Order in the matter of Accurate Securities and Registry Pvt LTD

Under Section 12 (3) of SEBI Act, 1992 read with Regulation 28 (2) of SEBI (Intermediaries) Regulations, 2008. NOTICEE SEBI REGISTRATION NO Accurate Securities and Registry Private Limited INR000004173 Background

1. Securities and Exchange Board of India(“SEBI”) granted a certificate of registration as a Registrar to an Issue and Share Transfer Agent (Category 1 RTA) to Accurate Securities and Registry Private Limited(Accurate/Noticee) in accordance with the provisions of SEBI(Registrar to an Issue and Share Transfer Agent) Regulations, 1993 (RTA Regulations).

2. SEBI vide letter dated December 9, 2016 appointed Kishore and Kishore, Chartered Accountants(“Auditors”), to audit the books of accounts of the Noticee. The Auditors submitted their report pursuant to the audit vide letter dated December 24, 2016. The Auditors observed in their report that the Noticee had a negative net worth of Rupees twenty eight lakh twenty eight thousand nine hundred sixty seven (-Rs. 28,28,967) as of March 31, 2016. In terms of Regulation 7(2)(a) of the RTA Regulations, the minimum net worth required to be maintained by a Category 1 RTA for satisfying the capital adequacy requirement was rupees fifty lakh.

3. On enquiry by SEBI, the Noticee submitted the net worth certificate as of March 31, 2017, based on the unaudited financial accounts for the year, which showed a net worth of Rs. eight lakh twenty five thousand ninety eight (Rs. 8,25,098) – which was also not in Order in the matter of Accurate Securities and Registry Private Limited compliance with the minimum net worth requirement specified under the RTA Regulations. It was also observed that the Noticee had failed to submit Half Yearly Report for the half year ended March 2016 in the prescribed format within the time provided under SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012.

4. Based on the above, SEBI initiated enquiry proceedings against the Noticee under Chapter V of the SEBI (Intermediaries) Regulations, 2008 ("Intermediaries Regulations") and appointed a Designated Authority ("DA") vide order dated October 17, 2018 to enquire into, i. whether the alleged failure to comply with the minimum networth requirement was in violation of the capital adequacy requirement specified in regulation 7 read with regulation 9A(1)(d), regulation 22(a) and (b) of the RTA Regulations, and in turn failed to satisfy the Fit and Proper requirement under Regulation 6A read with Schedule II of the SEBI(Intermediaries) Regulations,2008 (‘Intermediaries Regulations’), and ii. whether the Noticee had failed to submit Half Yearly Report in the prescribed format with the time provided under SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012, warranting cancellation or suspension of the certificate of registration granted by SEBI or any other action provided in Chapter V of the Intermediaries Regulations.

5. Upon completion of the enquiry, an Enquiry Report dated October 14, 2019, was submitted by the DA to the Designated Member (“DM”) recommending the issue of warning to the Noticee.

6. Subsequently, an opportunity of personal hearing was given to the Noticee on July 07, 2020 before me. At the hearing, Mr. Ankur Shah, Company Secretary, represented the Noticee and made elaborate submissions on its behalf. Summary of the submissions made are given below,- i. Noticee was incorporated in 2013 with an equity share capital of Rs. one lakh. The company was engaged in securities market related activities during this period. In October 2014, the company changed its main object clause and resolved to function as a Registrar and Share Transfer Agent. Subsequently, the Company submitted an application for registration as an RTA with SEBI in December 2014. The Company received an in-principle approval on August 08, 2015 and final registration letter effective from September 03, 2015.

ii. To comply with the SEBI registration requirements, the company raised additional capital by issuing equity shares and as of August 30, 2014, the networth of the Company was Rs. 61.18 lakhs.

iii. However, with the change in objects clause of the Company, it was required to dispose its closing stock from its old line of business on or before March 31, 2015. Due to the disposal of the said closing stock at market price, the Company incurred an aggregate loss of Rs. 80,96,291 during the period August 2014 to March 2015 and networth of the Company turned negative (-Rs. 19,91,707) as of March 31, 2015.

iv. As the networth turned negative, the promoter infused Rs. 41,40,000 in the form of Quasi Equity i.e. unsecured loan convertible into equity shares during the period July 2015 to March 2017. The loan was later converted into equity shares on March 30, 2018.

v. To comply with the networth requirements specified in the SEBI regulations, the Company raised a further Rs. 60,00,000 by way of a preferential allotment in February 2019. Pursuant to the same, the networth of the Company as of February 08, 2019 was Rs. 55,87,419.

vi. As regards the failure to submit the half yearly report for the half year ended March 31, 2016, the Noticee submitted that the report for the said half year was inadvertently sent to SEBI via courier instead of being submitted via email as prescribed by SEBI. The reports for all the subsequent half years have been submitted to SEBI in prescribed format within the time limit specified under the regulations via email.

Consideration

7. I have considered the Report submitted by the DA, the Post-Enquiry SCN issued to the Noticee, oral and written submissions of the Noticee along with the documents contained therein and other material available on record.

Issue 1- Whether the alleged failure to comply with the minimum networth requirement was in violation of the capital adequacy requirement specified in regulation 7 read with regulation 9A(1)(d), regulation 22(a) and (b) of the RTA Regulation and in turn failed to satisfy the Fit and Proper requirement under Regulation 6A read with Schedule II of the Intermediaries Regulations?

8. The provisions alleged to have been violated by the Noticee read as under,-

RTA Regulations “6A. Criteria for fit and proper person.─ For the purposes of determining whether an applicant is a fit and proper person the Board may take into account he criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

7. Capital Adequacy Requirement.─ (1) The capital adequacy requirement referred to in clause (d) of regulation 6 shall not be less than the net worth of the applicant specified in sub-regulation (2). (2) For the purposes of sub-regulation (1), the networth of the applicant shall be as follows, namely: (a) Category I specified in clause (a) of sub-regulation (2) of regulation 3, -Rs. 50,00,000;

9A.Conditions of registration.─ (1) registration granted under regulation shall be subject to the following conditions, namely:- (a)… (b)… (c)… (d) it shall maintain capital adequacy requirements specified in regulation 7 at all times during the period of the initial registration or permanent registration

22. Liability for action in case of default.─ A registrar to an issue or share transfer agent who- (a)fails to comply with any conditions subject to which registration has been granted; (b)contravenes any of the provisions of the Act, rules or regulations;

Intermediaries Regulations “Criteria for determining a ‘fit and proper person’ For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer the director, the promoter and the key management persons by whatever name called – (a) integrity, reputation and character; (b) absence of convictions and restraint orders; (c) competence including financial solvency and networth (d) absence of categorization as a wilful defaulter”

9. I note from the records that the Noticee was granted registration as a Category I RTA on September 03, 2015. In terms of Regulations 6(b) read with regulation 7(2)(a), applicants seeking registration as a Category 1 RTA should have a minimum networth of Rupees fifty lakhs to satisfy the capital adequacy requirement. Regulation 9A(1)(d) further provides that registered RTA’s shall maintain the specified networth at all times throughout the period of their registration as an RTA with SEBI. It can therefore be noted that the Noticee was required to maintain a minimum networth of at least Rupees fifty lakhs throughout the course of its registration with SEBI.

10. I note that the auditors appointed by SEBI in their report dated December 24, 2016 have stated that the networth of the Noticee as of March 31, 2016 was negative (- Rs. 28,28,968). I further note that the Noticee has admitted that they did not satisfy the minimum networth requirements for the financial years 2017 and 2018 also. It is an admitted fact that it was only on the completion of the preferential allotment in February 2019 that the Noticee’s networth satisfied the capital adequacy requirement specified under regulation 7. I, therefore, note that the Noticee had failed to comply with the requirement under regulation 9A(d) of the RTA Regulations requiring registered Category I RTA’s to maintain a minimum networth of Rupees fifty lakhs during all times during their period of registration with SEBI.

11. I also note from the auditor’s report that during this period when the Noticee failed to maintain the minimum networth, the Noticee was providing RTA services to only one client and there have been no investor complaints against the Noticee. The DA in his report has recommended only a warning to the Noticee for the failure to maintain minimum networth in light of these facts.

12. In view of the above, given the reason why the networth fell below the minimum specified under the regulations, the efforts made by the Noticee to increase the networth and the absence of any investor complaints in the interim period, I am inclined to agree with the action recommended by the DA for the violation committed by the Noticee.

Issue 2- Whether the Noticee had failed to submit Half Yearly Report in the prescribed format with the time provided under SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012

13. I note that in terms of the SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012, registered RTAs are required to submit a Half Yearly Report to SEBI. The circular also provides the format for submitting the reports and manner in which it has to be submitted. The reports are to be emailed to rta@sebi.gov.in with 3 months from the expiry of every half year.

14. It is noted that the Noticee has submitted its reply that the Half Yearly Report for the Half Year ended March 2016 was inadvertently submitted to SEBI via courier instead of being emailed as prescribed under the circular. It was also submitted that the reports for all subsequent half years have been submitted within the time specified in the prescribed format via email. The auditor appointed by SEBI had also noted that the letter, though undated, forwarding the Half Yearly Report for the half year ended March 2016 was available in the records maintained by the Noticee. In view of this, I am inclined to take a lenient view regarding this non-compliance.

Order

15. I, in exercise of the powers conferred under Section 19 of the SEBI Act read with Regulation 28(2) of the Intermediaries Regulations, hereby warn the Noticee/ Accurate Securities and Registry Private Limited (SEBI Registration No. INR000004173) to be careful and cautious as regards the conduct of its business and to adhere to and comply with all the applicable statutory provisions while carrying out its activities in the securities market. Any future lapse on its part in complying with the legal provisions shall invite stringent action.

Place: Mumbai G. MAHALINGAM Date: September 02, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA