ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
AGAINST M/s RUPANGI IMPEX 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 Rupangi Impex Ltd (hereinafter referred to as RPIL) 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. RPIL was issued a 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 they were 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. RPIL 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. The said notice was returned undelivered with the remark ‘company closed’ by the postal authorities. Therefore, another notice dated July 30, 2004 was sent to RPIL. No reply was received from RPIL to the said notice. Hence another notice dated August 09, 2004 was sent to RPIL. Although the said notice was acknowledged by RPIL, they did not reply to the said notice.
3. Subsequently another notice dated November 3, 2004 was issued to RPIL advising them to attend the adjudication proceedings along with documentary proof, if any, on November 30, 2004. RPIL was further advised to note that no further extension of hearing would be granted to them and in case they failed to attend the said proceedings, the matter would be proceeded on the basis of the material available on record. This time however, the notice was returned undelivered with a remark ‘left’ by the postal authorities.
4. Keeping in mind the principles of natural justice, a notice of hearing dated November 29, 2004 was sent to RPIL through the Ahmedabad Stock Exchange (ASE) However the ASE vide their reply dated December 02, 2004, informed that when their special messenger visited the site address stated on the envelope, he could not locate the place and upon enquiry was told that the said office was closed since the last 2 years. While returning the notice due to the reasons stated above, the ASE further informed that as per their records, RPIL had been delisted in view of the letter dated June 26, 2003 received by them from the Official Liquidator, High Court of Gujarat. A copy of the said letter was also enclosed.
Upon perusal of the contents of the said letter, it was inter-alia noted that vide an order dated April, 30, 2003 passed by the Gujarat High Court in Company Petition No.62/2003, RPIL was ordered to be wound-up and the Official Liquidator attached to the Hon’ble High Court was appointed as the Provisional Liquidator of RPIL who was assigned to take charge of the books of accounts, assets, records and machinery and all other movable and immovable assets and property of the said company.
5. In view of the said development, a notice of hearing dated December 21, 2004 was sent to the Official Liquidator appointed by the Gujarat High Court to hear his views on the matter. Furthermore, the Official Liquidator was advised not only to be heard in person on January 27, 2005 to present the case of RPIL but also bring the documentary proof if any, in support of their contentions. It was also made clear to the Official Liquidator that in case they failed to appear for the said proceedings, the matter would be decided solely on the basis of the merits of the case and the material available on record. However there was no representation by the OL on the scheduled date of hearing. However there was no representation by the OL on the scheduled date of hearing.
6. As observed above, RPIL and thereafter the Official Liquidator were granted sufficient opportunities to appear before me and present their case. Despite the same, they failed to avail the said opportunities.
CONSIDERATION OF ISSUES:
7. In the absence to any representation from RPIL, the matter is proceeded with on the basis of 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 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 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.
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.
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 effective from September 02, 2003.
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 the 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.
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 have established connectivity with the depositories. In terms of the said circular, the shares of the companies which have 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.
16. 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.
17. In the instant case, upon perusal of the information available on record, it is seen that RPIL is registered with both the depositories namely, Central Depository Services Ltd (CDSL) and National Securities Depositories Ltd (NSDL) which aspect has been verified from the respective websites of the depositories. However, it is also noted that RPIL had not appointed a common agency to handle the share registry work relating to both the physical and demat shares or provided any documentary evidence to that regard. What has however been drawn to my attention by the ASE is the fact that RPIL has been delisted by the exchange in view of the information received by them from the Official Liquidator, High Court of Gujarat, vide the letter dated June 26, 2003 which intr-alia states that vide an order dated April 30, 2003 passed by the Gujarat High Court, RPIL was ordered to be wound up. Thus it appears that by the time Regulation 53A of the Regulations was made effective, i.e. on September 02, 2003, RPIL was alreadyto be wound up and the Official Liquidator attached to the Gujarat High Court was appointed as the Provisional Liquidator of RPIL and was assigned to take charge of the books of accounts, assets, records and machinery and all other movable and immovable assets and property of the said company.
18. In view of the facts above stated, this appears to be a case wherein the retrospective application of the provisions of Section 53A of Regulations cannot be made. Moreover, Article 20(1) of Constitution of India, in this regard, would also apply which inter-alia prohibits the conviction of any person of any offence, except for the violation of a law in force, at the time of the commission of the act, charged as an offence. There being no definition of ‘offence’ in the Constitution, the definition in Section 3(37) of the General Clauses Act is to be applied which defines ‘offence’ to mean an act or omission punishable by any law by way of fine, imprisonment or death.
19. In the facts of the present circumstance, RPIL was not in existence as on the date; Regulation 53A of the Regulations was made effective, i.e., on September 02, 2003, in that by April 30, 2003,it was already ordered to be wound up. Consequently, the imposition of any penalty upon RPIL for non compliance of Regulation 53A of the Regulations besides being impracticable, given the present facts of the case, in that, RPIL was clearly incapable of complying with the requirement of the Regulation specified above, would also not be in accordance with law.
20. Taking into consideration the fact that Regulation 53A of the Regulations which requires all listed companies to engage a common share agency for the purposes envisaged therein cannot be made applicable to the facts of the case on record, 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, I think it appropriate to dispose of the present case initiated against M/s Rupangi Impex Ltd without imposing any penalty upon the said entity.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: APRIL, 06, 2005 ADJUDICATING OFFICER