IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 36 of 2005
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Date of Hearing
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26/04/2005
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Date of Decision
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06/05/2005
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In the matter of
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Appellant – Represented by:
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Shreyans Industries Limited
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Mr. Joby Mathew, Advocate
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Mr. Vivek Menon, Advocate
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CORAM
Justice Kumar Rajaratnam, Presiding Officer
1. The appeal is taken up for final disposal with the consent of both the parties.
2. The appeal is against the order dated 18/09/2004 of Adjudicating and Enquiry Officer appointed by order dated 8th December, 2003 of SEBI to enquire into and adjudge the alleged contravention of Regulation 53A of SEBI (DP) Regulations, 1996 of M/s. Shreyans Industries Limited in the matter of appointing of common share registrar for handling share registry work both for Demat and physical securities.
3. A show cause notice dated 12/01/2004 was issued to the company. After receiving the reply dated 07/02/2004 to the show cause an opportunity for personal hearing had also been granted to the appellant.
4. The appeal is against the order of Adjudicating Officer who has imposed a penalty of Rs. 50,000/- under Section 15HB of SEBI Act, 1992 on M/s. Shreyans Industries Limited for non compliance of Regulation 53A of SEBI (DP) Regulations, 1996.
5. The appellant has appealed for stay of the operation of the impugned order dated 18/11/2004. This Tribunal on 15/02/2005after hearing both the parties had asked the appellant to deposit a sum of Rs. 10,000/- within six weeks from the receipt of the order. The Tribunal had also asked the respondent not to take any coercive steps against the appellant pending the appeal.
6. The brief facts of the case as submitted by the appellant is that the appellant is a company incorporated under the Companies Act, 1956 having its registered office at Ludhiana. The shares of the appellants are listed for trading on the Stock Exchange, Mumbai, National Stock Exchange and Madras Stock Exchange.
7. The appellant had applied to the National Share Depository Limited (NSDL) for admission of its shares as eligible securities in the Depository System. Upon admission by NSDL the appellant entered into a tripartite agreement with NSDL and M/s. In House Share Registry (In House) on 28/09/2000. The said agreement inter alia provided for the procedure to be adopted for dematerialization of shares and for establishing electronic connectivity with NSDL. Thereafter SEBI directed that the shares of the appellant be traded only in dematerialized form w.e.f. 25/01/2001. The appellant submitted that at the time of issuing the circular they had complied with the requirements of dematerialization.
8. There was consolidation of business by In House with M/s. In Time Share Registry Limited (In Time). Consequently the appellant entered into an agreement with the later on 09/10/2002 wherein In Time was appointed as a share transfer agent for depository connectivity with NSDL and also with Central Depository Services Limited (CDSL).
9. SEBI vide its circular dated 27/12/2002 directed that all issuers of securities need to maintain work related share registry (both physical and electronic) at a single point i.e. either In House or with a SEBI registered intermediary. SEBI also directed that the said direction was to be implemented by 01/02/2003. Thereafter Regulation 53A of the SEBI (Depositories and Participants) Regulations 1996 was amended to provide for single point share registry work. The said amendment came into force w.e.f. 02/09/2003.
10. The appellant wanted to make the existing Registrar and Share Transfer Agent, namely, In-Time, the single point agency for all share registry work. However, In Time was found to be lacking any infrastructure facilities to handle such work.
11. The appellant finally approached M/s. Skyline Financial Services Pvt. Ltd., (Skyline) category 1 Registrar and Share Transfer Agents in January 2004 and negotiations with Skyline, and after negotiations with Skyline appointed them as Registrar and Share Transfer Agents to take care of share registry work both electronic and physical. In the meanwhile Regulation 53A of the Depositories Regulations had been amended to prove for single point of Registry work. The letter of appointment was sent to Skyline by the appellant on 14/01/2004 and after obtaining the consent of the existing Registrars, namely, In Time, the agreement was executed with Skyline on 21/02/2004. Thus according to the appellant he has complied with the requirements of SEBI circular dated 27/1/2002 and also with the requirements of Regulation 53A of the Depository Regulations.
12. However, the appellant received a show cause notice dated 12/01/2004 from the respondent inter alia stating that an adjudicating officer has been appointed to enquire into the alleged violation of the appellant of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996.
13. According to the appellant they had appointed M/s. In House Share Registry Limited as their Registrar and Share Transfer Agent vide tripartite agreement with NSDL on 28/09/2000. The appellant have also submitted that they have a full fledged systems department in house capable of carrying out all the activities relating to shares. They further submitted that there is no complaint from any investor regarding share transfer, change of address, etc. They also submitted to the respondent that they have appointed M/s. Skyline Financial Services Pvt. Ltd., as their registrar and share transfer agent w.e.f. January, 2004.
14. The appellant submitted that all records relating to shares whether in physical or electronic have been transferred to Skyline and that they had substantially and otherwise complied with the requirement of Regulation 53A of the Depositories Regulations.
15. The appellants further submitted that the delay, if any, in complying with the directives of SEBI’s circular dated 28/02/2002 was on account of genuine operational problems and not intentional that were explained in great detail to the respondent. The appellant further submitted that Regulation 53A did not specify any particular time limit.
16. According to the appellant the respondent has not appreciated that the process of appointing a Registrar and Transfer Agent capable of handling onerous task of undertaking share registry work could not have been completed within a short time span.
17. The appellant also submitted that entering into an agreement and transfer of data base and records from the existing Registrar was only a procedural requirement and cannot be a ground to hold that the appellant had violated Regulation 53A.
18. The appellant further reiterated that there were no complaint pending regarding transfer of shares or other such registry work thus it cannot be said that if the delay, if any, in appointing Skyline has affected the interest of the investors in any manner.
19. The appellant further submitted that the respondent has not considered the factors laid down in Section 15J of the SEBI Act, while imposing the penalty. The appellant submitted that they have not made any illegal gain or profit, no harm has been caused to the interest of the investors and the said violation, if any is not of repetitive nature.
20. Regulation 53A of SEBI (DP) Regulations, 1996 came into force with effect from 02.09.2003 and read as under:
“All matters relating to 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.”
21. The object of the appointment of common share agency as can be seen from SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002 was to avoid:
(a) delay in dematerialization
(b) non-reconciliation of share holding due to lack of proper co-ordination among the concerned agencies or departments, which is adversely affecting the interest of the investors,
22. Hence the appellant was directed to appoint common agency either in-house or through SEBI registered RTA for share registry work relating to physical and demat shares of the company.
23. According to respondent, the company had effectively appointed M/s. Skyline Financial Services as the RTA in 01/10/2004. appointed as common share agency only from 01/10/2004 and that the dematerialization process has started and physical records are yet to be received from the company.
24. According to appellant the RTA has submitted vide its letter dated 10/11/2004 that they were appointed as common share agency agent only from 01/10/2004 and that the dematerialization process has started and physical records are yet to be received from the company.
25. According to the respondent the company has not submitted the requisite information in this case as RTA was effectively appointed only on 01/10/2004 as stated in the letter dated 10/11/2004 from Skyline Financial Services Limited.
26. The Adjudicating Officer has observed from NSE website that the company had net profit of Rs. 421.35 lakhs for quarter ending 01/01/2004 to 31/03/2004 and net profit of Rs. 47.04 lakhs for quarter ending 01/04/2004 to 30/06/2004; but the company had appointed Skyline Financial Services Pvt. Ltd. as RTA with the delay of more than an year i.e. after the Regulation 53A of SEBI (DP) Regulations, 1996 had came into force and records pertaining to physical securities are not yet transferred to the RTA. Therefore the respondent found the company had not complied with Regulation 53A of SEBI (DP) Regulations, 1996 and even as of now the physical records are yet to be handed over to the new RTA. Hence, this irregularity has attracted penalty.
27. I have perused all the documents submitted by both the parties. There has been delay in complying with the Regulation 53A as recorded by the Adjudicating Officer and hence I uphold the impugned order. However, I find that the appellant had already initiated action in appointing RTA although there has been delay. It is also brought to my notice that with respect to non-compliance of Regulation 53A of SEBI (DP) Regulations, 1996 some other companies have been given a warning and no penalty was imposed.
28. Under similar circumstances SEBI, by its order dated 18th March, 2005 has given a warning. The earlier 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.”
29. The reason apparently was that it take some time for companies to comply with Regulation 53A of the SEBI (DP) Regulations, 1996 and now 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, (b) loss caused to the 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 also been rectified since then. I am therefore inclined reduce the penalty amount of Rs. 50,000/- imposed by the respondent to Rs. 10,000/-. The impugned order stands modified to this extent.
30. No order as to costs.
(Justice Kumar Rajaratnam)
Presiding Officer
Place: Mumbai
Date: 06/05/2005
*/as
It is submitted that an amount of Rs. 10,000/- has already been deposited with SEBI by virtue of interim order dated 15/02/2005. That amount shall now be treated as penalty.
(Justice Kumar Rajaratnam)
Presiding Officer