BEFORE THE ADJUDICATING OFFICER … · under section 15-i of securities and exchange board of india act, 1992 read with rule 5 of sebi (procedure for holding

Adjudication Order in respect of M/s. Steel Exchange India Limited Page 1 of 18

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

ADJUDICATION ORDER NO. PJ/VP/AO–3/2015

__________________________________________________________________

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. Steel Exchange India Limited

(PAN – AABCP9362L)

In the Matter of M/s. Steel Exchange India Limited

__________________________________________________________________

BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") came

out with Circulars viz., Circular No. CIR/OIAE/2/2011 dated June 3, 2011,

Circular No. CIR/OIAE/1/2012 dated August 13, 2012 and Circular No.

CIR/OIAE/1/2013 dated April 17, 2013 (hereinafter referred to as "Circulars")

dealing with the processing of investor complaints against listed companies

through SEBI Complaints Redress System (hereinafter referred to as

"SCORES"). In terms of said Circulars, all listed companies were inter alia

required to view the complaints pending against them, redress them and submit

Action Taken Reports (hereinafter referred to as "ATRs") electronically in

SCORES. However, it was observed that M/s. Steel Exchange India limited

(hereinafter referred to as "Noticee") had failed to redress the investor

grievances within the prescribed time, that is within 30 days.


2. In order to further remind the Noticee about the compliance with the

requirements as laid down in the SEBI Circulars, letters dated April 29, 2014 and

dated July 23, 2014 were sent to the Noticee informing about the commencement

of processing of investor complaints in a centralized web based complaints redress

system “SCORES” in terms of the Circulars and advising the Noticee to redress

the investor grievances pending against the Noticee and file the ATR in SCORES

within 7 days of receipt of the said letters, failing which appropriate legal action

including initiation of adjudication proceedings, debarment from accessing capital

markets, prosecution proceedings against the Noticee and its directors may be

initiated by SEBI.

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 in the SCORES marked against

the company, 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 thirty one investor complaints were

pending against the Noticee and it was alleged that the Noticee failed to redress

pending investor grievances in spite of being called upon by SEBI to do so thereby

violating the provisions of Section 15 A(a) and Section 15C of the SEBI Act, 1992.

APPOINTMENT OF ADJUDICATING OFFICER

4. The undersigned was appointed as Adjudicating Officer vide order dated

27.02.2015 under section 19 under section 15 I of SEBI Act read with rule 3 of

SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules, 1995 (hereinafter referred to as „Rules’) to inquire into and adjudge

under Section 15A(a) and 15 C of the SEBI Act, the alleged violations of the


provisions of Circular No. CIR/OIAE/2/2011 dated June 3, 2011, Circular No.

CIR/OIAE/1/2012 dated August 13, 2012 and Circular No. CIR/OIAE/1/2013

dated April 17, 2013.

SHOW CAUSE NOTICE, REPLY AND HEARING

5. Show Cause Notice No. EAD/PJ/VRP/12342/2015 dated 30.04.2015

(hereinafter referred to as 'SCN') was issued to the Noticee under rule 4 of the

Rules to show cause as to why an inquiry should not be held and penalty be not

imposed under Section 15A(a) and Section 15C of SEBI Act for the alleged

violation of provisions of the circulars by failing to redress thirty one (31) invertors

complaints within the prescribed time. The said SCN was delivered and

acknowledged by the Noticees. The Noticee vide its letter dated 22.07.2015 made

following submissions:

Brief History of Steel Exchange India Limited (“SEIL /the Company”): Steel Exchange India Limited was incorporated in Feb’1999 as Pyxis Technology Solutions Limited. The Company is promoted by Mr. Bandi Satish Kumar along with his brothers. Pyxis Technology Solutions was a software Company focused on development of business to business specific online solutions. The promoters were originally into trading of steel & steel related products. After gaining substantial experience in steel trading, the promoters decided to gradually venture into steel manufacturing as a backward integration of their strong steel retail & trading business by acquiring Simhadri Steels, a company having a rolling mill at Vizag and setting up an ingot manufacturing unit at Kothapeta in 2004. In December 1999 M/s Steel Exchange India limited (SEIL) was incorporated as a 100% subsidiary of PTSL. M/s Pyxis approached the Capital Markets with its maiden Initial Public Offering in June 2000. Later to consolidate & expand its steel manufacturing business SEIL acquired a well-established steel specific B2B portal, which had been promoted and developed by its holding company Pyxis Technology Solutions Limited.

The equity shares of the company are now listed on the Bombay Stock Exchange Limited, Mumbai and The Calcutta stock Exchange Limited, Kolkata.

The Noticee has further stated that:

1. All the Complaints were duly replied and updated the ATRs in SCORES. 2. All these complaints were pertaining to the shareholders of GSAL (India) Limited, a delisted sick company amalgamated as per the BIFR order in 2012. 3. Allotment of shares has been completed and the Company is in the process of listing the shares. 4. The main reason for the delay in the process of allotment of shares is non completion of corporate actions by GSAL (INDIA) Limited as per the BIFR order of 2006 which are as follows:


In 2006, the BIFR vide its order dated 04.05.2006 had approved the scheme of rehabilitation submitted by GSAL. The salient points of the approved scheme are as under: a. Reduction of existing capital by 85%. b. Allotment of new shares issued to financial institutions by converting the loan to equity c. Allotment/conversion of new preference shares issued to financial institutions. d. Conversion of the said preference shares into equity shares.

5. After the BIFR order in 2012, Steel Exchange India Limited started to complete the above said pending corporate actions and the company has faced lot of problems in completion of the same as GSAL is a delisted company having a shareholder base of approximately 207,000 without proper records. 6. All these complaints were from the shareholders of GSAL (India) Limited and there are no complaints received or pending from the shareholders of STEEL EXCHANGE INDIA LIMITED. 7. The FIs like ICICI, IDBI and IFCI are also holding around 1.3 crore shares in GSAL and these Institutions are well aware of the problems associated with the issue of shares to GSAL shareholders and cooperating with the Company. 8. Further the Company is also mandatorily to submit the action taken report to BIFR for the implementation of the Scheme and the company is very much to committed to complete DRS at the earliest. 9.Further, all the issues regarding the allotment of shares of Steel Exchange India Limited to the erstwhile shareholders of GSAL (India) Limited will be completed within 30-45 days. Brief history of GSAL (India) Limited: GSAL was incorporated on 28.1.1986. The company set up the sponge iron unit in Andhra Pradesh in 1993 with financial assistance from IDBI, ICICI, IFCI and SBI. The performance of GSAL was affected due to initial teething problems and non-availability of adequate working capital which resulted in low capacity utilization. Further, reduction in custom duty on imported scrap leading to depressed market for sponge iron industry compounded the company‘s problems. The company‘s net worth was fully eroded as on 31.12.1998 and it made a reference to BIFR. It was declared sick by BIFR in July 1999 and IDBI was appointed the Operating Agency (OA). As per BIFR directions, IDBI issued advertisement for change of management in August 1999 and also wrote to a few companies/industry associations soliciting offers for take-over of the company. However, these efforts did not yield any positive result. As no acceptable revival scheme could be formulated, BIFR confirmed its opinion for winding up of GSAL in September 2002. BIFR also directed sale of assets under Section 20(4) of SICA and appointed ICICI Bank as the selling agent. As per the direction of BIFR, an Asset Sale Committee was constituted and inventory of the assets was prepared but further progress could not be made as GSAL obtained a stay from Hon‘ble High Court of Andhra Pradesh and also filed an appeal before AAIFR. After much deliberation a financial restructuring package was agreed upon. The restructuring approved by IDBI, ICICI Bank and IFCI in March 2004, December 2003 and November 2004 respectively envisaged:

Writing down of company‘s equity by 85%

Payment of 75% of outstanding principal in cash

Conversion of 25% of the principal into cumulative simple interest bearing term loan / debentures

Conversion of part of simple interest dues (about 5%) into equity and part (about 25%) into 0.1% preference shares.

Conversion of funded interest and deferred interest into 0.1% preference shares

Waiver of balance simple interest, entire compound interest, liquidated damages and other charges.


The short-term loan sanctioned in the year 2000 for working capital requirements was also rescheduled and made payable in 16 quarterly installments from June 2003 to March 2007.

Promoters to bring in Rs.1000 lakh in the form of equity as their contribution. SBI, SBH and BoB were, however, in favour of OTS of their dues and the promoters agreed to settle the dues of the said banks outside the purview of the scheme out of funds to be arranged from their own sources. However, from July 2005, it started defaulting in payment of dues to the lenders due to liquidity problems on account of low capacity utilization and idling of second kiln. In November 2005, it approached FIs/Banks with various proposals viz. for further restructuring of dues, sanction of additional working capital loan and sale of land and waste kiln gases to Sri Bhava Steel and Power Ltd. (SBSPL), a group company, etc. Its proposals were discussed at a joint meeting but keeping in view the already high exposure in the case as also the past track record, none of the secured lenders was willing to take further exposure in the company. GSAL, was, therefore, advised to identify an investor to induct funds for working capital as also for repayment of dues of secured creditors. STATUS OF THE REFERENCE BEFORE BIFR

BIFR confirmed its opinion for winding up of GSAL in September 2002.

The company obtained a stay from Andhra Pradesh High Court in November 2002. Simultaneously, the company also filed an appeal before AAIFR.

As per AAIFR direction, a Draft Rehabilitation Scheme (DRS) based on restructuring of dues of institutions and settlement of dues to banks was submitted to AAIFR in May 2005. AAIFR remanded the case to BIFR for consideration of the DRS.

In view of subsequent developments and the company‘s inability to honour the payments as envisaged in the DRS, BIFR vide order dated July 6, 2006 issued Show Cause Notice (SCN) for winding up of GSAL.

In August 2006, GSAL filed another appeal against the SCN issued by BIFR.

The company approached all the lenders with settlement proposals. While IFCI, SBI, ARCIL (assignee of SBH) and BoB accepted the OTS offer of GSAL, IDBI and ICICI Bank have assigned their dues to Pridhvi Asset Reconstruction Company (PARAS). GSAL has also inducted Steel Exchange India Ltd. (SEIL) as a strategic investor to revive the operations.

Based on the above developments, at the hearing held on July 29, 2009, AAIFR remanded the case to BIFR observing that since GSAL‘s liabilities had reduced substantially, the company could be revived. It issued directions to formulate a Draft Rehabilitation Scheme for revival of GSAL on the basis of a revised scheme to be submitted by the company and that the sanctioned scheme shall clearly lay down the management and equity structure that shall obtain in terms of the revival scheme approved by the BIFR.

SEIL as Strategic Investor in GSAL (India) Limited: The plant of GSAL is located at village Malliveedu, L. Kota Mandal, Vizianagaram District, Andhra Pradesh. The factory is well connected by road and the site is approximately at 40 kilometers distance from Visakhapatnam City. The present factory has 2 nos. of DRI rotary kilns, each of 350 Tons/ day capacity and operating with CODIR technology of Mannesmann Demag Hutten Technik, Germany. The plant has a captive railway siding with 3 tracks for receipt of Iron ore and Coal rakes. The unit has extensive material handling system for Iron ore and Coal. It has a well set up laboratory. The plant is in excellent working condition. Over 400 acres of land is available for further expansion and downward integration. With a view to expand its operations, promoters of Steel Exchange India Limited (SEIL), as a backward integration of company, have stepped in as strategic investor in revival and rehabilitation of the Sponge Iron Plant belonging to GSAL (India) Limited a BIFR referred company in 2008.


GSAL promoters agreed for the revival package suggested by SEIL which included settlement of dues by SEIL and setting up of Rolling Mill, Billet unit and a captive power plant in the GSAL premises and SEIL set up the 225,000 TPA rolling mill and 240,000 TPA Billet plant in the GSAL premises in 2010 . SEIL advanced funds to GSAL. The dues of all the financial institution have been settled. The institutions involved were IFCI, ICICI & IDBI Bank. Dues of ICICI & IDBI were assigned in favour of SEIL. GSAL submitted the progress to AAIFR who observed the introduction of a strategic investor, and that the institutional dues are settled. The DRS was submitted to the BIFR with the above plans for rehabilitation of GSAL. The scheme inter-allia proposed merger of GSAL (India) limited with SEIL at a swap ratio of 1 (one) share of SEIL for every 10 (ten) shares of GSAL. The BIFR gave its approval to the DRS in August 2012. With this GSAL now stands merged with SEIL w.e.f. 01.04.2010.

6. In the interest of natural justice an opportunity of hearing was provided to the

Noticee on 13.07.2015 vide hearing notice dated 17.06.2015. The Noticee vide its

letter and email dated 09.07.2015 requested 10 days time to submit its detailed

reply to the SCN and the same was acceded to. Another opportunity of hearing

was granted to the Noticee on 23.07.2015 vide hearing notice dated 14.07.2015.

Mr. S. Sarweswara Reddy Practicing Company Secretary & Mr. B Narahari

Company Secretary of the Noticee, Authorized Representatives (ARs) appeared on

behalf of the Noticees submitted as follows :

"in addition to the reply dated 22.07.2015 it is submitted that there were two BIFR Orders pertaining to

GSAL (India) Limited, one pertaining to 2006 and other pertaining to 2010. Subsequently, the Noticee came

into picture in 2013 and the Noticee had written/ communicated to the share holders of GSAL (India) Limited

and the same was explained by the Noticee during course of hearing. The ARs further stated that, they would like

to make further submission in writing particularly, with respect to the developments/ steps taken by the Noticee

from the last communications with the share holders of GSAL (India) Limited till date, with supporting

documents, latest by 27.07.2015".

7. The Noticee vide its letter dated 27.07.2015 has submitted as follows:

The developments or steps taken by the company from the date of Orders passed by the Hon‘ble BIFR on

04.12.2012 regarding Scheme of Amalgamation of GSAL(India) Limited with Steel Exchange India

Limited.


Thereafter from 2013 onwards the company (SEIL) made diligent efforts to implement starting with the

Orders of BIFR dated 04.05.2006 for reduction of capital, conversion of Loans to Equity etc., and Orders

dated 04.12.2013 for amalgamation of GSAL(India) Limited with Steel Exchange India Limited. In the

process it was noticed that GSAL (India) Limited did not implement the BIFR Orders dated 04.05.2006

and as a result the same was thrusted on Steel Exchange India Limited.

SEIL initiated the process for implementing the BIFR orders dated 04.05.2006 and accordingly taken up

the matters with BSE, NSDL and SEBI and the relevant correspondence that has been exchanged with the

above authorities is furnished here under in a tabular form.

Sl No

Date of letter/ order

Particulars Remarks

1 04.12.2012 Final order passed by BIFR -

2 16.01.2013 SEIL has given Notice to BSE for Fixing of Record date on 09.02.2013

BSE Rejected the same and asked the Letter from GSAL.

3 17.01.2013 SEIL has sent the Detailed letter to all eligible shareholders of GSAL.

-

4 25.01.2013 GSAL has given Notice to BSE for fixing the Common Record date for on 29.03.2015 for 85% Capital reductions and Amalgamation GSAL with SEIL without Intimation to SEIL

BSE accepted the same and fixed 29.03.2013 as Common record date for both Capital Reduction and Amalgamation

4 01.02.2013 BSE has sent the invoices for old dues of GSAL (India) Limited

GSAL not paid the annual listing fee to BSE

5 11.02.2013 SEIL has made the payment of Rs. 17,48,060 towards BSE through DD

Cleared the arrears

6 21.02.2015 NSDL has sent the Invoices for old dues of GSAL (India) Limited

Arrears from GSAL

7 25.02.2015 SEIL has made the payment of Rs. 3,66,871 towards outstanding Annual Custody fees

Cleared the dues

8 29.03.2013 Record date fixed by the BSE -

9 01.04.2013 SEIL has approached to GSAL Management for implementing the orders passed by BIFR dated 04.05.2006 regarding to Capital reduction

GSAL Management has not given the List of shareholders and other documents related to Capital Reduction. As the company became sick, there were no officials available in the company to provide data.

10 01.01.2014 After 11 Months Follow up with GSAL Management GSAL has given the partial information and documents for implementing the BIFR order dated 04.05.2006

They searched godowns, retrieved data and arranged in half baked manner in the month of Nov. 2013. There are more than 2 lakh shareholders and there is no Updation of the records with proper details.


The crux of the issue is to finalise or arrive at the correct list of shareholders which in fact has taken time and efforts.

11 05.01.2014 SEIL has submitted the all documents to NSDL and BSE for Capital reduction.

NSDL was insisting for in-principle approval for listing of reduction of capital and for issuance of additional shares as per the Orders of Hon‘ble BIFR.

12 21.03.2014 BSE informed NSDL stating that In principle approval is not possible unless until the completion Corporate action for 85% capital reduction

GSAL is a delisted entity.

13 01.04.2014 To

28.02.2015

SEIL has approached the NSDL to carry out the Corporate action for 85% capital reduction and exchanged several e-mails for completion of corporate action regarding reduction of capital by 85%.

The NSDL officials stated that the institutions are dematerialized both the old shares and new shares which were allotted subsequent to the capital reduction. It advised company to bifurcate the shares of Pre-reduction and post –reduction by rectifying / undoing the Demat made by Financial Institutions.

14 17.12.2014 SEIL has given detailed clarification to SEBI officials regarding to Investor Complaints about Amalgamation of GSAL(India) Limited with Steel Exchange India Limited

The Company also requested SEBI to suggest BSE and NSDL to expedite the process of allotment of shares to erstwhile shareholders of GSAL.

15 23.03.2015 SEIL has filed the rectification form with NSDL regarding to Institutional shareholdings.

-

16 10.04.2015 SEIL has filed the Revised rectification form with NSDL regarding to Institutional shareholdings.

-

17 21.04.2015 NSDL approved the Rectification Form regarding to Institutional shareholding.

-

18 09.05.2015 SEIL allotted the Shares in its subsequent Board Meeting.

-

19 30.06.2015 SEIL has filed the Return of Allotment with ROC

-

20 23.07.2015 SEIL sent letter dated 23.07.2015 to the 31 shareholders

Folio no. was informed.

21 27.07.2015 SEIL released press statement to BSE Notice was issued to all the shareholders of GSAL through Business standard

22 27.07.2015 SEIL filed listing application with BSE

Corporate action for Demat and dispatch of physical shares will be taken up on receipt of listing approval from BSE.


Noticee has also submitted the following:

1. Hon‘ble BIFR vides orders dated 04.12.2012 approved the Scheme of Amalgamation of GSAL with the

company. SEIL could immediately make efforts and got announced the record date in BSE on

29.03.2013. Screen shot from BSE enclosed.

2. SEIL has issued a letter dated 17.01.2013 to shareholders informing the salient features of Orders passed

by the BIFR such as Amalgamation of GSAL, Exchange Ratio, and Record date 29.03.2013.

3. The Company (SEIL) has kept the Orders of BIFR on its website for the information of shareholders

(Website: www.seil.co.in) and also created Email-Id especially for Shareholders of GSAL (India) Limited

([email protected]).

4. SEIL, for the purpose of enlistment of securities and Demat or dispatching of securities to the eligible

shareholders of GSAL, cleared all the outstanding dues of GSAL (India) Limited to BSE and NSDL in

Feb, 2013 aggregating of Rs. 21, 14,931.

5. SEIL wide letter dated 17.12.2014 brought to the notice of the SEBI about the developments pertaining to

the reduction of capital and Amalgamation of GSAL etc., wherein it was explained in details about various

complications that are involved in implementation of the Orders of Hon‘ble BIFR and to give as logical

conclusion including allotment and listing of shares.

6. While implementing the orders of BIFR dated 04.05.2006 particularly for reduction of capital by 85%, it

was noticed that the Institutional shareholding of 60,80000 equity shares was in Demat form in NSDL

which is supposed to be allotted and dematerialized subsequently to the reduction of capital and the same has

caused a great confusion in segregating the shareholding of pre and Post reduction of capital. With a series of

meetings and exchange of E-mails with NSDL, we could resolve the issue by rectifying / undoing the Demat

made by the financial institutions. NSDL, in this process, extended a great support for completion of total

exercise successfully.

7. Subsequently SEIL reduced the capital of GSAL by 85% and gone ahead with the allotment of shares as

mentioned below as per BIFR Order dated 04.05.2006

A. 82,62,100 Equity shares allotted to Financial institutions on conversion of loans

B. 9,83,64000 Equity shares allotted on conversion of preference shares to Financial institutions

C. 25904000 Equity shares allotted to the Promoters of GSAL (India) Limited

8. SEIL has also cleared all the dues of GSAL aggregating to Rs 67.07 Crores directly to the Financial

Institutions (IDBI, PARAS and ICICI) and paid Rs. 33 crores to GSAL to clear the dues of IFCI and

also paid Rs. 16 crores to GSAL to clear statutory dues and other dues.

9. SEIL, as per the Order of BIFR dated 04.12.2012, has allotted 59,82,720 equity shares on 09.05.2015

to the eligible shareholders of GSAL and filed the Return of allotment PAS-3 with ROC on 30.06.2015

and the said share certificates are not yet dispatched for want of principle approval from BSE. In order to

avoid the impending complications that may arises on account of submission of Demat request from the

shareholders before the listing itself, the dispatch of share certificates has been stalled.

10. As per the Regulations, in case further issue of shares, the company would do the corporate action for

crediting the shares to the BO Accounts or dispatch of physical share certificates to the shareholders only after

getting the in principle approval for listing from respective Stock Exchange.

11. SEIL made a press release on 27.07.2015 to BSE and is published in the newspapers updating the

shareholders about the various developments / steps taken by the company for implementing the Orders of

http://www.seil.co.in/

mailto:[email protected]


BIFR dated 04.05.2006 and 04.12.2012. It was also mentioned as to the exchange ratio and the likely

date of dispatch of share certificates to the shareholders.

12. The Company made Listing application on 27.07.2015 to BSE and we are positively expecting the same be

cleared within a Month‘s time.

13. In present case there are about 31 complaints from the investors for non receipt of shares which is aggregating

to involvement of 340 Equity shares of SEIL only and the present market price is considered, the value of

the said shares is approximately Rs.15000/-.

14. The company has responded swiftly to the investor grievances within a prescribed period by SEBI from time to

time and submitted Action Taken Reports in the SEBI scores and dispatch the same physical ATR to

respective shareholders.

15. Further in case of 31 investor complaints, SEIL vide letter dated 23.07.2015 has informed them about the

allotment of shares and the respective folio no., etc., while mentioning the fact that the share certificates are not

enclosed for want of listing approval from BSE and Demat of shares is not allowed without listing approval.

We also further bring to the notice of SEBI that as per the valuation, the shareholders of GSAL are eligible

to receive 1(one) equity share of Rs.10 each of SEIL for every 32 shares held in the company. However,

SEIL generously responded to the oral suggestion of Hon‘ble BIFR in the proceedings, though not

mandatory, and changed the exchange ratio as 1:10 from 1:32 which has benefited the investors of GSAL

immensely.

Noticee has submitted that: Steel Exchange India ltd (SEIL) has been listed on the stock exchange since 2000

and there were no complaints filed/ pending against the company as on date. SEIL is promptly complying with all the

major provisions of the listing agreement without fail.

SEIL acquired GSAL which is a Delisted Company on the stock exchange for more than a decade. GSAL became

sick for various reasons and left with huge debt burden. It is at this stage, SEIL has entered and taken a bold step

and spent about Rs. 150 crores for rehabilitation of GSAL as well as to bring back the company into normalcy which

in turn certainly would help all the stakeholders including investors of GSAL to great extent. All the necessary steps

have been taken for implementing the orders of BIFR in the best interest of the company and its stakeholders.

We respectfully submit that there is no delay as such since the company is following all procedural formalities and

simultaneously making efforts to set right the data base of 2,07,000 shareholders so as to allot and dispatch the shares

to them scrupulously. SEIL doesn‘t have any malafide intensions in not dispatching the share Certificates. About

31.00 lakh out of total 59, 82,720 equity shares are belonging to the promoters and the same also are not dispatched.

Thus, the company has not dispatched the shares to any of the shareholders.

Noticee has requested: SEBI to kindly consider track record of SEIL and also the efforts made by it to revive

GSAL (DE-listed Company) and the total revival exercise is still in progress and once it is completed there won‘t be

any complaints. Given the size of the issue, no. of shareholders, various non- compliances prevalent due to sickness etc.,

we hope and request the Regulator to take a lenient view as the dispatch of share certificates / uploading the corporate

action is subject to fulfillment certain procedural aspects and the same have come to a nearer to the conclusion except

that SEIL does not have any intentions to cause harm to the investors.


CONSIDERATION OF ISSUES

8. I have carefully perused the written submission of the Noticee and the documents

available on record. It is observed that the allegation against the Noticee is that

they have failed to redress thirty one investor complaints within the prescribed

time in term of the Circulars.

9. The issues that, therefore, arise for consideration in the present case are:

9.1. Whether the Noticee has violated the provisions of Circulars viz., Circular No.

CIR/OIAE/2/2011 dated June 3, 2011, Sebi Circular No.

CIR/OIAE/1/2012 dated August 13, 2012 and Sebi Circular No.

CIR/OIAE/1/2013 dated April 17, 201, by failing to redress thirty one

investor complaints within the prescribed time?

9.2. Does the violation, if any, attract monetary penalty under Section 15A(a) and

15C of SEBI Act?

9.3. If so, what would be the monetary penalty that can be imposed taking into

consideration the factors mentioned in Section 15J of SEBI Act?

FINDINGS

10. Before moving forward, it is pertinent to refer to the provisions of Circulars,

which reads as under:

CIRCULAR Ref. No. CIR/OIAE/2/2011 June 3, 2011 1. SEBI has commenced processing of investor complaints in a centralized web based complaints redress system ‗SCORES‘. The salient features of this system are: • Centralised database of all complaints, • Online movement of complaints to the concerned listed companies, • Online upload of Action Taken Reports (ATRs) by the concerned companies, and • Online viewing by investors of actions taken on the complaint and its current status. 2. All complaints pertaining to companies will be electronically sent through SCORES at http://scores.gov.in/Admin. The companies are required to view the complaints pending against


them and submit ATRs alongwith supporting documents electronically in SCORES. Failure on the part of the company to update the ATR in SCORES will be treated as non redressal of investor complaints by the company. Submission of physical ATR will not be accepted for complaints lodged in SCORES. For complaints forwarded to companies on or before 20/05/2011, physical ATRs should be submitted. 3. The user id and password for logging into SCORES at http://scores.gov.in/Admin are being communicated separately to companies against whom complaints are lodged in SCORES. 4. In case the complaints are processed by the Registrar to Issue and Share Transfer Agent (RTI/STA) on behalf of the company, the company should indicate in the enclosed Annexure whether they require the facility to forward complaints to the RTI/STA, so that the ATRs can be uploaded by them. In such cases, the name of the RTI/STA, the name of the Compliance Officer and email id should be furnished, so that the user id and password can be provided accordingly. Further, failure on the part of the RTI/STA to update the ATR in SCORES will be treated as non redressal of investor complaints by the company. 5. This Circular supercedes the Circular No.OIAE/Cir-1/2009 dated November 25, 2009 so far as it relates to Annexure-C to the said Circular wherein the companies had to submit physical ATRs on the complaints forwarded by SEBI to them. 6. All companies whose securities are listed on Stock Exchanges are advised to comply with the aforesaid Circular.

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CIRCULAR Ref. No. CIR/OIAE/1/2012 August 13, 2012 SEBI had issued Circular No.CIR/OIAE/2/2011 dated June 3, 2011 regarding commencement of SEBI Complaints Redress System (SCORES) and advising all companies whose securities are listed on various stock exchanges to comply with the provisions of the said circular. 1. In this regard, all companies whose securities are listed on stock exchanges, are hereby advised to obtain SCORES authentication by September 14, 2012 in terms of the aforesaid circular. 2. All companies against whom complaints are pending on SCORES, shall take appropriate necessary steps within 7 days of receipt of complaint by the concerned company through SCORES, so as to resolve the complaint within 30 days of receipt of complaint and also keep the complainant duly informed of the action taken thereon.


3. In case of failure to comply with the above, SEBI would be constrained to initiate enforcement actions as per the law as may be deemed appropriate.

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CIRCULAR Ref. No. CIR/OIAE/1/2013 April 17, 2013 1. Pursuant to the provisions of Section 15C SEBI Act, 1992, all listed companies are hereby called upon to redress the grievances of investors and inform them within 30 days of the receipt of the complaints. The details of investor grievances relating to the respective companies are available at the webpage http://scores.gov.in/admin accessed through the respective SCORES user ID and password of each company. The companies which are yet to obtain SCORES user ID and password are required to send their details as per the Form-A to SEBI (hard copy) and by email to [email protected] in order to obtain the SCORES user ID and password. Failure to obtain the SCORES user ID and password within 30 days of issue of this circular it would not only be deemed as non redressal of investor grievances but also indicate willful avoidance of the same. 2. Failure by companies to file Action Taken Reports under SCORES within 30 days of date of receipt of the grievance may also attract the provisions of Sec 15A(a) of the SEBI Act, 1992. 11. The issue for consideration is whether the Noticee has failed to redress thirty one

investor complaints within the prescribed time; the said complaints were made by

the investor through SCORES. As per the provisions of the Circulars, all

complaints pertaining to listed companies will be electronically sent through

SCORES at http://scores.gov.in/Admin. The listed companies are required to

view the complaints pending against them and submit ATRs along with supporting

documents electronically in SCORES. Failure on the part of the listed company to

update the ATR in SCORES will be treated as non redressal of investor

complaints by the listed company. Submission of physical ATR would not be

accepted for complaints lodged in SCORES. For complaints forwarded to

companies on or before 20/05/2011, physical ATRs should be submitted.

Further the listed company, against whom complaints are pending on SCORES,

shall take appropriate necessary steps within 7 days of receipt of complaint by the

concerned listed company through SCORES, so as to resolve the complaint within


30 days of receipt of complaint and also keep the complainant duly informed of

the action taken thereon. Thus the listed company shall resolve the investors'

complaints within thirty day from the receipt of the complaint in the SCORES and

submit ATRs along with supporting documents electronically in SCORES.

12. It has been alleged in the SCN that, in all there were total 31 investors complains

made by the investors through SORES, detail of the investors complaint received

month wise of the respective years are as follows:

Oct,

2013

Nov,

2013

Jan,

2014

Feb,

2014

Mar,

2014

June

2014

July

2014

Aug,

2014

Sep,

2014

Oct,

2014

Nov,

2014

Dec,

2014

Jan,

2015

Total

1 1 5 3 2 1 1 2 3 2 6 3 1 31

13. I find that the Noticee vide its reply dated 22.07.2015 has inter alia admitted by

submitting that the main reason for the delay in the process of allotment of shares

is non completion corporate actions by GSAL (INDIA) Limited as per the BIFR

order of 2006, further, it was submitted that, all the Complaints (32) were duly

replied and updated the ATRs in SCORES which were pertaining to the

shareholders of GSAL (India) Limited, a delisted sick company amalgamated as

per the BIFR order in 2012. I find that the Noticee got merged with GSAL at a

swap ratio of 1 (one) share of SEIL for every 10 (ten) shares of GSAL w.e.f.

01.04.2010. It is well settled principal of law that, when a company is incorporated,

it becomes a legal person and when it takes over or/ is merged with other

company, it takes over all the legal rights and obligations of that company. In the

case in hand inter-alia proposed merger scheme of GSAL (India) limited with

Noticee was w.e.f. 01.04.2010. Thus from 01.04.2010 the Noticee took over all the

legal rights and obligation which includes the future liability arising from the

merger agreement. I find that the Noticee has not disputed the said fact. After

considering all the contentions put forth by the Noticee, for the reasons stated

above, it is established without doubt that the Noticee has violated the provisions

of the Circulars by failing to redress the investor complaints within the prescribed

time.


14. Further, I note that the Hon‟ble Supreme Court of India in the matter of SEBI Vs.

Shri Ram Mutual Fund [2006] 68 SCL 216(SC) has also 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 Regulations is established and hence the intention of the parties

committing such violation becomes wholly irrelevant…‖.

15. In view of the foregoing, I am convinced that it is a fit case to impose monetary

penalty under Section 15A(a) and Section 15C of the SEBI Act, which reads as

under:

Penalty for failure to furnish information, return, etc.

15A. If any person, who is required under this Act or any rules or regulations made thereunder,—

(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable

to a penalty 1[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];

(b).......

(c).......

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 2[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].

1 Substituted for the words “of one lakh rupees for each day during which such failure continues or one crore rupees,

whichever is less” by the Securities Laws (Amendment) Act, 2014, w.e.f. 08-09-2014. 2 Substituted for the words “of one lakh rupees for each day during which such failure continues or one crore rupees,

whichever is less” by the Securities Laws (Amendment) Act, 2014, w.e.f. 08-09-2014.


16. While determining the quantum of monetary penalty under Section 15A(a) and

Section 15C of SEBI Act, I have considered the factors stipulated in Section 15-J

of SEBI 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.‖

17. As per Section 15A(a) and 15(c) of the SEBI Act, the Noticee is liable to penalty,

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. Further, under Section 15-I of the SEBI Act, the adjudicating officer has to

give due regard to certain factors which have been stated as above while adjudging

the quantum of penalty. It is noted that no quantifiable figures are available to

assess the disproportionate gain or unfair advantage made as a result of such

failure to redress the investor complaints in term of the circulars by the Noticee.

Further from the material available on record, it is not possible to ascertain the

exact monetary loss to the investors on account of such failure to redress the

investor complaints in term of the circulars by the Noticee.

18. In addition to the aforesaid, I am also inclined to consider the following mitigating

factor while adjudging the quantum of penalty:

The Noticee acquired GSAL which was the Delisted Company on the stock

exchange for more than a decade and GSAL became sick for various reasons and


had huge debt burden. Subsequently the Noticee reduced the capital of GSAL by

85% and gone ahead with the allotment of shares as per BIFR Order dated

04.05.2006. Further, second time BIFR gave its approval to the DRS in August

2012 and inter-allia proposed merger scheme of GSAL (India) limited with

Noticee at a swap ratio of 1 (one) share of SEIL for every 10 (ten) shares of

GSAL. w.e.f. 01.04.2010. Further the Noticee, as per the Order of BIFR dated

04.12.2012, has allotted 59,82,720 equity shares on 09.05.2015 to the eligible

shareholders of GSAL and filed the Return of allotment PAS-3 with ROC on

30.06.2015 and the said share certificates are not yet dispatched for want of in

principle approval from BSE. In order to avoid the impending complications that

may arises on account of submission of Demat request from the shareholders

before the listing itself, the dispatch of share certificates were stalled by the

Noticee. Further the Noticee could do the corporate action for crediting the shares

to the beneficiary owner accounts or dispatch of physical share certificates to the

shareholders only after getting the in principle approval for listing from respective

Stock Exchange. The Noticee made Listing application on 27.07.2015 to BSE and

the Noticee are positively expecting the same be cleared within a Month‟s time.

I have also noted that the replies have been sent to the complainants by the

Noticee, albeit with delay, which was not more than a month in many of the cases.

I have noted that further steps have also been taken by the Noticee in order to

resolve the issue and subsequent developments have also been communicated by

the Noticee to the complainants. I have also noted that apart from complaints of

shareholders of GSAL, there have been no complaints from the shareholders of

the Noticee.


ORDER

19. After taking into consideration all the facts and circumstances of the case, I

impose a penalty of Rs 1,00,000/- (Rupees one lakh only) under Section 15 A(a)

and a penalty of Rs 1,00,000/- (Rupees one lakh only) under Section 15C of the

SEBI (Total :- Rupees two lakh only) on the Noticee M/s Steel Exchange India

Limited, which in my opinion, will be commensurate with the violations

committed by the Noticee.

20. The Noticee shall pay the said amount of penalty by way of demand draft 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 should be

forwarded to Regional Director, Securities and Exchange Board of India, Southern

Regional Office, Overseas Towers, 7th Floor, 756-L, Anna Salai, Chennai- 600002.

21. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and

also to the Securities and Exchange Board of India.

Date: 31.07.2015 Prasad P. Jagadale

Place: Mumbai Adjudicating Officer

Documents

BEFORE THE ADJUDICATING OFFICER … · under section 15-i of securities and exchange board of india act, 1992 read with rule 5 of sebi (procedure for holding