IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Date of Hearing

10/05/2005

Date of Decision

01/06/2005

 

Appeal No: 77 of 2005

 

 

Appellant � Represented by:

Nath Seeds Limited

Shri Prashant Beri, Advocate

Versus

 

Securities & Exchange Board of India

Respondent- Represented by

 

Mr. Jai Sebastian, Trainee Officer

 

 

CORAM

 

��������� Justice Kumar Rajaratnam, Presiding Officer

���������

1.                  The appeal is taken up for final disposal with the consent of both parties.

2.                  The appeal is against the order dated 14/02/2005 of Adjudicating Officer appointed by SEBI by order dated 30/09/2004. The Adjudicating Officer has passed the order against the appellant which inter alia reads as under:

�19.���������� In view of the fact that M/s. Nath Seeds Limited have not complied with 53A of the SEBI (Depositories and Participants) Regulations, 1996 by failing to appoint a common share agency for their demat and physical shares under the provisions of the said Regulation, 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, and in the interest of justice, equity and good conscience I think it appropriate to levy a penalty of Rs. 75,000/- (Rupees seventy five thousand only) on M/s. Nath Seeds Ltd.,�

3.                  Being aggrieved by the above impugned order the appellant has filed this appeal dated 08/04/2005. The facts of the case is that the Adjudicating Officer was appointed to enquire into and adjudge the alleged contravention of Regulation 53A of the SEB (Depositories and Participants) Regulations, 1996 (�said Regulations�) read with Section 15HB of the SEBI Act, 1992 (�said Act�) by the appellant in the matter of their failure to appoint a common share agency for handling share registry work both for the dematerialized and physical securities.

4.                  The show cause notice was issued on January 12, 2004 by the respondent in terms of Rule 4 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules 1995 (�the Rules�) wherein the appellant was asked to show cause as to why the enquiry proceedings should not be held against them for alleged violations 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.� According to the respondent the appellant failed to respond to the show cause.

5.                  Another notice of hearing dated November 3, 2004 was issued by the respondent in terms of Rule 5(1) of the Rules, 2004 to the appellant and the appellant was asked / advised to attend the hearing proceedings held on December 1, 2004 and submit the documentary proof, if any, in support of their contentions.� The appellant was advised that in case they failed to appear for the said proceedings the matter would be proceeded with on the basis of material available on record. However, no reply was sent to the respondent.

6.                  The respondent granted another opportunity to the appellant vide their notice dated December 6, 2004 asking the appellant to appear before the Adjudicating Officer on December 24, 2004 and also submit documentary proof, if any.� The appellant did not respond to the notice.

7.                  Regulation 53A of the Regulations, which came into force on September 2, 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.                  According to the respondent the object of appointing a common share agency is to avoid (a) any delay in dematerialization; and (b) non-reconciliation of the share holding due to lack of proper coordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.

9.                  The appellant submitted that vide its letter dated 21/01/2004 it replied to the show cause notice issued by the respondent No.2 on 12/01/2004. Vide the said reply the appellant informed the respondent that the appellant has appointed respondent No.3 as their Registrars and Transfer Agent and provided the details of respondent No.3 and enclosed a copy of agreement entered into between the appellant and respondent No.3 in respect thereof.

10.             To substantiate his submissions the appellant has submitted the following affidavit, the relevant portion of which is reproduced below:

�I , Vinod Rasal son of Dinanath Rasal, Indian inhabitant, being the Authorised Representative of the Appellant abovenamed, do hereby solemnly affirm and state as under:

�1.������ I am making this Affidavit with the sole intention to put certain facts before this Hon�ble Tribunal, which requires kind consideration.

�2.������ I say that the Appellant vide the aforesaid Appeal have challenged the ex-parte Order dated 14th November 2004 passed by the Respondent No.1 wherein it has been held that the Appellant have not complied with 53A of the said Regulations by failing to appoint a common share agency for their demat and physical shares under the provisions of the said Regulations and further more in exercise of the powers conferred under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudication Officer) Rules, 1995 levied a penalty of Rs. 75,000/- on the Appellant.

�3.������ I say that the impugned order passed by the Respondent No.1 on the basis of information received from the CDSL and NSDL from which it is noted by Respondent No.1 that the Appellant have till date not established any connectivity with either of the two depositories to enable the shareholders to dematerialize their shares, further no tripartite agreements either with NSDL or CDSL has been entered for the said purpose, as alleged. The Respondent No.1 also relied upon the information available in the website of both the depositories i.e. NSDL and CDSL in this regard.

�4.������ I say that the information allegedly received by the Respondent No.1 from the NSDL and CDSL are not only wrong but also totally contrary to the facts.

�5.������ I further say and submit that the subject Regulation i.e. 53A under which the Appellant is held liable for non compliance came into effect from 2nd September 2003 vide SEBI (Depositories and Participants) (Second Amendment) Regulations, 2003 whereas in fact the Appellant had already entered into the Tripartite Agreement with NSDL on 22nd July 1999 (Exhibit �D� to the Appeal) and got connectivity with NSDL on 22nd July 1999 and also entered into the Tripartite Agreement with CDSL on 22nd August 2000 �and got connectivity with CDSL on 22nd August 2000 and also vide an Agreement dated 31st January 2003 named as Memorandum of Understanding (Exhibit �E� to the Appeal), the Respondent No.3 was appointed as Share Transfer Agent by the Appellant �to carry out the activities more particularly stated therein. A copy of the Tripartite Agreement dated 22nd August 2000 executed with CDSL is hereto annexed and marked as Exhibit �1�. A copy of which is already served upon the Respondent No.1 as directed by this Hon�ble Tribunal.

�6.������ I further say that from the above it is evident that all the aforesaid Agreements were executed, with both the depositories and with Share Transfer Agent, much before 2nd September, 2003 i.e. even 53A regulation came into existence and effect under the aforesaid amended Regulations, 2003.

�7.������ In the circumstances, I respectfully say and submit that the Appellant have not contravened and/or violated the Regulation 53A of the said Regulation read with section 15HB of the said Act for the reasons and the facts stated hereinabove and therefore I most respectfully submit that the Appellant are not liable to pay any amount of penalty much less as levied by the Respondent No.1 under the impugned Order dated 14th February, 2005 and I further humbly state that the impugned order dated 14th February 2005 passed by the Respondent No.1 is liable to be set aside, in the interest of justice.�

11.             The respondent submitted that the SEBI has one of its office at the building of NSEIL where many of the organizations also have their office.� The appellant�s reply dated 21/01/2004 bears the acknowledgement stamp of NSEIL and not of SEBI. SEBI holds its separate dispatch section in its office premises and therefore the letter cannot be deemed to have been delivered to SEBI unless it bears the acknowledgement stamp of SEBI.� The respondent has also submitted that apart from show cause notice dated 12/01/2004 to which no reply was received from the appellant, two opportunities of personal hearing and submitting documentary proof were also given to the appellant on 01/12/2004 and 24/12/2004 which were also not availed by the appellant.

12.             I have perused the affidavit submitted by the appellant which indicates that the appellant has complied with the requirements of the provisions of Regulation 53A.� 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.��

13.             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.

14.             However, the appellant ought to have been presented their case before the Adjudicating Officer when two opportunities were given.� Taking all the facts and circumstances of the case and also Section 15J into account I uphold the impugned order.� However, the fact that the appellant has already complied with the requirements of Regulation 53A, taking into consideration of the earlier order passed by SEBI, I am inclined to impose �warning� to the appellant. That will meet the ends of justice in the facts and circumstances of the case. The impugned order stands modified accordingly.

15.             No order as to costs.

 

 

(Justice Kumar Rajaratnam)

Presiding Officer

Place: Mumbai

Date:�� 01/06/2005

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