The Whole Time Member, SEBI, passed an ex-parte ad interim order dated March 22, 2016, against Sharepro Services, a SEBI-registered Registrar and Share Transfer Agent. Sharepro had allegedly transferred dividends belonging to rightful investors, to entities part of or related to the management of Sharepro. Law requires dividend proceeds to be paid only to genuine shareholders and if they are not traceable, the unclaimed dividend is to be transferred to the Investor Education and Protection Fund. However Sharepro allegedly misused its authority to instruct bankers directly, or misled companies to issue instructions to bankers, for crediting dividend payments to persons who were not rightful shareholders or were not at all shareholders of the companies.
Further, SEBI found that shares belonging to registered shareholders were illegally transferred to relatives of Sharepro’s management. It repeatedly printed new share certificates without any request or authorisation of the shareholder and transferred shares belonging to, for instance, a deceased shareholder to persons connected with the management, without proper documentation. The share folio in Sharepro’s system was transferred from the name of one shareholder to another person connected with the management of Sharepro, without any record of the transactions. On many occasions shares were transferred under the pretext of rectification of records, and not as transfer/transmission/buy-sell entry.
SEBI, amongst other findings, found that Sharepro had made circuitous transfers and falsified the records to blur any audit trail, engaged in forgery, failed to exercise care and due diligence, did not have control over share transfer operations and found that the senior management, in collusion with other entities, facilitated these violations.
Accordingly, Sharepro, its senior management and several entities linked with the management were restrained from dealing in the securities market in any manner for contraventions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, the SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 1993, and the SEBI Act, 1992. Furthermore, the client companies of Sharepro were directed to conduct an audit of the records of Sharepro pertaining to dividends paid and transfers effected for the past 10 years, and also advised such companies to switchover to another SEBI-registered RTA or undertake such functions in-house. These directions will have significant impact on several listed companies for which Sharepro is the RTA. Notably, the order does not provide any protection or relief as such to the affected investors, nor does it indicate whether the particular companies in question can be made liable for the acts of Sharepro, i.e, the RTA.