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Ministry of Corporate Affairs orders SFIO probe into Karvy’s financial affairs

On its part, Karvy challenged the MCA order in High Court on Tuesday, but its petition was dismissed.

Published: 04th March 2020 10:42 AM  |   Last Updated: 04th March 2020 10:42 AM   |  A+A-

Last November, SEBI barred Karvy from opening new trading accounts based on an NSE inquiry alleging that the brokerage raised money pledging clients’ shares and transferred it to its own account.

Last November, SEBI barred Karvy from opening new trading accounts based on an NSE inquiry alleging that the brokerage raised money pledging clients’ shares and transferred it to its own account.

By Express News Service

HYDERABAD: The noose has further tightened around Karvy Stock Broking Ltd with the Ministry of Corporate Affairs (MCA) ordering a Serious Fraud Investigation Office (SFIO) probe into the alleged financial irregularities of the company.

The order issued on February 27, directed the SFIO officials to investigate not only into the affairs of Karvy and its group companies but also nine other entities, including Wizard Insurance Services, Zenith Insurance Services, Buoyant Insurance, Nova Wealth Management Services, Karvy Consultants Ltd, Vitalink Wealth Advisory Services, Classic Wealth Management Services Pvt Ltd, Champion Insurance Services, and Pelican Wealth Advisory Services.

The investigation initiated under Section 212(1) of the Companies Act, 2013, was based on the Registrar of Companies’ inquiry report submitted on February 24, pointing towards a potential fraud at the city-based brokerage.

“... In exercise of powers conferred under Section 212(1) (a) & (C) of the Companies Act, 2013 the Central government has formed an opinion that the affairs of the above referred companies need to be investigated to examine the serious nature of fraud committed as large public interest is involved,” the MCA said in its order.

Karvy sought interim relief so as to prevent MCA officials from taking any ‘coercive steps including investigation under Section 212 of the Act.’ It further argued that the RoC’s investigation under Section 206 to 208 were ongoing besides of course the final decision of markets regulator SEBI, which barred the company from doing business.

When contacted, Karvy officials expressed the hope that the confusion will be cleared after their deliberations with the MCA due on Thursday.

“We will file a fresh petition tomorrow (Wednesday). This (its Monday’s petition) wasn’t correctly filed. We weren’t given adequate time to respond to the section 206(1) notice,” C Parthasarathy, Chairman of Karvy, told Express.

Last November, SEBI barred Karvy from opening new trading accounts based on an NSE inquiry alleging that the brokerage raised money pledging clients’ shares and transferred it to its own account. Karvy reportedly pledged client securities worth Rs 2,300 crore to raise Rs 600 crore and transferred Rs 1,096 crore to its group company, Karvy Realty Pvt Ltd.

Subsequently, NSE appointed EY to conduct a forensic audit to probe deeper into the alleged diversion of funds among group entities, while Karvy maintained that it was purely an accounting misinterpretation. SEBI is yet to deliver its final verdict.

HC dismisses Karvy plea
On its part, Karvy challenged the MCA order in High Court on Tuesday, but its petition was dismissed. It’s expected to file a fresh petition on Wednesday.

Probe based on MCA report  
The investigation initiated under Section 212(1) of the Companies Act, 2013, was based on the Registrar of Companies’ inquiry report submitted on February 24, pointing towards a potential fraud at the city-based brokerage



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