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 CONSORTEX KARL DOELITZSCH (INDIA) LTD.
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 Consortex Karl Doelitzsch (India) Ltd. (hereinafter referred to as (CKDL), 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 CKDL 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 CKDL 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. CKDL 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 the said notice was acknowledged by CKDL, they failed to respond to the said notice.
3. In view of the above, a notice of hearing dated November 22, 2004 in terms of Rule 5(1) of the Rules, 2004 was sent to CKDL and vide the said notice, CKDL was advised to attend the hearing proceedings to be held on December 16, 2004 and submit the documentary proof if any, in support of their contentions.
4. In reply to the said notice, CKDL vide their letter dated December 07, 2004 inter-alia made the following submissions.
a. The show cause notice dated December, 12, 2003 was not received by them.
b. They had appointed M/s Mondkar Computers (P) Ltd., 21, Shakil Niwas, Mahakali Caves Road, Andheri (East), Mumbai for physical and demat in the year 200-2001 itself. As such they had not violated Regulations 53A of the Regulations.
c. Subsequently they had appointed Ikon Vision (P) Ltd., 33, Sonali Heavens, 8-3-948, Ameerpet, Hyderabad – 500 073 w.e.f. 17.02.2003, as their registrar & share transfer agent. (Copy of the tripartite agreement entered into by CKDL on September 01, 2003 with the RTA and National Securities Depository Ltd (NSDL) was enclosed)
d. The said appointment was brought to the notice of the Stock Exchange, Mumbai, The National Stock Exchange of India Ltd., The Hyderabad Stock Exchange, the Central Depository Services Ltd, (CDSL) and NSDL and also issued a public notice to that effect.
On the basis of the above, it was requested that the present proceedings be dropped.
5. Since the documentary evidence to substantiate the other contentions made by CKDL were not submitted, they were advised vide letter dated December 15, 2004 to attend the hearing proceedings to be held on December 28, 2004 and submit the said documents in support of their contentions. However, as CKDL refused to take delivery, of the said notice, the same was returned.
CONSIDERATION OF ISSUES:
6. I have taken into consideration, 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 had been advised to submit a compliance report to SEBI by October 15, 2001.
14. Subsequently a circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 was brought out by SEBI listing all the scrips that had 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 were 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 a share transfer agent.
16. From the facts earlier mentioned and the tripartite agreement submitted by them, it is noted that CKDL had appointed a common agency, M/s MCS Ltd. and subsequently appointed M/s Ikon Visions Private Ltd, as their RTA to handle the share registry work relating to both the physical and demat shares and had also established connectivity with NSDL by entering into a tripartite agreement with it and the RTA on September 01, 2003. As regards CDSL, I have been informed by them that CKDL had entered into a tripartite agreement dated November 20, 1999 with them and the RTA. The same is also evident from the information available in the websites of both the depositories (NSDL & CDSL) as has been verified by me.
17. Since CKDL had established connectivity with both the depositories to facilitate dematerialization of their shares and have entered into tri-partite agreements with both NSDL and CDSL and have also appointed a common share agency, well before Regulation 53A of the Regulations came into effect, CKDL 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, the proceedings initiated against M/s. Consortex Karl Doelitzsch (India) Limited are hereby dropped.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: FEBRUARY 7, 2005 ADJUDICATING OFFICER