sebi:Order/SM/AD/2023-24/28999

SEBI · SEBI · 2023-07-20 · Soma Majumder, Adjudicating Officer

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Facts / Headnote

Adjudication proceedings initiated vide SCN dated July 20, 2023 disposed of without imposition of any penalty

Provisions invoked

• s. 15
• s. 15H

Regulations

• Reg. 26(6)
• Reg. 12(1)

Parties

• TCNS Clothing Co. Ltd.

Holding

The allegation that TCNS Clothing Co. Ltd. violated Regulation 26(6) of LODR Regulations was not established, and the adjudication proceedings initiated vide SCN dated July 20, 2023 stand disposed of without imposition of any penalty.

Full text

Adjudication Order in the matter of TCNS Clothing Co. Ltd. Page 2 of 8 inquire into and adjudge under Section 15HB of SEBI Act for the alleged violation of Regulation 26(6) of LODR Regulations by Noticee.

Adjudication Order in the matter of TCNS Clothing Co. Ltd. Page 3 of 8 7. Thereafter, Noticee filed its reply to the SCN on August 03, 2023. The submissions made by Noticee in its aforementioned reply is summarised herein below: a) Upside Agreement was entered at the time when Noticee was unlisted and hence the provisions of Regulation 26(6) of LODR Regulations was not applicable to the Noticee with respect to Upside Agreement. b) There has never been any transaction undertaken pursuant to the Upside Agreement among the shareholders either by way of transfer of shares or in any other manner. c) Also, pursuant to the Share Purchase Agreement dated May 5, 2023 with ABFRL Upside Agreement has been terminated vide Termination Agreement dated July 31, 2023. A disclosure regarding the same has been provided to the Stock Exchanges in accordance with Clause 30 and 30A of LODR Regulations. d) The Company, in terms of the requirements under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, duly disclosed the information regarding the Upside Agreement in the Red Herring Prospectus dated July 8, 2018 and Prospectus dated July 24, 2018 under the head ‘Material Agreements’ on page 123 in both documents. e) Regulation 26(6) of the SEBI LODR requires prior approval of the Board, as well as public shareholders of a listed company by way of an ordinary resolution, for ‘entering’ into any Agreement specified under Regulation 26(6). Therefor

Adjudication Order in the matter of TCNS Clothing Co. Ltd. Page 4 of 8 the public shareholders for approval by way of an ordinary resolution in the forthcoming general meeting. g) There is no specific provision in Regulation 26(6) of LODR Regulations which provides that a Shareholder Agreement which was entered into prior to listing of a company would, post listing, require any approval from the Board or public shareholders of such company and hence the Company did not take any approval from the Board or public shareholders of the company post the listing of its shares on July 30, 2018. A reference may also be taken of Regulation 12(1)(ii) of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, which deals with Pre-IPO employee schemes and in this relation it clearly specifies that prior to issue of any shares under the Pre-IPO scheme, such Pre-IPO scheme need to be ratified by its shareholders subsequent to the IPO. From this, we understand that SEBI has, wherever required, included specific provisions which a company needs to follow post IPO. However, evidently no such provision has been incorporated in relation to obligations under Regulation 26(6) of LODR Regulations.

Source: SecMarx — sebi:Order/SM/AD/2023-24/28999. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.