Capital market regulator the Securities and Exchange Board of India (Sebi) has imposed a fine of Rs 25 lakh on local investment bank Enam Securities saying the firm failed to exercise due diligence and did not ensure adequate disclosures in the public offer of YES Bank.

The regulator, while examining the role of Enam Securities as a merchant banker, carried out an inspection of its books and other documents from August 16-30 , 2005 and observed that Enam Securities had failed to disclose that Rabobank was a promoter of YES Bank in its initial public offer (IPO) prospectus.

Enam, however, argued that a person defined as a promoter or co-promoter by a financial institution or by the Reserve Bank of India (RBI) or the government may not necessarily be a promoter by Sebi guidelines.

The regulator felt that varying stands relating to disclosures on promoters is not maintainable.

This stand of the noticee (Enam Securities ) amounts to contradiction. On the onehand,Rabobankhasbeenconsidered as a co-promoter of YES Bank for obtaining banking licence while on the other hand, in the IPO prospectus filed with Sebi, the same entity has not been shown as a promoter entity, said the Sebi order.

These are very important disclosures and the same should have been brought out clearly in the prospectus which would have enabled investors to take an informed investment decision.

Sebi also alleged that Enam did not properly monitor the flow of applications in the YES Bank IPO and shares were allotted to applicants having non-existing depository participant IDs and other irregularities.

The registrar to the issue and the post-issue lead manager both failed to notice and report the same to the regulator. However, Enam contendedthatitwasnotresponsibleforperforming the act of the registrar. It may be noted that the noticee (Enam Secs) is under an obligation to report the omission made by the registrar to Sebi, Sebi said.

As post-issue merchant banker, the noticee was expected to weed out fictitious , multiple and benami applications and to follow up with various agencies..

The regulator also alleged that Enam Securities as post-issue lead manager of Bharti Shipyard had failed to redress investor grievances within the stipulated period. It noticed that out of the total 859 complaints pertaining to the issue, even after eight months from the date of allotment, 35 investor complaints were still pending.

Enam told the regulator that 35 complaints could not be addressed because of certain legal and other constraints such as incomplete information, and not on account of lack of effort from its side. The submission of the noticee is taken into account and the benefit of the same is given, Sebi said.

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