ORDER

(UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995)

AGAINST

M/s ADARSH DERIVATIVES LTD.

��

1. These proceedings arise consequent to the order of the Securities an Exchange Board of India (SEBI) dated� November 2, 2005 to enquire into and adjudge the� contravention of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996 read with Section 15HB of the SEBI Act, 1992 (for brevity�s sake, hereinafter referred to as the Regulations and the Act respectively) by M/s Adarsh Derivatives Limited (for brevity�s sake, hereinafter referred to as ADL) in the matter of their alleged failure to appoint a common share agency for handling the share registry work both for their dematerialised� and physical securities.

� �� NOTICE/ REPLY/ PERSONAL HEARING:

2. Accordingly, ADL was issued a notice dated February 20, 2006 in terms of Rule 4(1) of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 (Rules) in terms of which they were advised to show cause as to why enquiry proceedings should not be held against them for the alleged violation of the provisions of Regulation 53A of the Regulations and why the penalty prescribed under section 15HB of the Act should not be imposed upon them. ADL were also advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice.

3. In response to the said notice, ADL vide their letter dated March 17, 2006, inter-alia submitted that a change in control and the management of their company had been effected by the passing of a special resolution on January 25, 2006 in terms of provisions of the Takeover Regulations and that the new management had immediately thereafter, on February 01, 2006, appointed M/s. Pinnacle Shares Registry Private Limited as their common agency for handing all the share registry work for both the demat and physical shares of the company, in terms of Regulation 53A of the said Regulations and that the said RTA had also communicated their consent to act as the common share agency. A faxed copy of the said communication dated February 01, 2006 received from the RTA was enclosed for due perusal.

4. As the documentation, evidencing their compliance with Regulation 53A of the said Regulations was found to be inadequate, a notice of hearing dated May 12, 2006 in terms of Rule 4(3) of the Rules was issued to ADL advising them to attend the proceedings to be held on June 6, 2006 along with the documentary proof in support of their contentions at the time of the hearing.

5. On the said date, Shri S.D. Israni and Shri Satyan S. Israni, appeared on behalf of ADL and while agreeing to the delayed compliance of Regulation 53A of the said Regulations, however stated that the new management of ADL that had taken control only on January 25, 2006, had immediately thereafter, initiated steps to appoint M/s. Pinnacle Shares Registry Private Limited as the common share agency, under an agreement dated March 23, 2006, effective from February 2006. �A copy of the said bi-partite agreement entered into between ADL and the RTA was submitted for due perusal. It was also submitted that ADL had established connectivity with both NSDL and CDSL. Subsequently, the following documents under cover of letter dated June 12, 2006, were also forwarded as proof of the contentions advanced by them during the course of the hearing.

a) Copy of the agreement dated April 01, 1999 entered into by ADL with Magnum Fincap Ltd. for handling registration of transfers, before the change in control and takeover by the present management

b) Certified true copy of the Special Resolution dated January 25, 2006 passed by the shareholders of ADL pursuant to Regulation 12 of the Takeover Regulations 1997 authorizing the change in control and takeover of ADL by the new management.

c) List of key persons of the previous management of ADL.

d) Certified copy of the breakup of demat and physical shares of ADL.

e) Copy of the tri-partite agreement dated August 07, 2000 entered into between ADL, CDSL and the RTA. �

f) Copy of the tri-partite agreement dated August 08, 2000 entered into between ADL, NSDL and the RTA. �

�� CONSIDERATION OF ISSUES

6. Regulation 53A of the Regulations which came into force on September 02, 2003, reads as under:

�All matters relating to the transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the depositories shall be handled and maintained at a single point i.e. either in-house by the issuer or by a Share Transfer Agent registered with the Board.�

7. Thus the provisions of the said Regulation mandates all issuer companies to appoint a common agency to handle the share registry work relating to both the physical and demat shares of the company, which can be done either in house or through a SEBI registered Registrar and Transfer Agent (RTA).

8. The object of the appointment of the common share agency which was brought out in SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, and is applicable to all issuer companies to appoint a common agency for handling all share registry work, is to avoid:

a) �� any delay in dematerialization, and

b)�� Non-reconciliation of the share holding due to lack of proper co-ordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.�

9. Thus the provisions of Regulation 53A of the Regulations would be applicable only to that company, all of whose shares have been dematerialized or to those companies whose shares are both in the physical and demat mode but not to those companies all of whose shares continue to remain in the physical mode. As regards the shares in the demat mode, before the admission of any security into the depository system, it would be necessary for the issuer company to establish electronic connectivity with both the depositories either directly or through a RTA.

10. Accordingly, SEBI had earlier brought out a circular bearing no.FITTC/DC/ Policy-Cir-01/2001 dated August 03, 2001 in terms of which, all companies were advised to establish connectivity with both the depositories on or before September 30, 2001 so as to facilitate compulsory trading in rolling settlement effective from January 2, 2002. In terms therein, all stock exchanges were advised to submit a compliance report to SEBI by October 15, 2001.

11. It appears that vide SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001, a list of all the scrips that had established connectivity with the depositories was brought out. In terms of the said circular, the shares of the companies that had not established connectivity with the both depositories as on October 31, 2001 were to be traded on the �Trade for Trade� settlement mode and not on the normal rolling settlement.

12. Thus on date, there continue to be companies that have not yet dematerialized their shares and instead have continued to retain their shares in a physical mode and the transfers, maintenance of record of the holders of securities and handling of the said physical securities in such cases is continued to be done in-house or through a registered share transfer agent.

13. �Keeping in mind these facts and circumstances and the documents on record, the limited issue that arises for my consideration is the extent of liability if any, on the part of ADL as regards the delayed compliance with Regulation 53A of the said Regulations.

14. The documents submitted by ADL testify to the fact that a new set of directors had taken control over ADL consequent to a change in control and management of the company that was duly approved through a special resolution dated January 25, 2006 passed by the share holders of ADL through a postal ballot. I have also perused the list of promoters /directors/persons stated to have been in control of ADL prior to the said change in control and management and have noted that new persons stand to be inducted into the Board pursuant to the above discussed resolution. Prior to the said change of control and management of ADL, an agreement dated April 1, 1999, which was valid for three years, had been entered into by the previous management of ADL with M/s Magnum Fincap Limited to handle the share registry work relating to only the physical shares of the company.

15. Considering that approximately about 40% of the shares of ADL are in the physical form while the remaining 60% are in the demat form, it is evident that from 1999 till 2006 (the time of the appointment of Pinnacle as common share agency under an agreement dated March 23, 2006 effective from February 01, 2006) there was no agency to handle the share registry work relating to the demat shares of ADL �and from 2002 till the date of the present appointment of Pinnacle, there was no agency on record to handle the share registry work relating to both the physical and demat shares of the said company.

16. It is however noted that connectively had been established with both the depositories in the year 2000 itself to enable the shareholders of ADL to dematerialize their shares and for this purpose, ADL had also entered into the necessary tri-partite agreements with both NSDL and CDSL respectively. I have perused the copies of the tripartite agreement dated August 8, 2000 entered into with NSDL and Pinnacle Share Registry Private Limited and the agreement dated August 7, 2000 entered into with CDSL and Pinnacle Share Registry Private Limited submitted during the course of the present proceedings and find them to be in order. ��

17.�� It is thus evident that in the interim period, there has admittedly been a non compliance of the mandate prescribed in Regulation 53A of the said Regulations. The present management of ADL have however sought exoneration of their liability as regards the said non compliance, on the ground that immediately after taking control of the company, they had ensured all regulatory compliances to be in place and towards that end had appointed a common share agency with effect from February 2006.

18�� Although there has been a delay of around 2 � years after the due date of compliance, in adhering to the mandate stipulated by SEBI, in the contextual facts of the case, I am inclined to believe that the liability of the previous management of ADL cannot be shifted to the new management, unless negligence on their part is proved. The submissions made by the representatives of ADL and the documents on record corroborate the finding that the new management of ADL has taken all due care having regard to their duty and responsibility, and had affected the necessary compliance immediately after taking control over the company. Besides there is no evidence on record evidencing any loss suffered by the shareholders of ADL, viz. complaints against ADL etc. In view thereof, I am of the considered opinion that no cognizance is required to be taken for the belated compliance of Regulation 53A of the Regulations and the imposition of any penalty in the present matter is not necessitated.

19.�� Hence on a judicious exercise of the discretion conferred upon me, and after analyzing all the material available on record as well as factors laid down in Section 15J of the SEBI Act, 1992, i.e. the amount of disproportionate and unfair advantage wherever quantifiable as a result of the default, the amount of loss to an investor or a group of investors as a result of the default, the repetitive nature of the default, all of which are in the negative, I in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, am inclined to hold that� the imposition of any penalty in the present matter is not warranted and accordingly the proceedings initiated against M/s Adarsh Derivatives Limited are hereby dropped.�

PLACE: MUMBAI�� G. BABITA RAYUDU

DATE: JULY� 07, 2006�� ADJUDICATING OFFICER

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ORDER (UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995) AGAINST M/s ADARSH DERIVATIVES LTD. �� 1. These proceedings arise consequent to the order of the Securities an Exchange Board of India (SEBI) dated� November 2, 2005 to enquire into and adjudge the� contravention of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996 read with Section 15HB of the SEBI Act, 1992 (for brevity�s sake, hereinafter referred to as the Regulations and the Act respectively) by M/s Adarsh Derivatives Limited (for brevity�s sake, hereinafter referred to as ADL) in the matter of their alleged failure to appoint a common share agency for handling the share registry work both for their dematerialised� and physical securities. � �� NOTICE/ REPLY/ PERSONAL HEARING: 2. Accordingly, ADL was issued a notice dated February 20, 2006 in terms of Rule 4(1) of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 (Rules) in terms of which they were advised to show cause as to why enquiry proceedings should not be held against them for the alleged violation of the provisions of Regulation 53A of the Regulations and why the penalty prescribed under section 15HB of the Act should not be imposed upon them. ADL were also advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice. 3. In response to the said notice, ADL vide their letter dated March 17, 2006, inter-alia submitted that a change in control and the management of their company had been effected by the passing of a special resolution on January 25, 2006 in terms of provisions of the Takeover Regulations and that the new management had immediately thereafter, on February 01, 2006, appointed M/s. Pinnacle Shares Registry Private Limited as their common agency for handing all the share registry work for both the demat and physical shares of the company, in terms of Regulation 53A of the said Regulations and that the said RTA had also communicated their consent to act as the common share agency. A faxed copy of the said communication dated February 01, 2006 received from the RTA was enclosed for due perusal. 4. As the documentation, evidencing their compliance with Regulation 53A of the said Regulations was found to be inadequate, a notice of hearing dated May 12, 2006 in terms of Rule 4(3) of the Rules was issued to ADL advising them to attend the proceedings to be held on June 6, 2006 along with the documentary proof in support of their contentions at the time of the hearing. 5. On the said date, Shri S.D. Israni and Shri Satyan S. Israni, appeared on behalf of ADL and while agreeing to the delayed compliance of Regulation 53A of the said Regulations, however stated that the new management of ADL that had taken control only on January 25, 2006, had immediately thereafter, initiated steps to appoint M/s. Pinnacle Shares Registry Private Limited as the common share agency, under an agreement dated March 23, 2006, effective from February 2006. �A copy of the said bi-partite agreement entered into between ADL and the RTA was submitted for due perusal. It was also submitted that ADL had established connectivity with both NSDL and CDSL. Subsequently, the following documents under cover of letter dated June 12, 2006, were also forwarded as proof of the contentions advanced by them during the course of the hearing. a) Copy of the agreement dated April 01, 1999 entered into by ADL with Magnum Fincap Ltd. for handling registration of transfers, before the change in control and takeover by the present management b) Certified true copy of the Special Resolution dated January 25, 2006 passed by the shareholders of ADL pursuant to Regulation 12 of the Takeover Regulations 1997 authorizing the change in control and takeover of ADL by the new management. c) List of key persons of the previous management of ADL. d) Certified copy of the breakup of demat and physical shares of ADL. e) Copy of the tri-partite agreement dated August 07, 2000 entered into between ADL, CDSL and the RTA. � f) Copy of the tri-partite agreement dated August 08, 2000 entered into between ADL, NSDL and the RTA. � �� CONSIDERATION OF ISSUES 6. Regulation 53A of the Regulations which came into force on September 02, 2003, reads as under: �All matters relating to the transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the depositories shall be handled and maintained at a single point i.e. either in-house by the issuer or by a Share Transfer Agent registered with the Board.� 7. Thus the provisions of the said Regulation mandates all issuer companies to appoint a common agency to handle the share registry work relating to both the physical and demat shares of the company, which can be done either in house or through a SEBI registered Registrar and Transfer Agent (RTA). 8. The object of the appointment of the common share agency which was brought out in SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, and is applicable to all issuer companies to appoint a common agency for handling all share registry work, is to avoid: a) �� any delay in dematerialization, and b)�� Non-reconciliation of the share holding due to lack of proper co-ordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.� 9. Thus the provisions of Regulation 53A of the Regulations would be applicable only to that company, all of whose shares have been dematerialized or to those companies whose shares are both in the physical and demat mode but not to those companies all of whose shares continue to remain in the physical mode. As regards the shares in the demat mode, before the admission of any security into the depository system, it would be necessary for the issuer company to establish electronic connectivity with both the depositories either directly or through a RTA. 10. Accordingly, SEBI had earlier brought out a circular bearing no.FITTC/DC/ Policy-Cir-01/2001 dated August 03, 2001 in terms of which, all companies were advised to establish connectivity with both the depositories on or before September 30, 2001 so as to facilitate compulsory trading in rolling settlement effective from January 2, 2002. In terms therein, all stock exchanges were advised to submit a compliance report to SEBI by October 15, 2001. 11. It appears that vide SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001, a list of all the scrips that had established connectivity with the depositories was brought out. In terms of the said circular, the shares of the companies that had not established connectivity with the both depositories as on October 31, 2001 were to be traded on the �Trade for Trade� settlement mode and not on the normal rolling settlement. 12. Thus on date, there continue to be companies that have not yet dematerialized their shares and instead have continued to retain their shares in a physical mode and the transfers, maintenance of record of the holders of securities and handling of the said physical securities in such cases is continued to be done in-house or through a registered share transfer agent. 13. �Keeping in mind these facts and circumstances and the documents on record, the limited issue that arises for my consideration is the extent of liability if any, on the part of ADL as regards the delayed compliance with Regulation 53A of the said Regulations. 14. The documents submitted by ADL testify to the fact that a new set of directors had taken control over ADL consequent to a change in control and management of the company that was duly approved through a special resolution dated January 25, 2006 passed by the share holders of ADL through a postal ballot. I have also perused the list of promoters /directors/persons stated to have been in control of ADL prior to the said change in control and management and have noted that new persons stand to be inducted into the Board pursuant to the above discussed resolution. Prior to the said change of control and management of ADL, an agreement dated April 1, 1999, which was valid for three years, had been entered into by the previous management of ADL with M/s Magnum Fincap Limited to handle the share registry work relating to only the physical shares of the company. 15. Considering that approximately about 40% of the shares of ADL are in the physical form while the remaining 60% are in the demat form, it is evident that from 1999 till 2006 (the time of the appointment of Pinnacle as common share agency under an agreement dated March 23, 2006 effective from February 01, 2006) there was no agency to handle the share registry work relating to the demat shares of ADL �and from 2002 till the date of the present appointment of Pinnacle, there was no agency on record to handle the share registry work relating to both the physical and demat shares of the said company. 16. It is however noted that connectively had been established with both the depositories in the year 2000 itself to enable the shareholders of ADL to dematerialize their shares and for this purpose, ADL had also entered into the necessary tri-partite agreements with both NSDL and CDSL respectively. I have perused the copies of the tripartite agreement dated August 8, 2000 entered into with NSDL and Pinnacle Share Registry Private Limited and the agreement dated August 7, 2000 entered into with CDSL and Pinnacle Share Registry Private Limited submitted during the course of the present proceedings and find them to be in order. �� 17.�� It is thus evident that in the interim period, there has admittedly been a non compliance of the mandate prescribed in Regulation 53A of the said Regulations. The present management of ADL have however sought exoneration of their liability as regards the said non compliance, on the ground that immediately after taking control of the company, they had ensured all regulatory compliances to be in place and towards that end had appointed a common share agency with effect from February 2006. 18�� Although there has been a delay of around 2 � years after the due date of compliance, in adhering to the mandate stipulated by SEBI, in the contextual facts of the case, I am inclined to believe that the liability of the previous management of ADL cannot be shifted to the new management, unless negligence on their part is proved. The submissions made by the representatives of ADL and the documents on record corroborate the finding that the new management of ADL has taken all due care having regard to their duty and responsibility, and had affected the necessary compliance immediately after taking control over the company. Besides there is no evidence on record evidencing any loss suffered by the shareholders of ADL, viz. complaints against ADL etc. In view thereof, I am of the considered opinion that no cognizance is required to be taken for the belated compliance of Regulation 53A of the Regulations and the imposition of any penalty in the present matter is not necessitated. 19.�� Hence on a judicious exercise of the discretion conferred upon me, and after analyzing all the material available on record as well as factors laid down in Section 15J of the SEBI Act, 1992, i.e. the amount of disproportionate and unfair advantage wherever quantifiable as a result of the default, the amount of loss to an investor or a group of investors as a result of the default, the repetitive nature of the default, all of which are in the negative, I in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, am inclined to hold that� the imposition of any penalty in the present matter is not warranted and accordingly the proceedings initiated against M/s Adarsh Derivatives Limited are hereby dropped.� PLACE: MUMBAI�� G. BABITA RAYUDU DATE: JULY� 07, 2006�� ADJUDICATING OFFICER

PLACE: MUMBAI���������������������������� �� ������ �G. BABITA RAYUDU

DATE: JULY� 07, 2006������������������� ADJUDICATING OFFICER

PLACE: MUMBAI�� G. BABITA RAYUDU

DATE: JULY� 07, 2006�� ADJUDICATING OFFICER