BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal No.36/02
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Date of Hearing
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2.8.04
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Date of Decision
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20.9.04
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In the matter of:
Appellant : SRG Infotec Ltd., New Delhi
Respondent : Securities and Exchange Board of India, Mumbai
Appellant by : Dr. Rajneesh K. Pandey, CA
Respondent by : Shri Kumar Desai, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
N.L. Lakhanpal, Member
Per: Justice Kumar Rajaratnam, Presiding Officer
The appeal is taken up with the consent of parties.
2. The appellant was Category I Registrar and a share transfer agent registered with SEBI under the provisions of SEBI (Registrar to an Issue and Share Transfer Agent) Rules and Regulations, 1993. The appellant’s registration as Category I Registrar and its status as a share transfer agent was cancelled with immediate effect by an order by the respondent dated 16th of May 2002.
3. The appellant being aggrieved by the order passed by the respondent dated 16th of May 2002, has preferred this appeal.
4. The grounds on which the registration of the appellant was cancelled permanently related to two instances:
One case relates to certain violations in the public issue of M/s. VR Mathur Mass Communications Ltd. (hereinafter referred to as ‘VMCL’) made in 1995. This came to light pursuant to an investigation conducted by SEBI. At the relevant point of time, the name of the Registrar was SRG Financial and Management Consultants Ltd. Thereafter, there was stated to be a change in the management and also a change in name to SRG Infotec Ltd. For the sake of convenience, the Registrar is hereinafter referred to as the ‘appellant’, even in respect of events happening prior to the name change.
The second case relates to various violations made by the Appellant in the course of business as registrars and share transfer agents, which was detected out during an inspection conducted by SEBI under the said Regulations.
5. With regard to the first allegation, the factual background are as follows: A company by name V.R. Mathur Mass Communications Ltd. (hereinafter referred to as the ‘company’) came out with a public issue of 40 lakh equity shares of 10 rupees each aggregating to Rs.400 lakhs. M/s. Rasoday & Co. Ltd., Hyderabad, was the lead manager to the issue. The appellant was appointed as the registrar to the issue. M/s. STI Finance Ltd. was the post-issue lead manager. M/s. Vysya Bank Ltd. was one of the bankers to the issue. The issue was fully underwritten. The scrip was listed in the Hyderabad Stock Exchange, BSE and Calcutta Stock Exchange. There was some rumour that the promoters have entered into clandestine buyback arrangement with certain persons since the minimum subscription was not received. This was to bail out the public issue. The allegation was that some applications along with stockinvests were received by the appellant after the closure of the issue to bail out the public issue.
6. Two persons were involved in this bail out and they are as under:
Pawan Kumar Agarwal
Basudev Agarwal
Both the abovementioned persons purchased stockinvests from the Central Bank of India. The crunch of the case is that the stockinvests were issued on 8.2.1996 after the issue closed, which was on 14.12.1995. The Central Bank confirmed that the stockinvests were issued on 8.2.1996 after the closure date. The date of the issue of stockinvests was tampered with. The date was altered from 8.2.96 to 8.12.95. The alteration was done deliberately to enable the application to be processed along with the stockinvests before the issue closed. The charge is serious. However, the appellant submitted with considerable force that the promoters of the company had directly handed over the stockinvests to Vysya Bank, the Bankers to the issue, with the covering letters dated 4.3.1996 and 8.3.1996 requesting the bank to credit the public issue account of the company with the amounts pertaining to the two instruments.
7. The question is whether the appellant is responsible for tampering the stockinvests instrument. Even assuming that the appellant did not tamper with the stockinvests, it was the duty of the appellant as registrar to the issue to have detected the error and if the error was detected in time, the public issue would not have gone through with the help of stockinvests, which were given beyond the date of the closure. It was also the case of SEBI that the appellant had given wrong figures on the three day and seven day report submitted to SEBI.
8. The learned representative of the appellant submitted that the appellant was not in receipt of these two applications and that it was the promoters of the company, who handed over the application and the stockinvests to Vysya Bank. It is the promoters who requested the Bankers by letter dated 4.3.96 and 8.3.96 to credit the public issue with respect to these two instruments. The three day and seven day report was based on the information and figures from various agencies such as lead manager, post lead managers, bankers, Chartered Accountants and promoters. It was further submitted that the appellant had no authority or power to verify alterations in the stockinvests, which was done by the promoters and the bankers. The job of the registrar, according to the appellant, was to collect the applications received from bankers, process the same and allotting the same as per SEBI guidelines. The registrar has to rely on the certificate
of the lead managers, statutory auditors and the company. There is no material produced in the enquiry report to show that the appellant had tampered with the dates in the stockinvests.
9. It was further submitted that the Enquiry Officer was not able to find out who was responsible for the forgery. In fact, the Enquiry Officer felt that it was the bankers who were responsible for the alteration in connivance with the promoters. This is why the Enquiry Officer referred the matter to the RBI to take action against the bankers. SEBI has also taken action against the bankers and we reliably learn that, by an order dated 7th of February 2002, SEBI took a lenient view and warned the bank not to repeat such acts in the future. It was the contention of the bank that they received the application prior to the closure of the issue and there was no forgery in the stockinvests. Something fishy can be seen in the stand of the bank when it was facing the enquiry before SEBI. The submission of the bank is extracted below with respect to the enquiry conducted against the bank and reads as follows:
“An Enquiry Officer was appointed vide order dated February 22, 2000 to probe into the alleged violations interalia of the said Regulations by the Bank while dealing in the scrip of the company. The Enquiry Officer issued a show cause notice dated February 16, 2001 to the member communicating the detailed charges. The Bank vide letter dated June 06, 2001 denied the charges and interalia stated that they did not receive the applications after the closure of the public issue and instead they had only received the two stock invests dated 8.12.95 from the promoter of the company and thereafter credited the amount into the company’s regular account from the public issue collection account. They had also denied that the stock invests were issued on 8.2.96 as alleged.”
Curiously the respondent passed an order giving a warning to the bank. That order also reads as under:
“I have carefully examined the Enquiry Report, the reply, and other relevant material on record and the submissions made by the Bank at the time of the personal hearing. I accept the explanation of the Bank submitted before me at the time of personal hearing that they had only received the stock invests which was dated 8.12.95 and the Bank realised the said stock invests and thereafter the amount was transferred into the company’s regular account after getting necessary instructions from the promoter of the company. Taking the above aspects into consideration, it has been decided to take a lenient view and I hereby warn the Bank not to repeat such acts in future.”
All the other players in this fraud, including the company, have been either barred for a period of five years from the securities market or given a lesser punishment.
10. The other allegation against the appellant is with regard to certain irregularities when an inspection was carried out against the appellant. They are: (1) The company did not produce the published copy of the basis of allotment with regard to a particular company. (2) The appellant was carrying on activities for certain periods of time in respect of M/s. Equipment Conductors and Cables Ltd. and Engineers India Ltd. without having a Memorandum of Understanding in force. (3) The appellant maintained inward register in a computer and in pencil and has left scope for manipulation. The moment register was not maintained properly. Record of transfer of shares was not maintained properly. There have been other minor irregularities which were noticed. The allegations with regard to the inspection
were denied by the appellant. This was not accepted by the respondent and hence the impugned order.
11. We asked Mr. Kumar Desai as to whether the company, who was the main culprit in the case, was proceeded against and we also requested Mr. Desai to furnish information with regard to the other players in the new issue, i.e. the subject matter of an enquiry. Mr. Desai, as always, was very fair and submitted that all the other players, who were as much responsible for the violation, have been subjected to a debarment of five years. The promoters have been imposed a penalty of Rs.5 lakhs. The bank has been warned. Proportionality of punishment with respect to violators of the same alleged misconduct and consistency in orders are the hallmark of a good regulator.
12. In view of the fact that there is no clinching evidence to implicate the appellant with regard to the alleged forgery in the stockinvests, it would not be appropriate to give a more severe punishment, that is cancellation of registration of certificate, to the appellant than what was handed over to others. In fact, the Enquiry Officer in his report has clearly stated that it was necessary to find out who was responsible for the interpolation in the stockinvests. Whether it was the bank or the appellant was never decided by any authority. On the contrary, the evidence of the bank in a separate proceedings clearly implicates itself that the stockinvests were given before the closure date without any alteration. This theory runs contrary to the theory of the respondent that the stockinvests were given belatedly in collusion with the promoters. We are not here to blame the bank or the promoters as we are only concerned with the conduct of the appellant. It is possible that all three of them would have been players to prevent the issue from failing. We do not know. All we know is that there should be parity in punishment. It is settled law that the main culprit, the company, cannot get away with a lesser punishment than the appellant. In any event, there is no clinching proof that the appellant was responsible for the alleged forgery. The needle of suspicion from the evidence given by the bank in the order dated 7th February 2002 points to the bank equally. The bank has only been given a warning. The main company, which resorted to the dubious method of listing a new issue, which should have failed, was barred only for five years. The appellant, who was a distinguished registrar with an unblemished record for many years, will lose its right to livelihood if its registration is cancelled. We feel it appropriate that the impugned order be modified to the extent that the registration of the appellant shall stand suspended for a period of five years from the date of the impugned order. We feel that the appellant should be rehabilitated and should be treated on par with the other co-delinquents as far as the punishment is concerned. Accordingly, we modify the impugned order in so far as the cancellation of the registration. Consequently, we modify the impugned order as follows:
13. The registration of the appellant as Category I Registrar to an issue and share transfer agent be suspended for a period of five years with effect from the date of the impugned order. The order is modified accordingly.
14. No order as to costs.
Justice Kumar Rajaratnam
Presiding Officer
N.L. Lakhanpal Dr. B. Samal
Member Member
Place: Mumbai
Date: 20th September 2004