Karvy Stock Broking clients in quandary, payouts to about 95,000 retail customers delayed; firm moves SAT against SEBI order

Karvy informed SAT that due to SEBI’s order, even its existing clients are not able to sell their shares or transfer them to other brokers. In the aftermath of Karvy Stock Broking episode,000 of its clients allege that they are unable to regain access to their respective accounts, said a news report. Around 95,000 clients of Karvy, including retail investors, have been left in the lurch as they are yet to regain access to their shares and receive payouts from the broking firm, said a report in Mint. This happened at a time when the customers are in a position to change their broker by opening an account with a rival brokerage by obtaining a client master, the report said. However, a good number of Karvy’s clients alleged that the firm is deliberately delaying payouts and preventing them from moving to rival broking firms. Meanwhile, Karvy moved the Securities and Appellate Tribunal (SAT) against last week's order of the market regulator Securities and Exchange Board of India (SEBI) banning the brokerage from taking new clients, said a report in The Hindu Business Line. Karvy informed SAT that due to SEBI’s order, even its existing clients are not able to sell their shares or transfer them to other brokers, the report said. The tribunal has kept the matter ‘high on board’ to be heard further on priority today (Friday). On Wednesday, SEBI had said the brokerage was indulging in activities which were "never allowed". The comments from the regulator's chairman Ajay Tyagi come days after SEBI banned Karvy, with immediate effect, for selling client stocks pledged with it through associated entities. Tyagi added that, in June, SEBI had made its stance “explicit” through a circular and hinted that there was no case for entities to indulge in such practices before that as well. "What is basically never allowed was being done. It is not that this separation was asked in June," he told reporters on the sidelines of the Organisation for Economic Co-operation and Development (OECD)-Asian roundtable on corporate governance here. "It cannot be anyone's case even if these instructions were not so explicit that they can use clients' securities for doing something (of) their own," he added. On 22 November, SEBI had barred Karvy from taking new clients with respect to stockbroking activities for alleged misuse of clients' securities. The action followed leading bourse NSE forwarding a preliminary report to Sebi on the non-compliances observed with respect to the pledging/misuse of client securities by Karvy Stock Broking (KSBL). The exchange's preliminary report is the result of the limited purpose inspection of KSBL conducted by it on 19 August, covering a period from 1 January onwards, SEBI had said in an order. The total misappropriation, according to the preliminary findings of the National Stock Exchange of India (NSE), which conducted an audit, stands at Rs 2,0000000000, making it one of the largest defaults by a stockbroking firm in India. In a 12-page ex-parte interim order, SEBI Whole Time Member Ananta Barua said there was a "need for urgent regulatory intervention to prevent further misuse of clients' securities". Apart from prohibiting the entity from taking new clients in respect of its stock broking activities, the watchdog directed NSDL and CDSL not to act upon any instruction given by KSBL in pursuance of power of attorney given by its clients. "The depositories shall monitor the movement of securities into and from the DP account of clients of KSBL as DP to ensure that clients' operations are not affected," the order said. On 26 November, Karvy had denied having defaulted on loans worth Rs 2,0000000000. A top official said that the broking firm owed Rs 40-500000000 to its clients and the money will be repaid over the due course. — With PTI inputs