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 HORIZON BATTERY TECHNOLOGIES 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 Horizon Battery Technologies Limited (hereinafter referred to as HBTL) 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 HBTL 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 (Rules) where under HBTL 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. HBTL 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. As the notice was returned undelivered, another notice dated July 30, 2004 was sent to HBTL. Although the said notice was acknowledged by HBTL, they failed to respond to the said notice or provide any explanation for their failure to reply to the said notice. Another notice dated August 9, 2004 was sent to HBTL, which even though acknowledged was not replied to.
3. Thereafter another notice of hearing dated November 3, 2004 was sent to HBTL and vide the said notice, HBTL was advised to attend the hearing proceedings to be held on December 1, 2004 and submit the documentary proof if any, in support of their contentions. HBTL was also informed that no further extension of hearing 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. This time the said notice was returned undelivered.
4. Keeping in mind the principles of natural justice, another notice of hearing dated November 29, 2004 was sent to the address of HBTL to which the earlier notice had been sent and vide the said notice, HBTL was advised to attend the hearing proceedings to be held on December 9, 2004, failing which the mater would be proceeded with on the basis of the material available on record. On the said date, Mr Nilesh Krishnakant Mehta, Consultant, authorized to represent HBTL appeared before me and made the following submissions.
a. There has been no trading in HBTL for some time as the company was delisted on the NSE about a year back. No share transfers had taken place in the last one year.
b. HBTL had established connectivity with CDSL though he was not sure about HBTL having established connectivity with NSDL.
c. Additional time till December 20, 2004 be granted to him to provide the necessary information.
In view of the same, the matter was adjourned till Decemebr 20, 2004 and it was made clear to Shri Mehta that in case he failed to appear on the said date, the matter would be dproceeded with on the basis of the material available on record considering the adjournments already granted to him. Therefore the Director, HBTL sent a letter dated December 7, 2004 requesting for the matter to be adjourned to a date after a month, on the ground that Shri Mehta was indisposed. A medical certificate dated December 15, 2004 to the said effect was also enclosed. Considering that sufficient opportunities had been granted to HBTL and after noting that the letter seeking adjournment was dated December 7, 2004 when in fact the matter had been taken up for hearing on December 9, 2004, it was clear that HBTL was only procrastinating.
CONSIDERATION OF ISSUES:
5. Accordingly the matter was proceeded with on the basis of the material available on record and the facts and circumstances of the case as also the relevant regulatory provisions.
6. 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.”
7. 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.
8. 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.
9. 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.
10. 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).
11. Regulation 53A of the Regulations in this regard is thus an important investor protection measure introduced by SEBI.
12. I have 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.
13. Subsequently SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 had brought out the list of 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.
14. 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.
15. In this instant case, the address of HBTL to which the earlier referred to notices were sent, was verified from the websites of CDSL & NSDL. It is noted that at times HBTL thought it fit to reply to the some of them although no explanation was offered for their failure to respond to the other notices.
16. As regards the merits of the case, upon verification from CDSL, it appears that, as stated on behalf of HBTL, they had indeed entered into a tripartite agreement with CDSL and M/s Intime Spectrum Registry Limited on October 7, 2002. Even NSDL upon being contacted have also confirmed that HBTL had entered into a tripartite agreement with them and M/s Intime Spectrum Registry Limited on April 30, 2002. The same is also evident from the information available in the websites of both the depositories (NSDL & CDSL). Thus HBTL appears to have dematerialized their shares through the appointment of M/s Intime Specturm Registry which aspect was confirmed by them upon being contacted. However, M/s Intime Specturm Registry Limited have clarified that although HBTL had approached them for the full registry work and they have forwarded agreement to HBTL, a confirmation to that effect was still awaited from HBTL. As such, M/s Intime Specturm Registry Limited have clarified that as on date they were only the electronic connectivity provider for HBTL and the details about the present RTA dealing with the transfer of the physical shares of the company was not known to them.
17. Thus, although HBTL has established connectivity with the depositories to facilitate dematerialization of their shares and has entered into tri-partite agreements with both NSDL and CDSL and have also appointed an RTA for dealing with the transfer of demat shares of the company, no information available as regards the agency dealing with the transfer of the physical shares of HBTL. Numerous attempts to contact HBTL to provide information required in the present matter, as demonstrated in the earlier part of the order, have proved to be futile in that HBTL have time and again, failed to respond to any of the regulatory summons or even provide information relevant to the matter on hand. It would appear that HBTL were unable to provide any evidence in this regard since they had not complied with Regulation 53A of the Regulations and hence kept themselves away from the hearing proceedings. Keeping the same in mind and the material available on record, there does not appear to be any case to state that HBTL have complied with the provisions of Regulation 53A of the Regulations
18. 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.
19. In view of the absence of HBTL submitting the complete information evidencing their compliance of Regulation 53A of the Regulations, the said violation by HBTL is established, and they will be held liable for the non compliance of Regulation 53A of the Regulations under 15HB of the SEBI Act, 1992 in this regard which 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.”
20. 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
21. 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.
22. It is not clear as to whether HBTL enjoyed any gain or unfair advantage as a result of the default. However it cannot be denied that the said default would have certainly caused a certain amount of disadvantage to their shareholders and the investor class as a whole. Moreover, the default is continuing till date. Hence 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 sufficient response by HBTL to a regulatory directive, 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 a token penalty is very much necessitated.
ORDER:
23. In view of the fact that M/s. Horizon Battery Technologies Limited. have not complied with the provisions of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996 by failing to appoint a common share agency for their demat and physical shares, I 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, think it appropriate to levy a penalty of Rs.75,000/- (Rupees seventy five thousand only) on M/s. Horizon Battery Technologies Limited.
24. 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.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: FEBRUARY 16, 2005 ADJUDICATING OFFICER