Adjudication Order No. AO/SG-AS/EAD/29/2017. Case: In Re: C.B. Management Services Private Limited Vs. Securities and Exchange Board of India

Case Number:Adjudication Order No. AO/SG-AS/EAD/29/2017
Party Name:In Re: C.B. Management Services Private Limited Vs
Judges:Suresh Gupta, Adjudicating Officer
Issue:Securities And Exchange Board Of India Act, 1992 - Sections 15(1), 15HB, 15I, 15J
Judgement Date:February 13, 2017
Court:Securities and Exchange Board of India
 
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Order:

Suresh Gupta, Adjudicating Officer

BACKGROUND

  1. An inspection of CB Management Services Private Limited, Category - I Registrar to an Issue and Share Transfer Agent having registration No. INR000003324 (hereinafter referred to as 'CBMSPL/noticee) was ordered by Securities and Exchange Board of India (hereinafter referred to as 'SEBI') vide Order dated June 12, 2013 and the same was conducted during November 6-8 and 11, 2013 for its Share Transfer Agent (hereinafter referred to as 'STA') activities viz., transfer of shares, transmission of shares, duplication of shares, dematerialization requests and rematerialization requests for the period April 01, 2012 to till date of inspection.

  2. During inspection following alleged irregularities were observed:

    (a) Out of selected four companies delay was observed in one company viz. Eastern Investments Ltd. (hereinafter referred to as 'EIL') in processing of transmission requests from investors.

    (b) Out of requests received for issue of duplicate shares in 20 companies, delay was observed in processing duplicate share certificates request for 18 companies. The range of delays was 1-435 days.

    (c) Out of the 57 client companies of the noticee, for 15 companies no intimation was sent to Exchange in respect of issuance of duplicate share certificates. In respect of the other companies, substantial delay was observed in intimating the respective Exchange(s).

    (d) The inspection team also perused miscellaneous requests such as change of address, change of bank details etc. received from shareholders by CBMSPL. It was noted that the noticee had taken inordinate number of days in effecting the change and communicating the same to the shareholders.

    (e) Out of the 574 investor grievances received by the noticee, noticee had not redressed/taken any action w.r.t. 256 complaints even though 30 days had expired.

    (f) Noticee did not have the specimen signatures of the shareholders w.r.t. 3 companies of Uniworth Group i.e. Uniworth Limited, Uniworth Textiles Limited and Uniworth International Limited. It was noted that without signature cards noticee has been processing shareholder requests with respect to transfer, demat, remat, duplicate etc. received from the shareholders all these years.

  3. In view of the above, it is alleged that noticee has violated Clause 2 of Code of Conduct specified under Regulation 13 of SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 (hereinafter referred to as 'STA Regulations'), Clause 1(a) of Schedule I to the draft of agreement between the share transfer agent and the company specified vide SEBI RRTI Circular No. 1 (94-95) dated 11.10.1994 (hereinafter referred to as 'RRTI Circular'), Regulation 9(A)(e) of STA Regulations and Regulation 14(3)(c) of STA Regulations read with Instruction 2(vii) of RRTI Circular.

    APPOINTMENT OF ADJUDICATING OFFICER

  4. I was appointed as the Adjudicating Officer (hereinafter referred to as 'AO') vide order dated 22.07.2015 and the said appointment was conveyed vide communique dated 15.06.2016. The undersigned was appointed as AO under Section 15-1 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Rule 3 of the SEBI (Procedure of Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the 'Rules') to inquire into and adjudge under the provisions of Section 15HB of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act'), the alleged violations of provisions of STA Regulations and RRTI Circular committed by the noticee.

    SHOW CAUSE NOTICE, HEARING & REPLY

  5. Show Cause Notice (hereinafter referred to as 'SCN') dated 29.07.2016in terms of the provisions of Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as 'Adjudication Rules') was served on the noticee calling upon the noticee to show cause as to why an inquiry should not be held against it under Rule 4(3) of the Adjudication Rules read with Section 15I of the SEBI Act, 1992for the alleged violations.

  6. In response to the SCN, Noticee vide its letter dated 18.08.2016 submitted a reply to the SCN as follows:

    ...

    In this context we also enclose herewith once again photocopies of our letter No. CBMSL/SEBI_Insp_2013 dated 4th August, 2014 together with its enclosures collectively marked Annexure "A", e-mail dated 2nd December, 2014 marked Annexure "B" and e-mail dated 22nd December, 2014 marked Annexure "C" wherein we had already furnished to you the actual disposal data of the requests for transfer/transmission/duplicate issue/demat/remat/CoA/etc. (sample chosen by you) received and processed by us during the period for which the inspection was carried out.

    You may please observe from our said submissions that in most of the cases the reported delays were due to the reasons beyond our control arising out of inescapable circumstances viz. two fold approval of issuer (mainly for Govt./PUS clients), non - availability of Board Meetings of Issuer Companies where all such requests are approved, etc.

    Again in some cases as an investor friendly endeavor, we preferred to withhold certain requests providing the investors the scope to comply with the marginal deficiencies instead of returning/rejecting them --just to reduce both time and cost of the concerned investor.

    Again there were very few cases where the processing was delayed by 1-2 days which were obvious results of in between holidays.

    Moreover there are several instances of multiple queries/requests which compounds and thus increases the numbers while the actual facts and figures are much diminutive.

    Another logical derivation is that in the event so many requests were actually delayed at our end without proper reason, a lot of them would have been escalated to the statutory/regulatory authorities including SEBI as "complaint". A meager cumulative figure (of only 235 Nos.) of complaints registered with SEBI SCORES since its inception actually corroborates our claim.

    However, we would like to assure you that we have always tried to maintain the highest standard of moral, ethical and professional approach towards our assignments as STA and none of the reported instances were intentional or purposeful negligence on our part. In fact it is worth putting on records that absolutely no investor/shareholder has ever suffered any actual or notional loss out of the aforesaid and we have never faced any charge/claim for compensation against "opportunity loss".

    Further, we assure you...

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