Mumbai, Dec. 27: The National Securities Depository (NSDL), pulled up by the Securities and Exchange Board of India (Sebi) in the Yes Bank demat disarray, today said the regulator had not followed the canons of natural justice.
Contending that Sebi’s order suffered from “grave legal defects”, the depository said it should have the material and documents which formed the basis of the order.
The market regulator unearthed a huge racket early this month in which it found an investor having opened 6300 demat accounts to corner shares in Yes Bank’s IPO.
While 13 entities were barred in dealing in shares of the bank, NSDL was asked to carry out a comprehensive inspection of Karvy, which is being probed to ascertain whether it had followed “know your client” norms.
NSDL was put in the firing line for failing to smell a rat even when Karvy, a depository participant under its gaze, opened 6315 benami accounts for Roopalben Panchal.
The depository gave vent to its grouse through a letter it shot off on Monday to Sebi member G. Anantharaman. “As the order has been passed against NSDL without following the principles of natural justice, without the material and documents which Sebi has relied on, the order suffers from grave legal defects,” NSDL wrote.
The depository pointed out that it was not concerned with the issue of applications made by investors in fictitious or benami names. These are sent to registrars of an issue.
“Scrutiny of applications for the IPO is done by the registrar, who works under the overall supervision of Sebi. NSDL has no role to play in IPO applications,” the letter stated.
Responding to charges that funds had been provided to entities manipulating the Yes Bank share allocation, the depository said it had nothing to do with financing. “It is up to Sebi to determine the appropriate authority dealing with the aspect of financing of IPOs,” the letter said.
According to NSDL, the role of a depository is limited to attest, electronically, the ownership of shares after an IPO. It has refuted Sebi’s argument that it is a self-regulatory organisation or an association of intermediaries.
The depository has also complained that Sebi did not give it an opportunity to present its case before passing the order. “The observations against NSDL have been under the provisions of Section 11 B of the Sebi Act. This section pre-supposes a hearing. In this case, NSDL has not been heard at all before passing orders. Nor has Sebi given documents or evidence which form the basis of the conclusion that NSDL was responsible in a way,” it added.