Order in the matter of Mennen Financial Services Ltd, Registrar to an Issue and Share Transfer Agent

Under Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008 in respect of Mennen Financial Services Ltd. (Registration No. INR000002839), a SEBI registered Registrar to an Issue and Share Transfer Agent 1. Background –

1.1. Mennen Financial Services Ltd. (the “Noticee”) was granted permanent registration as a Category-I Registrar to an Issue and Share Transfer Agent (“RTA”) on August 06, 2015 with effect from October 01, 2013.

1.2. The conditions of registration as an RTA require the Noticee to pay necessary registration fee to SEBI in accordance with the provisions of SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 (the “RTA Regulations”). A registered RTA is also required to file half yearly reports in accordance with extant circulars.

1.3. Upon an examination by SEBI, it was prima facie found that the Noticee was not paying necessary registration fee to SEBI as was required under the RTA Regulations and also had not filed half yearly reports.

Order in respect of Mennen Financial Services Ltd.

2. Enquiry proceedings against the Noticee –

2.1. Consequent to the above observations, SEBI appointed a Designated Authority vide Order dated January 01, 2018 under Regulation 24 of the SEBI (Intermediaries Regulations), 2008 (“Intermediaries Regulations”) read with Section 19 of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) for carrying out an enquiry into the aforementioned violations.

2.2. Pursuant to the same, the DA issued a Show-cause Notice bearing no. EAD/PM/GSS/12119/2018 dated April 19, 2018 (“SCN”) to the Noticee. The said SCN alleged that the Noticee had contravened the following provisions of law, viz.— a. Regulation 9A (c) read with Schedule -II of Regulation 12 (1) of the RTA Regulations; and b. Clauses 3 and 4 of SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012.

2.3. The DA served the said SCN on the Noticee through Registered Post AD at the available address of the Noticee viz., 501, 5th Floor, Acme Industrial Park, Krishna Metal Compound, I B Patel Road, Near Western Express Highway, Goregaon (E), Mumbai- 400063. The SCN was, however, returned undelivered by the Postal Department with the remarks “Unclaimed”. In view of the same, the SCN was served on the Noticee by way of affixture on the above-mentioned as it was the last known address of the Noticee. Even though, the SCN had been duly served on the Noticee, by way of affixture, in line with the provisions of the Intermediaries Regulations, no reply to the said SCN was received by the DA from the Noticee. Considering the non-receipt of any reply and lapse of sufficient time, the DA decided to proceed ex-parte on the basis of material available on record in terms of Regulation 26(2) of the Intermediaries Regulations.

2.4. For the violations as stated above, the DA, in his report dated April 26, 2019 found that the Noticee had contravened all the provisions of law as alleged in the said SCN.

3. Post – Enquiry SCN, Personal Hearing and Submissions of the Noticee –

3.1. After considering the Enquiry Report, a post –enquiry SCN dated July 11, 2019 bearing no. SEBI/HO/EFD/DRA2/MIRSD-ENQ/56/19-20/17303/1/2019 under Regulation 28(1) of the Intermediaries Regulations was issued to the Noticee (enclosing therewith a copy of the Enquiry Report), calling upon the Noticee to show cause as to why action as recommended by the DA or any other penalty should not be imposed on it, in terms of Regulation 28 (1) and (2) of the Intermediaries Regulations, as deemed fit, by the Competent Authority.

3.2. As per the post –enquiry SCN read with the Enquiry Report, it was inter alia alleged that– a. the Noticee had failed to submit reports on half yearly basis, as obligated under SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012; and b. the Noticee had failed to pay necessary registration fee to SEBI, as required under the RTA Regulations.

3.3. To consider the findings of the Enquiry Report, an opportunity of personal hearing before the Designated Member (hereinafter referred to as the “DM”) was granted to the Noticee on October 10, 2019. Upon receipt of the said hearing notice, the Noticee by way of a letter dated September 24, 2019 filed its reply to the subject SCN. The Noticee also sought exemption form the hearing slated for October 10, 2019 on the ground that its Managing Director was undergoing treatment in Kerala. Considering the same, the personal hearing on October 10, 2019 was adjourned and subsequently, another opportunity of personal hearing was granted to the Noticee on March 09, 2020. The Noticee entered appearance through its Managing Director and made submissions.

3.4. In this respect, the submissions made by the Noticee in its reply dated September 24, 2019, as appropriate to the present proceedings, and the submissions made at the above-mentioned personal hearing are summarised hereunder – a. the Noticee was no longer in the RTA-STA business and had stopped taking any clients;

b. the Noticee, when it was in the RTA-STA business, was primarily involved in private placement of bonds and all such bonds had been redeemed;

c. NSDL and CDSL had disconnected their leased line connections in 2015 and 2016;

d. there were no employees or staff working with the Noticee since 2017;

e. the periodic reports for 2015 and 2016 had been submitted by the Noticee to SEBI; and f. all dues/fees owed to SEBI had been recovered by SEBI from the Noticee’s HDFC bank account bearing no. 02122050000019 and nothing stood pending.

4. Consideration of issues and findings – Allegation No. 1: Non-Submission of periodic reports

4.1. The DA in its findings in the enquiry report has stated that the Noticee has failed to submit periodic reports as required by SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012 in clauses 3 and 4.

4.2. The relevant provisions in this regard are as under:

SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012 “ 3. The Boards of Registrars to an Issue and Share Transfer Agents shall, henceforth, 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.

4. Accordingly, with effect from half year ending September 30, 2012, the Compliance Officer of the Registrar to an Issue and Share Transfer Agent shall send the report in the revised format to SEBI at rta@sebi.gov.in on half yearly basis within three months of the expiry of the half year. The other terms and conditions specified in the circulars mentioned in Para 1 shall remain unchanged. ”

4.3. The above provisions mandate that registered RTAs are required to submit periodic reports on half-yearly basis, within 3 months from the close of the period to which it corresponds, in the revised format in accordance with the said circular.

4.4. In this regard, the record reveals that the non-submission of periodic reports by the Noticee was first observed during the processing of the Noticee’s application for permanent membership. Accordingly, the Noticee was informed of the deficiency, subsequent to which the Noticee submitted reports in the revised format. It is seen that still the RTA did not submit the report for March 31, 2014. Accordingly, considering that the Noticee was not serious about submitting the half yearly reports in proper format, on time and complete in all respects, an administrative warning by way of letter dated September 30, 2014 was issued to the Noticee.

4.5. Inspite of the administrative warning, it is observed that the Noticee has not submitted period reports for half-year ended March 2016 and September 2016. The Noticee in its submissions has stated that the periodic reports for 2015 and 2106 have been submitted by it. It is, therefore, evident that there have been consistent delays in the submissions of the periodic reports.

4.6. Thus, I concur with the view of the DA, as expressed in the enquiry report, that the Noticee has failed to submit periodic reports as required by SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012 in clauses 3 and 4. Allegation No. 2 : Non-payment of Fees

4.7. The DA has in its findings in the enquiry report stated that it is established that the Noticee has failed to pay the necessary fee for keeping its registration in force.

4.8. In this regard, reference is drawn to Regulations 9A(c) and 12(1) of the RTA Regulations, which require as one of the conditions of grant of registration to an RTA that it shall pay the fees for initial registration or permanent registration, as the case may be, in the manner provided in the RTA Regulations.

4.9. The relevant provisions in this regard are as under: Regulation 9A(c) of the RTA Regulations “ 9A Conditions of registration— (1) registration granted under regulation 8 shall be subject to the following conditions, namely (a) … (c) it shall pay the fees for initial registration or permanent registration, as the case may be, in the manner provided in these regulations; ” Regulation 12(1) of the RTA Regulations “ 12 Payment of fees and the consequences of failure to pay fee.─

Every applicant eligible for grant of initial or permanent registration, as the case may be, shall pay such fees in such manner and within the period specified in Schedule II: ” SCHEDULE II (Regulation 12) - Fees “ 1… 1AA. A registrar to an issue and share transfer agent who has been granted a certificate of permanent registration, to keep its registration in force, shall pay registration fee, every three years from the sixth year from the date of grant of certificate of initial registration, or from completion of the period of renewed certificate of registration, as the case may be, as specified below: a. A registrar to an issue and share transfer agent falling under category I, as specified in sub-regulation (2) of regulation 3, shall pay a fee of two lakh and seventy thousand rupees; b. A registrar to an issue and share transfer agent falling under category II, as specified in sub-regulation (2) of regulation 3, shall pay a fee of ninety thousand rupees. 2. (a)… (b) The fee referred to in paragraph 1AA shall be paid, at the time of grant of permanent registration, within fifteen days from the date of receipt of intimation from the Board and thereafter the fee shall be paid three months before expiry of the block for which fee has been paid.”

4.10. Upon a reading of the above provisions, it is evident that as a condition of registration as an RTA, it is required of such RTA to pay the registration fees within the time period specified.

4.11. The record reveals that the validity of the registration of the Noticee as an RTA was till September 30, 2013. Subsequent to it, the Noticee was granted permanent registration with effect from October 01, 2013. This block of three years of registration (starting from October 01, 2013) was ending on September 30, 2016. As seen from the above provisions, the Noticee was required to pay the fees for next block of registration i.e. October 01, 2016 to September 30, 2019, three months before expiry of the block for which fee has been paid. It is seen that no payment of fee was made by the Noticee within the above mentioned time-frame. In this respect, it is seen that an email dated January 04, 2017 was addressed to the Noticee seeking an explanation for the delay in payment of fees. The Noticee was also asked to immediately pay the fees amounting to Rs. 2.70 lakh. Subsequent to the above email, it is seen that reminder emails were issued to the Noticee on January 11, 2017 and January 13, 2017. However, no response was received from the Noticee.

4.12. The Noticee has in its submissions stated that all the dues owed to SEBI have been paid and nothing stood pending. In this regard, the record reveals that a recovery certificate bearing no. 176 of 2018 was drawn against the Noticee for the recovery of Rs. 2.70 lakh along with further interest and recovery cost. It is observed that an amount of Rs. 3,53,557 was recovered by SEBI from the Noticee in full and final satisfaction of the recovery proceeding initiated pursuant to recovery certificate bearing no. 176 of 2018. It is also gathered that an undertaking has been submitted by the Noticee stating that there was no other penalty/dues pending against it, its subsidiaries, its directors and promoters, for payment to SEBI. It is, thus, observed that no fee is pending for payment to SEBI.

4.13. That being the case, it is clear that the Noticee was liable to pay the fee in 2016, which was recovered from the Noticee only much later by way of a recovery proceeding, and as such, I concur with the view of the DA that the Noticee has violated Regulations 9A(c) and 12(1) read with Schedule-II of the RTA Regulations for non-payment of the fees in a timely manner.

4.14. The facts brought out in the foregoing paragraphs clearly demonstrate that the Noticee has failed to submit periodic reports as required by SEBI Circular CIR/MIRSD/7/2012 dated July 05, 2012 in clauses 3 and 4 and violated Regulations 9A(c) and 12(1) read with Schedule-II of the RTA Regulations for non-payment of the fees in a timely manner. Further, the Noticee has submitted that NSDL and CDSL disconnected their leased line connections in 2015 and 2016. Also, the Noticee has submitted that it had no employees or staff working for it, and was no longer in the business. In the circumstances, I am of the opinion that continuing with the registration does not serve any purpose.

4.15. I note that the DA has in the Enquiry Report recommended that the certificate of registration of the Noticee be cancelled. I concur with the recommendation of the DA.

5. Order – 5.1. Considering the violations brought out in the foregoing paragraphs, I, in exercise of powers conferred upon me in terms of Section 12(3) and Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 23 and 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby direct the cancellation of the certificate of permanent registration of the Noticee. 5.2. The order shall come into force with immediate effect. 5.3. A copy of the order shall be forwarded to the Noticee immediately. A copy of this Order shall also be forwarded to all the recognised stock exchanges and depositories.

Date: May 18, 2020 G. MAHALINGAM

Place: Mumbai WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA