ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDIN1G INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S R S SOFTWARE INDIA LTD FOR THE VIOLATION OF REGULATION 53A OF SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 READ WITH SECTION 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 R S Software 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 January 12, 2004 was issued to the company. After receiving the reply dated January 15, 2004, an opportunity of personal hearing was granted.
NOTICE AND REPLY
The show cause notice dated 12.1.2004 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 Bhanu Bhai Sharma, DGM and Shri Anindya Sen, Executive, Secretarial Dept, RS Software Ltd appeared in the personal hearing on 31.3.2004 and made submissions in support of their reply dated January 15, 2004.
It was submitted by the learned representative of the company that it always had common registrar for handling both physical as well as demat securities and for maintenance of records thereto even before Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996 came into force. It was
clarified that the company was not handling physical share certificates in house at any time. It was submitted that they made IPO of equity shares in the year 1994 and appointed M/s ABC Computers P Ltd of National Council of Education (Subsequently changed to AXC Computers P Ltd w.e.f 15.3.2002) as Registrars to the issue and since then they were also acting as Registrars and Share Transfer Agents (RTA). The Memorandum of Understanding (MOU) with them had been renewed from time to time. On introduction of trading of equity shares in depository mode and upon the enlistment of their equity shares in compulsory demat mode, the same registrars had provided them with the connectivity in the year 2000. The Company had entered into Tripartite Agreement between the two depositories and the said RTA.
It was further submitted that they had problems with their previous Registrars M/s AXC Computers P Ltd and their agency was terminated on 18th August 2003. Subsequently, C B Management Services Ltd was appointed as their common registrar in terms of Regulations 53A of SEBI (Depositories and Participants) Regulations, 1996 with effect from October 17, 2003. As the previous registrar did not handover the records to the newly appointed registrar, the necessary documentation is still under progress with NSDL/CDSL to change over the connectivity from AXC to C B Management Services P Ltd.
It was also submitted that about 86% of the shares of the company are in demat form. In view of the above, it was submitted that it is not correct to allege that the company did not comply with Regulation 53A of SEBI (Depositories and Participants) Regulations, 1996, although there is a problem of connectivity in view of change of the Registrar.
APPRECIATION OF EVIDENCE AND FINDINGS
Regulation 53A of SEBI (DP) Regulations, 1996 came into force with effect from 2.9.2003 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.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 a common agency either in-house or through SEBI registered RTA for share registry work relating to physical and demat shares of the company.
It was submitted that the company had a common RTA for both physical and demat shares . However, there was a change of RTA in Oct’03.
It is observed that the company has appointed a common share registrar w.e.f from 17.10.2003 but has not taken foolproof measures for maintenance of the records of holders of securities at single point. The erstwhile registrar i.e. (AXC Computers Pvt. Ltd.) has still not transferred some very important documents required for processing the shareholders’ requests.
A letter dated 18.11.2004 was received from C B Management Services P Ltd. informing the fact that they were appointed as common share registrar for handling both physical and demat shares on 17.10.2003 and the agreement has been executed. Further, till date they have not received all the required documents and data files for handling the job properly. They have received only the master files and thus, they are processing only the regular job. The list of documents yet to be received were enclosed with the said letter . It was stated that they were unable to attend to any shareholder’s query/ grievance if the reference is required from the documents not provided by the erstwhile registrar.
It is observed that many important documents required to process the shareholders’ requests have not been transferred by the previous registrar. It is been more than a year since the new registrar was appointed and till date complete transfer of records have not taken place which is against the interest of investors.
Regulation 53A of SEBI(DP) regulations, 1996 came into force w.e.f. 02.09.2003. The company has failed to comply with the requirement of the maintenance of records of holders of securities, handling of physical and demat securities at a single point i.e. with the new registrar. Mere appointment of common share registrar does not meet the requisite criteria for which the said regulation was brought forth as stated above . In fact, the said regulation was brought in as an investor protection measure to avoid delay in handling shareholder’s queries and other grievances and processing their requests etc.
It is a common practice that the erstwhile registrar does not transfer the records to the new registrar if the dues are not paid by the company . The company has failed to submit the reasons for non transfer of records by the outgoing registrar to the new registrar and the steps taken by it to remedy the situation to protect the interests of investors and for transfer of records.
Therefore, in effect, the company has failed to comply with the requirements of Regulation 53A of SEBI(DP) Regulations, 1996.
ORDER
Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case and the submissions made, as the company has only not complied with Regulation 53A of SEBI(DP) Regulations, 1996, a penalty of Rs.50,000/- (Rupees Fifty Thousand only) is imposed on M/s RS SOFTWARE INDIA LTD under Section 15HB of SEBI Act, 1992.
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.
S V Krishna Mohan
Adjudicating and Enquiry Officer