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 BIOFIL CHEMICALS & PHARMACEUTICALS 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 Biofil Chemicals & Pharmaceuticals Ltd. (hereinafter referred to as (BCPL), 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 BCPL by the issuance of a show cause notice dated December 30, 2003 in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules) where under BCPL 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. BCPL 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. Although BCPL received the notice, they failed to respond to the said notice or subsequently provide any explanation for their failure to reply to the said notice.
3. In view of the above, a notice of hearing dated November 3, 2004, in terms of Rule 5(1) of the Rules, 2004 was sent to BCPL and vide the said notice, BCPL was advised to attend the hearing proceedings to be held on December 2, 2004 and submit the documentary proof if any, in support of their contentions. BCPL was also advised to note that no adjournment would be granted and in case they failed to attend the said proceedings, the matter would be decided on the basis of the material available on record.
4. In reply to the above, BCPL vide reply dated November 26, 12004 requested to be provided with the copy of show cause notice on the ground that they had not received the notice earlier. Consequently they also requested for additional time to submit their reply to the same. Accordingly while providing them with the copy of the notice, BCPL were advised vide letter dated December 6, 2004 to attend the hearing proceedings to be held on December 24, 2004. BCPL was also advised to note that no further adjournment would be granted to them and that in case they failed to attend the said proceedings, the matter would be decided on the basis of the material available on record.
5. Thereafter, the Director of BCPL vide his letter dated December 21, 2004 made the following submissions:
i. They had received the show cause notice dated December 30, 2003 for the first time only on December 17, 2004.
ii. The Company had not violated the provisions of Regulation 53A of Regulations and from the beginning, (at the time of public issue) they had been maintaining the records relating to the transfer of securities and records of holders of securities.
iii. They had established connectivity with the depositories at a single point with M/s Ankit Consultancy Private Limited, A.B. Road, Indore, and the said fact was also informed to the Stock Exchanges.
iv. Additional time be provided to them to submit the documents in this regard as the concerned person was out of town.
On the basis of the above, they requested that no action be initiated against them. However, till date no documents have been submitted by BCPL in this regard.
CONSIDERATION OF ISSUES:
6. In view of the same I shall proceed on the basis of the facts and circumstances of the case, the material available on record, as also the relevant regulatory provisions.
7. 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.”
8. 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 RTA.
9. 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.
10. 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.
11. 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).
12. Regulation 53A of the Regulations in this regard is thus an important investor protection measure introduced by SEBI.
13. 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 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.
14. Subsequently SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 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 had 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.
15. 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 share transfer agent.
16. On the basis of the contentions advanced on behalf of BCPL, it appears that they have appointed a common agency, M/s Ankit Consultancy Pvt. Ltd to handle the share registry work relating to both the physical and demat shares. To confirm the veracity of the said contention, both CDSL and NSDL were contacted. On the basis of the information received by them, it is noted that BCPL had established connectivity with both the depositories in the year 2002 itself to enable the shareholders to dematerialize their shares. It is noted that BCPL has entered into a tripartite agreement dated November 22, 2002 with NSDL and M/s Ankit Consultancy Pvt. Ltd., as well as a tripartite agreement dated October 07, 2002 with CDSL and M/s Ankit Consultancy Pvt. Ltd. The same is also evident from the information available in the websites of both the depositories (NSDL & CDSL). M/s Ankit was also contacted to verify these facts. Thereafter, vide letter dated February 15, 2005 faxed to the undersigned on the same date, M/s Ankit have confirmed the above stated facts and have further stated that the bipartite agreement entered into with BCPL was valid upto September 30, 2005.
17. Since BCPL had established connectivity with both the depositories to facilitate dematerialization of their shares through M/s Ankit Consultancy Pvt. Ltd. and have entered into tri-partite agreements in this regard with both NSDL and CDSL and have also appointed a common share agency, before Regulation 53A of the Regulations came into effect, they cannot be held liable for non compliance of Regulation 53A of the Regulations.
18. Hence on a judicious exercise of the discretion conferred upon me, bearing in mind the facts brought out above, and after analysing all the material available on record, I am of the considered opinion that the imposition of any penalty in the present matter is not necessitated.
ORDER:
19. Accordingly, 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, as M/s. Biofil Chemicals & Pharmaceuticals Limited have complied with the provisions of Regulation 53A of the SEBI (Depository Participants) Regulations, 1996, the proceedings initiated against them are hereby dropped.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: FEBRUARY 16, 2005 ADJUDICATING OFFICER