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 SAI TELEVISIONS LIMITED

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 Sai Televisions� Ltd �(hereinafter referred to as STL) in the matter of their alleged 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 by the issuance of a show cause notice dated December 31, 2003 to STL in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 where under STL 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 why penalty should not be imposed upon them under section 15HB of the Act. STL 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 same was returned undelivered. Hence, a copy of the show cause notice was sent on July 30, 2004 and once again on August 09, 2004 to the Chennai office of STL.� �

 

3.                 As the said notices were returned undelivered, in terms of Rule 5(1) of the Rules, a notice of hearing dated November 29, 2004, was sent to STL through the Chennai office, SEBI. Vide the said notice, STL was advised to attend the hearing proceedings to be held on December 29, 2004 and submit the documentary proof if any, in support of their contentions.�

 

4.������ In response to the same, STL vide their letter dated December 8, 2004, made the following written submissions.

a)     The earlier show cause notices/letters issued by SEBI were not delivered to them due to address being wrongly mentioned.

b)     The physical share transfers/transmissions/transpositions etc, were processed by an RTA; In-house Share Registry for the past 16 years during which the company was in existence.

c)      They had entered into tripartite agreements with NSDL, CDSL and M/s. Cameo Corporate Services Ltd to handle the demat requests of their shareholders

d)     Only 0.78% of the total shares existed in the physical form.

e)     The financial position of STL was not good

f)       �Additional time upto 8-10 months to demat the remaining shares be granted since 99.22% of their shares were already dematerialized.

On the basis of the above, it was requested that no action be initiated against them. However no documents were submitted by STL in support of the said contentions.

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�� 5. Subsequently Shri Prakash Shah, Chartered Accountant of STL���������� appeared for the hearing which was rescheduled to January 03, 2005. He stated that the shares of STL which were listed on the NSE were suspended from trading w.e.f. September 01, 2003 for non compliance of certain provisions of the listing agreement and that STL was making efforts to fulfill the said requirements.. He stated that while 99.2% of the shares of STL were in the demat form, around 0.78% of the equity was yet to be dematted, but that they had not received any complaint from any investor regarding share transfers being handled by them. He stated that STL had appointed M/s Cameo Corporate Services as their RTA for processing the demat requests of the shares of the company while the share transfer work in case of physical share was continued being handled by In-house Share Registry.� Copies of the tripartite agreements entered into with the CDSL and NSDL on 30.10.2000 and 27.10.2000 respectively were submitted. It was also brought to my notice that STL was not functioning since the past 4 years due to lack of any business and in view of the same, requested that a just decision be taken. Subsequently a copy of a letter dated January 08, 2005 issued by M/s Cameo Corporate Services stating that they were handling the share registry work relating to 99.22% of the shares of STL, was submitted on January 15, 2005.

 

 

�������� CONSIDERATION OF ISSUES:

 

6.������ I have taken into consideration the facts and circumstances of the case, the submissions made on behalf of STL, the material available on record, the relevant regulatory provisions as also the rationale behind the said provisions.

 

7.�� ��� 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.�

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

9.�� ��� 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 a lack of proper co-ordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.

10.� �� 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).

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

 

12.��� I have also perused the circular issued by SEBI bearing no.FITTC/DC/ Policy-Cir-01/2001 dated August 03, 2001 which advises all companies to establish connectivity with both the depositories on or before September 30, 2001 so as to facilitate compulsory trading in rolling settlement effective from January 2, 2002. In terms therein, all stock exchanges have been advised to submit a compliance report to SEBI by October 15, 2001.

 

13.��� Subsequently the SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 has brought out the list of all the scrips that have established connectivity with the depositories. In terms of the said circular, the shares of the companies which have not established connectivity with the both depositories as on October 31, 2001 are to be traded on the �Trade for Trade� settlement mode and not on the normal rolling settlement.

 

14.            Thus on date, there are 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.

 

15. ��� From the facts earlier mentioned as well as on the basis of the document submitted by them, it is clear that STL have entered into tripartite agreements with NSDL and CDSL� much prior to the date when the Regulations came into effect.�� It is also evident that STL have appointed M/s Cameo Corporate Services Ltd. as their RTA for processing the demat request of the shares of their company.� However, admittedly, the share transfer work in case of the physical shares held by 401 shareholders and constituting about 0.78% of the equity of STL is being handled by In-house Share Registry, clearly evidencing the non-compliance of Regulation 53A of the Regulations 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.�

 

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.

 

17.            Section 15HB 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.�

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18.�� 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 STL may not have enjoyed any gain or unfair advantage as a result of the default, the same was bound to have caused an unquantifiable loss to the investor class, as a whole.� Moreover, the default is continuing till date. However, STL has stated financial unsoundness as one of the reasons for their non compliance of Regulation 53A of the Regulations and have, subsequently in their letter dated December 08, 2004, requested that additional time be granted to them to ensure due compliance.�� On a judicious exercise of the discretion conferred upon me, after taking into consideration the facts above mentioned, I am inclined to hold that although the penalty need not be imposed to the extent as specified in Section 15HB of the Act, the imposition of a token penalty is very much necessitated.

 

ORDER:

 

21.���� In view of the factors enumerated in Section 15 J of the Act read with the provisions of Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995, as well as the financial condition of the company and after noting that STL had entered into tripartite agreements with CDSL and NSDL and also appointed an RTA for processing the demat request of the shares of the company quiet some time back and that the share transfer work relating to only 0.78% of shares, yet to be demated, is being handled by another agency, �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, and in the interest of justice, equity and good conscience, �think it appropriate to grant a period of one month to M/s �Sai Television Limited to comply with the directive of having a common share agency for both the demat and physical shares in terms of the Regulation 53A of the (Depositories and Participants) Regulations, 1996.� However, in case they fail to do so within the stipulated period, I think it appropriate to direct that an amount of Rs. 50,000/-(Rupees fifty thousand only) be paid by M/s �Sai Television Limited as the penalty for their failure to appoint a common share agency for both the dematerialized and physical shares of the company under Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996.

 

22. ��� The penalty amount if required to be paid in terms of the order specified above, shall be paid within a period of 45 days from the date of expiry of the stipulated period of one month 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: FEBRUARY 03, 2005 ������������������ ADJUDICATING OFFICER

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