The Securities and Exchange Board of India (Sebi) has imposed an interim ban on share transfer agent Sharepro Services (India) Pvt. Ltd, its promoters and other related entities after finding serious lapses in share transfer and dividend encashment services offered by Sharepro in certain cases.

In a detailed order passed on Tuesday night, the market watchdog found that Sharepro indulged in falsification of records, forgery and did not maintain internal checks and balances while transferring shares and dividend encashment.

Sebi, in the preliminary investigations, found that shares of the companies instead of being allotted to the shareholders were allotted to relatives of the promoters and the registrars’ operations head, Indira Karkera.

According to the Sebi order, funds to the tune of 21.7 crore were transferred to the accounts of relatives of senior management of Sharepro and unauthorized entities over a period of 10 years. “(Investigations) prima facie show falsification of records, forgery, repeated printing of new certificates without any request or authorization from the shareholder and irregular transfer transactions," Rajeev Kumar Agrawal, Sebi whole time member, said in a 40-page order.

Sebi, while banning the transfer agent, also directed the companies availing themselves of the services of Sharepro to switch their transfer agent and also conduct an audit of records related to Sharepro dating back to at least 10 years. Currently, more than 250 companies are employing the services of Sharepro.

When Mint reached out to G.R. Rao, managing director, Sharepro Services, after Sebi passed the order, he declined to immediately comment on the same.

Sebi’s action on the share transfer agents comes after Britannia Industries Ltd, Asian Paints Ltd and Aptech Ltd filed complaints with the police this month alleging fraud on the part of the transfer agent. The companies have disclosed this action to the stock exchanges as well.

The registrar and 15 other entities are facing an interim ban order for allegedly indulging in fraud, under the Prevention of Fraudulent and Unfair Trade Practices (PFUTP).

Under Sebi regulations, “fraud" includes any act committed in a deceitful manner by the concerned person or associate while dealing in securities that leads to wrongful gains or avoidance of loss.

Asian Paints was the first to flag the issue with Sharepro.

On 4 March, the company said it had issued a notice to Sharepro for termination of the agreement with it from 1 April, after the company discovered irregularities in share transfer and dividend encashment services.

The paint maker also filed a complaint with the police against Sharepro and its employees, for further investigation, which was converted into a first information report (FIR).

On 16 March, Aptech issued a similar statement to BSE. The complaint filed by Aptech with the EoW is against Sharepro managing director G.R. Rao, operations head Indira Karkera and another employee of the company.

A copy of the complaint is available on the BSE website.

In that, Aptech alleges that 4,192 of the company’s shares held by Oriental Insurance Co. Ltd and 10,980 shares held by UTI India Fund Unit 1986 were illegally transferred to Pradeep Unawane and Suresh M. Rathod, respectively, without the consent of the original shareholders. These shares were worth a total of 38 lakh.

On 19 March, Britannia also informed BSE that it will be issuing a notice to Sharepro.

It had also discovered irregularities in share transfer and dividend encashment services.

“After conducting preliminary internal investigations, the company had filed a complaint with the EoW of the Mumbai Police against Sharepro and its employees for further investigation," Britannia said in the filing.

Sharepro Services was incorporated in 1989 and is a Sebi registered category I registrars to issue and securities transfer agent. Its website suggests a presence in western India and suggests that it caters to a large number of companies.

“It is a failure of system, because the checks and balances which have been prescribed, have either failed or people manning the checks and balances system have failed either due to inefficiency and complicity," said J.N. Gupta, co-founder and managing director at SES, a proxy advisory firm.

“It makes a case for examining whether this is a one-off case or a widespread problem across the system," added Gupta.

Legal experts say that the issue could be larger.

“It appears to be quite widespread. It is in light of this, Sebi has done the right thing in passing an interim order, looking at urgency of the matter. Sebi has also asked the companies to check for more discrepancies and initiate legal action," Sudhir Bassi, executive director at Khaitan and Co.