IPO scam: SEBI panel blames it on NSDL's laxity

The two-member committee appointed by SEBI to probe the NSDL’s role in the IPO scam had faulted the depository for its failure in detecting the large-scale fraud that was present in a particular depository participant, unsatisfactory KYC system and the weakness in the data uploading system.

However, the committee did not find any evidence that such failures arose from any malafide on the part of the NSDL management.

The members of the committee were G. Mohan Gopla and V. Leeladhar. The SEBI board on Monday declared the committee’s order non-est (non-existent in the eyes of law)

In the matter of DSQ Software, wherein one crore unpaid shares allotted were transferred to allottees and delivered in stock exchange settlement facilitating the unjust enrichment of the promoter, the order states that NSDL did not exercise adequate due diligence in notifying the information contents in corporate action information forum submitted by the issuer company as its Registrar and Transfer Agents, while dematerialising the shares as per the information without verifying the contents.

The committee did not accept the plea of NSDL that the responsibility of carrying out the due diligence in this regard rested with the issuer company and its RTA. As a matter of fact, the committee was of the view that Sec 19 and 26 of the depositories act cast a general duty on the depositories to protect the interests of the investors and ensure the orderly development of the Securities market. It is interesting to note that the Securities Appellate Tribunal while setting aside the order of the adjudicating authority levying a penalty of Rs 5 crore on NSDL in an order dated January 14 did not find any illegality or irregularity in the maintenance of data base by NSDL while limiting the role of depository to a compliance with the instructions/norms issued by SEBI from time to time.

The order of the committee notes that SEBI should bear greater responsibility for its failure to identify weaknesses in the supervision, inspection system and for not bringing timely measures to strengthen it.

Taken from Business Line