Karvy Investor Services' Merchant Banker Registration Cancelled by SEBI
Moneylife Digital Team 29 March 2024
Market regulator Securities and Exchange Board of India (SEBI) has cancelled the certificate of registration of Karvy Investor Services Ltd for failing to meet 'fit and proper' criteria as a merchant banker. 
 
In an order, G Ramar, chief general manager (CGM) of SEBI, says, "From the findings and wordings of Regulation 6 of Merchant Bankers Regulations, I find that by not having necessary infrastructure like adequate office space and equipment and minimum two employees having the experience to conduct the business of merchant banker and having a director who is involved in a litigation connected with the securities market which has an adverse bearing on the business of the applicant and by not being fit and proper person, Karvy Investor Services is not meeting eligibility criteria as laid down in Regulation 6(aa), (b), (e),(f) and (gg) of Merchant Bankers Regulations. Further, Karvy Investor Services has not paid the renewal fee for the block 13 December 2022 to 12 December 2025."
 
During an onsite inspection conducted between 15th and 17 March 2023, SEBI found that Karvy Investor Services was not functioning or operating at its registered as well as correspondence address. On 27 April 2023, through an interim order, the market regulator barred Karvy Investor Services from taking any new clients or assignments until further orders.
 
After further investigation, SEBI issued two show cause notices and a hearing notice to Karvy Investor Services. However, there was no response from the merchant banker. 
 
After learning that Karvy Investor Services has shifted to another place, SEBI's inspection team visited the new address but found only Karvy Data Management Services Ltd (KDMSL) operating from there. Finally, V Mahes, managing director (MD) of KDMSL, informed the inspection team that no operations of Karvy Investor Services had been carried out from the registered address since FY19-20.
 
The SEBI CGM observed that Karvy Investor Services' holding company Karvy Stock Broking Ltd (KSBL), and its common director are involved in litigation, which has an adverse bearing on the business of the merchant banker. "Thereby, Karvy Investor Services has allegedly contravened Regulation 6(e) of Merchant Bankers Regulations read with Regulation 9(1)(e) of Intermediaries Regulations. Hence, Karvy Investor Services is no longer a fit and proper person and, therefore, is allegedly in violation of Regulation 6(gg) read with Regulation 6A of Merchant Bankers Regulations, Regulation  9(1)(e) and Schedule II of the Intermediaries Regulations."
 
Last year in June, SEBI cancelled the certificate of registration of Karvy Stock Broking. The SEBI order said that a sample fund trail exercise was undertaken by the forensic auditor of the bank statements of KSBL, and it was observed that there were transactions from the bank accounts earmarked as 'client bank accounts' by KSBL to the 'own bank accounts' of KSBL.
 
It is noted from the records that, as on 22 November 2019, KSBL had not settled funds to the extent of Rs527.18 crore and securities worth Rs2,862.05 crore which were returnable to its clients, the order said.
 
It is noted that out of the additional borrowings of Rs1,531.90 crore, during the period 1 April 2019 to 30 September 2019, Rs1,228.36 crore was given as loan/advances/investments to group companies (Rs428.36 crore were given as advances for investment in subsidiaries and Rs 800 crore was given towards loans/receivables from subsidiaries). (Read: Karvy Stock Broking Pledged Client Securities, Diverted Funds to Group Companies; SEBI Cancels KSBL's Registration)
 
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