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 MARDIA STEEL 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 Mardia Steel Ltd (hereinafter referred to as MSL) 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 MSL by the issuance of a show cause notice dated January 12, 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 MSL 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. MSL 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.
3. The notice returned undelivered indicating that the company ‘left’ by the postal authorities.
4. To obtain the relevant information in this regard, the website of NSE was accessed and the information relevant to MSL inter alia stated that on the basis of the recommendation of BIFR, the Gujarat High Court has passed an order of winding up of the company on April 29, 2003 and has appointed Official Liquidator as Provosio Liquidator attached to the Gujarat High Court and the Honourable Gujarat High Court has directed him to take the charge of the Assets of the Company.
5. In view of the said development, a notice of hearing dated December 6, 2004 was sent to the Official Liquidator appointed by the Delhi High Court in the matter to hear his views on the matter. Furthermore, the Official Liquidator was advised not only to be heard in person on December 30, 2004 to present the case of MSL along with the documentary proof if any, in support of their contentions. However there was no representation by the OL on the scheduled date of hearing.
CONSIDERATION OF ISSUES:
6. I have taken into consideration, the facts and circumstances of the case, the material available on record, and the submissions made in support of MSL 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 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 effective from September 02, 2003.
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 the 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 has 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 have 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.
16. In the instant case, upon perusal of the information available on record, it is seen that MSL is registered with both the depositories namely, Central Depository Services Ltd (CDSL) and National Securities Depositories Ltd (NSDL) which aspect has been verified from the respective websites of the depositories. However, it is also noted that MSL has not appointed a common agency to handle the share registry work relating to both the physical and demat shares. What has however been drawn to my attention is the fact that by the time Regulation 53A of the Regulations was made effective, ie.., on September 02, 2003, MSL was already facing winding up proceedings at the Gujarat High Court, in that vide an order dated April 29, 2003, the BIFR recommended the winding up of MSL to the Gujarat High Court.
17. In view of the facts above stated, this appears to be a case wherein the retrospective application of the provisions of Section 53A of Regulations cannot be made. Moreover, Article 20(1) of Constitution of India, in this regard, would also apply which inter-alia prohibits the conviction of any person of any offence, except for the violation of a law in force, at the time of the commission of the act, charged as an offence. There being no definition of ‘offence’ in the Constitution, the definition in Section 3(37) of the General Clauses Act is to be applied which defines ‘offence’ to mean an act or omission punishable by any law by way of fine, imprisonment or death.
18. In the facts of the present circumstance, MSL was not in existence as on the date Regulation 53A of the Regulations was made effective, i.e., on September 02, 2003, in that by April 29, 2003, the BIFR had already recommended the winding up of MSL, whereafter the Gujarat High Court had ordered the MSL to be wound up vide its order dated April 29, 2003. Consequently, the imposition of any penalty upon MSL for non compliance of Regulation 53A of the Regulations besides being impracticable, given the present facts of the case, in that, MSL was clearly incapable of complying with the requirement of the Regulation specified above, would also not be in accordance with law.
19. Taking into consideration, the fact that Regulation 53A of the Regulations which requires all listed companies to engage a common share agency for the purposes envisaged therein cannot be made applicable to the facts of the case on record, 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, I think it appropriate to dispose of the present case initiated against M/s Mardia Steel Ltd without imposing any penalty upon the said entity.
PLACE: MUMBAI G. BABITA RAYUDU
DATE: MARCH 24, 2005 ADJUDICATING OFFICER