Sebi bars Karvy Stock Broking, its chairman for 7 years

Sebi bars Karvy Stock Broking, its chairman for 7 years

The Securities and Exchange Board of India (Sebi) has barred Karvy Stock Broking (KSBL) and its chairman C Parthasarathy from accessing the securities market for seven years in a final order issued on Friday.

Parthasarathy has been additionally restrained from holding the post of director or any key managerial position or associating himself in any capacity with any listed public company or Sebi-registered intermediary for 10 years. Independent directors – Bhagwan Das Narang and Jyothi Prasad – have been similarly restrained for two years and have been asked to pay a penalty of Rs 5 lakh each.

Karvy Realty and Karvy Capital have been directed to tranfer Rs 1,443 crore to KSBL within a period of three months, failing which the NSE has been directed to take control of the assets of Karvy Realty and Karvy Capital to recover the money.

The proceeding against independent directors Yugandhar Meka and Ashish Agarwal was disposed off.

The order observed that more than 300,000 clients, whose funds and securities were not settled by KSBL, in line with the process and timelines prescribed by Sebi in various circulars, have suffered great mental agony due to fear of losing their money. Such agony still continues for a large number of clients as their funds and securities have not been settled. The order said securities of the clients were being regularly pledged by KSBL since 2016 and was not a one-time affair.

“This is one of the rare occasions where two independent directors have been debarred from the market and prohibited from continuing directorship in other companies for not supporting another independent director who suspected some fraudulent transactions,” said Makarand Joshi, founding partner, MMJC and Associates, a corporate compliance firm. In 2019, the NSE had observed that KSBL was raising funds by pledging clients’ securities and by misusing the Power of Attorney granted to it by its clients and the funds raised were being diverted to the group entities of KSBL. Sebi had passed an ex-parte ad-interim order dated November 22, 2019, to prevent further misuse of clients’ securities. KSBL’s membership was subsequently revoked by NSE and later expelled. NSE also appointed Ernst and Young to conduct forensic audit into the shortfall of funds and securities noticed during joint inspection conducted by the Sebi, NSE, BSE, NSDL and CDSL.