The decision to allow compounding hinged on whether the prosecution "" in this instance, the Registrar of Companies "" was able to prove that there had in fact been an intent to defraud on Reliances part. It was the defences contention that no loss had been caused to any shareholder by the issue of duplicate shares. During the hearing before the Company Law Board, this crucial point about intent to defraud had not been established. The magistrate expressed his apprehension that the full facts of the case did not seem to be forthcoming. If so, the responsibility for being unable to bring them out rests squarely on the RoC. In the absence of concrete proof of intent to defraud, there was little that the magistrate could do except agree to the compounding of offences. But at the very least, the fine should have been large enough to act as a deterrent, forcing companies to set up compliance departments which prevent the recurrence of such mistakes. The nominal fine imposed will scarcely serve this purpose, given that manning such departments may cost more than the amount of the fine.
It is also not clear why, in spite of the Enquiry Officer recommending such a course of action, Reliance Consultancys licence was not cancelled. The case called for a lifting of the corporate veil, and judging whether the entire episode was more than a result of clerical error. That course of action does not seem to have been attempted. It should now be ensured that a corporate group found indulging in such practices should not be allowed to have in-house registrars. In such circumstances as these, it would be easy for a group to float a shell company as a new registrar and share transfer agent.
A matter such as share switching or the issue of duplicate shares is not something which can be excused merely due to pressure of work. Such instances undermine investor confidence not only in the company which has made such issues, but also in the market as a whole. The discovery that Reliance Industries had issued duplicate shares weakened confidence in the stock markets. For all these reasons, more effort was called for on the part of the prosecution, and far larger fines should have been considered. One solution is to ensure that registrar and share transfer agents are independent entities, not affiliated to any corporate group. The true solution to such problems, however, lies in the speedy implementation of the depository.