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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 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 ��������� 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 �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 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:
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