Karvy Broking expelled by NSE, BSE to do same

HYDERABAD/MUMBAI: A year after markets regulator Sebi banned Karvy Stock Broking (KSBL) for illegally pledging client shares to raise funds for its own use, the National Stock Exchange (NSE) has declared the Hyderabad-based broking firm a defaulter and expelled it from its membership.
The same day Sebi also said that through its actions relating to an ex parte order, the broking house has accepted its wrong doings.BSE, the other leading stock exchange, is also on track to expel KSBL for the same reasons, sources said.
On Tuesday, Sebi said that after it passed an ex parte order against KSBL in November 2019 and gave the broking house the opportunity to present its case, including personal hearing with Sebi officials, on the eve of each date of hearing, KSBL had sought adjournment.
Some of the reasons given by the broking house for adjournment of hearing were “Covid-19 pandemic, heavy rains in Telangana, sickness of its Chairman, sickness of the buyer, etc.”
Since May 5 this year, KSBL was also given “an option to avail virtual hearing through electronic audio-visual conference.”
The broking firm has also not challenged transfer of securities made by NSDL from its demat account to its 82,559 fully paid clients. The order also noted that in the various letters seeking adjournment, “KSBL made submissions that it is transferring securities and funds to its clients. Such letters and conduct of KSBL shows that it admits the wrongdoing, as alleged in the ex parte order.”
Over several years, KSBL had transferred the securities of its clients into its own demat account without their permission and pledged those to raise funds that were eventually diverted to group companies like Karvy Realty.
On Monday night NSE said it had expelled KSBL from the exchange membership and also declared it a defaulter. An expulsion by BSE is something that Karvy group also expects, sources said.
Top Karvy officials said they’re working to pay back every customer affected by its actions. “The action of NSE is because it has taken us a long time to fulfil our obligations. Probably the other bourses will also follow suit. But we did not budget for the Covid-19 situation, which is why the sale of stake in one of our subsidiaries has also been delayed,” said a source at Karvy.
“We have been cooperating and slowly effecting payments to customers. Of the total exposure only about 20-30% clients remain to be paid. We will fulfill all our obligations to customers as well as banks and financial institution in a month or 45 days at the most through a stake sale,” said the source pointing out that the group is “confident” of raising more than its outstanding liabilities from the stake sale for which it has already signed a binding term sheet with an investor.
Earlier this year in February, Karvy group founder chairman and managing director C Parthasarathy had told TOI that the group is looking at selling stake in one or more group companies to raise over Rs 2,000 crore to clear its outstanding dues to investors and banks.
On its part, last week NSE had settled the claims of about 2.35 lakh investors, with fund balance of below Rs 30,000 each due from KSBL, whose securities or funds worth Rs 2,300 crore were stuck for a year. However, papers available with TOI show that some former KSBL clients still had large outstanding from the broking house.
In January this year the Union ministry of corporate affairs (MCA) too had ordered the Registrar of Companies, Hyderabad, to inquire into the affairs of Karvy. The ROC Hyderabad too found that KSBL misused the power of attorney (POA), given by its clients for trading purposes, to transfer their shares to its own accounts and pledged them to raise funds.