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In the matter of Core Healthcare Limited

Dec 14, 2005
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Orders : Orders of SAT

IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 

Appeal No: 87 of 2005

Date of Hearing

24/11/2005 

Date of Decision

14/12/2005

 

 

 

Appellant – Represented by:

Core Healthcare Limited

Mr. Umesh Ved, Company Secretary

Versus

 

Securities & Exchange Board of India

Respondent- Represented by

 

 Mr. Ravi Hegde, Advocate

       

 

 

CORAM

 

          C. Bhattacharya, Member

         

 

 

 

1.                  Appeal taken up for disposal with the consent of both the parties.

2.                  The appeal has been filed by the appellant against the adjudication order under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by Adjudicating Officer) Rule, 1995. It was alleged that the company did not redress the grievance of the investors when called upon to do so by SEBI vide its letter dated 2nd September, 2004. As on 1st July, 2004, 84 complaints of the investors against the company were pending with SEBI. Many of them were outstanding for quite long time.  SEBI had, by its above referred letter dated 2/9/2004 called upon the company to redress the grievance of the investors. As the Company failed to redress the grievance of the investors adjudication proceedings were initiated against it vide its order dated 28/11/2004. A show cause notice was issued asking the company to show cause as to why an enquiry should not be held against the company in terms of Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and that why penalty should not be imposed on it under Section 15C of the SEBI Act, 1992.

3.                  The appellant did not reply to the show cause notice. However, a hearing was granted on 25/01/2005. The representative of the appellant stated that out of 84 complaints which were pointed out by SEBI as not redressed, 53 complaints were disposed of.  Copies of few complaints were not traceable. Most of the remaining complaints related to non-payment of debenture interest and redemption of debenture. The representative of the appellant submitted that the company has not been doing well for long time. Only skeleton staff is now maintained and the company has made a reference to the Board of Industrial and Financial Reconstruction (BIFR) to declare it as a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1995 and its reference has been registered as case No. 32 of 2004 dated 19/01/2004. The company has drawn up rehabilitation-cum-revival scheme which will be submitted to the BIFR and if approved by the BIFR, will be taken up for implementation.  Till then the company’s financial position does not permit any payment to debenture holders and those investors are requested to bear with the company.

4.                  The impugned order also notes that as many as 15 complaints were pending against the company which related to delay in receipt or non-transfer of share certificates by the investors.  It was also noted that some of the complaints were pending since 1994 and no proper explanation has been granted by the company.  Having regard to such failures on the part of the company to redress the grievance of the investors the Adjudicating Officer by an order dated 31/03/2005 imposed a penalty of Rs. 1,00,000/-. Being aggrieved by this order the appellant have filed this appeal.

5.                  The representative of the appellant made oral submission during the hearing that the company’s case is before BIFR and its finances are in vary bad shape. Barring a handful of staff to attend the essential administrative job all others had been sent home and the company could not comply with Regulation 53A as it was unable to bear the financial burden of more than Rs. 25,000/- per month which was necessary to maintain this facility, which the company could not afford. The company has not yet been able to achieve full compliance of Regulation 53A.  The representative of the appellant repeatedly mentioned during the hearing that the appellant has since got its case registered with BIFR and is trying to formulate a revival-cum-rehabilitation package. It is not in a position to undertake the monthly expenditure which will be involved in complying with this requirement. As such there is continuing default on the part of the appellant. However, on being directed by the Tribunal to submit an affidavit stating these facts the appellant has submitted an affidavit dated 12th December, 2005 where there is no mention about financial distress and the company having applied to BIFR or that any rehabilitation scheme is under formulation.  In the affidavit the appellant has stated as follows:

“4.       The Company had become sick in the past and had no resources including financial and otherwise to deploy for engaging the services of the Share Transfer Agent which is about Rs. 25,000/- p.m.

“5.       The Composite Scheme of Compromise and Arrangement filed before the Hon’ble High Court for demerger as mentioned in para 3of this affidavit has been approved by the Members of the Company and the Financial Institutions which has granted term loans to the Company and the meeting of the Bankers of the Company has been adjourned at the instance of Bankers and the meeting is scheduled to be held on 28th December, 2005.

“6.       The equity shareholders of M/s. Nirma Limited (the resulting company) has also approved the Composite Scheme of Compromise and Arrangement in their meeting held on 29th November, 2005.

“7.       The Residual undertaking of the Company as per the estimates made by the promoters and the management would be functioning at a level which will be satisfying the expenses to be incurred by the Company for complying the regulations as prescribed by Securities and Exchange Board of India including that of appointment of Common Agency for undertaking Share Transfer Job.

“8.       The said regulations of Securities and Exchange Board of India shall be complied on the final disposal of the petition made for the Composite Scheme of Compromise and Arrangement.”

6.                  It is observed from the impugned order that adjudicating officer had referred to the Tribunal’s judgment in appeal No. 88 of 2004 in the matter of Alkan Projects Pvt. Ltd. Vs. SEBI and has taken note of the fact that while imposing penalty the capacity to pay the penalty also has to be considered. The Adjudicating Officer also notes in the order that while the failure on the part of the company to redress the grievance of the investors are viewed seriously the poor financial status of the company warrants a lenient view to be taken with regard to the quantum of penalty. Viewed from this angle I am of the view that even a sum of Rs. 1,00,000/- imposed as penalty is high for this company whose finance are in a very bad shape. The order is therefore modified to the extent that the penalty is reduced to Rs. 50,000/-. The impugned order is modified accordingly.

7.                  No order as to costs.

 

 

(C. Bhattacharya)

Member

 

Place: Mumbai

Date:   14/12/2005