UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 In respect of: M/s. Mideast (India) Limited (PAN AAACM0319F) In the Matter of: Mideast (India) Limited _____________________________________________________________________________________________ BACKGROUND
1. Securities and Exchange Board of India (SEBI) came out with a Circular dated June 03, 2011 dealing with the processing of investor complaints against listed companies through SEBI Complaints Redress System (SCORES). In terms of said Circular, all listed companies were inter alia required to view the complaints pending against them, redress them and submit Action Taken Reports (ATRs) electronically in SCORES. As the SCORES is online electronic system, therefore, for the purposes of accessing the complaints of the investors against them, as uploaded in the SCORES, listed companies were required to login to SCORES system electronically through a company specific user id and password, to be provided by SEBI. For the purpose of generating said user id and password, listed companies which were yet to obtain SCORES user id and password, were required to submit the details for authentication to SEBI, in the format annexed to the said Circular. However, it was observed that Mideast (India) Limited (Noticee) did not submit the details to SEBI which were required to be furnished in terms of the said Circular.
2. In order to further remind the Noticee about the compliance with the requirements as laid down in the SEBI Circular dated June 03, 2011, letters dated November 14, 2011 and January 18, 2012 were sent to the Noticee informing about the commencement of processing of investor complaints in a centralized web based complaints redress system Adjudication Order in respect of Mideast (India) Ltd. Page 2 of 10 February 16, 2015 SCORES in terms of the Circular and advising the Noticee to send the information (i.e. details for authentication) as required in the Circular.
3. As observed from the contents of the Circular, SCORES introduced electronic dealing of the complaints of the investors, by the respective companies. Thus, once a complaint against a company was uploaded by SEBI in the SCORES, it amounted to calling upon by SEBI to such company to redress the investor grievance. Accordingly, it was incumbent upon such company to redress the investor complaint. It was observed that fifteen investor complaints were pending against the Noticee as on August 27, 2012. However, it was alleged that the Noticee failed to redress pending investor grievances and also failed to obtain SCORES authentication in spite of being called upon by SEBI to do so thereby violating the provisions of Section 15C of the SEBI Act, 1992.
4. Shri Praveen Trivedi was appointed as the Adjudicating Officer to inquire and adjudge under section 15c of the sebi act, 1992, the alleged violations committed by the Noticee. Pursuant to the transfer of Shri Praveen Trivedi, the undersigned was appointed as Adjudicating Officer vide Order dated December 18, 2013. SHOW CAUSE NOTICE, HEARING & REPLY
5. Show Cause Notice (SCN) in terms of the provisions of Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (Adjudication Rules) was issued to the Noticee on September 17, 2013, calling upon the Noticee to show cause why an inquiry should not be held against it under Rule 4(3) of the Adjudication Rules read with Section 15I of the SEBI Act, 1992 for the alleged violations.
6. The aforesaid SCN was duly delivered to the Noticee through the Department of Post. Vide letter dated November 21, 2013 the Noticee inter alia made the following submissions: Vide order dated 28.7.1999, the Company was referred to BIFR and various proceeding in this regard was initiated. Then vide order dated 2.11.1999 passed in C.P. No. 258 of 96, the Honble High Court of Delhi adjourned sine die all the proceedings against the Company. Thereafter vide order dated 31.01.2003 passed in CP No. 455 of 1998, the Honble High Court of Delhi appointed the Official Liquidator (OL) as Adjudication Order in respect of Mideast (India) Ltd. Page 3 of 10 February 16, 2015 Provisional Liquidator of the Company, and as such effectively the control of the Company vested in the OL. Due to persistent efforts to revive the Company, most of the creditors were paid and settled. Then, vide order dated 24.07.2003, the Honble High Court of Delhi recalled the order of appointing the Provisional Liquidator. However, the Registrar of Companies, Delhi till date has not updated its records. At this stage, it is relevant to mention that due to the circumstances as briefly explained herein above, no business could be undertaken by the Company. It was only on receipt of the letter dated 29.08.2013 from the office of Official Liquidator, Delhi, it could be known that the Company is now free to transact its business. However, the fact remains that due to multifarious proceedings initiated against the Company, the Company remained standstill and nothing could be done on behalf of the Company due to the reasons beyond the control of the Company because of which the Company could not at all perform. In the circumstances as explained herein, all most all employees left the Company and the accounts of the Company remained inactive because no business could be transacted by the Company since February 1997.
7. Subsequent to the appointment of the undersigned, vide Notice dated December 09, 2014 the Noticee was given an opportunity of personal hearing on January 06, 2015. On the scheduled date of personal hearing, Ms. Shweta Priya, appeared as Authorised Representative (AR) of the Noticee and while making submissions vide letter dated January 06, 2015 stated that the Noticee had not taken SCORES authentication till date and since the Noticee had not taken SCORES authentication, the status of pending complaints was not known. The Noticee, vide letter dated January 06, 2015, inter alia, made the following submissions: In the aforesaid matter the Honble High Court of Delhi had issued an order for appointment of provisional liquidator vide its order dated 31.01.2003, which was subsequently, stayed by the Delhi High Court vide its order dated 17.03.2003 as the Company had paid its outstanding dues to the Creditor, M/s Asta Tours and Travels. Finally, the Honble High Court of Delhi had disposed of the said matter in favour of the Company, on 24th July, 2003 quoting that the dues of the M/s Asta Tours and Travels were paid off and there was no occasion for the Official Liquidator to take any action with respect to the asset of the Company. It is pertinent to mention herein that despite the Company Petition 455 of 1998 being disposed off by the Honble High Court of Delhi on 24.07.2003, the office of Official Liquidator, Delhi issued a letter dated 14.02.2004 to Delhi Stock Exchange wherein a list was annexed for the Companies, which are under liquidation process, wherein at serial number 372 of the said list, the Company was shown under liquidation by virtue of Company petition no. 455 of 1998 filed by M/s. Asta Tour and travels against the Company in Honble Delhi high Court. It was only on receipt of letter dated 29.08.2013 from the Official Liquidator, Delhi, it could be known that the Company is free to transact its business and that the OL had been discharged in the matter. It is pertinent to note that the Company remained under liquidation for almost 11 years and the Official Adjudication Order in respect of Mideast (India) Ltd. Page 4 of 10 February 16, 2015 Liquidator took the charge of the Company and represented the Company (in liquidation) and not the erstwhile management/ ex-directors which has also been affirmed as per the mandate of law laid down in Dr. V.P Mainra (Dr.)…Petitioner v. Dawsons Leasing Limited… [2005(2) AD (Delhi) 47].therefore, it will not be out of place to mention that till December 2013, the OL was incharge of the Company and it puts an end to the powers of the Directors of making calls and it operates as a discharge of all officers of the Company including Directors and employees under Section 445(3) of Companies Act. All the matter relating to shares were done in-house by the Company, however due to various reasons beyond the control of the Company all the staff in the secretarial department and senior officer of finance department left the company during 1998-99. Accordingly there were no personnel to take over the records or statement of affairs from them. However since the year 2003 till December 2013, as the Company was under liquidation, and the OL was incharge of the Company, hence we wish to state that delay in resolving the above complaints made during the period of 2008-2012 were beyond our control thus we state that it was neither intentional nor deliberate. We humbly pray the delay to be condoned. Despite acute shortage of resources company has appointed RTA for resolution of the grievances of the shareholders at the earliest and has also enquired about the above mentioned grievances. It would be kind enough for expeditious resolving of the shareholders grievances that a copy of the complaints may please be granted to us. In the premises, it is submitted that it was due to the reasons beyond the control of the Company as elucidated hereinabove that the Company could not register under SCORES. We would like to draw your attention to doctrine of impossibility of performance (lex non cogit ad impossibilia) laid down by the Honble Supreme Court of India in catena of cases including in State of Rajasthan v Shamsher Singh [985 (Supp) SCC 416] and in Standard Charted bank v Director of Enforecemnet [2005 (4) SCC 530] wherein it is stated that impossible of compliance that would be sufficient defense for non-compliance, particularly when it is a question of the time factor. Thus in our scenario we were unable to process any grievances since the charge of the company was vested in the hands of OL.
8. Subsequently, vide letter dated January 08, 2015 the Noticee forwarded a copy of its Income Tax PAN card and SCORES Authentication Form. Vide email dated January 14, 2015 the Noticee was informed to forward its SCORES Authentication Form to the appropriate department , i.e., Office of Investor Assistance and Education; as per appropriate SEBI Circular since the details of where the hard copy needs to be forwarded was clearly mentioned in the form regarding Authentication For SCORES. ISSUES FOR CONSIDERATION
9. After perusal of the material available on record, I have the following issues for consideration, viz., A. Whether the Noticee has failed to resolve investor grievances? Adjudication Order in respect of Mideast (India) Ltd. Page 5 of 10 February 16, 2015 B. Whether the Noticee is liable for monetary penalty under Section 15C of the SEBI Act, 1992? C. What quantum of monetary penalty should be imposed on the Noticee taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992? FINDINGS
10. On perusal of the material available on record and giving regard to the facts and circumstances of the case, I record my findings hereunder. ISSUE 1: Whether the Noticee has failed to resolve investor grievances?
11. As already observed, SEBI introduced an online electronic system for resolution of investor grievances, i.e., SCORES in 2011. For the purposes of accessing the complaints of the investors against them, as uploaded in the SCORES, listed companies were required to login to SCORES system electronically through a company specific user id and password, to be provided by SEBI. By not submitting the details for authentication as required by the Circular, the Noticee did not obtain the user id and password which was essential for accessing the complaints pertaining to the Noticee, as uploaded on the SCORES for redressing the investors grievances and subsequent redressal thereof. Vide letters dated November 14, 2011 and January 18, 2012 the Noticee was once again advised to obtain the SCORES authentication. However, the Noticee failed to obtain the SCORES authentication. From the SCN I also note that the Noticee did not resolve 15 (fifteen) investor grievances pending against it as on August 27, 2012.
12. The Noticee in its reply has submitted that in 1999 it was referred to Board of Industrial and Financial Reconstruction (BIFR). The Noticee also submitted that vide order dated January 31, 2003 the Honble High Court of Delhi had appointed the Official Liquidator (OL) as Provisional Liquidator of the Noticee and as such effectively the control of the Noticee vested in the OL. The Noticee further submitted that vide order dated July 24, 2003 the Honble High Court of Delhi had had disposed of the matter in favour of the Noticee. However, the Noticee has submitted that only on receipt of letter dated August 29, 2013 from the OL, the Noticee came to know that it was free to transact its business and that the OL had been Adjudication Order in respect of Mideast (India) Ltd. Page 6 of 10 February 16, 2015 discharged in the matter. Noticee has also submitted that since it was under liquidation from 2003 to 2013 and the OL was incharge of the Noticee, the delay in resolving the investor complaints made during the period 2008-2012 (i.e., the investor grievances mentioned in the SCN) were beyond the control of the Noticee. In order to strengthen its submission, the Noticee, in its submissions, also invoked the doctrine of impossibility of performance and stated that the Noticee was unable to process any investor grievances since the charge of the Noticee was vested in the hands of the OL.
13. I have carefully perused the submissions of the Noticee and the various orders and judgements of the Honble High Court of Delhi and the Honble Supreme Court of India submitted by the Noticee. I note that though vide order dated January 31, 2003 the Honble High Court of Delhi had appointed OL as the Provisional Liquidator with effect from February 20, 2003; vide order dated March 17, 2003 Honble High Court of Delhi had stayed the order appointing OL as Provisional Liquidator. Subsequently, vide order dated July 24, 2003 Honble High Court of Delhi while disposing of the matter in favour of the Noticee, had categorically stated that there was no occasion for the OL to take any action in respect of the assets of the Noticee. The Noticee has submitted that only on receipt of letter dated August 29, 2013 from the OL, the Noticee came to know that it was free to transact its business and that the OL had been discharged in the matter. However, I note that the said letter was issued in August 29, 2013 because the Noticee had approached the office of the OL vide its letter dated April 15, 2013 requesting for a confirmation letter to the office of Registrar of Companies (RoC) for change of status from liquidation to active as the Noticee was not able to file any forms, returns, etc. on MCA21. Further, I note that the letter dated August 29, 2013, issued by the Assistant Official Liquidator clearly stated that the matter had already been disposed earlier by the Honble Court vide order dated July 24, 2003. From the aforesaid, it is clear that had the Noticee approached the office of the OL before, it could have got such a letter much before 2013. Hence, I do not agree with the contention of the Noticee that since the OL was in-charge till December 2013, the Noticee could not take SCORES authentication and take steps to resolve the grievances of the investors. Adjudication Order in respect of Mideast (India) Ltd. Page 7 of 10 February 16, 2015
14. From the Company Status Information available on the website of BIFR (www.bifr.nic.in), I note that the Noticee was referred to BIFR on four occasions, i.e., in 1999 (Case No. 94/1999), 2001 (Case No. 247/2001), 2004 (Case No. 97/2004) and 2007 (Case No. 11/2007) and all the cases were dismissed as non maintainable. Further, as per the website of BIFR the date of last order is 01/04/2010. Hence, when the SEBI Circular dated June 03, 2011 was issued, the Noticee was not within the purview of BIFR. As the Noticee was not under the purview of BIFR and could have easily obtained confirmation letter from the OL much before 2013, therefore, I hold that doctrine of impossibility of performance cannot save the Noticee on this count. I am of the considered opinion that the Noticee cannot be allowed to ignore the process of redressing the grievances of investors for reasons of its own inaction.
15. I also note that till January 06, 2015 the Noticee had not taken SCORES authentication. Though vide letter dated January 06, 2015 the Noticee has stated that it has appointed RTA for resolution of investor grievances; I note that the Noticee had failed to obtain SCORES authentication and had failed to resolve the investor grievances despite being called upon to do so by SEBI. The SEBI Circular dated June 03, 2011 clearly states that all listed companies are required to view the complaints pending against them and submit ATRs alongwith supporting documents electronically in SCORES and failure to update the ATR in SCORES will be treated as non redressal of investor complaints by the company. Further, Honble Securities Appellate Tribunal in S. S. Forgings & Engineering Limited & Others v SEBI, Appeal No. 176 of 2014 (decided on August 28, 2014) has, inter-alia, observed that Undoubtedly, an obligation is cast upon every listed company to redress investors grievances in a time bound manner as may be prescribed by SEBI from time to time. This Tribunal has consistently held that redressal of investors grievances is extremely important for the Regulator to regulate the capital market. If the grievances are not redressed within a time bound framework, it leads to frustration among the investors who may not be motivated to further invest in the capital market. Hence the importance of complaints redressal system initiated by SEBI in June, 2011 cannot be undermined and its sanctity has to be maintained by all the listed companies.. Therefore, I hold that the Noticee has failed in its duty of resolving the investor grievances pending against it as alleged in the SCN. Adjudication Order in respect of Mideast (India) Ltd. Page 8 of 10 February 16, 2015 ISSUE 2: Whether the Noticee is liable for monetary penalty under Section 15C of the SEBI Act, 1992?
16. The provisions of section 15c of the sebi act, 1992, read as under: 15C Penalty for failure to redress investors' grievances: If any listed company or any person who is registered as an intermediary, after having been called upon 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.
17. In the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216 (SC), the Honble Supreme Court of India has held that In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant.
18. A listed company is expected to comply with the extant regulatory and statutory requirements. As already observed, the Noticee failed in resolving the investor grievances pending against it, despite being called upon to do so by SEBI. Therefore, the Noticee is also liable for monetary penalty under Section 15C of the SEBI Act, 1992. ISSUE 3: What quantum of monetary penalty should be imposed on the Noticee taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992?
19. While imposing monetary penalty it is important to consider the factors stipulated in Section 15J of the Act, which reads as under: 15J - Factors to be taken into account by the adjudicating officer While adjudging quantum of penalty under section 15-I, 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 the 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 the default.
20. In the absence of material on record, the amount of disproportionate gain or unfair advantage made as a result of the default and the amount of loss Adjudication Order in respect of Mideast (India) Ltd. Page 9 of 10 February 16, 2015 caused to the investors due to the said default cannot be quantified. However, the fact remains that the Noticee, being a listed company, failed to fulfil its duty of complying with SEBI Circulars. It is the duty of SEBI to ensure speedy resolution of investor grievances and to further the cause SEBI has come out with SCORES which is a centralized web based complaints redress system that enable investors to lodge and follow up their complaints and track the status of redressal of such complaints from anywhere. After introduction of SCORES, all listed companies are required to view the complaints pending against them and submit ATRs alongwith supporting documents electronically in SCORES and SEBI Circular dated June 03, 2011 clearly states that failure to update the ATR in SCORES will be treated as non redressal of investor complaints by the company. However, listed companies like the Noticee which do not obtain SCORES authentication and do not resolve investor grievances and upload ATRs in SCORES despite SEBI Circulars frustrate the entire process. It is of utmost importance that every listed company assigns high priority to investor grievances and takes all necessary steps to redress the grievances of investors at the earliest, which the Noticee has failed to do. Hence, the omission on part of the Noticee is detrimental to the interest of investors in securities market.
21. In view of the aforesaid paragraphs, it is now established that the Noticee failed to resolve investor grievance and therefore I find that imposing a penalty of ` 4,00,000/- (Rupees Four Lakhs only) on the Noticee would be commensurate with the violation committed. ORDER
22. Considering the facts and circumstances of the case, in terms of the provisions of SEBI Act, 1992 and Rule 5(1) of the Adjudication Rules, I hereby impose a penalty of ` 4,00,000/- (Rupees Four Lakhs only) under section 15c of the sebi act, 1992, on Mideast (India) Limited.
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 the Regional Director, Northern Regional Office, Securities and Exchange Board of India, 5th Floor, Bank of Baroda Building, 16, Sansad Marg, New Delhi 110001. Adjudication Order in respect of Mideast (India) Ltd. Page 10 of 10 February 16, 2015
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 being sent to the Noticee and also to Securities and Exchange Board of India. Date: February 16, 2015 Jayanta Jash Place: Mumbai Adjudicating Officer