SEBI Circular on Strengthening the Guidelines and Raising Industry standards for RTA, Issuer Companies and Banker to an Issue

The Securities and Exchange Board of India has issued Circular No. SEBI/HO/MIRSD/DOP1 /CIR/P/2018/73 dated 20th April, 2018 with the objective of “Strengthening the Guidelines and Raising Industry standards for RTA, Issuer Companies and Banker to an Issue”.

The Circular has been enforced with immediate effect except Clause 3 of Part I and Clause 4 of Para II of the Annexure to the Circular becomes applicable with effect from 30 days and 90 days from the date of the Circular, respectively.

The Circular is primarily intended to plug the gaps / remove lack of clarity and establish a framework in various matters concerning Payment of Dividend/ Interest/ Redemption, Handling/ Maintenance/ Updation of Records, Transfer of securities and proper Due Diligence in suitable cases and introduces internal audit of RTAs by an independent auditor.

The author tries to summarize the action points arising out of the Circular available at –  https://taxguru.in/sebi/strengthening-guidelines-raising-industry-standards-rta-issuer-companies-banker-issue.html

STEPS TO BE TAKEN
1. Maintenance of documents/ records for 8 years
2. Listed co. to monitor activities of RTA and ensure compliance with this Circular
Payment of Dividend/ Interest/ Redemption
3. Dividend Master File to contain specified particulars as per Para I (1) of Circular. Dividend Master to be maintained by Bank and reconciled by RTA & Issuer
4. RTA to update Bank A/c. details of shareholders if not available or changed. Cancelled cheque with shareholder name or bank attested account statement/ passbook to be sought.
5. Unpaid dividend to be paid by electronic means as first preference. In case of failure or rejection or unavailability of IFSC/ MICR code, physical instrument to be issued.
6. Instrument lying unpaid beyond validity of the instrument to be cancelled and amount should revert back to bank a/c. of the Co. Banks should also provide unpaid instrument details along with reconciliation data. [Applicable w.e.f 30 days after Circular date]
7. Revalidation requests by RTA to Bank to contain specified details and RTA to maintain record of revalidation/ re-issue requests.
8. Issuer Co., RTA & Bank to ensure that Bank provides Paid-Unpaid details as follows –

a) Fortnightly till initial validity of instrument

b) Quarterly till transfer of unpaid dividend to IEPF

Reconciliation data provided by Bank to contain details of all DDs/ new instruments issued/ electronic instruction in lieu of original dividend.

RTA to reconcile the same and inform Issuer/ Bank of any discrepancy.

Reconciliation files provided by Bank to be maintained by Co./RTA/Bank for 8 years.

9. Linking detail of rejection of electronic remittance, instrument undelivered, instrument expired, subsequent payment and status of payment to payment record of each Folio by RTA and keep audit trail in RTA’s system.
Transfer, Transmission, Correction of Errors etc.
10. Folio once allotted to a shareholder should not be re-allotted including ceased folios, i.e. folios having nil balance.
11. History of all transactions in a Folio (e.g. Securities held, certificates issued, dividend/ interest/ redemption) to be linked to each folio.
12. RTA to maintain Certificate Printing Register/ Records containing – Date of printing / issue, Folio No., Name in which printed, Certificate No., Distinctive Nos., Old Certificate No (in case of reprinting), Reason of printing etc.
13. RTA to follow “Maker-Checker” system in all activities and mechanism to check unauthorized transaction and record shall be maintained.
14. RTA and Cos. to ensure all updation in folio records are only through front end modules and maintain system logs having complete details of any change. [Applicable w.e.f 90 days after Circular date]
15. RTA to take Co.’s prior approval for correction of errors in same manner as is taken in case of transfer/ transmission.
16. RTA to provide SOFT COPY of MEMBER DATA with details of Name, Address, Folio No., No. of Shares, Distinctive Nos., Certificate Nos. etc. and transaction in physical Folios during the period, under their certification on QUARTERLY basis.

This record is to be maintained by RTA and Listed Co. independently and permanently.

17. Returns/ documents filed with Registrar of Companies relating to Co.’s securities processed and compiled by RTA to be shared with Co. and preserved by Co.
18. RTA & Co. to frame written policy and maintain strict control over stationery (blank certificates, dividend warrants etc.) and periodical verification of the same. Reconciliation report on the same to be maintained by Co. & RTA.
19. Bonus shares to holders of physical shares can be issued in physical form only.
20. RTA & Listed Co. to take special efforts to collect copy of PAN and Bank A/c. details of physical share-holders. In this regard RTA to –

  • Preserve a verifiable record of all folios not having PAN/ Bank Account details as on date of the circular, i.e. 20th April, 2018.
  • Send letter by Regd. Post/ Speed Post within 90 days of this circular (i.e. within 19thJuly, 2018) seeking PAN/ Bank A/c. details along with copy of PAN Card and original cancelled cheque leaf/ attested bank passbook showing name of shareholder.
  • This is to be followed by TWO REMINDERS with 30 days gap between each reminder, i.e. 2nd reminder by 18th August, 2018 & 3rd reminder by 17th September, 2018 to be sent.
  • 21 days’ time to be given to shareholders to furnish the above details in all 3 cases.
  • Record of all communication sent, received and decision taken shall be properly maintained and linked to each such Folio.
  • SHAREHOLDER NOT RESPONDING to provide the above within 180 DAYS OF CIRCULAR DATE or informed that the shares do not belong to them SHALL BE SUBJECT TO ENHANCE DUE DILIGENCE BY ISSUER COMPANY.
  • List of such accounts to be shared by RTAs with Co. within 30 days of completion of notice period of last reminder, i.e. by 6th November, 2018.
21. ENHANCED DUE DILIGENCE to be exercised for the following cases –

  • Dividend remains unpaid for 3 years or more
  • PAN/ Bank A/c. details not available in folio
  • Unclaimed suspense account under LODR
  • IEPF Suspense account under CA’13
  • ANY OTHER stringent criteria decided by Co. & RTA

RTA to have system based alerts for processing all transactions in such account folios and exercise due diligence in case of any transaction request in such accounts.

RTA to maintain list of such account folios and share with Co., at every QUARTER end.

22. In order to exercise due diligence Issuer Co. and RTA SHALL call for –

  • Proof of Identity / Address
  • PAN details
  • Bank details

And such other additional procedures to satisfy genuineness of the request.

23. RTA to maintain register of documents and records destroyed with specified details as per Para II (15) of the Circular. Its authenticity shall be verified during internal audit of the RTA.
Compulsory Internal Audit of RTAs
24. Mandatory internal audit of RTA’s on Annual basis by independent and qualified CA/ CS/ CMA/ CISA not having any conflict of interest.

The audit firm, to be eligible, is required to have minimum experience of 3 years in financial sector and can be appointed for a maximum term of 5 years and cooling off period of 2 years.

Scope of the Audit to cover all issues concerning functioning of RTAs including Investor Grievance Redressal Mechanism and Compliance with requirements of SEBI Act, Rules and Regulations made thereunder.

The Board of Directors/ Partners/ Proprietor shall consider the internal audit report and take steps to rectify the deficiencies.

25. Audit Report shall be preserved by the RTA and shared by RTA with Issuer Co., within 3 months from end of FY.

Action Taken Report (as per prescribed format provided in the extant Circular) shall be sent by RTA to Issuers Co., within next 1 month.

The Audit observations along with ATR is required to be placed before the Board of the Issuer Company and the Issuer Company shall satisfy itself regarding adequacy of the corrective measure taken by RTA or ask the RTA to take more stringent mesures.

About the Author

Abhishek SethAbhishek Seth is Masters in Economics from the University of Calcutta and an Associate Member of the Institute of Company Secretaries of India, New Delhi with working experience in financial services, pharmaceutical, steel and real estate industry. Email – abhisheksethkolkata@gmail.com.

 

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One response to “SEBI Circular on Strengthening Guidelines and Raising Industry standards for RTA, Issuer Companies and Banker to an Issue”

  1. Vikram Grover says:

    issuer company is mentioned in this circular.

    Can you tell me where defined issuer company, because in general issuer company means who going to issue share.

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