sebi/wtm/gm/cfd/32/2019-20 before the securities … order dt 21aug19...iii after receiving sebi...

______________________________________________________________________________________________ Order in the matter of Polygenta Technologies Ltd. of 19

SEBI/WTM/GM/CFD/32/2019-20

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER SECTION 11(1) AND 11 B OF THE SEBI ACT, 1992 READ WITH REGULATION

25A OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY

SHARES) REGULATIONS, 2009.

IN THE MATTER OF DELISTING OF EQUITY SHARES OF POLYGENTA

TECHNOLOGIES LTD.

____________________________________________________________________

Background –

1. Securities and Exchange Board of India (“SEBI”) received an application dated December

11, 2017 (“Application”) from Perpetual Global Technologies Ltd. (hereinafter referred to

as “PGTL"/ "Applicant Promoter” / “applicant”) of M/s Polygenta Technologies Ltd ("the

company"/ "PTL" / “Polygenta”) under regulation 25A of SEBI (Delisting of Equity

Shares) Regulations, 2009 ("Delisting Regulations") seeking relaxation from the strict

enforcement of Regulation 8(1B)(i) of the Delisting Regulations and that the Applicant

Promoter may be permitted to propose a delisting of equity shares of the Company.

2. Post receipt of the Application, in accordance with regulation 25A(5) of the Delisting

Regulations, the Applicant Promoter was provided an opportunity to make submissions

in person. The personal hearing took place on September 25, 2018 for which the

Applicant Promoter was represented by Advocates from Argus Partners- Mr. Krishnava

Dutt and Ms. Adity Chaudhary. Facts relevant to the case, as borne out from the

application made by the Applicant Promoter, grounds for the request made, and the

oral submissions made, are summarized as follows:

(i) Polygenta Technologies Ltd. was incorporated in the year 1981 as a private limited

company in the name of “Maskara Polytex Private Ltd.” The shares of the Company

got listed on BSE in the year 1995. Name of the company was changed to its

current name in the year 2001. PGTL i.e. the Applicant promoter, is a company

incorporated in Mauritius and is the promoter of the company. PGTL is a

technology company and is engaged in the sustainable polyester industry and

owns proprietary and patented recycling technology. As per the company’s


submissions, the Applicant, who is classified as a promoter of the Company,

is a technology company with a broad based shareholding structure and

whose shareholders are internationally reputed investors and funds

(including investment from funds who have investors such as International

Finance Corporation, part of World Bank, Swedfund, Proparco, Temasek,

Aloe Environment Fund II etc.) and is engaged in the sustainable polyester

industry and owns proprietary and patented recycling technology.

(ii) In the year 2010, PGTL, along with person acting in concert, made an open offer

and became the promoter of the company and the then existing investors (except

Mr. Subodh Maskara, erstwhile promoter) ceased to be promoters. Erstwhile

promoter ceased to be promoter of the company in the year 2013.

(iii) The shareholding pattern of the company is as follows:

Shareholding pattern of the Company

Sr.

No.

Category of the

Shareholder

No. of fully paid

up equity shares

held

% of

shares

held

a. Promoter and Promoter

Group

11,71,54,908 75%

b. Public 2,55,26,636 16.34%

c. Non – Promoter- Non

Public (Shares by

employee Trust )

1,35,25,000 8.66%

Total 15,62,06,544 100%

(iv) In 1997, the company implemented a mechanical process to manufacture PET

chips and partially oriented yarn by re-processing secondary post industrial

recovered PeT polyester waste. The technical failure of the technology led to huge

financial loses and eventually the company was referred to the BIFR in 2002 as

per provisions of Sick industrial companies (Special Provisions) Act, 1985 (SICA).

In 2006, Company identified a technical solution to its operational deficiencies

and began its efforts to raise capital to implement the solution at the Nashik Plant.

Applicant had invested and/or arranged for approximately Rs. 540 cr. of

investment in equity and debt in the company over the last nine years. Due to the

infusion of capital by applicant, the net worth of the company turned positive and

eventually the company came out of BIFR.


(v) Again, in the year 2013, company reported substantial erosion of capital by more

than 50 % to BIFR. Despite the continuous losses suffered by the company,

applicant continued to support the company by investing in the company.

(vi) In the year 2014-15, the company was in dire need of the working capital

requirements. The company was not able to raise the resources externally and

accordingly, applicant had no option but to inject fresh funds by way of

subscribing 1,01,55,893 compulsorily convertible preference shares (CCPS) of the

company to the tune of Rs. 47.73 crore. Upon conversion of CCPS, the applicant

shareholding became 75.43% and accordingly, the applicant transferred

6,78,735 equity shares constituting 0.43% share capital to Ventureast Life Fund

III after receiving SEBI approval vide letter dated April 26, 2017. After this transfer,

the company became compliant with the minimum pubic shareholding norms

issued by SEBI.

(vii) The ESOP trust of the company was established in February 2011 and holds

8.66% equity capital of the company. On October 28, 2014, SEBI (Share Based

Employee Benefits) Regulations, 2014 were notified and thereafter, on February

25, 2015, the Securities Contracts (Regulation) (Amendment) Rules, 2015

("SCRR Amendment Rules") were introduced amending Rule 19A of the SCRR.

This amendment in law mandated that shareholding of the ESOP were to be

excluded from the public shareholding from October 28, 2017 and consequently

the Company became non-compliant of the MPS requirement as per 19A of SCRR.

Company made efforts to distribute the shares of the ESOP Trusts, but it failed

due to instability in the management of the company.

(viii) The Applicant and the company started to explore options to achieve the minimum

public shareholding of 25% in accordance with SEBI Circular

CIR/CFD/CMD/14/2015 dated November 30, 2015. Meanwhile, around 2016,

again the company was in requirement of further working capital. Unfortunately,

by then, there were no external financial institutions willing to invest in the

company except the applicant. Applicant already had taken enough exposure in

debt of the company and would be prevented to take further equity exposure due

to MPS requirement. The manufacturing plant needed to scale up the capacity in

order to achieve economies of scale, which needed further investment and support.


(ix) Shares of the company are hardly traded and traded turnover on BSE ranged from

0.0001% to 0.0019%. Company is loss making company and its book value is also

negative. The company has to incur heavy costs to continue running a listed entity

and there is no financial and operational sense to keep the company listed. In

September 2017, in view of the aforesaid issues it became clear to the applicant

that the only option left to address all issues is to delist the company by making a

voluntary offer as per delisting regulations.

(x) As the promoter had sold equity shares of the company to comply with MPS

requirement during the last six month period, the company could not apply for

voluntary delisting of the shares as per Regulation 4(1)A of Delisting Regulations.

Accordingly, the applicant filed an application dated September 25, 2017 seeking

permission to propose a delisting of equity shares of the company prior to the

expiry of six months as mentioned in Regulation 4(1A) of Delisting Regulations.

However prior to the response of SEBI, BSE vide email dated October 26, 2017

levied a penalty of Rs.5000 per day and froze the equity shares of the

promoter/promoter group for non-compliance of MPS requirements under SCRR

due to automatic reclassification of the shares held by ESOP trust from October

28, 2017. Now being in breach of the MPS requirement automatically with effect

from October 28, 2017 the company is prevented from undertaking a voluntary

delisting of its shares from BSE due to Regulation 8(1B)(i) of the Delisting

Regulations read with Regulation 38 of the Listing Regulations.

(xi) In the event the Company is unable to delist its shares, the company’s financial

suffering will increase and may prevent a possible turnaround. Further, delisting

of shares of the company would be beneficial for both the company as well as its

shareholders.

3. Subsequently, in response to certain queries from SEBI, the Applicant Promoter

made submissions vide letter dated March 08, 2019. The questions addressed

by SEBI and a summary of the replies filed are recorded below:


(i) What is the Company's networth and profits (losses) for the last three

financial years?

Response:

For the last 3 (three) financial years i.e. financial years ended March 31, 2016,

March 31, 2017 and March 31, 2018, the Company has had a negative net worth

and has incurred losses. The details are as follows:

(in Rs. crore)

Financial Years Ended

Particulars March 31,

2016

March 31,

2017

March 31,

2018

Equity Share Capital 156.21 156.21 156.21

Reserves and Surplus -192.98 -219.13 -273.76

Net worth as per Companies

Act, 2013 -36.77 -62.92

-117.55

(in Rs. crore)

Financial Years Ended

Particulars March 31,

2016

March 31,

2017

March 31,

2018 Profits/(losses)before exceptional

items

-62.29 -48.50 -38.74

Exceptional items 3.56 22.36 -16.29

Profits/ (losses) after exceptional

items -58.74 -26.14 -55.03

Taxes - - -

Profit / Loss after tax -58.74 -26.14 -55.03

(ii) What is the total number & percentage of public shareholders holding shares

in demat mode?

Response: The details of shareholding of the Company as of December 31, 2018

are as follows:


Category of

shareholder

Total no. of equity

shares

Equity shares in

dematerialised

form

Equity shares in

physical form

Number Percen

tage Number

Perce

ntage Number

Perce

ntage

Promoter&

Promoter

Group

11,71,54,908 75.00 11,71,54,908 100 0 0

Public 2,55,26,636 16.34 67,72,745 26.53 1,87,53,891 73.47

Non-

Promoter,

Non-Public

Sharesheld

by

Polygenta

Stock

Option

Trust

1,35,25,000 8.66 0 0.00 1,35,25,000 100

Total 15,62,06,544 100 12,39,27,653 79.34 3,22,78,891 20.66

(iii) As per the chronology of events submitted by the Applicant, as of February

24, 2015 when convertible preference shares were allotted and as of January

25, 2017 when shareholding was sought to be reduced from 75.43% to 75%,

the Share Based Employee Benefit Regulations ("SBEB Regulations") was

already in place (since October 28, 2014). Why were no efforts made to

increase public shareholding since October 28, 2014 when the company was

aware that on account of the SBEB Regulations, the holding by the ESOP Trust

would not be treated as 'public' and that steps would need to be taken within

3 years for the company to be MPS compliant?

Regulation 31(2)(b)(iii) of the SEBI (Share Based Employee Benefits) Regulations,

2014 ("SBEB Regulations") as originally notified, provided that shares held

by a trust which are shown either as 'promoter' or 'public' shareholding could

continue to show them as such for a time period of 5 (five) years from the

date of notification of the SBEB Regulations i.e. till October 2019. The t ime

period of 5 (five) years was reduced to 3 (three) years in regulation 31(2)(b)(iii)

of the SBEB Regulations with effect from September 18, 2015 vide SEBI

(Share based Employee Benefits) (Amendment) Regulations, 2015. Further,

SCRR Amendment Rules, notified on February 25, 2015, also reduced the

time period to 3 (three) years. Hence, as on the date of allotment of

1,01,55,893 (one crore one lac fifty five thousand eight hundred ninety three)


compulsorily convertible preference shares ("CCPS") by the Company i.e. as

on February 24, 2015, as per the SBEB Regulations, the Company had time

till October 2019 to take steps in order to ensure compliance with minimum

public shareholding with regard to the shares held by a trust set up by the

Company for implementing employee benefit schemes ("ESOP Trust").

It is only because of the requirement of reclassification of the shareholding

of the ESOP Trust from 'public' to 'non-promoter non-public' category that

the Company currently is not satisfying the minimum public shareholding

requirement.

The following table shows the percentage of the shares traded during 2013

to 2018:

Year No. of equity shares traded

through BSE

% of outstanding

shares

2018 82,030 0.0525%

2017 252 0.0002%

2016 510 0.0003%

2015 1,221 0.0008%

2014 2,477 0.0016%

2013 293 0.0019%

It is evident from the above data that the shares of the Company are

infrequently traded.

The Company had been incurring heavy financial losses every year in the recent

past. In fact, as the net worth of the Company had eroded by more than 50%

(fifty percent), reports were filed with the Board for Industrial and Financial

Reconstruction in accordance with the Sick Industrial Companies (Special

Provisions) Act, 1985 for consecutive years i.e. the financial years ending on

March 31, 2013, March 31, 2014 and March 31, 2015. The net worth

continued to be negative even thereafter. Due to the severe financial

challenges that the Company has faced over the years, the Company was

unable to substantially attract and/or retain talent at a senior management

level. Between 2013 and 2017, there have been 2 (two) CEOs, 5 (five) CFOs

and 2 (two) COOs resignations, and numerous other changes in senior

management, and there has also been numerous changes in the junior-


management and staff. The churn in top level management made it

impossible to arrive at a proper allocation formula linked with the

performance.

Furthermore, there would be significant tax implications on the employees as the

listed price of the shares (considered for tax calculation) has been much higher

than the allotment price being considered, and this did not make

compensation through shares an attractive compensation structure for the

employees. This is because on the one hand the employees would have to

acquire shares of the Company which has a negative net worth and the book

value of whose shares is negative, and on the other hand the employees

would have to pay income tax under the Income Tax Act, 1961 on the

difference between the market price and the amount actually paid by the

employee.

With respect to the above explanation and the assumptions made therein,

the following tables provide the book value of shares of the Company,

average of the high and low prices of the equity shares of the Company and

potential tax liabilities on the employees, and the assumptions made for

the above illustration:

Table A: Book value of shares

Particulars December

31, 2014

December

31, 2015

December

31, 2016

December

31, 2017

Net worth (in Rs. crore) -16.484 -30.867 -52.054 -91.211

No. of shares

outstanding

(fully diluted) (Nos. in

crore)

14.61 15.62 15.62 15.62

Book value per share at

the end of the calendar

year (Rs /shares)

Negative Negative Negative Negative


Table B: Average of the high and low prices of the equity shares of the

Company*

Calendar Years

Particulars 2014 2015 2016 2017

High price (Rs/share) 52.30 20.50 16.75 16.25

Low price (Rs/share) 19.45 16.85 15.50 13.00

Average of high and low prices

(Rs/share) A 35.88 18.68 16.13 14.63

* For the sake of simplicity, average price has been taken for calculation

Table C: Potential tax implication on the employees

Calendar Years

Particulars 2014 2015 2016 2017 Assumed ESOP Grant Price

(Rs/share)

B 1.00 1.00 1.00 1.00

Market price at the time of

grant assumed to be (A) above

(Rs/share)

C 35.88 18.68 16.13 14.63

Perquisite value (Rs/share) C less

B 34.88 17.68 15.13 13.63

Taxation for an individual

in the highest tax bracket

(Rs/share)

D 10.46 5.30 4.54 4.09

Tax as a % of Grant Price 1046

%

530

%

454

%

409

%

Given the dire financial condition of the Company, it was not in a position

to offer any financial assistance to the employees to purchase shares of the

Company under an employee benefit scheme.

In addition to the above, failure to raise funds from external sources forced

the Applicant to continue to provide sustenance funding to the Company by

way of external commercial borrowings ("ECB") for its operations. The total

funds infused by way of ECB by the Applicant in the Company from April

2014 till December 2018 aggregates to Rs. 156.14 crore (Rupees one

hundred fifty six point one four crore).


Financial Year Ended (In Rs. crore)

Financial Year Ended March 31, 2015 55.50




April 2018 to December 2018 10.07

Total 156.14

The aforesaid loans taken by the Company depressed the real value of the

shares, and the employees realised this. It would have been de-incentivising

to try to allot ESOP shares to employees (i.e. something employees saw as

decreasing in value) in such a scenario. Certain senior employees were

already concerned about the low book value of the shares and hence were

not keen to subscribe to the shares and pay tax on the allocation.

Further, even though the Applicant discussed with quite a few eligible

employees, including the CEO whose appointment letter specifically

provided for the grant of employee stock option shares, none of the said

persons agreed to accept the said shares due to the abysmally dire financial

state of the Company and the consequential yet non-commensurate tax

liability.

The Applicant approached various investors including private equity funds,

strategic investors and family offices such as IFU from Denmark in July

2015, Vis Vires Capital in 2015, Beatona from Saudi Arabia, Danone in early

2016, Aster Capital in 2016, Altos Capital in 2017, Kock Family in 2017, and

Indorama in mid-2017. It also engaged various investment bankers at

various points during this time in India as well as internationally to reach

out to investors for raising funds such as MentorCap Management Private

Limited in 2015, Business Governance Solution in 2016 and THIS Advisory,

London in June 2017. However, continued losses and negative net-worth

turned to be some of the major bottlenecks as cited by investment bankers/

investors in our efforts to raise funds.

The Company already being in negative net worth, any further debt would

further burden the Company. Further, any incremental equity would also not

be possible due to the minimum public shareholding requirement. Therefore,

the only option left to address all the aforesaid issues was to delist the


Company by making a voluntary delisting offer to the public shareholders of

the Company in accordance with the Delisting Regulations.

(iv) Is the ESOP Trust in compliance with the provisions of regulation 3(11) & (12)

of the SEBI (Share Based Employee Benefits) Regulations, 2014?

All the shares held by the ESOP Trust have been gifted to the ESOP Trust.

Details of the shares gifted are as follows:

S.N. Date of gift Name of person gifting No. of

equity

shares

gifted 1. March 16, 2011 Applicant 74,25,000

2. July 5, 2012 Director of Company (i.e. Marc

Lopresto) 6,00,000

3. January 2, 2014 Applicant 55,00,000

TOTAL 1,35,25,00

0

Since the shares acquired by the Trust were by way of gift and not

secondary acquisition, in terms of explanation 3 to regulation 3(11) of the

SBEB Regulations, the ceiling limit does not apply to the ESOP of the

company. For the same reason, regulation 3(12) requiring sale of un-

appropriated inventory of shares not backed by grants within a period of 5

years from the regulations coming into force, does not apply to the

company.

Delisting Regulations and scope of SEBI's powers

4. The requirement to maintain Minimum Public Shareholding ("MPS") in a listed company

was explicitly laid out by way of insertion of Rule 19A in the Securities Contracts

(Regulation) Rules, 1957 ("SCRR") with effect from June 04, 2010. Rule 19A(1) and

19A(4) read as follows:

"Continuous Listing Requirement.

19A. (1) Every listed company other than public sector company shall maintain

public shareholding of at least twenty five per cent.:

...

(4) Where the public shareholding in a listed company falls below twenty-five per

cent in consequence to the Securities Contracts(Regulation) (Amendment) Rules,

2015, such company shall increase its public shareholding to at least twenty-

five per cent in the manner specified by the Securities and Exchange Board of India

within a period of three years, as the case may be, from the date of notification of:


(a) the Depository Receipts Scheme, 2014 in cases where the public

shareholding falls below twenty five per cent as a result of such scheme;

(b) the Securities and Exchange Board of India (Share Based Employee

Benefits) Regulations, 2014 in cases where the public shareholding falls below

twenty-five per cent, as a result of such regulations."

5. The procedure relating to voluntary delisting of a company's equity shares is governed

by the provisions of SEBI (Delisting of Equity Shares) Regulations, 2009. However one

of the essential conditions relating to granting permission to voluntarily delist is

recorded in Regulation 8(1B) of the Delisting Regulations, which reads as follows:

"(1B) The board of directors of the company while approving the proposal for delisting

shall certify that :

(i) the company is in compliance with the applicable provisions of securities laws;

(ii) the acquirer or promoter or promoter group or their related entities, are in

compliance with sub-regulation (5) of regulation 4;

(iii) the delisting is in the interest of the shareholders."

Further, regulation 25A reads as follows:

"Power to relax strict enforcement of the regulations.

25A. (1) The Board may, for reasons recorded in writing, grant relaxation from strict

enforcement of any of the requirements of these regulations, if the Board is satisfied that

the relaxation is in the interests of investors in securities and the securities market.

..."

6. I have perused the facts and circumstances of the case. I have also examined the

scope of the powers of the Board under Regulation 25A of the Delisting Regulations.

Under Regulation 25A, the Board has the power to relax strict enforcement of the

regulations, if it is satisfied that the relaxation is in the interests of the investors in

securities and the securities market and while doing so, the reasons for grant of

relaxation need to be recorded in writing. This would imply that the Board is

empowered to relax the rigors of the requirements under the Delisting Regulations

on a case to case basis, upon being satisfied that such relaxation would serve the

interest of investors of the company and the securities market as a whole.


Issues for consideration

7. The short question that arises in the context for consideration is whether the

company can be allowed to voluntarily delist under the provisions of the Delisting

Regulations while it is not in compliance with Rule 19A of SCRR, given the facts and

circumstances of the case? If yes, how can the interest of the public shareholders of

the company be protected?

8. MPS norms were framed with the objective of ensuring greater dispersed

shareholding in publicly traded companies and higher participation of non-promoter

shareholders. The objective has been clearly stated in the Press Release dated June

04, 2010, issued by the Ministry of Finance, Government of India, in inter alia the

following words: "A dispersed shareholding structure is essential for the sustenance

of a continuous market for listed securities to provide liquidity to the investors and to

discover fair prices. Further, the larger the number of shareholders, the less is the

scope for price manipulation."

9. Regulation 8(1B)(i) of the Delisting Regulations requires the company proposing to

make a voluntary delisting to certify that it is in compliance with “applicable

provisions of securities laws”. This provision, read with Rule 19A of the SCRR (also

recorded above), indicates that a company which is non-MPS compliant (thereby said

to be not compliant with “applicable provisions of securities laws”) cannot seek

voluntary delisting. In the context of consideration of such delisting applications

made by MPS non-compliant companies, it is relevant to make certain observations.

Firstly, delisting should not serve as an easy option that can be chosen by such

companies to avoid MPS non-compliance. At the same time, preventing delisting of

companies which are in a state of financial distress and/or having low public

shareholding stifles the interest of the public shareholders. Furthermore, voluntary

delisting is a preferable option from the perspective of investors as the public

shareholders get to participate in the reverse book building process to arrive at a fair

and acceptable exit price. In cases of non-compliance with MPS norms, SEBI in the

past, has allowed certain MPS-non-compliant companies to go ahead with voluntary

delisting, taking into consideration certain peculiar facts of the applicant company.

In fact, the powers conferred on SEBI under regulation 25A of the Delisting

Regulations to relax the applicability of provisions of the Regulations and Rule 19

(7) of the SCRR permitting SEBI to waive or relax the strict enforcement of listing

requirements under the SCRR is indicative of the legislative intent for SEBI to take


a pragmatic view of cases, keeping the interest of investors as the predominant

consideration. Therefore, there is a need to balance the interest of the public

shareholders vis-à-vis a strict interpretation of Regulation 8(1B)(i) of the Delisting

Regulations, so as to enable the shareholder to realize the best value of the shares

while allowing such relaxations in suitable cases. The relaxations given to such

companies to initiate voluntary delisting may accompany certain conditions in the

form of directions under Section 11B of the SEBI Act, 1992.

10. In the instant case, the immediate cause of the breach of MPS norms by the company

is the reclassification of ESOP Trusts as being non-public and non-promoter in

nature. This condition was introduced post the notification of the SBEB Regulations.

The relevant provisions of the regulations are as follows:

“Implementation of schemes through trust.

3.

(9) For the purposes of disclosures to the stock exchange, the shareholding of the

trust shall be shown as ‘non-promoter and non-public’ shareholding.

Explanation: For the removal of doubts, it is clarified that shares held by the

trust shall not form part of the public shareholding which needs to be

maintained at a minimum of twenty five per cent as prescribed under Securities

Contracts (Regulation) Rules, 1957.

These regulations make it clear that shares held by ESOP trusts can neither be

categorized as public nor as promoter held. Regulation 31(b)(iii) of the SBEB

Regulations as initially notified on October 28, 2014 mandated that companies

which are non-compliant with the MPS norms on account of the change in law would

have 5 years to increase their public shareholding i.e. companies would need to

comply by October 28, 2019. Vide Securities Contracts (Regulation) (Amendment)

Rules, 2015 notified with effect from February 25, 2015, Rule 19A(4) was inserted

mandating that the time for increasing public shareholding would be only 3 years

from the date of notification of the SBEB regulations. Subsequently, SEBI, vide

Securities and Exchange Board of India (Share based Employee Benefits)

(Amendment) Regulations, 2015, notified with effect from September 18, 2015, also

reduced this time period to 3 years. Thus, as of 2015, the period within which MPS

must be achieved was advanced to October 2017, thereby giving the company only

two more years to be compliant with MPS requirements.

11. I note that the current promoter of the company, i.e. the Applicant, became promoter

from 2010 pursuant to an open offer having acquired shares and taken control from


the erstwhile promoter of PTL. The company had repeated runs with financial losses,

having been under the BIFR framework at least once. The company's financial

performance continued to be poor even after its takeover by the applicant promoter.

From the records submitted by the company and other available records, it is seen

that the company has been making losses continuously and has negative net worth.

12. In the case of Polygenta, available records show that in 2014-15, post allotment of

convertible preference shares, promoter holding was at 75.43% i.e. an excess of

0.43%. This was rectified in 2017 by transferring the excess promoter holding to a

financial investor with SEBI approval. However as of October 2014, the company’s

ESOP Trust held 8.66% shares of the company. I note that prior to the SBEB

regulations, ESOP trust holdings constituted a legally valid component of public

shareholding. However, the Amendment rendered the company as being non-

compliant with MPS norms to the extent of 8.66%. This breach of MPS norms has

arisen due to the operation of law and is not a result of an intentional breach by the

promoter.

13. Considering that SBEB Regulations and SCRR afforded sufficient time period within

which any non-compliance of MPS can be remedied, the question that arises is

whether Polygenta’s non-compliance is justifiable in the facts and circumstances of

the case. While addressing this, it needs to be borne in mind, that the period for

remedying the breach in MPS norms, had been reduced by two years after the

reclassification was introduced. Therefore, the company, in 2015 had only 2 years

to identify potential means to reduce a sizeable portion of promoter shareholding.

The available records indicate that the company was in financial distress from 2014-

15 onwards. The applicant promoter has also been able to show from records that

the company’s management was unstable. Added to the above, I find merit in the

company’s additional submission that the employees would also not be interested in

the company’s shares due to the concomitant problem of disproportionately high tax

on shares the book value of which is very low. I also note that trades in the shares

of Polygenta during the last 5 years have not been more than 1 % of the outstanding

shares of Polygenta.

14. The company further stated that by voluntarily delisting the company, it would be

able to infuse equity capital by increasing promoter holding and reducing regulatory

costs thereby enabling a potential turnaround. For the public shareholders, the


reverse book building mechanism in voluntary delisting gives them an option to get

a price better than what may be available in an otherwise illiquid market. However

if the public shareholders foresee better financial future for the company, they would

be free not to participate in the voluntary delisting process. As per available records,

there are no investor grievances also pending against the company. Thus in my

opinion, voluntary delisting would be a better alternative in the investors’ interest,

when compared to the options of compelling MPS compliance through enforcement

measures or compulsory delisting.

15. Be it as it may, I have also noted that the company has not submitted any evidence

indicating efforts made to comply with MPS requirements in line with any of the

methods laid down in SEBI Circular No. CIR/CFD/CMD/14/2015 dated November

30, 2015. I also note that even though the ESOP Trust was created in February 2011,

the company has also not submitted any documentary evidence to indicate that it

has, in fact, framed an ESOP scheme and granted options to any employees. I have

also taken note of Clause 5.1.5 in the Trust Deed, which, empowers the Trustees to,

inter-alia, transfer the remainder of the Trust Property to any person with or without

consideration. Considering all the above facts, it cannot be ruled out that the Trust

was merely an entity created to bypass the MPS requirements and to park the excess

shares held by promoters.

16. The company, currently, has a public shareholding of 16.34% as against the

minimum requirement of 25%. In case of companies undertaking voluntary delisting

while being compliant with MPS requirements, the promoters are required to acquire

at least 15% of total shareholding from the public to deem the delisting offer to be

successful in terms of Regulation 17 of Delisting Regulations. In other words,

promoters of an MPS compliant company would need to acquire at least 60% of the

public shareholding (i.e.15% of total shareholding out of the 25% total public

shareholding), to make the delisting offer successful. However, in the instant case,

if the company is allowed to proceed with the delisting by treating ESOP Trust as

part of the promoter shareholding or if the Trust is allowed to tender shares to

promoters as part of delisting process, the promoters would have to acquire only

6.34% shareholding from public to reach the minimum threshold of 90% as provided

in Regulation 17 of Delisting Regulations, 2009. This, if allowed unconditionally,

would indirectly incentivize the MPS violation. Hence, it is appropriate to impose

certain conditions upon the company and promoters, while relaxing the

requirements for voluntary delisting, as indicated under the heading “Directions”.


17. Another major concern in case of a company getting delisted is whether the public

shareholders are given the fair price, especially when the shares are not widely

traded to reflect its actual worth. In the given case, the company is continuously loss

making and its shares are scarcely traded and the annual trading volumes during

the last few years have not touched 1 % of the outstanding shares. It is also observed

from the submissions of the company that a turnaround is possible with further

infusion of capital. I have also noted that the revenues of the company for the last 5

quarters ending June 2019 showed steady increase (increased from Rs.19.09crore

for the quarter ended June 2018 to Rs.30.02 crore for the quarter ended June 2019).

I have also noted that company’s quarterly losses have reduced from Rs.8.28crore

for the quarter ended June 2018 to Rs.1.65crore for the quarter ended June 2019.

Thus, the possibility of a turnaround in near future cannot be ruled out in the

instant case. In such a scenario, it becomes imperative that the public shareholders

opting for exit are paid fair value for the shares tendered by them, after taking into

account the value attributable to the possible turnaround in near future. Hence, I

find it appropriate to impose additional conditions with respect to valuation to

ensure that the public shareholders opting for exit are paid a fair price for their

shares.

18. The applicant has also prayed for issuing directions to BSE Ltd (“BSE”), to revoke its

order issued vide email dated October 26, 2017 levying penalty and ordering a

freezing of the shares of the applicant promoter. I note that the company has not

been compliant with the MPS norms and has not resorted to any of the methods

prescribed in SEBI circular No. CIR/CFD/CMD/14/2015 dated November 30, 2015

to comply with the MPS requirements. Accordingly, BSE has taken penal action as

stipulated in SEBI circular No. CFD/CMD/CIR/P/2017/115 dated October 10, 2017

for the said non-compliance. In this regard, in view of para 11 of the aforesaid SEBI

circular dated October 10, 2017, the applicant may approach BSE for suitable

relaxation. Upon receipt of such request, BSE may consider the same on merits.

Directions:

19. For the aforesaid reasons, in the interest of investors in securities and in exercise of

powers under sections 11(1) and 11B of the SEBI Act,1992 and regulation 25A of the

SEBI (Delisting of Equity Shares) Regulations, 2009, I find it appropriate to grant the

company i.e. Polygenta Technologies Ltd., relaxation from the applicability of regulation

8(1B)(i) (limited to the extent of compliance with minimum public shareholding norms) for


the specific purpose of seeking voluntary delisting of its equity shares, subject to the

following conditions:

(i) The Company is in compliance with provisions of all other applicable laws.

(ii) The Applicant shall initiate voluntary delisting of its equity shares within a

period of 6 months from the date of this Order.

(iii) The applicant shall obtain valuation of its equity shares from two

independent peer reviewed chartered accountants and the delisting price to

be paid to the investors, as discovered through reverse book building process

shall not be lower than the higher of the valuations so obtained.

(iv) The Applicant shall cause to publish a newspaper advertisement in one

national newspaper in English and in newspapers in local vernacular in each

State where its public shareholders are residing, as per the address

contained in its records.

(v) The advertisement as provided in Para (iv) above as well as the explanatory

statement to special resolution shall indicate the valuation obtained as per

Para (iii) above and shall also state that the higher of the price discovered in

reverse book building and the valuation as obtained in Para (iii) above, shall

be paid to investors, in the event of company proceeding with the delisting.

(vi) The offer price shall be paid to tendering shareholders only through banking

channels through crossed account payee cheque / crossed demand draft /

internet banking channels to enable audit trail.

(vii) In addition to compliance with the applicable provisions of Delisting

Regulations, the delisting offer shall be considered as successful only if the

promoters acquire at least 60% of the remaining public shareholding;

(viii) The shares held by ESOP Trust shall not constitute public shareholding for

the purpose of aforesaid acquisition of 60%;

(ix) Pursuant to delisting of Polygenta’s equity shares, the promoters shall

continue to accept shares tendered by any remaining public shareholder

holding such equity shares, for up to a period of two years from the date of

delisting, at the same price at which the earlier acceptance of shares was

made and in a manner that provides bank record of payment.

(x) Subject to the above, the Applicant shall comply with all other conditions,

including those pertaining to determination of the offer price, stipulated in

Chapter IV of the SEBI (Delisting of Equity Shares) Regulations, 2009.


(xi) Copy of this order shall also be displayed on the company’s website and the

web link thereto shall be included in the notice of special resolution sent to

shareholders.

20. The Application dated December 11, 2017 stands disposed of accordingly.

DATE: August 21, 2019 G. MAHALINGAM

PLACE: Mumbai WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

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