STANDARD MEDICAL And PHARMACEUTICALS LTD. vs ANITA KHATOR

THESE appeals arise out of common order passed by the District Forum in O.P Nos. 916 to 918 of 1994, whereby it directed the opposite party to pay the redemption amount due with subsequent interest on non convertible redeemable debentures.

IT is not in dispute that two complainants in all the O.Ps. are the holders in all 15% fully paid up non-convertible redeemable debentures of the face value of Rs. 100/- each as evidenced by three certificates issued with distinctive numbers. According to the terms of issue of debentures, they were allotted on 15.2.86 under cumulative interest scheme in which interest would be compounded half yearly and the principal amount for the time being outstanding and the accumulated interest thereon as on 30th June and 31st December, 1986 till the debentures were redeemed. They were redeemable at par in three equal instalments of Rs. 30/-, Rs. 30/- and Rs. 40/- after the expiry of 7th, 8th and 9th year from the date of allotment i.e. from 15.2.86. The first and second instalment of Rs. 30/- and Rs. 30/- stood redeemed after the expiry of 7th, 8th year from the date of their allotment. Alleging that the opposite party had neither paid the interest nor redeemed the first and second instalments, three complaints were filed seeking a direction to the opposite party i.e. M/s. Standard Medical & Pharmaceuticals Ltd., Hyderabad to pay the amount due according to the terms and conditions of debentures. The opposite party admitted the issue of debentures and its terms and conditions, but pleaded that the debenture holders at their meeting held on 18.11.92 and20.11.92 decided to give an option to all the holders of fully paid up non/- convertible redeemable debentures to send an intimation in the prescribed format from those debenture holders who do not wish to exercise their option for conversion and that non-receipt of any such option not to opt for conversion will be treated as their consent for conversion. According to the opposite party the Company sent through its circular dated 20.11.92 the option format to the complainants, but as the complainants did not return the option formats opting to non-conversion, the debentures standing in the name of the complainants stood converted into shares and therefore the complainants were entitled only for the cumulative interest due till the date of conversion and sent a cheque for the interest till 1.12.94. As the debentures were converted into shares, as the accumulated interest was sent the complainants are not entitled for any relief of redeeming the debentures.

On behalf of the complainants, the affidavit of the first complainant in each case was filed and Exs. A 1 to A 3 are marked.

THE opposite party filed its version, but no one appeared before the District Forum. In the affidavit filed by the complainant No. 1, they denied of having received the alleged circular dated 20.11.92 or the format prescribed by the opposite party for communicating the option. Since the opposite party did not produce any evidence to show such despatch by producing the entries in the despatch register or evidence of posting, the District Forum held that the opposite party had not sent such circular. It further held that since the debentures were per se non-convertible and only redeemable,, the complainants have a contractual right of redemption and the opposite party could deprive their right of redemption only if the complainants give a positive consent for the same and the opposite party cannot convert them into shares by the negative attitude of the complainants in not sending the formats. It also relied on the guidelines contained in the SEBI guidelines titled "Guidelines for Disclosure and Investor Protection" which reads as under : Section F: (1) In case, the non-convertible portions of PCD/NCD are to be rolled over with or without change in the interest rate, a compulsory option should be given to those debenture holders who want to withdraw and encash from the debenture programme Roll-over shall be done only in cases where debenture holders have sent their positive consent and not on the basis of the non-receipt of their negative reply".

The District Forum accordingly directed the opposite party to pay to the complainants the redemption amount of three instalments with principal and interest thereon at 15% p.a. from 15.2.93 and also interest accrued on the instalments at the same rate from 15.2.93. In case of first instalment, payment of interest from 15.2.93 at 15%, in case of second instalment, payment of interest at 15% from 15.2.94 and in case of third instalment payment of interest at 15% p.a. from 15.2.95 till the date of its redemption.

AGGRIEVED by the said order, these appeals are preferred by the opposite party. It is contended by the learned Counsel for the appellant that a general body meeting of the debenture holders was held on 18.11.92 at 3 p.m. which resolved to give an option to the debenture holders for allotting 10 equity shares of Rs. 10/- each face value for every debenture of Rs. 100/-. On such conversion the debentures shall stand fully redeemed and extinguished. But the dissenting debenture holders shall have the right to continue as debenture holders and the debentures held by them shall be redeemed. In the explanatory statement it was stated that "However, in the case of those debenture holders, who do not wish to have their debentures converted as proposed and who communicate their said intention in writing so as to reach the Company''s Registered Office on or before 30.12.92, the debentures held by them would be redeemed as per the original terms and conditions of the issue."

It is the case of the appellant that they have sent option letters to all the debenture holders including the complainant by letter dated 20.11.92 under certificate of posting. In the specimen form of option, it was stated that "I/ We am/are not opting for the scheme of conversion of the above debenture(s) held by me/us into Equity shares. As such, the debenture(s) held by me/us may please be redeemed as per the original terms of the issue". As they have not received back the option letters intimating that the complainants are not opting to the scheme, the debentures were converted into shares with effect from 1.1.93 and by letter dated 15.3.93 all the debenture holders were informed that original debenture certificates may please be returned, so as to enable the Company for issuing share certificates". According to the appellant, it was published in the newspapers i.e. Hindu dated 15.12.92 and also Andhra Jyothi dated 15.12.92. It is, therefore, their case that since the option letters were not sent by the complainants exercising their option against conversion, their debentures were converted into shares and accumulated interest was sent. But it is to be seen that as laid down by SEBI in its guidelines titled "Guidelines for Disclosure and Investor Protection" in Section F, the positive consent of debenture holder is necessary to convert the debentures into shares and the conversion cannot be made on the basis of non-receipt of their negative reply. It is therefore clear, that the action of the opposite party in converting the debentures into shares on the basis of non-receipt of their negative reply, from the complainants is opposed to the mandatory guidelines issued by SEBI which are binding on the opposite party. By merely sending a letter in the negative format for which the opposite party did not receive any reply, the opposite party cannot convert the debentures into shares. Even otherwise, we are satisfied that in the absence of any positive consent, altering the terms of scheme of issue of debentures by the complainants their debentures cannot be converted into shares.

FOR all the aforesaid reasons, we agree with the finding of the District FORum and dismiss these appeals i.e. FA206/95, FA240/95 and 241/95. There shall be no order as to costs in these appeals. Appeals dismissed.