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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 RASI ELECTRODES LIMITED
��������� 1.
The limited issue that arises for my consideration
in these proceedings initiated vide Securities and Exchange of India order
dated November 2, 2005 is to determine whether there has been, as alleged, a non
compliance on the part of M/s Rasi Electrodes Limited (REL) with the provisions
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). ����� NOTICE/ REPLY/ PERSONAL HEARING 2.
In this context, a notice dated February 20,
2006 was issued to REL 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 REL was 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 as
to why penalty should not be imposed upon them under section 15HB
of the Act. REL 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. 3.
In response to the said notice, REL vide their
letter dated March 04, 2006, admitted not appointing a common share agency as
on that date but undertook to do so by March 31, 2006, and stated that they
were in the process of handing over all their records to M/s Cameo Corporate
Services Limited to act as their common share agent. They also drew attention
to an earlier letter dated June 16, 2005 written to SEBI in which they had stated
that the company was undergoing low profitability and financial constraints due
to the increasing cost of raw materials and marketing problems and hence the processing of share transfers of physical shares was
being handled in house while the demat requests were being handled by M/s
Cameo Corporate Services Limited. REL also drew attention to the fact that they
had entered into two separate tripartite agreements
with Cameo Corporate Services Ltd and NSDL on 4.
Thereafter, a notice of hearing dated 5.
Due to the non availability of their Director;
Shri Hitesh M Dharamshi in Mumbai on the said date, REL sought for an
adjournment and subsequently, under cover of letter dated May 2, 2006,
forwarded a copy of agreement dated March 24, 2006 stated to have been entered
into with M/s Cameo Corporate Services Ltd to appoint them as their RTA for
handing the share registry work of both the physical and demat securities. REL
also requested that the delay in complying with the Regulations be condoned. 6.
Thereafter pursuant to receiving a notice of
hearing dated May 12, 2006, Shri Hitesh M. Dharamshi, authorized
representative, REL, appeared before me on June 7, 2006 and confirmed the
appointment of M/s Cameo Corporate Services Ltd (Cameo) as their common share
agency under an agreement dated March 24, 2006. He also reiterated that the
delay in compliance was due to losses sustained by the company and subsequently,
forwarded a copy of the annual report of REL for the year ended March 31, 2005
containing the balance sheet and P/L account for the year ended March 31, 2005
as also a copy of the certificate of registration received from their RTA
indicating the validity period of their registration with SEBI. ��������
CONSIDERATION OF ISSUES: 7.
The provision of
law alleged to have been contravened is 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.� 8.
Thus a mandate has been stipulated via the
said law that all issuer companies should 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). 9.
The object behind the said mandate as brought
out in 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.� 10.
This stipulation would however 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, the issuer company would have to establish electronic
connectivity with both the depositories either directly or through a RTA. 11.
I have noted that SEBI
had earlier brought out a circular bearing no.FITTC/DC/ Policy-Cir-01/2001
dated 12.
It appears that
vide SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated 13.
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. 14.
On the basis of the oral and documentary
evidence placed before me, it is clear that the shares of REL are both in the
physical and demat mode and hence the same would necessitate REL appointing a
common share agency in term of the mandate prescribed in the Regulations. It
appears that REL had appointed Cameo as the common agency for the share
registry work relating to both the physical and demat shares of their company only
on March 24, 2006 i.e. after almost 21/2 years after the due date of compliance
i.e. September 23, 2003 and much after the date of initiation of the present
proceedings i.e. November 2, 2005. No reasons have been assigned for the said
delay other than stating that as the company was going through financial
hardship, the processing of share transfers
was done in house to save costs especially considering that the number of
transfers received by them were minimum and no major complaints had been
received from any of the shareholders. 15.
To verify the authenticity
of this contention, I have perused the copy of the annual report of
REL for the year ended March 31, 2005 containing the balance sheet and P/L
account for the year ended March 31, 2005 balance
sheets of REL as submitted by them but do not find any information contained
therein which substantiate the contentions advanced by them as regards the
financial health of the company. That apart, a �desire to avoid additional financial burden on
the company can by no stretch of imagination be termed as sufficient
justification to avoid any mandate prescribed by SEBI that too in the interest
of the investors. 16.
It is however noted that REL had established
connectivity with both the depositories in the year 2001 itself i.e., prior to the date when the Regulations came
into effect, to facilitate the dematerialization
of the shares of the various shareholders. �I have examined the copies of the tripartite
agreements entered into with both NSDL and CDSL dated 17. ��� It is thus a matter of record that REL did not have a common
share agency till recently and hence did not comply on time with the provisions
of Regulation 53A of� the said
Regulations� which clearly mandates the
appointment of a common share agency, effective from September 02, 2003 for
both the physical and the demat shares of the company for the purposes
envisaged in the Regulations 18. ��� The object behind the timely appointment of a common agency has been
discussed in detail earlier which thus appears to
have been defeated by REL due to their admittedly failing to appoint a common
agency on their records as on the stipulated date, in terms of the provisions
of Regulation 53A of the Regulations. Hence their belated compliance of the
said Regulation stands established. 19.���� Any non adherence to the regulatory provisions
issued by the regulator in the interests of the investors 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 said Regulation would become redundant. 20. ��� It would be relevant
to note that had even
a nominal delay been involved in complying with the mandate laid down in the
Regulations or sufficient justification for the same been given by REL, no cognizance would have been taken for the belated
compliance of Regulation
53A of the Regulations. However as this is a case involving a delay of more
than two years in complying with the provisions of the said
Regulation and no adequate justification has been given for the same, necessary
cognizance of the non adherence of the mandate laid down in the Regulations is
very much necessitated.�� � 21.���� Accordingly in order to levy the appropriate penalty
on REL, Section 15HB of the Act is to be considered which prescribes the
penalty upto Rs.1 crore to be levied in cases of non compliance with any provision of the Act, the rules or the
regulations made or directions issued by the Board for which no separate
penalty has been provided. I have also considered the following factors as
provided in Section 15J of the Act, which also find mention in Rule
5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the
Adjudicating Officer) Rules, 1995, i.e., the amount of disproportionate gain or
unfair advantage, wherever quantifiable, made as a result of the default; the
amount of loss caused to an investor or group of investors as a result of the
default and the repetitive nature of the default. 22. � As regards the
disproportionate gain or unfair advantage there are no quantifiable figures
available on record with respect to the default of the part of REL nor any
figures or data on record to quantify the amount of loss caused to an investor
or group of investors as a result of the default. However from the facts
earlier mentioned, REL have not appointed a common share agency to handle their
share registry work relating to both physical and demat shares of the company
within the period stipulated in the Regulations and have thereby not complied
with the said Regulations.�� 23.��� Hence, on a
judicious exercise of the discretion conferred upon me, bearing in mind the
factors enumerated in Section 15J of the Act, as well as after analysing the
facts and circumstances of the present case, I am inclined to hold that since REL
did not have a common share agency for a considerable period of time and have
only recently appointed a common share agency, i.e. under an agreement dated March
24, 2006, although the penalty need not be imposed in terms of the quantum
specified in Section 15HB of the Act, the imposition of a token penalty is very
much necessitated. 24.���� Accordingly 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 token penalty of Rs.25,000/-(Rupees Twenty five thousand
only) on M/s Rasi Electrodes Limited for
their belated compliance of Regulation 53A of the SEBI (Depositories and
Participants) Regulations, 1996 in the matter of appointment of a common share
agency to handle the share registry work relating to the dematerialized and
physical shares as required there under. 25.
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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