EXCHANGE BOARD OF
CORAM: G.ANANTHARAMAN, WHOLE TIME MEMBER
IN THE MATTER OF IPO INVESTIGATIONS
ANAGRAM SECURITIES LIMITED
(A member of NSE)
DATE OF HEARING: 11.05.2006
FOR NOTICEES: †Shri P.N.Mody, Advocate
Shri Anil Shah, Advocate
Shri Maynak Shah, Director, Anagram Securities Limited.
Shri† Jinesh Shah, Director, Compliance Officer
FOR† SEBI†††††††† :† Shri R.Ravichandran, Chief General Manager
Shri Manoj Kumar, Deputy General Manager
Shri Jai Sebastian, Legal Officer
(UNDER SECTIONS 11 AND 11B OF SEBI ACT, 1992)††††††††††††††††††††††
1.1††††† By an ad interim ex-parte Order dated April 27, 2006 (hereinafter referred to as the ĎOrderí) under section 19 read with sections 11, 11b and 11(4) of the Securities and Exchange Board of India Act, 1992 and section 19 of the Depositories Act, 1996 pending enquiry and passing final Order, certain interim directions were issued against various market participants including Anagram Securities Limited. (ASL).
1.2†† †††ASL, a member of National Stock Exchange, was prima facie identified as one of the financiers of the master account holders and an ultimate beneficiary of the shares cornered by the key operators in various IPOs during the years 2003 to 2005. Pursuant to the preliminary finding, ASL was directed not to buy, sell or deal in securities market including in IPOs, directly or indirectly, till further directions.† The above directions were applicable only in respect of proprietary dealings by ASL.
2.0†††††† Findings regarding ASL in SEBIís Ex Parte Interim Order
2.1††† †† It was found that Shri Purushottam Budhwani, a key operator who had cornered the retail portion of TCS IPO, had transferred 3750 TCS shares to the demat account of ASL (10153985) on August 26, 2004. Therefore, ASL was prima facie identified as one of the financiers of Purushottam Budhwani.†
2.2†††† The gain made by ASL from the aforementioned transaction was worked out to be Rs.5.17 lakhs reckoning the issue price of TCS shares i.e. Rs.850/- and the market price on the date of listing Rs. 987.95/-.
2.3 ††††† SEBI
also found on examination of HDFC Bank Account no. 0602100001225,
2.4†††††† In view of the above transactions, ASL was identified as a financier of Purshottam Budhwani and ex-parte ad interim directions as mentioned above were issued against ASL.
2.5††††† ASL was given an opportunity for filing its objections, availing personal hearing and inspection of the relevant documents relied on by SEBI for the purpose of reaching prima facie findings against it, within a period of 15 days.†
3.0†††††† Oral hearing and submissions of ASL.
3.1†† ††† ASL filed written submissions dated
3.2†††††† Submissions made by ASL are as under;
†††††††††† a)† ASL had never provided† any kind of finance to anyone for subscription to any IPO. ASL had not †subscribed to any IPO till date and therefore the question of being beneficiaries in the scheme of cornering retail allotment or forking out big gain on sale† as alleged cannot arise.
†††††† †††††b) Shri
Purushottam Budhwani, a Ďkey operatorí is ASLís
††††††††† ††c) Anagram Stock Broking Limited (ASBL) is a
sister concern of ASL and is also a member of BSE and a DP of NSDL. On
††††††††††† d) Shri
Purushottam Budhwani had lodged through off-market transactions 3750 shares of
TCS with ASL as margin on August 26, 2004(i.e. after listing) for exposure
towards trading in the F&O segment of the Exchange, Apart from the said
3750 shares, 5000 shares and 1250 shares of TCS were transferred to ASLís account by Shri Budhwani respectively on August 27,
2005 and December 9, 2005 as margin. A separate identified depository account
(No 10153985 with NSDL) is maintained by ASL through the DP, ASBL exclusively
for the purpose of holding shares of clients as margins. The said clients are
regularly informed about the shares held †by ASL as margin on their behalf. †Shri Purushottam Budhwani on
†††††††††† e) ASL did not have any transactions with Karvy consultants.
††††††††††† f) ASL had never paid any monies to Shri Purushottam Budhwani beyond what was due to him as credit in his running trading account. Shri Purushottam Budhwani had bought/sold shares for Rs.77.32 crores including the trades in the F&O segment through ASL.
3.3†† As advised by me
in the personal hearing, ASL submitted the reasons for maintaining more than
one margin account vide its letter dated †
3.4† ††††The 10
DP margin accounts enlisted in the enclosure to ASLís
††††††††††† †a)† ASL is required by the applicable rules to maintain separate margin accounts for Cash and F & O segments of the exchange.
†b) Both CDSL & NSDL require brokers to open a separate beneficiary account (CISA) along with pool account for quick movement of shares from the pool account.
†A single DP is allowed to hold stock to the
extent of a hundred times of its networth in all the demat
accounts opened by it.† ASBL, sister
company of ASL is a DP member of NSDL. ASL maintains its DP accounts with ASBL.† ASBLís net worth
was Rs.3.76 crore as on
d)† Other operational reasons such as ensuring smooth operation of settlement procedures of the NSE and compliance of pay in obligation on behalf of clients in terms of both cash and securities necessitated a number of margin accounts.
3.5††††† ASL further urged for appropriate relief since the interim order was affecting their business.
4.0†††††† Consideration of the issues
4.1††† The following issues arise for consideration:
††††††††††† - Whether ASL provided finance to Shri Purshottam Budhwani and was a beneficiary of the shares cornered by Shri Purshottam Budhwani.
††††††††††† - Whether ASL had executed the transactions in TCS shares on behalf of its client Shri Purshottam Budhwani †and not in its own account.
††††††††††† - Whether the sale of TCS shares by ASL were in the normal course.
I have carefully considered the submissions made by ASL, the information provided by NSE regarding the dealings of ASL being not proprietary in nature and the material available on record. On the allegation of financing and cornering shares in the IPO, ASL has submitted that it had never funded or subscribed to any IPO.† Further, ASL has clarified that its transactions in the shares of TCS were done on behalf its client Shri Purushottam Budhwani who had been dealing through the broker for the past 15 years. Further, ASL has produced KYC Forms, Client Agreements and Ledger Account.
4.2†††† ASL has also
given the details of 10000 TCS shares which were transferred to its account
(10093022) by Shri Budhwani. It is seen that on
4.3††††† With regard to the prima facie finding that ASL had been maintaining more than one such margin accounts with other DPs and that in one such account ASL had received the shares of TCS from Shri Purushottam Budhwani and ASLís submission in that connection that the same was done for the administrative convenience as referred in Para 3.4 above, I find that the same puts too simplistic a view on an issue, when there are other dimensions as under:
a) ††††††† Admittedly, ASL and Purshottam Budhwani had a broker-client relationship since 1999.
b) ††††††† It is incredible that ASL did not know about the securities market activities of Purshottam Budhwani more particularly relating to sale of IPO shares immediately upon listing.
c)†††††††† Sale of large number of IPO shares by a client should have alerted the broker, more so, when the client had his demat account with a sister concern giving rise to a prima facie inference that the nature of demat account transactions of Purshottam Budhwani might have been within the knowledge of ASL.
5.1††††† In view of the above, and having regard to the long association with Purshottam Budhwani, as a client, it remains a question how ASL was not aware of the credentials of Purshottam Budhwani. However for the limited purpose of this order, it transpires that ASL acted as a broker only for Purshottam Budhwani †and not as financier. ASL has furnished the reasons for maintaining numerous margin accounts. Shri Purshottam Budhwani, its client and a key operator, had made delivery of shares to one of the many client margin accounts maintained by ASL and not to the pool account of the broker. I note that the normal course adopted by the clients having sale obligations is to deliver to the brokerís pool account and therefore the transaction of ASL with Purshottam Budhwani wherein the client had delivered shares to brokerís client margin account rather than to the pool account does not appear to be in the normal course. Further, I note that SEBI has already initiated adjudication proceedings against ASL in respect of the subject transactions.
6.1††††† Accordingly, I find there is no need to
continue interim directions against ASL as in the ad interim Order dated
6.2†††††† This Order shall come into force with immediate effect.