Sebi Cancels Karvy Stock Broking's Registrations for Market Norm Violations

New Delhi, Mar 25 (PTI) Sebi on Tuesday cancelled the registration of two entities of Karvy Stock Broking -- Karvy Capital Alternative Investment Trust and KCAP Alternative Investment Fund -- citing failure to meet the 'fit and proper person' criteria under the market laws.

Karvy Capital Ltd (KCL) is the sponsor and manager of the Karvy Capital Alternative Investment Trust and KCAP Alternative Investment Fund (AIF). It is a wholly-owned subsidiary of Karvy Stock Broking Ltd (KSBL).

"In view of the...intermediaries regulations, hereby, cancel the certificate of registration granted to the Noticee(s) viz. Karvy Capital Alternative Investment Trust and KCAP Alternative Investment Fund," Sebi said in the order.

In April 2023, the Securities and Exchange Board of India (Sebi), barred KSBL and its affiliate firm from the securities market for seven years and later revoked its brokerage license in May of that year.

The markets watchdog said, "KSBL held approx 100 per cent shareholding in Karvy Capital as of March 31, 2023".

Karvy Stock Broking was holding more than 20 per cent voting rights in KCL and by virtue of the directions passed against KSBL through Sebi's orders in April and May 2023, the order said.

Further, KSBL was required to divest its holdings within six months of its disqualification under the Sebi's norms. However, the regulator noted that the disinvestment did not take place, leading to regulatory action against the AIFs.

Under Sebi's intermediaries norms, the 'fit and proper person' criteria apply to promoters, those with controlling interest, or those exercising control over an applicant or intermediary.

For unlisted entities, anyone holding 20 per cent or more voting rights must also meet the criteria. If they fail, they must not exercise voting rights and must divest their stake within six months. Non-compliance may lead to action against the intermediary.

"The noticee (Karvy Capital Alternative Investment Trust and KCAP Alternative Investment Fund) were obliged to maintain the 'fit and proper person' criteria on a continuous basis.

"...KSBL is holding more than 20 per cent in Karvy Capital Ltd (Manager and Sponsor of Karvy AIFs) and being not 'fit and proper person' was required to divest its holding within 6 months from the date of its disqualification," Sebi's Quasi Judicial Authority G Ramar said.

Accordingly, Sebi found that Karvy Stock Broking has failed to divest its holding in Karvy Capital and accordingly, the noticees no longer satisfy the 'fit and proper person' criteria in terms of the AIF regulations and intermediaries rules.