Errabbi Bezawada The Case: DCM Financial tried to implement an arbitrary repayment scheme
The Verdict: The company was fined by the State Commission for not honouring the contract
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Secured debentures. Sounds like a nice safe place to put your money, doesn't it?
That's what Errabbi Bezawada thought when he retired as a professor from Delhi University in 1996. An advertisement from DCM Financial Services offering secured debentures at 19.5% interest for 18 months seemed too good to resist. What Bezawada did not realise at that point was that it was also too good to be true.
In 1998, when the investment was to have reached maturity, Bezawada wrote to the company asking for his debentures to be redeemed. To his shock, he was told that he would get far less than was advertised. The company said that it would return the Rs 4 lakh over a period of three years from the date of maturity. After the principal was returned, the company would pay back the interest portion-and this at 10% instead of the close to 20% that was promised. "The new scheme prepared by the company was arbitrary and I was not a party to it," says Bezawada.
After receiving the letter from the company, Bezawada made constant efforts to meet the officials concerned with the case, but was stonewalled. Instead of being able to present his case to a senior official, he managed to meet a junior member of the staff who told him that the company was going through a financial crisis and was therefore holding back the deposits of the majority of investors. Bezawada was convinced that it was the company's responsibility to pay off its debts, and decided to take the matter to the State Commission. "I had made up my mind to take the company to court.
My investment was the fruit of my hard work. So, I filed the case in the State Commission directly," he says. Bezawada asked a colleague's nephew, who was a lawyer, to help him fight his case. When the legal proceeding started, the company claimed that it had filed an application with the Delhi High Court for reorganisation of its share capital under the Companies Act. Bezawada and his lawyer decided not to hasten the proceedings and instead waited for the High Court's decision. By the time Bezawada's case came up for final hearing, the Delhi High Court had dismissed DCM Financial's application. This was the turning point for Bezawada's case.
What you can learn from Bezawada's case
ACT When Bezawada found that the company was reneging, he took action immediately instead of waiting for someone else to do so
INVOLVE Even when the company said it was waiting for a High Court decision, Bezawada stayed involved and followed the case
UNDERSTAND Know your rights. Bezawada knew he had a strong case because he was not a shareholder
BE PATIENT Bezawada had to wait nearly 10 years for the verdict, but he did not give up
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The State Commission, after hearing arguments from both sides, ruled in favour of Bezawada in July 2007. The court held the company guilty of not only deficiency in service in not honouring the contract and but also retaining the amount unauthorisedly under the garb of reorganisation of the share capital. "The judgement took nearly 10 years but the wait was worthwhile. I was expecting it, as I was not a shareholder of the company and the new scheme of reorganisation of share capital had no relevance to my claim," he says.
Besides the full refund of the maturity amount (Rs 4 lakh plus 19.5% interest for 18 months), the court also directed the company to pay 10% interest on the maturity amount from the date of maturity till realisation, as well as Rs 50,000 as compensation and Rs 10,000 as litigation expenses.
Till now Bezawada has got Rs 2 lakh of his investment as interim relief. "We will be starting execution proceedings against the company soon and hope to recover the entire amount. By winning this case, my belief in the judicial system has strengthened further," he says.
Capital or debt restructuring is one of the many tricks companies employ to avoid paying its debtors- especially small investors. However, there are redressal mechanisms also in place to handle such issues. The first step for an aggrieved investor should be to approach the company itself. If the company doesn't pay heed, then a complaint can be filed with the stock exchange where the company is listed. If it is an unlisted company, one can register a complaint with the Registrar of Companies. Apart from this, there are other organisations like Investor Helpline, which take up cases of individual investors.
That is the route Sundaram Puthucode Subramanyam took. After waiting for five-and-a-half years, he did not get the maturity amount for Rs 9,000 that he had put in a company's debenture issue. Finally, he filed a case through the Investor Helpline (which is monitored by the Ministry of Consumer Affairs). He got his money back within 45 days of filing for it.
Whatever the channel, as an investor, you should be aware of your rights and be ready to fight for them. As Bezawada says: "Failure to take legal steps only encourages companies to indulge in such malpractices."
