ORDER

UNDER RULE 5(1) OF THE SEBI (PROCEDURE FOR HOLDING ENQUIRY AND IMPOSING PENALTY BY THE ADJUDICATING OFFICER) RULES, 1995 READ WITH REGULATION 53A of SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 1996 AND SECTION 15HB OF THE SEBI ACT, 1992.

AGAINST

M/s TWENTY FIRST CENTURY MANAGEMENT SERVICES LIMITED

BACKGROUND:

1.                 I was appointed as the Adjudicating Officer by the Chairman, SEBI, vide order dated September 30, 2004 to enquire into and adjudge the alleged contravention of Regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996 (for brevity’s sake referred to as the Regulations) read with Section 15HB of the SEBI Act, 1992 (hereinafter referred to as the Act) by M/s Twenty First Century Management Services Ltd (hereinafter referred to as TCMSL) in the matter of their failure to appoint a common share agency for handling share registry work both for the dematerialised and physical securities.

  SHOW CAUSE NOTICE/ REPLY/ PERSONAL HEARING:

2.                 In view of the above, adjudicating proceedings were initiated in the first instance against TCMSL by the issuance of a show cause notice dated December 30, 2003 in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules) where under TCMSL was asked to show cause as to why enquiry proceedings should not be held against them for the alleged violation 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. TCMSL was advised to make their submissions, if any, along with supporting documents that they wished to rely upon, within 14 days from the date of the receipt of the notice and the same was acknowledged by TCMSL.

3.                 However, TCMSL neither acknowledged the said notice nor did they provide any explanation for their failure to reply to the same.

4.                 Therefore, a notice of hearing dated November 22, 2004 was sent to TCMSL through the Southern Regional Office of SEBI, in terms of Rule 5(1) of the Rules, and vide the said notice, TCMSL was advised to attend the hearing proceedings to be held on December 16, 2004 and also submit the documentary proof, if any, in support of their contentions.

5.                 On the said date, Shri J Chandramouli,  one of the promoter/director, TCMSL appeared before me and made the following submissions:

a.     TCMSL was basically a non-banking financial company whose shares are listed in the BSE and the NSE. However, the trading of their shares had been suspended at the NSE about two years back since TCMSL had failed to appoint a company secretary. However, upon a company secretary being appointed, they had taken up the matter with NSE for revoking the suspension order. In the case of the BSE, the shares were being traded in the ‘Trade for Trade’ settlement.

b.     Most of the shares of TCMSL had been dematerialized. However some of the shares of the promoters which were pledged with the banks and financial institutions as collateral were yet to be dematerialized.

c.      TCMSL had appointed M/S Intime Spectrum Registry Limited quite some time back as a common agency for handling all their share registry work for both the demat and physical securities in terms of Regulation 53A of the Regulations

d.     TCMSL had established connectivity with both the depositories  (copies of the agreement dated March 29, 2000 entered into with NSDL and agreement dated March 24, 2000 into with CDSL were submitted as proof).

On the basis of the above, it was requested that the present proceedings be dropped.

 CONSIDERATION OF ISSUES:

6.                 I have taken into consideration, the facts and circumstances of the case, the material available on record as also the relevant regulatory provisions.

7.                 Regulation 53A of the Regulations which came into force on September 02, 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.                 In view of the above, it is imperative for all issuer companies to appoint a common agency to handle the share registry work relating to both the physical and demat shares of the company either in house or through a SEBI registered RTA.

9.                 The object of the appointment of the common share agency as is evident from the SEBI Circular No. D&CC/FITTC/CIR-15/2002 dated December 27, 2002, which required all issuer companies to appoint a common agency for handling all share registry work is to avoid:

a)  any delay in dematerialization, and

b) Non-reconciliation of the share holding due to lack of proper co-ordination among the concerned agencies or departments, which was adversely affecting the interest of the investors.

10. Thus the provisions of Regulation 53A of the Regulations would be applicable only to that company whose shares have been dematerialized or to those companies whose shares are both in the physical and demat mode.

11. In such a case, before the admission of any security into the depository system, it would be necessary for the issuer company to establish electronic connectivity with both the depositories either directly or through a Registrar and Transfer Agent (RTA).

12. Regulation 53A of the Regulations in this regard is thus an important investor protection measure introduced by SEBI.

13.            I have also perused the circular issued by SEBI bearing no.FITTC/DC/Policy-Cir-01/2001 dated August 03, 2001 which advises all companies to establish connectivity with both the depositories on or before September 30, 2001 so as to facilitate compulsory trading in rolling settlement effective from January 2, 2002. In terms therein all stock exchanges have been advised to submit a compliance report to SEBI by October 15, 2001.

14.            Subsequently SEBI circular no.D&CC/FITTC/ Cir-05/2001 dated December 26, 2001 has brought out the list of all the scrips that have established connectivity with the depositories. In terms of the said circular, the shares of the companies which have not established connectivity with the both depositories as on October 31, 2001 are to be traded on the ‘Trade for Trade’ settlement mode and not on the normal rolling settlement.

15.            Thus on date, there are companies that have not yet dematerialized their shares and instead have continued to retain their shares in a physical mode and the transfer, maintenance of record of the holders of securities and handling of the said physical securities in such cases is continued to be done in-house or through a share transfer agent.

16.            From the facts earlier mentioned, it is noted that TCMSL had established connectivity with both the depositories to enable the shareholders to dematerialize their shares and has also appointed a common agency, M/s. Intime Spectrum Registry Pvt Ltd, to handle the share registry work relating to both the physical and demat shares. The same is also evident from the information available with both the depositories (NSDL & CDSL) which aspect has been verified from the respective websites.

17.            Since TCMSL had established connectivity with the depositories to facilitate dematerialization of its shares by entering into a tri-partite agreement and has also appointed a common share agency well before Regulation 53A of the Regulations came into effect, TCMSL cannot be held liable for failure to comply with Regulations 53A of the Regulations in the matter of the appointment of a common share agency to handle the share registry work relating to the shares of the company in terms therein.

18.            Hence on a judicious exercise of the discretion conferred upon me, bearing in mind the issues enumerated above as well as after analysing all the material available on record and taking into consideration the facts and circumstances of the present case, I am of the considered opinion that the imposition of any penalty is not necessitated.

 ORDER:

19. Accordingly, 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, the proceedings initiated against M/s. Twenty First Century Management Services Ltd are hereby dropped.

 

Date:  December 22, 2004 G. BABITA RAYUDU
Place: MumbaiAdjudicating & Enquiry Officer