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 RAM GOPAL POLYTEX 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 Ram Gopal Polytex Limited (hereinafter referred to as (RGPL), 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. Adjudicating proceedings were initiated in the first instance against RGPL 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 RGPL 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. RGPL 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 notice was returned undelivered by the postal authorities. Another notice dated August 09, 2004 sent to RGPL was also returned undelivered by the postal authorities.
3. There after, a notice of hearing dated November 29, 2004, in terms of Rule 5(1) of the Rules, 2004 was sent to RGPL and vide the said notice, RGPL was advised to attend the hearing proceedings to be held on December 23, 2004 and submit the documentary proof if any, in support of their contentions. Although the said notice was acknowledged by RGPL, nobody appeared on their behalf on the scheduled date.
4. In view of the same, a notice dated November 29, 2004 was sent by hand delivery to RGPL and vide the said notice they were advised to appear for hearing scheduled for December 23, 2004. However there was no response to the said notice.
5. Keeping in mind the principles of nature of justice, a notice dated March 01, 2005 was sent to RGPL who were advised to appear for the hearing scheduled on December 23, 2004. RGPL was also advised to note that no adjournment would be granted and in case they failed to attend the said proceedings, the matter would be decided on the basis of the material available on record.
On the said date, Mr Yogesh K Singhania, Consultant RGPL appeared on their behalf and inter alia submitted as follows:
i. RGPL had received the earlier notice. However as he as out of town and had returned subsequent to the scheduled date of hearing, he could not attend the said proceedings.
ii. There was a failure on the part of RGPL to seek an alternate date of hearing.
iii. The ratio of the dematerialised shares vs physical shares of the company was 40:60.
iv. RGPL was listed during the year 1993 on the Bombay Stock Exchange, Delhi Stock Exchange, Calcutta Stock Exchange and Ahmedabad Stock Exchange.
v. However, as on date the trading of the shares was suspended on the BSE while there was virtually no trading on the remaining exchanges.
vi. RGPL had appointed M/s Computronics Financial Services (I) Limited as their RTA to handle the share registry work relating to both the demat and the physical shares of the company.
vii. M/s. Computronics Financial Services (I) Limited had also established electronic connectivity with both the Central Depository Services Limited and the National Securities Depositories Limited.
viii. The documents substantiating the said facts would be submitted by March 16, 2005.
6. Shri Singhania appeared once again before me on March 16, 2005 and submitted the following documents:
i. Tripartite agreement dated March 23, 2001 between RGPL, NSDL and Computronics Financial Services (India) Limited.
ii. Tripartite agreement dated May 17, 2001 between RGPL, NSDL and Computronics Financial Services India Limited.
iii. Bipartite agreement dated March 22, 2002 between RGPL and Computronics Financial Services India Limited.
7. Shri Singania further submitted that as the bipartite agreement was due to expire on March 31, 2005, he would file the fresh agreement entered into between RGPL and the RTA by April 11, 2005.
8. Subsequently, a copy of the agreement stated to have been entered into between M/s Computronics Financial Services (I) Limited; the RTA and RGPL on April 13, 2005 was submitted by RGPL. Thus, on the basis of the above, it was requested that no action be initiated against them.
CONSIDERATION OF ISSUES:
9. I have taken into consideration the facts and circumstances of the case, the material available on record including the documents submitted on behalf of the RGPL, as also the relevant regulatory provisions.
10. 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.”
11. 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.
12. 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.
13. 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.
14. 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).
15. Regulation 53A of the Regulations in this regard is thus an important investor protection measure introduced by SEBI.
16. 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.
17. Subsequently SEBI circular No. D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 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 had 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.
18. 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 or through share transfer agent.
19. On the basis of the contentions advanced on behalf of RGPL, it appears that they have appointed a common agency, M/s Computronics Financial Services (India) Limited to handle the share registry work relating to both the physical and demat shares. To confirm the veracity of the said contention, both CDSL and NSDL were contacted. On the basis of the information received by them, it is noted that RGPL had established connectivity with both the depositories in the year 2001 itself to enable the shareholders to dematerialize their shares. RGPL on their behalf have contended that they have entered into a tripartite agreement dated March 23, 2001 with NSDL and M/s Computronics Financial Services (India) Limited as well as a tripartite agreement dated May 17, 2001 with CDSL and M/s Computronics Financial Services (India) Limited. The same is also evident from the information available in the websites of both the depositories (NSDL & CDSL). Although, initially RGPL had submitted a copy of the bipartite agreement dated March 22, 2002 entered into with M/s. Computronics Financial Services (India) Limited, the fact that the same was found to expire by March 31, 2005, was brought to the notice of RGPL. However they have, as stated earlier submitted a copy of the fresh bipartite agreement dated April 13, 2005 entered into with M/s Computronics Financial Services (India) Limited. I have examined the contents of the said agreement and have noted that the same is valid from April 01, 2005 to March 31, 2008.
20. Since RGPL had established connectivity with both the depositories to facilitate dematerialization of their shares through M/s Computronics Financial Services (India) Limited, and have entered into tri-partite agreements in this regard with both NSDL and CDSL and have also appointed a common share agency, before Regulation 53A of the Regulations came into effect, they cannot be held liable for non compliance of Regulation 53A of the Regulations.
21. Hence on a judicious exercise of the discretion conferred upon me, bearing in mind the facts brought out above, and after analysing all the material available on record, I am of the considered opinion that the imposition of any penalty in the present matter is not necessitated.
ORDER:
22. 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, as M/s. Ram Gopal Polytex Limited have complied with the provisions of Regulation 53A of the SEBI (Depository Participants) Regulations, 1996, the proceedings initiated against them are hereby dropped.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: April 13, 2005 ADJUDICATING OFFICER