ORDER
UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995
AGAINST
M/s JHAVERI WELDFLUX LIMITED
BACKGROUND:
1. I was appointed as the Adjudicating Officer by the Chairman, SEBI, vide order 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 Jhaveri Weldflux Limited (hereinafter referred to as JWL) in the matter of their failure to appoint a common share agency for handling their share registry work both for the dematerialised and physical securities.
NOTICE/ REPLY/ PERSONAL HEARING:
2. In view of the same, a notice dated February 20, 2006 was issued to JWL in terms of Rule 4(1) of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 (Rules) in terms of which JWL was advised 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. JWL 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 response to the said notice, JWL vide their letter dated March 3, 2006, inter-alia made the following submissions:-
a) They had already appointed M/s. Intime Spectrum Registry Limited (Intime) as their common agency for handing all share registry work for both demat and physical securities in terms of the Regulations (A copy of agreement dated November 26, 2003 entered into with was enclosed for perusal)
b) There was a delay of 2 months (from the stipulated date of compliance) in complying with the mandate, due to the hospitalization of the concerned person in an accident, during the period of compliance.
In view of the above, JWL requested that a lenient view be taken in condoning the delay in complying with the mandate prescribed under Regulation 53A of the Regulations.
4. As JWL did not submit the complete documentation, evidencing their compliance with Regulation 53A of the Regulations, a notice of hearing dated March 8, 2006 in terms of Rule 4(3) of the Rules was issued to JWL advising them to attend the proceedings to be held on March 24, 2006 and to submit documentary proof in support of their contentions at the time of the hearing.
5. On the said date, Shri Sandeep Dar, and Shri Jayesh Jhaveri, authorized representatives, JWL, appeared before me and while reiterating the submissions advanced by them earlier, further submitted as follows :-
a) The shares of JWL were listed at the BSE and ASE.
b) JWL had entered into tripatite agreements with both NSDL and CDSL respectively.
They undertook to submit the copies of the tripatite agreements with both NSDL and CDSL respectively as also the copy of the certificate of registration issued to Intime in support of their contentions, on or before April 14, 2006.
6. Subsequently, JWL submitted the following documents under cover of letter dated April 11, 2006.
a) Tripatite agreement dated June 20, 2001 entered into with NSDL and M/s Intime Spectrum Registry Limited.
b) Tripatite agreement dated May 23, 2001 entered into with CDSL and M/s Intime Spectrum Registry Limited.
c) Copy of the certificate issued by SEBI to M/s Intime Spectrum Registry Limited renewing their registration, to act as a Share Registrar and Transfer Agent.
d) Particulars of the total shareholding of JWL that have been dematerialized and are in physical form.
On the basis of the above, it was requested that the proceedings initiated against JWL be dropped.
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 Registrar and Transfer Agent (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 RTA.
13. 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.
14. I have also perused the circular issued by SEBI bearing no.FITTC/DC/ Policy-Cir-01/2001 dated August 03, 2001 in terms of which all companies have been advised 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.
15. Subsequently SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 had 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 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 or through a share transfer agent.
17. From the facts earlier mentioned, it is noted that the shares of JWL are both in the physical and demat mode and as such JWL had appointed M/s In Time Spectrum Registry Ltd as their RTA, under an agreement dated November 26, 2003 to handle the share registry work relating to both their physical and demat shares i.e around 21/2 months after the due date of compliance i.e. October 2, 2003, but before the initiation of the present proceedings. The reason for the delay has been attributed to the ill health of the concerned official of JWL, consequent to an accident. JWL have also established connectivity with both the depositories in the year 2001 itself to enable the shareholders to facilitate dematerialization of their shares and have also entered into tri-partite agreements with both NSDL and CDSL respectively. This is apparent from a perusal of the tripatite agreement dated June 20, 2001 entered into with NSDL and Intime Spectrum Registry Limited and the tripatite agreement dated May 23, 2001 entered into with CDSL and Intime Spectrum Registry Limited. The copies of the said documents were forwarded for my perusal as also the copy of the certificate issued by SEBI to M/s Intime Spectrum renewing their registration from May 16, 2005 to May 15, 2008.
18. Since JWL have established connectivity with the depositories and have also appointed a common share agency, albeit belatedly i.e. a delay of around 21/2 months after the due date of compliance i.e. October 2, 2003, but before the initiation of the present proceedings and there is no evidence on record evidencing any loss caused to the investors due to the said delay, viz. complaints against JWL etc. I am of the considered opinion that no cognizance is required to be taken for the belated compliance of Regulation 53A of the Regulations and the imposition of any penalty in the present matter is not necessitated.
19. Hence on a judicious exercise of the discretion conferred upon me, and after analysing all the material available on record as well as factors laid down in Section 15J of the SEBI Act, 1992, i.e. the amount of disproportionate and unfair advantage wherever quantifiable as a result of the default, the amount of loss to an investor or a group of investors as a result of the default, the repetitive nature of the default, all of which are in the negative and in favour of JWL, 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 am inclined to hold that no penalty need be levied upon by M/s Jhaveri Weldflux Limited for the belated compliance of the provisions of Regulation 53(A) of the SEBI (Depositories and Participants) Regulations, 1996 and accordingly the proceedings initiated against them are hereby dropped.
| PLACE: MUMBAI |
G. BABITA RAYUDU |
| DATE: APRIL 13, 2006 |
ADJUDICATING OFFICER |