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 ROOFIT INDUSTRIES LIMITED

 

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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 Roofit Industries Ltd (hereinafter referred to as RIL) in the matter of their failure to appoint a common share agency for handling share registry work both for the dematerialised� and physical securities.

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� ������� SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:

 

2.������ In view of the above, adjudicating proceedings were initiated in the first instance against RIL 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 RIL 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. RIL 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.                 Although the show cause notice was acknowledged by them, RIL neither responded to the said notice nor provided any explanation for their failure to reply to the said notice.

 

4.                 Thereafter, a notice of hearing dated November 3, 2004 was sent to RIL and vide the said notice, RIL was advised to attend the hearing proceedings to be held on November 30, 2004.� The said notice of hearing sent by registered post was returned undelivered by the postal authorities with a remark �Left�. Hence, another opportunity was granted to RIL to attend the hearing proceedings to be held on December 23, 2004. However, the said notice was also returned undelivered.

 

5.                 Keeping in mind the principles of natural justice, a final opportunity was granted to RIL to be heard on February 25, 2005. It was also made clear to RIL 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.

 

6.������ The said notice of hearing was received by RIL on February 11, 2005 as was evident from the acknowledgment received by SEBI. Thereafter, Mr. Ravi Kumar, Practicing Company Secretary, authorized to appear on behalf of RIL vide their letter dated February 23, 2005 requested that due to certain prior commitments, their case be taken up for hearing on February 24, 2005.� On the said date Shri Ravi Kumar appeared before me and inter alia made the following submissions:

 

i.������� The various notices sent to RIL were returned undelivered because presently, the company was not functioning at the given address to which the notices were sent.� Instead they were now operating from another address of their company which is not the registered address of RIL.

ii.������ RIL had a few other group companies namely Sun Earth Ceramics Ltd., Vivita Ltd.,etc. some of which are doing well financially.

iii.����� As regards compliance with �Regulation 53A of the SEBI (DP) Regulations, they had appointed M/s. Intime Spectrum Registry Ltd as their common agency for handling all share registry work for the shares of the company all of which are in the demat form through an agreement July 15, 1999 valid upto Dec 31, 2000, which were subsequently extended upto the year 2003.�

iv.����� Thus as on date they do not have a common share agency, although they had entered into separate tripartite agreements with NSDL and CSDL and the RTA on 21^st July, 1999. Thus RIL continued to maintain electronic continuity with both the depositories till date.��

v.������ The shares of RIL were listed on the BSE and NSE. However, as on date, the shares of RIL have been suspended from trading due to various proceedings pending against RIL and consequently, the non compliance of the listing agreement. However, they were trying to rectify the matter.�

vi.����� RIL is facing financial problems and although, their case referred to the BIFR was rejected, an appeal was filed against the same and is presently pending.

vii.���� The firm of Mr. Ravi Kumar had been appointed to represent RIL in various matters/litigation before the courts and also to put in place, the various systems in the company.

viii.��� The copy of the agreement entered into with the RTA on July 15, 1999 as well as the copies of the tripartite agreements entered into with the RTA and NSDL and CDSL respectively both dated July 21, 1999 were enclosed for perusal.

 

7.������ Thereafter vide letter dated February 28, 2005, Mr. Ravi Kumar reiterated the submissions made earlier, and further stated that the Agreement dated July 15, 1999 entered into with M/s Intime Spectrum Registry Pvt. Ltd. was terminated on April 19, 2003 due to non payment of their charges to the RTA to the extent of Rs.12 lacs as on March, 2003, due to financial problems and that the total outstanding as on date was more than Rs.20 lacs plus interest.� It was stated that irrespective of terminating the services of the RTA, they had not terminated the connectivity with the depositories.� While emphasizing on the financial set backs in the business activities, it was stated that RIL had filed an appeal before the AAIFR against the order of the BIFR and that consequently RIL was unable to comply with the provisions of 53A of the Regulations and also fulfill other financial commitments like payment of listing fees, share transfer agents charges, etc.� While bringing to my attention of the fact that the shares of RIL were suspended on the BSE and the NSE on February 03, 2003 and March 14, 2003 respectively, they stated that RIL was in the process of regularizing the various systems relating to shares, depository and listing of shares including the reappointment of the share transfer agent which was already under process.�� Mr. Ravi Kumar also enclosed the following documents as proof of the contentions advanced by him:

i)                   Copy of the order of the CLB, Western Region Bench, Mumbai in the matter of Petition u/s 58A (9) of the Companies Act, 1956.

ii)                 Copy of the order of BIFR in Case No.473/2002.

iii)              Copy of the Appeal in BIFR Case No.473/2002 in the matter of Roofit Industries Ltd. and BIFR & Others.

iv)                Copy of the letter from AAIFR dated April 15, 2004.

v)                  Copy of the latest AAIFR Notice of Hearing dated January 24, 2005 for hearing scheduled on April 12, 2005.

vi)                Copy of the termination letter of M/s Intime Spectrum Registry Ltd. dated April 19, 2003

vii)             Original Vakalatnama/ power of attorney in his favour to appear before SEBI. �

 

On the basis of the above, it is requested that a lenient view be taken while adjudicating the case on record.

 

����� CONSIDERATION OF ISSUES:

 

8.������ I have taken into consideration the facts and circumstances of the case, the material available on record, the submissions advanced on behalf of RIL as also the relevant regulatory provisions.

 

9.�� 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.�

10.���� In view of the above, it is imperative for all issuer companies to appoint a common agency either in house or through a SEBI registered RTA for the share registry work relating to physical and demat shares of the company.

11.�� 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.

12.� 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).

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

 

14.            From the facts earlier mentioned, it is clear that only after granting several opportunities to RIL, the company�s authorized representative appeared before me and presented their case.� Be that as it may, from the contentions raised by Mr. Ravi Kumar, it appears that although RIL initially did make attempts in complying with the provisions of 53A of the Regulations in the year 1999 itself by entering into a bipartite agreement with an RTA; M/s Intime Spectrum Registry Pvt. Ltd. to handle the share registry work relating to all the shares of the company which have been dematerialized, due to certain financial and operational difficulties, RIL was unable to extend the validity of the agreement entered into with the RTA which expired in the year 2003.� �Consequently, as on date, there is no RTA on the records of the company to handle the share registry work, although the electronic connectivity established with both the depositories i.e., NSDL and CDSL continues till date.� I have examined the copies of the tripartite agreements entered into with both the depositories on July 21, 1999, prior to the date when the Regulations came into effect, as proof of the same.� In support of the contentions advanced by them, as regards their financial status, RIL has submitted copies of the documents evidencing the pendency of the Appeal No.387/03 filed before the AAIFR against the order of the BIFR rejecting their reference filed under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 vide order dated September 17, 2003.� It is noted that the hearing of the said Appeal stands posted to April 12, 2005.

 

15.            Notwithstanding the contentions advanced as regards the financial viability of the company, the fact remains that RIL have admittedly not complied with the provisions of Regulation 53A of SEBI (DP) Regulations, 1996, which clearly mandates the appointment of a common share agency effective from September 02, 2003 for both the physical and the demat shares for the purposes envisaged in the Regulations in as much as RIL does not have, as on date, a common share agency as envisaged under the provisions of the Regulations.

 

16.���� 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.

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17�� Section 15HB reads as under:

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�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.�

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18.�� However, 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

 

19.���� 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.

 

20.���� Although RIL may not have enjoyed any gain or unfair advantage as a result of the default, the said default is bound to have caused an unquantifiable loss to the investor class as a whole. �Moreover, the default is continuing till date.� However, 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 mitigating factors, if any, 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.

 

���� ���� ORDER:

 

21.���� In view of the foregoing, 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. 50,000/-(Rupees fifty thousand only) on M/s Roofit Industries Ltd for their failure to appoint a common share agency for the dematerialised and physical shares as required under Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996.

 

22.���� 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���������������������������� �������������� ��� G. BABITA RAYUDU

DATE: MARCH 02, 2005������ ��� �������������� ADJUDICATING OFFICER