Oseapre Consultants Limited vs Sebi

Date of Decision : 21.01.2020

Appeal No. 18 of 2019

Technojet Consultants Limited Neville House, JN Heredia Marg, Ballard Estate, Mumbai - 400 001. ..... Appellant Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Nirman Sharma, Advocate with Ms. Pratyusha Panchagni, Advocate i/b Crawford Bayley & Co. for Appellants.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar, Ms. Eram Quraishi and Mr. Harshad Vyas, Advocates i/b MDP & Partners for the Respondent.

AND Appeal No. 19 of 2019

Oseapre Consultants Limited Neville House, JN Heredia Marg, Ballard Estate, Mumbai - 400 001. ..... Appellant Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent 2

Mr. Nirman Sharma, Advocate with Ms. Pratyusha Panchagni, Advocate i/b Crawford Bayley & Co. for Appellants.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar, Ms. Eram Quraishi and Mr. Harshad Vyas, Advocates i/b MDP & Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Justice Tarun Agarwala, Presiding Officer

1.

Both the appeals are against a common issue and are

being decided together. For facility, the facts stated in Appeal

No. 18 of 2019 are being taken into consideration. On the

basis of a complaint, Securities and Exchange Board of India

('SEBI' for short) investigated the affairs of Sharepro

Services (I) Private Limited ('Sharepro' for short) who was

registered with SEBI as a Registrar and Transfer Agent. The

complaints were with regard to the transfer of dividends

belonging to rightful investors to the persons related to the

management of Sharepro, etc. SEBI by an order dated March

22, 2016 restrained Sharepro from buying, selling or dealing

in the securities market, etc. pending investigation and

passing of a final order. In addition to the aforesaid, SEBI 3

also passed orders against other companies which is extracted

herein below:-

"11. Companies who are clients of Sharepro are directed to conduct a thorough audit of the records and systems of Sharepro with respect to dividends paid and transfer of securities to determine whether dividends have been paid to actual / beneficial holders and whether securities have been transferred as per the provisions of law. This audit should cover the dividends paid / transfers effected within the preceding at least 10 years. The audit directed above shall be completed by the companies within a period of three months from the date of this order and thereafter a report shall be submitted to SEBI by the companies in that regard. Further, within a period of six months from the date of this order, the companies shall take appropriate action, in cases where violations are observed, in accordance with the provisions of law and inform SEBI accordingly.

12. Companies who are clients of Sharepro are also advised to carry out / switchover their activities related to a registrar to an issue and share transfer agent, either in- house or through another registrar to an issue or share transfer agent registered with SEBI. Sharepro shall provide the requisite cooperation to these companies for the purpose."

2. Based on the aforesaid directions the appellant vide

letter dated August 26, 2016 applied for waiver of conducting

an audit of records of Sharepro on the ground that the

Company had only 25 shareholders and that only a couple of

transactions had taken place in the last 10 years and that the

Company had not declared any dividend for last 10 financial

years. On this basis, the appellant requested SEBI to

reconsider and waive the direction for conducting auditing of

records.

4

3. Instead of considering the application and passing

orders on it, Adjudicating Officer ('AO' for short) issued a

show cause notice to show cause as to why penalty should not

be imposed for not complying with the directions issued by

the Whole Time Member ('WTM' for short) by its order

dated March 22, 2016. The AO after considering the reply

passed the impugned order imposing a penalty of Rs. 1 lakh

holding that since the appellant did not comply with the

orders of the WTM the penalty was justified.

4. The appellant being aggrieved by the said order has

filed the present appeal.

5. Similar order was passed by the AO in Appeal No. 19 of

2019.

6. Having heard Shri Nirman Sharma, the learned counsel

for the appellant and Shri Vishal Kanade, the learned counsel

for the respondent SEBI and, from a perusal of the affidavit

filed by the respondent we find that admittedly no orders were

passed by the respondent on the application of the appellant

seeking waiver of the directions issued by the WTM. We are

of the opinion that once an application has been filed seeking

waiver of the audit of records for whatever reasons it was 5

incumbent upon SEBI to atleast consider and pass appropriate

orders. In our opinion, without passing any order on the

appellant's application for waiver of audit of records, the

initiation of the adjudication proceedings is violative of

principles of natural justice.

7. Thus, on this short ground the impugned orders passed

by the AO cannot be sustained and are quashed. Both the

appeals are allowed. It will be open to SEBI to proceed

afresh for non-compliance of the order dated March 22, 2016

passed by the WTM only after disposal of the waiver

application for conducting audit of records filed by the

appellant. No orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G Nair Member 21.01.2020 Prepared and compared by:msb