SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
Under Rule 5(1) of SEBI (Procedure for holding inquiry and imposing penalties by adjudicating officer) Rules, 1995 in the matter of M/s KLG Systel Ltd.
1.0. The undersigned was appointed as the Adjudicating Officer by the Securities and Exchange Board of India (hereinafter referred to as “SEBI” / “Board”) vide an order dated June 30, 2004 to inquire into and adjudge under Section 15A (b) of SEBI Act, 1992 for alleged non-compliance of Clause 51 of the Listing Agreement by M/s KLG Systel Ltd. (hereinafter referred to as “the company” / “KSL”) read with Regulation 17(3) {erstwhile Regulation 18(3)}of SEBI (Central Listing Authority) Regulations, 2003 (hereinafter referred to as “CLA Regulations”).
2.0. SEBI, vide circular no. SMD/Policy/Cir-13/02 dated June 20, 2002, had directed stock exchanges to include Clause 51 in the Listing Agreement requiring the companies specified from time to time to upload various financial statements / documents on the EDIFAR web site, www.sebiedifar.nic.in setup by SEBI in association with National Informatics Centre (NIC).
3.0. It has been stated that KSL was required to upload the required documents under EDIFAR with effect from quarter ending September 2002 as stipulated vide SEBI circular no. SMD/Policy/Cir-23 /02 dated September 17, 2002.
4.0. It had been stated that the company had failed to register with the website for uploading the financial statements / documents and also failed to upload the following documents:
(i) annual report inclusive of the balance sheet, profit and loss statement, director’s report and auditor’s report for the financial year 2002-03
(ii) cash flow statement for the financial year 2002-2003,
(iii) shareholding pattern statement as on September 30, 2002, December 31, 2002, and March 31, 2003,
(iv) Corporate Governance report,
(v) quarterly financial statements for the quarter ending September 30, 2002, December 31, 2002 and March 31, 2003 and;
(vi) statement of actions taken against the company by any regulatory agency during the period upto March 31, 2003.
5.0. After being appointed as the Adjudicating Officer, a notice in accordance with Rule 4 of SEBI (Procedure for holding Enquiry and Imposing Penalty by Adjudicating Officer) Rules 1995 was served on KSL vide letter no. Adj./AS/2004/21142 dated September 9, 2004 to show cause within 15 days as to why an enquiry should not be initiated against it to adjudicate upon the alleged violations under Section 15A(b) of the SEBI Act. The said notice provided the details of the violations alleged to have been committed by the company. The notice also referred to the previous show cause notice no. SMD/POLICY/EDIFAR/12963/2003 dated July 4, 2003 issued by SEBI to the company for the said alleged violations.
6.0. The company, vide its letter dated September 20, 2004 submitted its reply to the show cause notice. The company was also given an opportunity of personal hearing on November 8, 2004 which was rescheduled for November 16, 2004 on the company’s request. Shri S P Bathla, Company Secretary, appeared on behalf of the company on Nov. 16, 2004 and made submissions. The company made further submissions vide its letters dated November 17 and 22, 2004.
Before I proceed to deal with the case, it would be pertinent to make a reference to the relevant provisions of the SEBI Act and CLA Regulations as alleged to have been contravened by KSL.
7. 0 Relevant Provisions of Law
7.1 Regulation 17(3) of SEBI (Central Listing Authority) Regulations, 2003 states as
under:
“If a company or other body corporate, mutual fund or collective investment scheme fails to comply with these regulations, the listing conditions or the listing agreement or neglects to furnish any information or documents, which are required to be furnished to the Board, to the Authority or to an exchange as per these regulations, the listing conditions or the listing agreement, it shall be liable to penalty as specified in Section 15A or Section 15HB of the Act, to be imposed in accordance with the procedure prescribed under Chapter VI A of the Act.”
7.2 Section 15 A (b) of SEBI Act states that
“If any person, who is required under this Act or any rules or regulations made thereunder,-
to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified therefor in the regulations, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.”
8.0 REPLY
8.1 In its reply dated September 20, 2004 the company stated that due to new system of electronic filing and by inadvertence, the filing of required information could not be done properly and in time. It was further submitted that the Company had no intention to conceal any information required by law. KSL further submitted that as on date it had filed the required information, statements and reports on the EDIFAR system and requested for condoning the delay in filing the above information.
8.2 During the personal hearing, Shri Bathla, authorized representative of the company submitted that the company was notified by BSE regarding the inclusion of its name for filing under EDIFAR on September 23, 2002 and the company got registered under EDIFAR on October 26, 2002. A copy of e-mail dated October 26, 2002 from NIC intimating KSL of their USERID and password was also submitted by Shri Bathla.
8.3 Further, Shri Bathla stated that he had joined the Company as its Company Secretary on July 8, 2004 and had been regularly uploading the required documents and statements since August 20, 2004. He also stated that prior to his joining, the uploading was not regular mainly due to loss of password and as on date all information upto quarter ending September 2004, except Annual Financial Statements for 2002-03 and 2003-04 had been uploaded on the EDIFAR site. A statement taken from the EDIFAR site was submitted in support of the contention.
8.4 With regard to the annual financial statements, it was submitted that there was some system related problem due to which they had been unable to upload the same. It was explained that every time the company tried to upload the annual financial statements, the system required the company to first complete the data for the previous quarters. It was further stated that the only quarterly statement that had not been uploaded was of June 2002 which the system did not permit it to submit data for. The company representative informed that the problem had been reported on EDIFAR site on November 15, 2004, which had been acknowledged by NIC.
8.5 Shri Bathla stated that the uploading was started on March 05, 2003. He reiterated that possible reasons for delay in filing of information were that the company had lost its password and that the previous Company Secretary was with the company for a period of 8 months only.
8.6 In his statement, Shri Bathla also submitted that the Company had no intention to conceal any information from the investors or regulatory authorities and KLG is regularly furnishing the required Quarterly / Annual statements to Stock Exchanges and publishing the results in newspapers also. He further mentioned that the company was updating its website on a regular basis.
8.7 During the hearing, Shri Bathla was asked to explain the reasons for not replying to SEBI show cause notice dated July 4, 2003. He promised to check and revert in this regard. Subsequently, vide its letter dated November 22, 2004, the company submitted that it had not received the above mentioned show cause notice dated July 4, 2003 from SEBI. It further reiterated that the delay in uploading the necessary information on the EDIFAR site was technical problem due to loss of password provided by NIC and in this regard, the company had communicated with the NIC officials through e-mail. It further stated that as the Registered office of the company had shifted in January 2004 and the company had replaced its server, the said correspondences were not available with the Company.
8.8 The company vide its letter dated November 17, 2003 furnished its annual report for the financial years 2002-03 and 2003-04.
9.0 FINDINGS
9.1 It is observed that the company was notified of its obligations of filing under EDIFAR on 23.09.2002 which has been acknowledged by the company. As informed, it got registered under EDIFAR on 26.10.2002.
9.2 From the statement of the status of reports and documents submitted by the company as obtained from the EDIFAR site on November 16, 2004, it is noticed that the company had filed its quarterly statement, segment statement and shareholding pattern for the quarters ending September 2002 and December 2002 on March 5 and 6, 2003. The quarterly statement for March 2003 was filed on January 3, 2004.
9.3 It has been further observed that a) the said financial statements for the quarters ending March 2003, September 2003, December 2003, March 2004, June 2004 and September 2004 have been uploaded on the EDIFAR site in August 2004, September 2004 and October 2004. b) the Annual reports, Balance sheet, Cash Flow document, Corporate Governance Report and Profit & Loss Account for the financial years 2002-03 and 2003-04 have been uploaded in September 2004 and in November 2004 respectively.
9.4 It is clear that there has been considerable delay in uploading of the required information on EDIFAR website. The company became aware of its obligation for filing under EDIFAR in September 2002. The compliance was initiated six months later from March 2003 but was not regularly maintained and there were delays in uploading of information as detailed in para 9.2 and 9.3.
9.5 The company’s submission that the delay in filing of information was due to a technical problem and a loss of password does not absolve the company from its obligation. The company’s contention that it had corresponded with NIC in the matter is not substantiated. It seems that the company did not make proactive efforts to get a new password from NIC. It is also noted that the company has reported its problem in uploading annual financial statements on the website to NIC only on November 15, 2004, i.e. after the initiation of Adjudication proceedings.
9.7 In terms of the provisions of Section 15J of SEBI Act, 1992, the amount of gain to the company as a result of non filing under EDIFAR cannot be quantified. The amount of loss caused to investors due to non-filing under EDIFAR is also difficult to quantify.
9.8 Thus, while the delay by the company in meeting its obligation to upload information under EDIFAR system is established leading to non-compliance of Clause 51 of the Listing Agreement read with Regulation 17(3) {erstwhile Regulation 18(3)}of CLA Regulations, it is noted that a) filing under EDIFAR is only one of the modes of making the information public and available to the investors b) the company has claimed to have met its disclosure requirements with competent authorities through physical filings, which has not been contested and c) no complaints have been produced in regard to disclosures made through physical filings or EDIFAR system d) from the company’s submissions and status of reports and documents submitted by the company as obtained from the EDIFAR site, it appears that the company made some efforts in the past for uploading and has now started complying with the requirements under EDIFAR. Therefore, a lenient view can be taken against the company for its delayed compliance. I therefore find this a fit case for imposing only a token penalty.
10.0 ORDER
Keeping in view the provisions of the SEBI Act, 1992, factors as listed in Section 15J of the said Act, the above facts and circumstances of the case, findings as recorded above and Rule 5(2) of the SEBI (Procedure for holding inquiry and imposing penalty by Adjudicating Officer) Rules, 1995, I am satisfied that a penalty of Rs. 10, 000/- (Rupees Ten thousand only) is appropriate in the case.
I hereby impose a penalty of Rs. 10,000/- on M/s KLG Systel Ltd. It shall pay this penalty by way of demand draft / pay order in favour of ‘SEBI – Penalties Remittable to the Government of India’ payable at Mumbai within 45 days of receipt of this order. The said demand draft shall be sent to ‘Ms. Neelam Bhardwaj, Deputy General Manager, Division of Issues and Listing, Corporate Finance Department, Securities and Exchange Board of India, Mittal Court, B-Wing, 224, Nariman Point, Mumbai.-400 021’.
| Date: December 28, 2004 |
Amarjeet Singh |
| Place: Mumbai |
Adjudicating Officer |