SEBI Closes Case Against Karvy Capital And Its Management Personnel

The Securities and Exchange Board of India on Thursday closed the proceedings against Karvy Capital Ltd. or KCL and its management personnel without imposing any penalty in the alternate investment funds case. A show-cause notice was issued to Karvy Capital on June 7, 2024, and an opportunity to be heard was granted to all the noticees. 

It was earlier alleged that Karvy Capital Ltd. failed to ensure that Karvy Capital Alternative Investment Trust and KCAP Alternative Investment Fund are in compliance with SEBI regulations.

As per the SEBI investigation, Karvy Stock Broking Limited (KSBL) held nearly 100% of the shares in KCL, making it the primary controlling entity. As per SEBI’s regulations, KSBL was required to meet the "fit and proper person" criteria due to its substantial voting rights in KCL. As has been reported earlier, KSBL is not allowed to access the securities market since April 2023 after it was found to be in contravention of regulatory provisions. This restriction was imposed for a period of seven years. 

Furthermore, KSBL's assets were under attachment by the Enforcement Directorate in connection with ongoing legal proceedings.

Despite these legal issues surrounding this, KCL made a declaration in Dec 2023, saying that KSBL’s regulatory issues meant it could not fulfil the "fit and proper" criteria. The noticees, including KCL, argued that due to multiple legal restraints and lack of an active board at KSBL, divesting the shareholding in KCL was not feasible. This submission was supported by SEBI’s own findings, which indicated that no funds had been raised for the AIFs as of March 2023.

After reviewing the submissions and considering the legal impediments faced by KCL, SEBI concluded that the charges against KCL for failing to ensure compliance with the AIF Regulations were not substantiated. As a result, SEBI disposed of the adjudication proceedings without imposing any monetary penalty, marking the end of the case against the noticees.