Sebi charges at Indiabulls, bars firm from dealing

Thelentless rise of Indiabulls, started by two entrepreneurs, has been checked by the order of the Securities and Exchange Board of India (Sebi) barring the firm from dealing in securities including IPOs till further notice.

Sebi has come down heavily on Indiabulls along with 23 other entities. Of these, about 20 are individuals and besides Indiabulls the only other securities firm which has been named is Jhaveri Securities. These entities have been barred from trading in any kind of securities, in the Indian securities market including IPOs. The order is particularly strong as it does not indicate the timeframe for barring these entities, but it says its an interim order, so another order is expected to come soon.

"Our role as alleged in the Sebi order is limited to the fact that Indiabulls demat account has received 13,939 shares of TCS from 559 accounts. We have received these shares in our client margin account from the 559 clients as margin for their trading purposes. Sebi has assumed that these clients have given these shares to Indiabulls because they were used by Indiabulls for cornering TCS IPO shares. The order is factually incorrect. It would have been better if Sebi had at least asked us as to why we received shares from 559 accounts. If we are a retail broker then we receive shares from clients as margin and receive shares in margin as per the Sebi laws that provide that we can not trade for clients without receiving margin from them," Gagan Banga founder of Indiabulls said.

Indiabulls was started by Samir Gehlot and Mr Banga a few years ago. The company's rise was meteoric. It went public in September '04, within three months of its IPO, the FII holding in the company was 50%, possibly the highest for any publicly traded stock broking firm in that time.

The rise of Indiabulls is reflected in the dark glass facade building which houses the firm in Gurgaon. The office is situated in one of the most expensive real estate in Gurgaon and rivals the glass facade office of MNCs, like Nestle, American Express, and Convergys.

Indiabulls built up an huge client base of more than 50,000 accounts in a very short period of time. The trick to attracting these clients was to use the lure of margin trading. Basically the credit arm of the broking firm would extend a loan against securities to the clients of the broking firm. In a rising market, margin trading helps investors get higher exposure, but it is considered a huge risk.

Indiaulls has been attracting not only clients but foreign investors in droves. The US fund Farallon paid Rs 88 crore for a 33% stake in Indiabulls arm in January 3, '05. Indiabulls raised $45m from the GDR market in February 25, '05.Merrill Lynch acquired 2% in Indiabulls on June 8, '05. and increased it to 5% in February, '06

LN Mittal also picked up a stake in Indiabulls Credit, while Farallon also increased it stake to 60% in Indiabulls Credit in February, '06.

Indiabulls Financial Services (IBFSL) claims to be a diversified financial services company offering, directly and through its various subsidiary companies, consumer loans, housing loans, personal secured & unsecured loans, securities brokerage & depository services, and distribution of insurance and mutual funds.

And through its group companies, IBFSL has projects of over Rs 2,000 crore in real estate development.

IBFSL boasts an employee strength of over 10,000 employees, spread across more than 400 branches in over 100 cities of India, and consolidated net worth exceeding Rs 1,800 crore.

Indiabulls stopped in its tracks