Penalty for failure to redress investors grievance

Ms. Rinku Valanju, Advocate for the Appellant. Aditya Chitale and Tomu Francis, Advocates for the Respondent.

ORDER

Justice J.P. Devadhar, Presiding Officer – Appellant is aggrieved by the order passed by Adjudicating Officer (“AO” for short) of Securities and Exchange Board of India (“SEBI” for short) on September 30, 2014. By the said order penalty of Rs. 4 lakh is imposed on the appellant under Section 15C of the Securities and Exchange Board of India Act, 1992 (“SEBI Act” for short).

2. In the impugned order it is held that the appellant had failed to obtain SEBI Complaints Redress System (SCORES) authentication within the stipulated time inspite of the circular issued by SEBI on June 03. 2011, August 13, 2012 and April 17, 2013. It is further held in the impugned order that the appellant had failed to respond to the complaints filed by the investors within the reasonable time and, accordingly for the aforesaid violations, penalty of Rs. 4 lakh is imposed under Section 15C of the SEBI Act.

3. Ms. Rinku Valanju, learned counsel for the appellant submitted that although by circular dated June 03, 2011 and August 13, 2012 SEBI had called upon the listed companies to obtain SCORES authentication, SEBI by its circular dated April 17, 2013 had called upon the listed companies (including the appellant) to obtain the SCORES user ID and password within 30 days from April 17, 2013. In the present case, appellant by a letter dated May 16, 2013 had applied for SCORES user ID, i.e. within 30 days from April 17, 2013. Hence the AO of SEBI was not justified in holding that the appellant had failed to comply with the directions of SEBI within the stipulated time.

4. As regards the delay in redressing the investor grievances, counsel for the appellant submitted that in the show cause notice dated March 26, 2014 only two investor grievances were referred to which were redressed by the appellant on September 26, 2014. On receiving the SCORES ID on September 26/29, 2014 it was noticed that there were six more investor grievances which were also redressed by the appellant on November 20, 2014. Counsel for the appellant further submitted that the investor grievances were basically relating to non-receipt of dividend. Since the appellant-company had not declared any dividend during the relevant years, the question of the investor’s not receiving the dividend did not arise at all. In these circumstances, it is submitted that the AO of SEBI ought not to have imposed any penalty on the appellant. In any event, it is submitted that the penalty of Rs. 4 lakh imposed on the appellant is excessive and exorbitant and deserves to be reduced to the extent as this Tribunal deems fit and proper.

5. We see no merit in the above contentions.

6. As rightly contended by Mr. Aditya Chitale, learned counsel appearing on behalf of SEBI, as per SEBI circular dated June 03. 2011 it was obligatory on the part of the appellant to obtain SCORES authentication, however, the appellant failed to obtain SCORES authentication. Even after issuance of the reminder circular dated August 13, 2012, the appellant failed to obtain the SCORES authentication. It is only when by circular dated April 17, 2013 SEBI threatened with action if SCORES authentication was not obtained within 30 days, appellant by its letter dated May 16, 2013 applied for SCORES authentication which was submitted to SEBI on May 17, 2013. Thus, inspite of the SEBI circular dated April 17, 2013, instead of obtaining SCORES authentication within 30 days, appellant applied for SCORES authentication on the last day of obtaining SCORES authentication set out in the circular dated April 17, 2013. In these circumstances, the decision of AO that the appellant failed to obtain SCORES authentication within the stipulated time cannot be faulted.

7. As regards the delay in redressal of the investor grievances, it is not in dispute that the show cause notice dated March 26, 2014 referred to two investor grievances and the said grievances have been redressed by the appellant belatedly on September 26, 2014. It is also not in dispute that on receiving the SCORES authentication on September 26/29, 2014 it was noticed by the appellant that there were six more investor grievances and the appellant has redressed those grievances on November 20, 2014. From the aforesaid facts, it is evident that there was delay in redressing the investor grievances.

8. Section 15C of the SEBI Act provides that if any listed company fails to comply with the directions issued by the Board within the stipulated time and fails to redress the investor grievances within the time specified by the Board, then such company shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees. In the present case, investor grievances noticed by the appellant in the show cause notice dated March 26, 2014 were redressed by the appellant belatedly on September 26, 2014. Similarly, six investor grievances noticed by the appellant on obtaining SCORES authentication on September 26/29, 2014 were redressed by the appellant belatedly on November 20, 2014. Penalty calculated at the rate of Rs. 1 lakh per day for the period during which the failure continued, would in the facts of present case exceed Rs. 1 crore. However, after taking into consideration all mitigating factors the AO has imposed penalty of Rs. 4 lakh which cannot be said to be harsh or excessive. If the grievances of the investors were basically relating to non-receipt of dividend, then having responded to the two complainants on September 26, 2014, which were also relating to the dividend, the appellant could very well have given the same reply to the remaining six investors. However, admittedly the appellant responded to the six investors belatedly on November 20, 2014. In these circumstances, no fault can be found with the quantum of penalty imposed against the appellant.

9. For all the aforesaid reasons, the appeal is dismissed with no order as to costs.