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 HAMCO MINING & SMELTING 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 Hamco Mining & Smelting Ltd (hereinafter referred to as HMSL) 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 HMSL by the issuance of a show cause notice dated January 5, 2004 in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 where under HMSL 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. HMSL 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 them on January 9, 2004, they neither responded to the said notice nor provided any explanation for their failure to reply for the same.
4. Thereafter, a notice of hearing dated June 10, 2004 was sent to HMSL by the then adjudicating officer in terms of Rule 5(1) of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, and vide the said notice, HMSL was advised to attend the hearing proceedings to be held on July 21, 2004. The said notice of hearing was sent by registered post and the same was acknowledged by HMSL on June 18, 2004. However, no body appeared on behalf of HMSL on the said date to present their case.
5. Keeping in mind the principles of natural justice, another opportunity was offered to HMSL by the undersigned not only to be heard in person on November 18, 2004 but also to submit the documentary proof if any in support of their contentions. It was also made clear to HMSL that in case they failed to appear for the said proceedings, the matter would be decided solely on the basis of the material available on record.
6. The said notice of hearing was received by HMSL on October 21, 2004 as was evident from the acknowledgment received from the postal authorities. However, no body appeared on behalf of HMSL on the said date to present their case.
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 either in house or through a SEBI registered RTA for the share registry work relating to physical and demat shares of the company.
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. Hence before the admission of any security into the depository system, it is necessary for the issuer company to establish electronic connectivity with both the depositories either directly or through a Registrar and Transfer Agent (RTA).
12. Thus Regulation 53A of the Regulations is an important measure brought about by SEBI for the benefit of the investors.
13. From the facts earlier mentioned, it is clear that despite granting HMSL sufficient opportunities to appear in person and present the case, the company did not submit any proof of their compliance of Regulation 53A of the Regulations despite receiving the notices issued by SEBI. Till date no document has been furnished by them evidencing compliance of the Regulations. It is not even known as to whether HMSL has actually started functioning as a common share agency for both physical and demat securities in terms of the provisions of the Regulations. It is clear that HMSL were unable to provide any evidence as stated above since they had not complied with Regulation 53A of the Regulations. Furthermore, they have kept themselves away from the hearing proceedings.
14. Any evasion of the regulatory provisions issued by the regulator in the interests of the investors or non adherence to the same for any reason whatsoever is bound to affect the interests of such investors. Although such a loss cannot be specifically computed in monetary terms, the fact remains that all regulatory provisions have a specific purpose behind their enactment. 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. 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 provisions in the said enactments would become redundant.
15. In view of the foregoing as well as in the absence of HMSL submitting any information evidencing their compliance of Regulation 53A of the Regulations, the said violation by HMSL is established.
16. Section 15HB reads as under:
“Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board there under for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees.”
17. However, while adjudging the quantum of penalty, the adjudicating officer is required to have due regard to the factors laid down in Section 15 J of the Act which are as under:-
a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
b) the amount of loss caused to an investor or group of investors as a result of the default;
c) the repetitive nature of the default
18. These provisions also find mention in Rule 5(2) of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995.
19. It is clear that although HMSL may not have enjoyed any gain or unfair advantage as a result of the default, the said default has certainly caused an unquantifiable loss to the investor class as a whole. Moreover, the default is continuing till date. However, on a judicious exercise of the discretion conferred upon me, bearing in mind the factors enumerated above as well as after taking into consideration the facts and circumstances of the present case as well as after analysing all the material available on record, the rationale behind the requirement of the appointment of a common share agency, the absence of any response by HMSL to appear before the regulator without adequate cause, as well as the mitigating factors, if any, I am inclined to hold that although the penalty need not be imposed in terms of the provision provided in Section 15HB of the Act, the imposition of penalty is very much necessitated.
ORDER:
20. In view of the foregoing, 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 penalty of Rs. 75,000/-(Rupees Seventy five thousand only) on M/s Hamco Mining & Smelting Ltd for their failure to appoint a common share agency for demat and physical shares under Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996.
21. 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, Deputy General Manager, Securities and Exchange Board of India, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005.
| Date: December 02, 2004 |
G. BABITA RAYUDU |
| Place: Mumbai |
Adjudicating Officer |
