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The allegations claimed KCL, as the 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 found that no evidence had been presented to establish the violation of the specified provisions. SEBI had alleged that KCL and its directors did not satisfy the ‘fit and proper’ person criteria, as mandated under the AIF and Intermediaries Regulations.
Under these regulations, an entity, sponsor, or manager must meet these criteria, particularly if a person holds more than 20% voting rights, which was the case with Karvy Stock Broking Ltd (KSBL), which held 100% of KCL’s shares.
Earlier, in April 2023, SEBI had restrained KSBL from accessing the securities market, and in May 2023, it cancelled the registration of KSBL. SEBI also passed an order under the Prevention of Money Laundering Act (PMLA) on March 11, 2024, against both KSBL and KCL.
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Despite these actions, KCL submitted that KSBL was unable to divest its shareholding 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 requirement to divest KSBL’s shareholding within six months of the disqualification.
In addition to this, SEBI’s investigation noted that KCL had submitted a letter on November 29, 2023, confirming that there were no active schemes or investors in its AIFs. The company also provided compliance reports and certifications for FY23, further substantiating its position.
Based on this, SEBI’s adjudicating officer, Amar Navlani, concluded that the allegations that KCL and its directors had violated provisions under Regulation 20(1), 20(5), and Clause 2(a) of the Code of Conduct under the SEBI (AIF) Regulations could not be substantiated.
