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 CORE HEALTHCARE LIMITED.
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/19648/2004 dated September 2, 2004. Vide the said letter, SEBI informed the company that as on July 30, 2004, 81 complaints of the investors against the company are pending to be redressed and the said complaints have been pending for more than six months. Vide the said letter the company was called upon to redress the grievances of the investors.
3. 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. Vide show cause notice cited, in view of the 81 unresolved complaints, 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.
4. Though the company did not reply to the show cause notice, in the interest of justice 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 25, 2005. Shri. Kamlesh Shah Manager cum Company secretary of the company attended the hearing on January 25 2005 and made the following submissions.
· The company did not receive the show cause notice No: A&E/BS/27545/2004 dated December 7, 2004.
· The show cause notice has been collected subsequently on January 25, 2005 and a detailed reply to the show cause notice will be submitted at the earliest. Further the company has already requested for copies of the complaints vide letter dated October 11, 2004 and October 24, 2004.
5. As the company has requested for one more opportunity of hearing, the company was granted another opportunity of hearing on February 10, 2005. Shri Kamlesh Shah attended the hearing on the said date and made the following submissions
· As per the hearing opportunity granted to the company on February 10, 2005 the company is submitting a detailed reply on each complaint regarding the action taken by the company to redress the grievances of the investors.
· If any other information or clarification is asked for in the complaints, the company shall submit the same.
6. It is noted that though the company in the hearing held on February 10, 2005 stated that a detailed reply on each complaint shall be submitted specifying the action taken by the company to redress the grievances, the company has only submitted a copy of its letter dated September 15, 2004 providing details of the action taken on 53 complaints. It is also pertinent to mention that the company vide its letter dated January 31 2005 submitted the following
· The company had informed to SEBI vide letter dated September 15, 2004 that 53 complaints are resolved.
· Copies of some of the investor complaints as per the show cause notice are not received by the company. To get the copies of the same, Demand Draft of Rs.350 was remitted by the company but could get copies of only 7 complaints and it was told that copies of remaining complaints are not traceable.
7. It is further noted from the company’s letter dated September 15, 2004 wherein it is claimed that 53 complaints are resolved, the company has stated the following
· Regarding complaints on non payment of debenture interest and redemption of debenture, the company has made reference to the Board of Industrial and Financial Reconstruction (BIFR) to declare it a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and its reference has been registered as a case no. 32/2004 dated 19.1.2004 at BIFR as per section 15 (1) of SICA. The company hopes that a revival / rehabilitation package for the company will be decided by the BIFR. Till then, debenture holders are requested to bear with the company.
· The company has dispatched share certificates after transferring to the party.
APPRECIATION OF EVIDENCE AND FINDINGS
8. It is noted that vide letter OIAE/SK/19648/2004 dated September 2, 2004, SEBI had informed the company that 81 complaints from the investors are pending against the company for more than six months as on July 30, 2004 and called upon the company to resolve these grievances.
9. 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.”
10. It is noted from the analysis of pending complaints, that majority of the complaints relate to non payment of interest on debentures and redemption amount.
11. In this regard, the company submitted that it has made a reference to BIFR to declare it a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and its reference has been registered as a case no. 32/2004 dated 19.1.2004 at the Board of Industrial and Financial Reconstruction (BIFR) as per section 15 (1) of SICA. The company hopes that the revival / rehabilitation package for the company will be decided by the BIFR. In view of the same, the company has requested the debenture holders to bear with the company. In this regard it is pertinent to note that no order passed by BIFR has been submitted by the company in support of its contention and hence an application made by the company to BIFR cannot be an excuse for not redressing the grievances of the investors.
12. It is also noted that as many as 15 complaints are also pending against the company which relate to delay in receipt of share certificates by the investor (subsequent to transfer etc). It is noted that issuing and effecting transfer of shares to the investors do not entail financial difficulties to the company as in the cases of payment of debenture interest / redemption amount on debentures etc. In view of the same failure/ delay by the company to redress these kind of grievances of the investors have to be viewed seriously. In this regard, it is noted that some of the complaints are pending since 1994 and no proper explanation has been provided by the company for its failure to redress the grievances of the investors.
13. Though, the company has submitted that it did not get the copies of few complaints from SEBI, the said contention appears to be a ploy by the company to hide its mistakes. It is also noted that earlier also the list of pending complaints against the company was forwarded to it on 17.1.2004, 15.4.2004 and 6.7.2004 . Hence the company could have taken measures for redressing the grievances of the investors. It is noted that subsequent to the notice dated September 2, 2004 sufficient time and opportunities have been granted to the company to redress the grievances of the investors. Further it is also noted even with regard to the complaints the copies of which are available with the company, it has not taken effective measures for redressing the grievances of the investors. In view of the same, it is concluded that on account of its failure redress the grievances of the investors, the company is liable to the penalty prescribed under Section 15 C of the SEBI Act 1992.
14. 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:
a) The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
b) The amount of loss caused to an investor or group of investors as a result of the default
c) The repetitive nature of default
15. 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 As it is contended by the company that the default had arisen on account of severe financial difficulties faced by the company , it would be appropriate to refer to the order passed by the Hon’ble Securities Appellate 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 observations of the Hon’ble Tribunal are noted.
“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.”
16. The failure on the part of the company to redress the grievances of the investors, have to be viewd seriously. However considering the poor financial state of the company, a lenient view is taken with regard to the quantum of penalty to be imposed in respect of the contravention of Section 15 C of the SEBI Act 1992 by the company.
ORDER
17. For the failure on the part of Core Health Care 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 one lakh (Rs.100,000) on Core Health Care Limited.
18. 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
19. 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 Core Healthcare Ltd. and to SEBI.
PLACE: Mumbai Biju. S
DATE : March 31, 2005 Adjudicating Officer