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 HEXONE PHARMACEUTICALS LTD.
- I was appointed as 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 Hexone Pharmaceuticals Ltd. (hereinafter referred to as the company) to redress the grievances of the investors.
- A show cause notice A&E/BS/31786/2005 dated January 24, 2005 was issued to the company in terms of provisions of Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalty 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, 51 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 complaints 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 January 24, 2005 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 Penalty 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 March 16, 2005. It is noted that the company failed to attend inquiry on the above date.
- In the interest of justice another opportunity was granted to the company on April 20, 2005 but the company again failed to attend the inquiry.
- In the interest of justice, the company was granted one more opportunity for personal hearing on July 20, 2005. In this regard, the company vide its letter dated July 20, 2005, submitted that CMD and other directors of the company had gone to the Food and Drug Administration office at Gandhinagar to get the approval for the schedule ‘M’ plan and therefore the company requested to fix some other date for hearing. Subsequently the company vide its letter dated July 27, 2005 requested that the inquiry may be fixed after a fortnight.
- Considering the request of the company, it was advised to attend the inquiry on August 11, 2005. The letter for the same was sent by registered post and it is noted that the same has been received and duly acknowledged. However, the company did not 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 March 16, 2005, April 20, 2005, July 20, 2005 and August 11, 2005, I am constrained to proceed 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 51 investors complaints are 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 51 pending complaints were of the following categories: Twenty Complaints pertain to non receipt of refund orders and allotment advise .One complaint is in respect of non receipt of dividend on shares. Four complaints were in respect of non receipt of certificate of shares. Twenty five complaints pertain to non receipt of shares after transfer and also miscellaneous matters. It is noted from the records that one complaint appears to have been resolved.
- It is further noted that some of the complaints are pending since 1995. Detailed age wise analysis of pending complaints is as follows.
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COMPLAINTS PENDING SINCE YEAR
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NUMBER OF COMPLAINTS
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1995
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5
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1996
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7
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1997
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6
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1998
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7
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1999
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1
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2000
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9
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|
2001
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4
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|
2002
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7
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|
2003
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1
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2004
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3
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- It is evident from the above that majority of pending complaints are pertaining to non receipt of refund order / allotment advise and also non receipt of share certificate after allotment/transfer.
- 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 postal 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 noticed 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 an opportune time.
- It is further pertinent to note that large number of complaints are also in respect of non receipt of refund order / allotment advise. The complaints are pending since 1995. The company is thus retaining the money of investors for more than 10 years in contravention to the provisions of law. This act prejudicially affects the interest of the investors as they are deprived of their money. In this regard the company vide their letter dated October 19, 2004, forwarded to SEBI the latter addressed to Punjab National Bank. It is noted from the above actions of the company that it is mainly citing its dispute with another entity as the reason for not redressing the complaints of the investors. However subsequently no explanation has been provided by the company for its failure to redress the grievances of the investors in spite of the opportunity granted in the adjudication proceedings. Hence the company cannot evade its obligation to redress the grievances of the investors by citing the disputes with other entities.
- In view of the above it is concluded that the company did not redress the grievances of the investors even after being required by SEBI to do so vide SEBI’s letter dated September 2, 2004. The 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 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:
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 March 16, 2005, April 20, 2005, July 20, 2005 and August 11, 2005. As majority of the complaints pertain to non receipt of share certificate after transfer and non receipt of refund order / allotment advise, it invariably causes undue hardship and loss to the investors. 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. Further, as stated earlier, sending the share certificate after transfer, refund orders etc. does not involve much financial burden on the company except administrative charges. However, it puts the investor in great disadvantage as they are deprived of the shares and money which rightfully belong to them entailing financial loss to them in all the above cases. In view of the same, the failure of on the part of the company to redress the grievances of the investors warrant severe penalty.
ORDER
22. 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 Five lakh on Hexone Pharmaceuticals Ltd. in terms of the provisions of Section 15 C of SEBI Act, 1992.
23. 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
24. 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 Hexone Pharmaceuticals Ltd. and to SEBI.
MUMBAI S. BIJU
OCTOBER 31, 2005 ADJUDICATING OFFICER