sebi:WTM/KMA/ERO/291/08/2010
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Facts / Headnote
Show cause notice dated June 4, 2010 disposed of; depository participant directed to credit 100 shares of ITC Limited along with accrued benefits to the petitioner's demat account within 30 days and file a compliance report; CDSL directed to comply with statutory duties.
Provisions invoked
- s. 11B
- s. 19
Regulations
- Reg. 32
Parties
- G.M. Bosu & Co. Private Limited (depository participant)
- Central Depository Services (India) Limited (depository)
Holding
The depository participant was held liable for negligently processing an incomplete Delivery Instruction Slip without ensuring receipt of payment as required by Regulation 32 of the DP Regulations, and was directed to compensate the petitioner by crediting 100 shares of ITC Limited (which had become 1,500 shares) along with accrued benefits within 30 days.
Full text
Page 2 of 15 directed SEBI to take steps, if it is found that proper “mechanism” under the aforesaid Regulation was not in place. Pursuant to the said direction of the Hon’ble High Court and after affording an opportunity of hearing to the Central Depository Services (India) Limited (hereinafter referred to as the depository), G. M. Bosu & Co. Private Limited (hereinafter referred to as the depository participant) and Mrs. Atreyee Chakraborty (hereinafter referred to as the petitioner), SEBI vide order dated June 4, 2010 inter alia observed that the depository participant and the depository were responsible for not complying with the requirements of Regulation 32 of the DP Regulations in respect of the petitioner’s 100 shares (which became 1500 shares on account of bonus issue by ITC Limited, as explained in the said Order) of ITC Limited ,transferred under the Delivery Instruction Slip (hereinafter referred to as DIS) dated August 13,
Page 3 of 15 The facts of the case were mentioned in detail in the Order dated June 4, 2010 of SEBI. As the said Order was to be treated as a show cause notice as advised therein, I do not consider it necessary to reproduce the same in detail in this order. As directed by the Hon’ble High Court of Calcutta, SEBI was mandated to conduct an enquiry in respect of the compliance of Regulation 32 of the DP Regulations. As stated in the Order dated June 4, 2010, SEBI found that the depository and the depository participant were responsible for not complying with the requirements of Regulation 32 of the DP Regulations in respect of 100 shares of ITC Limited of the petitioner, transferred under the DIS dated August 13, 2003 and accordingly, the depository and the depository participant were directed to show cause. In view of the above, the limited issue for consideration is whether the depository and the depository participant are liable to compensate the petitioner as required in the show cause notice.
Page 4 of 15 contended that under Section 7 of the said Act, the depository registers transfer of security in the name of the transferee, upon receipt of intimation from the depository participant. Section 7 of the Act is quoted below: “7(1) Every depository shall, on receipt of intimation from a participant, register the transfer of security in the name of the transferee. (2) If a beneficial owner or a transferee of any security seeks to have custody of such security the depository shall inform the issuer accordingly.” Section 7 deals with the registration of transfer of securities. It clearly indicates that the transfer of securities by the depository should take place on receipt of intimation from the depository participant. In terms of Regulation 32, registration shall be effected only after the depository is satisfied that payment for such transfer has been made. Therefore, on a combined reading of the aforesaid provisions, it becomes the duty of the depository participant who processes the DIS, to intimate the depository about the transfer of shares along with the intimation that payment for the said transfer has been made. Regulation 32 was to ensure that the shares in the dematerialized form are transferred after the receipt of consideration by the transferor. This was made in the interest of investors. The requirement of Regulation 32 is a condition precedent before complying with the duty under Section 7. Both the provisions are mutually exclusive of each other. The
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Source: SecMarx — sebi:WTM/KMA/ERO/291/08/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.