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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 TECIL CHEMICALS AND
HYDRO POWER 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 TECIL Chemicals and Hydro Power Ltd (hereinafter referred
to as TECIL) in the matter of their failure to appoint a common share agency
for handling share registry work both for the 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 TECIL 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 where under TECIL 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. TECIL 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.
However, although the show cause notice was acknowledged
by TECIL, they neither responded
to the said notice nor provided any explanation for their failure to reply to
the same. 4.
Thereafter, a notice of hearing dated November
3, 2004 was sent to TECIL in terms of Rule 5(1) of the SEBI (Procedure for
Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995
(Rules) and vide the said notice, TECIL was advised to attend the hearing
proceedings to be held on November 29, 2004. � 5.
On the said date, Shri
K L Mundra, Authorised
Representative of TECIL alongwith Dr. S K Jain, Legal
Advisor appeared before me and made the following submissions: a.
TECIL was referred to BIFR vide reference
dated b.
Although a common share agency was not
appointed by TECIL in terms of the Regulations, M/s. System Support Services,
Mumbai had been appointed as their Registrars for the past ten years. � c.
�TECIL had
applied on 6.������ Upon the conclusion of the hearing, additional
time was sought to submit some more documents to support their contentions.
Accordingly the case was posted for further hearing to a)
The
shares of TECIL are in the physical form only. Their requests to dematarialise the said shares were turned down by the
Registrars on the ground of the negative networth of
TECIL. A copy of the letter dated b)������ The shares of TECIL were delisted about three years back. CONSIDERATION OF ISSUES: 7.������ I have taken into consideration, the
facts and circumstances of the case, the material available on record, as also
the relevant regulatory provisions. 8.������ 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.� 9.������ 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. 10.���� 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 was
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.� 11.���� Thus the provisions of Regulation 53A of
the Regulations would be applicable only to that company whose shares have been
dematerialized or to those companies whose shares are both in the physical and demat mode and handled by different agencies. 12.���� In such a case, before the admission of any
security into the depository system, it would be necessary for the issuer
company to establish electronic connectivity with both the depositories either
directly or through a Registrar and Transfer Agent (RTA). 13.���� Regulation 53A of the Regulations in this
regard is thus an important investor protection measure introduced by SEBI. 14.���� 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 had been advised to submit a compliance report to SEBI by
October 15, 2001. 15.���� Subsequently SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 has
brought out the list of all the scrips that had established
connectivity with the depositories. In terms of the said circular, the shares
of the companies which had not established connectivity with the both
depositories as on October 31, 2001 were to be traded on the �Trade for Trade�
settlement mode and not on the normal rolling settlement. 16.���� Thus it appears that even as on date, there
are companies that have not yet dematerialized their shares and instead have
continued to retain their shares only 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. 17.���� From the facts earlier mentioned, it is noted
that the shares of TECIL have not been dematerialized but continue to remain in
the physical mode only. The same is also evident from their non-registration
with both the depositories (NSDL & CDSL) which aspect has been verified
from the respective websites. 18.���� In the absence of the
shares of TECIL being dematerialized, the provisions of Regulation 53A of the
Regulations would have no
applicability to TECIL whose shares continue to remain in the physical mode and
consequently which therefore cannot be held liable for their failure to appoint
a common share agency to handle the share registry work relating to the
shares of the company in terms therein. 19.���� Hence on a judicious exercise of the
discretion conferred upon me, bearing in mind the issues enumerated above as
well as after analysing all the material available on
record and taking into consideration the facts and circumstances of the present
case, I am of the considered opinion that the imposition of any penalty is not necessitated.
������� ORDER: 20.���� Accordingly, 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, the proceedings against
M/s. TECIL Chemicals and Hydro Power Ltd are hereby dropped.� PLACE: MUMBAI���������������������������� �������������� ��� �������G. BABITA RAYUDU
DATE: DECEMBER 16, 2004��� �������������� ADJUDICATING OFFICER
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