Order in the matter of Irregularities in IPO with respect to Karvy Computershare Private Limited, Registrar to Issue and Share Transfer Agent

WTM/PS/73/ISD/FEB/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Regulation 28 (2) read with Regulation 38 (2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 IN THE MATTER OF IRREGULARITIES IN INITIAL PUBLIC OFFERING In respect of Karvy Computershare Private Limited, Registrar to Issue and Share Transfer Agent [SEBI Registration No.000000221] 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted a preliminary examination, upon noticing certain irregularities with respect to the Initial Public Offerings (hereinafter referred to as 'IPO') of different companies. A few individuals/ entities (referred to as 'the key operators') had opened various demat accounts (hereinafter referred to as 'afferent accounts') in fictitious/ benami names and made large number of applications in the IPOs in the category of retail investors using these accounts (each of the applications being of small value as to make it eligible for allotment under the retail category). These key operators were found to have cornered/ acquired the IPO shares by using these fictitious accounts. Pursuant to the allotment, the shares were transferred to the demat account of these key operators. Further, it was also revealed that these key operators had transferred the shares through off-market deals to ultimate beneficiaries, who were the financiers in the process. The preliminary examination inter alia revealed that the Registrar to Issue and Share Transfer Agent (hereinafter referred to as 'RTI') namely Karvy Computershare Private Limited (hereinafter referred to as 'KCPL') had extended special treatment to the Karvy group companies comprising of Karvy Stock Broking Limited (Stock Broker, DP and Portfolio Manager), Karvy Consultants Limited (formerly Non Banking Finance Company) and enabled the key operators to corner the shares meant for retail investors in the IPO allotment.

2. Pending investigation, SEBI passed ex-parte interim order dated April 27, 2006, directing inter alia KCPL not to undertake fresh business as a RTI. Thereafter, pursuant to an opportunity of personal hearing, SEBI vide order dated May 26, 2006, directed KCPL not to act as a registrar to issue and as a share transfer agent, pending enquiry and passing of the final order, except for the assignments already contracted before passing of the interim order dated April 27, 2006. The order dated May 26, 2006, also clarified that the said direction will not apply to KCPL as Registrar and Transfer Agent to mutual funds.

3. KCPL had challenged the Order dated May 26, 2006 before the Hon'ble Securities Appellate Tribunal (hereinafter referred to as 'SAT'). In the meantime, SEBI initiated the Enquiry proceedings against KCPL in terms of the Enquiry Regulations, by appointing an Enquiry Officer under Regulation 5(1) of the Enquiry Regulations vide orders dated May 25, 2006 and September 18, 2006. The Enquiry Officer enquired into the alleged violation of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’), the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the 'PFUTP Regulations'), SEBI (Registrar to an Issue and Share Transfer Agents) Regulations, 1996 (hereinafter referred to as 'RTI Regulations') and the provisions of the SEBI (Criteria for Fit and Proper Persons) Regulations, 2004 (hereinafter referred to as 'Fit and Proper Regulations').

4. The Enquiry Officer in his report dated December 20, 2006, found that KCPL had contravened the provisions of Section 12 A(a), (b) and (c) of the SEBI Act, Regulations 3 and 4(1) of the PFUTP Regulations and Regulation 13 of the RTI Regulations read with Clauses 2 and 3 of the Code of Conduct for RTI and recommended that KCPL be prohibited from acting as an RTI for a period of 9 months. The Enquiry Officer also recommended that the period of prohibition already undergone by KCPL as per the interim order of SEBI may be considered for the purpose of computing the period of prohibition recommended by him.

5. Thereafter, a Show Cause Notice dated December 20, 2006 (hereinafter referred to as the 'SCN) was issued to KCPL, along with a copy of the Enquiry Report, advising it to show cause as to why appropriate penalty including the penalty as recommended by the Enquiry Officer should not be imposed on it. KCPL submitted its replies vide its letters dated January 08, 2007 and February 26, 2007. Pursuant to the same, an opportunity of personal hearing was granted to KCPL.

6. In the meantime, as the period of prohibition recommended by the Enquiry Officer had already elapsed, the directions issued vide the order dated May 26, 2006 against KCPL were revoked vide order dated February 22, 2007, while exercising the powers conferred under Sections 11 and 11B of the SEBI Act, with a condition that on completion of the Enquiry proceedings as against Karvy Stock Broking Limited, appropriate penalty may be imposed on KCPL in accordance with the applicable regulations. Thus, the appeal filed by KCPL before the Hon'ble SAT against the order dated May 26, 2006 had become infructuous and the same was disposed of vide order dated March 02, 2007.

7. Meanwhile, SEBI had concluded the Enquiry proceedings initiated against two other entities of the Karvy group, viz. Karvy Stock Broking Limited (in the capacity as a Stock Broker) (hereinafter referred to as 'KSBL') and Karvy Stock Broking Limited (in the capacity as a Depository Participant) (hereinafter referred to as 'Karvy DP') and SEBI issued a common order dated June 22, 2007 (hereinafter referred to as 'earlier SEBI order') in respect of all Karvy entities including KCPL containing the following directions: Table A Entity Direction With effect from Karvy DP Prohibition from opening fresh demat Immediate effect. accounts till December 31, 2007 KSBL Suspension for a period of three months On the expiry of 21 days from the (broker) date of the order. KCPL Prohibition from acting as Registrar to an As the period has already been (RTI) Issue for a period of nine months. undergone, no further effect

8. Separate appeals were then filed by KCPL, Karvy DP and KSBL before Hon'ble SAT against the aforesaid SEBI order. The said appeals were disposed off by the Hon’ble SAT vide an order dated June 30, 2008, with the following directions: "..... remand the cases to the respondent Board with a direction to pass three separate orders on the three show cause notices issued by the learned wholetime member. It is, however, made clear that while passing the fresh orders the wholetime member shall take into account only the material that is already on the record and will not permit either party to produce any fresh material or file fresh replies or written submissions. He will, however, grant a fresh oral hearing to the parties and take into consideration the replies and written submissions already filed. The parties will however be at liberty to cite case law in support of their respective submissions. The wholetime member while passing the fresh orders shall not be influenced by any observation or finding recorded in the impugned order. We also make it clear that we have not decided any issue on merits and, therefore, all the issues raised by the parties remain open to be decided afresh by the learned wholetime member in accordance with law. In case the final order(s) were to go against the appellant(s), the same shall not be given effect to for a period of four weeks from the date of receipt thereof by the appellant(s)." (emphasis supplied) Pursuant to the order of Hon'ble SAT, KCPL filed an application for the settlement of proceedings through a consent order. The application filed by KCPL was dealt in accordance with the SEBI Circular dated April 20, 2007 and after the rejection of the said application, the present proceeding was revived. Opportunities of hearing were afforded to KCPL on December 07, 2012 and January 30, 2013, Mr. Somasekhar Sundaresan,

Advocate, represented the entity and made submissions on behalf of KCPL. Mr. C. Parthasarathy, Chairman and Managing Director, Mr. Muthuswamy Iyer, Vice President - Compliance, Mr. V. Mahesh, Authorized Person, were also present in the hearings.

9. The submissions made by KCPL in its reply and the written submissions, have been summarized below: a. According to KCPL, in an IPO, the RTI is only required to complete the process of credit of securities (in the case of allotment) and issue of refunds towards excess application money after processing the IPO applications. b. The practice of issuing consolidated refund order emerged for the purpose of providing efficient investor services and administrative convenience. The same was being done in cases, where the IPO applications were either managed by the POA holders being the banks/ brokers who apply for the shares in the IPOs on behalf of the investors or where the application for the shares by IPO applicant is financed by an IPO financer, being a third party (i.e. an NBFC or a bank) other than the IPO applicant. The POA holder requires the IPO applicant to open a DP account and a savings/ current account with itself or with any other DP/ bank with whom the POA holder has an understanding. c. With the substantial increase in the volume of applications through POA, the POA holders started receiving large quantum of refund orders (in favour of the POA holders) from the RTI for all such IPO applicants.

In order to avoid administrative inconvenience like encashing and reconciliation, the POA holders in most cases requested RTIs to issue a consolidated refund order towards all the applications managed by them. In the process, the POA holders provided the RTI with a list of the applications in soft form which have been made through them. Further, KCPL used to send the details of the application number, name, in-house number (hereinafter referred to as 'IH number'), shares applied, shares allotted and that of the refund amount to the POA holder for the purpose of processing and crediting the refunds to the individual IPO applicants. d. KCPL had undertaken the practice of issuance of 'single consolidated refund order' since October, 2004. KCPL had acted as RTI for 14 out of the 21 IPOs investigated by SEBI. Further, out of the said 14 IPOs, only in 9 IPOs, KCPL had issued consolidated refund orders. According to KCPL, it had issued single consolidated refund order on a uniform basis to all the institutions who sought for such consolidated cheques. The IPO applicants who avail financing from an institution, make a request to the RTI to send the refund amount directly to the bank with which the institution has an arrangement.

e. KCPL has denied issuing any 'single consolidated refund order' pertaining to the alleged benami/ fictitious applications made by Purushottam Budhwani and Manoj Seksaria, the key operators. As regards the 'single consolidated refund order' issued to alleged benami/ fictitious application of Roopalben Panchal, it has been said that the same was issued in cases where the funding of IPO applicants has been done by an institution. KCPL has submitted that the refund order was with respect to all the applications under the same category and not merely with respect to the applications belonging to Panchal group. KCPL had not rendered any special treatment to any institution. f. KCPL had no knowledge about the fictitious nature of the applications made by Rooplaben Panchal group. Further, for weeding out multiple applications it has followed the recommendations as contained in the Verma Committee Report. g. Each of the businesses of the Karvy group is headed by a professional who is primarily responsible for the operations of the respective business. Operations of KCPL are located at separate and distinct addresses from the other Karvy entities. KCPL has always maintained the necessary segregation vis-a-vis the other companies in the Karvy group. The three directors namely Mr. C. Parthasarathy, Mr. M. Yugandar and Mr. M.S. Ramakrishna are the common directors of KCPL and other Karvy entities. Further, the inspection report of KCPL was not signed by Mr. V. Mahesh in the capacity as the compliance officer of KCPL. h. It has been said by KCPL that the alleged continuous serial numbering of refund orders is in line with the normal IPO processing methodology. As the applications were received in continuous bank serial numbers/ sequence with the same pin-code, the refund orders in respect of such applications were also in continuous number.

10. Having considered the submissions of KCPL, I now proceed to consider the material available on record. I note that the SCN/ Enquiry Report has alleged that the activities of KCPL were supplementing the activities of its associates and thereby it abetted the key operators in furtherance of their objective of cornering of the shares. KCPL in its reply has not denied its relationship with other Karvy group entities and has discussed in detail about the IPO process wherein the financial institutions make specific requests to it for issuing single consolidated refund order. I further note that KCPL, KSBL, Karvy DP, Karvy Consultants Limited (hereinafter referred to as ‘KCL'), Karvy Securities Limited (hereinafter referred to as ‘KSL') and Karvy Investor Services Limited (hereinafter referred to as ‘KISL') were under the same management having Mr. C. Parthasarthy, Mr. M. Yugandhar and Mr. M.S. Ramakrishan as common directors at the relevant point of time.

11. Therefore, the key issue to be decided here is: Whether KCPL has failed to maintain arm's length distance between the different activities of its group entities and in its failure to do so, it acted in complicity with the other entities of the Karvy group?

12. Whether KCPL has failed to maintain arm's length distance between the different activities of its group entities and in its failure to do so, it acted in complicity with the other entities of the Karvy group?

Before starting to discuss the core issue, a broader picture of the operations of the Karvy group entities is outlined here. Admittedly, the Karvy group entities were associated in various IPOs, in different roles that are required to be performed in relation to an IPO application. Starting with the role of DP who opened demat accounts, DP/ stock broker who introduced the bank accounts, the financier belonging to Karvy group who arranged finance to the key operators namely Ms. Roopalben Panchal, Purushottam Budhwani, Manoj Seksaria etc., the stock broker/ syndicate member who undertook the bidding in IPOs, the RTI who prepared refunds, the DP who transferred the shares on allotment of the same to the demat account of the same set of key operators and ending with the sale of shares through its stock broking arm, one is able to identify the presence of Karvy group entities in the entire scheme of activities of the IPOs.

a. KCPL has argued that there was a clear division of operations between itself and other Karvy group entities. It was stated that the RTI and the DP businesses of Karvy group were originally vested with KCL and Mr. V. Mahesh was its coordinator for NSDL/ CDSL operations. Later, both the RTI business and the DP business of KCL were hived off separately to KCPL and Karvy DP.

In this regard, I refer to the email dated September 01, 2005 by one Mr. Vincent Paul, an employee of KSBL, the stock broker to Bharat Overseas Bank. It contained the details of the IPO applicants such as the details of the shares applied/ allotted to such applications, the amount of refund thereon, other reference details such as the IH (in house) numbers and refund order numbers pertaining to such applications for whom single refund order has been issued by KCPL. It is strange that Mr. Vincent Paul, an employee of KSBL, which is the stock broking arm of the Karvy group, possessed the crucial details pertaining to the applications/ refund order. Ideally, such information is privy to RTI and the financier, who are involved in the IPO process.

However, KCPL in its reply has argued that Mr. Vincent Paul was the coordinator for KSBL's IPO broking activities and the details as discussed were forwarded by KCPL to each syndicate member, in order to service their clients and sub-syndicate members. Further, it has also been said that the same was not done on account of any connection/ connivance.

I note that KCPL has failed to submit any documentary proof to show that it had provided the details like refund order numbers or IH numbers to other syndicate/ sub-syndicate members as well. In the absence of such proofs, I am not inclined to accept the argument of KCPL that the details like the IH numbers and refund order numbers were forwarded to all the syndicate members. According to me, the syndicate/ sub-syndicate members do not need such details and that the role of syndicate member is limited to the bidding of the IPO applications. The details like refund order number and IH number can ideally be of use to the RTI and financier/ POA holder. I note that had KCPL not been the RTI in such IPOs, KSBL could not have had the benefit of knowing such details. This shows that the Karvy group entities including KCPL were acting complementary to each other.

Further, the communication of Mr. Vincent Paul (an employee of KSBL) referred above, do indicate that there were links between KCPL and KSBL. I note that Mr. V. Mahesh, the compliance officer of KSBL was also the signatory of KCPL in the inspection conducted by SEBI. Having considered these, I agree with the findings of the Enquiry Officer that KCPL had maintained close links in its operations with other Karvy group entities.

b. The Enquiry Report has also alleged that KCPL had issued single consolidated refund orders mainly in respect of the applications of the key operators. The details of the consolidated refund orders issued by KCPL in various IPOs as noted from the Enquiry Report shows that these were mainly issued in respect of the key operators namely Ms. Roopalben Panchal, Manoj Seksaria, Purushottam Budhwani, Parag Jhaveri, etc. wherein the IPO applications were financed either by KCL or Bharat Overseas Bank. KCPL in its reply has argued that the single consolidated refund orders were issued for facilitating the settlement process and also for bringing about administrative convenience in the IPO process. According to KCPL, the process adopted was a practice accepted in the industry and that it had all the necessary checks and balances. It has been said that KCPL had given clear instructions to the financial institutions including banks, who had asked for single consolidated refund orders to credit the refunds further to the respective IPO applicant's account.

I note that KCPL in its reply has provided the sample copies of the request letters from the financial institutions for issuing single refund order. I have perused these request letters and find that there is no list of applications attached to these as argued by KCPL. I have also seen the copies of the e-mails sent by certain financial institutions to KCPL which finds mention of certain 'lists'. However, no such 'lists' are found attached with it. In view of the same, I note that the submission of KCPL in respect of the 'lists' is not supported by any cogent evidence.

In this regard, I also note that the letter addressed by Indian Overseas Bank to KCPL with the subject 'IDFC SHARES' was drawing the attention of Mr. Vincent Paul (an employee of KSBL). This again reiterates the link between KCPL and KSBL.

c. Further, I note that KCL (the financing arm of the Karvy group) had made direct RTGS transfers towards the application money on account of various applications to the escrow accounts of the IDFC, IPO on July 30, 2005 i.e. after the closure of the issue on July 22, 2005. KCPL on allotment of the shares, issued consolidated refund orders in respect of such applications vide refund orders dated August 05, 2005. From the same, it is important to note that the funds from KCL to the account of IPO came only after eight days of the closure of the issue. The repayment in respect of such applications were dispatched in the very first lot of refund orders issued by KCPL. Such swift action of KCPL in issuing the refund orders to the late-comers points towards a common design planned among the Karvy group entities about the larger scheme. The sequence of events suggests that Karvy group entities were present almost in all steps of IPO process as discussed above and had acted in furtherance of certain ulterior motives. These facts suggests that Karvy group entities including KCPL were privy to the activities of each other.

d. While proceeding further with the matter, I note that during the allotment and issuing of refunds in the IPOs, the RTIs are required to use the demographic and bank details of the IPO applicants as contained in the depository system, in terms of the SEBI guidelines. The Enquiry Officer in his report has observed as under: "....the bank account details mentioned in respect of applications made by Roopal Panchal group do not exist as confirmed by the BhOB Ahmedabad and Vijaya Bank. Moreover, investigation revealed that these demat accounts of Roopal group were opened with Karvy DP on the strength of the forged bank introduction letters containing details of bank accounts which were found to be non-existing. ..."

KCPL, the RTI in its reply has submitted that the bank account details in respect of such applications were obtained from the depository, to whom the details were provided by the beneficiary owners at the time of opening of the demat account. On procuring such details, the refund orders were dispatched by KCPL to be credited to the respective bank accounts. KCPL has argued that in its capacity as RTI, it cannot be expected to verify the veracity or otherwise of the bank account details. KCPL has further submitted that the refunds forwarded by it were encashed by Bharat Overseas Bank as the said refunds were not returned to KCPL.

The argument taken by KCPL would have been more convincing if the other facts and circumstances of this case were different. Similar modus operandi was also found in the case of 4,000 demat accounts belonging to Purshottam Budhwani (2,000 applications) and Manoj Seksaria (2,000 applications) wherein the bank account details were not available with the Depositories. I note that the facts available on record do not clearly bring out as to how the bank account details were available with KCPL when the same were not in existence/ were not with the Depositories. Having seen the above paragraphs as to how the Karvy group entities were acting complementary to each other in the entire IPO manipulation, I am constrained to infer that the said details could only have been obtained by KCPL from KCL (who at the relevant point of time was handling the activities of DP).

e. The Enquiry Officer in his report has said that the IPO applications were segregated with flags like 'DIPAKAH', etc. for the purpose of adjustment of single refund order. The Enquiry Officer has further stated that KCL had funded Panchal in the IPO of Sasken. It has been alleged that KCPL had identified the IPO applications financed by KCL and segregated these for the purpose of adjustment of refund through a single refund order. KCPL in its reply has denied the allegation by submitting that as there were various IPOs financed by Bharat Overseas Bank, the data of such applications was received by it through e-mail, wherein details in respect of applications financed by each specific branch were contained in individual files pertaining to such branch. Each such file received from the individual bank branch is marked separately with a flag for identification and processing of refunds. Such flags were posted in the data provided to the head office of Bharat Overseas

Bank, along with the single consolidated refund order, marking the branch/ file name for further action by the bank. KCPL has submitted that such segregation was only based on the details received from the branches of Bharat Overseas Bank and it was necessary to flag these applications (for the sake of identification of the applications funded by a particular institution) for processing a single consolidated refund order. I have considered this submission. In this regard, I note that KCPL has not provided information/ material received from the bank segregating the applicants on which they had relied upon. Further, KSBL sending the information on behalf of KCPL w.r.t. IH number, refund amount etc. and for those accounts where KCL was the financier, further corroborates the allegation/ finding of the Enquiry Officer. In view of the above, the sequence of events described in the order and the fact that KCPL and KCL are group entities corroborate the inference that the different Karvy group entities including KCPL were acting hand in glove with each other in the IPO manipulation.

f. I note from the Enquiry Report that KCPL had failed to weed out thousands of multiple/ fictitious applications made by Ms. Roopalben Panchal and Sugandh Estates in the IPOs of YES Bank and IDFC with similar address. It has been alleged that KCPL has avoided weeding out of such applications of Ms. Roopalben Panchal and Sugandh Estates as KCL had extended finance to the key operators who made multiple applications in fictitious/ benami names.

KCPL in its reply has argued that it had no knowledge about the fictitious nature of the applications. Further, there were no guidelines prescribed to state as to what constitutes a 'fictitious' application and failure to weed out such applications is only due to the systemic problem, for which KCPL cannot be held liable and responsible. It has also been said by KCPL that the applications with common DP ID, Client ID get identified as multiple applications, as per the recommendations of the Verma Committee report.

I note that the Verma Committee report had recommended the detection of fictitious applications and freezing of the dispatch of the share certificates/ credit to DP accounts in respect of such applications, until the genuineness of such IPO applicants are verified. KCPL has submitted that at all times it had followed the prevalent parameters in rejecting the applications as per the recommendations of the Verma Committee Report. It has also been said that the application under reference do not form part of the definition of multiple application as the sole/ first names were different. As a responsible market intermediary, KCPL while following the recommendations of the Verma Committee report, should have at least raised certain concern when a very large number of applications were coming with common addresses. I note that the market intermediaries' act as first line regulator in the securities market and it is their primary responsibility to keep an eye on all what happens in their domain. In my considered opinion, KCPL ought to have raised certain suspicion when thousands of applications were being received with common addresses. Another important fact which needs to be discussed here is that KCL had extended finance to the applications of Ms. Roopalben Panchal and Sugandh Estates. The available facts suggest that KCPL had facilitated the key operators in their execution of the game plan.

The SCN has also alleged that the shares were allotted to the applicants having invalid beneficiary details (also confirmed by Bharat Overseas Bank and Vijaya Bank). KCPL in its reply has argued that the number of such applications are negligible compared to the overall quantum of applications processed by KCPL. In this regard, I note that an intermediary should have taken up tasks which it can perform with the required degree of responsibility. The very absence of the corresponding bank account details in the applications made by the key operators, only confirms the complicity of KCPL with its group entities and the key operators in the entire scheme of IPO manipulation.

g. In the present case, I note that the act of issuing singe refund orders by KCPL had facilitated the Karvy group entities, who extended the finance and the key operators who had applied in the IPOs, to continue with the scheme/ arrangement till the same was detected by SEBI. Further, the facts of the present case indicates that the Karvy group entities were aware of the activities of each other, more so when one entity namely KCL was financing the IPO applicants and when KCPL was issuing consolidated refund orders in such cases. Therefore, the action of KCPL could not be viewed as simple facilitation of the settlement process, as contended by it. I note that it was a collusive activity under the guise of administrative expediency. I also note that KCPL was in the know of the entire manipulative scheme as discussed in the paragraphs above.

From the above discussed details, it is clear that each one of the Karvy group entities had a pre-assigned role and all had the knowledge about each other's role. I note that the Karvy group entities had played crucial role in various activities in the IPO process. The DP arm of the Karvy group assisted in opening of afferent demat accounts in large numbers which were later used for cornering of the shares. The shares so cornered were then sold for profits. I note that KCPL had processed the refund order in respect of the key operators in continuous serial numbers, shared the details of refunds with its group entities, taken the bank account details from its group entities, etc. These facts show that KCPL was giving preferential treatment to the IPO applications which came through other Karvy group entities, and this enabled the key operators in cornering of the shares in various IPOs. Considering the same, I agree with the findings of the Enquiry Officer that the activities of KCPL were supplementing the activities of its associates in processing of IPOs. The factual matrix of the present case shows that KCPL was aiding the Karvy group entities and the key operators, in perpetrating the manipulative activities relating to the IPO as discussed in detail in the order of the depository arm of the Karvy group. Thus, in view of the above discussion, it can be said that KCPL had failed to maintain arm's length distance with its group entities that were active in different businesses in the securities market and was aware of the activities of the group companies. All this suggests that Karvy group entities including KCPL had acted in unison which enabled the key operators to corner the shares in IPOs.

h. In view of the above, the role of KCPL cannot be viewed in isolation and the same needs to be seen against the background of the activities of other Karvy group entities in the IPO manipulation. Therefore, I agree with the findings of the Enquiry Officer that KCPL had played an important role in the whole gamut of activities of Karvy group entities in the IPO manipulation and that KCPL along with its group entities extended special treatment to the key operators. In a case like the present one, when one isolates the individual role of an entity, the impact may appear to be less. However, when the case is seen as a whole, the magnitude of such abuse would come to light and strike at the very integrity of the securities market. KCPL in support of its submissions has also relied upon various judgments. However, the facts of the present case are different from the cases referred. In view of the above, I do not find any reason to disagree with the findings of the Enquiry Officer.

13. The Enquiry Report has noted that KCL had adjusted the amount due to it as a financier out of the consolidated refund order issued by KCPL. Based on this, it has been alleged that KCPL was privy to the activities of KCL. KCPL in its reply has argued that the consolidated refund order was issued to Bharat Overseas Bank for crediting to the IPO applicants' account. KCPL has produced a letter dated August 08, 2005, addressed by Bharat Overseas Bank, Hyderabad branch to Bharat Overseas Bank, Ahmedabad branch, in its defense. The said letter finds mention about the request of KCL to Bharat Overseas Bank for adjusting the IPO finance provided by it against the refund amount. Having considered the said letter, I note that the role of KCPL in the adjustment of the refund amount to KCL in the particular instance has not been clearly brought out.

14. In view of the observations above, the acts and conduct of KCPL are unfair and fraudulent thus violating the provisions of the PFUTP Regulations. In terms of Regulation 3 of the PFUTP Regulations, no person shall directly or indirectly buy, sell or otherwise deal in securities in a fraudulent manner; use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. Regulation 4(1) of the PFUTP Regulations prohibits a person from indulging in a fraudulent or an unfair trade practice in securities. In view of the foregoing observations, I find that the acts of KCPL are in violation of the provisions of Section 12 A (a), (b) and (c) of the SEBI Act and also Regulations 3 and 4(1) of the FUTP Regulations. Further, clauses 2 and 3 of the code of conduct prescribed for Registrar to an Issue and Share Transfer agent in Schedule III under Regulation 13 of the RTI Regulations inter alia stipulates that RTI should fulfil its obligations in a prompt, ethical and professional manner and should at all times exercise due diligence ensure proper care and exercise independent professional judgement.

15. I note that the Enquiry Officer has recommended that KCPL be prohibited from acting as an RTI for a period of nine months. The Enquiry Officer has further recommended that the period of prohibition already undergone by KCPL may be taken into account for the purpose of computing the said nine months period. While computing such period of prohibition, it is noted that KCPL has already undergone the prohibition for approximately ten months. In view of the same, no further penalty is warranted.

16. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulations 28 and 35 of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, hereby dispose of the proceedings without passing any further directions.

DATE: FEBRUARY 03, 2014 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA