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 HANIL ERA TEXTILES LTD.
- I was appointed as the Adjudicating Officer by the Securities & 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 Hanil Era Textiles Ltd. (hereinafter referred to as the company) to redress the grievances of the investors.
- A show cause notice A&E/BS/27539/2004 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/19648/2004 dated September 2, 2004. Vide the said letter, SEBI had informed the company that as on July 30, 2004, 130 complaints of the investors were pending to be redressed by the company and the said complaints were pending for more than six months. In view of the same, SEBI vide its letter dated September 2, 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. As stated earlier, 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.
- It is noted that the company did not reply to the show cause notice though it was granted sufficient time to do so.
- 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 January 25, 2005. The company vide its letter dated January 25, 2005 requested for one month time to look into the matter.
- In the interest of justice, the company was granted one more opportunity for personal hearing on May 27, 2005. It is noted that the company again failed to attend the inquiry.
- The company was given another opportunity to attend the inquiry on June 28, 2005. It is noted that the company vide its letter dated June 27, 2005 requested for two weeks time.
- Considering the request of the company, it was granted another opportunity to attend the inquiry on July 20, 2005. In this regard, the company vide its letter dated July 19, 2005 informed that its Assistant Company Secretary is on leave and requested to adjourn the hearing to a date after August 8, 2005.
- Considering the request of the company it was granted one more opportunity to attend the inquiry on August 10, 2005. It is noted that notice for the above sent by registered post was duly received and acknowledged by the company. However, the company failed to attend the inquiry on the above date.
- As the company failed to reply to the show cause notice and also failed to attend the inquiry on January 25, 2005, May 27, 2005, June 28, 2005, July 20, 2005 and August 10, 2005, I am proceeding with the inquiry in the absence of the company, on the basis of the material evidence available on record.
CONSIDERATION OF EVIDENCE AND FINDINGS
- 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/19648/2004 dated September 2, 2004, SEBI informed the company that as on July 30, 2004, as many as 130 investors complaints were pending against the company for more than six months and called upon the company to redress the grievances of the investors.
- It is noted that the 130 pending complaints were of the following categories:
Table 1
|
Sr. No.
|
Nature of complaint Pending
|
Number
|
|
1
|
Non receipt of share certificate after transfer, conversion, duplicate against duly executed indemnity bond etc.
|
13
|
|
2
|
Non receipt of debenture certificate in exchange of allotment letter and non receipt of debenture certificate after transfer.
|
04
|
|
3
|
Non receipt of interest on debentures and non receipt of redemption amount.
|
78
|
|
4
|
Non payment of interest for delayed payment of redemption amount of debenture.
|
08
|
|
5
|
Non receipt of dividend on shares.
|
10
|
It is noted from the records that seventeen complaints appear to have been resolved.
- It is further noted that some of the complaints are pending since 2000; however the number of pending complaints increased significantly since 2002. Detailed age wise analysis of pending complaints is as follows:
Table 2
|
COMPLAINTS PENDING SINCE YEAR
|
NUMBER OF COMPLAINTS
|
|
2000
|
1
|
|
2001
|
3
|
|
2002
|
21
|
|
2003
|
78
|
|
2004
|
10
|
- It is noted from table 1 that Seventeen complaints pertain to non receipt of share certificate / debenture certificate etc after transfer, conversion etc. It is pertinent to note in this regard that transfer of share certificate does not involve outflow of funds of the company or any financial liability on the company except administrative charges. Rather, it is the investor who is at great disadvantage for non receipt of share certificates after transfer within the stipulated time frame as it deprives the investor of the opportunity of selling the shares at the right time.
- In terms of Section 113 of the Companies Act, 1956, shares sent for transfer shall be registered within 2 months after the application for the registration of transfer of such shares is received by the company.
- Further the provisions of the listing agreement also stipulate such a requirement under Clause 12A.
- It is noted that despite the aforesaid provisions of the Listing Agreement and the provisions of the Companies Act, 1956, the company did not transfer the shares in favour of the investors in contravention of the aforesaid provision. The action of the company is not only against the provisions of law but also prejudicially affects the interest of the investors as they are deprived of the opportunity to sell the shares at the opportune time as per their choice.
- It is further pertinent to note that Eighty Six complaints are in respect of non receipt of interest on debenture, non receipt of redemption amount on debentures etc. It is further noted that ten complaints pertain to non payment of dividend on shares. The complaints are pending since 2000. The company is thus retaining investors money for more than 5 years. This act of the company prejudicially affects the interest of the investors as they are deprived of their money. No mitigating factors or any explanation has been cited by the company for non payment of interest or redemption amount of debentures.
- 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 September 2, 2004. Barring 17 complaints, which appear to have been resolved, all other complaints mentioned in the notice on September 2, 2004 are noted to be pending. 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 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.
20. 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
21. In this regard, it is pertinent to note that the company did not reply to the show cause notice and also failed to attend the inquiry on January 25, 2005, May 27, 2005, June 28, 2005, July 20, 2005 and August 10, 2005. Large number of complaints pertain to non receipt of share / debenture certificate after transfer, non receipt of interest and redemption amount on debentures, non receipt of dividend etc., Failure on the part of the company to redress the said grievances invariably causes undue hardship and loss to the investors.
22. As the company has not submitted any explanation for their above actions despite being given sufficient time and opportunities to do so, it is presumed 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, as stated earlier, redressing the grievances of the investors in respect of non receipt of share certificates do not entail much financial burden on the company except administrative charges. However, it puts the investor in great disadvantage as they are deprived of the shares which rightfully belong to them entailing financial loss to them in all the above cases. Further depriving investors of the interest, dividend, redemption amount etc is 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 severe penalty.
ORDER
23. 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, hereby impose a penalty of Rupees Ten Lakh (Rs.10,00,000/-) on Hanil Era Textiles Ltd. in terms of the provisions of Section 15 C of SEBI Act, 1992 for failure to redress the grievances of the investors.
24. 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
25. 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 Hanil Era Textiles Ltd. and to Securities and Exchange Board of India.
MUMBAI BIJU S
NOVEMBER 21, 2005 ADJUDICATING OFFICER