SECURITIES AND EXCHANGE BOARD OF INDIA
ADJUDICATION ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
READ WITH SECTIONS 15C OF THE SEBI ACT, 1992
AGAINST
M/s RICHMEN SILKS LIMITED
FOR FAILURE TO REDRESS INVESTOR GRIVIENCES
1.0 BACKGROUND
1.1 Securities and Exchange Board of India (hereinafter referred to as the ‘SEBI’) received investor complaints against the M/s Richmen Silks Limited (hereinafter referred to as the company) in the matter of shares certificates, dividend and refund orders. These complaints were forwarded to the company for redressal. Vide letter dated 23rd December 2003, SEBI informed the company that there were 112fcomplaints pending for redressal and a list of the pending complaints was also forwarded.
1.2 The company was forewarned that in case of failure to redress the investor grievances SEBI will be compelled to take penal action against the company under Section 15C of the Securities and Exchange Board of India Act, 1992 (hereinafter called as the ‘SEBI Act’). The company was called upon to redress the grievances and inform the same to SEBI within 30 days thereof.
1.3 As the company failed to redress the grievances of the investors, the matter was referred for adjudication vide SEBI order dated 10.03.2004.
2.0 SHOW CAUSE NOTICE AND REPLY
2.1 Accordingly, a Show Cause Notice dated 24.03.2004 under Rule 4(1) of the SEBI (Procedure for holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 was issued to the company asking them to show cause as to why Adjudicating proceedings should not be held against them for the alleged violation of section 15 C of the SEBI Act. The company was advised to make their submissions, if any, along with supporting documents, within 14 days. The company did not submit any reply to the show cause notice. Vide letter dated June 10, 2004 sent by Registered Post with AD, the company was given an opportunity to appear before the adjudicating Officer on 13.07.2004 for a personal hearing. Though the company received the show cause notice on 16.6.04, the company did not avail the opportunity and failed to appear for personal hearing. Again, another opportunity of personal hearing was given vide letter dated 14th July 2004 sent through Registered Post with AD. It was also informed in the said letter that if the company fails to attend the proceedings on the said date, the same will be held ex-parte. Though the company received the said letter on 17th July 2004, it again failed to appear for personal hearing.
A fax message dated 17.7.04 was received on 20.7.04 seeking adjournment on the ground that the authorized officer was not available. Since, no good and sufficient grounds were adduced for seeking another adjournment and as it was already informed that the matter would be proceeded ex-parte in case of non appearance, the proceedings were held ex-parte since despite affording fair and reasonable opportunity, the company failed to avail the same and did not attend the adjudication proceedings.
3.0 APPRECIATION OF EVIDENCE AND FINDINGS
3.1 SEBI vide its letter no SRO/PMD/IGGD/EIF/2003/20/1640 dated 23.12.03 has called upon the company to redress 112 complaints of the investors that were pending as on the said date within 30 days that failing which action would be initiated under section 15 C of SEBI Act, 1992. The company failed to respond to the above letter. Thereafter, the matter was referred for adjudication vide SEBI’s order dated 104.03.04 by the competent authority for adjudicating the matter under Section15 C of SEBI Act, 1992.
3.2 List of 112 complaints that were not redressed by the company were sent to the company both by SEBI vide its letter cited and also by the Adjudicating Officer vide show cause notice dated 24.3.04. Out of 112 complaints of the investors that were not resolved, 95 cases relate to Type III Category i.e. non-receipt of share certificates by investors after transfer, transmission, etc. 11 cases relate to non-receipt of dividend by the shareholders.
3.3 The company neither replied to the letter dated 23.12.03 of SEBI calling upon it to redress the grievances of investors nor did it reply to the show cause notice issued by the Adjudicating Officer. Several opportunities of personal hearing given by the Adjudicating Officer were also not availed of. The matter is, therefore, disposed off as per material on record. From the material on record, it is seen that some of the complaints were pending for over 6 years. As seen earlier 95 out of 112 complaints relate to non- transfer of shares sent for transfer, transmission etc. by the investors.
3.4 In terms of Section 113 of the Companies Act, 1956, shares sent for Registration shall be registered within 2 months after the application for the registration of transfer of such shares is received by the company. There is no material justifying non transfer of shares by the company in terms of the Companies Act, 1956 in any of the 95 cases referred to it by SEBI. In fact, the company did not submit any reply. Non transfer of shares in favour of the investors will deprive them of an opportunity to sell them at an opportune time.
3.5 In this connection, reference may be made to SEBI Circular SMD/Policy/ Cir-10/2002 wherein the stock exchanges were advised to amend the listing agreement to incorporate after sub-clause (1) of Clause 12A, the new sub clause (1a) as under:-
“The company agrees that in respect of transfer of shares where the company has not effected transfer of shares within 1 month or where the company has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of 1 month, The company shall compensate the aggrieved party for the opportunity losses caused during the period of the delay”.
3.6 It is noticed that despite the aforesaid provisions of the Listing Agreement and the provisions of the Companies Act, 1956, the company did not transfer the shares in favour of the investors in contravention of the aforesaid provision. The action of the company is not only against the provisions of Law and Listing Agreement but also prejudicially affects the interest of the investors as they are deprived of the opportunity to sell the shares at an opportune time. The company also had 1 complaint unsolved in Type I relating to non receipt of Refund order/ Allotment Advice etc., 11 cases of Type II relating to Non receipt of dividend on shares and 4 cases of Type IV relating to Non receipt of letter of offer for Rights , Non receipt of Interest on delayed payment of refund orders and 4 cases in Type V relating to non receipt of letter of offer for Rights as well as non receipt of Interest on delayed payment of refund orders.
3.7 Section 15C of SEBI Act, 1992 reads as under :-
“If any listing 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.”
In the instant case, the company was advised by SEBI vide its letter dated 23.12.03 to redress the grievances of the investors within a period of 30 days there from for which the company had not responded. The company had neither responded to the notice of Adjudication Officer nor did it participate in the adjudication proceedings despite affording fair and reasonable opportunity.
It is also noted that even as per the status of complaints relating to Investor grievances as on 31.05.2005, the company had 100 investor complaints pending to be redressed.
ORDER
Having regard to the gravity of charges established, the factors contained under Section 15J of SEBI Act, 1992, a penalty of Rs. 12 Lakhs is imposed on M/s.Richmen Silks Limited.
The penalty amount shall be paid through a crossed demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” and payable at Mumbai, may be sent to Shri S C Das, Executive Director, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, Nariman Point, Mumbai – 400021.
PLACE: Mumbai S V Krishna Mohan
DATE : 5th July, 2005 Adjudicating & Enquiry Officer