MO/ 87 /ISD/02 /2007 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: Dr. T. C. Nair, WHOLE TIME MEMBER IN THE MATTER OF IPO INVESTIGATIONS - CENTURION BANK OF PUNJAB LIMITED
Date of hearing : August 2, 2006
Appearance : For Noticee : Shri Somsekhar Sunderashan, Advocate Shri A. Asokan, Executive Director Shri Anil Jaggia, Chief Operating Officer Shri R. Balachandran, Head of Operations Shri S. Ramkumar, Head of Cash Management Services Shri A .K. Mohanty, Head of Cash Management Services
For SEBI : Shri Sanjeev Dutt, Chief General Manager Shri V.R. Prasad, Deputy Legal Advisor Shri B J Dilip, Asst. General Manager Ms. Kshama J. Chavan, Legal Officer
ORDER (UNDER SECTIONS 11 AND 11B OF SEBI ACT, 1992) 1.0 Background 1.1 SEBI had issued certain interim directions against various market participants, including Centurion Bank of Punjab Limited (hereinafter referred to as “CBPL” or “the Bank”), by an ad-interim ex-parte Order dated April 27, 2006 (hereinafter referred to as “the Order”), 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 of final Order.
1.2 As per the Order, CBPL, Depository Participant (hereinafter referred to as “DP”) of Central Depository Services Limited (hereinafter referred to as “CDSL”) prima facie appeared to have grossly failed in adhering to the Know Your Client (hereinafter referred to as “KYC”) norms laid down by SEBI, thereby facilitating opening of demat accounts in demat accounts and cornering of retail segment in initial public offerings (hereinafter referred to as “IPOs”). CBPL was therefore directed not to open fresh demat accounts till further directions.
1.3 As per para 17.18 of the ex-parte Order, the Order shall be treated as show cause notice against the concerned entities named therein, including CBPL. These entities were given opportunity to file their objections, if any, to the Order within 15 days from the date of the Order and if they so desired, to avail themselves of an opportunity of personal hearing at the SEBI Head Office, Mumbai, within 15 days from the date of the Order. The entities were also given opportunity to avail of the facility of inspecting the relevant documents relied upon by SEBI against them, prior to the said hearing.
2.0 Findings regarding CBPL in the Order
2.1 The focus of SEBI investigations was on entities indulging in off-market transactions after allotment of shares but prior to listing and commencement of trading on stock exchanges, in connection with the cornering of IPO shares in retail segment through benami/fictitious demat accounts. The Order brought out the following prima facie findings of SEBI in respect of CBPL.
2.2 As per the information furnished by CDSL, it was noticed that CBPL was the DP with largest number of dematerialized account-holders sharing common addresses. As per para 9.5 of the ex-parte Order, upon perusal of the information submitted by CDSL, it was found that as many as 25943 multiple accounts sharing common addresses were opened with CBPL.
2.3 The inspection and physical verification of CBPL by a CA firm engaged by SEBI inter alia revealed the following irregularities :
2.3.1 As per para 12.47 of the ex-parte Order, the CA firm found that CBPL predominantly floated IPO financing scheme to garner support for its retail lending operations and also for sourcing business for its demat business activities. However, CBPL was found to lack the wherewithal to ascertain the genuineness of the individuals in whose names it opened demat accounts. Consequently, many of the applicants for demat accounts ended up being mere name lenders or benami for other market operators.
2.3.2 As per para 12.49 of the Order, it was further found that the Key Operators provided funds for the IPO applications and that they took the route of the Delivery Slip Mandate (DIS) in their favour for transferring the IPO shares to their demat accounts. Upon scrutiny of IPO applications, it was found that the names were in multiple combinations of initials, surnames, first names, middle names and in many permutations and combinations.
2.3.3 As per para 12.51 of the Order, it was also found that the public issues were marketed by agencies which were also acting as marketing agents for the IPO financing scheme of CBPL. This allowed the marketing agents to bring in fictitious/benami names. The funds for making IPO applications in the names of the fictitious/ benami applicants had come by way of cash deposits into their SB accounts or by way of transfer of funds from the Key Operators which went into a common account.
2.3.4 As per para 12.56 of the Order, the findings of the physical verification of the Beneficiary Owner (BO) of CBPL by the CA firm revealed, inter alia, that CBPL did not exercise due diligence while opening of the BO (Demat) accounts for IPO financing. Further, the BOs of CBPL were only name lenders (benami) to the IPO issues. Shri Mahesh Shah, Director of Infinite Financial Services Private Limited, acting on behalf of one of the key operators, has informed that they had used the names of certain persons to open many demat accounts and had given few common addresses to facilitate receipt of IPO allotment advices and refund orders. Shri Mahesh Shah also indicated the involvement of Shri Tushar Shah and Shri Paragbhai, who are the directors of a key operator, viz.., Sugandh Estates and Investments Private Limited (SEIPL).
2.4 As per para 12.54 of the Order, CDSL conducted inspection of CBPL to verify the genuineness of the dematerialized account holders of CBPL. The inspection revealed that the confirmation by CBPL to CDSL that the former adhered to all norms prescribed for opening of depository accounts, including documentation for both correspondence and permanent address, was incorrect. CDSL, inter alia, found that: i. In 93 instances, CBPL had not obtained proof of identity from the dematerialized account-holders; ii. In 92 instances, it had not obtained proof of address from the dematerialized account-holders; iii. In 10 instances, proof of identity and proof of address, as recorded by CBPL in the depository system, had not matched with the account opening form whereas in 30 instances, CBPL had not verified the copies of proof of identity and proof of address with the original; iv. In 17 instances, CBPL had not obtained photographs of the dematerialized account-holders; v. In 12 instances, the documents obtained by CBPL towards proof of identity and proof of address were found to be invalid. In 7 instances, where CBPL had obtained bank verification letters towards proof of identity and proof of address, it was found that the bank verification letters did not contain the signature of the bank manager along with his employee code. vi. In 22 instances, the permanent and correspondence addresses had been shown to be the same as Centurion Bank, while in 10 instances, the permanent addresses mentioned in the account opening forms had not been entered into the depository system by CBPL; vii. In 2 instances, CBPL had not obtained the signature of the account holders in the account opening forms and the DP-BO agreement, whereas in 36 instances, CBPL had not obtained the signature of the dematerialized account-holders across the photographs; viii. In 7 instances, the same sets of persons appeared to have signed for two groups of dematerialized account-holders. In one instance, CBPL had opened the demat account in a name different from that mentioned in the account opening form, whereas in another instance, while the account opening form contained details of only two account holders, CBPL had captured three account holders in the depository system; ix. Further, in 22 instances, CBPL had not obtained the signature of the account holder in the DP-BO agreement, while in 5 instances, CBPL had entered a different name in the agreement which did not match with the name of the account holder in the account opening form as well as depository system; x. In 9 instances, CBPL had not obtained authentication from the account holder for corrections in account opening form and agreement and the other related documents; xi. In 49 instances, CBPL had not completed details such as date and place of agreement and complete name and address of the BO in the DP-BO agreement; xii. In 3 instances, it was found that the signature of the dematerialized account-holders in the account opening form and agreement was different. It was further found that CBPL did not have any record of the persons who were authorized to sign the agreements on CBPL and was therefore unable to identify the persons who had signed the agreements on its behalf; xiii. It was also found in 29 instances that CBPL had not mentioned the name of the nominee in the nomination form signed by the account holder. Also, in 23 instances, the nomination details were not captured in the depository system. CBPL was obtaining account closure forms signed by the dematerialized account-holders at the time of opening of the demat accounts. The account closure form authorized CBPL to initiate closure of the demat account without any prior notice to the dematerialized account-holders. Apart from causing inconvenience to the account holder, this practice of CBPL cast a lot of uncertainty about continuation of services to the account holder.
2.5 As per para 12.60 of the Order, since the launch of IPO finance scheme in July 2005, CBPL had opened around 24000 odd CDSL demat accounts for the purpose of providing IPO finance. On verification of data of 24000 CDSL demat accounts information provided by CBPL, it was found that there were instances of many persons sharing common permanent addresses.
2.6 As per paragraphs 12.61 and 12.62 of the Order, it is stated that SEBI officials conducted physical verification of some of the common addresses in order to verify whether the persons were staying at said addresses as stated in the depository system. It was found in many instances that except for one or two persons, the other dematerialized account-holders were not residing at the said address. Some of the persons present at the above addresses stated that they used the names of relatives and friends for making multiple applications and that they had opened bank accounts in joint names and the money required for applying in the issue was arranged by them.
2.7 As per para 12.63 of the Order, the details of the findings of physical verification were shown to the Branch Manager of CBPL, Ahmedabad branch. When asked to comment on the above finding, he stated that they need to look into the matter and would inform SEBI after verifying the same. However, no reply has been received in this regard.
2.8 As per paragraphs 12.64 and 12.65 of the Order, it was found from the physical verification of the BOs of CBPL carried out by a SEBI appointed CA firm, along with the Branch Manager of CBPL, Ahmedabad branch, that in some cases the BOs were not present at their permanent addresses. It was also found that some of the BOs were not aware that they had availed IPO finance from CBPL. It was noticed that around 250 persons had their permanent address at Jajakeshavani Chali. During the course of inquiry, some of the residents stated that they had given their voter ID in bulk to one Shri Maheshbhai who has his office at Sakar-1, Near Ellisbridge, Ahmedabad and that the said Shri Maheshbhai had opened demat accounts with CBPL on their behalf. The account holders were mostly illiterate and they were not even aware of the room number in which they were residing. When asked to comment on the above findings, the Branch Manager of CBPL stated that “during the course of physical verification on the said dates, it was found that the persons did exist even though not present there at the time of the visit. In Jajakeshavani Chali the addresses were matching as given in the election card on sample verification which was captured in the system. In the sample check, nearly everyone had a proof of identity and proof of residence.” When confronted with the fact that the opening of multiple demat accounts with the same address should have alerted CBPL as to the genuineness of the individuals who had taken IPO finance, the Branch Manager stated that they needed to look into the matter and would inform SEBI after verifying the same. However, no reply has so far been received from CBPL in this regard.
2.9 In view of the above findings in the Order, directions as mentioned in Para 1.2 above were issued to CBPL.
3.0 Submissions of CBPL
3.1 CBPL vide its letter dated May 11, 2006 submitted its reply to the ex- parte Order cum show cause notice. The submissions made by CBPL interalia are as under:
3.2 As a DP, CBPL opened a total of 29711 demat accounts for IPO funding in CBPL. All demat accounts related to IPO funding were opened only on CDSL and not on NSDL. The total number of demat accounts as per the depository system (as of April 30, 2005) were as under:
· Out of the 30659 accounts opened in CDSL depository, 29711 demat accounts were opened specifically for IPO Funding.
3. 3 As of April 30, 2006, there were total of 23677 accounts active on CDSL. As regards, opening of 29771 accounts CBPL submitted that all the above accounts opened for IPO funding had the common address of the Bank’s corporate address. By conscious design of the product the common address across all accounts was the Bank’s corporate address provided as the correspondence address and the permanent address was the borrowe / beneficial owner’s (“BO”) permanent address. This practice was adopted so that all communications relating to IPO funding such as refunds and corporate action could be routed through the Bank, and the same could be controlled until such time all the amounts due and owing to the Bank were repaid. It may be noted that this practice is followed to protect the Bank's exposure on the IPO funding amount.
3.4 As regards para 12.47 of the Order, CBPL submitted as under :
(i) The IPO funding product (hereinafter referred to as “the product”) was rolled out as an initial pilot in only three centres (Delhi, Mumbai and Ahemdabad) out of 59 centres where the demand of product was strong.
(ii) The Bank has been from time to time through various internal circulars advising all the branches on the importance of adherence to account opening and Know Your Customer (KYC)/Anti Money Laundering (AML) norms including demat accounts.
(iii) The issues highlighted in the Restrictive Order are specific to the Ahmedabad center where certain lapses relating to KYC documentation occurred. This was a localized problem and it would not be fair to state that the Bank in general lacked the wherewithal to conduct its operations properly and to assess whether its borrowers indeed existed. The Bank has no complicity whatsoever even if SEBI has found any client to have been violative of the law.
(iv) The deficiencies seem to have arisen exclusively in Ahmedabad, which too was due to time constraints and huge volumes. Also, as a process at that point in time, the branches were not required to do a field verification at the time of opening the account and they relied on the documents submitted by the customers. The documents required from the customers were part of the list of documents specified by the depositories. In almost all cases, there was a complete submission of KYC documentation in all respects.
3.5 As regards para 12.49 of the Order, CBPL submitted that the Bank executed the delivery instruction slip (DIS) of the BO and the bank at that point of time did not have the mechanism to check permutation and combination of the same name.
3.6 As regards para 12.50, of the Order, CBPL submitted as under :
(i) The margin amounts of all customers were credited into a specific common margin account opened for every issue. This was an element of the IPO Funding product features and was not in any manner a means of defrauding or cheating anybody. The product feature of pooling all margin cheques into a single account, would by no means aid or enable name lending in an IPO application. Regardless of this feature, each IPO application had to independently comply with KYC/AML norms and from the Bank’s perspective the common pool account did not in any manner compromise the need for identifying every applicant. (ii) The product required that the customer was required to give a cheque towards the margin amount. CBPL did not accept cash in any of the transaction. The bank has no mechanism to check the activity of the customers with other Banks. Also, the process was not designed to verify whether the funds came from a single account.
3.7 As regards para 12.51, of the Order, CBPL submitted that as under :
(i) As part of CBPL’s marketing strategy, it solicited business from various brokers who had a strong customer base and who might be interested in availing IPO Funding from it. It was, but natural, that in any asset financing exercise, the sales person promoting the financing product would necessarily had to build networks with the “Points of Sale” of the asset. Consequently, marketing of the IPO Funding product would have to be done alongside such broker and the discretion to accept and provide finance was completely with the Bank.
(ii) The IPO Funding product was available to any customer who could approach through multiple channels such as through CBPL’s own branches or various brokers. The IPO Funding customer was required to open only a demat account and provide the required margin amount of 50% by way of a cheque. CBPL did not have the mechanism to check if the cheques came from a single account.
3.8 As regards para 12.53, of the Order, CBPL submitted as under :
(i) All the accounts (29711 accounts) that were opened for IPO Funding had the common address of the Bank’s corporate address by conscious design of the product .This practice was adopted so that all communications relating to IPO refunds and Corporate action could be routed through the Bank. This practice was followed to protect the bank's exposure on the IPO funding amount.
(ii) This security feature resulting the Bank’s own address being shown in multiple accounts ought not to be read as all these accounts being “afferent accounts”. Moreover, there can be no allegation that the Bank cornered the stock. The common correspondence address was given primarily to protect the Bank from the credit risk.
3.9 As regards para 12.54, the findings of inspection conducted by CDSL, CBPL commented as under:
(i) The instances referred to can all be traced to account-holdings in Ahmedabad, wherein some cases there had been some lapses in the KYC documentation being collected accurately. This was a localized problem, for which prompt action was been initiated, not only in terms of systemic improvements but also in terms of initiating steps to fix responsibility on individual staff members who could be answerable for the lapses.
(ii) Independently, CBPL has appointed two auditors (i.e. Shah & Paurana, A.M Karwar & Co.) to carry out a complete verification of all the accounts and give it a report of the various accounts. The auditors have so far verified 22470 accounts and submitted their observations. The Bank took a decision to allow only those accounts to be active for which KYC norms are fully complied with. In case of even the slightest discrepancy where the Bank is not satisfied with adherence to KYC compliance, or the customer had not responded to the request for rectification of the discrepancy in documentation, the accounts will either be closed or frozen pending rectification.
3.10 With regard to para 12.56, CBPL submitted as under :
(i) All the demat accounts opened for the specific purpose of IPO Funding were opened with the correspondence address of Centurion Bank of Punjab to ensure that all communication and refunds were routed through the Bank.
(ii) While the majority of accounts were opened by genuine investors who availed financing from CBPL, some customers could have misused the facility by opening multiple accounts. The branch opened these accounts in good faith based on the strength of the documents submitted to the branch. No system could fully prevent a fraud from taking place. The key question was to check how the market intermediary reacted to and dealt with the finding of any fraud, not the occurrence of a fraud in a localized manner.
3.11 As regards the findings that CBPL did not exercise due diligence while opening of the BO demat accounts for IPO financing as mentioned in para 12.56(a), CBPL submitted as under :
i. The branch at Ahmedabad relied on the documents submitted by the BO while opening the account. The documents obtained by the branch were from the list of various document proofs that were acceptable as specified by the depository.
ii. One of the reasons for the discrepancies in the account opening was large volumes of applications received close to the date of IPO issue closure.
iii. The key focus of the Bank was risk containment and credit risk protection for its depositors and shareholders. CBPL has now put in place a mechanism to ensure that there would be no recurrence even in a localized manner of actions and circumstances over which SEBI had expressed its displeasure.
3.12 With reference to para 12.56(b), CBPL submitted that as per facts available, CBPL was not aware that any of its employees had any knowledge of these transactions. The Bank purely lent funds against a equivalent margin and mandated that every customer should provide the Bank’s contact address as the correspondence address.
3.13 With reference to para no. 12.56 (e) and (f), CBPL submitted that in most of the cases the Bank had obtained valid proof of identity and proof of address as specified by depositories from the customers. Further they relied extensively on KYC documentation provided to the bank. So long as the documentation was complete in the manner specified and mandated by the depositories, they proceeded to process the applications.
3.14 CBPL submitted that in all the cases relating to specific findings of issues relating to KYC documentation they would provide the actual KYC documentation that the bank’s system relied upon for review by SEBI. CBPL further submitted that some lapses that had occurred had been promptly acted upon by the bank.
4.0 Personal Hearing 4.1 CBPL appeared for personal hearing before me on August 2, 2006 through the persons recorded on the first page of this order and made submissions in detail.
5.0 Consideration of the issues 5.1 I have carefully considered the prima facie findings as recorded in the ad interim ex-parte Order and the submissions made by CBPL. I have noted that there is a prima facie finding that CBPL opened large number of demat accounts with common address by not adhering to the KYC norms laid down by SEBI.
5.2 As regards opening of 25,872 demat accounts with common address, CBPL submitted that all these demat account holders were clients of IPO funding product and mentioning the address of the CBPL’s corporate address was part of the conscious design of the product. This practice was adopted by CBPL to protect the Bank from the credit risk in terms of receiving all the communications relating to IPO refunds and corporate action. Therefore, this security feature resulting the Bank’s own address being shown in multiple accounts ought not to be read as all these accounts being “afferent accounts”. Moreover, there can be no allegation that CBPL cornered the stock. At the outset, I have noted that CBPL is a bank as well as a depository participant. Therefore, the requirements to be complied with by them will be independent of each other and depository participants being registered intermediaries will be required to maintain high standards of integrity and professional expertise while discharging their obligations and responsibilities. I have noted from the above submissions that CBPL opened demat accounts with common address with the objective to protect the interests of bank at the cost of safety and integrity of the depository system by not complying with KYC norms prescribed by SEBI vide its circulars dated August 4, 2000 and August 24, 2004. It seems that CBPL had opened such large number of demat accounts without establishing the identity of the clients which is also corroborated by the findings of the CA firm, M/s J. Jayaraman during the course of physical verification in respect of randomly selected dematerialized account-holders purportedly sharing a few addresses situated at Ahmedabad. The physical verification by the CA firm confirmed that many of the dematerialized account-holders were not found at the addresses given by the DP.
I have noted that M/s Sarda & Pareek, C.A.firm appointed CDSL, in its inspection report also brought various irregularities pertaining to accounts opened without obtaining proof of address and proof of identity which includes accounts of clients who availed IPO funding.
5.3 Based on the data submitted by CDSL, it is observed that out of 25,872 demat accounts, 23,996 demat accounts had correspondence address of Centurion Bank of Punjab Central Bombay Infotech Part, 101, K Khadye Marg, Mahalaxmi, Mumbai. Further, 20,047 demat accounts did not have details of the permanent address of the account holders at all whereas 3,949 demat accounts had details of the permanent address. In the absence of permanent address, it is not possible to ascertain the genuineness of the account holders and CBPL had prima facie failed to exhibit highest standards of professionalism which is expected of a market intermediary.
5.4 From the findings of CA, it is evident that there was lack of due diligence on the part of CBPL in the IPO financing especially at the Ahmedabad Branch Office. It appears that CBPL did not use its due diligence while opening BO accounts for IPO financing. I have also noted the fact that CBPL in its submissions too admitted that there were lapses in CBPL, Ahmedabad Branch Office. I have noted that CBPL had taken necessary action against the concerned person at Ahmedabad Office.
5.5 Further, as regards the findings of the CA report CBPL has admitted that there might be negligence or inadvertence in adhering to the KYC norms due to large volumes of IPO financing applications. It appears that certain lapses in KYC documentation were subsequently rectified by CBPL. CBPL as a depository participant is bound to comply with KYC norms prescribed by SEBI from time to time, which primarily lay emphasis on ascertaining the genuineness of the account holders for the safety and integrity of the depository system.
5.6 Based on the examination of the data pertaining to common address submitted by CDSL, it is observed that out of 25,872 demat accounts, 23,996 demat accounts had correspondence address of Centurion Bank of Punjab, Central Bombay, Infotech Park, 101, Khadye Marg, Mahalakshmi, Mumbai. Further out of these 23,996 accounts, 20,047 demat accounts did not have details of permanent address of the account holders at all. In the absence of permanent address, it is not possible to ascertain the genuineness of the account holders. Thus, CBPL had prima facie failed to adhere to KYC norms and exhibit high standards of professionalism which is expected of a market intermediary. 5.7 It is also observed that CBPL had provided IPO finance to clients. As per the scheme of IPO funding such clients were required to open demat accounts with CBPL, Depository Participant. It appears that CBPL had primarily opened these accounts only for the purpose of facilitating its IPO clients without complying with the regulatory requirements prescribed by SEBI for opening of demat accounts. In this context, upon examination of the KYC documents in respect of some of these accounts, it was observed that the client beneficiary bank account details were not entered at all. Besides, I have noted that in the public issue of IDFC, CBPL financier received consolidated refund order of Rs. 23.33 crore for 2954 IPO applicants from the Registrar to the Issue which does not appear to justify the reasoning given by CBPL regarding the corresponding address that it was meant for receiving all the communications relating to all IPO refunds.
5.8 As regards the observation of CA report as stated at 2.3.4 of this order regarding involvement of Shri Tushar Shah and Shri Parag Bhai, who are the directors of SEIPL, I have noted that Shri Mahesh Shah, director of Infinite Financial Services Pvt. Ltd. has submitted an affidavit before SEBI stating that he was not the same person (Shri Maheshbhai) as referred to in the CA’s report. However, the veracity of the submission is left to be examined by the Enquiry Officer.
5.9 It is noted that Shri Dhaval A Mehta, a key operator, provided margin money by issuing individual cheques to several loan customers through his bank account with CBPL. It is noted that Shri Dhaval Mehta had issued bulk cheques towards margin money in those cases where finance was extended by CBPL. Further, under the IPO funding scheme of CBPL the refunds (for the unallotted shares) were issued through individual pay orders favoring the loan applicants.
5.10 As regards provision of margin money by Shri Dhaval Mehta to several loan customers through his bank accounts with CBPL, it was submitted that they were not aware that the cheques submitted by individual applicants towards margin money pertain to Shri Dhaval Mehta. In this context, I observe that CBPL by virtue of bank as well as a depository participant under the same management is required to have adequate systems and internal controls so as to ensure that regulatory requirements are complied with independently. I have noted that RBI vide its order dated May 31, 2006 imposed a penalty of Rs. 15 laksh on CBPL for violation of RBI guidelines on KYC norms relating to opening accounts, issued of bulk cheque books and IPO financing. Had CBPL exercised due care and caution while issuing bulk cheques to Dhaval A Mehta, it would not have been possible for him to arrange funding on behalf of the large number of benami / fictitious applicants and thereby to corner allotment of shares in different IPOs. Based on examination of the data of off-market transactions pertaining to 25,872 demat accounts sharing common address of CBPL, it is observed that in the IPO of Suzlon Energy, Shri Dhaval A Mehta had received credit of 24,048 shares from 2128 account holders having demat accounts with CBPL.
5.11 I have noted that at para 17.10 of interim Order dated April 27, 2006, SEBI had directed depositories to conduct inspection of DPs identified in order to verify whether all the account holders of the DPs referred at para 17.9 of the interim Order are genuine and KYC norms lead down by SEBI have been complied with. In this connection, CDSL had forwarded a special inspection report relating to physical verification, dated July 18, 2006 of M/s. Sarda & Pareek, CA firm appointed by CDSL which indicated certain discrepancies like proof of address not obtained etc. It was further indicated that out of total of 1233 clients called for verification, 347 clients appeared and 886 clients did not appear. The special inspection report also brought out that in respect of certain demat accounts, shares received through IPOs were transferred to Jalco Financial Services Pvt. Ltd with the same modus operandi as indicated in the ex-parte interim order. The said report has been forwarded to the Enquiry Officer since appointed by SEBI for examination.
5.12 I have noted that an Enquiry Officer has already been appointed under the SEBI (Procedure for Holding Enquiry by an Enquiry Officer and Imposing Penalty) Regulations, 2002, to enquire into the irregularities observed against CBPL. I am therefore of the view that issues, if any, shall be taken up by him and necessary action may be taken against CBPL, if it is found guilty of violating any regulations of SEBI. I have also noted that more than nine months have elapsed since CBPL has been restrained from opening of new demat accounts. It is seen from the submissions of CBPL that pursuant to the ex parte order, it had taken necessary steps in closing certain accounts and action against the concerned persons/branches responsible for the lapses. I am therefore, of the view that there is no need to continue the interim prohibition on CBPL in para 17.9 of the ex parte order.
6.0 Order 6.1 In view of the above, I, in exercise of the powers conferred upon me in terms of section 19 read with section 11 and 11B of SEBI Act, 1992, hereby direct that there is no need to continue with the directions issued to CBPL not to open fresh demat accounts.
6.2 It is clarified that the present Order gives only a prima-facie finding as to the necessity of passing the above directions at this stage and accordingly all issues and contentions are left open to be decided by the Enquiry Officer and to be decided in subsequent proceedings pursuant to his report.
6.3 This Order shall come into force with immediate effect.
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