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SEBI made Mandatory Requirement of ‘In Person’ Verification of Clients of Depository Participant
SEBI notified that for opening beneficial owner’s account by a Depository Participant (“DP”) ‘in person’ verification of clients has to be done mandatorily by DP. It is further clarified that such ‘in person’ verification done for opening beneficial account by a DP, will hold good for opening trading account by a stock broker and vice versa if the stock brokers and DP is the same entity or if any of them is the holding or subsidiary company of the other.
Certain important and recent legal developments and case laws in this area are set out below.
Securities Law
SEBI made Mandatory Requirement of ‘In Person’ Verification of Clients of Depository Participant
SEBI notified that for opening beneficial owner’s account by a Depository Participant (“DP”) ‘in person’ verification of clients has to be done mandatorily by DP. It is further clarified that such ‘in person’ verification done for opening beneficial account by a DP, will hold good for opening trading account by a stock broker and vice versa if the stock brokers and DP is the same entity or if any of them is the holding or subsidiary company of the other.
SEBI issued new Master Circular on Mutual Funds
SEBI has issued a master circular on January 1, 2010 for effective regulation of Mutual Funds industry. This master circular includes all the circulars issued upto December 31, 2010 for regulating mutual funds. The master circular has been divided into 16 Chapters and deals with various issues with respect to Mutual Funds.
Permanent Account Number Requirement for Transmission of Shares in Physical Form
SEBI through a circular has made Permanent Account Number (“PAN”) mandatory for all securities market transactions. It is further clarified that PAN is mandatory in case of deletion of name of the deceased shareholders, transmission of shares, transposition of shares etc.
SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2010
In exercise of the powers conferred by Section 30 of the SEBI Act, 1992 , SEBI has amended the existing SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 which had earlier replaced the old guidelines SEBI (Disclosure and Investor Protection) Guidelines, 2000. The regulations provide for amendment in regulation 29 and Part D of Schedule XI of the previous regulations.
Cases
Vishnu Prakash Bajpai v. SEBI
In this case, N.R. Plantations (India) Limited, “Company” operating Collective Investment Schemes “Scheme” had raised a certain sum from the general public. Such Scheme was required to be registered with SEBI however, the Company neither applied for registration with SEBI, nor did it take steps for closing up the Scheme and did not repay the investors and thereby violated the provisions of the SEBI Act. SEBI passed an order directing the Company to refund the money collected, within a period of one month from the date of the said order. The petitioner was a promoter and a director of the Company at the time the alleged violations were committed by the Company.
In this case the question involved was whether the Petitioner being the person in charge would be vicariously liable for the violations attributed to the Company.
SAT decided that as the Petitioner was the person in charge and responsible for the acts of the Company at the time alleged violations were committed, therefore, the Petitioner will be liable. SAT further held that the petitioner will be vicariously liable even if he was not a Director of the Company at the time of the offence, but as his name was shown in the Statement in lieu of Prospectus as Director or prospective director of the Company. Hence in such cases, the petitioner need not necessarily hold the position of a Director of the Company to be held liable.
Deepak Mehra v. SEBI
In this case, the Appellant had filed an appeal against an impugned communication which was sought by the Company from the SEBI on applicability of certain provision of Takeover Code The Company was proposing to enter into a partnership with MTN by issue of Global Depository Receipt “GDR” to MTN and its shareholders. Such GDR were to rank paripassu with other issued shares of the Company. SEBI made an impugned communication with respect to applicability of the provisions and also informed that the impugned communication did not express a decision of SEBI on questions referred to therein. The issue in the matter was whether the impugned communication was only on interpretative letter provided under a scheme in interpretation of provisions of Takeover Code as was sought by the Company or whether it was only an informal guidance and was not an order which could entitle anyone to file an appeal.
SAT decided that the impugned communications was only an interpretative letter provided under scheme in interpretation of provisions of Takeover Code and was only an informal guidance and was not an order which entitled anyone to file an appeal.
Authors:
Sunil Seth (sunil.seth@sethdua.com) is a Senior Partner and Sushil Mehta (e-mail: sushil.mehta@sethdua.com) is a Senior Associate with Seth Dua & Associates, Solicitors & Advocates, India.