APPOINTMENT OF ADMINISTRATOR AND PROCEDURE FOR REFUNDING TO THE INVESTORS

[Mr. M. GOVINDARAJAN]

Regulations

For the purpose of recovery proceedings initiated under-

• Section 28A of Securities and Exchange Board of India Act, 1992 (‘Act’ for short); or
• Section 23JB of the Securities Contracts (Regulation) Act, 1956 or
• Section 19-IB of the Depositories Act, 1996,

The Securities and Exchange Board of India (‘Board’ for short) framed the regulations called as

‘Securities and Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018.’ (‘Regulations’ for short).  These Regulations provides for the appointment of Administrator by the Recovery Officer.  The Regulations also laid down the procedure for the refund of money to the investors.

Date of effect

These regulations came into effect from 03^rd October, 2018.

Applicability

These regulations shall apply for all or any of the following-

• appointment of Administrator pursuant to failure to comply with disgorgement or refund orders passed by the Board;
• sale of properties attached by the Recovery Officer of the Board under the Act;
• collection of claim documents and verification of claims of investors for the purpose of effecting refunds;
• refund of monies to the investors pursuant to disgorgement or refund orders passed by the Board;
• recovery of disgorgement amounts directed by the Board;
• any act incidental or connected thereto.

These regulations may not be applicable in cases where the Securities Appellate Tribunal or the Court has appointed an Administrator or any other person for the recovery and/or repayments to the investor.

Administrator

Regulation 2(1)(b) defines the term ‘Administrator’ as a person registered with the Insolvency and Bankruptcy Board of India as an Insolvency Resolution Professional and who has been engaged by the Recovery Officer for the purposes of these regulations.

Recovery officer

Regulation 2(1) (m) defines the expression ‘Recovery Officer’ as an officer of the Board, who is authorized by a general or special order in writing, to exercise the powers of a recovery officer under-

• section 28A of the Act; or
• section 23JB of the Securities Contracts (Regulations) Act, 1956; or
• section 19-IB of the Depositories Act, 1996

Appointment of an Administrator

The Board shall, after attachment of the properties of the defaulter by the Recovery Officer, appoint an Administrator in the manner specified.

Eligibility

The Administrator shall be a person registered with the Insolvency and Bankruptcy Board of India as an Insolvency Resolution Professional and empanelled by the Board from time to time.  Where such an appointment may be objected to on the grounds that give rise to justifiable doubts as to the independence or impartiality of such a person, he may not be appointed as an Administrator.  Any question involving issues of conflict of interest in the appointment of an Administrator shall be decided by the Recovery Officer. 

The Administrator shall provide an undertaking to the Board of absence of any conflict of interest with the defaulter, its directors, promoters, key managerial personnel and its group entities.  He shall also forthwith disclose to the Board any conflict of interest which may come to his knowledge during his tenure. 

Administrator, a public servant

For the purposes of these regulations, the Administrator shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code and sections 22 and 23 of the Act shall accordingly apply to him.

Terms of appointment

The terms and conditions of appointment including remuneration shall be specified by the Board, on a case to case basis, after taking into consideration the quantum of work, the number of investors and the quantum of money involved.

Functions of the Administrator

These regulations prescribes the following as the functions of the Administrator-

• to obtain from the defaulter or any other person, any information or document including documents relating to ownership and possession of properties, details of amount raised from investors, claims of investors, amount claimed to have been refunded to investors as directed by the Recovery Officer;
• to make a record of the properties that have been attached by the Recovery Officer including the additional properties that have been entrusted by the Recovery Officer from time to time and those properties which are not part of the attachment order;
• to make a record of the bank accounts and dematerialized accounts of the defaulter and value of the monies and securities held there under;
• to arrangefor a proclamation for the sale of the property and arrange affixation of the copy of such proclamation in accordance with the provisions of the Act;
• to open an interest bearing bank account, under the control of the Recovery Officer, with a scheduled public sector bank for depositing the proceeds of the money recovered from the sale of the assets and for making repayment to the investors;
• to sell the attached properties in accordance with these regulations or as may be directed by the Recovery Officer;
• to call for claims, in the manner specified in these regulations or as may be directed by the Recovery Officer, for the purposes of repayment to investors, pursuant to an order of the Board for refunds;
• to verify the claims of investors and also that of the defaulter in respect of repayment of monies, either partly paid or wholly paid, claimed to have been made to investors on the basis of documentary evidence
• to carry out any other necessary incidental and supplementary act, with the prior approval of the Recovery Officer that may be required for the purpose of carrying out its obligations under these regulations.

Obligations and responsibilities of Administrator

The following are obligations and responsibilities of the Administration under these regulations-

• to maintain high standards of integrity, promptitude and fairness in the conduct of all his business;
• to act with due skill, care and diligence in the conduct of all his business;
• not tomisrepresent any facts or situations and shall refrain from being involved in any action that would bring disrepute to the profession;
• to act with objectivity during the course of his professional dealings by ensuring that all decisions are made without any bias, conflict of interest, coercion, or undue influence of any party, whether directly or indirectly connected to sale of properties, verification of claims and refund of monies;
• not to acquire, directly or indirectly, any of the assets of the defaulter;
• to maintain complete independence in all professional relationships and conduct the verification and refund process, as the case may be, independent of external influences;
• not to conceal any material information or knowingly make a misleading statement to the Recovery Officer or the Board;
• not to act with mala fide or be negligent while performing the functions and duties under the regulations;
• provide all information and records as may be required by the Recovery Officer within the time specified by him;
• to ensure that confidentiality of the information relating to the sale of properties, verification and refund process, is maintained at all times;
• to disclose any information after obtaining written authorization of the Recovery Officer or the Board;
• to disclose all costs towards the verification and refund process and endeavor to ensure that such costs are not unreasonable;
• to comply with the terms and conditions of its appointment.

Power to engage experts

In the course of his employment, the Administrator may engage-

• a Chartered Accountant to verify the claims on the investors based on the documentary evidences and to submit a report to the Administrator;
• a Registered Valuer
• a registrar and share transfer agent registered with the Board or such other agency as may be approved by the Recovery Officer, for managing the entire repayment process.

The intermediary or such other person engaged by the Administrator shall not have any conflict of interest which would impede their independence or impartiality.

  The fees payable to the above shall be fixed by the Administrator taking into account-

• the number of investors and the claims that are made;
• quantum of work involved;
• the number of assets to be evaluated;
• the geographical location of the property and its proximity with the valuer’s place of business;

Such fees shall be within the overall remuneration fixed by the Board for the Administrator.

Replacement of Administrator

The Recovery Officer may, for reasons to be recorded in writing, recommend for replacement of the Administrator, in case the Administrator has-

• failed to comply with the terms and conditions of appointment;
• engaged valuers or chartered accountants or such other persons who are ineligible to act so;
• failed to comply with any of the obligations and responsibilities specified under these regulations;
• acted against the instructions of the Recovery Officer or the Board; or
• acted in such manner that is prejudicial to the interest of the investors.

The Recovery Officer may recommend for initiation of appropriate action under the Act. On receipt of such recommendation or suo moto, the Board may take appropriate action against the Administrator or such intermediary or such other person engaged by the Administrator, under the Act including the following:

• remove such Administrator from the Panel;
• forward the matter to the Insolvency and Bankruptcy Board of India for appropriate action against the Administrator who is an Insolvency Resolution Professional; and
• issue suitable directions restraining such person from engaging in activities in the securities market in his professional capacity.

The Board shall replace an Administrator in the event his registration with the Insolvency and Bankruptcy Board of India is cancelled or suspended.

Monthly report

The Administrator shall submit a monthly report or a report as and when called for by the Recovery Officer on the progress of work entrusted including the monies realized pursuant to the sale of the properties and the repayments made to the investors.

Sale of properties

The Administrator shall undertake the process of sale of properties after conducting an independent valuation of such properties by a registered valuer.  After considering the valuation report, the Recovery Officer may decide on the reserve price below which the property may not be sold.  The Administrator may undertake the sale of properties through e-auction process and for this purpose engage an e-auction agency and shall in consultation with the Recovery Officer repeat the auction process till the time such properties are disposed off.  The process of disposing off the properties shall be under the supervision of the Recovery Officer.  On completion of the sale and receipt of the sale consideration, the Recovery Officer shall issue an order confirming such sale in accordance with the Act.   The amount realized in respect of sale of properties of the defaulter shall be deposited in a separate bank account with a scheduled public sector bank.  Such account shall be under the control of the Recovery Officer.

Distribution of sale proceeds

The proceeds from the sale of properties of the defaulter shall be distributed in the following order of priority-

• the costs of administration incurred by the Board, if any, and the fees and charges payable to the Administrator and other persons appointed by the administrator in performing its functions;
• disgorgement and/or monies payable to investors
• any other penalty or fees due from the defaulter to the Board under the provisions of the Act, the Securities Contracts (Regulation) Act, 1956 or the Depositories Act, 1996.

Refund to investors

The process of refund to investors involve the following steps-

• invitation of claims;
• ascertaining the claims;
• refund to the investors;
• transfer of the remaining amount to IEPF.

Invitation of claims

The Administrator shall issue advertisements in an English and a Hindi newspaper having nationwide circulation and if so directed by the Recovery Officer, issue such advertisement in vernacular newspaper(s) having circulation in the area(s) where the investors are concentrated to invite the claims of the investors.   The Administrator may direct the defaulter to issue the advertisement in its website.  The said advertisement may also be placed in the website of the Board.

The advertisement shall contain the instructions on the manner of making claims by investors and the documents and information that are to be submitted for verifying and processing their claim applications.  The invitation of claims from the investors shall be through electronic mode or be received in the office of the Administrator.   The investors’ claims received, if any, by the Board and forwarded to the Administrator shall also be included in the relevant records maintained by the Administrator.

Ascertaining the claims

The Administrator with the help of the chartered accountant engaged by the him, shall consider the total eligible claims as against the monies available for distribution to investors in order to determine whether the whole amount or a proportionate amount may be repaid to the investors as may be directed by the Recovery Officer.

Refund to the investors

After ascertaining the claim the Administrator in consultation with the Recovery Officer, shall repay the money to the eligible investors only through pay orders, demand drafts and electronic transfer through NEFT or RTGS.   The refund process shall be kept open for an appropriate period as may be decided in consultation with the Recovery Officer.

The monies remaining in the interest bearing escrow bank account after satisfying all the permissible claims of investors and other charges shall be retained therein for a period of three years in order to meet the claims that may be received from any unpaid investor.

Transfer to IEPF

The unpaid monies due to investors, if any, shall be transferred to the Investor Protection and Education Fund of the Board.  In case any claim is received from an unpaid investor after the refund process has been closed, the same may be made from the Investor Protection and Education Fund after necessary verification by the Administrator in consultation with the Recovery Officer.    The claim shall be made within a period of three years from the date of transfer of monies to the Investor Protection and Education Fund.

The defaulter, and its officers who are in default shall furnish an undertaking that they shall be liable for payment if any complaint is received in future by the Board from any investor.

Returning excess money

In case the proceeds realized by way of sale of properties of the defaulter is in excess of the monies due from him under the certificate and the applicable interest and other charges, the excess money shall be paid to the defaulter after completion of three years from the date of completion of the refund process.

Repayment report

Upon completion of the repayments to all investors or recovery of the disgorgement amount from the defaulter, the Administrator shall file a detailed repayment/recovery report to the Recovery Officer or Board, as the case may be, within the period as may be specified.

Disgorgement of amounts

The provisions of these regulations in relation to recovery of disgorgement amount ordered by the Board shall be applied in so far as it is applicable and the disgorgement amount so recovered shall be credited to the Investor Protection and Education Fund of the Board. The disgorgement amount shall be paid to investors only in cases where the eligible investors are identified in the order passed by the Board and the remaining.

Additional area of practice

These regulations provide an opening to the professionals viz., practicing Chartered Accountant, practicing Company Secretaries and practicing Cost Accountants.  These professionals are eligible to be Resolution professionals under the Insolvency and Bankruptcy Code, 2016.  These resolution professionals are eligible to be appointed as Administrator under these Regulations.  Further the practicing Chartered Accountants are engaged for ascertaining the claims of the investors to whom refund is to be made.  Further the services of these professionals who are registered as Valuer under the IBBI may be rendered under these regulations.