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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

    READ WITH REGULATION 53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 AND SECTION 15HB OF THE SEBI ACT, 1992.

     

    AGAINST

     

    M/s SCINTILLA SOFTWARE TECHNOLOGY LTD.

    ���������

    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 Scintilla Software Technology Limited (hereinafter referred to as SSTL) in the matter of their failure to appoint a common share agency for handling share registry work, both for their dematerialised� and physical securities.

    �

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

    2.������ In view of the above, adjudicating proceedings were initiated in the first instance against SSTL 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 SSTL 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. SSTL 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.� As the notice was returned undelivered, another notice dated July 30, 2004 was sent to SSTL. �The said letter was once again not responded to by SSTL.� Thereafter another notice dated August 09, 2004 was sent to SSTL. In response to the said notice, SSTL vide their letter dated August 20, 2004, requested for four weeks time to file their reply to the said notice.� However, even after the expiry of the said period, SSTL failed to send their reply to the said notice.

     

    3.                 In view of the above, a notice of hearing dated November 3, 2004, in terms of Rule 5(1) of the Rules, 2004 was sent to SSTL and vide the said notice, SSTL was advised to attend the hearing proceedings to be held on November 30, 2004 and submit the documentary proof if any, in support of their compliance with Regulation 53A of the said Regulations. However, nobody appeared on behalf of SSTL on the scheduled date even though the notice issued by SEBI was duly acknowledged by them.

     

    4.                 In order to grant a final opportunity to SSTL to make their submissions, another notice of hearing dated December 6, 2004 was sent to them wherein SSTL were advised to appear before me on December 24, 2004 and also submit the documentary proof, if any in support of their contentions. It was also made clear to SSTL 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. However, the said notice dated December 6, 2004 was returned undelivered.�

     

    ��������� CONSIDERATION OF ISSUES:

     

    5.                 I have taken into consideration, the facts and circumstances of the case, the material available on record, as also the relevant regulatory provisions.

     

    6.                 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.�

     

    7.                 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.

     

    8.                 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.�

    9.� ���� 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).

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

     

    11.            From the facts earlier mentioned, it is clear that despite granting SSTL sufficient opportunities to appear in person and present the case, they not only failed to 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. 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 registrar 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.

     

    12.            To obtain the relevant information in this regard, both the CDSL and NSDL were contacted.� On the basis of the information received from them, it is noted that SSTL have till date not established any connectivity with either of the two depositories to enable the shareholders to dematerialize their shares. Therefore there are no tripartite agreements entered into either with NSDL or CDSL for the said purpose.� The same is also evident from the information available in the websites of both the depositories (NSDL & CDSL).

     

    13.            It is thus clear that since SSTL has failed to establish connectivity with both the depositories to facilitate dematerialization of their shares and had also not entered into tri-partite agreements with NSDL and CDSL or appoint a common share agency, they were unable to provide any evidence in this regard since they had not complied with Regulation 53A of the Regulations.� Furthermore, they have kept themselves away from the hearing proceedings.�

     

    14.���� 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.

     

    15.���� In the absence of SSTL submitting any information evidencing their compliance of Regulation 53A of the Regulations, the said violation by SSTL is 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.�

    ����  �  

    16.� �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

     

    17.���� 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.

     

    18.���� It is not clear as to whether SSTL enjoyed any gain or unfair advantage as a result of the default. However it cannot be denied that the said default would have certainly caused a certain amount of disadvantage to their shareholders and the investor class as a whole.� Moreover, the default is continuing till date.� Hence 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 absence of any response by SSTL to a regulatory directive, 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 a token penalty is very much necessitated.

     

    19.���� In view of the fact that M/s Scintilla Software Technology Ltd 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 Scintilla Software Technology Ltd.

     

    20.���� 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: MARCH 29, 2005 ��������������� ADJUDICATING OFFICER


     

     



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