ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S JAYASWALS NECO LTD FOR THE VIOLATION OF REGULATION 53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 READ WITH SECTON 15HB OF SEBI ACT, 1992.

I was appointed as Adjudicating Officer by SEBI vide order dated 8^th December, 2003, to inquire into and adjudge the alleged contravention of Regulation 53A of SEBI (DP) Regulations, 1996, by M/S JAYASWALS NECO LTD (hereinafter referred to as the company), in the matter of appointment of common share registrar for handling share registry work both for demat and physical securities.

Accordingly, a show cause notice dated January 12, 2004, was issued to the company. After receiving the reply dated 30.01.2004, an opportunity of personal hearing was also granted.

NOTICE AND REPLY

The show cause notice dated 12.01.2004, alleges that the company did not appoint a common share transfer agent in the matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the Depositories at a single point as required under Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996.

Shri A D Karajgaonkar, Company Secretary of M/S JAYASWALS NECO LTD, appeared and made the following submissions in support of the reply dated 30.01.04.:

1) The company ‘Jayaswals Neco Ltd’ was formerly known as ‘Nagpur Engineering Company Ltd’ with which the erstwhile Nagpur Alloy Castings Ltd (NACAST) and erstwhile Jayaswals Neco Ltd (JNL) were amalgamated in December, 1997. After amalgamation, NACAST and JNL were dissolved and their shares were cancelled and delisted. The name of the amalgamated company Nagpur Engineering Company Ltd was changed to Jayaswals Neco Ltd in 1998.

2) In terms of amalgamation all the shareholders of erstwhile NACAST and JNL were required to exchange their old shares in those companies with the new shares of this amalgamated company in the ratio of 10:7 in 1998 only. Despite writing to the concerned shareholders for exchange of shares repeatedly, there are about 16,000 shareholders even today who have not yet exchanged the old shares pertaining to JNL & NACAST. The confusion due to similarity of names of erstwhile JNL and Amalgamated Jayaswals Neco Ltd is still continuing in the minds of the shareholders.

3) The company considered it prudent to continue with RTA activities for physical shares with the company (i.e. in-house) only for the time being so that the investors and registrars for electronic segment would not face the confusion.

4) That the company had recently once again written to all the 16,000 shareholders individually for the exchange of shares in physical form for credit to their demat accounts for the new shares.

5) That they had appointed SEBI registered RTA M/s Intime Specturm Registry Pvt Ltd for handling demat shares.

6) At present about 65% of the shares are in electronic form.

7) That the company could not comply with the requirement of Regulation 53A of appointment of common RTA for handling both physical and demat shares in view of the problems arising out of the amalgamation and as still the requests are being received from shareholders of the erstwhile companies that have been merged for exchange of shares.

The company urged that a lenient view may be taken in view of the difficulties explained.

APPRECIATION OF EVIDENCE AND FINDINGS

Regulation 53A of SEBI(DP) Regulations, 1996 came into force with effect from 02.09.2003 and reads as under :

“All matters relating to 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.”

The object of the appointment of common share agency as can be seen from SEBI Circular No. SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, was to avoid :

a) delay in dematerialization

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

Hence, it was directed to appoint a common agency either in-house or through SEBI registered RTA for share registry work relating to physical and demat shares of the company.

Fresh Certificate of Incorporation consequent to change of name dated 01.04.98 issued by ROC, Mumbai, Maharashtra approving the change of name of the company was placed on record.

Copy of the Order of Bombay High Court with regard to scheme of Amalgamation of Nagpur Alloy Castings Ltd and Jayaswals Neco Ltd with Nagpur Engineering Company Ltd was also placed on record.

It may be seen that the amalgamation took place long back in December, 1997 and the change in name of the company was approved by ROC in April, 1998. Under the scheme of amalgamation, the resolution is passed in the general meeting by the ¾ majority of members approving the scheme and empowering directors of the transferee company to transfer and dispose of the shares not taken up by the dissenting shareholders at their discretion. For the allotment of shares in the amalgamated company, a board resolution by the transferee company is passed for allotment of shares to the shareholders in exchange of shares held in the transferor company and a record date for this purpose is fixed thereof.

As seen above it is almost 7 years since the amalgamation took place and shares are yet to be exchanged for some shareholders. Even if it is considered that shares are yet to be exchanged for old shares, the shareholders may get physical or demat shares after exchange at their discretion. If the records of all the old and new shareholders are maintained at a single point as envisaged under Regulation 53A, the problem relating to non-reconciliation of shareholding due to lack of proper co-ordination may not arise. Maintaining the records of physical and demat shares at a single point i.e. either in-house or with RTA is in the interest of shareholders and the company.

Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996 came into force w.e.f. 02.09.03 and till date, the company has not taken any measures to comply with the same. Non-Compliance of the same calls for a penalty. The financial results of the company as observed from NSE Website reveals that for

the period from 1/4/004 to 30/9/2004 (half-yearly) the company has incurred a net loss of Rs.2744/- lakhs.

It would be appropriate to refer to the order passed by the Hon’ble SAT in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) dated 9.8.04 wherein it was stated that the capacity to pay the penalty also has to be considered while imposing penalty. The following is extracted from the said order:

“Although Section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in 15J viz., (a) amount of disproportionate gain (b) amount of loss caused to the investor and (c) repetitive nature of default.

The Supreme Court in its pronouncement dealing with compensation under the criminal procedure code has held that the means of the accused has also to be considered if a workable order is to be passed (see) (i) (1978) 2 SCC 111, Sarwan Singh Vs Punjab (ii) (1988) 4SCC 51 Hari Singh Vs Sukhbir Singh.

Although the judgements related to trials with respect to criminal trials it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or the means of the appellant to pay a penalty in monetary terms would also apply on principle to the law laid down by the Supreme Court.”

The Hon’ble SAT in the orders referred above had also observed that while imposing penalty the provisions regarding court fees as per Rule 9 of the SAT (Procedure) Rules, 2000 also needs to be taken into account since there is statutory right of appeal.

Thus, keeping in view the aforesaid SAT order and huge net loss of Rs.2744 lakhs incurred by the company, a token penalty is imposed on the company for non-compliance of Regulation 53A of SEBI (DP) Regulations, 1996.

ORDER

Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case, the submissions made, huge losses incurred by the company and following the Order of the Hon’ble SAT in Alkan Projects Ltd cited supra, a penalty of Rs. 15,000/- (Rupees fifteen thousand only) is imposed on M/s.Jayaswals Neco Ltd under Section 15HB of SEBI Act, 1992 for the non-compliance with the Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996.

The penalty amount shall be paid through a crossed demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” and payable at Mumbai, may be sent to Shri V S Sundaresan, Deputy General Manager, Securities and Exchange Board of India, World Trade Centre, 29^th Floor, Cuffe Parade, Mumbai 400 005.

Date: November 24, 2004 S V Krishna Mohan

Place : Mumbai Adjudicating & Enquiry Officer

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ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S JAYASWALS NECO LTD FOR THE VIOLATION OF REGULATION 53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 READ WITH SECTON 15HB OF SEBI ACT, 1992. I was appointed as Adjudicating Officer by SEBI vide order dated 8^th December, 2003, to inquire into and adjudge the alleged contravention of Regulation 53A of SEBI (DP) Regulations, 1996, by M/S JAYASWALS NECO LTD (hereinafter referred to as the company), in the matter of appointment of common share registrar for handling share registry work both for demat and physical securities. Accordingly, a show cause notice dated January 12, 2004, was issued to the company. After receiving the reply dated 30.01.2004, an opportunity of personal hearing was also granted. NOTICE AND REPLY The show cause notice dated 12.01.2004, alleges that the company did not appoint a common share transfer agent in the matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the Depositories at a single point as required under Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996. Shri A D Karajgaonkar, Company Secretary of M/S JAYASWALS NECO LTD, appeared and made the following submissions in support of the reply dated 30.01.04.: 1) The company ‘Jayaswals Neco Ltd’ was formerly known as ‘Nagpur Engineering Company Ltd’ with which the erstwhile Nagpur Alloy Castings Ltd (NACAST) and erstwhile Jayaswals Neco Ltd (JNL) were amalgamated in December, 1997. After amalgamation, NACAST and JNL were dissolved and their shares were cancelled and delisted. The name of the amalgamated company Nagpur Engineering Company Ltd was changed to Jayaswals Neco Ltd in 1998. 2) In terms of amalgamation all the shareholders of erstwhile NACAST and JNL were required to exchange their old shares in those companies with the new shares of this amalgamated company in the ratio of 10:7 in 1998 only. Despite writing to the concerned shareholders for exchange of shares repeatedly, there are about 16,000 shareholders even today who have not yet exchanged the old shares pertaining to JNL & NACAST. The confusion due to similarity of names of erstwhile JNL and Amalgamated Jayaswals Neco Ltd is still continuing in the minds of the shareholders. 3) The company considered it prudent to continue with RTA activities for physical shares with the company (i.e. in-house) only for the time being so that the investors and registrars for electronic segment would not face the confusion. 4) That the company had recently once again written to all the 16,000 shareholders individually for the exchange of shares in physical form for credit to their demat accounts for the new shares. 5) That they had appointed SEBI registered RTA M/s Intime Specturm Registry Pvt Ltd for handling demat shares. 6) At present about 65% of the shares are in electronic form. 7) That the company could not comply with the requirement of Regulation 53A of appointment of common RTA for handling both physical and demat shares in view of the problems arising out of the amalgamation and as still the requests are being received from shareholders of the erstwhile companies that have been merged for exchange of shares. The company urged that a lenient view may be taken in view of the difficulties explained. APPRECIATION OF EVIDENCE AND FINDINGS Regulation 53A of SEBI(DP) Regulations, 1996 came into force with effect from 02.09.2003 and reads as under : “All matters relating to 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.” The object of the appointment of common share agency as can be seen from SEBI Circular No. SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, was to avoid : a) delay in dematerialization b) non-reconciliation of share holding due to lack of proper co-ordination among the concerned agencies or departments, which is adversely affecting the interest of the investors. Hence, it was directed to appoint a common agency either in-house or through SEBI registered RTA for share registry work relating to physical and demat shares of the company. Fresh Certificate of Incorporation consequent to change of name dated 01.04.98 issued by ROC, Mumbai, Maharashtra approving the change of name of the company was placed on record. Copy of the Order of Bombay High Court with regard to scheme of Amalgamation of Nagpur Alloy Castings Ltd and Jayaswals Neco Ltd with Nagpur Engineering Company Ltd was also placed on record. It may be seen that the amalgamation took place long back in December, 1997 and the change in name of the company was approved by ROC in April, 1998. Under the scheme of amalgamation, the resolution is passed in the general meeting by the ¾ majority of members approving the scheme and empowering directors of the transferee company to transfer and dispose of the shares not taken up by the dissenting shareholders at their discretion. For the allotment of shares in the amalgamated company, a board resolution by the transferee company is passed for allotment of shares to the shareholders in exchange of shares held in the transferor company and a record date for this purpose is fixed thereof. As seen above it is almost 7 years since the amalgamation took place and shares are yet to be exchanged for some shareholders. Even if it is considered that shares are yet to be exchanged for old shares, the shareholders may get physical or demat shares after exchange at their discretion. If the records of all the old and new shareholders are maintained at a single point as envisaged under Regulation 53A, the problem relating to non-reconciliation of shareholding due to lack of proper co-ordination may not arise. Maintaining the records of physical and demat shares at a single point i.e. either in-house or with RTA is in the interest of shareholders and the company. Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996 came into force w.e.f. 02.09.03 and till date, the company has not taken any measures to comply with the same. Non-Compliance of the same calls for a penalty. The financial results of the company as observed from NSE Website reveals that for the period from 1/4/004 to 30/9/2004 (half-yearly) the company has incurred a net loss of Rs.2744/- lakhs. It would be appropriate to refer to the order passed by the Hon’ble SAT in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) dated 9.8.04 wherein it was stated that the capacity to pay the penalty also has to be considered while imposing penalty. The following is extracted from the said order: “Although Section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in 15J viz., (a) amount of disproportionate gain (b) amount of loss caused to the investor and (c) repetitive nature of default. The Supreme Court in its pronouncement dealing with compensation under the criminal procedure code has held that the means of the accused has also to be considered if a workable order is to be passed (see) (i) (1978) 2 SCC 111, Sarwan Singh Vs Punjab (ii) (1988) 4SCC 51 Hari Singh Vs Sukhbir Singh. Although the judgements related to trials with respect to criminal trials it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or the means of the appellant to pay a penalty in monetary terms would also apply on principle to the law laid down by the Supreme Court.” The Hon’ble SAT in the orders referred above had also observed that while imposing penalty the provisions regarding court fees as per Rule 9 of the SAT (Procedure) Rules, 2000 also needs to be taken into account since there is statutory right of appeal. Thus, keeping in view the aforesaid SAT order and huge net loss of Rs.2744 lakhs incurred by the company, a token penalty is imposed on the company for non-compliance of Regulation 53A of SEBI (DP) Regulations, 1996. ORDER Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case, the submissions made, huge losses incurred by the company and following the Order of the Hon’ble SAT in Alkan Projects Ltd cited supra, a penalty of Rs. 15,000/- (Rupees fifteen thousand only) is imposed on M/s.Jayaswals Neco Ltd under Section 15HB of SEBI Act, 1992 for the non-compliance with the Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996. The penalty amount shall be paid through a crossed demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” and payable at Mumbai, may be sent to Shri V S Sundaresan, Deputy General Manager, Securities and Exchange Board of India, World Trade Centre, 29^th Floor, Cuffe Parade, Mumbai 400 005. Date: November 24, 2004 S V Krishna Mohan Place : Mumbai Adjudicating & Enquiry Officer