Stocks

Only Rs 25-30 crore dues pending to less than 200 clients: Karvy

PALAK SHAH Mumbai | Updated on November 25, 2019

File photo of C Parthasarathy, Chairman of Karvy Group   -  The Hindu

The brokerage says all client dues will be cleared in next few days

Karvy Stock Broking (KSBL) has around Rs 25-30 crore worth of outstanding dues to less than 200 clients, C Parthasarathy, Chairman, Karvy Group, told BusinessLine over the phone.

Parthasarathy, who spoke for the first time to any media outlet after last week’s SEBI order, said the company would clear the dues to these clients in a fortnight or even lesser time. The brokerage said it would start updating stock exchanges of the resolution of pending investor complaints from next week.

An ex-parte SEBI order passed on Friday evening, which partially restricted Karvy from taking on new clients, had kicked up a storm. Karvy, one of the largest retail brokerage houses in India, has been battling several investor complaints.

For months now, investors whose dues have been pending with Karvy, have used social media to put pressure on SEBI and the exchanges to act. On Friday, SEBI cited a report by the National Stock Exchange (NSE) which pointed out that Karvy had pledged clients’ shares and even sold a huge amount of them without their consent.

Also read: SEBI bans Karvy Broking for nearly Rs 2,000 crore in defaults

“The whole issue is of outstanding payment to around 150-180 clients of the brokerage. The amount due to these clients is around Rs 25-30 crore and in the next few days (or could be less than a fortnight) the payments to these clients would be cleared,” Parthasarathy told BusinessLine.

On the issue of the NSE report pointing out that KSBL had transferred over Rs 1,000 crore to its real estate arm, Parthasarathy said the confusion arose because KSBL is the holding company of the entire group.

“KSBL is the holding company of the group and it has investments in various subsidiaries. There is no case of fund siphoning or diversion as is being speculated. SEBI has passed an ex-parte order without a hearing and we would make a representation within the time limit. There is no margin payment issue with any of the exchanges and Karvy’s trading terminals would open normally on Monday,” Parthasarathy said.

Also read: Rise and `fall’ of Karvy: Is rapid diversification source of trouble?

On Sunday, it was rumoured that KSBL would move the NCLT for liquidation. This was denied by Parthasarathy who said there was no need for the company to do so. In fact,  such a move is not permitted under the existing law, he pointed out. Parthasarathy also said that KSBL had unpledged shares worth around Rs 600 crore from banks following due process and settlement of this will be done with its clients.

“There is absolutely no truth in the statement that KSBL is moving the NCLT for initiating voluntary bankruptcy or liquidation proceedings. We wish to state that as per the present Insolvency and Bankruptcy Code, financial services companies are excluded from filing necessary applications under the IBC with the NCLT. This recourse is not available to them. We also wish to state that KSBL and its subsidiaries are profitable businesses. The outstanding secured business loan, as far as ICICI Bank is concerned, aggregates Rs 650 crore only. This includes all funded limits. As far as DCB Bank is concerned, it is a non-funded limit and is only a bank guarantee for which adequate margins have been provided. The business operations of KSBL and its subsidiaries have been servicing all loans effectively and there has been absolutely no default, and we do not envisage any default in future. There are 25,000-30,000 customers who deal with Karvy every day, and in all cases of complaints, we have an effective redressal mechanism despite the percentage of complaints being minimal,” KSBL said in response to an email query from BusinessLine.

SEBI order and NSE report against Karvy

A recent inspection by the NSE revealed that KSBL had transferred a net amount of Rs 1,096 crore to its group company Karvy Realty between April 2016 and October 2019. KSBL sold pledged client shares via off-market transfer as its own in five out of nine client accounts amounting to Rs 228.07 crore in 2019 and transferred stocks worth Rs 27.8 crore from 156 clients who have not executed a single trade with them. Stocks worth Rs 116.3 crore were transferred from 291 clients who have not traded with KSBL since June 2019. KSBL sold excess securities (not available in DP account) to the tune of Rs 485 crore through nine related clients.

Also read: No misuse of clients’ securities: Karvy

Further, KSBL has also transferred excess securities to six out of these nine related clients to the tune of Rs 162 crore till May 2019. Stocks worth Rs 257.08 crore, pledged on behalf of four clients, were un-pledged between June and August 2019 and securities worth of Rs 217.85 crore were recovered by KSBL from four out of the said nine client accounts. KSBL has also purchased securities in five out of the respective nine client accounts amounting to Rs 228.07 crore in 2019.

Published on November 25, 2019

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