Mumbai: Cracking the whip on the promoters of over 100 private sector companies having failed to attain minimum 25 per cent public holding, Sebi today ordered freezing their voting rights and corporate benefits and barred them from holding any new position on boards of listed firms.
The promoters and directors of non-compliant companies have also been barred from dealings in the market and holding new positions on the boards of listed entities till the time those companies comply with the minimum public shareholding requirements.
In a 13-page late night order, Sebi also warned of further actions including levy of monetary penalties, initiation of criminal proceedings, restricting the trading activities of related stocks and other possible directions.
Sebi said a total of 105 companies failed to meet the norms within the stipulated deadline of June 3, despite repeated reminders and various relaxations provided to the companies to help them meet the requirements.
These included 72 companies whose shares are actively traded on the stock market, while the shares of 33 other companies are currently suspended for various reasons.
The companies whose promoters and directors would face the prohibitory orders, which have come into immediate effect, include Adani Ports, BGR Energy Systems, Essar Ports, Omaxe, Plethico Pharmaceuticals and Tata Teleservices.
The actions announced by Sebi against promoters include "direct freezing of voting rights and corporate benefits like dividend, rights, bonus shares, share split etc., with respect to the excess" shares held by the promoters beyond the 75 per cent limit, till the time these firms comply with the norms.
Besides, promoters and directors of such companies have been prohibited from buying, selling or other dealing in shares of their respective companies, except for the purpose of complying with the minimum public holding norms.
The promoters and directors of these companies have also been restrained from holding "any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement," Sebi said.
The other possible actions that Sebi might take against these companies include moving their shares to trade-to-trade segment, excluding them from futures and options trade, monetary penalties under adjudication proceedings, initiation of criminal case by way of prosecution and other actions, as may be deemed appropriate at a later stage.
These companies and their promoters and directors have been asked to file their replies, if any, to the Sebi order within 21 days, Sebi said.
The minimum public holding norms, seeking at least 25 per cent public shareholding, were notified on June 4, 2010, requiring compliance by the private sector listed companies within three years and this deadline ended earlier this week on June 3, 2013.
The PSU companies are required to have at least 10 per cent public shareholding by August 8, 2013.
The last few days saw a spurt in activities by non- compliant companies to meet the norms, but some of them including Tata Tele, BGR Energy, Essar Ports and Omaxe could not sell the required number of promoter shares to comply with the requirements despite their attempts.
Sebi said it had provided the non-compliant companies with various routes to meet the requirements, including through issuance of public shares by the companies and promoters selling shares through one-day Offer For Sale (OFS) and Institutional Placement Program (IPP) routes.
Besides, Sebi had also allowed the companies to meet the norms through rights issues, bonus issues, and any other method to be approved on case-to-case basis.
The regulator said many companies took help of these initiatives to meet the requirement, but some of them failed to do so, despite repeated reminders to them.
The non-compliant companies were also told that their failure to comply with the norms within the deadline would lead to Sebi "initiating appropriate proceedings or any other action as may be deemed appropriate".
Passing the order, Sebi's whole-time member Prashant Saran said: "I am of the considered opinion that the persons forming part of the promoter/promoter group and the directors of such non-compliant companies are mainly responsible for the non compliance with the minimum public shareholding requirements within specified timelines.
"The promoters/promoter group of such companies would have an advantage on account of their disproportionate stake compared to the public in their respective companies and also place them in a more advantageous position as compared to the promoter/promoter groups of the compliant companies..."
Sebi said that the availability of a minimum number of shares with the public ensures a reasonable depth in the market and prices of such stocks are not susceptible to manipulation.
The regulator said that action against promoters of non- compliant companies was necessary to ensure a level playing field, while also safeguarding the interests of public shareholders.
The sebi action is expected to lead to renewed attempts by non-complying entities to meet the norms and may lead to flurry of offers of sale by companies.
Sebi said the list of the non-compliant companies also included two firms -- Videocon Industries and Premier Synthetics -- who were previously compliant with the requirement, but their promoter holdings increased beyond 75 per cent post March 31, 2013.
There are also two companies -- Anka India and Magnanimous Trade & Finance -- who were previously suspended, but are now active on the stock market.
The active companies also included Bombay Rayon Fashion, Chettinad Cement, Foseco India, Fresenious Kabi Oncology, Hubtown Ltd, Mudra Lifestyle, Nagarjuna Agrichem, SIEL Financial Services and Starcom Information Technology.
The list did not include Gillette India, which is also yet to comply with the norms but has got an interim relief from the Securities Appellate Tribunal. The SAT is hearing the company's plea against Sebi's decision to reject a proposed method to meet the requirement, wherein Gillette had sought de-classification of a senior executive as promoter entity.