Sebi got into action after several investors complained that Karvy was delaying their payouts.
Concerned over the alleged fraud at Karvy Stock Broking, the ministry of corporate affairs (MCA) is planning to ask markets regulator Sebi for a report, seeking details of wrongdoings by the brokerage firm to ascertain if it has violated corporate governance norms as well, an official source told FE.
The move may potentially widen the scope of scrutiny of the affairs of Karvy and exacerbate the trouble for the firm that is already barred by Sebi from taking on new clients and executing trades for allegedly misusing securities of clients without their authorisation.
“The idea is to see if, and to what extent, provisions of the Companies Act have been violated by Karvy. Any follow-up action by the MCA will depend on the Sebi report and the MCA’s own assessment of the situation,” said the source.
According to Sebi’s interim order on November 22, Karvy transferred clients’ securities to itself. It also raised funds by pledging the shares and transferred the money to its own account. Citing an NSE inspection report, the Sebi order said: “Prima facie a net amount of Rs 1,096 crore has been transferred by KSBL (Karvy Stock Broking) to its group company i.e. Karvy Realty between from 1 April 2016 and 19 October 2019.”
Sebi got into action after several investors complained that Karvy was delaying their payouts. An annual inspection by the NSE also suggested discrepancies in Karvy’s trading between April 2016 and October 2019. The brokerage firm’s total client default amount is estimated at around `2,000 crore.
The regulator has now forbidden two stock depositories-— NSDL and CDSL — from honouring instructions given by Karvy. Karvy Stock Broking manages accounts of roughly 244,000 clients.