IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.39/2005
Date of Hearing 29.06.2005
Date of Decision 01.07.2005
In the matter of:
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Narmada Chematur Petrochemicals Ltd.,
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Appellant – Represented by Mrs. Heena Doshi
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Versus
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Adjudicating & Enquiry Officer, Securities & Exchange Board
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Respondent – Represented by Mr. Bavik Narsana, Advocate.
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of India
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
R. N. Bhardwaj, Member
Per: C. Bhattacharya, Member
1. Appeal is taken up for final disposal with consent of both parties.
2. The appeal is against the impugned order dated November 29, 2004 of the Adjudicating Officer appointed by SEBI by order dated 8th December, 2003. The Adjudicating Officer has passed the order against the appellant which, inter alia, reads as under:
“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 not complied with the Regulation 53A of the Securities and Exchange Board of India (Depository and Participants) Regulations, 1996, a penalty of Rs.75,000/- is imposed on M/s. NARMADA CHEMATUR PETROCHEMICALS LTD., under Section 15HB of SEBI Act, 1992.”
Being aggrieved by the said impugned order the appellant has filed the appeal dated 24th January, 2005.
3. The fact of the case is that the said Adjudicating Officer was appointed to enquire into and adjudicate the alleged contravention of regulation 53A of the Securities and Exchange Board of India (Depository and Participants) Regulations, 1996 by the appellant, M/s. Narmada Chematur Petrochemicals Ltd., in the matter of appointment of a common share registrar for handling share registry work for demat and physical securities.
4. A show cause notice was issued to the appellant by the Respondent on January 12, 2004 which alleged that the appellant 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 the Securities and Exchange Board of India (Depository and Participants) Regulations, 1996. The appellants were also given a hearing by the Adjudicating Officer of SEBI on 21/7/2004.
5. The appellant is a subsidiary of the Gujrat Narmada Valley Company Limited (GNFC) which is promoted by Govt. of Gujrat. The location of the appellant is adjacent to the factory premises and Corporate Office of its holding company GNFC in the land leased out by them.
6. Regulation 53A of the Regulations, which came into force on September 2, 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. According to the respondent the object of appointing a common share agency is to avoid (a) any delay in dematerialization; and (b) non-reconciliation of the share holding due to lack of proper coordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.
8. The appellant submitted that initially they had sought for SEBI’s permission to use VSAT facilities of its parent company GNFC to establish connectivity with the Depositories. However, by its letter dated 15th September, 2003 SEBI refused to entertain this request. The appellant had again represented for review of the said decision of SEBI which was also turned down by SEBI on 22nd October, 2003. After some more correspondence, SEBI by its letter dated 10th February, 2004 asked them to have their own independent line of electronic connectivity.
9. The appellant has further stated that the connectivity with CDSL was established through VSAT in the premises of the appellant before the end of August, 2004. The appellant was however, informed by NSDL that VSAT was not available at NSE and hence they should go for establishing leased line connection. Thereafter the appellant approached NSDL for leased line connections after receiving intimation from BSNL regarding completion of laying of leased line.
10. After the necessary infrastructure was put in place, the requisite training of the people to handle the matter was taken up. Thereafter first connectivity with CDSL was established followed by connectivity with NSDL having been activated on 31st May, 2005.
11. Admittedly, the appellant was in violation of regulation 53A of the Securities and Exchange Board of India (Depository and Participants) Regulations, 1996 until they established connectivity with both CDSL and NSDL and brought all the share transfer matters under one roof. It is, therefore, a case of delayed compliance.
12. In another case in somewhat similar circumstances, SEBI by its order dated 18th March, 2005 had given a warning. The said order of SEBI reads as follows:
“Having regard to the factors contained in Section 15J of SEBI Act, 1992 and the facts and circumstances of the case, 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, am of the considered opinion that no penalty needs to be imposed upon M/s. Aditya International Limited for the delayed compliance of regulation 17(3) of the SEBI (Central Listing Authority) Regulations, 2003 read with Clause 51 of the Listing. However, it is hoped that the company would be more careful in future in compliance with the regulatory requirements.”
13. The reason apparently was that it takes some time for companies to comply with Regulation 53A of the SEBI (DP) Regulations, 1996. Now that it has been brought under one roof, it would be appropriate to consider the facts as stated under Section 15J of the Act before imposing a penalty. Section 15J deals with factors to be taken into account while imposing penalty. The factors are (a) the amount of disproportionate gain or unfair advantage (b) loss caused to an investor or group of investors, and (c) repetitive nature of the default. It is common ground that there has been no disproportionate gain, no loss to the investors and this alleged violation has occurred for the first time and has since been rectified. We are, therefore, inclined to reduce the penalty amount of Rs.75,000/-imposed by the Respondent to Rs.10,000/-. The impugned order stands modified to this extent.
14. By this Tribunal’s Interlocutory Order dated 21.2.2005 the appellant was directed to deposit Rs.40,000/- with the Respondent within 4 weeks from the receipt of the order. Out of that amount of Rs.40,000/- deposited, only a sum of Rs.10,000/- may now be impounded by SEBI as penalty imposed by virtue of this order.
15. No order as to costs.
Any amount paid in excess of the amount stipulated by us in the order pursuant to the interlocutory order shall be refunded to the appellant.