Order in respect TSR Darashaw Limited (formerly known as M/s Tata Share Registry Limited), Registrar to an Issue & Share Transfer Agent

WTM/GM/EFD/75/2019–20 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 TSR DARASHAW LIMITED (FORMERLY KNOWN AS M/S TATA SHARE REGISTRY LTD.) REGISTRAR TO AN ISSUE & SHARE TRANSFER AGENT [SEBI REGN NOS. INR000004009]

BACKGROUND – 1. M/s TSR Darashaw Limited (formerly known as M/s Tata Share Registry Limited) (“TSR / Noticee”) is a SEBI registered Registrar to an Issue & Share Transfer Agent (RTA).

2. Pursuant to an order of the Hon'ble Madras High Court in a writ petition filed by one Shri J. P. Balasubramaniam (hereinafter referred to as 'JPB' or 'the Complainant'), SEBI conducted an inquiry into the alleged fraudulent transfer of shares of Tata Power Company Limited (TPCL) by the Noticee in connivance with other entities. Based on the observations contained in the Inquiry Report, it was decided to initiate Enquiry Proceedings against the Noticee under the SEBI (Intermediaries) Regulations, 2008 (herein after referred to as “Intermediaries Regulations”) for alleged violation of the provisions of Clause 2 and 3 of the Code of Conduct as provided under Schedule III read with Regulation 13 of SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 1993 (RTA Regulations, 1993).

Order in respect of TSR Darashaw Limited

3. The facts of the case pertaining to the alleged violations are as under: (a) Ms. B. Hemalatha was the daughter of the Complainant who had executed a Power Of Attorney (hereinafter referred to as 'POA') dated December 11, 1991 in favour of her father i.e. the Complainant. Ms. B. Hemalatha, who held 1900 shares of TPCL, expired in December 1995. The Complainant forwarded the POA to the Noticee for registration in June 1996 (i.e. after the death of Ms. B. Hemalatha) and the same was registered in the record of the Noticee vide Reg. No 146733 dated July 01, 1996.

(b) It was observed that 1900 shares of Rs.10/- each were held in the sole name of Ms. B. Hemalatha under Folio H5B16042 of TPCL along with 1380 shares of Rs.10/- each under Folio H1B12760 and 560 shares of Rs.10/- each under Folio H1B12761 of The Andhra Valley Power Supply Company Limited (hereinafter referred to as 'AVPS').

(c) The Share Certificates for subdivided shares for the aforesaid three folios of TPCL and AVPS were mailed to Ms. B. Hemalatha on January 03, 1996 and January 04, 1996 by the Noticee. However, shares pertaining to Folio H1B12760 and H1B12761 of AVPS were returned to the Noticee undelivered by Postal Authorities. Upon receipt of request to repost these shares of AVPS made vide letter dated September 10, 1996, these shares were reposted to B. Hemalatha on September 11, 1996 and were received by JPB. Meanwhile, 1900 shares of Rs.10/- each of TPCL pertaining to Folio H5B16042 were also returned to the Noticee undelivered by the Postal Authorities with the remark "Shares returned to sender, Addressee expired". Thereafter, the Noticee had vide letter dated October 30, 1996 sought confirmation from the Complainant regarding the remark made by the Postal Authorities on the envelope. Noticee further requested the Complainant to forward the documents required for transmission of shares in favor of the legal heir of Late B Hemalatha.

(d) On September 10, 1996, Noticee was allegedly aware of the demise of Ms. B. Hemalatha, and inspite of the same, Noticee allowed 1380 shares of AVPS pertaining to Folios H1B12760 and 560 shares of AVPS pertaining to Folios H1B12761 to be transferred from her folio/account on November 05, 1996 and January 14, 1997 respectively based on the transfer deeds bearing the signature of the Complainant (who had signed as the POA holder to Late Ms. Hemalatha).

(e) It was further alleged that on February 14, 2002, the Noticee had received 'transfer form/ transfer deed' purportedly signed by the Complainant for 1,900 shares of TPCL as POA holder to Late Ms. B. Hemalatha. Accordingly, Noticee executed the said transfer of shares to one Mr. Anil Kumar Bhootra (hereinafter referred to as 'AKB') on February 20, 2002 based on the said Transfer Form.

(f) The Complainant vide his letter dated March 05, 2003, sent the Succession Certificate, Death certificate and duly filled up transmission from to the Noticee for transmission of 1,900 shares of TPCL, jointly in the name of his wife and himself. Noticee vide letter dated March 19, 2003 informed the Complainant that the 1900 shares of TPCL were already transferred to AKB pursuant to the receipt of transfer form / transfer deed bearing the signatures of the Complainant. The Complainant vide letter dated March 28, 2003, informed the Noticee that he had never signed any transfer form and further alleged that his signatures were forged.

(g) It was further observed that Share transfer form used for transfer of 1,900 shares of TPCL in February 2002 was obtained from Registrar of Companies, Mumbai on February 01, 2002. The same was executed on February 08, 2002 and received by the Noticee on February 14, 2002 and the transfer was effected on February 20, 2002. It was also noted from the transfer form that the signature, name and address of witness was mentioned as one Dilip Shah, 15A, Appavu Nagar, Dharmapuri, Tamil Nadu. The transfer form was issued at Mumbai on February 01, 2002 and executed on February 08, 2002. It was alleged that within the short span of time from the issuance of the transfer form on February 01, 2002, the same was sent to Dharmapuri and then returned to Mumbai for its execution on February 08, 2002. In the normal course, the transfer form/deed is generally obtained from the place of residence of the transferor. Hence, prima facie, it was alleged that the transfer of shares had taken place in an abnormal and illegal manner.

(h) From the transfer deed/ share transfer form, it was observed that the columns relating to clearing number, date etc, were left blank and share transfer stamps had been affixed. As there was no clearing number and date, based on the date of transfer form, it could be inferred that the transfer of 1,900 shares was pursuant to an off market transaction. It was observed that after dematerialization, these 1900 shares of TPCL were sold by AKB on March 15, 2002. From the above, it was prima facie alleged that the transfer of 1,900 shares of TPCL was malafide/fraudulent.

(i) Although, it was observed that the Complainant did not send the death and succession certificate of his daughter prior to 2002, it prima facie appeared that the Noticee was very much aware of the death of Mrs. B. Hemalatha and had also acknowledged the same vide its letter dated June 29, 2001. In this background, it was expected that Noticee should have exercised caution and should have obtained transferor's confirmation based on the circumstances under which the shares had been received for transfer. However, it was alleged that the Noticee had failed to fulfill its duty as an RTA, in this regard.

(j) It was observed that the Noticee vide its letter dated June 29, 2011 addressed to the Complainant had offered its condolences on the demise of Ms. B Hemalatha. It was further observed that Noticee had in its aforementioned letter informed the Complainant that it does not recognize the legal heirship certificate issued by the Tehsildhar for the purpose of transmission of shares from Late Ms Hemalatha’s account/folios. Further, it was observed that the Noticee had provided to the Complainant the details/information relating to the transmission of the shares in case of the death of a shareholder.

(k) It was alleged that the Noticee had processed the share transfer request w.r.t. 1900 shares of TPCL on the basis of a transfer deed which purportedly carried the signature of the Complainant as POA holder to Ms Hemalatha. It is alleged that Noticee was aware of the demise of Ms. Hemalatha in October 1996 and certainly as on June 29, 2001. It was alleged that after the demise of Ms B Hemalatha on December 19, 1995, the Complainant could not have acted as her power agent and consequently the transfer deed (which contained the signature of the Complainant as seller) could not be processed as per law as the power died with the principal. However, it was alleged that Noticee failed in its duties as RTA and blatantly processed the share transfer request w.r.t. 1900 shares of TPCL on the basis of a transfer deed, which contained the signature of the complainant (as seller and as power agent to Late Hemalatha.

(l) It appeared that there was no evidence to support that Noticee re-posted 1,900 shares of TPCL, but there was evidence for its retention with the Noticee. The transfer form originated from Mumbai, which was the location of the Noticee as well as location of the delivering stock broker and the transferee. The 1900 shares alleged to be processed for transfer, were dematerialised and sold in a hurried manner. The explanation given by the Noticee to SEBI that the signature of POA in the transfer form tallied with the signature available on records as reason for not obtaining transferor (seller) confirmation, prima facie indicated dereliction of duty on the part of the Noticee as an RTA, as Noticee was aware of demise of shareholder. Noticee was required to exercise due diligence and ensure proper care, which allegedly was not done by it. Considering all the facts of the case, it was alleged that the transfer of 1,900 shares had happened in a fraudulent manner with the connivance of Noticee with other entities.

4. Accordingly, a Designated Authority (DA) was appointed in the matter who issued a show cause notice to the Noticee and upon a consideration of the facts before him and after granting an opportunity of hearing, found the Noticee to be in violation of the abovementioned provisions of the RTA Regulations, 1993. Accordingly, the DA, vide his report dated April 28, 2017 submitted under Regulation 27 of the Intermediaries Regulations, recommended that the Noticee may be prohibited from taking up new assignments (i.e. not to take new clients and enter into fresh agreements with companies as share transfer agent) for a period of six months in respect of its business as Share Transfer Agent.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING –

5. A Show Cause Notice dated May 17, 2017 (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 action as recommended by the DA or any other penalty, as deemed fit by the Competent Authority, should not be imposed on it.

6. Pursuant to receipt of post–enquiry SCN, the Noticee submitted its reply vide letter dated August 04, 2017. Further, an opportunity of personal hearing was granted to the Noticee on July 24, 2019 which was attended by it. Subsequently, the Noticee made further written submissions dated July 31, 2019. The Noticee vide the aforesaid letters and during the personal hearing has submitted inter alia the following:

(a) The Intermediaries Regulations have been brought to effect on May 26, 2008 whereas the the alleged transaction pertains to year 2002. Intermediaries Regulations are not retrospective and hence the same are not applicable in the present case. (b) Vide letter dated 14th July, 2003, Noticee had advised JPB to initiate proceeding against the transferee, Mr. Anil Kumar Bhootra (AKB). However, he did not do so. Based on Noticees submissions, SEBI had closed the said complaint in 2003 itself and no further correspondence or proceedings were initiated and therefore the present proceedings are barred by limitation. (c) The alleged negligence had taken place in the year 2002. Thus, the issue is whether the current proceedings is maintainable for an event which has occurred 15 years prior as no proceeding was initiated within the period of limitation. (d) The conduct of JPB himself is suspicious on account that he himself had sent the POA in 1996, in spite of the demise of the shareholder, Ms.B. Hemalatha in December, 1995. The complaint should not be considered at all as the complainant himself is a party to the alleged illegal act.

(e) The observations in the report are based on the fact that the Noticee had failed to produce the documents. However, it is pertinent to note that documents are maintained for a statutory period of 3 years as per SEBI Guidelines and therefore could not be produced before the Investigating Officer. Moreover, JPB had produced only one letter dated 30th October, 1996 and no other correspondence has been produced between 1996 and 2000. Therefore holding the Noticee responsible for the alleged act for which the conclusion has been arrived based on the non-production and non-submission of document is not proper and per se illegal. The documentary evidence which proves that JPB himself was negligent and a party to the alleged act by undertaking transactions based on the POA, after the demise of the shareholder, Ms. B. Hemalatha has been completely ignored in the Report. (f) SEBI itself has passed an adjudication order wherein after going through the facts and circumstances of the case and after perusing entire material made available on record it was observed that no case is made out for levying penalty under Section 15HB of the SEBI Act, 1992. Similarly, provisions of Intermediaries Regulations are also not applicable in this case.

Further, the proceedings are also barred by Res Judicata. (g) The RTA Regulations, 1993 are not retrospective in nature and cannot be made applicable to the present matter.

(h) Ms, B. Hemalatha had expired on 19th December, 1995 and therefore JPB ceased to be the POA holder of Ms. B. Hemalatha. • However, JPB had forwarded the POA dated 11th December, 1991, executed by Ms. B. Hemalatha in his favour for registration in June, 1996 much after the demise of the shareholder, Ms.B. Hemalatha. This action of JPB was grossly illegal with malafide intentions. The death certificate of Ms. B. Hemalatha was forwarded to the Noticee only in March, 2003 after the transaction date. (i) It is also pertinent to note that in November, 1996 and January, 1997, i.e. much after the demise of the shareholder, Ms. B Hemalatha, JPB had lodged transfer documents for transfer of The Andhra Valley Power Supply Company Limited (Andhra Valley) shares held under Folios H1B12760 and H1B12761 (duly signed by POA holder JPB) and the same were processed. From the above facts it is evident that JPB had himself signed the transfer forms as a POA holder and done an unlawful act for ulterior motives and had concealed this material fact from SEBI. (j) Similarly, the shares of Tata Power were transferred based on the transfer deed complete in all respects, signed by the POA holder, JPB, since the Company was not forwarded with an attested copy of the death certificate of Ms. B. Hemalatha and moreover the POA received in June, 1996 was registered in Noticee’s records and the signature of the POA holder, JPB, tallied with his signature as per Noticee’s records. (k) The certificates for subdivided shares of Folio H5B16042 of Tata Power were sent by post to Ms. B.Hemalatha in January 1996. However, the same were returned undelivered by Postal Authorities with remark "addressee expired". It is submitted that merely on the basis of an envelope returned by the Postal Authorities with remark "addressee expired", a company in law cannot record the death of its shareholder in its Register, without supporting document i.e.

death certificate of the shareholder. There are no SEBI Guidelines to note the death of the investor merely on the basis of an envelope received undelivered. Moreover a letter dated 10th September, 1996 had been subsequently received duly signed by the POA holder as stated in Noticee’s letter dated 30th October, 1996. (l) In view of the above facts, it is evident that, JPB himself had concealed the fact regarding the demise of the shareholder and forwarded the POA in June, 1996 to the Noticee for registration in his favour. The shares were transferred based on complete transfer form in all respects bearing the signature of POA holder, JPB. (m) Though JPB vide letter dated 22nd June, 2001, had mentioned that Ms. B Hemalatha was not alive, he had not forwarded the supporting document i.e. death certificate to enable the Noticee to take note of the same in its records. He had further inquired whether shares could be transferred in the names of the legal heirs if he produces, death certificate, legal heirship certificate and share certificates. In response to which, vide letter dated June 29, 2001 procedure for transmission was advised.

The inquiry of JPB with regard to transmission of shares was not supported by death certificate. The procedure for transmission of shares was furnished in June, 2001, which was not completed by JPB nor was the death certificate sent to the Noticee till March, 2003. (n) Ms. B Hemalatha had passed away in December, 1995, and instead of submitting the death certificate and legal representation, JPB had submitted the POA for registration in June 1996 for his own inappropriate gains at that point in time to transfer shares held under Folios H1B12760 and H1B12761 in favour of the transferees. (o) With regard to obtaining seller confirmation for transfer request, it is to be noted that the signature on the transfer form of POA holder, JPB tallied, and hence the transfer was processed. SEBI Guidelines provide for processing of transfer in case the POA is registered with the Company and the signature of POA tallies. There were no such Guidelines under which the Noticee was expected to obtain seller confirmation as alleged. (p) The RTA/STA has no control on the acquisition of transfer forms by the transferees, and the location of origin and execution.

There are no guidelines laid down by SEBI for STAs to verify the veracity of these aspects, prior to processing the transfers. The transfer of 1900 shares was processed based on complete transfer form, in a bonafide and legal manner in accordance with law. The act of acquiring the transfer form, its location of origin and execution, witness details, lodging the shares for transfer, has been done by AKB, hence SEBI should verify these aspects from AKB and not the Noticee. (q) JPB had never mentioned that he was not in possession of the 1900 shares of Tata Power, whereas in his letter dated 22nd June 2001, he has clearly mentioned that in case he produces the share certificates whether the shares can be transferred. (r) The origin of transfer form and the location of delivering stock broker being Mumbai does not infer involvement of RTA/STA. There are no such SEBI Uniform Guidelines for RTA/STA not to accept such transfer forms where the origin of the transfer form and the location of the transferor are required to be same and the address of RTA/STA is required to be different from the location of origin of transfer form.

Further, there are no such guidelines for RTA/STA to verify the time span of the issuance of transfer form and execution of the same and also the place of issuance and execution. The transfer was processed based on the transfer form complete in all respects. Further, the question of obtaining a seller confirmation does not arise as the signature of JPB, POA holder tallied.

(s) Regulation 13 of RTA/STA Regulations does not provide any guidelines in respect of acquisition of transfer form by the transferees and the location of origin, execution and the address of witness. Further, the role of RTA is not that of an investigating authority and neither the Schedule Ill as specified under Regulation 13 of STA/RTA Regulations provides any framework for STA/RTA to verify the veracity of these aspects and perform a role of an investigating authority. (t) The Noticee has not been benefited in any matter due to the transfer of 1900 shares. The Noticee is a mere facilitator for transfer and is not a beneficiary in respect of any alleged irregularity at all. JPB is making allegations regarding an alleged failure to dispatch the share certificates at a belated stage and is trying to take advantage of the fact that the Noticee is unable to find the acknowledgement in respect of the dispatch of shares which is not liable to be maintained in law beyond three years. Further, JPB has intentionally suppressed the letter dated 10th September, 1996 and all correspondence related to that period and has only produced the letter dated 30th October, 1996 to put the onus on the STA for all his inactions. (u) JPB, as a legal representative of Hemalatha was indeed entitled to transfer the shares of Hemalatha regardless of her death. This is a legal position apparent from Section 109 of the Companies Act, 1956. This is supported by several case laws. Further, the position pursuant to the Companies Act has been crystallized in the Guidelines dated May 09, 2001 issued by SEBI to RTAs (“RTA Guidelines”) which allows a transferor other than the member to sign the transfer deed. If the signature matches, the RTA Guidelines require the RTA to effect the transfer. Even otherwise the RTA Guidelines do not allow a ‘stop transfer’ on securities, even if they are found to be stolen, unless accompanied by a police complaint or other relevant documents.

(v) JPB till date has not lodged any complaint or proceeding to recover the shares of TPCL, unlike a bonafide investor who would have lost shares. (w) The matter pertains to a single instance of transfer about 17 years back. To penalize TSR for the same would be arbitrary and incorrect. TSR has proactively brought systems which will ensure that such an instance is not repeated. (x) The penalty recommended by the DA for the alleged violation is excessive in nature. (y) TSR has had an unblemished track record.

CONSIDERATION AND FINDINGS –

7. I have examined the facts of the case and the charges against the Noticee, as given in the DA’s report, and the submissions made by the Noticee in its defense. I note that the basic charge against the Noticee is that it allowed transfer of shares held in the name of B. Hemalatha on the basis of a POA even though it had come to the knowledge of the Noticee that the shareholder who had issued the POA (principal) had already died before such transfers. The Noticee is alleged to have failed to exercise due care and diligence, as expected from it as an RTA. The Noticee is alleged to have allowed such transfers in case of 1940 Shares of AVPS on November 05, 1996 and January 14, 1997 and 1900 shares of TPCL on February 20, 2002. In this regard, the chronology of events is already given above.

8. In the above regard, the Noticee’s main submissions are summarized as the following:

(a) Even though Hemalatha had passed away on December 19, 1995, the fact of her death was suppressed by JPB until June 22, 2001, despite TSR having sought confirmation from JPB on the same in October 1996. The conduct of JPB himself is suspicious. (b) JPB himself had taken advantage of the POA after the death of Hemalatha to sell the shares of AVPS in November 1996 and January 1997. (c) Though TSR vide letter dated October 30, 1996 had sought clarification regarding Hemalatha’s death, JPB did not respond to the same for about 4.5 years. It was only on June 22, 2001 that JPB admitted to the death of Hemalatha and sought transmission of shares of TPCL and AVPS on his producing the death certificate of Hemalatha, legal heirship certificate and equity share certificates. This clearly indicates that JPB was in possession of the share certificates. Further, even while intimating vide letter dated June 22, 2001 that B Hemalatha was not alive, JPB had not forwarded the supporting document i.e. copy of death certificate to enable the Noticee to take note of the same in its records. (d) Since JPB had failed to provide an attested copy of the death certificate and since the transfer form pertaining to shares of TPCL was complete in all respects and contained signature of POA holders which matched with the specimen signature, TSR relied upon the POA to give effect to the transfer of shares of TPCL to AKB.

(e) Though the shares of AVPS and TPCL sent by post to B Hemalatha in January 1996 had returned undelivered to TSR with the comments “addressee expired”, TSR could not have relied upon the same. A company in law cannot record the death of its shareholder in its register without supporting document, i.e. death certificate of the shareholder. (f) The alleged violation has taken place in 2002 whereas the proceedings have been initiated under Intermediaries Regulations, 2008 which has no retrospective application. (g) Point 7 and 10 of the Guidelines dated May 09, 2001 issued by SEBI for RTAs allow a transferor other than the member to sign the transfer deed. If the signature matches, the RTA Guidelines require the RTA to effect the transfer without any objection. In the alleged cases, the signature on the transfer forms had tallied with the specimen signature of JPB, the registered POA holder. (h) Section 109 of the Companies Act, 1956, as prevalent at the relevant time, allowed transfer of shares by legal representative of a deceased member regardless of whether he was the holder of POA or not.

9. I have considered all the above as well as other submissions of the Noticee. At the outset, I note that the Noticee has repeatedly contended that JPB himself was at fault since he had registered the POA much after the death of B Hemalatha. The Noticee has contended that JPB himself took advantage of the POA for selling shares of AVPS even after the death of B Hemalatha and failed to provide documentary evidence of her death to the Noticee even after the Noticee seeking clarification by TSR. However, I note that the present proceedings are concerned with whether TSR in its capacity as RTA had acted in a professional manner, with due care and diligence or not. TSR cannot shift the blame to JPB as a defense; instead, the Noticee has to justify its actions independently.

10. It is well settled position of law that a POA dies with the principal. I note that in the present case, since Hemalatha had died before the POA was registered with TSR, the same had become invalid. There is no doubt that TSR could not have been faulted for honoring the said POA so long as it had no knowledge of the principal’s death (i.e. Hemalatha’s death). However, I note that the charge against TSR is that even after it came to the knowledge of TSR that B Hemalatha had passed away, it allowed transfer of shares of AVPS and TPCL on three occasions, based on POA which had been rendered void. In this regard, I note that on two occasions TSR had come to know of the death of B Hemalatha. The first occasion was when the shares of AVPS and TPCL sent by post to B Hemalatha in January 1996 had returned undelivered with the remarks “Addressee expired”. Further, the second such occasion was when JPB clearly informed TSR vide its letter dated June 22, 2001 about Hemalatha’s death. I note that the Noticee has contended that it could not have taken cognizance of the remarks of the postal department on the envelope and the communication from JPB informing about death of shareholder, in the absence of certified copy of death certificate. However, I find that such approach of the Noticee was unprofessional and showed lack of care and diligence. In this regard, it is important to refer to the legal provisions alleged to have been violated by the Noticee. Regulation 13 of the RTA Regulations, 1993 and Clause 2 & 3 of the Code of Conduct for RTAs mentioned under Schedule III of the RTA Regulations, 1993 read as under:

“RTA Regulations, 1993 To abide by Code of Conduct 13. Every registrar to an issue and share transfer agent holding a certificate shall at all times abide by the Code of Conduct as specified in Schedule III.

Schedule III Code of Conduct 1. … … … 2. A Registrar to an Issue and share transfer agent shall fulfill its obligations in a prompt, ethical and professional manner. 3. A Registrar to an Issue and share transfer agent shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.”

11. From the above, I note that under Clause 2 and 3 of the Code of Conduct for the RTI/STA as provided under Schedule III and read with Regulation 13 of the RTI/STA Regulations, every RTA has to fulfill its obligations in a prompt, ethical and professional manner. Further, it has a duty at all times to exercise due diligence, ensure proper care and exercise independent professional judgment. In my view, in the given situation as in the instant case, the exercise of due diligence, care and professional judgment required the Noticee to take the intimations from the postal department as well as the letter from from JPB seriously and to put the POA on hold and flag the folio of the shareholder till the time such intimations of the principal’s death were verified with supporting documents. The Noticee failed to do so and gave effect to transfers of 1940 shares of AVPS on November 05, 1996 and January 14, 1997 and 1900 shares of TPCL on February 20, 2002, based on a void POA. The lapse is even more glaring and serious in case of transfer involving 1900 shares of TPCL in February 2002, since the Noticee has itself admitted that JPB vide letter dated June 22, 2001 had explicitly informed TSR about Hemalatha’s demise, though he had not forwarded the supporting document i.e. copy of death certificate.

Not only that, I note from the records that in response to the Complainant’s letter dated June 22, 2001 intimating about the death of the shareholder, the Noticee vide its letter dated June 29, 2011 had expressed its condolence on her death and had intimated about the procedure to be followed for transmission of shares. In my view, the mere intimation of the death of the shareholder by the POA holder to the RTA was sufficient for the RTA to take cognizance of the same. In this regard, the Noticee’s contention that it did not take cognizance of intimation of death of the shareholder since the death certificate was not forwarded by the complainant is bereft of any merit and cannot be accepted. The same shows that the Noticee was mechanical in its approach and did not do proper due diligence before acting on the PoA for transfer of shares, which resulted in fraudulent transfer of shares. If the Noticee had any doubt about the veracity of the intimations about shareholder’s death, it could have kept the POA on hold pending the verification of such intimation of death. However, the Noticee failed to do so.

12. I note that in respect of sale of 1900 shares of TPCL, the Noticee had not only given effect to an invalid POA, it had done so even when the records suggest that the certificates for the concerned shares were still in possession of the Noticee and not the Complainant. I note from the Noticee’s letter dated October 30, 1996 that the said shares were posted by the Noticee to B Hemalatha in January 1996 but they had returned undelivered with the remark “Share returned to sender, Addressee expired”. It is further noted that the Noticee had clearly mentioned in the said letter that “In the meantime we are retaining the 1900 shares of Tata Power Co. Ltd.” The Noticee has relied on the Complainant’s letter dated June 22, 2001 to imply that the Complainant was in possession of the share certificates of TPCL at the time of their fraudulent sale. However, upon perusal of the said letter of the Complainant, I am of the opinion that the same by itself does not evidence the fact that the Complainant had the shares on the date of the letter.

13. The Noticee has contended that Point 7, 10 and 20 of the Norms for processing of transfers as contained in the Guidelines dated May 09, 2001 issued by SEBI for RTAs. The Noticee has contended that Point 7 allows a transferor other than the member to sign the transfer deed. If a transfer deed is signed by the transferor where signature is clearly of a person different from the name of the transferor and if the signature tallies with the specimen signature, the RTA Guidelines require the RTA to effect the transfer without any objection. Similarly, the Noticee has contended that as per Point 10, in case of a transfer deed signed by an authorized signatory under power of attorney, if the POA is registered with the company and signature tallies with the specimen signature/s, then the company/STA cannot return the form as company objection. After considering the said provisions, I am of the opinion that both the provisions would have applied only to such cases where there were valid POAs.

However, in the instant case, I note that the POA was not valid as on the date of transfer and hence, there was no obligation on the Noticee to execute the transfer in question.

14. The Noticee has also referred to Point 20 of the general norms for processing of documents as contained in the Guidelines dated May 09, 2001 issued by SEBI for RTAs. According to Point 20, “Company objections issued by companies/ STAs for the reason of ‘missing/ lost/ stolen/transferred on basis of forged transfer deeds’ shall necessarily be accompanied with the following documents: • Copy of both sides of transfer deed (s) • Copy of both sides of certificate • Original objection memo with the reason • Copy of FIR/ police complaint/ Court injunction order/ Copy of plaint where the Suit filed has been accepted by the Court and Suit no. has been given, which shall necessarily have details of date of loss, DNRs, certificate nos.”

15. Point 20 further provide inter alia that in the absence of valid police complaint/ FIR/ Court order/ Copy of plaint filed in the Court along with the case no, Company/ STA shall not issue an objection and Company/STA shall necessarily demand such document from the person lodging the complaint for stopping transfer or reporting missing/ loss/ stealing of securities.

16. Upon examination of the abovementioned provisions I note that the same apply to cases of missing/lost / stolen shares or shares transferred on the basis of forged transfer deeds. However, in the instant case, the above provisions cannot be applied since the complainant had already informed the Noticee about the death of the shareholder much before the forged transfer of shares of TPCL took place. By giving intimation of death of the shareholder, the Complainant was not reporting any lost/missing/stolen shares or any transfer on the basis of forged documents but was reporting death of the shareholder, which the Noticee should have taken cognizance of. Thus, I do not find merit in the contention of the Noticee.

17. The Noticee has also contended that Section 109 of the Companies Act, 1956, which was prevalent at the relevant time, allowed transfer of shares by legal representative of a deceased member regardless of whether he was the holder of POA or not. Section 109 reads as follows: “A transfer of the share or other interest in a company of a deceased member thereof made by his legal representative shall, although the legal representative is not himself a member, be as valid as if he had been a member at the time of the execution of the instrument of transfer.” Upon a careful examination of the above provision, I am of the opinion that the abovementioned provisions are applicable only to cases where a person transfers shares in the capacity of a legal representative of a deceased holder, and not as a POA holder. Thus, I do not find merit in the contention of the Noticee.

18. I note that the Noticee has further contended that whereas the alleged violations had taken place in 2002 the instant proceedings have been initiated under the Intermediaries Regulations, 2008 which has no retrospective application. In this regard, I note that the Noticee has been charged with the violation of the substantive provisions of Clauses 2 and 3 of the Code of Conduct for the RTI/STA as provided under Schedule III and read with Regulation 13 of the RTI/STA Regulations, 1993 which are applicable with effect from May 31, 1993 and continues without any change till date. Thus, it cannot be said that the Noticee has been charged with violations by applying them retrospectively. I further note that the provisions of Chapter V of the Intermediaries Regulations, under which the instant proceedings have been initiated, deal with the procedure for initiation of action and the same has replaced the provisions of the SEBI (Procedure for Holding Enquiry by Enquiry

Officer and Imposing Penalty) Regulations, 2002 for holding the enquiry against an intermediary, which were applicable earlier. The provisions of Chapter V of the Intermediaries Regulations, 2008 read with the repeal and saving provisions contained therein make it clear that there is no retrospective application, as contended by the Noticee.

19. I note that the Noticee is also alleged to have overlooked certain deatils as to how the share transfer form for the fraudulent transfer of shares of TPCL had been obtained and presented, as detailed under para 3 (g) above. I find that though the DA has also relied on these facts to hold the Noticee guilty, I find the same to be irrelevant.

20. Considering all these above, I agree with the findings of the DA that the charges of violation of the provisions of Clauses 2 and 3 of the Code of Conduct for the RTI/STA as provided under Schedule III and read with Regulation 13 of the RTI/STA Regulations, 1993 against the Noticee stand established.

21. I note that the DA in his report under Regulation 27 of the Intermediaries Regulation has recommended that considering the gravity of the violations committed by TSR, it may be prohibited from taking up new assignments (i.e. not to take new clients and enter into fresh agreements with companies as share transfer agent) for a period of six months in respect of its business as a Share Transfer Agent. However, I note that the violations committed by the Noticee pertain to one client involving 3 instances of transfer of shares which happened more than 18 years back. I also note from the Noticee’s submission that that it has already put in place proper systems to ensure that such lapses do not happen in future. Considering the entire facts of the case in totality, I am inclined to pass an appropriate direction as deemed fit in the facts and circumstances of the instant case. Accordingly, while agreeing with the findings of the DA, I am inclined to impose a prohibition of one month on the Noticee on registering new clients/ taking up fresh assignments, as against the prohibition of six months recommended by the DA.

ORDER – 22. I, in exercise of the powers conferred upon me under Section 19 of the SEBI Act, 1992 read with Regulation 28(2) of the Intermediaries Regulations, hereby prohibit the Noticee, viz. TSR Darashaw Limited, from taking up new assignments (i.e. not to take new clients and enter into fresh agreements with companies as Registrar to an Issue & Share Transfer Agent) for a period of one month from the date of this order.

23. A copy of this Order shall be served on the concerned Stock Exchanges and depositories for their information.

Place: Mumbai G. MAHALINGAM Date: March 05, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA