Market regulator Securities and Exchange Board of India (SEBI) has initiated proceedings against National Stock Exchange (NSE) in the Karvy Stock Broking Ltd (Karvy or KSBL) default matter, the Lok Sabha was informed.
Replying to a question
, Anurag Thakur, minister of state for finance, says, "SEBI has initiated proceedings against NSE in the matter of KSBL for violating provisions of SEBI circulars pertaining to monitoring of brokers and oversight of members."
Further, SEBI has already initiated the action against the directors and key management personnel (KMP) of KSBL as per the provisions of SEBI Act, 1992, Securities Contract Regulation Act, 1956, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and SEBI (Stock Brokers) Regulation, 1992, the minister says.
Members of Parliament (MPs) Ramdas Chandrabhanji Tadas, Bholanath (BP Saroj), Sangamlal Kadedin Gupta and Upendra Singh Rawat has asked questions on the Karvy fraud worth Rs2,500 crore.
In his reply, Mr Thakur, the minister says, "During the inspection of Karvy, it was observed that securities worth about Rs2,300 crore of more than 95,000 clients were pledged with banks and non-banking financial companies (NBFCs)."
SEBI passed an ex-parte-ad-interim order in the matter of KSBL on 22 November 2019. Following this order, securities belonging to 82,559 clients worth around Rs2,000 crore were transferred to respective fully paid-up clients of KSBL. The interim order was confirmed by SEBI on 24 November 2020. NSE declared KSBL as a defaulter on 23 November 2020 and initiated claims as per the by-laws of the Exchange, he added.
According to the minister, during 22 November 2019 to 22 November 2020, funds of 232,323 clients aggregating Rs125.20 crore and securities of 157,769 clients aggregating Rs2,345.82 crore were settled. Further, he says, as on 19 February 2021, an amount of Rs81 crore has been paid to 3,398 clients from Investor Protection Fund (IPF) of NSE as per the by-laws of the Exchange.
Responding to a question on complaints from investors, the minister says, complaints have been received against KSBL with respect to non-receipt of payment of funds and delivery of shares. He says, "Some of the complaints have been found to be in the nature where illegal transfer of shares in beneficiary accounts and non-transfer of money to actual beneficiary after the death of the shareholder is alleged. All such complaints have been forwarded to NSE for resolution."
Karvy Stock Broking was disabled (trading rights withdrawn) on 2 December 2019. At that time, NSE had said, "In coordination with other market infrastructure institutions (MIIs) and under the guidance of SEBI, it transferred securities to respective clients, invoked bank guarantees deposited with clearing corporations and liquidated securities held by Karvy group companies."
In November 2019, Karvy had unauthorisedly transferred securities worth Rs2,300 crore of more than 95,000 clients, into its account, by misusing the power of attorney (PoA) given by its clients.
On 22 November 2019, SEBI barred Karvy from taking new clients in respect of its stockbroking activities and also prevented it from using the PoA given by clients after the broker was found to have allegedly misused clients' securities. Karvy had, instead of pledging its own shares, pledged shares belonging to clients and utilised them to raise funds. Some of these funds were, in turn, transferred to its sister concerns such as Karvy Realty Ltd.