ORDER OF THE ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S SHREYANS INDUSTRIES 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 SHREYANS INDUSTRIES 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 07.02.2004, an opportunity of personal hearing was granted.
NOTICE AND REPLY
The show cause notice dated 12.01.2004 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 Sharad Dudani, Deputy General Manager of M/S Shreyans Industries Ltd, appeared and made the following submissions in support of the reply dated 07.02.2004:
1) The trading in shares of the company was made compulsory in electronic mode w.e.f 25.01.2001.
2) Company had appointed M/s. Inhouse Share Registry as Electronic Transfer Agent and had entered into tripartite agreement with NSDL & CDSL in October, 2000.
3) Further, that the company had terminated the contract with M/s. Inhouse Share Registry and in its place M/s.Skyline Financial Services Pvt Ltd, New Delhi, a SEBI registered RTA was appointed.
4) M/s. Inhouse Share Registry vide letters dated 23.03.04 had informed both CDSL and NSDL its consent to shift the database and electronic connectivity to the new RTA i.e. M/s.Skyline Financial Services Pvt Ltd.
5) About 62% of the total paid up capital of the company was held in D-Mat form.
6) Company has been passing through financial tightness and a restructuring package has been approved by CDR cell, Mumbai.
7) Company has appointed M/s Skyline Financial Services Pvt Ltd. as Registrar for both demat and physical mode in January 2004 and that they are in the process of completing the agreement etc. Following letters were filed :
a) Letters dated 09.01.2003 and 05.09.2003 from the RTA to the company giving its fee structure while acting as RTA.
b) Letter dated 14.01.2003 alongwith the annexure from the company to the RTA informing about the appointment of the RTA for both the demat and physical segments on the terms and conditions as mutually agreed upon.
The company submitted that it had appointed Skyline Financial Services P Ltd, a SEBI registered RTA, in terms of Regulation 53A and urged not to levy penalty as the delay in complying with the regulatory requirement was due to the reasons mentioned above.
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.
It was submitted by the company that they have appointed M/s Skyline Financial Services as the RTA in January, 2004. However, the RTA has submitted vide its letter dated 10/11/04 that they were appointed as common share agency only from 01.10.2004 and that the dematerialisation process has started and physical records are yet to be received from the company.
It is seen that the company has not submitted the requisite information in this case as the RTA was effectively appointed only on 01.10.2004 as stated in the letter dated 10.11.2004 from Skyline Financial Services Pvt Ltd..
It is observed from NSE website that the company had Net profit of Rs.421.35 lakhs for quarter ending 01.01.04 to 31.03.04 and Net profit of Rs. 47.04 lakhs for quarter ending 01.04.04 to 30.06.04. It is seen that the company has appointed Skyline Financial Services Pvt Ltd as the RTA with a delay of more than a year
i.e. after the Regulation 53A of SEBI(DP) Regulations, 1996 had come into force and records pertaining to physical securities are not yet transferred to the RTA. It may, therefore, be concluded that the company has not effectively 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. This irregularity calls for a penalty.
ORDER
Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case and the submissions made, I hereby impose a penalty of Rs.50,000/- (Rupees fifty thousand only) under Section 15HB of SEBI Act, 1992 on M/s Shreyans Industries Ltd for non-compliance of Regulation 53A of SEBI (DP) Regulations, 1996.
The penalty amount shall be paid through a crossed demand draft drawn in favour of “SEBI – Penalties Remittable to Government of India” and payable at Mumbai, 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.
| Date: NOVEMBER 18, 2004 |
S V Krishna Mohan |
| Place: Mumbai |
Adjudicating Officer |