The Capital Market Regulator on 19th Sept 2020 has settled a case related to default in due diligence in the Britannia Industries and passed a final order to pay over Rs. 46 lakh towards settlement charge to markets regulator SEBI to resolve such alleged failure to carry out due diligence before giving effect to “Transmission of shares in the account of the legal heir of shares” and issuance of demand draft.

As per the facts of the case, Britannia Industries allegedly infringed the Listing Obligations and Disclosure Requirements (LODR) regulations. The market regulator decided to settle recommended adjudication proceedings in the case relating to infringement of LODR norms after a plea for settlement was sought by the Britannia Industries by bringing an application under settlement regulations “without acknowledging or denying the findings of fact and conclusions of law”.

In a settlement order passed on Thursday, SEBI adjudication proceedings observed the case initiated against the applicant and final judgement.

The case relates to Sujit Kumar Gupta who was a shareholder in the Britannia Industries and held certain shares of Britannia Industries at the time of his death in 1985.

After his death, Britannia Industries advanced a letter received from the legal heir of Gupta to its registrar and transfer agent (RTA), Sharepro Services Pvt. Ltd., wherein the legal heir had requested information regarding about the shares held in the name of Sujit Gupta. However, the RTA also received a letter from Balram Mukherjee encompassing a document allegedly, a court order passed in 1985, which provided that it was Balram Mukherjee who was entitled to receive shares held by Gupta as a result of which 33,750 shares were transferred to Balram in terms of the court order.

In the present case, the investigation conducted by SEBI discovered that the court order as acquiesced by Balram was a forged document and he had no authority to hold the shares. Consequently, it was apparent that Britannia Industries did not carry out the required due diligence before giving effect to the transmission of shares. The transfers were allegedly permitted without proper documents and scrutiny by the company as per the settlement.

In addition, Britannia Industries apparently displayed negligence in the issuance of demand draft. It was alleged that despite being aware of the demise of Sujit Gupta, a demand draft in favour of ‘Sujit Kumar Gupta’ was issued upon Britannia’s instruction by HDFC Bank, which was subsequently encashed by some other Sujit Kumar Gupta. However, Britannia Industries proposed to resolve the matter and requested SEBI for settlement through an application filed in January 2020.

Afterwards, a high powered advisory committee of the regulator observed facts of the case and the terms of settlement recommended by Britannia and referred the case for settlement upon payment of a sum of Rs 46, 21, 875.

After authorisation of the reference by the board of whole-time members of SEBIBritannia Industries forwarded the settlement amount in August 2020.

Nevertheless, the capital market regulator has the power to restore the proceedings under certain circumstances, which also include failure of the firm to adhere with the settlement order or in cases where the firm/company is found to make improper/untrue disclosures.

After approval of the recommendation by the panel of whole-time members of SebiBritannia Industries remitted the settlement amount in August.

However, the regulator can restore the proceedings under certain circumstances, which include failure of the firm to comply with the settlement order or if the firm is found to have made untrue disclosures.

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