WTM/PS/130/CFD/JAN/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: PRASHANT SARAN, WHOLE TIME MEMBER
ORDER
Under Sections 11(1), 11(2)(j), 11(4) 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 non-compliance with the requirement of minimum public
shareholding by listed companies
In respect of Golkonda Engineering Enterprises Limited
Date of Hearing:

July 08, 2015

Appearances:
For Noticee:

Mr. Balveer Singh Choudhary, Chartered Accountant.

For SEBI:

Dr. Anitha Anoop, Deputy General Manager,

Mr. Pradeep Kumar, Assistant General Manager,
Mr. Rohan Vijay, Assistant Manager.

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.

2.

Golkonda Engineering Enterprises Limited (hereinafter referred to as the

Company) is one such company against whom the interim order was passed. The

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equity shares of the Company are listed on the Bombay Stock Exchange Limited
(BSE). The scrip of the Company is suspended for trading.
3.

The Company vide its letter dated October 22, 2013, replied to the interim order and
submitted that there is discrepancy in the figures relating to the number of shares and
promoters shareholding of the Company. Vide this letter, the Company also submitted
as under:
a. The Company is following up with the BSE for rectification of the discrepancy.
b. At the time of Initial Public Offering (hereinafter referred to as IPO) the Company
had issued 4,95,070 shares out of which the public shareholding was 29,920 shares i.e.
6.04%. But there was discrepancy in the record of BSE wherein the issued capital was
shown as 49,50,000 shares and the public shareholding was shown as 30,00,000 shares
i.e. 60.60%.
c. One of the lenders to the Company, had granted financial assistance to it subject to
the condition that debt equity ratio should be improved. Therefore, unsecured loan
was taken by the Company from one of the promoters viz. Surana Udyog. The same
was converted into equity and shares were allotted on preferential basis to Surana
Udyog to the tune of 32,50,000 shares of 10/- each amount to 3.25 crore.
d. The Company had made an application to BSE to list the above shares allotted through
preferential allotment, however, BSE rejected the proposal vide its letter dated August
13, 2012.
e. Due to the said reasons, the Company was not able to comply with Clause 40A of the
Listing Agreement. The Company is in the process of receiving listing approval for
32,50,000 equity shares from BSE shortly. On receipt of such approval, the Company
would be able to comply with the Clause 40A of the Listing Agreement by following
any of the prescribed methods.

4.

The Company vide its letter dated September 15, 2014, submitted as under:
a. The Company has decided to cancel 32,50,000 shares allotted to the promoter/
promoter group on preferential basis and has made substantial progress in this regard.
The Company has also filed a scheme of arrangement (scheme) for cancellation of

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the said 32,50,000 shares with the Honble High Court of Judicature of Hyderabad on
July 08, 2014.
b. The Honble High Court had directed that a meeting of equity shareholders of the
Company be convened for the purpose of considering and approving the proposed
scheme. In compliance with the order of Honble High Court, the meeting of the
equity shareholders was held on September 06, 2014 and the scheme was approved by
the shareholders with requisite majority.
c. On completion of the scheme for cancellation, the public shareholding of the
Company will be 48.03%, which will be in compliance with the extant requirements of
MPS.
The Company vide the said letter also submitted that the Company will update SEBI
as to when the scheme is approved by the Honble High Court.
5.

An opportunity of personal hearing was granted to the Company on July 01, 2015,
which was later rescheduled to July 08, 2015. On the date fixed Mr. Balveer
Choudhary, Chartered Accountant appeared on behalf of the Company and made oral
submissions in the lines of the letter dated September 15, 2014.

6.

While proceeding further, I have considered the interim order passed in the matter
against the Company, its promoters and directors. The interim order was issued against
the Company as it had failed to maintain the MPS 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). As per the shareholding
pattern of the Company for the quarter ended September 2015, as seen in the BSE
website, the promoters hold 89.63% and the public holds only 10.37%. The Company
is therefore in violation of the MPS requirements.

7.

I note the submission of the Company that there are certain discrepancies in the
records of BSE relating to the number of shares and promoters shareholding of the
Company. It has been submitted by the Company that at the time of IPO, the
Company had issued 4,95,070 shares out which 29,920 shares i.e. 6.04% were allotted
to the public. As per the records of BSE, the promoters shareholding in December

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2002 was 4,65,150 and the public shareholding was 4,29,920. The same is apparently
contradictory to the submissions of the Company. In view of the discrepancy in figures
and in the absence of any other cogent source of information, I am proceeding with
the shareholding pattern as submitted by the Company.
8.

It is noted that the Company had issued 32,50,000 equity shares on preferential basis
to the promoters and the same were admittedly not listed on BSE due to the nonreceipt of listing approval. The Company vide its letter dated September 15, 2014, has
submitted that it has decided to cancel the said 32,50,000 shares allotted to the
promoter/ promoter group on preferential basis and a scheme in this regard has been
filed with the Honble High Court of Judicature of Hyderabad on July 08, 2014. It has
also been said that as per the directions of the Honble High Court, a meeting of the
equity shareholders was held on September 06, 2014 and the scheme of cancellation
was approved with requisite majority. However, it is clear that for the purposes of
Clause 40A of the Listing Agreement and rules 19(2)(b) and 19A, the said 32,50,000
shares do not exist.

9.

Considering the facts and circumstances of the case, it is clear that the public
shareholding continues to be at 6.04% as per the Companys own admissions and 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 SEBI, 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 in view of the continuing nature of the violations committed by
the Company, SEBI may also initiate other action, as appropriate in law, against the
Company, its directors and promoters.

10.

Accordingly, I, in exercise of the powers conferred upon me under Section 19 of the

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

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against the Company, Golkonda Engineering Enterprises Limited, its directors,

promoters and promoter group.
11.

This Order shall remain in force till further directions.

12.

Copy of this Order shall be served on the Stock Exchanges and Depositories for their
information and necessary action.

Date: January 08, 2016

Place: Mumbai

PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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