After eight years of regulatory tussle, man finally freed of a trading account he didn’t open

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After nearly 10 years of approaching various regulatory bodies, and even appealing to the Supreme Court, Santosh Maruti Patil has finally rid himself of demat and trading accounts that he never opened.

The trading account had been used to manipulate a stock price - taking it from Rs 41 to Rs 122.65 between May 2009 and April 2010—through synchronised trading. But the first he heard of the demat and trading accounts, which had been opened in 2006 and 2009 respectively, was in 2015 when his bank manager informed him that his salary account was frozen.

Naturally, it came as a shock to him.

The bank had been instructed to do that by the capital markets regulator, following an investigation into the stock-price movement. The Securities and Exchange Board of India (Sebi) had issued a show cause notice in his name in 2013 and an ex-parte order fining him Rs 5 lakh in 2014, but he had been oblivious to it all because the contact details submitted against his name weren’t his, a fact which was later established by a police investigation.

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Just as the Sebi order was sinking in, in 2016, he got another notice and this time from the Income Tax Department.

He had been drawing a salary that was below the taxable income slab, but the IT notice said that shares of another company, which were worth over Rs 13.35 lakh were bought through his trading account and shares of a third company, worth over Rs 4.89 lakh, were sold through the same account. Again, Patil submitted that he had never opened a demat or a trading account.

It was just the beginning of a nightmare.

Regulatory to-and-fro

He and his sisters had to approach the market regulator, the appellate tribunal (SAT), the Supreme Court and the police to disentangle their lives from the scam.

Thankfully, he had legal representatives—Vinay Chauhan, Vikram Pradeep and Anand Kankani—who did this work pro bono.

One of his legal representatives told Moneycontrol that the reading of the FIR of this case - Patil filed a police complaint in 2020 - reads like a Netflix series.

Central to Patil’s story is the KYC process and the KYC consultant hired by the broking firm.

This consultant opened demat and trading accounts using just Patil’s photograph and copies of his PAN card (identity and address proof) and driver’s licence, and by forging his signature. The address given in these documents was later changed through a separate submission, and strangely, this false address matched the one given to open a bank account in Patil’s name in 2005, a year before the demat account was opened in his name. The bank later claimed that their employee had gone to this address and verified it, but a police investigation has established that Patil never lived at that address.

Then, did the employee doing the KYC at the bank collude with the person doing the KYC at the broking firms? The police investigation has not been able to give answers to that because a lot of time had passed by the time they came into the picture in 2020.

Patil had approached the police after Sebi asked the police to establish that his signature had been forged on the account-opening documents, a fact which had already been certified by a forensic expert.

By this time, Patil had approached SAT, appealing Sebi’s ex-parte order fining him Rs 5 lakh; SAT had asked Sebi to reconsider in 2015; and Patil had made his representation before Sebi, which again passed an order in 2020 fining him but this time, Rs 3 lakh.

He then approached the Supreme Court, which in November 2022 directed Sebi to reconsider its decision.

But there was another red tape waiting to trip him up.

Remember that proof of forgery that Sebi had asked Patil to get? Well, that had still not come through.

The police had still not filed a chargesheet and therefore, he could not substantiate the forgery claim in time for Sebi’s adjudication proceedings. The market regulator, in December 2022, retained its earlier fine of Rs 3 lakh.

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Final order

He then appealed to SAT again and the final order was passed this September, which takes note of the report the police had submitted before the Magistrate Court following an investigation: “The perusal of this report indicates that the contention of the appellant that his accounts were opened without his knowledge has been found to be true.”

While quashing Sebi’s December 2022 order, the SAT order stated that Patil deserved the “benefit of doubt” that “his accounts were used without his knowledge especially when in similar matters the orchestrated schemes were operated through such accounts”.

Finally, Patil’s ordeal seems to have concluded though it is yet to be seen if Sebi will appeal SAT’s verdict in the Supreme Court. His legal representatives told Moneycontrol that this is highly unlikely.

Next, he must deal with the IT Department and his legal representatives are optimistic about the outcome since the police has established that the demat and trading accounts were not operated by him, and because SAT ruled taking the police report into consideration.

Can this happen to anyone else? Thankfully, according to a legal expert and a brokerage firm’s head, it is highly unlikely with the Aadhaar-linked verification required for opening a bank account.