Story of Demat Scam

1,00,000 Bogus Demat A/c, Bank A/c,

Cornering Small Investors’ Portion
Covering 53 IPOs’ – 5 Crore Shares

Presentation by
Dr. KIRIT SOMAIYA
Investors’ Grievances Forum
 IPO-DEMAT SCAM – STORY OF SCAM – SHAME
21st Century India is moving in the direction of becoming a Developed Country. Importance on the growth, Government
investment in infrastructure from the year 2000 has changed the picture of Indian economy. Rs 1,00,000 crore
Government spending on the core and infrastructure industries during 2001-03, has created a boom in the Indian
Economy. Indian industries have gained self-confidence to compete with the world.

The boom in the economy resulted in the boom in finance industry and that of Capital Market. It is unique in India that
every bull run in the Capital Market has got supplemented by a scam. Harshad Mehta Scam – 1992, the scam of CRB-
NBFC, the plantation companies and the Ketan Parekh Scam.

Industries and finance sector always tried to tap the primary market during a boom. Mobilize the financial resources
through Public Issues and IPOs. In 2004-05, more than Rs.24,000 crores have been mobilized from the primary market
through Public Issues and IPOs.

It is the sad part of the Indian Capital Market that every IPO boom has a scam. It was during 1986-88, the primary
market momentum had a mini-scam of mini-steel plants and mini-cement plant public issues. These companies tapped
the market, fooled the Small Investors, collected hundreds of crores of Rupees, diverted the funds. Small Investor was
the loser.

After the Harshad Mehta pick, once again the primary market got a momentum during 1995 to 1997 which resulted into
the vanishing companies scam. Almost 1000 companies raised funds through Public Issues and got vanished.

During the Ketan Parekh Scam, several companies changed their names from NBFC, finance companies to Infotech
companies. Tapped the market. Several companies also created the hype and got benefited by higher premium.Small
Investors the looser.
The IPO-Demat Scam of 2005 is in a way repetition of history. It is economic growth, booming economy, momentum to
Capital Market and once again scamsters. Same mentality has destroyed the whole of the Indian finance/capital market
regulatory network. It is just like a virus. Which has demolished, corrupted the banking system, depository system,
Stock Exchanges,SRO,s Rregulatory network. The failure of surveillance and vigilance at every level from the Finance
Ministry, RBI, SEBI, NSDL, CDSL, NSE, BSE, Banks, Depositories. In a single day, 10,000 bank accounts were being
opened, nobody questioned. Same day 10,000s Demat accounts were opened, nobody gets suspicious.

Is it possible? It is connivance. The scamsters, the syndicate corrupted the whole system. The Demat scam is
the connivance of so-called Panchals, the broker, the investor, the banker and the DP. All came together to
master-mind the scam, corrupted 53 Public Issues, siphoned off more than 5 crores shares of Small Investors.

It is a tragedy on the part of the Indian regulators that the scam is going on since August 2004. Banks finance so-called
Public Issue applications without even asking them to open a bank account. It is Bharat Overseas Bank, Citibank……
gave IPO finance of hundreds of crores of Rupees to a single person such as Roopalben-Syndicate in the name of tens
of thousands of fictitious applicants/names.

Karvy, the Depository, processed tens of thousands of applications, allotted them shares without even receiving
applications.Investors’ Grievances Forum is committed to protect the interest of Small Investors. The Small Investors
demands justice. Losses incurred by the Small Investors due to the siphoning off of their shares by these scamsters be
recovered from them. Be returned to those Small Investors/applicants. Five times penalties be levied. This may be
deposited into the Investors’ Education and Protection Fund.

We want criminal action against the scamsters. Section 68A of the Companies Act is very clear and specific.” To apply
in Public Issues in a fictitious name is a crime, punishable with imprisonment up to 5 years. SEBI and the Government
has to initiate criminal action.

Here is a presentation on the Demat Scam. We appeal to all to teach a lesson to the scamster. Let us show the
International Regulators, India, Indian Government, Indian Regulators also act like the Regulators of the Developed
Countries. Take the issue to the logical end and get justice to Small Investors.

- KIRIT SOMAIYA
 Story of Greed, Failure
of System
• Started in August 2004
• Loot & Cornering Small Investors Quota by
Syndicate of Broker, Investor, Bank, DP
• Failure of Surveilance & Vigilance of Regulators
• 53 Ipo’s 5 crore Shares, 1 Lac Bogus Demat a/c
The Roopalben, Sungandh Investments, Zaveri’s,
Budhwani’s & Sakseria’s, along with the Broker-
Investors, with support of Banker & DP run the
‘Show-Scam’ for 18 months.
 Story of Panchals
• Story of Roopalben, Sugandh Investments, Zaveri,
Budhwanis, Sakserias
• Story of Bharat Overseas Bank, City Bank, Indian
Overseas Banks…….
• Story of Karvy Registrar, DP, Stock Broker
• Failure of SEBI, NSDL, CDSL, RBI,BSE
Connivance of all of te above made 43,982 applications in
fictitious names in IDFC Public Issue. Got alloted
1,17,05,872 shares. Roopalben & Budhwani were allowed to
open 5,000 Bogus Demat A/c on the last day of IDFC issue
by Karvy & Bharat Overseas Bank.
 Mastermind to corner Small
Investors Share
• The entire gameplan, craftily designed,
• masterminded and executed by a coterie of operators
acting in concert
• tout ensemble through the mechanism of front entities
of name-lenders
• clear abuse of the very process of IPO, meant to shore
up the participation of small investors.
• The syndicate “shared” the “Share Allotment Benefit”
Investor to get 50% of Bogus Allotment – ‘Panchals’ &
Broker, the Shell Investment Co’s remaining 50%. Karvy
put – added further thousands application.
 SEBI Order on IDFC
• Thousands of applications in fictitious / benami names.
• IPO applicants merely name-lenders or non-existent
• These Bogus allottees transferred shares to Panchals,
Budhwanis the Syndicate
• Transfer of shares before listing
• Sold shares on the first day of listing
• Windfall gain
• Elbowing out the genuine retail investors
• Bank in depositories allowed syndicate to open
benami/ fictitious demat and bank accounts
IPO of IDFC
• IPO of IDFC opened on July 15, 2005 and closed on
July 22, 2005.
• Basis of allotment finalized on Aug 04, 2005.
• Shares credited to IPO allottees on August 05/06,
2005.
• Shares got listed on the Stock Exchanges on August
12, 2005.
• Yes, before listing the Scamsters use to transfer
shares to the Beneficiaries accounts. Mutual
understanding. Unsigned Moll.
Small Investors Portion/ Quota

• IDFC came out with public issue of

403,600,000 equity shares of Rs. 10 each
for cash at a price of Rs. 34 per equity
share .
• 141,260,000 equity shares were to be
offered to Small Individual Investors
(defined as Individual Bidders who bid for
equity shares for an amount less than or
equal to Rs. 1,00,000 as per prospectus).
Transactions in IDFC Shares by
Roopalben Panchal & Associates
• Roopalben have their demat a/c with Karvy
Stock Broking Ltd.
• Panchals also have thousands of Fictitious-
Bogus-Benami Demat Accounts & Banks A/C
at the same address
– 34 Ketan Tower, Camp Road, Shahibaugh,
Ahmedabad-380004.
– 402-403, Shashwat, Opp. Gujarat College,
Ellisbridge, Ahmedabad ,
– bank accounts with Bharat Overseas Bank, C G
Road, Ahmedabad.
Roopalben Panchal & Others
• Roopalben received 39,43,184 shares from
14,807 demat a/c’s on August 11
• Purshottam Budhwani received 2,98,412
shares from 1122 demat a/c’s on 8 August
• Roopalben also received 32,61,426 shares
from 12,257 dematerialized a/c on 8 Aug
• Sugandh Investment Pvt. Ltd. received
27,08,944 share- 10181 demat a/c on 8 Aug
 Bogus Demat a/c of
Panchals & Others in IDFC
Ms. Roopalben 27064
Panchal
Sugandh Estates 10181
and Investments
Pvt. Ltd.
Shri Purshottam 4748
Ghanshyam
Budhwani
Shri Manojdev 1989
Seksaria
TOTAL 43982
Source: SEBI Order on IDFC – Demat Scam
Roopalben 12,257demat a/c-NSDL
opened in 21 various batches on 21 diff. dates

Sr.No. Demat A/c Opening No. of

Accounts
1 Upto 15.08.04 5990
2 16.08.04 2729
3 17.08.04 195
4 18.08.04 59
5 19.07.05 1001
6 20.07.05 1525
7 21.07.05 758
Total 12257
Sugandh Invest Demat A/C opening
Budhwani demat a/c
opening
Sr.N Demat A/c Opening No. of
o. Accounts
1 Upto 15.08.04 670
2 13.10.04 424
3 10.06.05 40
4 14.06.05 18
5 15.06.05 142
6 22.07.05 2822
Total 12257
Budhwani’s Banks A/C’s

How a person is allowed to open so many accounts in the same Branch.

For a Small Investor, Bank asks so many documents and for Budhwanis,
“Khulja Sim Sim”, “Red carpet for Budhwanis & Panchals”.
 Modus Operandi

Yes, this is the Syndicate. How they share to Benefit - Shares

Office of Dummy – Fictitious Investment Co.
25/A 68 Gate No 6, Malwani, Malad (W), Mumbai 95
Kirit Somaiya visited the Benami Co. at Malawni Slum Area
with the slum dwellers
Modus Opurendy-2

The Syndicate of “Panchals, Broker – Bogus – Shell Co. &

Investors”
 Modus Opurendi for Firm
Allotment
• Out of the above 2,54,828 applicants that had applied in the
1400 shares category and had received allotment in the IPO of
IDFC, as many as 43,982 applicants representing 17.26% of
the applicants of Roopalben, Sugandh, Budhwani and Seksaria
appear to be fictitious
• Every applicant got allotment
• Also, the above suspected fictitious applicants had received
IPO allotment of about 1,17,05,872 shares representing about
8.29% of the retail portion of 14,12,60,000 shares of the
• They apply for such a lot so every application will have
allotment
Dealing by 5 entity received
share from Roopalben
Benami Applicant -The Bogus address – 39, Kailash
Niwas 2, Mehta Road, Ghatkopar (E), Mumbai 77
 Roopalben-Fairy Tale
• How an individual can open 27,064 A/C
• Can persuade all 27,064 to make off-
market transfers to her demat account
• Immediately prior to the scheduled
listing on the stock exchanges
• It is simply fairy-tallish.
 Syndicate
• Panchals, Budhawani, Zaveri,Sakseria
• Broker
• Investors- Shell Co’s
• Karvy DP, Karvy-Registrar
• Bank Branch Managers & Management
 Karvy the Culprit
• Milibhagat with Syndicate-Panchals
• No details of Bank a/c & Refund mentioned in the
Application forms
• Cheques issued with contineous serial numbers for
thousands of aplicants
• Opened fictitious demat a/c
• Forms, details not available now
• Issued single refund cheque for thousands
• Of applicants
• Karvy the Registrar, DP, Stock Broker, thousands of forms
incomplete, applicants not traceable. Applications
processed – allotted without receiving forms.
 Order of SEBI – Action on IDFC
• Panchals,Investors,Syndicate & Others
directed not to buy, sell in the securities
market, directly or indirectly
• NSDL and CDSL to ensure that the
demate a/c which served as conduit for
Roopalben, Sugandh, Budhwani and
Seksaria are not utilized for manipulation
of IPO allotment in future.
• SEBI is directed to conduct immediately
inspection of Karvy-RTI
 SEBI Directives
• The following entities are directed not to buy, sell or deal in
the securities market, directly or indirectly, till further
directions:
i. Ms. Roopalben Nareshbhai Panchal
ii. Sugandh Estates & Investments P Ltd.
iii. Shri Purshottam Ghanshyam Budhwani
iv. Shri Manojdev Seksaria
• The following entities are directed not to buy, sell or deal in
the shares of IDFC Ltd. and in other ensuing future IPOs,
directly or indirectly, till further directions:
•Sujal Leasing Pvt. Ltd.
• Zenet Software Ltd.
•Dushyant Natwarlal Dalal
• Tauras Infosys Ltd. •Puloma Dushyant Dalal
• Rajan Vasudev Dapki •Amadhi Investments Ltd.
• Bhargav Ranchhodlal Panchal •Ritaben R Thakkar
• Jayantilal Jitmal •Monal Y Thakkar
• Seer Finlease Pvt. Ltd. •Page 46 of 49
•Vinod Modha
• Excell Multitech Ltd.
•Kelan Atulbhai Doshi
• Devangi Dipakbhai Panchal •Jitendra Lalwani
• Hasmukhlal N. Vora •Lok Prakashan Ltd.
• Welvet Financial Advisors Pvt. Ltd. •Bahubali Shantilal Shah
• Jayesh P Khandwala HUF •Smruti Shreyans Shah
• Guatam N Jhaveri •Shreyans Shantilal Shah
•Datamatics Telecom Ltd.
• Shilpa Rajan Dapki
•Dharmesh Bhupendra M
• Dipak Jashvantlal Panchal •Biren Kantilal Shah
• Hina Bhargav Panchal •Suresh Bhikha Vasava
• Bhanuprasad Dipakkumar Trivedi •Javeri Gautambhai
•Jay Shah
Bharat Overseas Bank
• Connivance or Negligence ?
• Extending IPO finance to fictitious/benami
individuals
• Providing intra day funding of margin money to
brokers
• Extended huge amounts to the group through
these fictitious/benami individuals
• The internal control system has failed to
arrest the above irregularities
• Collection of account payee cheques of various
individuals who are not the customers
• Crediting the proceeds of the refund orders to
accounts other than the accounts of the payees
RBI Findings

• Imposed monetary penalties for violation of RBI

regulations on Know Your Customer (KYC) norms
• Breach of prudent banking practices
• facilitating misuse of IPO finance to ineligible
borrowers.
• Issued show cause notices
• RBI conclusion that violations were substantiated
• Accordingly the monetary penalties are imposed.
Reserve Bank of India Order
Penalty levied on Following Banks
– Bharat Overseas Bank Ltd.
– Indian Overseas Bank
– Vijaya Bank
– City Bank
– HDFC Bank Ltd.
– ICICI Bank Ltd.
– Standard Chartered Bank
 Scam-Yes Bank IPO
•  Issue opened on June 15, 2005
• Listed at BSE & NSE July 12
• Roopalben Panchal transferred 9,31,600
shares to seven entities on July 11, i.e.
prior to the listing
• In order to get an allotment of 9,31,600
shares Roopalben had to apply for crores
of shares
• Involving many crores of rupees in
application money
• Observed that Roopalben Panchal’s name in
the list of applicants/ allotees only once
 Yes Bank Issue
• Public Issue @ Rs 45
• 1.75 Crores Shares Reserved for
Small Investors
• Rupalben cornered & sold 8,39,500
shares @ Rs 61.40
• Rupalben & Syndicate earned profit
of Rs 1,37,67,8000
 Gimmick of Roopalben in
Yes Bank IPO
• 6,315 Bogus-fictitious applications, Demat
A/cs, Bank A/cs
• Similar Addresses of Ahmedabad for
Demat A/c
• On all applications similar address of
Bharat Overseas Bank, Worli, Mumbai
• 9,47,250 shares allotment to these
fictitious accounts
Syndicate of Panchal-Investors
• Roopalben made off market transfers on 11.07.05 to the
following entities:

• 1.      Seer Finlease P.Ltd. - 3,32,875 shares

• 2.      Excell Multitech Ltd. - 1,61,180 shares
• 3.      Devangi Dipakbhai Panchal - 2,20,000 shares
• 4.      Zenet Software Ltd. - 92,855 shares
• 5.      Tauras Infosys Ltd. - 80,590 shares
• 6.      Rajan Vasudev Dapki - 44,100 shares
 Roopalben & Investors
• Roopalben received funds from 8 entities
• Prior to the IPO of Yes Bank Ltd.
• Devangi Dipak Panchal, Rajan Dapki, Zenet
Software Ltd., Excell Multitech Ltd., Taurus
Infosys Ltd., Seer Finlease P Ltd., Barghav
Panchal (HUF) and Jayantilal Jitmal
• She in turn transferred these funds to 6315
entities who had utilized these funds for making
applications in the IPO of YBL.
 Sugandh Investment –
Yes Bank
• 1315 Bogus applications
• Allotment of 1,97,250 shares
• Profit of Rs 32,26,492
• Modus-operandi similar to Rupalben
Order of SEBI – Action on Yes Bank
• Panchals & Others directed not to buy, sell or
deal in Yes Bank and other Companies Shares,
ensuing IPOs, directly or indirectly
• NSDL is directed to ensure that the 6315 demate
a/c of Roopalben and 1315 demate a/c of Sugandh
not utilized for manipulation of IPO in future.
• NSDL is directed to undertake a comprehensive
inspection of Karvy-DP
• NSDL and CDSL are advised to enhance their
surveillance
 10,669 Bogus demat a/c
opened on 16 Aug. 2004

Ms. Roopalben Panchal 6483

Sugandh Estates and Investments 4186

Pvt. Ltd.

TOTAL 10,669
Major Public issues 2003-05
Major IPO Bogus Applications
 Criminal Action Demanded
• Criminal action against Panchals and others for opening bogus
Demat and Bank Accounts.
• Companies Act is clear on this under Sub-section (1) of Section
68A :
“Any person who :
a) Makes in a fictitious name an application to a Company for
acquiring or subscribing for any shares therein, or
b) Otherwise induces a Company to allot, or register any transfer of,
shares therein to him, or any other person in a fictitious name,
shall be punishable with imprisonment for a term which may
extend to five years.”
• As per Sec. 55A of Companies Act, provision of 68A is to be
administered by SEBI. In case of listed companies, Sec. 621
authorizes SEBI to file complaints for offences under the
Companies Act.
 Karvy the Culprit
• All the major scamsters along with Karvy have
looted the Small Investors.
• More than 95% bogus fictitious Demat accounts
have been opened by Karvy DP.
• Karvy has accepted payment and also refunded
the amount to the scamsters
• It is unearthed that Karvy was issuing single
cheque to Panchals, Sugandh Investment for
these benami, forged applications.
• The Syndicate of Karvy, Bharat Overseas Bank,
investors, Panchals was transferring refunds
belonging to thousands of bogus applicants with
help of Electronic Clearing System directly in the
bank accounts of Panchals & Others
 Action on Karvy
• Thousands of dematerialized accounts being
opened on the same day with the same branch
and being introduced by the same bank should
have alerted the DPs at the time of opening of
the dematerialized accounts.
• However the fact that DPs failed to exercise
even this basic due diligence gives rise to a
suspicion that they have actively colluded with
the perpetrators. It is a matter of serious
concern that Karvy-DP has opened such
apparently benami / fictitious accounts working
out to over 95% (42,056 nos) of the multiple
dematerialized accounts in relation to IDFC
IPO.
 Issue Raised by
Parliamentarians
• Members of Parliament have taken this
issue with Finance Minister :
– Shri Dharmendra Pradhan, MP
- Shri Yeshawant Sinha
- Shri Vedprakash Goyal
– Shri Vallabhbhai Kathuria, MP
– Shri Suresh Waghmare, MP
– Shri Sanjay Talathi, MP
– Shri Satish T. Gao, MP
• Demanded protection of Small Investors &
Criminal Action
 IGF Demands
• IGF demanded full-fledged investigation the role
played by Karvy - Karvy Registrar, Karvy Stock
Broker, Karvy DP.
• IGF has also come to the conclusion that
thousands of applications have been made without
completing the formalities. In many cases,
addresses are not available or application forms
are also not available.
• IGF demands that till all the investigation is
completed, all the activities of Karvy be
suspended immediately.
 Action Demanded by IGF
• Action under Sec. 68A of Companies Act against
the scamster.
• Anybody applies in an IPO in fictitious, bogus
names is punishable for 5 years imprisonment.
• As per Sec. 55A of Companies Act, provision of
Sec.68A is to be administered by SEBI in case of
listed companies.
• As IGF has already demanded action by SEBI and
NSDL, we would request you to ask Karvy to
initiate criminal action.
• We once again insist that such action must be
initiated by SEBI, NSDL for Karvy.
 IGF Representations to
• Hon. P.C. Gupta, Company Affairs Minister
• SEBI, Finance Ministry, RBI, NSDL &
CDSL, Stock Exchanges (BSE/NSE)
• Bharat Overseas Bank, Karvy,
• Home Minister, Gujarat Govt.
• Economic Offence Wing, Gujarat Police,
• Palton Road Police Station, Mumbai
 IGF Action : Police Complaint at
Palton Road Police Station ,Mumbai
IGF Action : Police Complaint at Police
Headquarters- Gandhinagar, Gujarat
 RBI Findings & Directives

• Bank a/c opened without Forms etc

• IPO financing given for Fictitious
Applicants
• Broker-Investor a/c debited & credited
for fictitious applicants
• Partner in the Scam
• Complete audit & Investigation of last 3
years IPO financing
05060034 AURIONPRO SOLUTIONS LTD. 9/27/2005 2700.00 BOOKBUILDING 65110 25.84 12.04
05060035 PARADYNE INFOTECH LTD. 9/30/2005 1386.00 FIXED PRICE 159631 44.33 44.33
05060036 SHREE RENUKA SUGARS LTD. 10/7/2005 11000.00 BOOKBUILDING 52508 6.19 14.20
05060037 GUJARAT INDUSTRIES POWER CO.LTD. 10/13/2005 20000.00 BOOKBUILDING 44337 1.87 4.23
05060038 K.M.SUGAR MILLS LTD. 10/14/2005 3328.00 FIXED PRICE 73670 19.42 15.15
05060039 BANNARI AMMAN SPINNING MILLS LTD. 10/19/2005 9450.00 BOOKBUILDING 80159 9.74 6.55
05060040 PBA INFRASTRUCTURE LTD. 10/24/2005 3000.00 FIXED PRICE 58038 35.01 8.01
05060041 VIKASH METAL & POWER LTD. 10/24/2005 2500.00 FIXED PRICE 32044 5.82 3.63
05060042 PRITHVI INFORMATION SOLUTIONS LTD. 10/25/2005 13500.00 BOOKBUILDING 146450 16.27 15.14
05060043 PIRAMYD RETAIL LTD. 11/10/2005 6000.00 BOOKBUILDING 93329 15.66 11.22
05060044 BOMBAY RAYON FASHIONS LTD. 11/11/2005 9432.50 BOOKBUILDING 152367 19.02 17.09
05060045 AIA ENGINEERING LTD. 11/17/2005 14805.00 BOOKBUILDING 133481 12.22 32.05
05060047 TRIVENI ENGINEERING & INDUSTRIES LTD. 11/18/2005 24000.00 BOOKBUILDING 56270 1.94 10.05
05060046 ABG SHIPYARD LTD. 11/18/2005 15725.00 BOOKBUILDING 258694 25.50 54.47
05060048 EVEREST KANTO CYLINDER LTD. 11/22/2005 9000.00 BOOKBUILDING 74517 9.66 15.51
05060049 COMPULINK SYSTEMS LTD. 11/25/2005 2723.08 FIXED PRICE 19306 3.45 2.01
05060051 KERNEX MICROSYSTEMS (INDIA) LTD. 11/28/2005 9901.11 BOOKBUILDING 113794 14.85 22.67
05060050 REPRO INDIA LTD. 11/28/2005 4323.00 BOOKBUILDING 29785 7.27 9.18
05060052 ICICI BANK LTD. 12/1/2005 575000.00 BOOKBUILDING 256377 0.75 5.95
05060053 PVR LTD. 12/8/2005 16650.00 BOOKBUILDING 65129 3.95 14.35
05060054 TULIP IT SERVICES LTD. 12/9/2005 10800.00 BOOKBUILDING 205214 25.09 28.14
05060055 RADHA MADHAV CORP.LTD. 12/12/2005 2000.00 FIXED PRICE 38580 19.67 8.28
05060056 RAMSARUP INDUSTRIES LTD. 12/13/2005 3000.00 FIXED PRICE 41710 10.80 9.34
05060057 PUNJ LLOYD LTD. 12/13/2005 64210.56 BOOKBUILDING 340800 9.22 42.92
05060058 EDUCOMP SOLUTIONS LTD. 12/19/2005 5000.00 BOOKBUILDING 93636 20.82 33.60
05060059 GINNI FILAMENTS LTD. 12/19/2005 4800.00 BOOKBUILDING 41669 6.27 3.19
05060060 CELEBRITY FASHIONS LTD. 12/19/2005 8190.00 BOOKBUILDING 82702 11.37 27.04
05060061 BARTRONICS INDIA LTD. 12/20/2005 4500.00 BOOKBUILDING 151908 42.91 27.45
05060062 NITIN SPINNERS LTD. 1/6/2006 4000.00 BOOKBUILDING 149779 38.22 20.23
05060064 ROYAL ORCHID HOTELS LTD. 1/12/2006 11253.00 BOOKBUILDING 253519 28.35 39.01
05060063 RAJ RAYON LTD. 1/12/2006 5525.00 BOOKBUILDING 49291 8.98 3.86
05060066 ANDHRA BANK 1/16/2006 76500.00 BOOKBUILDING 228335 3.04 10.68
05060065 BANK OF BARODA 1/16/2006 163300.00 BOOKBUILDING 224064 1.56 13.85
05060067 SREE SAKTHI PAPER MILLS LTD. 1/17/2006 2500.00 FIXED PRICE NA NA NA
05060068 DYNEMIC PRODUCTS LTD. 1/18/2006 1543.85 FIXED PRICE NA NA NA
05060069 ENTERTAINMENT NETWORK (INDIA) LTD. 1/23/2006 21384.00 BOOKBUILDING NA NA NA
05060070 GUJARAT STATE PETRONET LTD. 1/24/2006 37260.00 BOOKBUILDING NA NA NA
05060071 JAGRAN PRAKASHAN LTD. 1/25/2006 36943.59 BOOKBUILDING NA NA NA
05060072 INOX LEISURE LTD. 1/27/2006 19800.00 BOOKBUILDING NA NA NA
05060073 SUNIL HITECH ENGINEERS LTD. 1/30/2006 3465.00 FIXED PRICE NA NA NA

NA : NOT AVAILABLE
 Reserve Bank of India action on Banks
January 13, 2006

Bharat Overseas Bank, Vijaya Bank and certain other banks. The detailed scrutiny by the Reserve Bank
revealed that the funding of IPOs through multiple accounts was being followed by Bharat Overseas Bank and this
covered funding of several other IPOs, Infrastructure Development Finance Company (IDFC) being one of them.

Misuse of IPO finance- Penal action taken

The Reserve Bank of India in exercise of powers vested in it under the provisions of Section 47 A (1)(b) of
the Banking Regulation Act, 1949 imposed monetary penalties on seven scheduled commercial banks for violation
of RBI regulations on Know Your Customer (KYC) norms, for breach of prudent banking practices and facilitating
misuse of IPO finance to ineligible borrowers.

The RBI had issued show cause notices to all these banks. In response thereto banks had submitted their
written responses and the CEOs had also sought personal hearing with the RBI, which was granted. On careful
examination of banks' submission, the RBI has come to a conclusive decision that the aforesaid violations were
substantiated and accordingly the monetary penalties are imposed.

Bharat Overseas Bank Ltd.,

the bank had committed the following irregularities

(i) Extending IPO finance to fictitious/benami individuals without appropriate due diligence to establish their
identity or existence.

(ii) Apart from providing intra day funding of margin money to brokers, the bank had extended huge
amounts to a group of accounts through these fictitious/benami individuals in violation of RBI directive on limits on
funding of IPOs, (which specified, inter-alia, a limit of Rs.10 lakh per individual).

(iii) The internal control system has failed to arrest the above irregularities. It also did not act upon the alerts

emanated from the internal audit.

(iv) Collection of account payee cheques of various individuals who are not the customers of the bank,
besides crediting the proceeds of the refund orders to accounts other than the accounts of the payees.
3. In view of the above, the Reserve Bank of India has imposed a penalty of Rs.20.00 lakh (Rupees twenty
lakh only) on the bank.

Citi Bank

After examining the bank's reply and your oral submission on January 21, 2006,

The Reserve Bank of India held, inter-alia, that the bank had violated RBI
guidelines/directives/instructions
1.relating to monitoring of suspicious transactions, adherence to KYC norms
2. Issue of large number of cheque leaves not in consonance with the status of the account holder.
In view of the above, the Reserve Bank of India has imposed a penalty of Rs.5.00 lakh

HDFC Bank Ltd.

guidelines/directives/instructions

1.relating to opening of deposit accounts

2. failure of monitoring of transactions for adherence to KYC norms and failure of internal controls.
In view of the above, the Reserve Bank of India has imposed a penalty of Rs.5.00 lakh (Rupees five lakh
only) on the bank.

ICICI Bank Ltd.

the bank had violated RBI guidelines/directives/instructions relating to

opening of accounts
monitoring of transactions for adherence to KYC norms,
there was failure of internal control and
acceptance of account payee cheques across the counter without proper authorization.

In view of the above, the Reserve Bank of India has imposed a penalty of Rs.5.00 lakh (Rupees five lakh
only) on the bank.
 Indian Overseas Bank,

the bank had violated RBI guidelines / directives/instructions in regard to the following aspects.

a) Opening multiple accounts without adhering to KYC norms.

b) Facilitating manipulation of IPO process by certain group of individuals by extending IPO finance to
various fictitious individuals.
c) Failing to monitor the unusual and suspicious transactions in the account
the failure of internal controls in monitoring the non-compliance with KYC
policies/ procedures

In view of the above, the Reserve Bank of India has imposed a penalty of Rs.15.00 lakh (Rupees fifteen
lakh only) on the bank.

Standard Chartered Bank,

the bank had violated the RBI guidelines/directives/instructions relating to

KYC norms,
failed to verify the end use of funds in respect of loans granted against shares to a number of individuals.
In view of the above, the Reserve Bank of India has imposed a penalty of Rs.5.00 lakh (Rupees five lakh

only) on the bank.

Vijaya Bank,

the bank had violated following RBI guidelines /directives/instructions.

a) Opening multiple accounts without adherence to KYC norms

b) Failing to monitor large value transactions
c) Failure of internal control to check the irregularities in KYC compliance and monitoring of transactions
in the deposit accounts.
.In view of the above, the Reserve Bank of India has imposed a penalty of Rs.10.00 lakh (Rupees ten lakh
a)

only) on the bank.

 IGF Sources
• Small Applicants- investors
• SEBI, RBI, Fin Ministry, NSDL,
CDSL, Income Tax Dept, Exchanges
• Media Reports
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