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 NAYAGARA PAPER PRODUCTS (INDIA) LIMITED.
- I was appointed as Adjudicating Officer by SEBI vide order dated December 6, 2004, to inquire into and adjudge the alleged contravention of Section 15C of SEBI Act, 1992 by Nayagara Paper Products (India) 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 17, 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 SRO/PMD/IGGD/EIF/2003/20/4125 dated September 28, 2004. Vide the said letter, SEBI informed the company that as on September 28, 2004, as many as 47 complaints of the investors were pending to be redressed and called upon the company to redress the grievances of the investors within a period of 30 days.
3. 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.”
4. As the company is alleged to have failed to redress the complaints of the investors, adjudication proceedings were initiated against it vide SEBI’s order dated December 6, 2004. In view of the 47 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.
5. The company in its reply dated December 28, 2004 made the following submissions:
· .The Company has become a sick company and a reference in this regard has been registered with BIFR.
· As Income Tax authorities had conducted a raid in the offices of the company, the company was concentrating its efforts in attending the issues pertaining to the same.
· The company could not attend all the grievances of its shareholders since all concerned department employees have left the organization as the company’s financial position was totally under crisis.
· The company undertakes to attend all the balance grievances /complaints of the shareholders and a report in this regard shall be submitted within a period of 30 days.
6. Subsequently upon consideration of the submissions of the company, it was decided to grant the company an opportunity of hearing and the company was advised to attend the hearing on February 11, 2005. However the said hearing was adjourned to March 21, 2005. Further the company vide its latter dated February 25, 2005 made the following submissions.
· The company has been a profit making and dividend paying company till March 1999 but subsequently, due to adverse situations, the company has incurred losses and went to BIFR and was admitted by BIFR.
· Due to losses, the company has shifted the Registered and Corporate office and also the share transfer agents were shifted to in house departments to reduce the cost and improve the efficiency of the share transfers and investor relations, as the registrars and share transfer agents of the company Ikon Vision (P) Limited were downsized due to adverse market situation.
· During the period of transmission, there seems to be some loss of correspondence, and the cases referred by SEBI, pertain to those cases.
· The initial correspondence of SEBI, dated September 28, 2004 was never received by the company. Further as stated in the reply to the show cause notice in the adjudication proceedings, the company has resolved all the complaints to the satisfaction of investors and copies of the same are enclosed with the letter for reference.
Subsequently an opportunity of opportunity of personal hearing was granted to the company on March 21, 2005. Shri. Gopal Heda Financial Controller of the company attended the hearing on March 21, 2005 and made the following submissions.
· The complaints pertain to the last ten years and there has been no correspondence from these complainants for the past 10 years and the company was never aware of these complaints and hence the delay in resolving them.
· The company has gone through a turbulent phase due to adverse market situation and the company was referred to BIFR and is in the process of rebuilding.
· The company did not receive the initial correspondence dated 28.9.2004 and till the receipt of the show cause notice dated December 17, 2004, the company was unaware of these complaints. On receipt of the letter dated December 17, 2004 the company resolved the complaints by January 3, 2005. The company is submitting the written submissions dated February 25, 2005 regarding the same and requesting SEBI not to levy monetary penalty as the company has resolved all the investor grievances and the financial position of the company is not positive and the company has been appealing to all the leading institutions and other agencies for rescheduling of the loans and advances.
CONSIDERATION OF EVIDENCE AND FINDINGS
7. It is noted that vide letter SRO/PMD/IGGD/EIF/2003/20/4125 dated September 28, 2004. SEBI informed the company that as on the said date 47 complaints of the investors are pending against the company for more than six months and called upon the company to redress the grievances of the investors. However no reply has been received from the company in response to the said letter. Subsequently, in response to the show cause notice issued in the adjudication proceedings, the company vide, its letter dated December 28, 2004, stated that it did not receive SEBI’s letter dated September 28, 2004 calling upon the company to redress the grievances of the investors. The same contention has been raised by the company in its written submissions dated February 25, 2005 and also during the submissions made in the personal hearing. The said contention of the company is incorrect as the SEBI’s letter dated September 28, 2004 was sent by registered post and the company has acknowledged receipt of the same. Hence the contention raised by the company regarding non receipt of SEBI’s letter dated September 28, 2004 is unacceptable.
8. It is noted that 47 complaints of the investors pending against the company as on September 28, 2004, and out of which 41 complaints are pertaining to non receipt of dividend. In this regard, it is noted that the company vide its letter dated February 25, 2005 submitted copies of the correspondence with the investors .On perusal of the company’s letter dated January 3, 2005 addressed to the investors, it is noted that in respect of the investor’s complaints regarding non receipt of dividend warrant, the company requested the investors to submit an indemnity bond on stamp paper for the issue of duplicate dividend warrant. Merely by sending this letter it cannot be concluded that the company had redressed the grievances of the investors as contended by the company. However it is a positive measure taken by the company for redressing the grievances of the investors. Subsequent to the personal hearing, the company vide its letter dated March, 26, 2005 again stated that it had resolved the complaints of the investors. The grievances of the investors can be regarded as redressed only if duplicate dividend warrants are issued to them in respect of such complaints. Hence the company has to take all the measures for redressing the grievances.
9. With regard to the other complaints it is noted that 4 complaints are pertaining to non receipt of shares sent for transfer and 2 complaints are in respect of non receipt of refund order/ allotment advice. The company has not submitted any details regarding the said complaints in its reply. Hence it is noted that the company has not taken any measures for resolving such complaints of the investors in respect non receipt of shares sent for transfer and non receipt of allotment advice/refund order..
10. It is noted from the replies of the company that the company is in financial difficulties. In this regard it is further noted from the submissions of the company that the company has been referred to BIFR. However no order passed by BIFR has been submitted by the company. Further by merely stating financial difficulties, the company cannot evade its obligation to redress the investor’s grievances pertaining to non receipt of dividend. It is noted that inspite of SEBI’s directions the company failed to redress the grievances of the investors. However it is also noted that subsequent to commencement of the adjudication proceedings, the company has taken certain measures for redressing the grievances of the investors pertaining to non receipt of dividend. As the company failed to redress the grievances of the investors as required by SEBI vide letter dated September 28, 2004 it is concluded that the company is liable to the penalty prescribed under Section 15 C of the SEBI Act.
11. 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 Penalty 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
12. 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 financial difficulties faced by the company and the company has been referred to BIFR, 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.”
13. 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, and also taking into account the fact that the company vide its letters dated January 3, 2005 initiated the process for redressing the grievances of the investors, a lenient view is taken with regard to the quantum of penalty attracted in respect of the contravention of Section 15 C of the SEBI Act 1992 by the company.
ORDER
14. For the failure on the part of Nayagara Paper Products (India) 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 Seventy five thousand (Rs.75,000) on Nayagara Paper Products (India) Limited.
15. 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
16. 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 Nayagara Paper Products (India) Limited and to SEBI.
PLACE: Mumbai Biju S
DATE : March 30, 2005 Adjudicating Officer