In view of the recent misuse of Initial Public
Offer (IPO) process by certain individuals/entities and reports received in
this regard from Securities and Exchange Board of India (SEBI), the Reserve
Bank of India took up detailed investigations at some banks to ascertain the
modus operandi adopted by different parties in manipulating the system. It was
observed that despite extant instructions, banks had credited the proceeds of
individual account payee refund orders into the accounts of the brokers instead
of to the individual accounts on the request of the associates of DP providers.
This has resulted in manipulation of the payment system and has facilitated
the perpetration of irregularities. This manipulation would not have taken place
but for the banks deviating from the procedure for collection of account payee
cheques. The deviations can also not be sanctified as a prudent market practice
since it has the potential to expose the banks to various risks.
The Reserve Bank has considered it necessary
to prohibit the banks from crediting 'account payee' cheque to the account of
any person other than the payee named therein. The Reserve Bank accordingly
directed the banks that they should not collect account payee cheques for any
person other than the payee constituent.
circular in this regard has since been posted on the RBI Web-site (www.rbi.org.in).
P. V. Sadanandan
Press Release: 2005-2006/928