No wrongdoing; all securities back with clients, says Karvy group chairman Parthasarathy on illegal activities

Even as Sebi chairman Ajay Tyagi on Wednesday stated that Karvy Stock Broking indulged in activities that were "never allowed", C Parthasarathy, Chairman, Karvy Group has denied any wrongdoing. In an interview with Aprajita Sharma of Business Today, Parthasarathy says that all monies transferred from time to time were solely for the ongoing conduct of business in subsidiary firms. He added that there is no backlog of clients' money being transferred from the pool account to client account. Edited excerpts:

Business Today: Has Karvy transferred clients' securities from Karvy's pool account to respective client accounts - the extended deadline for which was September 30? If not, how much is remaining?

Parthasarathy: We are now doing this on an ongoing basis and there is no backlog. An initial portion of pledged securities that was to the tune of Rs 1,100 crore in September has also been unpledged. We'll unpledge the remaining Rs 400-500 crore in next two months.

BT: The Sebi directive says Karvy is barred from executing and settling any trades on clients' behalf. Lawyers say even the trades that were executed last week on Friday cannot be settled by Karvy. Is that true?

Parthasarathy: According to the SEBI order, we have not been barred from permitting trading for our clients. This is completely false and we will continue to service all our existing customers uninterruptedly.

BT: Can you explain what went wrong that Sebi and NSE have taken these actions? By when will you file your clarification to Sebi?

Parthasarathy: Among various businesses, we are a stock brokerage company which services clients across the country and assists them in investment decisions. It is under the regulatory oversight of SEBI, NSE and BSE which on a routine and ongoing basis audit our performance, books of account and other particulars. A recent routine inspection in August 2019 was carried out by SEBI, the Exchanges and the depositories. Upon submission of the preliminary inspection report by NSE to SEBI, the regulator issued an ex-parte ad-interim order dated November 22, 2019. The nature of this order is such that by definition, it is an 'interim' directive and not a final finding. The order itself states clearly, that this is in response to preliminary findings and is subject to further review.  The order further gives us the right to respond to each and every preliminary observation within a period of 21 days and is thus only a temporary order restraining some actions till December 16, 2019 when we will represent our position to SEBI.

BT: Sebi estimates the funds misappropriation to the tune of Rs 1,096 crore. Is that correct?

Parthasarathy: This order, which was issued on the basis of observations made by NSE during its audit, mentioned a transfer of Rs 1096 crore to an associate and subsidiary company of Karvy Stock Broking Ltd (KSBL)- Karvy Realty. The quantum mentioned is incorrect.  Karvy Realty is one of the group companies and investments were made in other subsidiary companies through this entity. We are of the firm belief that investments made through owned funds of the group and borrowings other than the pledge of securities were fully compliant with the relevant provisions and directives of the regulator during the period that they were made. Further, we wish to reiterate that all monies transferred from time to time were solely for the ongoing conduct of business in subsidiary firms.

BT: Why giving power of attorneys (PoAs) to brokerages is important for clients? Can you explain the disadvantages of it?

Parthasarathy: Today most businesses are executed online and PoA is an important part of the process.  The purpose of the PoA is to establish the veracity of the client's instruction to buy or sell a scrip. A possible disadvantage is that the broker could misuse the PoA and not follow the client's instruction.

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