SEBI Bars Karvy Stock Broking, MD, From Market For Seven Years

SEBI barred Karvy Stock Broking Ltd. and its Managing Director Comandur Parthasarathy on Friday from the securities market for seven years for allegedly misusing client funds.

In a rare instance, it has also barred two of its independent directors from holding the post of director or key managerial position in any public-listed company for two years.

The regulator also slapped a penalty of Rs 13 crore on Karvy and Rs 8 crore on Parthasarathy for violating various securities market laws.

This is one of the first cases in which independent directors of an intermediary have been held liable for a fraud committed by the company.

In 2019, the Securities and Exchange Board of India, by an interim order, barred Karvy from taking in new clients, after a report submitted by the NSE found several irregularities in the clients' funds.

According to the NSE report, Karvy was raising funds by pledging clients' securities, misusing the power of attorney granted by the clients. An appeal to the Securities Appellate Tribunal also yielded no result.

These funds raised by pledging clients' securities were later transferred to two other related entities—Karvy Realty and Karvy Capital. Around Rs 1,443 crore was transferred to these entities, according to SEBI. These would have to be returned, according to the present order.

By undertaking this activity, Karvy not only violated various securities law provisions against co-mingling of securities, but also several provisions of unfair trade practices regulations. It has acted in complete disregard of the legitimate interests of its clients and provided benefits to its own connected entities, the regulator said.

It observed that this case warrants stern action as a market where a broker acts with malice could be a threat to the very edifice of the securities market.