sebi:WTM/KMA/MIRSD/272/06/2010
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Facts / Headnote
Warning issued to Central Bank of India; enquiry proceedings disposed of
Provisions invoked
- s. 19
Regulations
- Reg. 28(2)
- Reg. 15(1)(b)
- Reg. 15(1)(j)
- Reg. 15(2)(b)
Parties
- Central Bank of India
Holding
SEBI warned Central Bank of India to be careful and cautious in future while discharging its duties as a debenture trustee, for violations of Regulations 15(1)(b), 15(1)(h) read with Clauses 2 and 3 of the Code of Conduct, and 15(2)(b) in the matter of SFEL. The enquiry proceedings were disposed of on the basis of the material on record as the Bank did not controvert the Enquiry Officer's findings and did not seek a personal hearing.
Full text
Page 2 of 4 recommended that all the allegations pertaining to the issue of Secured Non- Convertible Debentures by DCM may be withdrawn, for the reasons stated therein. Thereafter, a notice dated February 15, 2010 was issued by SEBI to the Bank requiring it to show cause as to why appropriate action as recommended by the Enquiry Officer should not be taken against it. A copy of the Enquiry Report was also forwarded to the Bank along with the said show cause notice. The Bank was advised to indicate as to whether it required a personal hearing before SEBI. Subsequently, the Bank, vide letter dated March 5, 2010 inter alia stated that, as a debenture trustee it had acted diligently and had taken legal action against the company for the recovery of debenture amount with interest and for enforcement of security, without funding for the legal expenses from the debenture holders. It was further replied “We have
Page 3 of 4 was filed by the Bank against the aforesaid order, the same was dismissed by the Hon’ble Supreme Court of India, vide Order dated September 26, 2008 leaving the questions of law open. It was inter alia observed by the Enquiry Officer that the Bank was not able to clearly prove compliance of Regulation 15(1)(b) of the Regulations which mandates inspection of books of account, record, registration of body corporate and trust property to the extent necessary for discharging its obligation. It was further observed, “Had a detailed inspection been conducted by the noticee, the financial position of SFEL may have come to light and consequently either the defaults in payment of principal and interest could have been avoided; or the noticee could have filed suit for enforcement of security without further delay.” Detailed findings were given by the Enquiry Officer in respect of each of the charges. It was also found that the Bank had not called for a meeting of the debenture holders and intimated them of the state of affairs of SFEL, as mandated under Regulation 15(2)(b) of the Regulations. It was inter alia found by the Enquiry Officer that the Bank had violated Regulations 15(1)(b), 15(1)(h) read with Clauses 2 and 3 of the Code of Conduct mentioned in Schedule III to the Regulations, 15(2)(b) of the Regulations in respect of its activities as a debenture trustee in the matter of SFEL. As regards, the violation of Regulation 15(1)(j) of the Regulations, the Enquiry Offi
Page 4 of 4 duty of a debenture trustee is to protect the interest of the debenture holders. Had the Bank complied with the provisions of the Regulations and conducted proper inspection of SFEL, the debenture holders would not have lost interest or the redemption amount. The duties of the debenture trustees are mandatory in nature and the breach of the same would result in an appropriate penalty. The Bank, in its reply to the show cause notice submitted that it had taken note of the findings of the Enquiry Officer on various issues and that it shall take care to ensure that such occurrences would not be repeated in future. The Bank also accepted the recommendation of “warning”. In the facts and circumstances of the case, I do not find any reason to disagree with the findings and recommendation of the Enquiry Officer and the present enquiry proceedings is disposed of as ordered herein under.
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Source: SecMarx — sebi:WTM/KMA/MIRSD/272/06/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.