One of the biggest problems faced by the investors in the secondary market is that of bad delivery which arises out of rejection of physical shares sent it to the companies by the buyers for getting them transferred in their names In order to help the buyers BSE has set up a Bad Delivery Cell (BDC), based upon the Uniform Norms for Good/Bad Deliveries formulated by SEBI.
BDC follows a weekly cycle for acceptance of Objections and Rectifications. The cycle commences every Tuesday, on which the Objections are accepted in the Clearing House. The Members have a facility of directly uploading the bad delivery claims in the BDC backend software and can download the various reports issued by the BDC, by using the BDC Upload Download software. The physical/objection documents are accepted in the Clearing House only if the data has been successfully loaded in the BDC backend software. The Objections, which have been forwarded to the Clearing House by the Buying Clearing Members on the first day of the cycle, need to be rectified by the Seller Clearing Members and submitted to the Clearing House on the 21st day of that particular cycle. BDC issues notices on every Monday, Tuesday and Thursday, giving the details of the Claims against Sellers, Bad Delivery Schedule and Auction for the un-rectified securities.
After receipt of the Objections, the Seller Member can approach the verification officers of the BDC for obtaining the Award for Invalid Objections, if any. The BDC officers, on the basis of the guidelines issued by SEBI for Good and Bad Deliveries of Documents and on the basis of provisions of other relevant Acts, give an Award stating "Not in Order/In Order". If the Award is given as "In Order", the Seller Member is required to accept the objections and to rectify the same within 21 days. If the objections are not rectified within the prescribed period of 21 days, the relevant transactions are auctioned or closed out as per the procedure laid down in this regard. If the Objection is "Not In Order", the Seller Members are required to deliver back the shares to the Clearing House, who in turn returns the same to the Buyer Members. After the award session for invalid objections, the deletion/modification entries are made and a statement titled Permanent Claim Status is generated. The same is available to the Seller Members and the Buyer Members in order to enable the Seller Members to submit rectifications on a floppy. In order to minimise the interfaces, the Members can also upload rectification directly through BDC upload download software and can download the error report. The rectification will be accepted only if the data is properly uploaded in the back office software.
Along with the award for invalid objections, the award for the invalid rectifications, if any, is also given. If the Seller Member has not properly submitted the rectifications, an award is given as "Not In Order". In that case the Buyer Members are required to deliver back the shares to the Clearing House who, in turn, returns the same to the Seller Member. Thus, all Invalid Rectifications go for auction/close-out along with all Unrectified Objections.
The auction is conducted on 30th day and the Buyer Member receives the shares in auction pay-in after 3 days. The close out amount, for the shares not received in auction offer, and for the un-rectified objections in Group Z and T is also received by the Buyer Member on the same day.
The disputed matters are referred to arbitration. The BDC accepts the objections only if the Company Objection Memo is forwarded or the Patawat Objection Memo duly signed by the Arbitrator is forwarded. The share documents which have been returned under objection by a company for the second time, can be reported in the BDC as Second Time Objection. The seller in this case is not given a chance to rectify the objections and the claim is closed out on the 10th day of reporting of the objection to the BDC. In case of objection reported with the BDC as Fake/Forged and Missing/Lost/Stolen shares, the rectification is allowed only in Demat mode.
After every BDC auction, a report is generated for bad deliveries submitted under the reason 'fake/forged shares'. Members are cautioned against introducing fake/forged shares. They have to follow the policy of 'Know your client', and be careful while choosing their clients.
In case the amount of fake/forged shares introduced by a Member exceeds Rs.10 lakhs in a year, he has to submit an explanation for the same to BDC In case where the value of fake/forged shares introduced by a Member exceeds a certain level, stringent action is taken against him. The list of members who have introduced fake/forged shares exceeding Rs. 5 lakhs in one quarter is also circulated to all the stock exchanges.
BDC also maintains the data of lost/ stolen/ fake/ duplicate shares of all listed companies. BDC has informed all listed companies to forward updated database of such shares in soft copy or through E-mail, so that the same can be downloaded by the Members and the Clearing House. This enables the Members to check the bad shares at the entry point i.e., at the time when shares are delivered. This procedure prevents circulation of bad shares in the market, so that the same cannot be lodged with the company for transfer.