MUMBAI: The Securities and Exchange Board of India (SEBI) on Thursday identified systemic failure in the recent initial public offering (IPO) of Yes Bank and directed the National Securities Depository Ltd (NSDL) and other market participants, including Karvy Stockbroking Ltd (Karvy-DP) to keep more vigil while dealing in IPOs. It also suspended 13 entities from participating in the capital market till further orders, pending enquiry.

"It is matter of concern that NSDL, which is a self-regulatory organisation and within whose regulatory domain Karvy-DP falls, could not detect in advance the apparently systemic deficiencies in Karvy-DP," SEBI stated. The findings of preliminary enquiry bring out a prima facie case of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003. SEBI is initiating formal investigations into the matter.

Further probe is required for examining the systemic fault, if any, of the registrar.

Karvy-RTI, that is, Karvy Computershares P Ltd., and the lead managers DSP Merrill Lynch Ltd. and Enam Financial Consultants P Ltd. in identifying and weeding out the benami applications. Also, the role of Karvy-DP that opened the dematerialised accounts of 6,315 entities being benamis of Roopalben Panchal and 1,315 entities being benamis of Sugandh probably without taking adequate steps to ascertain the genuineness of these entities while acting as a facilitator in what appears to be an act of either gross negligence or active collusion ill behoves them as a SEBI registered market participant, SEBI stated SEBI directed the thirteen entities not to buy, sell or deal in the shares of Yes Bank Ltd. and in other ensuing IPOs, directly or indirectly, till further directions. The entities are: Roopalben Nareshbhai Panchal, Devangi Dipakbhai Panchal, Seer Finlease P.Ltd.,

Excell Multitech Ltd., Zenet Software Ltd., Tauras Infosys Ltd., Rajan Vasudev Dapki, Barghav Panchal (HUF), Jayantilal Jitmal, Sugandh Estates and Investments Pvt. Ltd., Sujal Leasing and Finance P Ltd., Ritaben R Thakkar, Veenaben Y Thakkar

The IPO of YBL opened on June 15, 2005 and its shares were listed on BSE and NSE on July 12, 2005. The case related to one Roopalben Nareshbhai Panchal, who had transferred 9,31,600 shares to various entities in seven off-market transactions on July 11, 2005 that is prior to the listing and commencement of trading on the stock exchanges. In order to get an allotment of 9,31,600 shares, Ms. Roopalben Panchal would have had to apply for crores of shares involving many crores of rupees in application money . However, It was observed that Roopalben Panchal's name did not appear in the list of top 100 public issue allotees.

Cornering of shares

"It appears that the profit has been earned by abusing the IPO allotment process and cornering the shares meant for the retail applicants. It appears that Roopalben Panchal, Sugandh and their respective associates have adopted the modus operandi of making applications in fictitious or benami names for cornering the retail of portion of IPO shares.''

Further, reeference is being made to the Reserve Bank of India (RBI) to examine the role of Bharat Overseas Bank and Vijaya Bank in opening the bank accounts of benami entities and funding their IPO applications. All the 6315 entities have their bank accounts with Bharat Overseas Bank Ltd and demat accounts with Karvy-DP. BSE and NSE and the depositories NSDL and CDSL, have been directed to ensure that all directions are strictly enforced.

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