Power of attorney allows a brokerage to make transactions on behalf of clients after their authorisation.
The Securities Appellate Tribunal (SAT) on Friday directed Sebi to hear Karvy Stock Broking’s appeal on restricting usage of power of attorney (PoA) in an earlier ex-parte order passed by the markets regulator on November 22. The appellate tribunal directed that Sebi should decide on the matter by Monday.
The power of attorney allows the brokerage to make transactions on behalf of clients after their authorisation. On November 22, Sebi had barred Karvy from using PoA after the broker allegedly indulged in trades without authorisation. Sebi’s action was primarily based on a probe report by the National Stock Exchange (NSE), which said the broker had indulged in various unapproved transactions.
“The revocation of PoA has resulted in the appellant’s inability to execute instructions given by clients… they are unable to transfer (of securities) or settle trades with the Clearing Corporation of India. Since clarification is sought, we deem it fit and proper that Sebi looks into the matter by giving Karvy an opportunity of hearing and passing final orders by Monday,” the Judges presiding over SAT said.
Karvy’s counsel on Friday said the order was a “commercial death” for the brokerage. Following the order, Karvy had written to Sebi on November 24 seeking a hearing to appeal some aspects of the order, which the markets regulator did not respond to, the counsel said. The counsel also assured SAT that Karvy was willing to give a written undertaking and declaration to the markets regulator and the tribunal regarding the extent to which the PoA will be utilised. Karvy is also willing to have officials from Sebi and NSE monitor its activities, the counsel told SAT. The regulator’s counsel argued “Sebi has serious apprehensions on usage of PoA by Karvy as it might lead to further misuse by them.”
According to Sebi order, Karvy “misused power of attorney given by its clients. Karvy Stock Broking has sold client securities in the market in disguised manner through own controlled entities and have used the funds for its own purposes.” The brokerage has allegedly pledged client shares with lenders to avail itself of loan without consent from the client.
Sebi got involved in the matter after several investors complained that Karvy had been delaying their payouts. An annual inspection by the NSE suggested discrepancies in Karvy’s trading between April 2016 and October 2019. The brokerage firm’s total client default amount is estimated at around Rs 2,000 crore.
The regulator has now forbidden two stock depositories – National Securities Depository and Central Depository Services – from honouring instructions given by Karvy. The brokerage filed a petition with SAT on Thursday, seeking relief from some of the restrictions imposed by Sebi. Karvy Stock Broking manages accounts of roughly 244,000 clients.
FE earlier reported that the Ministry of Corporate Affairs might ask Sebi for a report with details of wrongdoings by the brokerage firm to ascertain if it has violated corporate governance norms.