sebi:WTM/GA/66/ISD/05/06

SEBI · SEBI · 2006-04-28 · G. Anantharaman, Whole Time Member

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Facts / Headnote

Interim directions continued with modifications: KSBL restrained from acting as depository participant (except acting on instructions of existing BOs and transferring BO accounts on request) and from proprietary trading; KCPL restrained from acting as registrar to an issue and share transfer agent (except assignments contracted before April 27, 2006 and excluding Mutual Fund RTA work); Enquiry Officer directed to conduct enquiries without being influenced by prima facie findings.

Provisions invoked

• s. 11B
• s. 11
• s. 11(4)
• s. 19
• s. 12(1)
• s. 12
• s. 30
• s. 12(3)

Regulations

• Reg. 3
• Reg. 26
• Reg. 2(1)(b)

Parties

• Karvy Stock Broking Limited (KSBL)
• Karvy Computershare Pvt Ltd (KCPL)

Holding

The Whole Time Member held that the ad-interim order dated April 27, 2006 was validly passed under sections 11 and 11B of the SEBI Act (notwithstanding the erroneous citation of section 19 of the Depositories Act), and continued the interim directions restraining KSBL from acting as a depository participant and from proprietary trading, and KCPL from acting as RTI/STA, pending enquiry and passing of final orders.

Full text

2 Broking Limited (hereinafter referred to as KSBL) among other persons, was directed not to buy, sell or deal in securities market including in IPOs, directly or indirectly till further directions. Vide para 17.7 of the order, KSBL also was directed not to carry on activities as Depository Participant (hereinafter referred to as ‘DP’) till completion of enquiry and passing of final order, excepting for effecting transfer of BO Account (beneficial owner account of dematerialized securities held by a client with a DP) to another SEBI registered DP on request. Vide para 17.8 of the order, SEBI directed KSBL, Karvy Computershare Pvt Ltd (hereinafter referred to as KCL), Karvy Investor Services Limited and Karvy Consultants Limited not to undertake fresh business as a registrar to an issue (‘RTI’ for short) and share transfer agent (‘STA’ for short), excepting those businesses already contracted as on date. In para 17.18 of the said order, it was stated that the same shall be treated as show cause notice against the concerned entities named in the order and the entities/ persons against whom the order was issued might file their objections, if any, to the order within 15 days from the date of the order and if they so desired could avail themselves of an opportunity of personal hearing on a mutually convenient date and time within the said period. 1.2 By a subsequent clarificatory order dated April 28, 2006, the following clarifications were issued. “It is clarified that the direc

3 It is clarified that the DP transactions of clients would remain unaffected only for 15 days, by which time switchover to another DP should take place in respect of directions against Karvy and Pratik DP”. 2.1 Aggrieved by the aforesaid order, KSBL filed a writ petition before the Hon’ble High Court of Andhra Pradesh, challenging the order dated April 27,2006 and the clarification issued on April 28, 2006. Upon hearing, the Hon’ble High Court of Andhra Pradesh passed the following order. “For the aforesaid reasons, the directives of the respondents to the extent of the second paragraph of the clarification dated 28.4.2006, are suspended. However, the order dated 27.4.2006 and the first paragraph of the clarification dated 28.4.2006 shall operate proprio vigore unhindered by anything stated in this order. This order is applicable only in respect of the writ petitioner and pending final orders of the respondents”. 2.2 On May 02, 2006, Shri C. Parthasarathy on behalf of Karvy group appeared before SEBI and filed written objections to the above orders. Also, the representatives of KSBL and KCPL (collectively referred to hereinafter as ‘noticees’) took inspection of the documents relied upon by SEBI in the ad-

4 3.0 Consideration of Issues 3.1 I have carefully considered the contents of the ad-interim order which is to be treated as show cause notice, the written replies of the noticees, the oral

Source: SecMarx — sebi:WTM/GA/66/ISD/05/06. 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.