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 RUNEECHA TEXTILES LIMITED.
- I was appointed as the Adjudicating Officer by SEBI vide order dated November 28, 2004, to inquire into and adjudge the contravention of Section 15C of SEBI Act, 1992 alleged to have been committed by Runeecha Textiles Limited (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/19832/2004 dated September 6, 2004. Vide the said letter, SEBI informed the company that as on July 30, 2004, 15 complaints of the investors were not redressed by the company and the said complaints are pending for more than more than six months. In view of the same, SEBI vide its letter dated September 6, 2004 called upon the company to redress the grievances of the investors.
3. 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 November 28, 2004. In the show cause notice issued in the adjudication proceedings, 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 for its failure to redress the grievances of the investors.
4. The company in its reply dated December 16, 2004 submitted that they are in the process of obtaining copies of the complaints from SEBI. As no further reply has been received from the company with regard to the showcause notice, it was felt that an opportunity of hearing may be granted to the company and accordingly the company was advised to attend the hearing scheduled on January 14, 2005. However the company vide its letter dated January 13, 2005 sought an adjournment of the hearing and accordingly the hearing was adjourned to February 7, 2005. Shri. Devang Thakar attended the hearing on February 7 2005 as the authorised representative of the company and stated that the said complaints of the investors could not be redressed as the records of the erstwhile promoters are not available. The company further stated that the details of the complaints were collected from SEBI and the company shall submit the action taken report within 10 days. The company also stated that they shall submit a detailed written reply in the matter. Subsequently the company vide its letter dated February 15, 2005 submitted its reply. In the said latter the company made the following submissions.
· The company was taken over by the present promoter Mr. Pradeep Jain and Associates in 1996. At the time of takeover, the company was shut and non operational owing to severe paucity of funds and poor management. Further no proper legal/ financial documentation was available on record or with the erstwhile Promoter.
· The complaints brought forward by SEBI primarily relate to the following problems faced by the investors
a) Non receipt of the allotment letter and refund of application money against issue opened on December 9, 1991
b) Non receipt of dividend
c) Non listing of securities on Stock Exchange
d) Non receipt of share certificate post transfer
· In this respect it is highlighted that :
a)The above individual complaints were posted to the old office address inspite of notifying change in registered office address in the lead news papers.
b) Understanding of some of the problems indicates lack of documentation and information on the part of the investors. For instance one of the complaints was no action on request for deletion of investor’s name upon his demise. The request enclosed only death certificate of the investor which is not sufficient for the purpose.
c) Due to negligent documentation by the erstwhile management, the present management faced immense problems in understanding the pending issues to the extent that some past grievances are coming to our knowledge for the first time. There was no handover of any documentation in respect of the open issue made by the company in 1991- prior to the acquisition by the present management. Though incorporated in the balance sheet of the company, no details were available on the whereabouts of the individual applications. To obtain information on the list of applications and their breakups, the present management also wrote to the various banks mandated in the prospectus and no response has been received from any of the banks. Absolute lack of co operation on the part of the erstwhile management has made it difficult for the present management to address pre-acquisition issues.
d) The Registrar and Share Transfer Agent – M/s Datacorp Management Services Pvt. Ltd. also tried to coordinate and obtain information to the best possibility from the erstwhile management and ensure compliance in their best knowledge.
e)Various financial papers (loan documents) of the company could not be transferred in the name of the present management till as late as 2000-2001.
f) The company suffered from severe paucity of funds from the beginning. In the absence of proper financing, the company remained closed for long with no scope for operation causing severe deterrents in compliance of share allotment and various other legal procedures.
· The company is earnest in its efforts to address the investors grievances however given the haphazard status of information and documentation handed over by the erstwhile management, we request time for 2 months to iron out all pending issues and ensure a healthy investor’s environment in totality.
CONSIDERATION OF EVIDENCE AND FINDINGS
5. The issue for consideration in this matter is whether the company after having been called upon by SEBI to redress the grievances of the investors failed to do so. In this regard, it is noted that vide letter No: OIAE/SK/19832/2004 dated September 6, 2004, SEBI had informed the company that 15 investor’s complaints are pending against the company for more than six months as on July 30, 2004 and called upon the company to redress the grievances of the investors. In this regard, the company vide, its letter dated September 27, 2004 stated that it shall meet the officials of SEBI to resolve the pending investor complaints.
6. In response to the show cause notice issued in the adjudication proceedings, the company vide, its letter dated December 16, 2004 stated that it is seeking the copies of the complaints from SEBI.
7. Subsequently in the personal hearing granted to the company on February 7, 2005 as well as in its written submissions dated February 15, 2005 the company submitted that as the erstwhile promoters and management did not maintain the documents properly, the company is unable to resolve the investor complaints pertaining to the public issue. It is noted that the company is seeking two months time to redress the grievances of the investors. From the submissions of the company it is noted that has been seeking extension of time to redress the grievances of the investors and no complaint has been resolved. In view of the same, it is observed that the company failed to redress the grievances of the investors and in this regard the company submitted that due to poor documentation by the erstwhile management, the present management is unable to redress the grievances of the investors. The said submission is unacceptable as it is noted that the company failed to redress the grievances of the investors even after collecting the details from SEBI. As the company failed to redress the grievances of the investors as required by SEBI vide letter dated September 6, 2004 it is concluded that the company is liable to the penalty prescribed under Section 15 C of the SEBI Act.
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. 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
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.
10. The failure on the part of the company to redress the grievances of the investors has to be viewed seriously. However considering the fact that the company has 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
11. For the failure on the part of Runeecha Textiles 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 Fifty thousand (Rs.50,000) on Runeecha Textiles Limited
12. 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
13. 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 Runeecha Textiles Limited and to SEBI.
PLACE: Mumbai Biju S
DATE : March 31, 2005 Adjudicating Officer