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ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH SECTION 15C OF THE SEBI ACT, 1992.
AGAINST M/s. ESSAR OIL LIMITED
1. The issue relating to the failure on the part of M/s. Essar Oil Limited (for brevity’s sake, hereinafter referred to as EOL) to redress the complaints of their investors and the action ordered by the Securities and Exchange Board of India (SEBI) against EOL in this regard, stands out to be the subject matter of the present proceedings.
2. During the course of the proceedings held on June 06, 2006 and November 27, 2006, the representative of EOL appearing on behalf of the company, brought to my notice that all the complaints of their debenture holders, forming the scope of the reference of the present proceedings, stand resolved by virtue of the orders passed by the Gujarat High Court, and hence the present proceedings would no longer survive.
3. To appreciate the merit of the said contention, I have examined the facts and circumstances of the case and the oral and documentary evidence placed by EOL in support thereof. The uncontroverted facts of the case, the detailed information periodically provided by the company along with documents submitted in support thereof as also the proceedings of this forum is summarized briefly as follows :-
4. Engaged in the business of exploration and production activities of oil and gas onshore and offshore, and the marketing of petroleum products, EOL with its registered office at Jamnagar, Gujarat, had issued and allotted 12.5% optionally fully convertible debentures (‘OFCDs’) of Rs. 190 each through a public issue, in terms of a prospectus dated January 12, 1995, for the purpose of providing finance to the cost of 10.5 MMTPA Oil Refinery Project being set up by the company at Vadinar, District Jamnagar, Gujarat.
5. Several shareholders of EOL complained to SEBI about the non receipt of interest payable on the non convertible debenture portion of the OFCD’s, issued and allotted to them as also the non receipt of refund orders/dividend and non receipt of annual report/share certificates.
6. 800 such complaints were received by SEBI from investors of EOL. The categorization of these 800 complaints is as under:- Type I 1 Type II 9 Type III 7 Type IV 783 -------- Total 800 ----------- The nomenclature of Type I to Type IV 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 byt eh co. 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
7. Thus the majority of the complaints pending redressal by EOL showed that 783 out of 800 such complaints pertained to Type IV.
8. In view thereof, SEBI vide their letter dated December 31, 2002, while enclosing the details of the said complaints, called upon EOL to resolve the 800 complaints of their investors that were pending as on December 17, 2002, within 30 days of the said letter. EOL were advised that appropriate proceedings under Section 15C of the SEBI Act, 1992 (Act) would be initiated against them in case they failed to so redress the said grievances. In their reply dated February 01, 2003, EOL admitted that they were not in a position to resolve the investor complaints pertaining to non receipt of debenture interest immediately, due to the present non availability of funds, caused due to the project site being hit by a severe cyclone in June 1998 which had resulted in damage of certain important facilities, and hence requested time up to 31st March, 2003 to enable them to arrange the funds for resolution of the said complaints.
9. Despite the said assurance, as these complaints remained unredressed, adjudicating proceedings were initiated against EOL vide an order dated April 09, 2003, pursuant to which Shri S.V Krishnamohan has appointed as the Adjudicating Officer in this case. He caused a notice dated May 20, 2003 to be issued to EOL along with relevant documents annexed thereto in terms of Rule 4 (1) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules) which advised EOL to show cause as to why proceedings should not be initiated against them and why penalty should not be imposed upon them under Section 15C of the Act. EOL were advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice, and were also advised to note that in case they failed to reply within the stipulated period, it would be presumed that they had no adequate explanation to offer.
10. In their reply dated May 31, 2003, EOL inter alia stated as follows : (i) The non–resolution of complaints was on account of non availability of sufficient cash flows to the project, consequent upon damage caused to the project by severe cyclone, which, being a natural calamity, was beyond the control of the management. (ii) Keeping in mind the interest of the company, refinery project and the various debenture holders, it was decided to work out a scheme of arrangement / compromise inter alia for reschedulement of payment to the debenture holders. (iii) In pursuance thereof, EOL had filed a Company Application 422/2003 under Section 391 of the Companies Act, 1956 before the Gujarat High Court proposing a Scheme of Arrangement with debenture holders who were categorized as follows:- (a) Holders of more than 2000 fully paid debentures. (b) Holders of partly paid debentures on which calls are in arrears. (c) Only debenture interest holders. (d) Holders of 2000 or less fully paid debentures. (iv) The High Court in Company Application No 167/2003, vide four orders, all dated April 04, 2003 had directed EOL to convene meetings of the four categories of debenture holders and vide a separate order dated April 7, 2003, had granted stay of legal proceedings, present and future, instituted by the debenture /debenture interest holders before any court/forum/stock exchanges/ SEBI /any other statutory Government authority, pending the outcome of the meetings. On the basis of the said contentions, EOL requested that no action be initiated against them under Section 15C of the SEBI Act, 1992
11. The previously appointed Adjudicating Officer then sent several notices of hearing under Rule 4(3) of the Rules at different points of time to EOL i.e. June 23, 2003, July 08, 2003 August 11, 2003 and August 20, 2003 to mention just a few, to appear on July 07, 2002, August 07, 2003, August 21, 2003 and September 08, 2003 respectively. However adjournments were sought by EOL time and again for the reasons mentioned above, with the assurance that all the dues of the debenture holders (principal amount and interest) would be effectively rescheduled or settled by the company in accordance with the relevant scheme as would be confirmed by the courts.
12. A representative of EOL also appeared on September 08, 2003 before the then Adjudicating Officer and while reiterating the contentions advanced earlier, stated that pursuant to the order of the Gujarat High Court in Company Application No 167/2003, dated April 04, 2003, EOL had convened meetings of the four categories of debenture holders on May 06, 2003 wherein resolutions were passed approving the Scheme of arrangement /compromise of the first three categories and that subsequently EOL also filed petitions (Company Petition Nos. 160-62/2003) with the Gujarat High Court seeking confirmation of the first three schemes. It was stated that in Company Application Nos. 170-172/2003, the Court vide separate orders all dated October 07, 2004 had sanctioned the scheme of arrangement /compromise between EOL and the holders of debentures in respect of the first three categories and further declared the same to be binding on the said debenture holders and the company. It was also stated that the Gujarat High Court had granted an interim stay of all proceedings initiated against EOL, including those by the adjudicating officer and hence, requested that these proceedings be kept in abeyance.
13. The application petitions filed before the court, copies of the court order were also submitted for due perusal. 14. Accordingly the case was adjourned. In the interim period, I was appointed as the Adjudicating Officer vide order of the Chairman SEBI dated October 1, 2004, and accordingly, caused a notice of hearing dated December 27, 2004 to be issued to EOL to appear for the proceedings scheduled on February 04, 2005. The representative of EOL, Shri Uday Hudlikar appeared on the scheduled date and while submitting the status of complaints as on January 23, 2005 which highlighted the action taken at the end of EOL, further stated that in respect of 20 complaints, an action taken report (ATR) had been submitted to SEBI on January 25, 2005, which showed that 9 investor complaints remained unresolved, allegedly due to the non availability of investor complaint letters from SEBI while the remaining complaints stood resolved pursuant to the first three schemes, in respect of small debenture holders, proposed by EOL, being sanctioned. It was also stated that due to the said scheme being sanctioned, the interim stay of all proceedings initiated against EOL that was granted earlier in Company Application No 422/03 was also vacated by the Gujarat High Court and hence the said application too was disposed off as infructuous vide the order of the Court dated February 18, 2005 but that as the schemes proposed by the company in respect of debenture holders holding more than 2000 debentures was in progress, for being approved by the debenture holders and the Court, these proceedings be kept in abeyance pending the resolution of the fourth scheme. 15. As the contentions made on behalf of EOL stood validated by the copies of the orders issued by the Court and copies of the letters submitted to SEBI, the proceedings were adjourned. During the next hearing held on June 09, 2006, Shri Uday Hudlikar, appearing on behalf of EOL, brought to my notice that as the schemes proposed by EOL in respect of debenture holders holding more than 2000 debentures had failed in the meeting held on June 25, 2005, the interim stay of all proceedings against EOL that was earlier granted, was vacated by the Gujarat High Court vide their order dated July 18, 2005 and that a fresh scheme of arrangement and compromise with scheme lenders including holders of more than 2000 debentures had been filed with the Gujarat High Court, which was sanctioned by the court vide its judgment and order dated March 31, 2006 with modification (including an option to the Scheme lenders to receive payment expeditiously over a period of 5 years i.e. by 31st March 2010. It was stated that all the complaints pertaining to interest on debentures and redemption of debentures forming the reference of the present proceedings stood resolved by virtue of all the schemes envisaged for the four categories of debenture holders being approved and sanctioned vide the orders of the Gujarat High Court. On the said basis, it was contended that as all the grievances of the debenture holders, forming scope of the reference of the adjudicating proceedings stood resolved, the present proceedings would no longer survive. These contentions were again reiterated in the letter of EOL dated June 27, 2006 along with supporting documents. CONSIDERATION OF ISSUES: 16. Copies of the various directions/orders passed by the 17. The position of law as laid down in terms of the provisions of Section 391 of the Companies Act, 1956 is that if a majority in number representing 75% in value of the creditors present and voting at the meeting, agree to any compromise or arrangement, such a the compromise or arrangement, if sanctioned by the Court, shall be binding on the creditors of the company. 18. This scheme as approved by the statutory majority, binds the dissenting minority as also the company, irrespective of the fact whether they have expressly consented to it or not. Such a scheme is also binding upon the creditors who are not entitled to demand payment of their dues, otherwise than in terms of the scheme. 19. It is the contention of EOL that with the schemes of Arrangement /Compromise with reference to all the categories of debenture holders being sanctioned vide the orders of the Gujarat High Court, the complaints forming the scope of the reference of the adjudicating proceedings stand resolved. 20. To determine as to whether all the 800 complaints forming the scope of the reference of the adjudicating proceedings have indeed been resolved, a cross reference of the same was made to the Office of the Investor Assistance and Education, SEBI, to determine the veracity of the same, from the ATRs submitted on behalf of EOL by their RTA, with them, from time to time, which would also provide an insight as to the value of the said folios, if available, for arriving at a suitable decision.
21. Upon a cross check of the same including the complaints received by SEBI that were pending redressal and which formed part of the 800 complaints, it was alleged that the grievances of two such complainants i.e. Subhash Chandra Dalui and Phalguni Sinha stood unresolved as on July 2006. Copies of the said complaints dated March 23, 2006 and May 19, 2006 respectively were forwarded for due perusal.
22. In view thereof, this Forum sought clarification on these compliants from EOL. During the hearing granted to them on November 27, 2006, the officials appearing on behalf of EOL submitted a copy of the latest pending complaint list forwarded to them by SEBI under cover of letter of SEBI dated November 01, 2006 which included the list of complaints received by SEBI as on August 31, 2006. In the said list, the names of the two complainants did not appear. Relying on the same, it was contended that all the complaints against EOL, forming scope of this reference stood resolved as on November 2006. Notwithstanding the same, they requested to be provided with the copies of the two complaints and undertook to submit the necessary clarification by November 29, 2006.
23. Subsequently, vide their letter dated November 29, 2006 received on November 30, 2006, EOL inter alia stated as follows:-
As regards the complaint Ref. No. 20431 dated 06/06/2006 made by Smt. Phalguni Sinha, about the non redressal of debenture interest, the interest warrant No 64444 dated December 31, 2005 for Rs 1157.80 comprising of Rs 307.80 towards the 3rd installment of the interest already due before April 21, 2003 and Rs 850.00 towards accrued interest @ 6% p.a on the principal amount had been posted to the complainant, but that as the warrant was found to have not been encashed, the party was requested, vide letter dated August 02, 2006, to submit an undertaking on plain paper for issue of duplicate warrant and that after receipt of the undertaking from the complainant, DD No. 444302 dated September 18, 2006 for Rs. 1157.80 drawn on HDFC Bank had been dispatched to the party vide letter dated September 19, 2006 under certificate of posting on September 22, 2006. Further no complaint from the said complainant was received thereafter and the ECS mandate had been updated in the relevant record of EOL for future payments. Copies of the letters sent to the parties and copies of the covering letter, demand draft and postal proof were enclosed for perusal.
As regards the complaint Ref. No. 14513 dated April, 05, 2006 made by Shri Subhas Chandra Dalui, regarding the non receipt of interest @ 6% on debentures for the period from 21-04-2003 to 31-12-2005, it was contended that the warrant No.023706 dated December 31, 2005 for Rs.2314.56 had been dispatched on December 31, 2005. While giving the break up of this amount (as reproduced below) EOL clarified that on receipt of the compliant, the company had replied to the complainant on May 08, 2006 giving details as required.
Rs. 614.56 towards outstanding interest i.e., already due before 21-04-2003
Rs.1700.00 towards accrued interest @ 6% p.a. for the period from 21-04-2003 to 31-12-2005 on principal amount. Copies of the said letter, paid interest warrant and ATR sent on 16-01-2006, were enclosed for due perusal. 24. EOL also brought to my notice that they had earlier submitted the ATRs to SEBI relating to the above two complaints, along with the copies of reply letters and proof of dispatch, through their RTA, vide letter No. SS/EDED/SEBI/1896/06 dated 4th August, 2006 and no. SS/EDED/SEBI/1636/06 dated May 10, 2006, confirming resolution of the complaints of the said complainants and also submitted proof of the same. 25. I have perused all the documents referred to above and find them in order. It is clear that the complaints on which clarification were sought were clearly redressed as on the dates as contended by EOL. This clearly indicates that the two complaints, were duly resolved by the company by them and that SEBI had deleted the complaints from the list and hence the said complaints were not reflected in the pending complaint list up to August 31, 2006 as was forwarded by SEBI to EOL on November 21, 2006. 26. Thus the documents on record corroborate the finding that EOL have redressed all the 800 grievances of the complainants under the court sanctioned scheme for debenture holders and have affected the necessary compliance in respect of those grievances that was the subject matter of this reference. On my part, I have also noted that there is no further evidence on record, evidencing any loss suffered by any of these 800 shareholders of EOL.
27. There is also the undisputable fact that the scheme of arrangement and compromise with scheme lenders envisaged for all the four categories of debenture holders including holders of more than 2000 debentures that were filed with the Gujarat High Court and sanctioned by the court vide its judgment and order dated March 31, 2006, gave an option to the Scheme lenders to receive payment expeditiously over a period of 5 years i.e. by 31st March 2010.
28. It is possible that the debenture interests for the period after the date of the passing of this order could remain outstanding or unpaid. The affected parties are at liberty to seek fresh resolution of their grievances.
29. Bearing in mind the issues enumerated above as well as after analysing all the material available on record especially the orders passed by the Gujarat High Court, the subject matter becomes infructuous and no further question arises for determination. Hence, I in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, am inclined to dispose of the proceedings initiated against M/s Essar Oil Limited accordingly.
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