Karvy To Make Representation To SEBI

Mumbai, April 28, 2006

Mr. J Ramaswamy, Vice President, Corporate Affairs, Karvy Group commenting on the order stated, " That the SEBI order issued on the 27th of April is very harsh. We wish to take this opportunity to state the following.

1. Karvy Stock Broking Ltd has been named as one of the 85 entities, which has acted as a financer of the master accountholders, who appear to be the ultimate beneficiaries. Karvy Stock Broking Ltd has never financed any IPO customer till date. The SEBI order refers to KSBL as financer to one Shri D B Mehta in the NTPC issue. Neither Karvy Stock Broking nor any of its associate companies financed the said investor for the said issue. This investor has a secondary market trading account with Karvy Stock Broking Ltd, Mumbai branch and he had transferred shares into our pool account on the day the securities were listed and sold the shares in the market. SEBI appears to have mistaken the transfer of securities in, to our pool account by a customer, who was subsequently paid the proceeds, as a wrongful act of Karvy.

2. SEBI order has once again come down heavily on Karvy-DP on account of a few of its sub-brokers having been involved in opening fictitious/benami accounts. In this connection we wish to state as under:

a) SEBI has alluded in the report that the certificates of introduction issued by the bankers are forged and that they have been issued with the connivance of Karvy. This is baseless and simply based on the concerned bank along with the said individuals, who seemed to have acted in collusion and now shifting the blame. The fact that the collusion of the banks with these individuals can be borne out of the fact that all these fictitious individuals were given loans and the refunds credited to the said accounts. If these bank certificates were issued without the knowledge of the concerned bank, then how did these banks issue loans to such applicants without a bank account and how did they credit the refunds, either given piecemeal or in a consolidated form to the respective loan accounts. SEBI has not provided an opportunity to Karvy to clarify its role vis-à-vis the allegations made by the perpetrators and the bankers.

b) Should Karvy have acted with a malafide intent or they have been benefited unduly, then they should have received the benefit either by way of shares or funds by way of profit realised on these shares. SEBI has all means to verify whether such benefits have been received and had not identified even a single case of such benefits being accrued. Karvy has not received any undue benefits whatsoever.

c) There are certain portions of SEBI order, which have been highlighted, which seem to suggest that Karvy has orchestrated the entire scheme of defrauding investors. This is untrue and Karvy-DP has been misused by some of these individuals.

d) We maintain that we have collected all the relevant documents, established proof of identity and address. The KYC norms, prima-facie, were fulfilled.

e) We were victims of a fraud purported by these individuals, who projected themselves as sub brokers in the primary market with a large customer base.

f) Out of a total of approximately 8,00,000 accounts, approximately 65,000 accounts aggregating to 8% of the total accounts opened by these sub-brokers were of suspicious nature and these have since been closed. Karvy still has over 7,00,000 DP accounts and is amongst the largest DP in terms of number of accounts.

g) Karvy has over 500 branches and over 15,000 primary market sub brokers. These accounts were opened by a handful of sub-brokers in two branches at Ahmedabad and Mumbai.

3. There is a reference in this order with respect to Karvy RTI. The main allegation in this order is that single refund orders were issued by Karvy to various institutions that have financed the IPOs. This is a process that has been adopted based on the requests received from various banks/finance companies purely for the sake of administrative convenience. In all such cases, we believe that the methodology adopted is akin to the ECS/direct credit system proposed to be encouraged by RBI and SEBI. It is incorrect to allege that Karvy RTI had any malafide intents because most of the refunds so issued do not pertain to their associate companies DP clients or broking clients. It is also submitted that the process of issuing a single cheque upon a request received from the financer, had also been adopted, till recently by other registrars.

4. We also wish to state the following:

a) With over 7,00,000 DP accounts, Karvy is the largest DP in the country. Our customers are all retail and on a daily basis we process over 25,000 delivery instruction slips received from all parts of the country.

b) Karvy Computershare Pvt Ltd is India''s largest registrar and transfer agent servicing over 22 million investors for the best of the corporates in the country and mutual funds. We have had an unblemished record so far and have taken up special assignments at the behest of the regulator in the past. Our JV partner Computershare is considered to be the largest registrar in the world with operations in about 15 countries.

c) Karvy is also one of India''s largest stock brokers with approximately 290,000 customers. Over 35,000 individual customers trade with Karvy on a daily basis. Karvy Stock Broking Ltd is also among the leading distributors for IPOs and mutual funds.

d) The Karvy group employs over 7,000 people and has over 500 branches spread across the country. This is a retail company with focus on servicing individual investors. There will be approximately about 50,000 to 60,000 investors, who get in touch with Karvy on a daily basis for servicing their needs.

e) Karvy has always believed in the highest standards of compliance and integrity. This is the hallmark of the management. The entire incident took place in two branches of Karvy and with a handful sub-brokers as against 15,000 primary market sub-brokers, who work under the Karvy banner.

We only wish that SEBI had given us an opportunity of being heard before passing such a harsh order. Our commitment to the Indian capital market is total and we will continue to strive to service retail investors to the best of our abilities. We will appeal to SEBI to consider our representation favourably."

We respect SEBI order and we will certify the position by filing our objections within the time stipulated from the date of this order. We believe that the inspection of our operations undertaken by the depositories or SEBI did not reveal any serious violation, especially those with a malafide intent. As responsible intermediaries, we have, however, strengthened our process and systems in the DP area. We are also thankful to SEBI for allowing us to continue service to our customers in the secondary market.

Karvy Group''s robust practices protect and service over 10 lakh investors. Its level of automation and transparency is unparalleled resulting in the Group enjoying a leadership position in several categories of the business.

a. Karvy''s management of the rectification of the ONGC Issue allotment process in 2004 was appreciated by the Government of India.

b. Subsequent to this Karvy handled the NTPC order which received over 15 lakh applications and had received accolades from various quarters of the capital market including a few officials of the regulator.

c. Karvy Computershare Private Ltd is currently processing the recent public offer of Reliance Petroleum Ltd which has received 21 lakh application forms, thereby creating a record in the Indian Capital Markets.

For further information please contact:
Mr. Pradeep Rajshekhar / Ms. Janhavi Badle
Hanmer & Partners, Mumbai
Mobile: 9870204782 / 9820516212 / 67524600