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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 REAL VALUE APPLIANCES LIMITED

BACKGROUND:

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 Real Value Appliance Limited (hereinafter referred to as RVAL) in the matter of their failure to appoint a common share agency for handling share registry work, both for their dematerialized and physical securities.

SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:

A notice dated July 30, 2004 was issued to RVAL in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules) in terms of which RVAL 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. RVAL 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. However, the said notice was returned undelivered with a remark "company closed".

Another notice August 09, 2004 sent to RVAL was also returned undelivered with a remark "left".

In view of the same, while enclosing the copy of the show cause notice, a notice of hearing dated November 29, 2004 was sent to RVAL through the Pune Stock Exchange (PSE) wherein RVAL was advised to appear for the personal hearing before me scheduled on December 29, 2004 along with any documentary evidence that they wished to rely upon. However, the PSE vide their letter dated January 17, 2005 replied that the said notice could not be delivered by the courier company as the same was returned undelivered with a remark "company office shifted and the company is not at that place."

The address of RVAL to which the aforesaid notices were sent is the address as available on the NSE website. Upon verification with the Central Depositories Services Limited (CDSL), it was inter alia noted that RVAL had entered into a tripartite agreements with CDSL and IIT Corporate Services (India) Limited on February 02, 2001. Further upon perusing the NSDL website, it was noted that RVAL had entered into a tripartite agreement dated December 04, 2000 with NSDL and IIT Corporate Services (IIT). In order to confirm the veracity of the said information, IIT was contacted to provide the last known address of RVAL. However, the address in their records also happened to be the same as available on record. IIT further confirmed that they had severed their relationship with RVAL since the last three years, on account of non receipt of their dues from RVAL.

In order to grant another opportunity to RVAL to make their submissions, another notice of hearing dated April 05, 2005 was sent through Pune Stock Exchange to RVAL at the address available on record. Vide the said notice, RVAL were advised to appear before me on April 25, 2005 and also submit the documentary proof, if any in support of their contentions. It was also made clear to RVAL that in case they failed to appear for the said proceedings, the matter would be decided solely on the basis of the material available on record. The Pune Stock Exchange vide their letter No.PSE/2005/ dated April 15, 2005 informed that the factory premises was closed and nobody was available to acknowledge the said notice. It was further stated that, in terms of Regulation 7 (c ) of the Rules, the said notice was affixed on the iron gate of the premises and witnessed by three of their officers, as the address mentioned on the notice was the place where RVAL appeared to have last carried out its business activities A report to this effect, along with the site photographs was forwarded along with the said reply.

From the above, it is clear that RVAL were granted sufficient opportunities to appear before me and present their case. Despite the same, they failed to avail the said opportunities.

CONSIDERATION OF ISSUES:

In the absence to any representation from RVAL, the matter is proceeded with on the basis of the facts and circumstances of the case, the material available on record as also the relevant regulatory provisions.

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."

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.

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 December 27, 2002, which required 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.

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).

Thus Regulation 53A of the Regulations is an important measure brought about by SEBI for the benefit of the investors.

From the facts earlier mentioned, it is clear that despite granting RVAL sufficient opportunities to appear in person and present their case, they not only failed to participate in the present proceedings or 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.

Further more 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 agency for both their physical and demat securities or appointing any common agency for the said purpose in terms of the provisions of Regulation 53A of the Regulations.

Notwithstanding the information obtained as regards their having established connectivity with the depositories or entering into a tripartite agreements with the said depositories, there is no information available on record as to whether RVAL has entered into any bipartite agreement with any RTA which would handle the share registry work relating to both their physical shares and demat shares.

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 interest 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.

In the absence of RVAL submitting any information evidencing their appointment of a common agency for the purpose of dealing with both the physical and demat securities of RVAL as required to be done in terms of the provisions of Regulation 53A of the Regulations, their violation of Regulation 53A of the Regulations stands established and hence they are liable for the non compliance of Regulation 53A of the Regulations in terms of the provisions of 15HB of the Act, 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."

To determine the quantum of penalty, I have considered the following factors as provided in the 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.

As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the company. There are also no 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, in the absence of any information from RVAL to the contrary, it can be surmised that the said default which is bound to have caused an unquantifiable loss to the investor class as a whole, is continuing till date.

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 taking into consideration the facts and circumstances of the present case and after analysing all the material available on record, the rationale behind the requirement of the appointment of a common share agency, and the refusal of the company to respond to regulatory directives, I am inclined to hold that although the penalty need not be imposed in terms of the quantum specified in Section 15HB of the Act, the imposition of penalty is very much necessitated.

In view of the fact that it has been established that M/s Real Value Appliances Limited have not complied with the provisions of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996 by failing to appoint a common share agency for their demat and physical shares, 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, in the interest of justice, equity and good conscience, think it appropriate to levy a penalty of Rs. 75,000/-(Rupees Seventy Five Thousand only) on M/s Real Value Appliances Limited.

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, 29^th Floor, Cuffe Parade, Mumbai 400 005.

PLACE: MUMBAI

DATE: May 16, 2005

G. BABITA RAYUDU

ADJUDICATING OFFICER

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