ADJUDICATION ORDER UNDER RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF ADJUDICATION PROCEEDINGS AGAINST INDITALIA REFCON LIMITED.
1. I was appointed as Adjudicating Officer by SEBI vide order dated November 28, 2004, to inquire into and adjudge the alleged contravention of Section 15C of SEBI Act, 1992 by Inditalia Refcon Ltd. (hereinafter referred to as the company), on account of its failure to redress the grievances of the investors.
NOTICE AND REPLY
2. 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 Penalties 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/18983/2004 dated August 26, 2004. Vide the said letter, SEBI informed the company that as on July 30, 2004, 120 complaints of the investors were pending to be redressed and called upon the company to redress the grievances of the investors.
3. As the company is alleged to have failed to redress the grievances of the investors, adjudication proceedings were initiated against it vide SEBI’s order dated November 28, 2004. Vide show cause notice cited, in view of the 120 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 Penalties by Adjudicating Officer) Rules, 1995 and why penalty should not be imposed on it under Section 15C of SEBI Act, 1992.
4. The company submitted its reply vide letter dated December 13, 2004 made the following submissions:
· The Company vide its earlier letter dated September 14, 2004 already informed SEBI that the company’s project “manufacturer of Reefer Container could not take off and as such all the leading banks and institutions had filed suits for recovery of their dues.
· The promoters are making their best efforts to sell the project to some prospective buyer who can revive the company and comply with all the necessary regulations of SEBI and BSE, as required.
· In case the project is not taken over, the banks would take the company into liquidation and winding up and everything would be lost for the promoters and public investors who have invested in the project.
· The situation of the company is very critical and it is not possible for the company to comply with any regulations, except try to save the company from being wound up in the Debt Recovery Tribunal by the banks.
· The company is hopeful that once the negotiations are finalized with a new investor then all the new procedures and regulations of SEBI and BSE can be complied with.
· The company and the promoters have been in regular contact with SEBI and BSE and replied to their letters but due to circumstances beyond their control, the company requests that a time of 3 months may be granted by which all the grievances would be looked into.
5. Subsequently upon consideration of the submissions of the company, an opportunity of personal hearing was granted to it on January 28, 2005. However the company vide their letter dated January 27, 2005 requested for adjourning the matter to February 1, 2005. Accordingly the the hearing was adjourned to February 1, 2005. Smt. Sujatha Mittal Executive Director of the company attended the hearing on February 1, 2005 and made the following submissions.
· The complaints are pertaining to non transfer of shares and dematerialization.
· The company is trying to sell the project to a prospective buyer with whom the negotiations are on the last stage. This is the only way to protect the investors as otherwise the company is on the verge of being wound up by the lead banks. The company expects a definite reply in this regard by the end of March.
· The new promoters would then regularize the requirements of SEBI and BSE
· The company is in a financial crisis and there is no money and no people to complete any procedural regulations required for solving the investors complaints as on today.
· The details of the investor complaints shall be submitted in 10 days time.
CONSIDERATION OF EVIDENCE AND FINDINGS
6. It is noted that vide letter OIAE/SK/18983/2004 dated August 26, 2004, SEBI had informed the company that 120 investors complaints are pending against the company for more than six months as on July 30, 2004 and called upon the company to resolve these grievances. In this regard, the company vide its letter dated September 14, 2004 stated on account of the financial difficulties, it is not in a position to resolve the investor’s complaints. The company though aware of all the listing requirements, it is not in a position to comply with any of the requirements or attend the investor’s complaints, unless it is taken over by a new group for which all efforts are being made. The company further requested for time till December 30th 2004 to resolve its financial and legal problems and then comply with the requirements of all the sock exchanges, SEBI and all investors.
7. Subsequently, in response to the show cause notice issued in the adjudication proceedings, the company vide, its letter dated December 13, 2004 requested for 3 months time to resolve the complaints. Hence it is noted that no worthwhile effort has been taken by the company to resolve the complaints of the investors. Instead the company has been seeking extension of time. The reasons cited for non redressal of the investors complaints are the financial difficulties faced by the company. In the personal hearing, the company submitted that it shall submit the details of the investor complaints within a period of 10 days. However the company has not submitted the details of the investor’s complaints and the action taken by the company on the said complaints.
8. 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.”
9. It is pertinent to note that the company has not taken any measures for redressing the grievances of the investors. The company cannot be absolved of its obligation to redress the grievances of the investors by merely stating the financial difficulties. It is further noted that some of the complaints of the investors are pertaining to non transfer of shares by the company. Redressing such grievances will not involve financial burden on the company. It is noted that the company has failed to redress the grievances of the investors including grievances pertaining to non transfer of shares. Hence the company failed to redress the grievances of the investors despite SEBI’s direction in this regard. In view of the same it is concluded that on account of its failure redress the grievances of the investors, the company is liable to the penalty prescribed under Section 15 C of the SEBI Act 1992.
10. In this regard, the provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely:
1. The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
2. The amount of loss caused to an investor or group of investors as a result of the default
3. The repetitive nature of default
11. In this regard it is noted that no data is available to assess the amount of disproportionate gain or unfair advantage made as a result of default or the amount of loss caused to the investors as a result of the default. However the fact remains that the company failed to redress the grievances of the investors and the default on the part of the company caused loss to the investors. As it is contended by the company that the default had arisen on account of severe financial difficulties faced by the company , it would be appropriate to refer to the order passed by the Hon’ble Securities Appellate Tribunal in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) wherein it is held 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.”
12. The failure on the part of the company to redress the grievances of the investors, have to be viewed seriously. However considering the poor financial state of the company, a lenient view is taken with regard to the quantum of penalty to be imposed in respect of the contravention of Section 15 C of the SEBI Act 1992 by the company.
ORDER
13. For the failure on the part of Inditalia Refcon Limited to redress the grievances of the investors, in exercise of the powers conferred under Section15 I and Section 15 C of the SEBI Act, 1992, read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 I hereby impose a penalty of Rupees One lakh (Rs.100,000) on Inditalia Refcon Limited.
14. The penalty shall be paid by way of demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order. The said demand draft shall be forwarded to Deputy General Manager, Office of Investor Assistance and Education, Securities and Exchange Board of India, Exchange Plaza, NSE Building, 4th Floor, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051
15. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 copies of this order are sent to Inditalia Refcon Limited and to SEBI.
PLACE: Mumbai Biju S
DATE : March 29, 2005 Adjudicating Officer