May 2: The Karvy group 'which is at the epicentre of the IPO scam that erupted last year ' today won a reprieve of sorts when Andhra Pradesh High Court granted an interim suspension of last Thursday’s Sebi order that banned it from trading in the securities market and opening new demat accounts.
G. Raghuram, vacation judge of the court, granted the stay this afternoon after admitting a writ petition filed by Karvy.
The judge agreed that Sebi’s order directing the customers of Karvy to shift their demat accounts amounted to a form of compulsion. The vacation judge has given the capital market regulator an opportunity to file a counter petition.
The court reprieve came after a day of high drama. In the morning, Karvy group chairman C. Parthasarathy met Sebi officials to present its views on Sebi’s interim report that slammed the Hyderabad-based Karvy Stockbroking Ltd for opening 84 per cent of the fictitious accounts that a couple of market manipulators in Ahmedabad and Mumbai used to corner shares of companies that came out with initial public offerings (IPOs) between July 2003 and September 2005.
Last Friday, Sebi suspended its ban on Indiabulls Securities pending verification of its claims that the TCS shares it received was on account of client trading margins.
If Parthasarathy was looking for a similar reprieve from Sebi today, it didn’t come through. It could not be established whether Karvy decided to approach the Andhra high court after failing to receive a positive response from Sebi.
Karvy’s counsel interpreted the Andhra high court stay to mean that the group could now continue to open new demat accounts and, more importantly, that the 7.5 lakh demat account holders with Karvy would not have to switch their demat accounts to other depositary participants.
Sebi had ruled that the demat clients of Karvy should shift their demat accounts to other depository participants within 15 days of last Thursday’s late night directive.
Other Karvy group companies ' Karvy Computershare Ltd, Karvy Investor Services Ltd and Karvy Consultants Ltd ' were directed not to undertake fresh business as a registrar to issues and share transfer agents.
The Karvy counsel appears to have challenged the Sebi order on the ground that G. Anantharaman, whole-time member of Sebi, had no authority to issue a ban in Sebi’s name. It contended that a Sebi order could not be issued by a lone member.
The interim suspension will stay till Sebi modifies its order. According to Karvy council, Sebi can file a final order if Andhra Pradesh High Court rejects Karvy’s case.
The Andhra high court is on vacation till June 2 and its vacation judges will entertain “only matters of an urgent nature”. Earlier in the day, Karvy chief Parthasarthy told The Telegraph, “We have, in the morning, filed our reply to the regulator. We have not yet got a reply from the regulator.”
He had, however, refused to divulge the details of the group’s reply saying, “It is a huge document and I will not be able to recall the exact details.”
Karvy is being represented by Corporate Law Chambers whose senior partner C. Achuthan is also a former presiding officer of the Securities Appellate Tribunal. He, however, refused to comment.