SEBI clears Karvy Capital and its directors of AIF violations, rejects allegations

The Securities and Exchange Board of India (SEBI) has dismissed allegations against Karvy Capital Ltd (KCL) and its three directors – Ajith Bhaskaran, Hitungshu Debnath and KP Jeewan – alleging violations of the provisions of the SEBI (Alternative Investment Funds) Regulations , 2012.

The allegations alleged that KCL, as sponsor and manager of Karvy Capital Alternative Investment Trust, and its directors failed to ensure compliance with the AIF Regulations, the Intermediaries Regulations, 2008 and the SEBI Act, 1992.

In its order issued on Thursday, January 2, SEBI observed that no evidence had been presented to establish violation of the specified provisions. SEBI had alleged that KCL and its directors did not meet the criteria of being a “fit and proper” person, as required under the AIF and Intermediary Regulations.

Under these regulations, an entity, sponsor or director must meet these criteria, particularly if a person holds more than 20% of the voting rights, which was the case for Karvy Stock Broking Ltd (KSBL), which held 100% of KCL shares.

Earlier, in April 2023, SEBI had stopped KSBL from entering the securities market and in May 2023, it had canceled the registration of KSBL. SEBI also issued an order under the Prevention of Money Laundering Act (PMLA) on March 11, 2024 against KSBL and KCL.

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Despite these actions, KCL argued that KSBL was unable to divest its stake in KCL due to various regulatory restrictions, including orders from SEBI, NCLT and the Enforcement Directorate. KCL argued that these circumstances were beyond its control and that it could not comply with the obligation to divest KSBL’s stake within six months of the disqualification.

Further, SEBI’s investigation revealed that KCL had submitted a letter on November 29, 2023, confirming that there were no active programs or investors in its AIFs. The company also provided compliance reports and certifications for FY23, confirming its position.

On this basis, SEBI Adjudicating Officer Amar Navlani concluded that the allegations that KCL and its directors had violated the provisions of Regulation 20(1), 20(5) and Clause 2(a) of the Code of conduct of SEBI (FIA) Regulations could not be justified.