CLS CORPORATE REGULATION (HONS.

II)
PROJECT ON
REGISTRAR TO ISSUE AND SHARE TRANSFER
AGENTS

HIDAYATULLAH NATIONAL LAW UNIVERSITY

SUBMITTED TO:

SUBMITTED BY:

Ms. Apoorvi Shrivastava Mam,

Faculty of Corporate Hons. II.
Abhinav K Shukla,
Roll No. 03,
SEMESTER IX, Batch XII

DATE OF SUBMISSION: 26.10.2016

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ACKNOWLEDGEMENT
Thanks to the Almighty who gave me the strength to accomplish the project with sheer hard work
and honesty. This research venture has been made possible due to the generous co-operation of
various persons.
This project wouldnt have been possible without the help of our faculty Ms. Apoorvi Shrivastava
Mam, Faculty of CLS Corporate Hons. II who had always been there at my side whenever I
needed some help regarding any information. She has been my mentor in the truest sense of the
term. The administration has also been kind enough to let me use their facilities for research work. I
thank them for this would be grateful to receive comments and suggestions for further
improvement of this project report.
Thanking You!
Abhinav K Shukla
Roll No.03, Semester IX,
Batch XII.

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RESEARCH METHODOLOGY
The research methodology used in this project is analytical and descriptive. Data has been
collected from various books, articles, papers, and web sources. This project is based
upon non- doctrinal and secondary method of research.

OBJECTIVES
The objective of the project is to analyze the role of Registrar to issue and share transfer
agents in the market, a study of the regulations framed for them, the approach of SEBI
and SAT on various controversies and scams and legal instruments by which the
efficiency and contribution of the Registrar and Share Transfer Agents can be enhanced.

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TABLE OF CONTENTS
1. INTRODUCTION5-8
2. OBLIGATIONS AND RESPONSIBILITIES OF REGISTRAR TO
ISSUE AND SHARE TRANSFER AGENTS .8-12

3. CODE OF CONDUCT.12-16
4. CASE STUDIES...16-20
5. CONCLUSION..21-24
6. BIBLIOGRAPHY.25

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CHAPTER 1
INTRODUCTION
Registrar to Issue and Share Transfer Agents perform a very vital role in the secondary
and primary markets. Regulations framed in the year 1993 were framed for the effective
governance of these bodies.

Registrar to an issue means the person appointed by a

body corporate or any person or group of persons to carry on the following activities on
its or his or their behalf: (i) collecting applications from investors in respect of an issue;
(ii) keeping a proper record of applications and monies received from investors or paid to
the seller of the securities; and (iii) assisting body corporate or person or group of persons
in:
(a) determining the basis of allotment of securities in consultation with stock exchange;
(b) finalising list of persons entitled to allotment;
(c) processing and dispatching allotment letters, refund orders or certificates and other
related documents in respect of an issue
Ashare transfer agent means
(i) any person, who on behalf of any body corporate, maintains the records of holders of
securities issued by such body corporate and deals with all matters connected with the
transfer and redemption of its securities; (ii) a department or division, by whatever name
called, of a body corporate performing the activities referred in sub-clause (i) if at any
time the total number of the holders of its securities issued exceed one lakh;]1
Application for grant of certificate.An application by a registrar to an issue or a share
transfer agent for grant of a certificate shall be made to the Board in Form A. An
application for registration shall be accompanied by a non-refundable application fee as
The application may be made for any of the following categories, namely: (a) Category I:
to carry on the activities as a registrar to an issue and share transfer agent; (b) Category
II: to carry on the activity either as a registrar to an issue or as a share transfer agent; Any
application made by a registrar to an issue or a share transfer agent prior to coming into
force of these regulations containing such particulars as near thereto as mentioned in
1 Section 2(g) of the Act

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Form A shall be treated as an application made in pursuance of sub-regulation (1) and

dealt with accordingly. The Board may require the applicant to furnish further
information or clarifications regarding activities and matters connected thereto to
consider the application for grant of a certificate. The applicant or, its principal officer
shall, if so required, appear before the Board for personal representation.
Any application, which is not complete in all respects and does not conform to the
instructions specified in the form, shall be rejected. Provided that, before rejecting any
such application, the applicant shall be given an opportunity to remove within the time
specified such objections as may be indicated by the Board.2
Consideration of application. The Board shall take into account for considering the
grant of a certificate all matters which are relevant to the activities and in particular the
following, namely, whether the applicant
(a) has the necessary infrastructure like adequate office space, equipments and manpower to effectively discharge his activities;
(b) has any past experience in the activities;
(c) or any person directly or indirectly connected with him has not been granted
registration by the Board under the Act;
(d) fulfills the capital adequacy requirement specified in regulation 7;
(e) is subjected to any disciplinary proceedings under the Act;
(f) or any of its director, partner or principal officer is or has at any time been convicted
for any offence involving moral turpitude or has been found guilty of any economic
offence.
(g) is a fit and proper person.3
Procedure for registration and renewal.: The Board on being satisfied that the
applicant is eligible, shall send intimation to the applicant mentioning the category for
which the applicant has been found eligible for the grant of certificate and grant a
2 Regulations 4 and 5
3 As laid down by Regulation 6. and 6 A 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 the criteria
specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008

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certificate in Form B subject to payment of fees specified in regulation 12. 4The registrar
to an issue or share transfer agent may, if he so desires, make an application in Form A
for renewal of certificate before three months of the expiry of the period of certificate. An
application for renewal made under sub-regulation (1) shall be accompanied by a non
refundable application fee shall and shall be dealt with in the same manner as if it were
an application for the grant of a certificate under regulation 3.
Conditions of registration.(1) Any registration granted under regulation 8 or any
renewal granted under regulation 9 shall be subject to the following conditions, namely:- 5
(a) where a registrar to an issue or a share transfer agent proposes to change its status or
constitution, it shall obtain prior approval of the Board for continuing to act as such after
the change;
(b) without prejudice to its obligations under any other law for the time being in force, it
shall enter into a legally binding agreement with the body corporate or the person or
group of persons for or on whose behalf it is acting as a registrar to an issue or a share
transfer agent stating therein the allocation of duties and responsibilities between itself
and such body corporate or person or group of persons, as the case may be;
(c) it shall pay the fees for registration or renewal, as the case may be, in the manner
provided in these regulations;
(d) it shall maintain capital adequacy requirements specified in regulation 7 at all times
during the period of the certificate or renewal thereof;
(e) it shall take adequate steps for redressal of grievances of the investors within one
month of the date of the receipt of the complaint and keep the Board informed about the
number, nature and other particulars. 6
Procedure where registration is not granted.(1) Where an application for grant of a
certificate under regulation 3 or of renewal under regulation 9, does not fulfill the
requirements mentioned in regulation 6, the Board may reject the application after giving
a reasonable opportunity of being heard. The refusal to grant or renew the certificate shall
be communicated by the Board within thirty days of such refusal to the applicant stating
4 Regulation 8
5 Regulation 9
6 Agreement Between Company and Registrar, http://www.rcmcdelhi.com/download/a.doc.

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therein the grounds on which the application has been rejected. Any applicant may, being
aggrieved by the decision of the Board under subregulation apply within a period of thirty
days from the date of receipt of such intimation, to the Board for reconsideration of its
decision. On receipt of the application made under sub-regulation (3), the Board shall
reconsider its decision and communicate its findings thereon as soon as possible in
writing to the applicant.7
Effect of refusal to grant or renew certificate. : Any registrar to an issue or a share
transfer agent whose application for grant or renewal of a certificate has been refused by
the Board shall on and from the date of the receipt of the communication under sub
regulation (2) of regulation 10 cease to carry on any activity as registrar to an issue or
share transfer agent. Every applicant eligible for grant or renewal of a certificate shall pay
such fees in such manner and within the period specified. Provided that the Board may on
sufficient cause being shown permit the registrar to an issue or share transfer agent to pay
such fees at any time before the expiry of six months from the date on which such fees
become due. Where a registrar to an issue or share transfer agent fails to pay the fees as
provided in sub- regulation (1), the Board may suspend the certificate, whereupon the
registrar to an issue or share transfer agent shall cease to carry on any of his activity as a
registrar to an issue or share transfer agent, as the case may be.8

CHAPTER 2
OBLIGATIONS AND RESPONSIBILITIES
Every registrar to an issue and share transfer agent holding a certificate shall at all times
abide by the Code of Conduct to an issue shall act as such registrar for any issue of
securities in case he or it is an associate of the body corporate issuing the securities. 9 For
the purpose of this regulation, a registrar to an issue or the body corporate as the case
may be shall be deemed to be an associate of the other where:- (a) he or it controls
directly or indirectly not less than 10 percent of the voting power of the body corporate or
of the registrar to an issue, as the case may be; or, (b) he or any of his relative is a director
7 Regulation 11
8 BOOK RUNNING LEAD MANAGER REGISTRAR TO THE ISSUE RISK,
www.sebi.gov.in/dp/vig.pdf
9 Regulation 13 and 13 A

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or promoter] of the body corporate or of the registrar to an issue, as the case may be. The
term 'relative' shall have the same meaning as is assigned to it under section 6 of the
Companies Act, 1956 and section 2 (77) of the Companies Act, 2013.10
Every registrar to an issue and share transfer agent being a body corporate shall keep and
maintain the following books of accounts and documents in respect of three preceding
financial years, namely: -11
(a) in relation to registrar to an issue and share transfer agent being a body corporate: a
copy of balance sheet and profit and loss account as specified in sections 211 and 212 of
the Companies Act, 1956 and section 129 and 133 of the Companies Act, 2013, a copy of
the auditor's report referred to in section 227 of the Companies Act, 1956 and section 143
of the Companies Act, 2013; a statement of capital adequacy requirements for each
quarter.12
(b) in relation to registrar to an issue and share transfer agent not being a body corporate
(i) all sums of money received and expended by them and the matters in respect of
which the receipt and expenditure take place; their assets and liabilities; and a statement
of capital adequacy requirements for each quarter. Every registrar to an issue shall also
maintain the following records with respect to all the applications received from investors
in respect of an issue; all applications of investors rejected and reasons therefore basis of
allotment of securities to the investors as finalised in consultation with the stock
exchange; terms and conditions of purchase of securities; allotment of securities; list of
names of allottees and non-allottees of the securities refund orders dispatched to investors
in respect of application monies received from them in response to an issue; such other
records as may be specified by the Board for carrying on the activities as registrars to an
issue.13
Every share transfer agent shall maintain the following records in respect of a body
corporate on whose behalf he is carrying on the activities as share transfer agent namely:10 Role of Registrar To Issue, http://www.bigbulls.in/services.html
11 Regulation 14
12ShareTransferAgent,http://www.bigbulls.in/p_What%20is%20the%20role%20of%20a
%20'Registrar'%20to%20an%20issue.html
13 Role of Registrar To issue, http://www.sharegyan.com/learn-stock-market/primary-market/what-is-roleof-registrar.php

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(a) list of holders of securities of such body corporate;, the names of transferor and
transferee and the dates of transfer of securities; such other records as may be specified
by the Board for carrying out the activities as share transfer agents. Every registrar to an
issue or share transfer agent shall intimate the Board the place where the books of
accounts, records and documents are maintained.14 Every registrar to an issue and share
transfer agent shall, after the close of each financial year as soon as possible but not later
than six months from the close of the said period furnish to the Board if so required
copies of the balance sheet, profit and loss account, statement of capital adequacy
requirement and such other documents as may be required by the Board under regulation
15

.Subject to provisions of any other law, the registrar to an issue or share transfer agent

shall preserve the books of accounts and other records and documents maintained under
regulation 14 for a minimum period of three years.16
Procedure for inspection.Before undertaking an inspection under regulation 16, the
Board shall give a reasonable notice to the registrar to an issue or share transfer agent for
that purpose.Where the Board is satisfied that in the interest of the investors or in public
interest no such notice should be given, it may by an order in writing direct that the
inspection of the affairs of the registrar to an issue and share transfer agent be taken up
without such notice. On being empowered by the Board, the inspecting authority shall
undertake the inspection and the registrar to an issue or share transfer agent against whom
an inspection is being carried out shall be bound to discharge his obligations as provided
under regulation 18.17
Obligations of registrar to an issue and share transfer agent on inspection by the
Board. It shall be the duty of every director, proprietor, partner, officer and employee
of the registrar to an issue or share transfer agent, who is being inspected, to produce to
the inspecting authority such books, accounts and other documents in his custody or
control and furnish him with the statements and information relating to the transactions in
securities market within such time as the said officer may require. The registrar to an
14 ibid
15 Regulation 14
16 Regulations 15 and 16
17 Regulation 17

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issue or share transfer agent shall allow the inspecting authority to have reasonable access
to the premises occupied by them or by any other person on their behalf and also extend
reasonable facility for examining any books, records, documents and computer data in the
possession of the registrar to an issue or share transfer agent or any other person on their
behalf and also provide copies of documents or other materials which, in the opinion of
the inspecting authority are relevant. The inspecting authority, in the course of inspection,
shall be entitled to examine or record statements of any member, director, partner,
proprietor and employee of the registrar to an issue or share transfer agent. 18 It shall be
the duty of every director, proprietor, partner, officer or employee of the registrar to an
issue and share transfer agent to give to the inspecting authority all assistance in
connection with the inspection, which the registrar to an issue or share transfer agent may
be reasonably be expected to give. The inspecting authority shall, as soon as possible
submit, an inspection report to the Board.19 The Board or the Chairman shall after
consideration of the inspection or investigation report take such action as the Board or
Chairman may deem fit and appropriate including action under the Securities and
Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer)
Regulations, 2002.20
The Board may appoint an auditor who is qualified to be appointed as such for a
company under section 226 of the Companies Act, 1956 and section 141 of the
Companies Act, 2013 to investigate into the books of account or the affairs of the
registrar to an issue and share transfer agent: Provided that the auditor so appointed shall
have the same powers of the inspecting authority as mentioned in regulation 16 and the
obligations of the registrar to an issue and share transfer agent in regulation 18 shall be
applicable to the investigation under this regulation. 21
PROCEDURE 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;
18 Regulation 18
19 regulation 19
20 Regulation 20
21 Regualtion 21

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(c) contravenes the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of
1956) or the rules made thereunder;
(d) contravenes the provisions of the Depositories Act, 1996 or the rules made
thereunder;
(e) contravenes the rules, regulations or bye-laws of the stock exchange, shall be dealt
with in the manner provided under 2[chapter V of the Securities and Exchange Board of
India (Intermediaries) Regulations, 200822

CHAPTER 3
CODE OF CONDUCT
A Registrar to an Issue and Share Transfer Agent shall maintain high standards of
integrity in the conduct of its business. A Registrar to an Issue and Share Transfer Agent
shall fulfill its obligations in a prompt, ethical and professional manner. He shall at all
times exercise due diligence, ensure proper care and exercise independent professional
judgment.
Due Care and Caution: A Registrar to an Issue and Share Transfer Agent shall exercise
adequate care, caution and due diligence before dematerialisation of securities by
confirming and verifying that the securities to be dematerialized have been granted listing
permission by the stock exchange/s.
A Registrar to an Issue and Share Transfer Agent shall always endeavor to ensure that a. inquiries from investors are adequately dealt with;
b. grievances of investors are redressed without any delay;
c. transfer of securities held in physical form and confirmation of dematerialisation /
rematerialisation requests and distribution of corporate benefits and allotment of
securities is done within the time specified under any law .

22 Regulation 22

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REJECTION A Registrar to an Issue and Share Transfer Agent shall not reject the
dematerialization / rematerialisation requests on flimsy grounds. Such request could be
rejected only on valid and proper grounds and supported by relevant documents.23
DISCLOSURE A Registrar to an Issue and Share Transfer Agent shall make reasonable
efforts to avoid misrepresentation and ensure that the information provided to the
investors is not misleading.

He shall avoid conflict of interest and make adequate

disclosure of its interest. A Registrar to an Issue and Share Transfer Agent shall make
appropriate disclosure to the client of its possible source or potential areas of conflict of
duties and interest which would impair its ability to render fair, objective and unbiased
services.
A Registrar to an Issue and Share Transfer Agent shall not divulge to other clients, press
or any other person any confidential information about its clients which has come to its
knowledge except with the approval / authorisation of the clients or when it is required to
disclose the information under any law for the time being in force.
CONFLICT OF INTEREST: He shall put in place a mechanism to resolve any conflict
of interest situation that may arise in the conduct of its business or where any conflict of
interest arises, shall take reasonable steps to resolve the same in an equitable manner. He
shall not indulge in any unfair competition, which is likely to harm the interests of other
Registrar to the issue and Share Transfer Agent or investors or is likely to place such
other Registrar in a disadvantageous position in relation to the Registrar to issue and
Share Transfer Agent while competing for or executing any assignment.A Registrar to an
Issue and Share Transfer Agent shall always endeavor to render the best possible advice
to the clients having regard to their needs. A Registrar to an Issue and Share Transfer
Agent or any of its employees shall not render, directly or indirectly any investment
advice about any security in the publicly accessible media, whether real-time or nonrealtime, unless a disclosure of its long or short position in the said security has been
made, while rendering such advice.

23 Code of Conduct for Registrar to Issue and Share Transfer Agents as prescribed by SEBI in the year
1993.

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(b) In case, an employee of a Registrar to an Issue and Share Transfer Agent is rendering
such advice, the Registrar to an Issue and Share Transfer Agent shall ensure that it also
discloses its own interest, the interests of his dependent family members and that of the
employer including their long or short position in the said security, while rendering such
advice.24
FAIR PRACTICES AND COMPLIANCE: A Registrar to an Issue or Share Transfer
Agent shall not discriminate amongst its clients, save and except on ethical and
commercial considerations. A Registrar to an Issue and Share Transfer Agent shall ensure
that any change in registration status / any penal action taken by the Board or any
material change in financials which may adversely affect the interests of clients /
investors is promptly informed to the clients. A Registrar to an Issue and Share Transfer
Agent shall maintain the required level of knowledge and competency and abide by the
provisions of the Act, rules, regulations, circulars and directions issued by the Board. The
Registrar to an Issue and Share Transfer Agent shall also comply with the award of the
Ombudsman passed under Securities and Exchange Board of India (Ombudsman)
Regulations, 2003.25A Registrar to an Issue and Share Transfer Agent shall co-operate
with the Board as and when required. A Registrar to an Issue and Share Transfer Agent
shall not neglect or fail or refuse to submit to the Board or other agencies with which he
is registered, such books, documents, correspondence, and papers or any part thereof as
may be demanded / requested from time to time.
A Registrar to an Issue and Share Transfer Agent shall ensure that the Board is promptly
informed about any action, legal proceeding etc. initiated against it in respect of any
material breach or non compliance by it, of any law, rules, regulations, directions of the
Board or of any other regulatory body.
RECORD KEEPING: A Registrar to an Issue and Share Transfer Agent shall take
adequate and necessary steps to ensure that continuity in data and record keeping is
maintained and that the data or records are not lost or destroyed. Further, it shall ensure
that for electronic records and data, up-to-date back up is always available with it.A
24 supra, note 23
25 Merchant Banking, http://www.scribd.com/doc/19695663/Merchant-Banking

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Registrar to an Issue and Share Transfer Agent shall endeavor to resolve all the
complaints against it or in respect of the activities carried out by it as quickly as possible.
A Registrar to an Issue and Share Transfer Agent shall hand-over all the records/ data and
all related documents which are in its possession in its capacity as a Registrar to an Issue
and / or Share Transfer Agent to the respective clients, within one month from the date of
termination of agreement with the respective clients or within one month from the date of
expiry/cancellation of certificate of registration as Registrar to an Issue and / or Share
Transfer Agent, whichever is earlier. A Registrar to an Issue and Share Transfer Agent
shall not make any exaggerated statement, whether oral or written, to the clients either
about its qualifications or capability to render certain services or about its achievements
in regard to services rendered to other clients.
A Registrar to an Issue and Share Transfer Agent shall ensure that it has satisfactory
internal control procedures in place as well as adequate financial and operational
capabilities which can be reasonably expected to take care of any losses arising due to
theft, fraud and other dishonest acts, professional misconduct or omissions.
FLEXIBILITY AND GOOD GOVERNANCE :A Registrar to an Issue and Share
Transfer Agent shall provide adequate freedom and powers to its compliance officer for
the effective discharge of its duties. It shall develop its own internal code of conduct for
governing its internal operations and laying down its standards of appropriate conduct for
its employees and officers in carrying out its duties as a Registrar to an Issue and Share
Transfer Agent and as a part of the industry. Such a code may extend to the maintenance
of professional excellence and standards, integrity, confidentiality, objectivity, avoidance
of conflict of interests, disclosure of shareholdings and interests etc. A Registrar to an
Issue and Share Transfer Agent shall ensure that good corporate policies and corporate
governance are in place.A Registrar to an Issue and Share Transfer Agent shall ensure
that any person it employs or appoints to conduct business is fit and proper and otherwise
qualified to act in the capacity so employed or appointed (including having relevant
professional training or experience).
LIABILITY: A Registrar to an Issue and Share Transfer Agent shall be responsible for
the acts or omissions of its employees and agents in respect of the conduct of its business.
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A Registrar to an Issue and Share Transfer Agent shall not, in respect of any dealings in
securities, be party to or instrumental for a. creation of false market;
b. price rigging or manipulation;
c. passing of unpublished price sensitive information in respect of securities which are
listed and proposed to be listed in any stock exchange to any person or intermediary.

CHAPTER 4
CASE STUDIES:
1. Karvy Stock Broking Limited Vs. Respondent: Securities and Exchange Board of
India 26 : The IPO scam case ( As decided by SAT on 22. 06.07)
As a part of ongoing surveillance activity by SEBI into the various aspects of working of
securities market, SEBI had initiated probe and advised BSE and NSE to look into the
dealings in the shares issued through Initial Public Offerings (IPOs) before the shares are
listed on the stock exchanges. For the purpose of the examination, the off-market
transactions data as obtained from the depositories were provided by SEBI to the stock
exchanges. In October 2005, the stock exchanges submitted their preliminary
observations on the IPO of Yes Bank Ltd. (YBL) which hinted at the possibility of large
scale off-market transactions immediately following the date of allotment and prior to the
listing on the stock exchanges. SEBI therefore carried out a preliminary scrutiny by
calling for data from the depositories and the Registrar to the Issue (RTI). It was found
that large number of multiple dematerialized accounts with common addresses were
opened by a few entities. On noticing the irregularities and widespread abuse, SEBI acted
against the entities who were responsible for the irregularities by passing interim order
restraining them from participating in all future IPOs and also directing the depositories
to effectively freeze their dematerialized accounts. Close on the heels of the order in the
case of Yes Bank IPO, SEBI examined the dealings in another major IPO of IDFC
wherein the very same players were suspected to have played a major role in cornering
the shares. SEBI issued ad interim orders in the case of IDFC also along the similar lines
26 MANU/SB/0079/2008

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as done in the case of Yes Bank. In the course of investigations pursuant to interim orders
in the cases of Yes Bank and IDFC, SEBI has noticed that some of these multiple
accounts were opened in June 2003. The involvement of these accounts in Initial Public
Offerings prior to that of Yes Bank and IDFC were looked into.
Modus Operandi
Consequent to the preliminary scrutiny, SEBI found that certain entities had cornered IPO
shares reserved for retail applicants by making applications in the retail category through
the medium of thousands of fictitious / benami IPO applicants with each of the
application being for small value so as to be eligible for allotment under the retail
category. Subsequent to the receipt of IPO allotment these fictitious / benami allottees
had transferred shares to their principals who in turn transferred the shares to the
financiers that had originally made available the funds for executing the game-plan. The
financiers in turn sold most of these shares on the first day of listing thereby realising the
windfall gain of the price difference between IPO price and the listing price.27
It was found that almost all the dematerialized accounts that were in the names of
fictitious / benami entities were held through the depository participant Karvy Stock
Broking Ltd. (Karvy-DP). Inspection of Karvy - DP by NSDL and CDSL has revealed
that the DP has obtained letters from the concerned banks towards proof of identity (POI)
and proof of address (POA) for the purpose of opening dematerialized accounts. 28 In
terms of SEBI circular ref: MRD/DoP/Dep/Cir-29/2004 dated August 24, 2004, an
identity card / document issued by Scheduled Commercial Banks containing the
applicant's photo / address may be accepted as POI and POA. The circular further
clarified that "the aforesaid documents are the minimum requirement for opening a BO
Account. The Depository Participants (DPs) must verify the copy of the document with
the original before accepting the same as valid. While opening a BO Account, the DPs are
required to exercise due diligence while establishing the identity of the person to ensure
the safety and integrity of the depository system." Thus it appears that first the bank

27 ibid
28 ibid , para 15 of the judgment

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accounts were opened in the names of fictitious / benami entities and this facilitated the
fictitious / benami bank account holders to open dematerialized accounts.29
The entire modus operandi as detailed above, led to the suspicion that the thousands of
entities in each of whose names separate dematerialized accounts and bank accounts had
been opened and IPO applications made were merely name-lenders or non-existent. SEBI
had earlier made reference to Reserve Bank of India (RBI) in this regard.30
SEBI had asked the stock exchanges to report suspicious off-market sales of shares soon
after allotment but before listing. SEBI received the reports from the stock markets in
October 2005, which indicated "large-scale off-market transactions" prior to the listing of
the shares.
SEBI noticed "a large number of multiple dematerialised accounts with common
addresses". SEBI passed an interim order restraining such account holders from
participating in all future IPOs. It also directed the depositories to freeze effectively these
dematerialised accounts. Soon after this, in January, SEBI passed another Interim Order
based on its investigation of another major IPO, that of the IDFC (earlier Infrastructure
Development Finance Corporation). It found that "the very same players" played a
similar role in this case too. The order stated: "Since the other business groups of Karvy
have appeared to have acted in concert in the gamut of the IPO manipulations,
THE DECISION : Thus, it can be concluded that Karvy was instrumental at the root of
creating rootless wonders by opening demat accounts in thousand of benami / fictitious
names. The various groups of key operators were the necessary adjuncts in the entire
gamut of machinations. Karvy group of companies which were acting as DP, introducer
of bank account, provider of ma rgin finance, arrangement of IPO finance through tie up
with BhOB besides being broker to the issue and registrar to the issue made the cause,
besides making common cause with the other like minded intermediaries looking for such
unfair gains at the cost of retail investors . Karvy Stock Broking Ltd., Karvy
29 See para 7 of the judgment
30 para 16 of the judgment

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Computershare Pvt. Ltd., Karvy Investor Services Ltd. and Karvy Consultants Ltd. were
furthered ordered not to undertake fresh business as a registrar to issue and share transfer
agent, excepting those businesses already contracted." The SEBI order, which is also in
the nature of a show-cause notice, gave the penalised parties 15 days to explain their
position. The SEBI report reveals that intermediaries along the chain, including registrars
and transfer agents of the issues, depositories, depository participants, merchant bankers
and banks, have played a part in the scandal.31
It would be a pity if SEBI's painstaking work is reduced to a matter of keeping a few
shady operators at bay. Much more - the very health of the financial system - is at stake.32

2. In SEBI v R and D Consultants33 :The tribunal in this case had observed that R&D
had acted negligently in the processing of the request for the issuance of jumbo
certificates by receiving the request from the company and delivering the shares to
company representative instead of the shareholders. I find that R&D's conduct is
unbecoming of a Registrar and he did not exhibit high standards of integrity, fairness and
professionalism of a registered intermediary in his dealings in the offer of sale and listing
of HTL(EASL) violated Clause 1, 2 and 7 (a)(b)(c) of the Code of Conduct for R&TA in
Schedule III, read with Regulation 13 of SEBI (Registrars to an issue and Share Transfer
Agents) Regulations, 1993 and SEBI (Registrars to an issue and Share Transfer Agents )
Rules, 1993.
For failure on the part of the Registrar to the Issue and Share Transfer Agent in
complying with the requirements of the regulations, penalty has been provided, which
includes even cancellation of the registration itself. Such a severe penalty for default is
indicative of the extent of the responsibility vested in the Registrar to the Issue and Share
Transfer Agent in dealing with public issues. All the facts and circumstances of the case
had been taken into consideration by the tribunal including the Enquiry Report and the
31 paras 9, 10 of the judgment
32 BY V. SRIDHAR, The Securities and Exchange Board of India cracks the whip at the perpetrators of the
Initial Public Offer scam.
33 MANU/SB/0217/2003

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submissions of R & D. A penalty of four months was imposed in the matter.( As decided
on 31.10.2003) the Registrar was found guilty of several irregularities while handling the
public issue.
3. RE SINDHU COPRPORATE SERVICES CASE :
was found to

The registrar of the company

violate SEBI (Registrars to an issue and Share Transfer Agents)

Regulations, 1993. It was satisfied that this is a fit case to impose the minor penalty for
suspending the registration of the Registrar and the Share Transfer Agent for a period of 3
months as recommended by the Enquiry Officer. Therefore, in exercise of the powers by
Section 19 of SEBI Act, 1992 read with sub-regulation (4) of Regulation 13 of the said
Regulations, the certificate of registration of Sindhu Corporate Services Pvt. Ltd. was
suspended for a period of three months.34

CONCLUSION

34 MANU/CA/0268/2008

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1.GREATER CONTROL AND SUPERVISION: Inspite of various laws and

regulations laid down by SEBI for prudent commercial practices there are numerous
instances of deviation by share transfer agents as well as the registrar to issue. Most of
the Sebi cases are settled through consent or adjudication orders, and Sebi rarely initiates
criminal proceedings that drag the erring party to court like carrying up of business by
parties whose registration has expired , where it could attract a jail term of up to 10 years
or a fine , or both. For the same it is very important that the registrar to the issue and the
Share Transfer Agents be closely monitored. There should be adequate control
mechanisms in place to prevent frauds and timely detection of deviances. There should be
surprise checking by SEBI authorities and any kind of non compliance must be strictly
dealt with.
2. SRO FOR THE REGISTRAR AND SHARE TRANSFER AGENTS
Registrars Association of India, or RAIN as it is more popularly known, was founded in
1991. The basic aim was that RAIN should be the representative body of Securities'
Registrars Share Transfer Agents in India. With the full activation of the Securities
Exchange Board of India (SEBI), especially with reference to registration of securities'
market intermediaries, it was time for the registry industry to redefine service standards,
and follow good business ethics. RAIN became the forum, through which common issues
facing the industry were addressed.
The era of paperless trading started in India with the setting up of the Depository in late
1996, and the entire share registry and IPO processes underwent a paradigm change.
RAIN, with the active participation of its members, contributed immensely to the smooth
and successful switchover to paperless trading and electronic shareholding.
Today, Registrars in India, play a vital role in the areas of IPOs, corporate actions,
investor servicing and compliance facilitation. It would be proper to say that the bulk of
the transaction processing involved in the above areas is in the domain of the registrars.

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35

The process is highly IT-driven, and involves processing a large volume of transactions

with near-zero error levels. All this has enabled RAINs members to offer services in the
securities transaction processing area to cross-border business associates. RAIN provides
the one-point interface for its members with the regulator - Securities and Exchange
Board of India (SEBI), the Depositories ( National Securities Depository Ltd. (NSDL) &
Central Depositories Services (India) Ltd. (CDSL)), and the two leading stock exchanges
of India (NSE & BSE). RAIN looks forward to expanding the horizons of the registry
business. The tasks ahead for RAIN are in the areas of :
- Issuing Standard Operating Procedures in the Indian context
- Training & certification for industry personnel
- Identifying services for the international community
- Redefining infrastructure especially the IT infrastructure.36
3. TRAINING AND NEW CHALLENGES : The nature of responsibilities conferred
on share ransfer agents as well as Registrar to issue requires them to be well conversant
with the norms of the market for the sake of investor convenience as well as in the
interests of the company. In pursuance of the announcement made by the Finance
Minister in his Budget Speech in February 2005, Securities and Exchange Board of India
(SEBI) established the National Institute of Securities Markets (NISM) in Mumbai.
SEBI, by establishing NISM, has articulated the desire expressed by the Indian
government to promote securities market education and research.37
Towards accomplishing the desire of Government of India and vision of SEBI, NISM has
launched an effort to deliver financial and securities education at various levels and
across various segments in India and abroad. To implement its objectives, NISM has
established six distinct schools to cater the educational needs of various constituencies
such as investor, issuers, intermediaries, regulatory staff, policy makers, academia and
future professionals of securities markets. NISM brings out various publications on
securities markets with a view to enhance knowledge levels of participants in the
35 Registrars Association Of India, www.rainnet.org
36 ibid
37 NIMS Certification and SEBI, http://nismcertify.mcx-sx.com/

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securities industry. NISM is mandated to develop and implement certification

examinations for professionals employed in various segments of the Indian securities
markets.NISM has launched a set of examination for registrars and transfer agents on
August 7 2009. The two examinations launched were NISM-Series-II-A: Registrars and
Transfer Agents (Corporate) Certification Examination and NISM-Series-II-B: Registrars
and Transfer Agents (Mutual Fund) Certification Examination. These examinations are
targeted to set the requisite standards for the associated individuals persons employed by
Registrars to an Issue and Share Transfer Agents for performing functions such as dealing
or interacting with the investors or issuers, dealing, collecting or processing applications
from the applicants, dealing with matters relating to corporate actions, refunds or
redemptions, repurchase of securities, etc., handling redressal of investors grievances,
responsible for internal control and risk management, responsible for any compliance of
securities laws, responsible for any other activity performed under theSecurities and
Exchange Board of India (Registrars to an Issue and Share Transfer Agents)
Regulations,1993 .The NISM-Series-II-A: Registrars to an Issue and Share Transfer
Agents - Corporate Certification Examination and NISM-Series-II-B: Registrars to an
Issue and Share Transfer Agents Mutual Fund Certification Examination is being
offered since August 7, 2009. The former examination is for individuals engaged or to be
engaged in performing above mentioned functions for a listed company and
latterexamination for individuals engaged or to be engaged in performing the above
mentioned actions formutual funds. NISM worked with the Registrars Association of
India (RAIN) to conduct job analysis for the defined functions and in developing required
test objectives and course outline. NISM has developed the test objectives, question bank
and workbook for the two examinations. These examinations seeks to create a common
minimum knowledge benchmark for persons working in Registrars to an Issue and Share
Transfer Agents (R&T agent) organizations in the corporate R&T function, in order to
enable better quality of investor service, operational process efficiency and risk controls38
4. PENALTY PROVISIONS: The fact that unregistered STAs were conducting their
business in the markets came to light when Chaudhary first informed Sebi in 2007 about
the fraudulent activities of AMI Computers, which was then acting as an STA to Mumbai38 National Institute of Securities Market, Newsletter, Vol. 1 Issue 2 , September 1 , 2009

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based firm Maikaal Fibres, as well as T&I Global and NICCO UCO Alliance Credit. In
the interests of the investors it is imperative that the penalty provisions be increased to a
large extent by SEBI so that they act as a deterrent factor against all kinds of deceptive
practices in the capital market. Greater exercise under the RTI can be made use of as it
was done in the present case. The Economic Offences Wing can also play a very
important role in this regard.

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BIBLIOGRAPHY
BOOKS REFERRED:
1. Madapati Ravi, Concepts and Cases, ICFAI University Press
2. Avtar Singh, Company Law, 6th edition, Eastern Book Company.

WEBSITES REFERRED:
- http://www.nism.ac.in
- www.rainnet.org
- www.manupatra.com
- www.legalserviceindia.com
- http://finance.indiabizclub.com/info/securities_exchange_board_india
- http://finance.indiabizclub.com/info/securities_exchange_board_india
- http://www.scribd.com/doc/19695663/Merchant-Banking
- www.finmin.nic.in
- http://www.business-standard.com/india/news/rbi-begins-cdr-scheme-reveiw/206069/
- www.business--standard.com/india_story.htm
- www.thehindubusinessline.com

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