SECURITIES
[ADJUDICATION ORDER NO. PB/AO-
62/2010]
In respect of
RADICO KHAITAN FINANCE LIMITED
(PAN. NOT
AVAILABLE)
UNDER
SECTION 19 H (1) OF THE DEPOSITORIES ACT, 1996, READ WITH RULE 5 OF �DE
FACTS OF THE CASE IN BRIEF
1.
On perusal of
the monthly status report submitted by NSDL and CDSL vide their e-mail dated
|
Name of
the depository |
No. of Requests
pending for more than thirty days |
No. of Shares involved |
|
NSDL |
1,834 |
3,77,463 |
|
CDSL |
510 |
81,468 |
�
The aforesaid delay is
alleged to be in violation of regulation 54 (5) of the SEBI (Depositories and
Participants) Regulations 1996, (hereinafter referred as "DP Regulations") and liable for penalty under section
19D of the Depositories Act, 1996 (hereinafter referred to as the �Depositories Act�).�
APPOINTMENT
OF ADJUDICATING OFFICER
��
2.
Mr. V. S.
Sundaresan was appointed as Adjudicating Officer under section 19H of the Depositories
Act read with rule 3 of the Depositories (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 2005 (hereinafter referred
to as �Rules�) vide order dated March
11, 2008 to inquire into and adjudge the alleged violation of regulation 54 (5)
of the DP Regulations. Consequent to the transfer of Mr. V.S Sundaresan, I have
been appointed as the Adjudicating Officer vide order dated
3.
Show Cause
Notice No.EAD-5/VSS/SS/121386/2008 dated March 26, 2008 (hereinafter referred
to as �SCN�) was issued to the
Noticee under rule 4(1) of the Rules to show cause as to why an inquiry should
not be held against the Noticee and penalty be not imposed on the Noticee under
section 19D of the Depositories Act for the alleged violation specified in the
said SCN. �
4.
I find from the
records that the SCN was issued through �Northern
Regional Office (NRO) of SEBI at the last known address of the Noticee at D-105
First Floor, Defence Colony, New Delhi � 110 024 but the same was returned
undelivered. NRO SEBI in their delivery report mentioned that the Noticee was
not available at the address. ��
5.
Subsequent to my
appointment, a press notification was issued in the
English national daily �Hindustan Times� on
6.
In the interest
of natural justice and in order to conduct an inquiry as per rule 4 (3) of the
Rules, the Noticee was granted an opportunity of personal hearing on� June 16, 2010 at SEBI, Head Office, Mumbai
vide notice dated May 11, 2010. The said notice was sent by Speed Post with
acknowledgement to the aforesaid last known address of the Noticee. The notice
was delivered on
7.
In view of the
aforesaid steps taken, I am convinced that ample opportunities have been given
to the Noticee to explain its case. As per rule 4(7) of the Rules, if any
person fails, neglects or refuses to appear as required by sub-rule (3) before
the Adjudicating Officer, he may proceed with the inquiry in the absence of
such person after recording the reasons therefor. Despite having been given
ample opportunities, the Noticee had failed to avail of the same. I am,
therefore, compelled to proceed with the matter ex-parte based on the material available on record.
CONSIDERATION
OF ISSUES
8.
I have carefully
perused the documents available on record. The issues that arise for
consideration in the present case are :
a) Whether the Noticee had violated regulation 54 (5) of
the DP Regulations?
b) Does the violation, if any, on the part of the
Noticee attract monetary penalty under section 19D of the Depositories Act?
c)
If so, what
would be the monetary penalty that can be imposed taking into consideration the
factors mentioned in section 19 I of the Depositories Act?
9.
Before moving
forward, it will be appropriate to refer to the relevant provisions� of the DP Regulations, which reads as under:
�manner
of surrender of certificate of securities
54(5)
� within
15 days of receipt of the certificate of security from the participant the
issuer shall confirm to the depository that securities comprised in the said
certificate have been listed on the stock exchange or exchanges where the
earlier issued securities are listed and shall also after due verification
immediately mutilate and cancel the certificate of security and� substitute in its record the name of the
depository as the registered owner and shall send a certificate to this effect
to the depository and to every stock exchange where the security is listed.
10.
It is observed
from the provisions of regulation 54(5) of DP Regulations that, the issuer
company shall, within 15 days of the receipt of certificate of security from
the participant, confirm to the depository that securities comprised in the
said certificate have been listed on the stock exchange/s where the earlier
issued securities are listed and shall also after due verification, immediately
mutilate and cancel the certificate and substitute in its records the name of
the depository as its registered owner and shall send a certificate to this
effect to the depository and to every stock exchange where the security is
listed.
11.
In the instant
case, it is alleged that the Noticee had not complied with regulation 54(5) of
the DP Regulations.� The details of delay
in� dematerialization of securities as on
|
Name of the depository |
No. of Requests pending for� more than thirty days |
No. of Shares
involved |
|
NSDL |
1,834 |
3,77,463 |
|
CDSL |
510 |
81,468 |
12.
From the facts
earlier mentioned, it is clear that despite granting sufficient opportunities
to appear in person and present the case, the Noticee did not avail the same
and submit any proof of having cleared aforesaid pending demat requests.
13.
As no
information about resolving of pending demat requests was forthcoming from the
Noticee, there was no choice but to seek the information from other sources.
Therefore, information was sought directly from
NSDL and CDSL. NSDL vide e-mail dated
|
Coloumn
No.1 |
Coloumn
No.2 |
Coloumn
No.3 |
||||||
|
Pending as on |
No of Pending cases in coloumn no. 1 Confirmed |
No of Pending cases in coloumn no. 1 processed |
Pending as on July 02-2010 |
|||||
|
No. of Requests Pending for more than thirty days |
No. of Shares |
No. of Requests |
No. of Shares involved |
No. of Requests |
No. of Shares involved |
No. of Requests Pending for more than thirty days |
No. of Shares involved |
|
|
1,834 |
3,77,463 |
345 |
61,200 |
1,490 |
3,16,263 |
0 |
0 |
|
14.
Upon perusal of
the information submitted by NSDL, I find that as on January 15, 2008, 1,834 demat
requests were pending in the NSDL system for more than thirty days and a total
of 3,77,463 shares of the said ISIN were requested for dematerialization
through these requests.
15.
Out of the total
of pending 1,834 demat requests, 345 requests for 61,200 shares were resolved. A
perusal of the details of 345 demat requests (Annexure 1) submitted
by NSDL indicates that there was delay in dematerialization requests by the
Noticee within the range of 776 days to 2980 days. For example: On
16.
The remaining 1,490
requests for 3,16,263 shares out of the total pending 1834 demat requests were
processed by the Noticee but were rejected. A perusal of the details of 1,490
demat requests (Annexure 2) submitted by NSDL indicates that there was
delay in dematerialization requests by the Noticee within the range of 801 days
to 3070 days. For example: On
17.
CDSL vide e-mail
dated
|
Column No. 1 |
Column No. 2 |
Column No. 3 |
|||
|
Pending as on |
No of Pending cases in coloumn no. 1 �resolved |
Pending as on June 30 -2010 |
|||
|
No. of Requests Pending for more than thirty days |
No.
of Shares involved |
No. of Requests |
No.
of Shares
involved |
No. of Requests pending for more than thirty days |
No. of Shares involved |
|
510 |
81,468 |
510 |
81,468 |
0 |
0 |
18.
Upon perusal of
the information submitted by CDSL (Annexure 3), I find that as on January 15, 2008, 510 demat
requests were pending in the CDSL system for more than thirty days and a total
of 81,468 shares of the said ISIN were requested for dematerialization through
these requests.
19.
All the 510 demat
requests for 81,468 shares which were pending for more than 30 days as on
20.
Upon perusal of
the information submitted by NSDL and CDSL, I find that the Noticee has mostly
resolved the requests for dematerialization which were pending for more than
thirty days as on
21.
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.
22.
In view of the
foregoing, I find that the Noticee had failed to discharge its obligation to
complete the process of dematerialization of securities within the stipulated
time period under the DP Regulations.�
The violation of the provisions of regulation 54(5) of the DP
Regulations, therefore, stands established.�
23.
The Hon�ble
Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68
24.
As the violation
of the statutory obligations under regulation 54(5) of the DP Regulations has
been established, I hold that the Noticee is liable for monetary penalty under
section 19D of the Depositories Act, which reads as under:-
�Penalty for delay in
dematerialization or issue of certificate of securities
If any issuer or its agent or any person, who is registered
as an intermediary under the provisions of section 12 of the Securities and
Exchange Board of India Act, 1992 (15 of 1992) fails to dematerialize or issue
the certificate of securities on opting out of a depository by the investors,
within the time specified under this Act or regulations or by-laws made
thereunder or abets in delaying the process of dematerialization or issue the
certificate of securities on opting out of a depository of securities, such
issuer or its agent or intermediary shall be liable to a penalty of one lakh
rupees for each day during which such failure continues or one crore rupees,
whichever is less.�
25.
While
determining the quantum of penalty under section 19D of the Depositories Act, it
is important to consider the factors stipulated in section 19 I of the
Depositories Act, which reads as under:-
�19 �
While adjudging
quantum of penalty under section 19H, the adjudicating officer shall have due
regard to the following factors, namely:-
(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.�
26.
From the
material available on record, it is not possible to ascertain the disproportionate
gain or unfair advantage to the Noticee which may have accrued due to the
aforesaid failure. Though it may not be possible to ascertain the monetary loss
to the investors on account of failure of the Noticee to discharge its
obligation towards the investors to meet the requests for dematerialization,
the delay in dematerialization of securities being prejudicial to the interest
of investors has to be viewed seriously. Incidences of this nature definitely
compromise the securities market regulatory framework to the detriment of
investors at large. Delay of each demat request constitutes a separate
violation. Therefore, it is noted that the lapse is repetitive in nature and I
am of the view that penalty needs to be imposed taking into account each
incidence of delay of demat requests.� By
virtue of the failure on the part of the Noticee to dematerialize the shares of
the shareholders on time, the fact remains that it had deprived the
shareholders of the liquidity of their investments and loss of opportunity to
deal with their dematerialized shares.
27.
I find that the
Noticee has failed to file any reply to the said SCN and has not refuted the
charges. The Hon�ble Securities Appellate Tribunal in the matter of Classic
Credit Ltd. �v/s� SEBI [2007] 76
ORDER
28.
After taking
into consideration all the facts and circumstances of the case, I hereby impose
a monetary penalty of Rs. 10,00,000/- (Rupees�
ten lakh��� only) on the Noticee which will be commensurate with
the violation committed by it.�
29.
The Noticee
shall pay the said amount of penalty by way of demand draft in favour of �SEBI
- Penalties Remittable to Government of India�, payable at Mumbai, within 45
days of receipt of this order. The said demand draft should be forwarded to Mr.
Prasanta Mahapatra , Deputy General Manager, MIRSD-4, Securities and Exchange
Board of India, SEBI Bhavan, Plot No.C4-A, �G� Block, Bandra Kurla Complex,
Bandra (East), Mumbai�400 051.
30.
In terms of Rule
6 of the Adjudication Rules, copies of this order are sent to the Noticee and
also to the Securities and Exchange Board of India.
|
Date:
|
PARAG BASU |
|
Place: Mumbai |
ADJUDICATING
OFFICER |
���