ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S SHREYANS INDUSTRIES LTD. READ WITH SECTION 15C OF SEBI ACT, 1992.
I was appointed as Adjudicating Officer by SEBI vide order dated August 26, 2003, to inquire into and adjudge the alleged contravention of Section 15C of SEBI Act, 1992 by M/S SHREYANS INDUSTRIES LTD. (hereinafter referred to as the company), in the matter of non redressal of the grievances of the investors.
NOTICE AND REPLY
Accordingly, a show cause notice dated September 1, 2003, was issued to the company. The said show cause notice alleges that the company did not redress the grievances of investors when called upon to do so by SEBI vide its letter IGG/SR/10546/2003 dated May 29, 2003. Vide the said letter, SEBI informed the company that as on May 13, 2003, 236 complaints of the investors were still pending for redressal and called upon the company to redress these grievances within 30 days thereof. No reply to sebi letter IGG/SR/10546/2003 dated May 29, 2003 was received from the company and the matter was referred for adjudication.
Vide show cause notice cited, the details of these 236 complaints which have not been redressed by the company were forwarded with an advice 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 Penalty by Adjudicating Officer)Rules, 1995 and why penalty should not be imposed under Section 15C of SEBI Act, 1992. The company submitted its reply vide letter dated September 12, 2003. Shri Vipin K Bhatia and Shri S K Dudani appeared on October 16, 2003 & November 11, 2003 and made the following submissions:
1. That all the 236 complaints referred to in the show-cause notice have since been resolved. In fact, some of them were resolved prior to the receipt of the show cause notice.
2. That about 60% of the complaints were resolved prior to the receipt of notice dated May 29, 2003. The rest of the complaints were resolved after the receipt of the notice and before meeting SEBI officials on July 17, 2003 at NRO, New Delhi.
3. That partly convertible debentures were issued in October/ November 1991 and they were due for redemption on November 1998 (1st installment), November 1999 (2nd installment) and December 2000 (3rd installment).
4. That the debentures were rolled over in the year 1998 after filing draft letter of information with SEBI and SEBI communicated its observation vide letter dated 30th September 99 and after obtaining approval of debenture trustees and consent from the debenture holders. Most of the 230 complaints relate to the debenture holders, who have not consented for a roll over.
APPRECIATION OF EVIDENCE AND FINDINGS
Vide letter IGG/SR/10546/2003 dated May 29, 2003, SEBI has informed the company that it was yet to resolve 236 complaints of its investors as on May 13, 2003 and called upon it to resolve these grievances within 30 days thereof. Details of the said complaints were also forwarded vide the aforesaid letter. Analysis of these complaints is as follows:
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Category of complaint
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Number
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I
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1
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II
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4
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III
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1
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IV
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230
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V
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0
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VI
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0
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Total
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236
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It is further observed that the oldest complaint in the list is of 11/9/2002.
The nomenclature of Type I to Type V includes the following types of complaints:-
Type I: non receipt of
A. Refund order/ Allotment Advice
B. Cancelled stock invest
C. Allotment advice against encashed stock invest
D. Refund order sent for revalidation
E. Refund order after furnishing the required details like application number, bank serial number etc
F. Duplicate refund order in lieu of original refund order printed in wrong name/ beneficiary and returned to the company for correction
G. Duplicate refund order in lieu of original refund order printed for wrong amount and returned to the company for correction
H. Duplicate refund order in lieu of original refund order printed with wrong bank details and returned to the company for correction
I. Copy of encashed instruments in misappropriated cases
J. Balance amount against short refund made by the company due to some error
K. Duplicate refund order against an undertaking/ duly executed indemnity bond sent to the company
Type II : Non receipt of
A Dividend on shares
Type III : Non receipt of
A Share certificate in exchange of allotment letter
B Share certificate after transfer
C Share transfer after transmission
D Share certificates after conversion
E Share certificates after endorsement
F Share certificates after consolidation
G Share certificates after splitting
H Bonus shares
I Share certificate against duly executed indemnity bond sent to the company
Type IV : Non receipt of
A. Interest on Debentures
B. Redemption amount of debentures
C. Debenture certificate in exchange of allotment letters
D. Debenture certificate after transfer
E. Debenture certificates after transmission
F. Debenture certificate after endorsement
G. Debenture certificate after consolidation
H. Debenture certificate after splitting
I. Debenture certificates against duly executed indemnity bond sent to co.
J. Interest on delayed payment of interest on debentures
K. Interest on delayed payment of redemption amount of debentures
Type V
B Non receipt of letter of offer for Rights
D Non receipt of Interest on delayed payment of refund orders.
From the various submissions made by the company, the following position emerges:
1. As can be seen from the analysis of pending complaints, that majority of the complaints relate to non receipt of interest on debentures and non receipt of redemption amount of debentures (Category IV A & IV B complaints).
2. The complaints are pending since September 2002.
3. The company got the details of the 236 complaints as per SEBI letter IGG/SR/10546/2003 dated May 29, 2003. As per the requirements of the letter IGG/SR/10546/2003 dated May 29, 2003, all the complaints should have been resolved within 30 days from the date of the said letter.
The company has submitted that about 60% of the complaints were resolved prior to the receipt of notice dated May 29, 2003. The rest of the complaints were resolved after the receipt of the notice and before meeting SEBI officials on July 17, 2003 at NRO, New Delhi.
4. The company had come out with a Rights Issue in August 1991 – 14% Secured Redeemable Partly Convertible Debentures of Rs.300 each for cash at par and also a Public Issue in September 1991 of 14% Secured Redeemable Partly Convertible Debentures of Rs.300 each for cash at par. In the Rights Issue 400775 Partly Convertible Debentures were allotted on rights basis and in Public Issue 404225 debenture were allotted to the public by way of prospectus, total aggregating to 805000 debentures. Part A of Rs.200 each of the Partly Convertible Debentures were converted into 5 Equity Shares as per the terms of issue thereof, i.e. on 29/7/92 in the case of Public Issue and 8/8/92 in the case of Rights Issue. After conversion of part A there remained 805000 – 14% Secured Redeemable Non-Convertible Debentures of Rs.100 each of the aggregate value of Rs.805 lacs.
Interest @ 14% p.a. was payable half-yearly on 31st March and 30th September each year.
The debentures were due for redemption as under
a. 1st installment - 28th October & 7th November 1998
b. 2nd installment - 28th October & 7th November 1999
c. 3rd installment - 28th October & 7th November 2000
5. The company was paying interest to the debenture holders till the year ended 31st March 1998. It was submitted that the situation worsened all of a sudden with general recession in the industry, more particularly in paper and textile industry in which the company is engaged.
The company undertook certain modernization cum expansion plans during the year ended 1995-96, wherin the capacity of paper mill (SRP) was scheduled to increase from 15000 metric tones to 25000 metric tones per annum. The said plans were well underway and affected the ways and means of the company. Financial conditions were aggravated with a net loss of Rs 9.14 Crore during the year ended 31/3/2000 as per audited financial results declared by the company for that period. As per the audited financial results of the company, profit loss of the company were as follows:
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For the Year ended 31/3/2000 (lacs)
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For the Year ended 31/3/1999 (lacs)
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For the Year ended 31/3/1998 (lacs)
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Net Profit/ (loss) before tax
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(913.58)
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(1236.54)
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277.23
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In view of the above factors, the company proposed to extend the redemption date in respect of the redemption date of NCD issued for 24 months. As per the proposal the debenture holders were given the option to agree/ disagree to the roll over of NCD’s.
a. The rate of interest with respect to those debenture holders who agreed to proposed deferment of repayment was proposed to be increased to 17% per annum instead of 14% per annum w.e.f. 1st October 1998.
b. Such debenture holders, who did not agree to the roll over of NCD’s of the redemption as aforesaid and who communicated such desire in writing to the company be paid the due installment(s) with interest @ 14% till the date of payment of the debentures held by them on surrender of the debenture certificate/ allotment letter for endorsement to the company.
6. Accordingly, the debentures were rolled over in the year 1998 after filing Letter of Information to Debenture Holders with SEBI, after receipt of SEBI observation thereto, approval of Debenture Trustees and consent from the Debenture Holders. As submitted by the company, the debenture holders who did not consent for roll over were to be paid back and most of the 230 complaints related to such debenture holders.
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.”
Considering that the company has resolved all 236 pending grievances of the investors although belatedly, its financial position was not sound which resulted in delay in payment and the subsequent rollover by draft Letter of Information with SEBI and SEBI intimating its observations vide letter PMIMD/AS/8810/99 dated September 30, 1999 and the company modified the terms of payment of debentures and provided the exit option to non-consenting debenture holders, it would not be fair, just and proper to impose a severe penalty.
It would be appropriate to refer to the order passed by the Hon’ble SAT in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) dated 9.8.04 wherein it was stated that the capacity to pay the penalty also has to be considered while imposing penalty. The following is extracted from the said order:
“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.
The Supreme Court in its pronouncement dealing with compensation under the criminal procedure code has held that the means of the accused has also to be considered if a workable order is to be passed (see) (i) (1978) 2 SCC 111, Sarwan Singh Vs Punjab (ii) (1988) 4SCC 51 Hari Singh Vs Sukhbir Singh.
Although the judgements related to trials with respect to criminal trials it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or the means of the appellant to pay a penalty in monetary terms would also apply on principle to the law laid down by the Supreme Court.”
The Hon’ble SAT in the orders referred above had also observed that while imposing penalty the provisions regarding court fees as per Rule 9 of the SAT (Procedure) Rules, 2000 also needs to be taken into account since there is statutory right of appeal.
ORDER
Having regard to the gravity of charges established, the factors contained under Section 15J of SEBI Act, 1992, that the company had resolved all the pending grievances of the investors listed in the show cause notice, filed the details of complaints resolved, dispatch of cheques, etc., the fact that the company had incurred a net loss of Rs.913.58 lakhs for the year ending 31.3.2000, Rs.1236.54 lakhs for the year ended 31.3.99, and Rs.277.23 lakhs for the year ended 31.3.98, faced liquidity problems and following the order of the Hon’ble Securities Appellate Tribunal in Alkan Projects P Ltd Vs SEBI (2004) 55SCL 107(SAT-MUM), a penalty of Rs.15,000/- (Rupees fifteen thousands only) is imposed in terms of Section 15C of SEBI Act, 1992 on M/s Shreyans Industries Ltd, for the delay in redressing the investor grievances as discussed earlier.
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 Sujit Prasad, Deputy General Manager, Securities and Exchange Board of India, Exchange Plaza, IVth Floor, Bandra Kurla Complex, Bandra E, Mumbai 400 051.
| Date: NOVEMBER 1, 2004 |
S V Krishna Mohan |
| Place: Mumbai |
Adjudicating Officer |