Investors in the recent ONGC divestment offer were in for a rude shock on Monday as the new shares allotted to them -- and credited to their depository accounts in the morning -- were reversed later in the day. To make things worse, some of the investors had placed sale orders for these shares.

These investors will be hard pressed to deliver the shares, though Union divestment minister Arun Shourie said in Mumbai that "the transactions would be reversed or other action taken depending on the circumstances". Shourie was in Mumbai to deliver a lecture at the Bombay Stock Exchange.

Reacting to the development, Shourie said a special task force had been constituted to sort out the matter as "the registrars were unable to handle the matter and it had got out of hand".

Experts from Karvy Consultants in Hyderabad were being flown in, while two officials of the National Stock Exchange were already working on the job, Shourie added. Two officials from the divestment ministry would also be coming in to monitor the operations, he said.

National Securities Depository Ltd officials indicate that if they receive the revised allotment instructions by Tuesday, they will be in a position to credit investors' accounts before the pay-in on Thursday, as Tuesday is a bank holiday.

A K Batra, a wholetime director at the Securities and Exchange Board of India, told reporters that MCS, the registrar to the issue, had made an error in its instruction to the depositories. "The situation will be normal by Tuesday morning," he said.

According to details pieced together by Business Standard, MCS had sent an allotment file on Saturday to the depositories, with instructions to be executed on Monday morning.

NSDL Managing Director CB Bhave told Business Standard the instructions were implemented and the shares were duly credited. "But at about 11.30 am, MCS asked for the allotment file to be reversed due to "some error" at their end.

NSDL asked for a "reversal file" to be sent, which was executed by the end of the day. NSDL sources said the exchanges were informed in the morning itself of the development.

MCS reportedly asked the stock bourses to reverse all entries, which was flashed by the exchanges on trading terminals, thus creating a panic on the markets. The stock's price declined sharply in early trades to a low of Rs 780 on huge selling pressure.

However, it rose smartly from the lower levels to a high of Rs 856.90 as investors rushed to buy to square off their sale transactions. The stock settled at Rs 844.40, down 0.34 per cent from its Friday's close.

MCS executives were not available for comment despite repeated attempts by Business Standard. An emailed questionnaire and a faxed questionnaire failed to elicit a response till late evening.

Shourie explained that the error happened because high net worth individuals were treated on a par with retail investors, who were assured of full allotment.

The registrars had erroneously credited the demat accounts of high net worth individuals who had subscribed to the issue -- with shares in excess of what was due to them. Sebi's Batra explained that owing to the erroneous credits there was overallotment.

In respect of those shares which were already bought or sold before the error was discovered, both Batra and Shourie said that the transactions would be reversed or other action taken, depending on the circumstances.

Shourie said that the ministry and Sebi were ascertaining "whether the error was genuine or there was some other intent."

In the eye of a storm

• High net worth individuals allotted shares in excess of what was due to them
• MCS, the registrar to the issue, erred in instructions to NSDL
• MCS treated high net worth individuals on a par with retail investors who were promised 100% allotment
• Arun Shourie constitutes special task force to sort out the mess