The personal hearing of RCS before Sebi chairman D R Mehta, which concluded yesterday, has thrown up crucial issues which indicate that it would be a tough decision for Sebi to take.
While it is certain that there would be some action against RCS for its alleged lapses in the duplicate shares case, the issue before Sebi is whether to suspend the registrar or go to the point of closing it down altogether. There is no other option before Sebi.
But central to any Sebi decision would be the question of tackling the huge shareholder base serviced by RCS and the fact that no hardship should be caused to investors.
According to sources, some forceful defence of its position by RCS at the two-hour personal hearing yesterday has thrown the issue wide open once again.
The enquiry report, on which Sebi's show cause to RCS was based had, however, recommended cancellation of the RCS licence.
According to highly placed sources, the RCS defence essentially centred on the fact that the alleged defaults are entirely inadvertent in nature and do not warrant such harsh action. RCS has also argued that there has at no stage been any deliberate misconduct or irregularity committed by it. The RCS top brass were also believed to have explained to Sebi that there was no malafide intent on RCS' part, and the documents which it could not provide to Sebi initially were, however, later provided by it. The argument also was reported to be that the points made by the enquiry report do not warrant cancellation of licence.
"The RCS team made lots of points at the hearing," sources said yesterday.
Sebi chairman Mehta would now deliver what would surely rank as one of the most important judgments Sebi has ever given. The judgment, according to sources, would be passed as soon as Sebi takes into account all the aspects of the case. Sebi's legal department could also be informally consulted before the final judgment is delivered.
"It must also be remembered that investors should not suffer as a result of any Sebi action," a top-level source associated with the RCS inspection said yesterday.
Essentially, Sebi has to weigh the following points:
Over 10 million shareholders of the Reliance group, for which RCS operates, would be affected by any Sebi decision
Any action would be major, since alternative arrangements for the shareholders would have to be made
Reliance has already started a major exercise to reconcile the entire RCS records and appointing leading consultants to improve the registrar systems. Arthur Anderson and Associates has already been appointed to scrutinise the shareholder database.
Even if Sebi decides to suspend RCS, the alternative arrangements would have to be made for the shareholders, since for that fixed period of suspension, it would not be able to act as registrar.
Given the huge shareholding base being serviced by RCS, that itself is a huge task.
RCS has already requested Sebi not to take any precipitate action keeping in mind the interests of the large body of shareholders.
But the show cause itself, the hard-hitting inspection report on RCS and the controversy the entire issue has generated countrywide, has sent out a strong signal that such offences would not be tolerated by Securities and Exchange Board of India , sources said.
All registrars would be much more careful henceforth, keeping in mind the RCS affair.
Following the RCS fiasco, Reliance itself has already made it clear that it is committed to working with the regulatory authorities to achieve the highest levels of investor care and take all steps to provide efficient registrar and transfer mechanism.
