ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S UNIMERS INDIA LTD.
I was appointed as Adjudicating Officer by SEBI vide order dated November 30, 2004, to inquire into and adjudge the alleged contravention of Section 15C of SEBI Act, 1992 by Ms Unimers India Ltd. (hereinafter referred to as the company), in the matter of non redressal of the grievances of the investors.
NOTICE AND REPLY
A show cause notice dated December 7, 2004 was issued to the company in terms of provisions of Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995. In the show cause notice it was stated that the company did not redress the grievances of investors when called upon to do so by SEBI vide its letter OIAE/SK/19340/2004 dated August 31, 2004. Vide the said letter, SEBI informed the company that as on July 30, 2004, 86 complaints of the investors were pending for redressal and called upon the company to resolve the complaints.
Vide show cause notice cited, in view of the 86 unresolved complaints, the company was asked to show cause as to why an inquiry should not be held against the company in terms of Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 and why penalty should not be imposed on it under Section 15C of SEBI Act, 1992.
The company submitted its reply vide letter dated December 13, 2004 & December 17, 2004 and made the following submissions:
1. The Company is facing severe financial crisis and has approached Financial Institutions under CDR mechanism for restructuring its debts.
2. Despite such constraints, the Company is always endeavoring to service the debenture holders and hence the outstanding interest for 58 debenture holders aggregating to Rs. 86,060/- is being dispatched individually to them. Copies of the letters to the debenture holders along with the UCP (under certificate of posting) acknowledgement are enclosed.
3. Regarding the investor complaint for redemption, it is submitted that the Company’s debenture holders at their meeting held on 4th August, 2003 have rescheduled and extended the redemption instalments by one year each as under :-
Ist Instalment – 9th August , 2005 Rs. 30/-
2nd Instalment – 9th August , 2006 Rs. 35/-
3rd Instalment - 9th August , 2007 Rs. 35/-
At the same meeting, interest on debenture has been enhanced to 13% p.a. from the existing rate of 12.5%. A copy of the Notice to debenture –holder’s meeting and a certified true copy of the resolution passed at the meeting is enclosed.
4. The Trustees for the public debentures had instituted a Suit bearing No 771 of 2002 in the Bombay High Court claiming the entire redemption amount. The matter is sub-judice.
5. Since the redemption dates have been extended by the debenture holders and in view that the matter is pending before the High Court and is sub-judice, payment of any redemption amount prematurely before the stipulated dates of 9th August , 05, 9th August ,06 and 9th August , 07 cannot be made.
6. Since, the company has now resolved the 58 cases of non-payment of debenture interest and 11 cases pertaining to non-receipt of Share/Debenture Certificate in exchange, transfer, conversion etc which have been fully resolved by the Company/ RTA and considering its submissions regarding the constraints in early redemption of the debentures, it is submitted that no investor grievances remain pending to be resolved. It is requested to delete 133 cases of Investor’s Grievances, as aforesaid and confirm that no investor grievances are pending for being resolved and disposed.
7. In view of these submissions, it is prayed that the show cause notice dated 7th December , 2004 may please be closed and therefore no further enquiry be held against the company under Rule 4 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer)Rules,1995.
Subsequently upon consideration of the submissions of the company, an opportunity of personal hearing was granted to it. Shri P.D. Phathak, Company Secretary attended the hearing on December 27, 2004 and made their submissions. It was further submitted in the personal hearing that the details pertaining to redressal of the 86 complaints cited in the show-cause notice dated December 7, 2004 will be submitted within two days. Subsequently, the company vide its letter dated December 29, 2004 forwarded the details pertaining to the action taken on 86 complaints mentioned in the show-cause notice.
APPRECIATION OF EVIDENCE AND FINDINGS
Vide letter OIAE/SK/19340/2004 dated August 31, 2004, SEBI has informed the company that 86 complaints of investors are pending against the company as on July 30, 2004 and called upon it to resolve these grievances. Out of these 86 complaints, 51 complaints related to non receipt of redemption amount of debentures and 24 complaints related to non receipt of interest on debentures and 11 complaints pertain to matters like non receipt of dividend on shares, non receipt of share certificate etc.
In this regard the provisions of section 15 C of the SEBI Act reads as under
“If any listed company or any person who is registered as an intermediary ,after having been called by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary 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.”
It is noted from the analysis of pending complaints, that majority of the complaints relate to interest on debentures and redemption amount on debentures. It is pertinent to note that the company was informed the details of the 86 complaints as per SEBI letter OIAE/SK/19340/2004 dated August 31, 2004. Vide the said letter the company was advised to appraise the steps being taken by it to redress the pending grievances and also the time frame within which the company proposed to resolve them.
It is noted from the submissions of the company that it was facing severe financial crisis and had approached Financial Institutions under CDR mechanism for restructuring its debts. As per the details provided by the company vide its letter dated December 13, 2004, the outstanding interest for 58 debenture holders aggregating to Rs. 86,060/- is being dispatched individually to them. Copies of the letters to the debenture holders along with the UCP acknowledgement are enclosed in the reply to the show-cause notice.
It is noted from the resolutions passed by the company that its debenture holders at their meeting held on 4th August, 2003 have rescheduled and extended the redemption installments by one year each as under :-
1st Installment – 9th August , 2005 Rs. 30/-
2nd Installment – 9th August , 2006 Rs. 35/-
3rd Installment - 9th August , 2007 Rs. 35/-
In view of the resolution passed by the debenture holders, the pending complaints regarding non redemption of debenture as on 30/7/2004 may be treated as closed as the redemption schedule of the debentures has been extended as stated in the resolution.
Further, It is pertinent to note that the Trustees for the public debentures had instituted a Suit bearing No 771 of 2002 in the Bombay High Court claiming the entire redemption amount and the matter is sub-judice.
The company has submitted that interest on debentures have been paid and enclosed copies of letters written to the individual debenture holders. Further date of redemption of debentures has been extended as per resolution passed at the debenture holder’s meeting. This provides satisfactory explanation for the 24 complaints on non receipt of interest on debenture and 51 complaints on non receipt of redemption amount of debentures.
With regard to other complaints, the company submitted that it did not receive copies of complaints regarding 5 complaints on non receipt of share certificate in exchange of allotment letter, share certificate after transfer and share certificate after conversion and in this regard, the company already intimated the complainants to forward them the copies of the complaints. Further with regard to remaining 6 complaints, the company submitted that they had replied to the investors.
It is noted that the company has resolved the cases of non payment of interest on debentures although belatedly. It is further noted from the submissions that the financial position of the company was not sound which resulted in non payment of interest and redemption proceeds. As far as the redemption of debentures is concerned it is noted that the debenture holders vide their resolution dated August 4, 2003 rescheduled the redemption of debentures. In this regard it is also noted that debenture trustees have filed a suit seeking payment of debenture proceeds and the matter is sub-judice.
It is also contended by the company that the default had arisen on account of severe financial difficulties faced by the company. In this regard, it would be appropriate to refer to the order passed by the Hon’ble Securities Appellate in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) dated 9.8.04 wherein it was stated that the capacity to pay the penalty also has to be considered while imposing penalty. The following observations of the Hon’ble Tribunal are noted.
“Although Section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in 15J viz., (a) amount of disproportionate gain (b) amount of loss caused to the investor and (c) repetitive nature of default.”
In view of the fact that the debenture holders have agreed to defer redemption and also taking into account the fact that litigation pertaining to redemption are subject matter pending before the Hon’ble Court, it is not just and proper to impose penalty for the said default.
ORDER
Considering the factors such as the company had resolved the cases of non payment of interest on debentures though belatedly, poor financial position of the company which resulted in non payment of interest and redemption proceeds and also the subsequent resolution dated August 4, 2003 by the debenture holders rescheduling the redemption of debentures, I am of the view that no penalty needs to be imposed in terms of the provisions of Section 15C of SEBI Act, 1992 on the company Unimers India Ltd. .
| Date: December 31, 2004 |
Biju S. |
| Place: Mumbai |
Adjudicating & Enquiry Officer |