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 SOUNDCRAFT INDUSTRIES LTD.
1. I was appointed as the Adjudicating Officer by the Securities and Exchange Board of India (hereinafter referred as SEBI) vide order dated November 28, 2004, to inquire into and adjudge under Section 15 C of SEBI Act, 1992 the failure on the part of SoundCraft Industries Ltd. (hereinafter referred to as the company) to redress the grievances of the investors. It is alleged that the company did not redress the grievances of the investors when called upon to do so by SEBI vide its letter OIAE/SK/22864/2004 dated October 7, 2004. Vide the said letter, SEBI had informed the company that as on October 1, 2004 as many as171 complaints of the investors were pending to be redressed by the company. In view of the same, SEBI vide its letter dated October 7, 2004 called upon the company to redress the grievances of the investors. 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.
2. A show cause notice dated December 7, 2004 was issued to the company requiring it to show cause as to why an inquiry should not be held against it in terms of the provisions 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 15 C of SEBI Act, 1992.
3. It is noted that the show cause notice was returned undelivered. In view of the same, substituted service of notice was effected by affixing the notice on the premises of the company on January 4, 2006 in terms of the provisions of Rule 7(c) of (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995.
4. It is noted that no reply has been received from the company in respect of the show cause notice issued to it. Though the company did not reply to the show cause notice, considering the facts of the case, it was decided to conduct an inquiry in the matter. The company was advised to attend the inquiry on March 30, 2006. However, it is noted that the company failed to attend the inquiry on the said date.
5. As the company failed to reply to the show cause notice and also failed to avail the opportunity of hearing granted to it, I am proceeding with the inquiry on the basis of the evidence available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
6. 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/22864/2004 dated October 7, 2004, SEBI informed the company that as on October 1, 2004, as many as 171 complaints of the investors were pending against the company and called upon the company to redress the grievances of the investors. It is noted that no reply has been received by the company in respect of the said notice. Further, no evidence is available on record which indicates that the company has redressed the grievances of the investors. It is noted that no mitigating factors or any explanation has been provided by the company for the failure on its part to redress the grievances of the investors.
7. In view of the above, it is concluded that the company failed to redress the grievances of the investors even after being required by SEBI to do so vide SEBI’s letter dated October 7, 2004. As no reply has been submitted by the company it is concluded that the company failed to redress the complaints mentioned in the notice dated October 7, 2004 issued by SEBI. Thus company is liable to the penalty in terms of the provisions of Section 15 C of the SEBI Act which provides that if any listed company 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 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.
8. In this regard, the provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely:
i. The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
ii. The amount of loss caused to an investor or group of investors as a result of the default
iii. The repetitive nature of default
9. In this regard, it is pertinent to note that the company did not reply to the show cause notice. Failure on the part of the company to redress the said grievances invariably causes undue hardship and loss to the investors.
10. As the company has not submitted any explanation for its actions despite being given sufficient time and opportunities to do so, it is concluded that the company has no explanation to offer. Though the exact amount of loss suffered by the investors is not discernible on the basis of the available data, it is pertinent to note that the failure on the part of the company to redress the grievances of the investors resulted in heavy loss to the investors. Further, redressing the grievances of the investors in respect of non receipt of share certificates do not entail any financial burden on the company except administrative charges. However, it causes great disadvantage to the investors as they are deprived of the shares which rightfully belong to them entailing financial loss to them in such cases. Further, depriving investors of the corporate benefits such as interest, dividend, redemption amount, bonus shares etc., amount to depriving them of their money causing financial hardship to them. Considering the facts and circumstances of the case and the evidence available on record, the failure on the part of the company to redress the grievances of the investors warrant the maximum penalty prescribed by the statute.
ORDER
11. In exercise of the powers conferred under Section15 (I) of the SEBI Act, 1992, and Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, I, impose a penalty of Rupees One Crore on the company SoundCraft Industries Ltd. in terms of the provisions of Section 15 C of SEBI Act, 1992, for its failure to redress the grievances of the investors.
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 SoundCraft Industries Ltd. and to the Securities and Exchange Board of India.
| MUMBAI |
S. BIJU |
| March 31, 2006 |
ADJUDICATING OFFICER
|