SAT rejects Gillette India appeal in shareholding norms case

In a setback to Gillette India , the Indian arm of the world's largest consumer goods company Procter and Gamble, the Securities Appellate Tribunal or SAT has dismissed the company's appeal against Sebi for alleged violation of the market regulators minimum public shareholding norms. SAT also vacated the interim relief granted earlier to the company on May 30th, 2013.Men’s grooming product maker Gillette India had sought to meet the 25% minimum public shareholding threshold by reclassifying its promoter shareholding as non-promoter shareholding but its proposal was rejected by Sebi as the regulator felt the route intended to circumvent the guidelines and was not in line with the "spirit" of the norms. Sebi had argued that the Gillette proposal did not talk about offering shares to the public and would not create the dispersed shareholding structure essential to provide liquidity to the investors and discover the fair price.On Wednesday, while passing an order, SAT member Jog Singh termed the proposal a " contentious and circuitous method which is against the spirit of the law". The tribunal further said that " the appellant seems to have overlooked, whether deliberately or inadvertently, the fact that the underlying philosophy behind the requirement of a minimum public holding of 25% is prevention of concentration of shares in the hands of a few market players by ensuring a sound and healthy public float to stave off any manipulation or perpetration of other unethical activities in the securities market which would unfortunately be the irrefragable consequences of the reins of the market being in the hands of a few."The tribunal also pulled up Gillette India for delaying the proposal to achieve the minimum public shareholding saying that the company " waited till the fag end of the window period of 3 years provided to listed companies to ensure adherence with the regulation." "We are looking into the order in detail, and remain committed to complying with the new law and engaging with SEBI to achieve compliance with the minimum 25% public shareholding requirement norm,” said Pand G spokesperson responding to specific queries."This order upholds stronger corporate governance principles and is a signal to India Inc and MNC's that the regulations apply to all equally," says Akil Hirani, Managing Partner, Majmudar and Partners.The Gillette promoters hold 88.76% according to exchange filings. According to the three-tiered formula of the company, firstly the Indian promoters ( SK Poddar Group) would transfer a 4% stake to parent company Procter and Gamble at a 25% premium for giving up control and certain statutory rights.Then the shareholder agreement between Pand G and Poddar Group would be terminated. and finally, Pand G would sell 4.9% through OFS to bring down the total promoter holding to 75%. In response to these claims, SAT had earlier observed that Sebi should examine the shareholding patterns of the relevant entities.