SEBI orders freezing of Investsmart account

Our Bureau Mumbai | Updated on February 05, 2011

The Securities and Exchange Board of India on Saturday directed the National Securities Directory Ltd to freeze a depository account worth Rs 164 crore belonging to Investsmart Financial Services Ltd (IFSL).

This order follows the investigations by SEBI after it had banned 62 entities on December 2, 2010, for manipulations in shares of some companies.

The entities banned by SEBI included four-listed companies — Murli Industries, Ackruti City, Welspun-Gujarat Stahl Rohren and Brushmanthree broking firms, as well as market operator Sanjay Dangi and other related entities for their involvement in the manipulation of stock prices for a span of several years.

One of the entities which was restrained from accessing the securities market was Mentor Capital Ltd , earlier known as Pacific Corporate Services Ltd (PCSL).

Shares transferred

On December 2, 2010, the order to bar these entities from the securities market was passed at 5:50 pm, while the ban was imposed by NSDL at 8:08 pm. During the interim period, PCSL transferred shares worth Rs 203.83 crore (based on close price of shares as at December 2, 2010) to the depository account of IFSL.

IFSL, in its clarification to SEBI, informed that it had extended a demand loan facility of upto Rs 45 crore to PCSL and had exercised Power of Attorney over PCSL's account which was held in the form of collateral. But when news reports of PCSL's ban became public, IFSL did not want to continue with the relationship and asked PCSL to repay the loan.

As PCSL was unable to clarify its position, IFSL exercised its authority under the loan agreement and took custody of the said account. “The PCSL account was immediately restricted for fresh disbursement on 2 Dec, 2010 subsequent to which the relationship with PCSL has been terminated by IFSL,” stated IFSL in its clarification to SEBI.

Outstanding payments

Further, since PCSL failed to make the outstanding payments to IFSL, IFSL sold a portion of the shares, amounting to Rs 39.39 crore, held in the account through off market deals between December 3-6 , 2010.

SEBI's stand now is that since these remaining shares worth Rs 164 crore also in effect belong to PCSL, they are subject to the freeze imposed by the earlier SEBI order passed on December 2, 2010, thereby freezing IFSL's account.

The ban will be in place, with immediate effect, said the order.

A total of 1.2 crore shares of around 30 companies were held in IFSL's account. IFSL has submitted copies of the loan agreement between IFSL and PCSL, along with the other communication between the two companies. These documents are currently under examination by SEBI.


Published on February 05, 2011

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