sebi:WTM/GA/101/ISD/11/06
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Facts / Headnote
NSDL and seven NSDL DPs ordered to jointly and severally disgorge Rs.90,02,18,451.80 and CDSL and two CDSL DPs ordered to jointly and severally disgorge Rs.25,79,52,157.65, 50% by depository and 50% by DPs in proportion to afferent-account involvement, payable within six months into SEBI special account, with liberty to seek contribution/indemnity from other wrongdoers.
Provisions invoked
- s. 11
- s. 11B
- s. 12
- s. 26
- s. 34
Regulations
- Reg. 3
- Reg. 20
- Reg. 42
Holding
NSDL with seven DPs must jointly and severally disgorge Rs.90,02,18,451.80 and CDSL with two DPs must jointly and severally disgorge Rs.25.80 crores for enabling 56,622 afferent demat accounts used to corner retail IPO allotments. Liability is apportioned 50% to the depository and 50% to its DPs pro-rata, with liberty to seek contribution from key operators, financiers and others.
Full text
failed to ascertain the genuineness / existence of the BO account holder resulting in opening of BO accounts in fictitious names. Many of the DPs were found to have ope numerous demat accounts on a single day with all the account holders having the same address. In many of these cases, the addresses of the BO account holders were tha the sub-brokers of the DPs who procured demat clients for the DPs. The DPs failed to ascertain the genuineness of such demat clients and also did not obtain the proo permanent address of such demat clients. Some of the DPs were found to have not only opened demat accounts in fictitious / benami names but had also provided IPO financ to such fictitious / benami account holders thereby facilitating the cornering of retail portion of IPOs. In the case of certain DPs who are also scheduled commercial ba inspection of the Banks by RBI also revealed violation of KYC norms applicable for opening of bank accounts and violation of guidelines relating to the IPO financing scheme the banks.
16.100. The inspection reports of CDSL are of poor quality and no effort is taken by CDSL to work on the format of the inspection report. However, the special inspection conducted by CDSL which too has been conducted by outside professionals has covered all the points in detail unlike its earlier ‘Yes’ and ‘No’ format. 16.101. System Audit of NSDL 16.102. SEBI investigations in the IPOs of Yes Bank revealed significant irregularities in opening of demat accounts by Karvy-DP in NSDL. These findings raised concerns as to the systems and processes in place at NSDL for monitoring and preventing irregularities relating to opening of and operations in demat accounts. Hence, SEBI engaged a firm, namely iSec Services (P) Ltd. to conduct system audit of NSDL. The salient findings of the system audit report are narrated in the succeeding paragraphs. Account opening-Karvy Stock Broking Ltd as a DP a. Agents of Karvy opened most depository accounts having same addresses. These agents had no legal sanction. In fact SEBI (D&P) regulations as well as the agreement, which NSDL signs with DPs (Depository Participant), prohibits such work without prior permission. b. This was never checked or reported either by the internal auditors (Haribhakti & Co) of Karvy or by external inspection teams of NSDL. c. These agents had ready-made stamps of addresses, which were affixed on the application forms. This too has never been reflected either in the internal audit reports or the Inspections by NSDL d.
even for serious violations such as opening of dematerialized accounts without obtaining adequate proof of identity and proof of address, the depositories had levied only token monetary penalties which had no deterrent effect. It was also found that inspite of repeated violations by DPs, NSDL has not made any reference at all to its DAC. The DAC of the depository had not met since inception. This is contrary to the bye-laws of the depositories.
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Source: SecMarx — sebi:WTM/GA/101/ISD/11/06. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.