“The Market Intermediaries Regulation and Supervision Department, Sebi, shall appoint an auditor… before restoration of the noticee’s (SCS) certificate of registration, and satisfy itself that SCS has fully complied with all relevant guidelines/circular to carry out its business in the best interest of the securities market,” the regulator said.
The audit must certify that it (SCS) has systems and procedures in place in compliance of various rules and regulations administered by Sebi.
Additionally, companies which are clients of SCS have been directed to conduct their own independent due diligence or audit of the noticee and satisfy themselves about the capabilities of SCS to continue RTA activities for them.
The order will come into force immediately on the expiry of 21 days.
The present matter emanates from an inspection of SCS, which was granted registration in February 2010, undertaken by Sebi under RTA (Registrars to an Issue and Share Transfer Agent) rules for the period April 2012 to March 2014.
The inspection centred on the due diligence exercised by SCS in respect of the SME public issues of Amrapali Capital and Finance Services Ltd and handled by it, and to verify whether proper processes and timelines were followed while carrying out routine tasks — share transfer, transmission, issue of duplicate shares, dematerialisation, rematerialisation (remat) etc of securities.
In its probe, Sebi found that SCS had less than 50 per cent of the specimen signatures with respect to its client companies available with it.
It, further, noted that SCS scanned signatures from the Demat Request Forms (DRFs) to show them to the inspection team as if they were used during the process of entertaining the demat requests.
It allowed transfer of shares without making any attempts to verify the genuineness of those transfer requests or without even sending seller notices to the transferors.
Also, SCS by relying on the verification done by the depository participants and the depository, did not exercise due care and diligence while processing remat requests.
“The findings of the enquiry report are indeed shocking and disturbing and show that the noticee (SCS) did not carry out its fiduciary responsibility to its clients. SCS has simply not been diligent enough and happily cut corners,” Sebi whole-time member Ashwani Bhatia said in his order.
Accordingly, SCS is liable for action under Sebi’s Intermediaries Regulations, it said.