Due to advancement of technology, now when a company declares dividend, money is transferred to the Demat account of investors electronically. Many times, it happens that the shareholders are unaware about how much dividend is paid by the company or is due to them. Investors should always keep track of their Demat account and the bank account linked to it. If they suspect any irregularity they should contact the dedicated investor cells of the company to file investor-related complaints. Investors are also generally unaware about Securities and Exchange Board of India's (SEBI) Complaints Redress System – SCORES. Investors can be defrauded due to such lack of self-vigilance as highlighted by the recent Sharepro scam.
FACTS OF THE CASE, ACCUSATIONS AND SEBI'S AD INTERIM EX-PARTE ORDER:
Sharepro Services (India) Private Limited (Sharepro) is a SEBI Registered Category I Registrar to Issues and Securities Transfer Agent. Sharepro provides corporate registry services to over 280 listed companies with a market capitalization of Rs 8.75 lakh crores.1 The Securities and Exchange Board of India (SEBI) had received complaints since October 2015 wherein it was alleged that Sharepro had illegally transferred dividend and shares to fraudulent accounts rather than transferring the unclaimed dividend to investor education and protection fund. Sharepro was also accused of cheating two other companies in a similar manner as revealed by Economic Offences Wing (EOW).2
Since it is the share transfer agency which is contracted by the company itself, it is in just the right position to know the status of the accounts of the investors who are not vigilant. Sharepro was thus able to easily manipulate the transactions. The investigation also revealed that Sharepro first identified those shareholders who had not checked their account status for a long time or were deceased. On investigation into the affairs, SEBI came across many irregularities. The dividend money was transferred to the accounts of the parties related to the promoters, management and senior employees of the company.
SEBI passed an interim order dated March 22, 2016 against Sharepro. By the said order, SEBI has restrained Sharepro and several entities linked with the management of Sharepro from buying, selling or dealing in the securities market or associating themselves with securities market, either directly or indirectly, in any manner, till further directions.3
It was inter-alia observed in SEBI's order that:
a) Dividends belonging to rightful investors were transferred to the persons related to the management of Sharepro.
b) Shares belonging to rightful investors were transferred to the persons related to the management of Sharepro.
The order also mentions that the conduct of Sharepro, its promoters, directors, vice president and other entities as aforementioned do not prima facie appear to be in the interest of investors and the securities market. Further, it said that necessary action has to be taken against them immediately, else it may lead to loss of investors' trust in the securities market.
SEBI mentioned that it was a fit case where pending investigation, effective and expeditious, preventive and remedial action is required to be taken by way of ad interim ex-parte order to protect further harm to the interest of investors and preserve the safety and integrity of the securities market.
Companies who are clients of Sharepro have been directed by SEBI 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 10 years.
As per the order this audit has to be completed within three months from the date of this order and thereafter a report has to be submitted to SEBI by the companies in this regard. They have also been 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.4
As a regulator of the capital markets, SEBI has the duty to safeguard the interest of investors and protect the interest of the shareholders and integrity of the securities market. In order to safeguard such interest, SEBI should try to promote the vigilance of the investors rather than just restraining certain persons from accessing the capital markets. SEBI's interim order in the present case seems justified but it leaves the affected parties of the fraud (the innocent investors) to resort to only a lesson regarding awareness.
The matter in case of Sharepro scam came into light as it involved complaints by shareholders of big companies like Asian Paints but there must be many other cases involving such corporate frauds primarily taking advantage of lack of investors' lack of vigilance. The Sharepro scam is also a wake-up call for such investors.
1 Sharepro Services barred by Sebi from associating with securities market. Available at: http://articles.economictimes. indiatimes.com/2016-03-22/news/71732404_1_protectionfund- unclaimed-dividend-securities-market.
2 Sharepro accused of cheating two more cos, Available at: http://www.thehindu.com/news/cities/mumbai/news/sharepro-accused-of-cheating-two-more-cos /article8420980.ece .
3 Ex-parte-Ad-Interim order WTM/RKA/MIRSD2/41/2016 in the matter of Sharepro Services (I) Pvt. Ltd. Available at: http://www.sebi.gov.in/cms/sebi_data/attachdocs/1458653361412.pdf .
4 Press release PR No. 66/2016 for Order in the matter of Sharepro Services (I) Pvt. Ltd. Available at: http://www.sebi.gov.in/cms/sebi_data/pdffiles/33392_t.pdf .
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