ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S NEPC INDIA LTD FOR THE VIOLATION OF REGULATION 53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 READ WITH SECTON 15HB OF SEBI ACT, 1992.
I was appointed as Adjudicating Officer by SEBI vide order dated 8th December, 2003, to inquire into and adjudge the alleged contravention of Regulation 53A of SEBI (DP) Regulations, 1996, by M/S NEPC INDIA LTD (hereinafter referred to as the company), in the matter of appointment of common share registrar for handling share registry work both for demat and physical securities.
Accordingly, a show cause notice dated 12th January, 2004, was issued to the company. After receiving the reply dated 26.02.2004, an opportunity of personal hearing was granted.
NOTICE AND REPLY
The show cause notice dated 12.01.04, alleges that the company did not appoint a common share transfer agent in the matters relating to transfer of securities, maintenance of records of holders of securities, handling of physical securities and establishing connectivity with the Depositories at a single point as required under Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996.
Shri Prakash Shah, Chartered Accountant appeared on behalf of M/S NEPC INDIA LTD and made the following submissions:
1) Company is in existence for the past 11 years and since then the company had an in-house Share Registry for handling physical share transmission/ transfer/ transposition requests from the shareholders.
2) Established a Central Share Transfer Registry for handling the share registry work of its group company, had a staff strength of about 40
employees working in the share registry department for the NEPC group of companies.
3) It was submitted that the company had appointed M/s. Cameo Corporate Services as STA for dealing in demat securities.
4) Entered into tripartite agreements with NSDL, CDSL and M/s. Cameo Corporate Services Ltd and duly established connectivity for handling dematerialization requests from investors to enable them to hold the accounts in electronic form.
5) Contacted STAs approved by SEBI, but the cost was very high and appointing RTA would result in making the present employees working in -house redundant leading to industrial problems.
6) Company is incurring losses for the past 7 years and is now in the process of recovery and hence not in a position to absorb extra cost.
7) Considering the financial position of the company, it is unable to meet the expenditure on both sides viz., physical in-house registry (having its own employees) and the outside agency (i.e. Common Share Registrar being appointed as per SEBI regulations). The company is in the process of down-sizing and streamlining the employees in its in-house share registry. Most of the employees of the company are long serving officers and staff and it would be difficult to persuade them for sudden change in employment and work situation.
8) There are no complaints pending.
It was finally submitted that the company intends to comply with Regulation 53A and it was urged to take a lenient view taking into account the financial position of the company and staff problem that may arise due to redundancy.
APPRECIATION OF EVIDENCE AND FINDINGS
Regulation 53A of SEBI(DP) Regulations, 1996 came into force with effect from 02.09.2003 and reads as under :
“All matters relating to 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.”
The object of the appointment of common share agency as can be seen from SEBI Circular No. SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, was to avoid :
a) delay in dematerialization
b) non-reconciliation of share holding due to lack of proper co-ordination among the concerned agencies or departments, which is adversely affecting the interest of the investors.
Hence, it was directed to appoint common agency either in-house or through SEBI registered RTA for share registry work relating to physical and demat shares of the company.
It is not disputed that the company has failed to appoint the common share registrar for handling the demat and physical shares as required under Regulation 53A of SEBI(DP) Regulations, 1996. As seen earlier, the requirement of having a common RTA was prescribed by SEBI as an investor protection measure in the SEBIDP) regulations, 1996.
Regulation 53A came into force with effect from 02.09.2003 and till date the company had failed to comply with the same, Therefore, non compliance with the same calls for the penalty. Although, it was claimed on behalf of the company that it had incurred losses for the last 7 years , it may be noted from the NSE website for the half year ending 30.09.2004 the net profit of the company was Rs.330.50 lakhs (unaudited) and for the quarter ended 01.01.2004 to 31.03.2004 the net profit was Rs.806.39 lakhs (unaudited). It is, therefore, not correct to contend that the company’s ability to pay the penalty is hampered.
ORDER
Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case and the submissions made a penalty of Rs.75,000/-(Rupees Seventy Five Thousand only) is imposed under Section 15HB of SEBI Act, 1992 on M/s M/S NEPC INDIA LTD for non compliance of Regulation 53A of SEBI(DP) Regulations, 1996.
The penalty shall be paid through a cross demand draft drawn in favour of “SEBI- Penalties Remittable to Government of India” and payable at Mumbai, may be sent to Shri V S Sunderesan, Deputy General Manager, Securities and Exchange Board of India, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai, Mumbai-400 005.
| Date: December 29, 2004 |
S V Krishna Mohan |
| Place: Mumbai |
Adjudicating & Enquiry Officer |