2013 (10) TMI 850 - Board - Companies Law

Notice under Rule 4(1) of Adjudication Rules Proceedings and Penalty u/s 15C and 15A (2) of SEBI Act - Why an enquiry should not be conducted against the company and penalty should not be imposed under sections 15C and 15A(a) of the Securities and Exchange Board of India Act, 1992 Held that - The redressal grievance mechanism envisaged under SEBI Act was an important tool in the hands of SEBI to discharge its duties and obligations imposed on it by the Parliament in the SEBI Act, 1992 - Section 11 of the SEBI Act categorically says that one of the most important objects of SEBI was to protect the interest of investors and would, undoubtedly include timely redressal of grievances of investors - There can be no dispute with this proposition of law. The company was a sick industrial company - It had financial constraints - Its inability to appoint a full time company secretary was also evident from the record even fees to the share transfer agent, NSDL and CDSL could not be arranged - these were important factors which should have motivated the Adjudicating Officer to impose a lesser penalty in the matter - Therefore, in the peculiarity of the facts and circumstances of the case, we uphold the order in principle but reduced the said penalty in respect of violation of section 15C and in respect of Section 15A(a) of the SEBI Act - With the modification of penalty, the order was upheld and the appeal was dismissed - However, the appellant shall pay the said amount within two months from the date of receipt of the copy of this order.

Summary

Issues:
1. Delay in redressing grievances of investors.
2. Violation of SEBI regulations.
3. Imposition of monetary penalty.

Analysis:
1. The case involved a public limited company that became a sick industrial unit in 2003, with its shares listed on various stock exchanges. The Securities and Exchange Board of India (SEBI) issued a notice to the company in 2010 regarding the delay in redressing grievances of 64 investors. The company responded in 2011, stating that it had resolved the grievances, attributing the delay to staff and infrastructure shortages. SEBI imposed a monetary penalty of Rs. 5,00,000 under Sections 15C and 15A(a) of the SEBI Act after a hearing.

2. The appellant argued that it had addressed the investors' grievances before the penalty was imposed, with some complaints related to minor issues like dividends. SEBI contended that the focus was on non-compliance with SEBI's orders within the specified time limit, emphasizing the importance of holding violators accountable. The Adjudicating Officer's order was challenged for allegedly ignoring the company's difficulties in resolving grievances.

3. The court acknowledged SEBI's role in protecting investors' interests through grievance redressal mechanisms. While recognizing the company's financial constraints and operational challenges, the court upheld the penalty but reduced it to Rs. 2,00,000 considering the circumstances. The modified penalty of Rs. 2,00,000 was divided equally for violations of Sections 15C and 15A(a) of the SEBI Act. The court dismissed the appeal, directing the company to pay the penalty within two months.

This judgment highlights the significance of timely grievance redressal in alignment with SEBI regulations, balancing enforcement with the understanding of operational challenges faced by companies.