for their information and
necessary action. The Stock Exchanges and Depositories shall collaborate for the purpose of implementing
the Order. The Depositories shall rely on the filings made with the Stock Exchanges for ascertaining the
Promoter(s), their shareholding and public shareholding. The Stock exchanges shall provide the aforesaid
data to the Depositories to enable them to take necessary action as mentioned above.

3.6 The entities/persons against whom this Order is being passed may file their reply, if any, within 21 days
from the date of this Order. The entities mentioned herein may also, if they so desire indicate in their
replies whether they wish to avail of the opportunity of personal hearing before the Securities and
Exchange Board of India at its Head Office at SEBI Bhavan, Plot C4–A, G Block, Bandra Kurla Complex,
Bandra (East), Mumbai–400051, on a date and time to be fixed on a specific request.

3.7 This Order shall come into force with immediate effect.

Place: Mumbai S. RAMAN

Date: July 19, 2017 WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

Page 8 of 8