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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) AGAINST M/s UB ENGINEERING LTD. 1.
These
proceedings arise consequent to the order of the Securities and Exchange Board
of India (SEBI) dated November 2, 2005 to enquire into and adjudge the alleged
contravention of Regulation 53A of the SEBI (Depositories and Participants)
Regulations, 1996 read with Section 15HB of the SEBI Act, 1992 (for brevity�s
sake, hereinafter referred to as the Regulations and the Act respectively) by
M/s UB Engineering Ltd. (for brevity�s sake, hereinafter referred to as UBEL)
in the matter of their failure to appoint a common share agency for handling
their share registry work relating to both the dematerialised� and physical shares of the company. � � ������� ����NOTICE/ REPLY/ PERSONAL HEARING: 2.
Accordingly,
a notice dated February 20, 2006 was issued to UBEL under Rule 4(1) of the SEBI
(Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating
Officer) Rules, 1995 (Rules) in terms of which, UBEL were advised to show cause
as to why the inquiry proceedings should not be initiated against them for the
alleged violation of the provisions of Regulation 53A of the
Regulations and why the penalty as prescribed under section 15HB of the Act should not
be imposed upon them. UBEL
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.
In
their reply dated March 10, 2006, UBEL stated that M/s Intime Spectrum Registry
Pvt. Ltd.(Intime) had been appointed by them in the year 2000 to handle the
share registry work relating to only the demat shares of the company while the
share registry work relating to the physical shares of the company was handled
in-house. UBEL contended that they had executed the necessary tripartite
agreements with the RTA and NSDL and CDSL dated 4.
Subsequently
a notice of hearing dated 5.
On the said date, Shri V.M. Pendse, Company
Secretary, UBEL appeared before me and while reiterating the contentions
earlier advanced, requested that the proceedings be adjourned to enable them to
produce the necessary documentary evidence to substantiate their contentions. He
also indicated that the company was trying their best to comply with the
mandate prescribed by SEBI. In view thereof, the case was adjourned and
thereafter another notice of hearing
dated 6.
On the scheduled
date of hearing, Shri Pendse appeared on behalf of UBEL and submitted that
pursuant to the Board meeting of UBEL held on August 30, 2006, the Board had
approved the appointment of M/s. Computech Share Cap Ltd. (Computech) as the
common agency for both the demat and physical shares of the company. It was
stated that since UBEL had earlier maintained connectivity with In-Time
Spectrum Registry Ltd, a no objection was proposed to be taken from them to enter
into the necessary agreements with Computech including the tripartite
agreements with the new RTA and the depositories. Shri Pendse further submitted
that the relevant documentation would take sometime and hence requested that
additional time be granted to them to enable�
them to show compliance along with the necessary documents. In view of
these submissions, additional time was granted to UBEL to forward the required documents
on or before � 7.
Subsequently, under
cover of letter dated a) Copy of the bipartite agreement dated b) Copy of the no objection letter dated c) Copy of the tripartite agreement dated d) Letter dated 8.
Subsequently under
cover of their letter dated �� �����CONSIDERATION OF ISSUES: 9.
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.�
10.
Thus
the provisions of the said Regulation mandates 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, which can be done either in house or through a
SEBI registered Registrar and Transfer Agent (RTA). 11.
The
object of the appointment of the common share agency which was brought out in
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.� 12.
Thus
the provisions of Regulation 53A of the Regulations would be applicable only to
that company, all of whose shares have been dematerialized or to those
companies whose shares are both in the physical and demat mode but not to those
companies all of whose shares continue to remain in the physical mode. As
regards the shares in the demat mode, 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 RTA. 13.
Accordingly, SEBI had earlier brought out a
circular bearing no.FITTC/DC/ Policy-Cir-01/2001 dated 14.
It appears that vide SEBI circular No.D&CC/FITTC/
Cir-05/2001 dated 15.
Thus
on date, there continue to be 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 or
through a registered share transfer agent. 16.
Keeping in mind these facts and circumstances and the
documents on record, the limited issue that arises for my consideration is the
extent of liability if any, on the part of UBEL as regards the delayed
compliance with Regulation 53A of the said Regulations, as evidenced by the bipartite
agreement dated October 28, 2006 entered into by UBEL with Computech Share Cap Ltd for the appointment of
a common share agency in terms of Section 53A of the DP Regulations i.e. almost 2 years after the due date
of compliance and much after the date of initiation of the present proceedings.
It
is however a matter of record that prior to the appointment of Computech, UBEL
had appointed M/s. Intime Share Registry as their RTA in the year 2000, to
enable the transfer of the demat shares of the company while UBEL handled the
processing of the share transfers for the physical shares of the company at
their registered office. Considering that approximately about 25% of the shares
of UBEL are in the physical form while the remaining 75% are in the demat form,
it is evident that from 2000 till 2006 (the time of the appointment of
Computech as common share agency under an agreement dated October 23, 2006
effective from October 28, 2006) there was no common agency to handle the share
registry work relating to both the physical and demat shares of the said
company. 17.
It is thus evident that in the interim period,
there was admittedly a non compliance of the mandate prescribed in Regulation
53A of the said Regulations. UBEL have however sought exoneration of their
liability as regards this non compliance to the substantial erosion of the net worth of the company and
the same is apparent from a perusal of annual reports of the company for the
last three years. 18.���� The fact however cannot be
escaped that 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 keeping in mind the interests of the investors. The object
behind the timely appointment of a common agency has been discussed in detail
earlier. Hence 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 said Regulation would become redundant. 19. ��� It would be
relevant to note that had even a nominal delay been involved in complying with the mandate laid
down in the Regulations, no cognizance would have
been taken for the belated compliance of Regulation 53A of the Regulations. However as stated
earlier, this is a case involving a delay of about two years in complying with the provisions of the said
Regulation and hence necessary cognizance of the non adherence of the mandate
laid down in the Regulations is very much necessitated.�� � 20.���� Accordingly in order to levy the appropriate penalty on UBEL,
Section 15HB of the Act is to be referred to which prescribes the penalty upto
Rs.1 crore to be levied in cases of non compliance with any
provision of the Act, the rules or the regulations made or directions issued by
the Board for which no separate penalty has been provided. I have also
considered the following factors as provided in Section 15J of the Act, which also find mention in Rule 5(2) of the
SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating
Officer) Rules, 1995, i.e., the amount of
disproportionate gain or unfair advantage, wherever quantifiable, made as a
result of the default; the amount of loss caused to an investor or group of
investors as a result of the default and the repetitive nature of the default. 21. � As regards the disproportionate gain or unfair
advantage there are no quantifiable figures available on record with respect to
the default of the part of UBEL nor any figures or data on record to quantify
the amount of loss caused to an investor or group of investors as a result of
the default. However as brought out earlier, the non appointment of a common share
agency to handle their share registry work relating to both physical and demat
shares of the company at a single point was bound to have adversely affected a
number of their shareholders.�� 22.��� Hence, on a judicious exercise of the
discretion conferred upon me, bearing in mind the factors enumerated in Section
15J of the Act, as well as after analysing the facts and circumstances of the
present case, and also keeping in mind the financial status of UBEL, 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. PENALTY: 23.
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, and in the interest of justice, equity and good conscience.�� I think it appropriate to levy a token
penalty of Rs. 25,000/- (Rupees Twenty five thousand only) on M/s UB
Engineering Ltd. for their belated compliance of Regulation 53A of the SEBI
(Depositories and Participants) Regulations, 1996 in the matter of appointment
of a common share agency to handle the share registry work relating to the
dematerialized and physical shares in terms of Regulation 53A of the DP
Regulations. � 24.���� 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,
General Manager, Securities and Exchange Board of India, �SEBI Bhavan, Plot C4-A, G
Block,� Bandra Kurla Complex, Bandra (E),
Mumbai � 400 051. PLACE: MUMBAI������������������������������������� ��������� G. BABITA RAYUDU
DATE:
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