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Adjudication Order in respect of Core Education and Technologies Ltd.
Adjudication Order Summary — Core Education and Technologies Ltd. (Dec. 28, 2017)
Factual and Procedural Background
A department of SEBI (OAIE) observed two unresolved complaints against Core Education and Technologies Ltd. (the "Noticee") registered in SCORES as SEBIP/MH15/0000548/1 and SEBIP/MH15/0000548/2 alleging non-receipt of interest and non-receipt of redemption amounts on debt securities exceeding Rs. 9 crores. The OAIE contended that these complaints were not resolved within the time specified by SEBI circulars (CIR/OIAE/2/2011; CIR/OIAE/1/2012; CIR/OIAE/1/2013), thereby potentially attracting penalty under Section 15C of the SEBI Act.
Shri Prasad Jagadale was initially appointed as Adjudicating Officer on March 3, 2016 under Section 15-I of the SEBI Act read with Rule 3 of the Adjudication Rules. After his transfer, the undersigned (Suresh Gupta) was appointed Adjudicating Officer by order dated December 14, 2016 and received the proceedings on February 9, 2017.
A Show Cause Notice (SCN) dated April 29, 2016 was issued under Rule 4 of the Adjudication Rules and served by email. The Noticee did not reply initially; after a reminder, the Noticee submitted a reply dated May 11, 2017 describing severe financial distress, withdrawal of a proposed CDR scheme due to failure to secure a joint venture investment, and ongoing efforts (asset disposal, divestment, search for JV) to revive operations. The Noticee requested leniency and that proceedings be dropped without penalty.
Personal hearing opportunities were issued (hearing notices dated November 7, 2017 and December 6, 2017). On December 21, 2017 the Noticee's authorized representative (Mr. Austin Fernandes) attended, reiterated prior submissions, submitted additional written submissions (letter dated December 20, 2017) and a copy of a Bombay High Court order dated October 30, 2017 appointing an Official Liquidator following a winding-up order. The Noticee requested an adjournment and further opportunity to engage representation.
Legal Issues Presented
- Whether the Noticee has violated the provisions of Section 15C of the SEBI Act?
- Whether the Noticee is liable for monetary penalty under Section 15C of the SEBI Act?
- What quantum of monetary penalty should be imposed on the Noticee?
Arguments of the Parties
Noticee's Arguments (as recorded in the opinion)
- The company was in extremely critical financial condition; audited figures reflected severe distress.
- The company had proposed a Corporate Debt Restructuring (CDR) that was approved but depended on an anticipated Rs. 100 crore joint venture investment which did not materialize; the CDR proposal was withdrawn as a result.
- Post-withdrawal, management pursued measures to revive operations (disposal of non-core assets, divestment of overseas subsidiaries, search for JV partner) but was unable to meet interest and redemption obligations; payments would be made once financial condition improved.
- The Bank of Maharashtra (a complainant) was part of the CDR process and was aware of the company's difficulties; a meeting with debenture holders and the trustee was held on December 17, 2015.
- The Bombay High Court passed a winding-up order dated October 30, 2017 and appointed an Official Liquidator, who is vested with authority to conduct liquidation; consequently, the company was not in a position to obtain board guidance or to take action on legal matters, and required time to appoint legal representation.
- The company requested leniency and that proceedings not be continued without giving it an additional opportunity to be represented and to respond, arguing that penalty would impose further burden and cause irreparable loss.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Adjudicating Officer (AO) reviewed the record: the SCN alleging failure to redress investor grievances within the time prescribed by SEBI circulars (thus implicating Section 15C of the SEBI Act); the Noticee's written replies; and the submissions made at the hearing, including the Noticee's disclosure that a winding-up order and appointment of an Official Liquidator by the Bombay High Court took place on October 30, 2017.
The AO identified a preliminary legal question: whether SEBI's adjudication proceedings can proceed against a company that is under liquidation. To resolve this, the AO relied on the statutory provision in the Companies Act, 2013 — Section 279 (corresponding to former Section 446 of the Companies Act, 1956) — which provides that when a winding up order has been passed or a provisional liquidator appointed, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to any terms the Tribunal may impose; and that any application to the Tribunal seeking such leave is to be disposed of within sixty days.
The AO noted there was no material on record to show that the company had obtained leave of the Tribunal to proceed with adjudication. Given the absence of evidence that the Tribunal had granted leave under Section 279, the AO concluded that the adjudication proceedings could not be proceeded with while the company was under liquidation.
Holding and Implications
DISPOSAL OF PROCEEDINGS
The AO disposed of the adjudication proceedings initiated against Core Education and Technologies Ltd. by the SCN dated April 29, 2016, on the ground that the company was under liquidation and there was no record of leave from the Tribunal permitting continuation of proceedings under Section 279 of the Companies Act, 2013.
Direct effect: The adjudication proceedings were formally disposed of and a copy of the order was to be sent to the Noticee and to SEBI in terms of Rule 6 of the Adjudication Rules. The opinion does not purport to lay down any broader legal precedent beyond the application of the statutory stay under Section 279; no new precedent was set or discussed.
Administrative Details from the Order
- Show Cause Notice issued: April 29, 2016.
- Noticee's replies filed: May 11, 2017 and additional submissions dated December 20, 2017.
- Personal hearings: scheduled November 27, 2017 (no attendance), and December 21, 2017 (authorized representative attended).
- Bombay High Court winding-up order and appointment of Official Liquidator: October 30, 2017 (as furnished by the Noticee).
- Adjudicating Officer's order disposing proceedings: December 28, 2017 (signed by Suresh Gupta).
- Communication of order: a copy sent to the Noticee and to SEBI under Rule 6 of the Adjudication Rules.
This summary is based exclusively on the information contained in the provided adjudication order and does not add or infer facts beyond that text.
UNDER SECTION 15 - I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF THE SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995. In respect of: Core Education and Technologies Ltd. (PAN AAACA6016F) Block No. 1 to 4, Building No. 4, Sector III, Millennium Business Park, Mahape, Navi Mumbai 400710 BACKGROUND
1. A department of SEBI (hereinafter referred to as OAIE) observed that two complaints against Core Education and Technologies Ltd. (hereinafter referred to as Noticee) in SEBI Complaints Redress System (hereinafter referred to as SCORES) bearing SCORES complaint registration nos. SEBIP/MH15/0000548/1 and SEBIP/MH15/0000548/2 for non-receipt of interest on securities and non-receipt of redemption amount on debt securities exceeding over Rs. 9 Crores were pending against the Noticee. It was alleged that the Noticee was called upon to resolve these complaints and the same were not resolved within the specified time in terms of SEBI Circular No. CIR/OIAE/2/2011 dated June 03, 2011 read with SEBI Circular No. CIR/OIAE/1/2012 dated August 13, 2012 read with SEBI Circular No. CIR/OIAE/1/2013 dated April 17, 2013 rendering it liable for imposition of penalty under Section 15C of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act'). _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 2 of 7 APPOINTMENT OF ADJUDICATING OFFICER
2. Shri. Prasad Jagadale was appointed as Adjudicating Officer, vide Order dated March 03, 2016 under Section 15-I of the SEBI Act read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as Adjudication Rules) to inquire into and adjudge under the provisions of Section 15C of the SEBI Act for the alleged violations committed by the Noticee. Pursuant to the transfer of Shri. Prasad Jagadale, the undersigned has been appointed as the Adjudicating Officer vide Order dated December 14, 2016 and the proceedings were received on February 09, 2017. SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
3. A Show Cause Notice dated April 29, 2016 (hereinafter referred to as SCN) was issued to the Noticee by the previous Adjudicating Officer Shri. Prasad Jagadale in accordance with the provisions of Rule 4 of the Adjudication Rules, to show cause as to why an inquiry should not be held against the Noticee under Rule 4 of the Adjudication Rules for failure to resolve the two complaints within the time specified in terms of aforesaid Circulars rendering the Noticee liable for imposition of penalty under Section 15C of the SEBI Act. The said SCN dated April 29, 2016 was sent through e-mail in terms of Rule 7 (b) of the Adjudication Rules on e-mail id: compliance@core-edutech.com and the same was delivered.
4. It is noted that the Noticee had not submitted any reply to the SCN. As the Noticee had not submitted any reply to the SCN, a reminder to submit reply to the aforesaid SCN was issued vide letter dated April 26, 2017. In response to the same, the Noticee vide its letter dated May 11, 2017 submitted its reply to the SCN wherein it had, inter-alia, made the following submissions:
2. As regards the complaints (Ref. No. SEBIP/ MH15/0000548/1 dated 21 January 2015 and SEBIP/ MH15/0000548/2 dated 21 January 2015) regarding (a) non-payment of interest for the scheme 13% Core Edu and Tech Limited and _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 3 of 7 11.75% Core Projects & Technol 2016 and (b) non-payment of redemption amount of debt securities is concerned we wish to state as under:
3. ..
6. It can be observed from the Audited figures reported that the Company's nancial health is in extremely critical condition. The Company had proposed a Corporate Debt Restructuring (CDR) proposal which was approved by the CDR EG. The approved proposal had envisaged an investment of Rs. 100 Crore from a prospective joint venture partner. However, despite best efforts such a joint venture did not happen as a result of which, the Company was left with no option but to withdraw the CDR proposal.
7. Consequent to the withdrawal, the Companys management continues to its efforts to revive the operations by pursuing all alternatives available to it. Disposal of non-core assets, divestment of the Company's overseas subsidiaries and continued sustained search for an appropriate joint venture partner are part of these efforts.
9. It may further be noted that the complainant Bank of Maharashtra was a member in the CDR Scheme and was fully aware of the challenges faced by the Company. We further wish to inform you that a Meeting with all the Debenture Holders & the Trustee was also held on 17th December 2015 at which the representative of Bank of Maharashtra was present. The Debenture Trustee Company has already circulated the Minutes of the said Meeting to all the Debenture-holders.
10. In such circumstances and continued nancial stress, the Company has not been able to honour its commitments regarding payment of interest and redemption. The Company conrms that once the nancial condition of the Company improves it will be able to make the payment of the outstanding amounts.
11. In view of the foregoing submissions, the Company requests that a lenient view be taken and the proceedings be dropped without imposition of any penalty. Penalty, if imposed, will add further burden on the Company's financial health.
5. In order to conduct an inquiry in terms of Rule 4 (3) of the Adjudication Rules, the Noticee was granted an opportunity of personal hearing on November 27, 2017 at SEBI Bhavan, Mumbai vide hearing notice dated November 07, 2017. The said hearing notice was sent via Speed Post Acknowledgement Due. The _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 4 of 7 proof of delivery obtained from India Post web-site is on record. However, there was no response from the Noticee.
6. In the interest of natural justice, the Noticee was granted a final opportunity of personal hearing on December 21, 2017 at SEBI Bhavan, Mumbai vide hearing notice dated December 06, 2017. The said hearing notice was sent via Speed Post Acknowledgement Due. The proof of delivery obtained from India Post web-site is on record.
7. On the hearing date i.e. on December 21, 2017, Mr. Austin Fernandes, Manager - Finance, Authorized Representative (AR), appeared on behalf of the Noticee. The undersigned explained the purpose of the hearing and the charges/offences alleged against the Noticee. During the course of the hearing, the AR reiterate the submissions made by the Noticee vide its reply letter dated May 11, 2017. In addition to the same, the AR submitted additional written submissions on behalf of the Noticee bearing letter dated December 20, 2017 along with a copy of the Order passed by the Honble High Court of Judicature at Bombay on October 30, 2017. The AR further requested that a short adjournment of the hearing may be granted. The undersigned acceded to the request of AR and adjourned the hearing.
8. Vide the aforesaid letter dated December 20, 2017, the Noticee, inter-alia, made the following submissions:
1. The Honble High Court of Judicature at Bombay has passed an Order dated
30 October 2017 pursuant to which it has appointed an official liquidator ("OL") attached to the said High Court and the OL is now vested with the powers and authority to conduct liquidation proceedings. A copy of the High Court is attached as Annexure 1.
2. In View of the appointment of the Official Liquidator, the Company is not in a position to seek guidance of its Board of Directors. The Official Liquidator is yet to take charge.
3. It has seriously become very difficult to take any action, especially on legal matters. However, the Company has approached some legal advisors to represent it. While the Company has not yet been able to appoint any _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 5 of 7 representative as yet, it is hopeful that it should be able to appoint a representative shortly.
6. The Company hereby requests your office to not to proceed in the matter without giving one more opportunity in this matter. It is reiterated that the Company will provide all its support and co-operation in this matter. Huge and irreparable loss will be caused if any action is taken against the Company.
9. Considering the facts and circumstances of the case and reply of the Noticee, I am of the opinion that no prejudice would be caused to the Noticee in the given matter if another opportunity of hearing as requested by the Noticee during hearing is not provided to it and I deem it appropriate to decide the matter on the basis of facts/material available on record. ISSUES FOR CONSIDERATION
10. After perusal of the material available on record, I have the following issues for consideration, viz.,
I. Whether the Noticee has violated the provisions of section 15C of the SEBI Act?
II. Whether the Noticee is liable for monetary penalty under Section 15C of the SEBI Act?
III. What quantum of monetary penalty should be imposed on the Noticee? FINDINGS
11. On perusal of the material available on record and giving regard to the facts and circumstances of the case, I record my findings hereunder.
12. In the instant matter, I note that the SCN dated April 29, 2016, alleged that two complaints were filed against the Noticee in SCORES bearing complaint registration nos. SEBIP/MH15/0000548/1 and SEBIP/MH15/0000548/2. It was alleged that the Noticee failed to resolve the two complaints within the time specified in terms of SEBI Circular No. CIR/OIAE/2/2011 dated June 03, 2011 _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 6 of 7 read with SEBI Circular No. CIR/OIAE/1/2012 dated August 13, 2012 read with SEBI Circular No. CIR/OIAE/1/2013 dated April 17, 2013, thereby failed to comply with Section 15C of the SEBI Act. The provisions of Section 15C of the SEBI Act, 1992, read as under: Penalty for failure to redress investors grievances. 15C. 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.
13. In light of the submissions of the Noticee vide its letter dated December 20, 2017, I note that the Honble High Court of Judicature at Bombay has passed a winding up Order dated October 30, 2017 and appointed an Official Liquidator who is now vested with all the powers and authority to conduct liquidation proceedings of the Noticee. I am, therefore, of the view that before proceeding with the matter on its merit, it would be appropriate to first decide the preliminary issue as to whether the instant adjudication proceedings initiated by SEBI against the Noticee can be proceeded with.
14. In this regard, I refer to Section 279 of Companies Act, 2013, (corresponding to Section 446 of the erstwhile Companies Act, 1956) which came into force from December 15, 2016 vide Notification No. S.O. 3677 (E) dated December 07, 2016 issued by the Ministry of Corporate Affairs. The said provision reads as under:-
279. Stay of suits, etc., on winding up order. (1) When a winding up order has been passed or a provisional liquidator has been appointed, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as the Tribunal may impose: _____________________________________________________________________ Adjudication Order in the matter of Core Education and Technologies Ltd. Page 7 of 7 Provided that any application to the Tribunal seeking leave under this section shall be disposed of by the Tribunal within sixty days.
15. I note that there is no material available on record to suggest that leave of the Tribunal has been obtained to proceed with these adjudication proceedings. Therefore, I am of the considered view that the present adjudication proceedings against the Noticee which is under liquidation cannot be proceeded with. ORDER
16. In view of my findings noted in the preceding paragraphs, I hereby dispose of the Adjudication Proceedings initiated against Core Education and Technologies Ltd. vide SCN dated April 29, 2016.
17. In terms of the provisions of Rule 6 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, a copy each of this order is being sent to Core Education and Technologies Ltd., having address at Block No. 1 to 4, Building No. 4, Sector III, Millennium Business Park, Mahape, Navi Mumbai 400710 and also to the Securities and Exchange Board of India, Mumbai. Date: December 28, 2017 Suresh Gupta Place: Mumbai Adjudicating Officer
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