Order in respect of Sharepro Services (I) Pvt. Ltd.

WTM/GM/EFD-I/DRA-II/37/2020–21

SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN RESPECT OF – NOTICEE M/S SHAREPRO SERVICES (I) PVT. LTD. CATEGORY-I REGISTRAR TO AN ISSUES & SHARE TRANSFER AGENT [SEBI REGN NO. INR000001476]

BACKGROUND – 1. M/s. Sharepro Services (I) Pvt. Ltd. (“Sharepro / Noticee”) is a SEBI registered Category - I Registrar to an Issue & Share Transfer Agent (RTA).

2. Pursuant to an inspection conducted on February 16 & 18, 2015 in respect of records / documents pertaining to RTA activities, regulatory compliances and public issues handled by the Noticee during the period January 01, 2013 to December 31, 2014 (“Inspection Period”), SEBI initiated proceedings under the provisions of SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) against the Noticee for the alleged contravention of Instruction 2(vii) of RRTI Circular No.1 (94-95) dated October 11, 1994 - Instructions to Registrar to an Issue and Share Transfer Agents under the heading ‘Records and documents to be maintained by STA’, Regulation 14(3)(c) of SEBI (Registrar to an Issue and Share Transfer Agent) Regulations, 1993 (“RTA Regulations”), Clauses 2 and 3 of the Code of Conduct prescribed under Regulation 13 of the RTA Regulations, Points 1 and 3 of Norms for Objection prescribed under RTI Order in respect of M/s. Sharepro Services (I) Pvt. Ltd.

Circular no.1 (2000-2001) dated May 09, 2001, Clause 3 of SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012 and Point 23 of General Norms for Processing of Documents prescribed under RTI Circular no.1 (2000-2001) dated May 09, 2001.

3. Accordingly, SEBI appointed a Designated Authority (“DA”) to enquire into the aforesaid alleged violations under Section 12(3) of the SEBI Act, 1992 read with Regulation 23(b) of Intermediaries Regulations and Regulation 20 of the RTA Regulations. The DA issued a show cause notice dated July 18, 2017 to the Noticee, detailing, inter alia, the following facts, as noted during the said inspection:

(a) On an average, specimen signatures were available with the Noticee for 79% of the folios of all listed companies handled by it. Of these 231 companies, only for 7 companies, the Noticee had 100% specimen signatures of the folios. In case of 102 companies whose folios were handled by the Noticee, the availability of specimen signature ranged from more than 90% but less than 100% of the folios being handled by it. In case of 92 companies, the availability of specimen signatures ranged from more than 50% but less than 90% of the folios being handled by the Noticee. In case of 30 companies, the availability of specimen signatures was less than or equal to 50% of the folios being handled by the Noticee. In case of several companies, specimen signature for majority of the folios were not available with the Noticee during the time of Inspection. By not maintaining the specimen signatures, the Noticee is alleged to have violated Instruction 2(vii) of RRTI Circular No.1 (94-95) dated October 11, 1994 - Instructions to Registrar to an Issue and Share Transfer

Agents under the heading ‘Records and documents to be maintained by STA’ and Regulation 14(3)(c) of SEBI RTA Regulations. (b) The Noticee received 1,05,214 demat requests during the Inspection Period. On the basis of sampling, 3,224 demat requests received by the Noticee in the scrip of Ambuja Cements Limited and 71 demat requests received by the Noticee in the scrip of Bright Brothers Limited were checked by the inspection team. It observed that out of 3224 demat requests in the scrip of Ambuja Cements Ltd., 305 demat requests were rejected for various reasons and in all 2919 demat requests were processed by the Noticee. Out of 2919 demat requests processed by the Noticee, specimen signatures were available only for 1695 demat requests and 1224 demat requests which is nearly 40% of the demat requests received were processed by the Noticee without the possession of specimen signatures. The 1224 demat requests which were processed without specimen signatures constituted for 2,20,800 shares. During the Inspection Period, the average price of the scrip of Ambuja Cements Limited was around Rs.195/-. The Noticee is alleged to have processed the demat requests for shares of value of more than Rs. 4 Crore without checking the genuineness of demat requests with the specimen signature of the investors. Similarly, in the scrip of Bright Brothers Ltd., 71 demat requests were checked by inspection team. It was observed that out of 71 demat requests, 3 demat requests were rejected for various reasons. Out of 68 demat requests processed by the Noticee, specimen signatures were available only for 17 demat requests and remaining 51 demat requests (which constituted nearly 75% of the demat requests received by the Noticee) were processed without the possession of specimen signatures. The 51 demat requests which were processed without specimen signatures constituted for 60,150 shares. During the Inspection

Period, the average price of the scrip of Bright Brothers Ltd. was around Rs.40/-. The Noticee is alleged to have processed the demat requests for shares of value of more than Rs. 24 Lakh without checking the genuineness of demat requests with the specimen signature of the investors. The above findings were with respect to only two client companies (chosen during sampling) and there were other 28 client companies where the Noticee had specimen signatures for less than 50% or less of the folios. By not maintaining the specimen signatures and processing demat requests without checking the genuineness of demat requests with the specimen signatures, the Noticee had put the interest of the investors at risk. By not exercising the due care and diligence while processing the demat requests, the Noticee is alleged to have violated Clause 3 of the Code of Conduct prescribed under Regulation 13 of RTA Regulations.

(c) The Noticee had received 41,199 transfer requests during the Inspection Period. On the basis of sampling, 431 transfer requests received by the Noticee in the scrip of Standard Industries Ltd. and 32 transfer requests received in the scrip of Bright Brothers Ltd. were checked by the inspection team. It was observed that out of 431 transfer requests pertaining to the scrip of Standard Industries Ltd., 94 transfer requests were rejected for various reasons and remaining 337 transfer requests were processed by the Noticee. Out of 337 transfer requests processed by the Noticee, specimen signatures were available only for 28 transfer requests and that 309 transfer requests (which was nearly 92% of the transfer requests received) were processed by the Noticee without the possession of specimen signatures. The 309 transfer requests which were processed without specimen signatures constituted for 30,913 shares.

During the Inspection Period, the average price of the scrip of Standard Industries Ltd. was around Rs.14/-. The Noticee is alleged to have processed the transfer requests for shares of value of more than Rs. 4 Lakh without checking the genuineness of transfer requests with the specimen signature of the investors. Further, out of 309 transfer requests processed by the Noticee, in 197 transfer requests seller notices were sent whereas such exercise was not carried out for 112 transfer requests. Similarly, in respect of 32 transfer requests pertaining to the scrip of Bright Brother, it was observed that 13 transfer requests were rejected for various reasons and remaining 19 transfer requests were processed by the Noticee. Out of 19 transfer requests processed by the Noticee, specimen signatures were available for none of the transfer requests which is 100% of the transfer requests received and processed by the Noticee without the possession of specimen signatures. The 19 transfer requests which were processed without specimen signatures constituted for 3100 shares. During the Inspection Period, the average price of the scrip of Bright Brothers Ltd. was around Rs.40/-.

The Noticee is alleged to have processed the transfer requests for shares of value of more than Rs. 1 lakh without checking the genuineness of transfer requests with the specimen signature of the investors. Further, out of 19 transfer request checked by the Noticee, in 17 transfer requests, seller notices were sent whereas such exercise was not carried out for two transfer requests. By not maintaining the specimen signatures and processing transfer requests without checking the genuineness of transfer requests with the specimen signatures, the Noticee had put the interest of the investors at risk. As per point 3 of Norms for Objection as prescribed under RTI Circular no.1 (200-2001) dated May 09, 2001, in case of material difference in signature/s of transferor/s on Transfer Deed vis-a-vis specimen signatures recorded with the company / STA, the STA needs to send to the transferee the objection memo in the prescribed format in original, marking the reason as “material signature difference”. Simultaneously, a copy of the objection memo needs to be sent to the transferor/s with an advice to lodge documents to facilitate the company / STA to take on record the fresh specimen signature.

The same provision should also have been followed by the STA in cases of non-availability of specimen signature of the transferors. Further, even in cases of minor difference in signature/s of transferor/s on the transfer deed vis-à-vis specimen signature, Point 1 of Norms for Objection as prescribed under RTI Circular no.1 (2000-2001) dated May 09, 2001 provides for giving intimation to the transferor regarding the said defect. By not following such provision, the Noticee is alleged to have violated the said provisions of RTI Circular no.1 (2000-2001) dated May 09, 2001. Further, by not exercising the due care and diligence while processing the transfer requests, the Noticee is also alleged to have violated Clause 3 of the Code of Conduct prescribed under Regulation 13 of the RTA) Regulations.

(d) The Noticee received 3801 requests for issue of duplicate shares during the Inspection Period. On the basis of sampling, 31 requests for issue of duplicate shares received by the Noticee in the scrip of Novartis India Limited and 02 such requests received by the Noticee in the scrip of Bright Brothers Limited were checked by the inspection team. It was observed that in all the 31 requests for issue of duplicate shares, no advertisement was issued in any widely circulated newspaper though the value of shares was more than Rs. 10,000/- in all cases. In case of Bright Brothers Limited, it was observed that in one request (Ahmad) for issue of duplicate shares, specimen signature was not available with the Noticee and no further attempts were made by the Noticee to confirm the genuineness of such request. In another case of request (Makhija) for the issue of duplicate shares, no advertisement was issued in any widely circulated newspaper though the value of shares was more than Rs. 10,000/-. By not maintaining the specimen signatures; by processing requests for issue of duplicate shares without checking the genuineness of such requests; and by not issuing the advertisement in any widely circulated newspaper, the Noticee had put the interest of the genuine investor at risk. As per the provisions provided under point 23 of General Norms for Processing of Documents as prescribed under RTI Circular no. 1 (2000-2001) dated May 09, 2001, prior to issue of duplicate shares, issuer company/STA, needs to issue an advertisement in a widely circulated newspaper if the value of the shares is greater than Rs 10,000. By not following such provisions and by not issuing advertisements, the Noticee is alleged to have violated the provisions of RTI Circular no. 1 (2000-2001) dated May 09, 2001. Further, by not exercising due care and diligence while processing transfer requests, the Noticee is also alleged to have violated Clause 3 of the Code of Conduct prescribed under Regulation 13 of the RTA Regulations.

(e) The half yearly periodical reports for the Inspection Period, as submitted by the Noticee, were examined by the inspection team. As per section III (Compliance Certificate) of the periodical reports, date of review of the report by the Board of Directors of the Noticee has to be given along with the observation of the Board on the deficiencies and non-compliances and corrective measures initiated to avoid such instances in future. For example, as per the latest periodical report of the Noticee for the half year ending September 30, 2014 (as on the date of inspection), the date of review was mentioned as September 29, 2014. It appeared odd that a report which was for the period ending September 30, 2014 was purportedly reviewed on September 29, 2014. During the inspection, the Noticee was asked to show the board minutes where it was mentioned that the periodic reports had been reviewed by their board. The Noticee submitted that due to oversight, it did not present the report to its Board and minute the discussion at the meeting. Thus, the Noticee had not only not presented its report before its board (as was required) but had also falsely mentioned the date of review of the report by its board. As per Clause 3 of SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012, the Boards of Registrars to an Issue and Share Transfer Agents have to review the report and record their observations on (i) the deficiencies and non-compliances, and (ii) corrective measures initiated to avoid such instances in future. By not presenting the report to the Board and by failing to get its report reviewed by its Board, the Noticee is alleged to have violated the said provisions of the said Circular. Further, by falsely mentioning the date of review of the report, the Noticee is also alleged to have violated the provisions of Clause 2 of Code of Conduct prescribed under Regulation 13 of the RTA Regulations.

4. Since the Noticee failed to respond to the abovementioned show cause notice, the DA, upon a consideration of the facts before him and other material available on record, concluded that the charges of the abovementioned violations against the Noticee stood established. Accordingly, the DA, vide her report dated June 29, 2018 submitted under Regulation 27 of the Intermediaries Regulations, recommended that the certificate of registration of the Noticee may be suspended for a period of 6 months.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING –

5. A Show Cause Notice dated August 07, 2018 (“post–enquiry SCN”) under Regulation 28(1) of the Intermediaries Regulations was issued by SEBI enclosing therewith a copy of the report of the DA and calling upon the Noticee to show cause as to why the action as recommended by the DA or passing of any other direction, as considered appropriate by the Competent Authority, should not be taken against it in terms of Regulation 28(2) of the Intermediaries Regulations.

6. Since the post–enquiry SCN sent to the Noticee by hand delivery had returned undelivered, intimation regarding the same was given to the Noticee through Newspaper publication. The Noticee was also given an opportunity of personal hearing by scheduling the same on September 17, 2020 and intimation regarding the same was given by newspaper publication. However, the Noticee has neither responded to the post-enquiry SCN nor has attended the abovementioned personal hearing. In these circumstances, I am constrained to proceed with the matter ex-parte, based on material available on record.

CONSIDERATION AND FINDINGS –

7. I have examined the facts of the case and the charges against the Noticee. I note that that the charges against the Noticee, which have already been detailed above and need not be repeated, are quite serious in nature. The findings of the inspection clearly show that the Noticee, in respect of maintaining specimen signatures in the folios and processing of requests pertaining to demat, transfer and issue of duplicate shares, had failed to adhere to the due procedures laid down under various regulations and circulars, as mentioned above. The abovementioned lapses pointed out by the inspection team show that the Noticee was discharging its functions as an RTA without exercising due care and diligence and was acting in a manner which was grossly unprofessional and thoroughly prejudicial to the interest of the investors. I note that the Noticee has not responded to the abovementioned charges by filing a reply nor has appeared before me at the personal hearing. In these circumstances, I find it pertinent to refer to the order of the Hon’ble Securities Appellate Tribunal (SAT) in the matter of Classic Credit Ltd. vs. SEBI (Appeal No. 68 of 2003 decided on December 08, 2006) where it has, inter alia, observed that "............ that the appellants did not file any reply to the second show cause notice. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them”. Further, I also refer to the order of the Hon’ble SAT in the matter of Sanjay Kumar Tayal & Others vs SEBI (Appeal No. 68 of 2013 decided on February 11, 2014), wherein it has, inter alia, observed that: “........... appellants have neither filed reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges leveled against them in the show cause notices.” Accordingly, I take that by failing to respond to the post-enquiry SCN, the Noticee has admitted the said charges and hence, the same stand established. In view of the same, I am convinced that it is a fit case for passing appropriate directions against the Noticee.

8. While deciding the appropriate direction to be issued against the Noticee in the instant case, I note that the DA in his report has recommended suspension of certificate of registration of Noticee for a period of six months. However, I find that in the past, SEBI vide order dated July 08, 2020 has found the Noticee guilty of indulging in fraudulent activities involving large scale misappropriation of funds and securities belonging to its clients and also falsification of records and documents. I further note that such fraudulent activities by the Noticee had started years before the abovementioned period of inspection. Thus, I find that the conduct of the Noticee, even prior to the period covered by the inspection, lacked integrity and did not befit a registered intermediary. Considering all these factors, I find it appropriate to not to accept the recommendation of the DA. In my opinion, it is a fit case for cancelling the certificate of registration of the Noticee.

ORDER – 9. In view of the above, I, in exercise of powers conferred on me under Sections 12(3) read with Section 19 of the SEBI Act and Regulation 28(2) of the Intermediaries Regulations, and upon consideration of the facts and circumstances as above, hereby cancel, with immediate effect, the certificate of registration of the Noticee as a Registrar to an Issue and Share Transfer Agent.

Place: Mumbai G. MAHALINGAM Date: September 30, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA