Order against M/s 3i Infotech Limited, a Category I–Registrar to an Issue and Share Transfer Agent

WTM/GM/EFD/15/2019–20 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF – NOTICEE M/S 3I INFOTECH LIMITED [SEBI REGISTRATION INR000001773] CATEGORY I – REGISTRAR TO AN ISSUE AND SHARE TRANSFER AGENT

BACKGROUND –

1. M/s 3i Infotech Limited (“Noticee”) is a Category I–Registrar to an Issue and Share Transfer Agent (“RTI and STA”) registered with SEBI vide Registration no. INR000001773.

2. The facts in the instant proceedings as noted from the Enquiry Report dated December 19, 2018 (“DA Report”) are provided below:

i. In the half–yearly periodic report submitted by the Noticee to SEBI (in terms of the SEBI Circular no. CIR/MIRSD/7/2012 dated July 5, 2012 – Review of regulatory compliance and periodic reporting) for the half–year ended March 31, 2015, it was observed that the Noticee had failed to indicate its net–worth.

ii. Upon being queried by SEBI regarding the aforementioned, the Noticee replied vide a letter dated July 10, 2015 and submitted the net–worth Certificate dated July 7, 2015 (as certified by M/s Lodha & Co., Chartered Accountants) indicating a negative net–worth of ₹531.7 Crores as on March 31, 2015. The Noticee requested SEBI to grant time till the Quarter ending March 31, 2015 for ensuring a positive net–worth in terms of the Securities and Exchange Board of India (Registrar to an Issue and Share Transfer Agents) Regulations, 1993 (“RTI and STA Regulations”).

iii. Upon a consideration of the above mentioned reply submitted by the Noticee, SEBI issued a letter dated August 4, 2015, advising the Noticee not to take up any fresh business in the capacity of RTI and STA till further intimation by SEBI.

Order in the matter of M/s 3i Infotech Limited iv. SEBI also initiated enquiry proceedings against the Noticee in respect of alleged contravention of the provisions of Regulation 7, Regulation 9A(1)(d) and Regulation 6A of the RTI and STA Regulations read with Schedule II of the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”).

v. The DA, upon a consideration of the facts before him and after granting an opportunity of hearing, found the Noticee to be liable for having violated the aforesaid provisions of the RTI and STA Regulations. Accordingly, the DA recommended that the Noticee may be warned and be advised to maintain proper capital adequacy at all times.

vi. A Show Cause Notice dated January 9, 2019 (“post–enquiry SCN”) under Regulation 28(1) of the Intermediaries Regulations was issued by SEBI calling upon the Noticee to show cause as to why action as recommended in the DA Report or any other higher penalty should not be taken against it, by the Designated Member.

HEARING –

3. Pursuant to receipt of post–enquiry SCN, the Noticee submitted its reply vide a letter dated January 28, 2019. Thereafter, an opportunity of personal hearing was granted to the Noticee on June 14, 2019, wherein it was represented by its authorised representatives, viz. Managing Director– Padmanabhan Iyer and Company Secretary–Rajeev Limaye.

4. During the hearing, the Noticee reiterated the submissions made in its reply dated January 28, 2019, regarding the Noticee’s positive net–worth for the Years 2016, 2017 and 2018 i.e. ₹298.19 as on March 31, 2016 (as certified by M/s Lodha & Co., Chartered Accountants), ₹352.71 as on March 31, 2017 and ₹354.08 as on March 31, 2018 (as certified by GMJ & Co., Chartered Accountants). The Noticee also submitted that the net–worth continues to remain positive as on date. The Noticee did not dispute the findings contained in the DA Report. The Noticee however, submitted that the negative net–worth as on March 31, 2015, was on account of the high interest burden arising from loans taken by the Noticee during the relevant period. The Noticee requested that the SEBI letter dated August 4, 2015 – wherein the Noticee was advised not to take up any fresh business in its capacity as a RTI and STA till further intimation by SEBI, be withdrawn/vacated in light of the aforementioned submissions.

FINDINGS –

5. I have considered the DA Report along with the reply and oral submissions made by the Noticee and all the relevant material on record.

6. As per the provisions of Regulation 7 read with Regulation 9A(1)(d) of the RTI and STA Regulations, the capital adequacy requirement of a Category I–RTI and STA shall not be less than its net–worth i.e. ₹50 Lakhs. Further, in terms of Regulation 6A of the RTI and STA Regulations read with Schedule II of the Intermediaries Regulations, for the purpose of determining whether an intermediary is a ‘fit and proper person’, SEBI may take into consideration inter alia competence including financial solvency and net–worth in relation to the intermediary, the principal officer and the key management person(s) by whatever name called. The Noticee admittedly had a negative net–worth of ₹531.7 Crores as on March 31, 2015. Further, the Noticee has not disputed the findings contained in the DA Report.

7. For the reasons mentioned in the preceding paragraphs, I find myself in agreement with the findings of the DA that the Noticee had violated the aforementioned provisions of the RTI and STA Regulations read with Schedule II of the Intermediaries Regulations on account of failing to ensure compliance with the capital adequacy requirement for a Category I–RTI and STA. Accordingly, in terms of Regulation 27 of the Intermediaries Regulations, the DA had recommended that the Noticee be warned and be advised to maintain proper capital adequacy at all times. I note that the Noticee had complied with the direction issued by way of an administrative letter dated August 4, 2015, by not accepting any fresh clients. I further note that the dip in the Noticee’s net–worth during the period 2014–2015 was on account of the high interest burden arising from loans taken by the Noticee. I note that the Noticee’s increase in net–worth from the year 2016 onwards has also been evidenced by the Auditors’ Certificates dated August 25, 2016, June 1, 2017 and May 24, 2018, respectively. Having regard to the facts and circumstances of the instant proceedings and the intention of the Noticee to retain its Category I–RTI and STA Registration for the conduct of its business, I am inclined to accept the aforementioned recommendation of the DA.

ORDER –

8. I, in exercise of the powers conferred upon me under Section 19 read with Section 12(3) of the SEBI Act, 1992 read with Regulation 28(2) of the Intermediaries Regulations, hereby warn M/s 3i Infotech Limited [SEBI Registration INR000001773] that it shall exercise due care and caution in the conduct of its business as a Category I – RTI and STA including fulfilment of the specified capital adequacy requirement, on a continuing basis. The SEBI letter dated August 4, 2015, shall also stand withdrawn with immediate effect.

9. A copy of this Order shall be served on the recognized Stock Exchanges and Depositories for their information.

Place: Mumbai G. MAHALINGAM Date: June 19, 2019 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA