ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S S&S POWER SWITCHGEAR LTD FOR THE VIOLATION OF REGULATION 53A of SEBI(DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 READ WITH SECTON 15HB OF SEBI ACT, 1992.
I was appointed as Adjudicating Officer by SEBI vide order dated 8th December, 2003, to inquire into and adjudge the alleged contravention of Regulation 53A of SEBI (DP) Regulations, 1996, by M/s S&S Power Switchgear Ltd (hereinafter referred to as the company), in the matter of appointment of common share registrar for handling share registry work both for demat and physical securities.
Accordingly, a show cause notice dated January 12, 2004, was issued to the company. After receiving the reply dated 13.02.2004, an opportunity of personal hearing was granted.
NOTICE AND REPLY
The show cause notice dated 12.1.2004 alleges that the company 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 SEBI(Depositories and Participants) Regulations, 1996.
Shri Sanjay Desai, Director M/s S&S Power Switchgear Ltd, appeared and made the following submissions in support of the reply dated 13.02.2004 :
It was submitted that the company at the meeting of Board of Directors held on 12.02.2003 had appointed GNSA Investor Services Pvt Ltd. (hereinafter referred to as
GNSA) located at Chennai as common RTA/STA both for physical and demat shares and that the NOC in this regard from the earlier Registrar M/s.Cameo Corporate Services (hereinafter referred to as Cameo) was obtained on 4.9.2003. The earlier position was that while GNSA was attending to physical transfer work, Cameo Corporate Services was rendering to depository services as registrar for electronic connectivity and. CDSL has effected the change for the new common registrar, on 13.01.2004 and NSDL with effect from 03.05.2004. Hence, the company is having a common registrar it was submitted.
2) It was submitted that the delay in appointing a common RTA was due to the fact that the company was a sick company under the provisions of SICA and the accumulated losses of the company were of Rs.109.07 crores.
The following documents were also filed during the proceedings :
1) Vide letter dated 07.05.2004, the following was submitted :
a) That the company raised Rs.27 crores to restructure it, but the funds were set off by banks and financial institutions towards their dues. The company had suspended its operations at its Porur unit. A copy of notice of suspension of operation dated 21.06.2002 was also enclosed.
b) That the net worth of the company is fully eroded and case numbers 281/2000 and 263/2003 were registered with BIFR. Copies of BIFR references dated 11.09.00 and 03.07.03 were also enclosed.
c) The accumulated loses as on 30.09.2003 is Rs.109.07 crores.
d) That they were in arrears to RTI Cameo and Cameo gave NOC only after clearing all the dues. Cameo issued NOC only on 04.09.2003.
e) Copies of application to NSDL and CDSL dated 18.06.2003 and 19.06.2003 were submitted. Copies of the same were also furnished
f) However, after obtaining the NOC from Cameo, the applications were resubmitted again on 25.09.2003 to CDSL and NSDL. The following documents were enclosed with the applications made to NSDL and CSDL
i) True Extract of the Board Resolution passed on 12.02.2003
ii) Certificate from Practising Company Secretary for number of shares held under physical and demat mode as on 19.09.2003.
iii) Copy of NOC dated 04.09.03 from Cameo informing the shift in demat connectivity to GNSA.
iv) Copy from GNSA about the statistics of Physical and demat shares of the company as on 19.09.2003.
2) Letter dated 13.01.2004 from CDSL to the company was also filed informing about the change in RTA at CDSL. Also enclosed with this letter was the tripartite agreement dated 31.10.2003 between the company, the RTA i.e. GNSA and CDSL.
3) A letter dated 05.02.2004 to NSDL was filed informing about the Tripartite agreement between GNSA, the company and NSDL and the details of new RTA were also forwarded. The following were enclosed with the said letter
i) a letter dated 03.03.2004 from Cameo addressed to NSDL informing about the change in RTA and shifting of database and electronic connectivity to GNSA .
ii) A letter from GNSA dated 04.03.2004 informing about the details where the security certificates for the purpose of demat should be forwarded.
iii) A secretarial audit report for the quarter ended 31.12.2003 informing about the appointment of common share agency as GNSA.
4) A letter dated 29.04.2004 from NSDL to the company was also filed intimating the company of the change in RTA operations from Cameo to GNSA w.e.f 03.05.2004.
In view of the above, it was submitted that the company did not have any malafide intention and had initiated steps to have a common RTI even before the Regulation came into force. It was, therefore, requested not to impose any penalty.
APPRECIATION OF EVIDENCE AND FINDINGS
Regulation 53A of SEBI(DP) Regulations, 1996 came into force with effect from 02.09.2003 and reads 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.”
The object of the appointment of common share agency as can be seen from SEBI Circular No. 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.
Hence, it 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.
CDSL vide its letter dated 13.01.2004 addressed to the company had approved the change of RTA from Cameo to GNSA. A copy of tripartite agreement between GNSA Investor Services, CDSL and the company was filed. NSDL had also effected the change in RTA from Cameo to GNSA as stated in their letter dated 29.04.2004 w.e.f 03.05.2004.
From the material on record, it is observed that the company has initiated steps for appointment of common registrar and share transfer agent by passing the Board Resolution on 12th February 2003 itself, whereby GNSA Investor Services P Ltd, Chennai was appointed as Common Share Transfer Agent for both physical and demat shares. Regulation 53A of SEBI (DP) Regulations, 1996 came into force with effect from 2.9.2003. There was a delay since the earlier registrar Cameo Corporate Services Ltd issued NOC on 4th September 2003 only after dues were paid to it. Thereafter, both CDSL and NSDL has effected the change for a new common registrar on 13.1.2004 and 3.5.2004, respectively. Therefore, the delay has been satisfactorily explained..
It may further be seen that the company is a sick company and registered with BIFR vide Ref No. 281/2000 and 263/2003. The accumulated losses of the company as on 30th September 2003 is Rs.109.07 crores.
It would be appropriate to refer to the order passed by the Hon’ble SAT in Alkan Projects Pvt Ltd Vs SEBI (Appeal No.88/04) dated 9.8.04 wherein it was stated that the capacity to pay the penalty also has to be considered while imposing penalty. The following is extracted from the said order:
“Although Section 15J does not consider impecuniosity as a factor in adjudicating the quantum of penalty, it appears to us it would be an important factor along with the three factors mentioned in 15J viz., (a) amount of disproportionate gain (b) amount of loss caused to the investor and (c) repetitive nature of default.
The Supreme Court in its pronouncement dealing with compensation under the criminal procedure code has held that the means of the accused has also to be considered if a workable order is to be passed (see) (i) (1978) 2 SCC 111, Sarwan Singh Vs Punjab (ii) (1988) 4SCC 51 Hari Singh Vs Sukhbir Singh.
Although the judgements related to trials with respect to criminal trials it would not be out of place to mention that the principle laid down by the Supreme Court with regard to the ability or the means of the appellant to pay a penalty in monetary terms would also apply on principle to the law laid down by the Supreme Court.”
The Hon’ble SAT in the orders referred above had also observed that while imposing penalty the provisions regarding court fees as per Rule 9 of the SAT (Procedure) Rules, 2000 also needs to be taken into account since there is statutory right of appeal.
ORDER
In view of the above and taking into account the delay which is not abnormal in complying with Regulation 53A of SEBI (DP) Regulations, 1996, the irregularity may not be viewed seriously as there are good and sufficient reasons which have been satisfactorily explained. Under the circumstances, taking also into account the fact that the company was referred to BIFR under Section 15(1) of SICA, 1985 and registered as Case No.263/2003 and 281/2000, the suspension of operations of the company at Porur Unit, it would not be just, fair and proper to impose any penalty on M/s S & S Power Switchgear Ltd for the delay in appointing a common share agency for demat and physical shares under Regulation 53A of SEBI(DP) Regulations, 1996.
| Date: NOVEMBER 1, 2004 |
S V Krishna Mohan |
| Place: Mumbai |
Adjudicating Officer |