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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 READ WITH REGULATION
53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 AND SECTION
15HB OF THE SEBI ACT, 1992. AGAINST M/s NATH SEEDS LTD. BACKGROUND: 1.
I
was appointed as the Adjudicating Officer by the Chairman, SEBI, vide order
dated September 30, 2004 to enquire into and adjudge the alleged contravention
of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996
(for brevity’s sake referred to as the Regulations) read with Section 15HB of the SEBI Act, 1992 (hereinafter referred
to as the Act) by M/s Nath Seeds Limited (hereinafter
referred to as NSL) in the matter of their failure to appoint a common share
agency for handling share registry work both for the dematerialised and physical securities. SHOW CAUSE NOTICE/ REPLY/ PERSONAL
HEARING: 2.
In
view of the above, adjudicating proceedings were initiated in the first
instance against NSL by the issuance of a show cause notice dated January 12,
2004 in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing
penalty by the Adjudicating Officer) Rules, 1995 (Rules) where under NSL was asked 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 as to why penalty should not be imposed upon them under section
15HB of the Act.
NSL was 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. Although NSL acknowledged the said notice, they failed
to respond to the same. 3.
In view of the above, a notice of hearing dated
November 3, 2004, in terms of Rule 5(1) of the Rules, 2004 was sent to NSL and
vide the said notice, NSL was advised to attend the hearing proceedings to be
held on December 01, 2004 and submit the documentary proof if any, in support
of their contentions. NSL was also advised to note that in case they failed to
appear for the said proceedings, the matter would be proceeded with on the
basis of the material available on record. However no reply was sent to the said
notice and no one appeared on their behalf on the scheduled date of hearing. 4.
In order to grant another opportunity to NSL,
another notice of hearing dated CONSIDERATION OF ISSUES: 5.
In
view of the same, I have proceeded in the case on the basis of the facts and
circumstances of the case, the material available on record, as also the
relevant regulatory provisions. 6.
Regulation 53A of the Regulations which came into
force on “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.
In
view of the above, it is imperative for 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 either in house or
through a SEBI registered RTA. 8.
The
object of the appointment of the common share agency as is evident from the
SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated 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. Hence before the admission of any security
into the depository system, it is necessary for the issuer company to establish
electronic connectivity with both the depositories either directly or through a
Registrar and Transfer Agent (RTA). 10. Thus Regulation 53A of the Regulations is an
important measure brought about by SEBI for the benefit of the investors. 11.
From the facts earlier
mentioned, it is clear that despite granting NSL sufficient opportunities to appear in person and
present their case, they not only failed to respond to any of the notices sent
to them but also failed to provide any proof of their compliance of Regulation
53A of the Regulations. Till date no document has been furnished by them
evidencing compliance of the Regulations and no information is forthcoming from
their end as regards the possibility of them having actually started
functioning as a common share registrar for both physical and demat securities or appointing any common agency for the
said purpose in terms of the provisions of Regulation 53A of the Regulations. 12.
To
obtain the relevant information in this regard, both the CDSL and NSDL were
contacted. From the information received
from them, it is noted that NSL have till date not established any connectivity
with either of the two depositories to enable the shareholders to dematerialize
their shares. Further no tripartite
agreements either with NSDL or CDSL has been entered for the said purpose. The same is also evident from the information
available in the websites of both the depositories (NSDL & CDSL). 13.
It is thus clear that since NSL has failed to establish connectivity with both
the depositories to facilitate dematerialization of their shares and had also
not entered into tri-partite agreements with NSDL and CDSL or appoint a common
share agency, they were unable to provide any
evidence in this regard since they had not complied with Regulation 53A of the
Regulations. Furthermore, they have kept
themselves away from the hearing proceedings.
14. Any evasion of the regulatory provisions
issued by the regulator in the interests of the investors or non adherence to
the same for any reason whatsoever is bound to affect the interests of such
investors. Although such a loss cannot be specifically computed in monetary
terms, the fact remains that all regulatory provisions have a specific purpose
behind their enactment. The very purpose
of enacting any legislation is due adherence to the procedures laid down there
under to ensure the sound and smooth functioning of the capital market. If no
cognizance were to be taken of any breach of these provisions and no liability
fixed there upon, the entire purpose of incorporating the provisions in the
said enactments would become redundant. 15. In view of the absence of NSL submitting
any information evidencing their compliance of Regulation 53A of the
Regulations, the said violation by NSL is established, and they will be held liable for the
non compliance of Regulation 53A of the Regulations under 15HB of the
SEBI Act, 1992 in this regard which reads as under: “Whoever fails to comply with
any provision of this Act, the rules or the regulations made or directions
issued by the Board there under for which no separate penalty has been
provided, shall be liable to a penalty which may extend to one crore rupees.”
16. While adjudging the quantum of penalty, the
adjudicating officer is required to have due regard to the factors laid down in
Section 15 J of the Act which are as under:- 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 group of investors as a result of the default; c) the repetitive nature of the default 17. These provisions also find mention in Rule
5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the
Adjudicating Officer) Rules, 1995. 18. It is not clear as to whether NSL enjoyed
any gain or unfair advantage as a result of the default. However it cannot be
denied that the said default would have certainly caused a certain amount of
disadvantage to their shareholders and the investor class as a whole. Moreover, the default is continuing till
date. Hence on a judicious exercise of
the discretion conferred upon me, bearing in mind the factors enumerated above
as well as after taking into consideration the facts and circumstances of the
present case as well as after analysing all the
material available on record, the rationale behind the requirement of the
appointment of a common share agency, the absence of any response by NSL to a
regulatory directive, I am inclined to hold that although the penalty need not
be imposed in terms of the provision provided in Section 15HB of the Act, the
imposition of a token penalty is very much necessitated.
ORDER: 19. In view of the fact that M/s Nath
Seeds Ltd have not complied with 53A of the SEBI (Depositories
and Participants) Regulations, 1996 by failing to appoint a common share agency
for their demat and physical shares under the
provisions of the said Regulation, 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, and in the interest of justice, equity and good conscience I think it
appropriate to levy a penalty of Rs. 75,000/-(Rupees
seventy five thousand only) on M/s Nath Seeds Ltd. 20. The penalty
amount shall be paid within a period of 45 days from the date of receipt of
this order through a cross demand draft drawn in favour
of “SEBI- Penalties remittable to the Government of India’ and payable at
Mumbai which may be sent to Shri V.S. Sundaresan, Deputy General
Manager, Securities and Exchange Board of India, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005. PLACE: MUMBAI G.
BABITA RAYUDU
DATE:
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