SEBI Dismisses Allegations Against Karvy Capital Ltd (KCL)

The capital market regulator, the Securities and Exchange Board of India (SEBI) has dismissed the allegations against Karvy Capital Ltd (KCL) and its three directors—Ajith Bhaskaran, Hitungshu Debnath, and K.P. Jeewan. These allegations related to violations of provisions under the SEBI (Alternative Investment Funds) Regulations, 2012.

Specifically, the charges claimed that KCL, as the sponsor and manager of Karvy Capital Alternative Investment Trust, failed to ensure compliance with the AIF Regulations, the Intermediaries Regulations, 2008, and the SEBI Act, 1992.

Allegations and SEBI’s Investigation

The allegations focused on KCL’s failure to meet compliance standards required under the SEBI AIF Regulations. It was claimed that KCL and its directors did not meet the ‘fit and proper’ person criteria mandated for entities, sponsors, or managers, especially because Karvy Stock Broking Ltd (KSBL) held 100% of KCL’s shares. Under the regulations, if a person or entity holds more than 20% of voting rights, they are subject to specific compliance criteria. However, SEBI’s investigation found no sufficient evidence to establish a violation.

Regulatory Actions Against KSBL

Previously, in April 2023, SEBI had taken action against Karvy Stock Broking Ltd (KSBL) by restraining it from accessing the securities market. In May 2023, SEBI also cancelled KSBL’s registration. Furthermore, SEBI passed an order under the Prevention of Money Laundering Act (PMLA) against both KSBL and KCL on March 11, 2024.

KCL’s Response: Regulatory Restrictions and Compliance

KCL defended its position by arguing that KSBL had been unable to divest its shareholding in KCL due to regulatory restrictions. These included orders from SEBI, the National Company Law Tribunal (NCLT), and the Enforcement Directorate. KCL contended that these circumstances were beyond its control, preventing it from complying with the six-month divestment requirement following KSBL’s disqualification.

SEBI’s Findings and Conclusion

Despite the actions taken against KSBL, KCL provided additional documentation to support its defence. This included a letter submitted on November 29, 2023, confirming that there were no active schemes or investors in its Alternative Investment Funds (AIFs). KCL also presented compliance reports and certifications for the fiscal year 2023, reinforcing its argument.

After reviewing these submissions, SEBI’s adjudicating officer, Amar Navlani, concluded that the allegations against KCL and its directors, under Regulation 20(1), 20(5), and Clause 2(a) of the Code of Conduct under the SEBI (AIF) Regulations, could not be substantiated.

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