Validating for security

 Deepak Fertilisers & Petrochemicals Corporation Ltd (DFPCL) have embarked on a validation exercise for share certificates via its Certificate Medallions, which have been sent out to shareholders with instructions (in three languages) explaining the place and method of affixing them on the share certificates.

A statement by DFPCL chairman and managing director, C.K. Mehta, sent out to the shareholders, says that the securities validation programme would help the company to "inventorise all genuine share certificates lying with the owners of the shares before they are dematerialised." This, according to the chairman, will enable the company to ensure that only genuine share certificates get dematerialised, and minimise hardships to shareholders.

The company went on compulsory DEMAT for institutions on November 29, 1999. "In the normal process, SEBI extends DEMAT to all investors in about six months to a year thereafter. We thought that this would be the right time to send the Medallions to shareholders, so that DEMAT, when made compulsory for all investors, will become easy," says a senior company official.

When compulsory dematerialisation comes into force, the company is required to verify and authenticate the certificates prior to dematerialising them, which is a lengthy process. With the Medallions in place, the company will only have to scan the Medallions to obtain all relevant details such as certificate number, company name, number of shares, distinctive number, on the computer screen.

Thus, besides enabling quick processing, the Medallions help the company weed out certificates that are fake, forged or counterfeit, if any. "This is the best time to inventorise the shares floating in the market, and ensure that all are genuine and the right certificate is with the right shareholder. At no point will all certificates come to the company, at the same time, for such checking," says the official.

"Since each Medallion is certificate-specific, the danger of fraud through interception of Medallions does not arise," he says. "Even if a Medallion is intercepted and affixed on a counterfeit certificate, the mismatch will be immediately detected."

What happens to certificates that are sent to the company without the Medallions put on them? "When the certificates come to the company, we will still check whether they are in order. If the certificates come with Medallions affixed, this can be done quickly. If the Medallion is not affixed, the certificate will have to go through the usual lengthy process, which will delay the process of dematerialization," explains the company official.

The company has completed dispatch of Medallions to all its shareholders, and is already getting a good response from its retail investors for this investor-friendly action. Some institutions though, while accepting the benefits of the programme, have responded poorly, pleading lack of manpower. Another reason they put forth for not complying is that the certificates they hold are not kept in the right order, hence making the task of finding the appropriate certificate for affixing the appropriate Medallion cumbersome. "We have even offered to send our own people so as to assist them for affixing the Medallions," says the DFPCL official.

With 2.25 lakh shareholders, 83 per cent of whom hold 150 or less shares, the system is bound to come in very handy.