Tribunal stays IPO scam fine

The Securities Appellate Tribunal on Thursday stayed the Securities and Exchange Board of India's disgorgement order issued against two depositories, National Securities Depository Ltd and Central Depository Services Ltd, and eight depository participants for their alleged role in the initial public offer scam, saying the regulator needs to complete the inquiry first, before passing the disgorgement order.

 

Sebi, in its first-of-its-kind disgorgement order passed at the end of November last year, had asked the two depositories and 10 entities, including HDFC Bank, ING Vysya Bank, IDBI Bank, Karvy Stock Broking, Khandwala Integrated Financial Services, Kartik Stock Vision and Jhaveri Securities, to pay Rs 115.81 crore (Rs 1.15 billion) by collecting the money from the alleged wrongdoers within six months.

 

Admitting the appeal by the 10 affected parties, the tribunal's presiding officer Justice NK Sodhi said: "After detailed consideration in the disgorgement order, the operational part of the order has to be stayed."

 

National Securities Depository Ltd, which was asked to pay Rs 45 crore (Rs 450 million), pointed out that Sebi had not given the depository any opportunity to defend itself before passing the order. Even Sebi's own inquiry proceedings were not yet over, the counsel for the depository said.

 

The tribunal did not question the legality of the disgorgement issue.

 

"We see no urgency for Sebi to go with the disgorgement order when the inquiry is still continuing. I think the board needs to wait and complete the inquiry first and then pass the disgorgement order," Justice Sodhi said.

 

The disgorgement order was issued against the entities for alleged violation of know-your-client norms while applying for IPOs during 2003 to 2005.

 

It is alleged that unscrupulous elements misused the know-your-client norms to apply in the retail category of IPOs to corner shares during allotments.

 

"I find it to be a unique and strange order where the quantum of penalty has been determined even before the inquiry has been completed," Justice Sodhi said.

 

Sebi had asked National Securities Depository Ltd and its seven depository participants to pay about Rs 90 crore (Rs 900 million) and Central Depository Services Ltd and two of its depository participants about Rs 25 crore (Rs 250 million).

 

Karvy Stock Broking was asked to pay Rs 51 crore (Rs 510 million), Central Depository Services Ltd Rs 12 crore (Rs 120 million), HDFC Bank Rs 1.6 crore (Rs 16 million), IDBI Bank Rs 8,588,000 and ING Vysya Bank Rs 5,548,000.