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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
21st Century India is moving in the direction of becoming a Developed Country. I
mportance on the growth, Government investment in infrastructure from the year 2
000 has changed the picture of Indian economy. Rs 1,00,000 crore Government spen
ding on the core and infrastructure industries during 2001-03, has created a boo
m in the Indian Economy. Indian industries have gained self-confidence to compet
e with the world. The boom in the economy resulted in the boom in finance indust
ry 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 CRBNBFC, the plantation companies and the Ketan Parekh Scam. Industries and
finance sector always tried to tap the primary market during a boom. Mobilize th
e financial resources through Public Issues and IPOs. In 2004-05, more than Rs.2
4,000 crores have been mobilized from the primary market through Public Issues a
nd 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 m
ini-steel plants and mini-cement plant public issues. These companies tapped the
market, fooled the Small Investors, collected hundreds of crores of Rupees, div
erted the funds. Small Investor was the loser. After the Harshad Mehta pick, onc
e again the primary market got a momentum during 1995 to 1997 which resulted int
o the vanishing companies scam. Almost 1000 companies raised funds through Publi
c Issues and got vanished. During the Ketan Parekh Scam, several companies chang
ed their names from NBFC, finance companies to Infotech companies. Tapped the ma
rket. Several companies also created the hype and got benefited by higher premiu
m.Small Investors the looser.
The IPO-Demat Scam of 2005 is in a way repetition of history. It is economic gro
wth, booming economy, momentum to Capital Market and once again scamsters. Same
mentality has destroyed the whole of the Indian finance/capital market regulator
y network. It is just like a virus. Which has demolished, corrupted the banking
system, depository system, Stock Exchanges,SRO,s Rregulatory network. The failur
e of surveillance and vigilance at every level from the Finance Ministry, RBI, S
EBI, NSDL, CDSL, NSE, BSE, Banks, Depositories. In a single day, 10,000 bank acc
ounts 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 to
gether to master-mind the scam, corrupted 53 Public Issues, siphoned off more th
an 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 i
s 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 thousan
ds of applications, allotted them shares without even receiving applications.Inv
estors’ 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, pu
nishable with imprisonment up to 5 years. SEBI and the Government has to initiat
e 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 Devel
oped Countries. Take the issue to the logical end and get justice to Small Inves
Story of Greed, Failure of System
• Started in August 2004 • Loot & Cornering Small Investors Quota by Syndicate of Br
oker, 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
BrokerInvestors, 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 B
harat Overseas Bank, City Bank, Indian Overseas Banks……. • Story of Karvy Registrar, D
P, Stock Broker • Failure of SEBI, NSDL, CDSL, RBI,BSE
Connivance of all of te above made 43,982 applications in fictitious names in ID
FC Public Issue. Got alloted 1,17,05,872 shares. Roopalben & Budhwani were allow
ed 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 o
f operators acting in concert • tout ensemble through the mechanism of front entit
ies of name-lenders • clear abuse of the very process of IPO, meant to shore up th
e participation of small investors. • The syndicate “shared” the “Share Allotment Benefi
t” 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 na
me-lenders or non-existent • These Bogus allottees transferred shares to Panchals,
Budhwanis the Syndicate • Transfer of shares before listing • Sold shares on the fi
rst day of listing • Windfall gain • Elbowing out the genuine retail investors • Bank
in depositories allowed syndicate to open benami/ fictitious demat and bank acco
• IPO of IDFC opened on July 15, 2005 and closed on July 22, 2005. • Basis of allotm
ent 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. Mutu
al 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 b
e offered to Small Individual Investors (defined as Individual Bidders who bid f
or equity shares for an amount less than or equal to Rs. 1,00,000 as per prospec
Transactions in IDFC Shares by Roopalben Panchal & Associates
• Roopalben have their demat a/c with Karvy Stock Broking Ltd. • Panchals also have
thousands of FictitiousBogus-Benami Demat Accounts & Banks A/C at the same addre
– 34 Ketan Tower, Camp Road, Shahibaugh, Ahmedabad-380004. – 402-403, Shashwat, Opp.
Gujarat College, Ellisbridge, Ahmedabad , – bank accounts with Bharat Overseas Ba
nk, C G Road, Ahmedabad.
Roopalben Panchal & Others
• Roopalben received 39,43,184 shares from 14,807 demat a/c’s on August 11 • Purshotta
m Budhwani received 2,98,412 shares from 1122 demat a/c’s on 8 August • Roopalben al
so received 32,61,426 shares from 12,257 dematerialized a/c on 8 Aug • Sugandh Inv
estment 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 Panchal 27064 Sugandh Estates 10181 and Investments Pvt. Ltd. Shri
Purshottam Ghanshyam Budhwani Shri Manojdev Seksaria TOTAL 4748
Source: SEBI Order on IDFC – Demat Scam
Roopalben 12,257demat a/c-NSDL
opened in 21 various batches on 21 diff. dates
Sr.No. 1 2 3 4 5 6 7 Demat A/c Opening Upto 15.08.04 16.08.04 17.08.04 18.08.04
19.07.05 20.07.05 21.07.05 Total No. of Accounts 5990 2729 195 59 1001 1525 758
Sugandh Invest Demat A/C opening
Budhwani demat a/c opening
Sr.N o. 1 2 3 4 5 6 Demat A/c Opening Upto 15.08.04 13.10.04 10.06.05 14.06.05 1
5.06.05 22.07.05 Total No. of Accounts 670 424 40 18 142 2822 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 carpe
t 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 categor
y and had received allotment in the IPO of IDFC, as many as 43,982 applicants re
presenting 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 re
presenting 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 offmarket
transfers to her demat account • Immediately prior to the scheduled listing on the
stock exchanges • It is simply fairy-tallish.
• • • • • 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 thousand
s of aplicants • Opened fictitious demat a/c • Forms, details not available now • Issu
ed single refund cheque for thousands • Of applicants • Karvy the Registrar, DP, Sto
ck 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 securitie
s market, directly or indirectly • NSDL and CDSL to ensure that the demate a/c whi
ch served as conduit for Roopalben, Sugandh, Budhwani and Seksaria are not utili
zed for manipulation of IPO allotment in future. • SEBI is directed to conduct imm
ediately inspection of Karvy-RTI

The following entities are directed not to buy, sell or deal in the securities m
arket, 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
SEBI Directives

The following entities are directed not to buy, sell or deal in the shares of ID
FC Ltd. and in other ensuing future IPOs, directly or indirectly, till further d
• • • • • • • • • • • • • • • • Zenet Software Ltd. Tauras Infosys Ltd. Rajan Vasudev Dapki
Panchal Jayantilal Jitmal Seer Finlease Pvt. Ltd. Excell Multitech Ltd. Devangi
Dipakbhai Panchal Hasmukhlal N. Vora Welvet Financial Advisors Pvt. Ltd. Jayesh
P Khandwala HUF Guatam N Jhaveri Shilpa Rajan Dapki Dipak Jashvantlal Panchal Hi
na Bhargav Panchal Bhanuprasad Dipakkumar Trivedi
•Sujal Leasing Pvt. Ltd. •Dushyant Natwarlal Dalal •Puloma Dushyant Dalal •Amadhi Invest
ments Ltd. •Ritaben R Thakkar •Monal Y Thakkar •Page 46 of 49 •Vinod Modha •Kelan Atulbhai
Doshi •Jitendra Lalwani •Lok Prakashan Ltd. •Bahubali Shantilal Shah •Smruti Shreyans S
hah •Shreyans Shantilal Shah •Datamatics Telecom Ltd. •Dharmesh Bhupendra M •Biren Kanti
lal Shah •Suresh Bhikha Vasava •Javeri Gautambhai •Jay Shah
Bharat Overseas Bank
• Connivance or Negligence ? • Extending IPO finance to fictitious/benami individual
s • Providing intra day funding of margin money to brokers • Extended huge amounts t
o the group through these fictitious/benami individuals • The internal control sys
tem has failed to arrest the above irregularities • Collection of account payee ch
eques 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 Custome
r (KYC) norms • Breach of prudent banking practices • facilitating misuse of IPO fin
ance to ineligible borrowers. • Issued show cause notices • RBI conclusion that viol
ations 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 Ban
td. ICICI Bank Ltd. Standard Chartered Bank
• €Issue opened on June 15, 2005 • Listed at BSE & NSE July 12 • Roopalben Panchal trans
ferred 9,31,600 shares to seven entities on July 11, i.e. prior to the listing • I
n 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 Ro
opalben Panchal’s name in the list of applicants/ allotees only once
Scam-Yes Bank IPO
Yes Bank Issue
• Public Issue @ Rs 45 • 1.75 Crores Shares Reserved for Small Investors • Rupalben co
rnered & sold 8,39,500 shares @ Rs 61.40 • Rupalben & Syndicate earned profit of R
s 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 B
ank, 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. 2.€€€€€ Excell Multitech Ltd. 3.€€€€€ Devangi Dipakbhai Pancha
5.€€€€€ Tauras Infosys Ltd. 6.€€€€€ Rajan Vasudev Dapki
3,32,875 shares 1,61,180 shares 2,20,000 shares 92,855 shares 80,590 shares 44,1
Roopalben & Investors
• Roopalben received funds from 8 entities • Prior to the IPO of Yes Bank Ltd. • Devan
gi Dipak Panchal, Rajan Dapki, Zenet Software Ltd., Excell Multitech Ltd., Tauru
s Infosys Ltd., Seer Finlease P Ltd., Barghav Panchal (HUF) and Jayantilal Jitma
l • She in turn transferred these funds to 6315 entities who had utilized these fu
nds 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 Modu
s-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 Compan
ies 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 fo
r manipulation of IPO in future. • NSDL is directed to undertake a comprehensive i
nspection 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 Sugandh Estates and Investments Pvt. Ltd. TOTAL 6483 4186
Major Public issues 2003-05
Major IPO Bogus Applications
Criminal Action Demanded
• Criminal action against Panchals and others for opening bogus Demat and Bank Acc
ounts. • 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 subsc
ribing for any shares therein, or b) Otherwise induces a Company to allot, or re
gister any transfer of, shares therein to him, or any other person in a fictitio
us name, shall be punishable with imprisonment for a term which may extend to fi
ve 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 o
ffences under the Companies Act.
Karvy the Culprit
• All the major scamsters along with Karvy have looted the Small Investors. • More t
han 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 t
hat Karvy was issuing single cheque to Panchals, Sugandh Investment for these be
nami, forged applications. • The Syndicate of Karvy, Bharat Overseas Bank, investo
rs, Panchals was transferring refunds belonging to thousands of bogus applicants
with help of Electronic Clearing System directly in the bank accounts of Pancha
ls & 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 h
ave actively colluded with the perpetrators. It is a matter of serious concern t
hat 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
Issue Raised by Parliamentarians
• Members of Parliament have taken this issue with Finance Minister :
– – – – – Shri Shri Shri Shri Shri Shri Shri Dharmendra Pradhan, MP Yeshawant Sinha Vedpra
kash Goyal Vallabhbhai Kathuria, MP Suresh Waghmare, MP Sanjay Talathi, MP Satis
h T. Gao, MP
• Demanded protection of Small Investors & Criminal Action
IGF Demands
• IGF demanded full-fledged investigation the role played by Karvy - Karvy Registr
ar, Karvy Stock Broker, Karvy DP. • IGF has also come to the conclusion that thous
ands 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 i
n 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 in
sist 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 & CD
SL, Stock Exchanges (BSE/NSE) • Bharat Overseas Bank, Karvy, • Home Minister, Gujara
t Govt. • Economic Offence Wing, Gujarat Police, • Palton Road Police Station, Mumba
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 05060035 05060036 05060037 05060038 05060039 05060040 05060041 05060042
05060043 05060044 05060045 05060047 05060046 05060048 05060049 05060051 0506005
0 05060052 05060053 05060054 05060055 05060056 05060057 05060058 05060059 050600
60 05060061 05060062 05060064 05060063 05060066 05060065 05060067 05060068 05060
069 05060070 05060071 05060072 05060073
9/27/2005 2700.00 BOOKBUILDING 9/30/2005 1386.00 FIXED PRICE 10/7/2005 11000.00
BOOKBUILDING 10/13/2005 20000.00 BOOKBUILDING 10/14/2005 3328.00 FIXED PRICE 10/
19/2005 9450.00 BOOKBUILDING 10/24/2005 3000.00 FIXED PRICE 10/24/2005 2500.00 F
IXED PRICE 10/25/2005 13500.00 BOOKBUILDING 11/10/2005 6000.00 BOOKBUILDING 11/1
1/2005 9432.50 BOOKBUILDING 11/17/2005 14805.00 BOOKBUILDING 11/18/2005 24000.00
BOOKBUILDING 11/18/2005 15725.00 BOOKBUILDING 11/22/2005 9000.00 BOOKBUILDING 1
1/25/2005 2723.08 FIXED PRICE 11/28/2005 9901.11 BOOKBUILDING 11/28/2005 4323.00
BOOKBUILDING 12/1/2005 575000.00 BOOKBUILDING 12/8/2005 16650.00 BOOKBUILDING 1
2/9/2005 10800.00 BOOKBUILDING 12/12/2005 2000.00 FIXED PRICE 12/13/2005 3000.00
FIXED PRICE 12/13/2005 64210.56 BOOKBUILDING 12/19/2005 5000.00 BOOKBUILDING 12
/19/2005 4800.00 BOOKBUILDING 12/19/2005 8190.00 BOOKBUILDING 12/20/2005 4500.00
BOOKBUILDING 1/6/2006 4000.00 BOOKBUILDING 1/12/2006 11253.00 BOOKBUILDING 1/12
/2006 5525.00 BOOKBUILDING 1/16/2006 76500.00 BOOKBUILDING 1/16/2006 163300.00 B
OOKBUILDING 1/17/2006 2500.00 FIXED PRICE 1/18/2006 1543.85 FIXED PRICE 1/23/200
6 21384.00 BOOKBUILDING 1/24/2006 37260.00 BOOKBUILDING 1/25/2006 36943.59 BOOKB
UILDING 1/27/2006 19800.00 BOOKBUILDING 1/30/2006 3465.00 FIXED PRICE
65110 159631 52508 44337 73670 80159 58038 32044 146450 93329 152367 133481 5627
0 258694 74517 19306 113794 29785 256377 65129 205214 38580 41710 340800 93636 4
1669 82702 151908 149779 253519 49291 228335 224064 NA NA NA NA NA NA NA
25.84 44.33 6.19 1.87 19.42 9.74 35.01 5.82 16.27 15.66 19.02 12.22 1.94 25.50 9
.66 3.45 14.85 7.27 0.75 3.95 25.09 19.67 10.80 9.22 20.82 6.27 11.37 42.91 38.2
2 28.35 8.98 3.04 1.56 NA NA NA NA NA NA NA
12.04 44.33 14.20 4.23 15.15 6.55 8.01 3.63 15.14 11.22 17.09 32.05 10.05 54.47
15.51 2.01 22.67 9.18 5.95 14.35 28.14 8.28 9.34 42.92 33.60 3.19 27.04 27.45 20
.23 39.01 3.86 10.68 13.85 NA NA NA NA NA NA NA
Reserve Bank of India action on Banks January 13, 2006 Bharat Overseas Bank, Vij
aya Bank and certain other banks. The detailed scrutiny by the Reserve Bank reve
aled that the funding of IPOs through multiple accounts was being followed by Bh
arat Overseas Bank and this covered funding of several other IPOs, Infrastructur
e Development Finance Company (IDFC) being one of them. Misuse of IPO finance- P
enal action taken The Reserve Bank of India in exercise of powers vested in it u
nder the provisions of Section 47 A (1)(b) of the Banking Regulation Act, 1949 i
mposed monetary penalties on seven scheduled commercial banks for violation of R
BI regulations on Know Your Customer (KYC) norms, for breach of prudent banking
practices and facilitating misuse of IPO finance to ineligible borrowers. The RB
I had issued show cause notices to all these banks. In response thereto banks ha
d submitted their written responses and the CEOs had also sought personal hearin
g 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 sub
stantiated and accordingly the monetary penalties are imposed. Bharat Overseas B
ank Ltd., the bank had committed the following irregularities (i) Extending IPO
finance to fictitious/benami individuals without appropriate due diligence to es
tablish 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 ac
counts 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 la
kh per individual). (iii) The internal control system has failed to arrest the a
bove irregularities. It also did not act upon the alerts emanated from the inter
nal audit. (iv) Collection of account payee cheques of various individuals who a
re not the customers of the bank, besides crediting the proceeds of the refund o
rders 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.2
0.00 lakh (Rupees twenty lakh only) on the bank.
Citi Bank
After examining the bank s reply and your oral submission on January 21, 2006, T
he Reserve Bank of India held, inter-alia, that the bank had violated RBI guidel
ines/directives/instructions 1.relating to monitoring of suspicious transactions
, adherence to KYC norms 2. Issue of large number of cheque leaves not in conson
ance with the status of the account holder. In view of the above, the Reserve Ba
nk 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 fa
ilure of internal control and acceptance of account payee cheques across the cou
nter without proper authorization. In view of the above, the Reserve Bank of Ind
ia 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 ex
tending IPO finance to various fictitious individuals. c) Failing to monitor the
unusual and suspicious transactions in the account the failure of internal cont
rols in monitoring the non-compliance with KYC policies/ procedures In view of t
he above, the Reserve Bank of India has imposed a penalty of Rs.15.00 lakh (Rupe
es 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 agains
t shares to a number of individuals. In view of the above, the Reserve Bank of I
ndia 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) Open
ing multiple accounts without adherence to KYC norms b) Failing to monitor large
value transactions c) Failure of internal control to check the irregularities i
n KYC compliance and monitoring of transactions in the deposit accounts. .In vie
w of the above, the Reserve Bank of India has imposed a penalty of Rs.10.00 lakh
(Rupees ten lakh only) on the bank.
IGF Sources
• Small Applicants- investors • SEBI, RBI, Fin Ministry, NSDL, CDSL, Income Tax Dept
, Exchanges • Media Reports • Market Experts & Source • Banks, Brokers & others