BEFORE THE ADJUDICATING OFFICER … Order in the matter of Vijaya Bank(Debenture trustee)Page 1 of...

__________________________________________________________________________________Adjudication Order in the matter of Vijaya Bank(Debenture trustee) of 24

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

(ADJUDICATION ORDER NO: AO/SG-AS/EAD/03/2015)

_____________________________________________________________

UNDER SECTION 15 - I OF THE SECURITIES AND EXCHANGE BOARD OF

INDIA ACT, 1992 READ WITH RULE 5 OF THE SECURITIES AND

EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY

AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995.

In respect of:

Vijaya Bank (Debenture Trustee)

41/2, Trinity Circle, M G Road

Bangalore – 560001

________________________________________________________________

FACTS OF THE CASE

1. Securities and Exchange Board of India (hereinafter referred to as ‗SEBI‘)

conducted inspection at the office of VijayaBank, Debenture Trustee having

SEBI Registration No. IND000000020(hereinafter referred to as ‗Noticee‘) on

September 19, 2013 and September 20, 2013 during which the inspection

team perused the records and documents pertaining to various issues

handled by the Noticee during the period from April 01, 2007 to March 31,

2013(hereinafter referred to as ‗Inspection Period‘) and also outstanding

issues till date of inspection.

APPOINTMENT OF ADJUDICATING OFFICER

2. Shri JayantaJash was appointed as Adjudicating Officer, vide Order dated

07.08.2014 under Section 15-I of the Securities and Exchange Board of India

Act, 1992 (hereinafter referred to as'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 15HB of the SEBI

Act for the alleged violations of the provisions of SEBI (Debenture Trustees)

Regulations, 1993 (hereinafter referred to as ‗DT Regulations‘), SEBI (Issue

and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to

as‗ILDS Regulations‘) and SEBI Circulars having No. CIR/MIRSD/25/2011

dated December 19, 2011 and MIRSD/DPS III/Cir-11/07 dated August 06,

2007 committed by the Noticee, as observed during the inspection. Pursuant

to the transfer of Shri JayantaJash, I have been appointed as the

Adjudicating Officer vide Order dated 22.06.2015.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

3. A Show Cause Notice dated 05.11.2014 (hereinafter referred to as ‗SCN‘)

was served on the Noticee. The SCN was issued to the Noticee under the

provisions of Rule 4 (1) of the Adjudication Rules, to show cause as to why

an inquiry should not be held against the Noticee and why penalty, if any,

should not be imposed on the Noticee under the provisions of Section 15HB

of the SEBI Act, for the alleged violations of the Noticee under Regulations

13 (a), 14, 15 (1) (ca), 15 (1) (f), 15 (1) (g) (i), 15 (1) (g) (iv), 15 (1) (h), 15 (1)

(i),15 (1) (n), 15 (1A), 17 (1), 18 (1) (e)of DT Regulations, Clause(s) 1, 2, 3, 4,

16(b) & 19 of Code of Conduct for Debenture Trustees given in Schedule III

read with Regulation 16 of DT Regulations, Regulations 2 (1) (h), 15 (2), 15

(3) (i),16 (1), 23 (4) (5) & (6)of ILDS Regulations, SEBI Circular No.

CIR/MIRSD/25/2011 dated December 19, 2011 and SEBI Circular No.

MIRSD/DPS III/Cir-11/07 dated August 06, 2007 as observed during the

inspection.


4. Noticee vide its letter dated 14.11.2014 acknowledged the receipt of the SCN

and stated that it will submit a reply to the SCN before the stipulated time.

In response to the SCN, the Noticee vide its letter dated 21.11.2014

submitted as follows:

i. At the outset Noticee sincerely apologies for the deficiencies

observed during the inspection dated 19.09.2013 and 20.09.2013.

However, post SEBI inspection Noticee has taken serious note of the

comments, remarks and lapses observed during the inspection.

ii. Noticee assures that it has initiated requisite steps to comply with all

the regulatory and reporting requirements and there will be marked

improvement in the compliance standards.

iii. Considering the corrective steps taken by the Noticee and making

serious note of the comments, remarks and lapses observed during

the inspection, Noticee kindly request not to conduct any inquiry

against the Noticee and not impose penalty under Section 15HB of

SEBI Act.

5. With respect to the allegations, Noticeeinter alia madethe following

submissions:

a) With respect to furnishingof mis-leading information in reply to the pre

inspection questionnaire in respect of loans granted to issuer

companies, Noticee submitted that there was an error in

communicating the details of loans sanctioned to the companies and

was purely an error of interpretation of the subject matter. However,


Noticee had furnished the required information, immediately on

understanding the questionnaire.

b) Regarding non furnishingof correct data in reply to the pre inspection

questionnaire (non furnishing of the details of the issuesthat are

redeemed and failure to maintain database of the issues handled on

real time basis), Noticee submitted thatpost SEBI inspection, Noticee

has started a new database of issues handled and updates the same

on realtime basis.

c) Regarding furnishing incorrect data for all the periodical reports it has

submitted to SEBI since March, 2012, Noticee submitted that it has

started furnishing correct information to SEBI from September 2013.

d) With respect to not exercisingdue diligence to ensure compliance of

creation of Debenture Redemption Reserve by issuer companies in

respect of all the issues, Noticee submitted thatpost SEBI inspection,

Noticee has started monitoring creation of Debenture Redemption

Reserve by issuer companies.

e) As regards not exercising due diligence to ensure compliance of

Listing Agreement in respect of M/s Karnataka State Financial

Corporation and Canara Bank, Noticee submitted thatpost SEBI

inspection, it has been following up with all the issuer companies for

important provisions of Listing Agreement and issending (i) a half

yearly communication to debenture holders where equity is not listed

and (ii) also to the stock exchange duly countersigned by the DT

where equity is listed of issuer companies.


f) As for inclusion of certain clauses in the Trust Deed limiting or

extinguishing the obligations of the DT, Noticee stated thatpost SEBI

inspection, it has under taken DT activity for 8 issues and the trust

deed has been executed for 4 issues and does not contain any

clauses that limits or extinguishes the obligation of the DT.Trust deed

for the remaining 4 issues will be executed within the stipulated

time.As per SEBI circular CIR/MIRSD/25/2011 dated 19-12-2011,

Noticee has taken up with all the issuer to execute the supplementary

deed by omitting all the clauses that limit or extinguish the obligations

of the DT which are in conflict with the provisions of the SEBI

Regulations.

g) With respect to non maintenance of database of issues handledand

absence of any proper system to track due dates of interest payment

and redemption, Noticee submitted that post SEBI inspection it has

started a new database of issues handled and is updating the same

on realtime basis.

h) Regarding non availability of number of debenture holders on

allotment/details of credit of debenture holders for all the issues,

Noticee stated that post SEBI inspection, it has started obtaining

details of debenture holders on allotment to ensure that the issuer

company does not allot debentures to more than 49 persons. It has

now obtained information from all issuer companies.

i) As for not exercising due diligence to ensure compliance with the

provisions of the Section 67(3) of the Companies Act in respect of

allotment to more than 49 persons for all issues, Noticee submitted

that post SEBI inspection, it has started obtaining details of


debenture holders on allotment to ensure that the issuer company

does not allot debentures to more than 49 persons. It has now

obtained information from all issuer companies.

j) Regarding non dissemination of information on the website, non-

issuance of press release and non-dissemination of the updated

events of defaults on DT‘s website, Noticee submitted that postSEBI

inspection Noticee has disseminated all information / reports.

k) As regards not signing of a written agreement by the DT with the

Issuer Company in respect of Tata Motors Ltd., Noticee stated that

post SEBI inspection it has handled 8 issues and has entered written

agreement with all issuers.

l) With respect to not obtaining certificate of utilization of funds for all

the issues it handled as DT, Noticee stated that post SEBI inspection

it has obtained certificate of utilization of funds for all the issues.

m) As for non monitoring of revision in credit rating by the DT for all the

issues, Noticee stated that post SEBI inspection it has collected

information for all issuer companies and disseminated all the

information on its website and noted the revision in the ratings. There

were no revisions in the ratings of issuers. In future whenever there is

a revision in the ratings Noticee will ensure to make the requisite

press release.

n) Regarding non monitoring of investor grievances reported by the

issuer companies (Tata Motors & TNPL) in the quarterly reports by

the DT, Noticee submitted that post SEBI inspection it has obtained


copies of the complaints from Tata Motors and TNPL and verified the

action taken by issuer companies.

o) With respect to non incorporation of certain mandatory clauses in

trust deed for all the issues it handled as DT, Noticee submitted that

post SEBI inspection it hastaken up with all issuer companies for

execution of supplementary deeds incorporating all mandatory

clauses.

p) As regards to non availability of documents for creation of security in

respect of all the secured issues, Noticee submitted that post SEBI

inspection it hasobtained documents for creation of security in

respect of all the secured issues.

6. Subsequent to the transfer of previous Adjudicating Officer Shri JayantaJash,

the undersigned in the interest of natural justice and in order to conduct an

inquiry in terms of Rule 4 (3) of the Adjudication Rules, granted the Noticee

an opportunity of personal hearing on 29.09.2015 at SEBI Bhavan, Mumbai

vide hearing notice dated 01.09.2015. In response to the aforesaid hearing

notice, Noticee vide its email dated 11.09.2015 requested to adjourn the

hearing scheduled on 29.09.2015 at SEBI Bhavan, Mumbai to any date after

12.10.2015 in light of its half yearly closing.Noticee‘srequest was acceded to

and the Noticee was granted an opportunity of hearing on 13.10.2015 at

SEBI Bhavan, Mumbai. Noticee again requested for an adjournment of the

scheduled hearing vide its email dated 08.10.2015 as Noticee‘s Board

meeting was rescheduled from 09.10.2015 to 19/20 October 2015. Vide an

email dated 08.10.2015, Noticee was granted a final opportunity of hearing

on 05.11.2015 at SEBI Bhavan, Mumbai.


7. Noticee vide its emails dated 02.11.2015 and 05.11.2015 which had its

Board minutes attached to it and vide its letter dated 04.11.2015

authorisedMr. Nageshwara Rao Y, Mr. Prashanth Y, Mr. S. Dheerendraand

Mr. S N Ananthsubramanium (herein after referred to as ‗ARs‘) to appear on

its behalf.At the time of the scheduled hearing on 05.11.2015, ARs

reiterated the submissions made by the Noticee vide its letter dated

21.11.2014. Noticee was granted time till November 09, 2015 to make

additional submissions, if any.

8. Noticee vide its letter dated 09.11.2015 made the following additional

submissions:

The shareholding pattern of the Bank as on 30-09-2015 is as follows:

Sl.No Particulars % of Share Holding

1 President of India 74.06

2 LIC of India 5.73

3 Public 20.21

Total 100.00

There were no defaults by any of the companies for whom the

Noticee is acting as Debenture Trustee, no devolvement on the Bank

and no investor has been put into inconvenience with regard to non-

receipt of interest and maturity amount on the designated due dates.

The deficiencies in the pre inspection questionnaire were cleared

during the course of inspection and all the documents were shown to

the inspecting team. The non-submission of details in

prequestionnaire was due to lack of clarity in understanding by the


concerned staff and the information sought was furnished in full

without any intention to conceal.

Noticee states and confirm that RBI has not imposed any penalty

recently i.e., during the current financial year.

Noticee would like to confirm that presently Debenture Trustee

department has been strengthened with sufficient staff and are

equipped with persons who have cleared NISM modules.

The Bank‘s participation in the Debenture Trustee activity is very

minimal and not significant. The Bank has been contemplating

gradual withdrawal from this activity. Presently Bank is acting as DT

for 35 Debt issues made by 3 issuers, out of which 2 issuers are from

the Public Sector.

As directed by the inspection team, the Observations made by the

Inspection Team of SEBI was placed at a meeting of our Board of

Directors and they have taken note of the same.

As directed by the Board, post SEBI inspection, the department has

taken prompt remedial action. The Bank has already furnished

documentary evidence of such action to SEBI. Further database

relating to the 35 Issues have been and are being updated on real

time basis and an inspection to this effect, if deemed necessary, may

be undertaken.

In view of the foregoing and HAVING REGARD TO THE FACT THAT


a) minor procedural deficiencies and non-compliance of the laid

down guidelines at that point of time as also the deficiencies were not

intentional and could be considered procedural lapses,

b) None of the issues devolved on the Bank owing to non-payment

of interest or principal amounts to the debenture holders by the

Issuers

c) non receipt of any complaint from the investors

d) effective steps taken by the Bank to address the deficiencies

pointed out in the latest inspection report

e) compliance with the extant guidelines both in letter and spirit,

Noticee requests that due consideration to the totality of

circumstances while adjudging the matter should be given.

CONSIDERATION OF ISSUES, EVIDENCE AND FINDINGS

9. I have taken into consideration the facts and circumstances of the case, the

material available on record and the submissions made by the

Noticeealongwith the supporting documents.

10. With respect tofurnishingof mis-leading information in reply to the pre

inspection questionnaire in respect of loans granted to issuer companies, the

Noticee has stated that it was purely an error of interpretation of the subject

matter and has requested to condone the error. Thus, the noticee has not

complied with Clause 19 Code of Conduct as laid down under Schedule III

read with Regulation 16 of DT Regulations. The text of the said Regulation is

reproduced below:


DT Regulations

Code of Conduct

16. Every debenture trustee shall abide by the Code of Conduct as specified inSchedule III.

Schedule III

19. A Debenture Trustee shall not make untrue statement or suppress any material fact in any documents, reports, papers or information furnished to the Board.

11. Regarding non furnishingof correct data in reply to the pre inspection

questionnaire (non furnishing of the details of the issuesthat are redeemed

and failure to maintain database of the issues handled on real time basis),

Noticee submitted thatpost SEBI inspection, Noticee has started a new

database of issues handled and updates the same on realtime basis.I note

that for the period of inspection the DT has not complied with Clauses 3 and

19 of Code of Conduct as laid done under Schedule III read with Regulation

16 of DT Regulations. The text of Clause 3 of Code of Conduct is

reproduced below:

Code of Conduct

Schedule III

3. A Debenture Trustee shall fulfill its obligations in a prompt, ethical andprofessional manner.

12. Noticee has replied that it has submitted correct information to SEBI from

September 2013.Since the Noticee was not submitting correct periodical

reports before September 2013, it has failed to comply with Circular No.

CIR/MIRSD/25/2011 dated December 19, 2011 (The Circular deals with


Review of Regulatory Compliance, Periodic Reporting and Contents of Trust

Deed for Debenture Trustees) and Regulation 18(1)(e) and Clauses 3 and 19

of Code of Conduct as laid down under Schedule III read with Regulation 16

of DT Regulations. The text of Regulation 18(1)(e) of DT Regulations is

reproduced below;

DT Regulations

Information to the Board.

18. (1) Every debenture trustee shall as and when required by the Board submit thefollowing information and documents, namely:—

…

(e) any other particular or document which is relevant to debenture trustee.

13. The Noticee has stated that it has started monitoring creation of Debenture

Redemption Reserve by issuer companies post SEBI inspection.Thus, for the

inspectionperiod, it has not complied with the provisions of Regulations

15(1)(i), 15(1)(ca) of DT Regulationsread with the provisions of Regulation

16(1) of ILDS Regulations and Clauses 1,2,3 & 4 of the Code of Conduct as

laid down under Schedule III read with Regulation 16 of DT Regulations.

ILDS Regulations

Debenture Redemption Reserve

16. (1) For the redemption of the debt securities issued by a company, the issuer shall create debenture redemption reserve in accordance with the provisions of the Companies Act, 1956 and circulars issued by Central Government in this regard.

DT Regulations

Duties of the debenture trustees.

15. (1) It shall be the duty of every debenture trustee to—


…

ca) supervise the implementation of the conditions regarding creation of securityfor the debentures and debenture redemption reserve, wherever applicable

…

(i) exercise due diligence to ensure compliance by the body corporate, with the provisions of the Companies Act, the listing agreement of the stock exchange or the trust deed

Code of Conduct Schedule III 1. A Debenture Trustee shall make all efforts to protect the interest of debentureholders.

2. A Debenture Trustee shall maintain high standards of integrity, dignity and fairness in the conduct of its business. 3. A Debenture Trustee shall fulfill its obligations in a prompt, ethical andprofessional manner. 4. A Debenture Trustee shall at all times exercise due diligence, ensure proper careand exercise independent professional judgment.

14. With respect to not exercising of due diligence in ensuring compliance of

Listing Agreement in respect of M/s Karnataka State Financial Corporation

and Canara Bank, noticee has submitted that post SEBI inspection, it is

following with all issuer companies for important provisions of Listing

Agreement.Thus, for the period of inspection, it has not exercised due

diligence to ensure compliance of Listing Agreement in respect of M/s

Karnataka State Financial Corporation (in terms of half yearly intimation to

debenture holders) and Canara Bank (half yearly dissemination to stock

exchanges) and thereby it has not complied with Regulations 15(1)(n) and

15(1)(i) of the DT Regulations. Text of Regulation 15(1)(n) is reproduced

below:


DT Regulations


15. (1)It shall be the duty of every debenture trustee to—

…

(n)communicate to the debenture holders on half yearly basis the compliance of theterms of the issue by the body corporate, defaults, if any, in payment of interestor redemption of debentures and action taken therefor

15. It is observed from Noticee‘s reply that trust deeds executed / being executed

by the Noticee for its post inspection activity do not contain any clauses that

limits or extinguishes its obligation and for the existing trust deeds Noticee

has executed supplementary trust deed and has obtained consent from the

issuer to add the clause. Thus, for the period of inspection, it has not

complied with Regulation 14 of DT Regulations and Regulation 15(3) (i) ILDS

Regulations.

DT Regulations

Obligation of the debenture trustees.

14.Every debenture trustee shall amongst other matters accept the trust deeds which contain the matters specified in Schedule IV to the regulations.

ILDS Regulations

Trust Deed 15 (3) The trust deed shall not contain a clause which has the effect of – (i) limiting or extinguishing the obligations and liabilities of the debenture trustees or the issuer in relation to any rights or interests of the investors;


16. Post SEBI inspection, Noticeehas started a new database of issues handled

and updates the same on realtime basis. Thus, for the inspection period,

Noticee did not maintain database of the issues it has handled and there was

no proper system to track due dates of interest payment and redemption.

Thus, Noticee has not complied with Regulation 17(1) of DT Regulations and

Clauses 3 and 4 of Code of Conduct as laid down under Schedule III read

with Regulation 16 of DT Regulations. I note that the same non

compliancewas observed during the inspection conducted by SEBI in the

year 2009-10 and Noticee was issued an Administrative warning for the

same. The text of Regulation 17(1) of DT Regulations is reproduced below:

DT Regulations

Maintenance of books of account, records, documents, etc.

17. (1) Subject to the provisions of any law every debenture trustee shall keep andmaintain proper books of account, records and documents, relating to the trusteeshipfunctions for a period of not less than five financial years preceding the currentfinancial year.

17. Noticee has stated that post inspection, it has started obtaining details of

number of debenture holders on allotment and details of credit of debenture

holders for all the issues. Thus, during the inspection period it did not have

the aforesaid information. Hence Noticee has not complied with Regulations

15(1) (g) (i) and 17(1) and Clause 3 and 4 of Code of Conduct as laid down

under Schedule III read with Regulations 16 of DT Regulations. The

aforesaid violation is repetitive in nature as the same was also observed

during SEBI‘s previous inspection in the year 2009-10 for which an

Administrative warning was issued. The text of Regulation 15(1) (g) (i) of DT

Regulations is reproduced below:

DT Regulations




(g)ascertain and satisfy itself that the—

(i) in case where the allotment letter has been issued and debenture certificateis to be issued after registration of charge, the debenture certificates have been despatched by the body corporate to the debenture holders within 30 days of the registration of the charge with the Registrar of Companies

18. With respect to not exercising due diligence to ensure compliance with the

provisions of the Section 67(3) of the Companies Act in respect of allotment

to more than 49 persons for all the issues, Noticee has submitted that it has

now obtained the requisite information from all the issuers. Thus, during the

inspection period Noticee did not have the aforesaid information. Hence the

Noticee by not ensuring compliance with Section 67(3) of the Companies Act,

1956 and Regulation 2(1)(h) of ILDS Regulations in respect of all the issues it

handled during the inspection period, has failed to comply with Regulation

15(1)(i) of DT Regulations.

19. Regarding nondissemination of information on the website, non-issuance of

press release and non-dissemination of the updated events of defaults on

Noticee‘s website, Noticee has submitted that post SEBI inspection it has

disseminated all the information / reports. As per ILDS Regulations and SEBI

Circular No. MIRSD/DPS III/Cir-11/07 dated August 06, 2007, the debenture

trustee shall disseminate all information and reports on debt securities

including compliance reports filed by the issuers and the debenture trustees

to the investors and the general public by placing the same on their

website.Further, as per Regulations 23(5) & (6) of ILDS Regulations, 2008

and SEBI Circular No. MIRSD/DPS III/Cir-11/07 dated August 06, 2007, the

debenture trustee shall disclose the information to the investors and the


general public by issuing a press release in the events of default by the

issuer company to pay interest on debt securities or redemption amount,

failure to create charge on the assets and revision of rating assigned to the

debt securities.At the time of inspection, it was observed that the Noticee has

not disclosed to the general public by issuing a press release the instances

where there was delay/ default in creation of security/ revision in rating.Thus,

the Noticee has not complied with SEBI Circular No. MIRSD/DPS III/Cir-

11/07 dated August 06, 2007 (The Circular deals with Dissemination of

Information on Debentures) and Regulation 23(4), (5) & (6) of ILDS

Regulations.The text of the aforesaid Regulations is reproduced below:

ILDS Regulations

Continuous Listing Conditions

23 (4) The issuer, the respective debenture trustees and stock exchanges shall disseminate all information and reports on debt securities including compliance reports filed by the issuers and the debenture trustees regarding the debt securities to the investors and the general public by placing them on their websites.

(5) Debenture trustee shall disclose the information to the investors and the general public by issuing a press release in any of the following events:

(a) default by issuer to pay interest on debt securities or redemption amount;

(b) failure to create a charge on the assets;

(c) revision of rating assigned to the debt securities.

(6) The information referred to in sub-regulation (5) shall also be placed on the websites, if any, of the debenture trustee, the issuer and the stock exchanges.

20. As for no written agreement signed between the Noticee and Tata Motors,

Noticee has stated that post SEBI inspection, ithas entered into written

agreement with all the issues it has handled. However, the Noticee has not


denied the observation of the inspection team and hence has failed to comply

with Regulations 13 (a) and 17(1) and Clause 3 and 4 of Code of Conduct as

laid down under Schedule III read with Regulation 16 of DT Regulations. It is

observed that this non compliance is repetitive in nature as it was pointed out

in the previous SEBI inspection also in the year 2009-10. The text of

Regulations 13 (a) of DT Regulations is reproduced below:

DT Regulations

Obligation before appointment as debenture trustees.

13. No debenture trustee who has been granted a certificate under regulation 8 shall act as such in respect of each issue of debenture unless—

(a)he enters into a written agreement with the body corporate before the opening of the subscription list for issue of debentures;

21. It is observed from Noticee‘s reply that post SEBI inspection it has obtained

certificate of utilization of funds for all the issues. Thus, during the inspection

period, Noticee did not have the said certificates and thus has failed to

comply withRegulations 15(1A) and 17(1) and Clause 3 and 4 of Code of

Conduct as laid down under Schedule III read with Regulation 16 of DT

Regulations. It isnoted that the same noncompliancewas pointed out in the

previous SEBI Inspection of Noticee carried out in the year 2009-10 and an

Administrative Warning was issued for the non compliance. The text of

Regulations 15(1A) of DT Regulations is reproduced below:

DT Regulations

Duties of the debenture trustees

15 (1A) The debenture trustee shall:

(a) obtain reports from the lead bank regarding progress of the project;

(b) monitorutilisation of funds raised in the issue;


(c) obtain a certificate from the issuer's auditors:

(i) in respect of utilisation of funds during the implementation period of the project;and

(ii) in the case of debentures issued for financing working capital, at the end of each accounting year.

22. As regards non monitoring of revision in credit rating by the Noticee for all the

issues, Noticee has stated post SEBI inspection, it has collected information

for all the issuer companies and disseminated all the information on its

website. Thus, the Noticee did not have the said information during the

inspection period. Hence the Noticee has failed to comply with Regulations

17(1) of DT Regulations and Clauses 3 and 4 of Code of Conduct as laid

down under Schedule III read with Regulation 16 of DT Regulations.

23. With respect to non monitoring of investor grievances reported by the issuer

companies (Tata Motors & TNPL) in the quarterly reports, post SEBI

inspection, Noticee has obtained copies of the complaints from Tata Motors

and Tamil Nadu Papers &News papers Ltd and verified the action taken by

the issuer companies. It is noted from the inspection report that a similar

observation in respect of Tata Motors was also made in the previous SEBI

inspection. Hence, the Noticee has failed to comply with Regulations 15(1)(f)

and 17(1) of DT Regulations and Clause 3, 4 and 16(b) of Code of Conduct

as laid down under Schedule III read with Regulation 16 of DT Regulations.

DT Regulations



…


(f)carry out such acts as are necessary for the protection of the debenture holdersand to do all things necessary in order to resolve the grievances of thedebenture holders

Code of Conduct

16. A Debenture Trustee shall endeavour to ensure that—

…

(b)grievances of debenture holders are redressed in a timely and appropriatemanner;

24. As regards non incorporation of certain mandatory clauses in trust deed for

all the issues the Noticee has handled, the Noticee has stated that post SEBI

inspection it has taken up with all the issuer companies for execution of

supplementary deeds incorporating all mandatory clauses.Thus, for the

inspection period Noticee has failed to comply with Regulation 14 of DT

Regulations and Regulation 15(2) of ILDS Regulations.It is pertinent to note

that the aforesaidnon compliance was pointed out in the previous SEBI

Inspection of Noticee carried out in the year 2009-10 and an Administrative

Warning was issued for the non compliance. The text of Regulation 15(2)

ILDS Regulations is reproduced below:

ILDS Regulations

Trust Deed

15 (2)The trust deed shall contain such clauses as may be prescribed under Section 117A of the Companies Act, 1956 and those mentioned in Schedule IV of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993.

25. With respect to non availability of documents for creation of security in

respect of all the secured issues, the Noticee has stated that post SEBI


inspection, it has obtained documents for creation of security in respect of all

the secured issues. Therefore, during the inspection period the Noticee has

not complied with Regulations 15 (1) (h) and 17(1) of DT Regulations and

Clauses 3 and 4 of Code of Conduct as laid down under Schedule III read

with Regulation 16 of DT Regulations.It is noted that the aforesaid non

compliance was pointed out in the previous SEBI Inspection of Noticee

carried out in the year 2009-10 and an Administrative Warning was issued for

the non compliance. The text of Regulation 15(1) (h) of DT Regulations is

reproduced below:

DT Regulations



…

(h) ensure on a continuous basis that the property charged to the debentures isavailable and adequate at all times to discharge the interest and principalamount payable in respect of the debentures and that such property is free fromany other encumbrances save and except those which are specifically agreed to by the debenture trustee

26. It is observed from the records that to see the compliance level of the

Noticee, the inspection team had sought details of list of debenture holders

and other documents pertaining to the issues handled by the Noticee which

have been redeemed. The Noticeewas not able to furnish the list of

debenture holders and other details of redemption at the time of inspection.

The Noticee in the course of Adjudication Proceedings has submitted details

of redemption (payments etc.) along with debenture holders, bank

statement.Thus, I observe that the Noticee did not have the aforesaid

information with it at the time of inspectionand hence has failed to comply

with Regulations 15 (1) (g) (iv) and Clause 2, 3 and 4 of Code of Conduct as


laid down under Schedule III read with Regulation 16 of DT Regulations.

Further, from the documents on record,it is noted that this non compliance is

repetitive in nature. The text of Regulation 15(1) (g) (iv)of DT Regulations is

reproduced below:

DT Regulations



(g)ascertain and satisfy itself that the—

(iv) debenture holders have been paid the monies due to them on the date ofredemption of the debentures;

27. The aforesaid non compliances of the Noticee attract penalty under Section

15HB of the SEBI Act. The text of the said provision is as follows:

SEBI Act

15HB. Penalty for contravention where no separate penalty has been provided.Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.

28. While determining the quantum of monetary penalty, it is important to

consider the factors stipulated in Section 15 J of the SEBI Act, which reads

as under :

15JFactors 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 a group of investors as a

result of the default ;

c) the repetitive nature of the default

29. The material available on record has not quantified the amount of

disproportionate gain or unfair advantage, if any,made by the Noticee and the

loss, if any,suffered by the investors as a result of the Noticee‘snon

compliance. However as mentioned above certainnon compliances of the

Noticee are repetitive in nature.

30. In view of the abovementioned conclusion and after considering the factors

under Section 15J of the SEBI Act, I hereby impose a penalty of

`10,00,000/- (Rupees Ten Lakh only) on the Noticee under Section 15HB of

the Securities and Exchange Board of India Act, 1992 which is appropriate

in the facts and circumstances of the case.

ORDER

31. In exercise of the powers conferred under Section 15 I of the Securities and

Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange

Board of India (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995, I hereby impose a penalty of ` 10,00,000

/- (Rupees Ten Lakh only) on Vijaya Bank,Debenture Trustee having SEBI

Registration No. IND000000020 in terms of the provisions of Section 15HB

of the Securities and Exchange Board of India Act 1992 for its non

complianceunder Regulations 13 (a), 14, 15 (1) (ca), 15 (1) (f), 15 (1) (g) (i),


15 (1) (g) (iv), 15 (1) (h), 15 (1) (i),15 (1) (n), 15 (1A), 17 (1), 18 (1) (e)of

SEBI (Debenture Trustees) Regulations, 1993, Clause(s) 1, 2, 3, 4, 16(b) &

19 of Code of Conduct for Debenture Trustees given in Schedule III read

with Regulation 16 of SEBI (Debenture Trustees) Regulations, 1993,

Regulations 2 (1) (h), 15 (2), 15 (3) (i),23 (4) (5) & (6) read with 16(1) of

SEBI (Issue and Listing of Debt Securities) Regulations, 2008, SEBI Circular

No. CIR/MIRSD/25/2011 dated December 19, 2011 and SEBI Circular No.

MIRSD/DPS III/Cir-11/07 dated August 06, 2007. In the facts and

circumstances of the case, I am of the view that the said penalty is

commensurate with the default committed by the Noticee.

32. The penalty shall be paid by way of Demand Draft drawn 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 shall be forwarded to

Chief General Manager- EFD, Securities and Exchange Board of India, Plot

No. C4-A, ‗G‘ Block, BandraKurla Complex, Bandra (E), Mumbai – 400 051.

33. 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

Vijaya Bank,Debenture Trustee having office at 41/2, Trinity Circle, M.G.

Road, Bangalore- 560001 and also to the Securities and Exchange Board of

India, Mumbai.

Place: MUMBAI SURESH GUPTA Date: 31.12.2015 ADJUDICATING OFFICER

BEFORE THE ADJUDICATING OFFICER … Order in the matter of Vijaya Bank(Debenture trustee)Page 1 of...

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