SAT wants 3 separate orders for Karvy Group in demat scam

Written by Markets Bureau | Mumbai, Jun 30 | Updated: Jul 2 2008, 03:40am hrs
In a major development, the Securities Appellate Tribunal (SAT) on Monday remitted back the case related to the Karvy Group in the IPO scam to the Securities and Exchange Board of India (Sebi) and asked the regulator to pass three separate orders with respect to three different entities involved in the case.

The Karvy Group had challenged Sebi's June 22, 2007 order asking the Karvy DP not to open fresh demat account till December 31, 2007 and suspended its broking operations for three months. The main argument against the order was that the showcause notice that was served was composite and the order that was passed by then Sebi wholetime member G Anantharaman was also composite.

According to sources, the initial showcause notice issued to the Karvy Group was the composite one, which mentioned all the three entities. However, subsequent showcause notices to appear for hearing before the wholetime member (WTM) were issued separately but the final order passed in the case was composite. The Karvy Group objected to this and termed it as confusing as one of the entity (RTA Agency) has already undergone the punishment.

Though the SAT order looks more technical and procedural in nature, the sword is still hanging on the Karvy group as it is yet to be exonerated from the charges and Sebi has been asked to pass three separate orders with respect to each entity separately following the hearing on Monday, sources said.

The RTA entity of the group, Karvy Computershare, may not have to face any penalty as Sebi, in its order, has said that it has undergone the prohibition. However, there could be some fresh steps the regulator may take against two entities of the group the broking arm and DP arm, sources added.

It may be mentioned here that Sebi, in a 191-page order dated June 22, 2007, has instructed Karvy Stock Broking Ltd, a depository participant, not to open fresh demat accounts till December 31, 2007. The regulator has suspended the registration of KSBL, a member of both NSE and BSE, for three months.

Karvy Computershare Private Ltd, the registrar to the issue, was prohibited from acting as registrar to an issue for nine months. As Karvy Computershare Pvt Ltd had already undergone the prohibition for the said period through the Sebi order dated April 27, 2006, there will be no further directions against Karvy Computershare Private Ltd, the regulator said.

Sebi has passed the said order in accordance with Section 19 of the Sebi Act, 1992 and 13 (4) of Sebi (procedure for holding enquiry by enquiry officer and imposing penalty) regulation, 2002.