NSDL to run a check on Indiabulls clients

Sebi Tells Depository To Verify If 559 Suspect Clients Are Genuine; Scam Final Order Expected By May 10


Bodhisatva Ganguli and Najaf Ishrati
MUMBAI
May 01, 2006

THE Securities and Exchange Board of India (Sebi) has asked NSDL to start examining the demat accounts of 559 clients of stock broker Indiabulls from Monday. This exercise will continue, at least, till Wednesday. If the NSDL scrutiny results in Indiabulls getting a clean chit, Sebi may pass a final order in the week beginning May 8, possibly around May 10, according to industry sources familiar with the matter.
The examination by NSDL is intended to verify whether the 559 clients mentioned by Sebi, in its interim order, are genuine or fictitious entities created to ‘corner’ shares during the IPO process. Thus, NSDL will check details such as permanent account number (PAN) details and proof of residence. NSDL may even call investors or visit their homes to verify that they exist.
The final order on Indiabulls may come before the final order on Karvy and the other alleged operators and financiers named by Sebi in its April 27 interim order, according to industry sources.
On Friday afternoon, Sebi had kept part of its interim order, relating to Indiabulls in abeyance, after a personal representation from Indiabulls chairman Sammer Gehlaut.
In its interim order, now kept in abeyance, Sebi had alleged that Indiabulls received 13,939 TCS IPO shares from 559 different accounts. It, thus, implied that these investors had applied for the TCS IPO on behalf of Indiabulls and that these shares have been transferred to its account just after the TCS IP0. In doing so, TCS had acted as a “key operator”, according to the Sebi order.
In its defence, Indiabulls said that the 559 account holders, who transferred shares to it, had done so in the Client Margin Account of the company. It said that this was towards meeting their margin requirements for trading, as per existing rules. According to the rules, clients must either hold cash or shares with their brokers, before they can trade on their platform.
Further, following the sale of TCS shares by these clients, the company clarified that the proceeds of the sales were forwarded back to them.
Indiabulls also said that the client accounts had been `in existence for years’ and were not fictitious or benami accounts, and neither were they opened for the sole purpose of making IPO applications.
The Sebi order had also claimed that one Ajay Kumar Gupta was a “financier” of Indiabulls. However, the fact that Mr Gupta had made a profit of Rs 2,345 after selling 17 shares cast some doubt on these assertions on the part of Sebi. Indiabulls, for its part, claims that Mr Gupta is a regular client trading through Indiabulls since September ‘03.
On the basis of the arguments by Indiabulls, Sebi had issued another order on April 28, holding its earlier ruling in abeyance’, u ntil its claims could be verified. This verification will hold the key to the final order, is likely by mid-May.
Sebi’s change of mind on Indiabulls was preceded by high drama on Friday morning, as reported by ET in its April 29 edition. Top Indiabulls officials, after working through the night, are believed to have gone to the residence of senior Sebi official R Ravichandran to explain themselves. Mr Ravichandran, who had spearheaded the probe, is the chief lieutenant of Sebi whole-time member G Anantharaman, the author of Thursday’s interim order. Talks among senior Sebi and finance ministry officials, which involved a flurry of SMS and cellphone conversations, is believed to have resulted in a clarification issued before market hours, which said that the ban on brokerages related only to proprietary trading.
Later on Friday morning, Mr Gehlaut appeared before Mr Anantharaman to explain his case.