'Shapoorji Pallonji must give minority shareholders exit option'

Shapoorji Pallonji Group, the promoters of Sterling and Wilson Solar, have violated various sections of Companies Act, and SEBI Act by not utilising the IPO proceeds for the purposes that they were raised for, according to corporate governance advisory firm, Ingovern.

"The amounts raised in the IPO have been put to use by the promoters elsewhere. Hence their explanation for inability to repay loans doesn't hold any ground and contrary to the objects of the offer," Ingovern said, slamming the group.

The minority shareholders must be allowed an exit option, the report said. "In this case, where shareholders have suffered significant erosion in value of their holdings solely due to the non-utilisation of funds as per the objects of offer of the IPO, SEBI must force the promoters to provide an exit offer to shareholders at a price as per SEBI (ICDR) Regulations," the report said.

SEBI (ICDR) Regulations, 2018 allow for the dissenting shareholders to be provided an exit offer by the promoters, in cases where there is a change in objects of the issue/ offer in the IPO prospectus.

"It is evident that the promoter - Shapoorji Pallonji Group - has violated various sections of Companies Act, SEBI Act and provisions of SEBI PFUTP and ICDR Regulations by not utilising the IPO proceeds for the purposes that they were raised for. This has resulted in a significant loss of trust of the promoters as well as a significant erosion of wealth of minority public shareholders", the report said.

Shriram Subramanian, founder and MD of InGovern said: "Overall, a huge loss of reputation for the promoters of the SWSOLAR, the SP group. With substantial - over Rs 1,700 crore - erosion of wealth of public minority shareholders, and loss of investor trust for a group that seemed to have a stellar reputation. In order to redeem this reputation, the SP group should provide an exit option for public minority shareholders. This is a demand from minority shareholders and SEBI should force the promoters to provide and exit option for minority shareholders."

The company was listed through an offer for sale of shares by the promoters, belonging to the Shapoorji Pallonji Group. The offer for sale of shares resulted in promoters raising Rs 2,850 crore through the IPO. While the objects of the IPO were to enable the promoters to repay loans amounting to Rs 2,563 crore to SWSOLAR within 90 days of listing, the Company has received only Rs 1,000 crore on December 31, 2019, i.e., 133 days after listing.

This non-fulfilment of obligations by the promoters as per the objects of the offer has resulted in a loss of over 60 per cent in investment value for IPO investors as stock price has fallen from the issue price of Rs 780 to Rs 310 as on January 6, 2020, resulting in a loss of Rs 1,700 crore (approx $250 million) for public minority shareholders.

Ingovern has said that shareholders can also file a class-action suit against the Company and its promoters. A class action suit can be filed by shareholders if they of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members. Section 245 of the Companies Act, 2013 empowers shareholders to file class action suits with the NCLT.

To file a class-action suit, shareholders have to fulfil either of the two eligibility conditions. Any 100 or more members of the company, or members equal to or exceeding 10 per cent of the total number of its members, whichever is less, or any member or members singly or jointly holding atleast 10 per cent of the issued share capital of the company.

Pointing the accountability of the board of directors, the report said that a board meeting of SWSOLAR was held on November 14, 2019 where the Board considered and approved the request of the promoters to consider a revised repayment schedule for the balance outstanding amount and authorised the Audit Committee to work with the promoters to draw up a plan by December 31, 2019 for repayment of the loan.

The Audit Committee of the Board comprises of Rukhshana Mistry as Chairperson, and Khurshed Daruvala and Keki Elavia as members.

"It is beyond understanding as to how the Audit Committee and the Board accepted this absurd explanation of the promoters when the latter already had received funds from the IPO proceeds and did not have the need to access the credit markets to arrange funds to repay loans owed to SWSOLAR," Ingovern said.

"Hence, the Board and the Audit Committee should also be held liable for their actions in failure to protect SWSOLAR's as well as its public minority shareholders' interests by approving the revised repayment schedule proposal of the promoters," it added.

Ingovern has noted several lapses by the promoters. It said the promoters have not fulfilled their obligations to repay loan amounts within 90 days of listing.

In addition, they changed the objects of the offer, after the IPO, without seeking approval from all shareholders.

The promoters also made misstatements in the prospectus about the objects of the offer. This is evident through the explanation provided by the promoters regarding inability of repayment of loans in the agreed timeframe, it added.

"Siphoned off funds raised from IPO and used it elsewhere than that stated in the objects of the offer; and wilfully violated various sections and provisions of Companies Act and SEBI Guidelines by doing all of the above," Ingovern said.

"It looks like the debt situation of SWPL had deteriorated to the extent its debt obligations were taken over by the promoters. And even at the time of the IPO, the promoters knew the overall debt scenario and knowingly went in for the IPO," it said.

( With inputs from IANS )