TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 203
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment Funds (AIF) registration is that the Applicant, Sponsor and Manager shall satisfy 'fit and proper person' criteria as specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred as "Intermediaries Regulations"). Schedule II of Intermediaries Regulations further provide that 'fit and proper person' criteria shall apply to the promoters or persons holding controlling interest or persons exercising control over the applicant or intermediary, directly or indirectly. 3. Karvy Capital Alternative Investment Trust (hereinafter referred to as "Noticee No. 1") and KCAP Alternative Investment Fund (hereinafter referred to as "Noticee No. 2") are Category II and Category III Alternative Investment Funds (AIFs). Karvy Capital Limited is the Manager and Sponsor of Noticee No. 1 and 2 and a wholly owned subsidiary of KSBL. In view thereof, an examination was conducted to ascertain the 'fit and proper' person criteria in the matter of AIFs (Noticee No. 1 and 2) managed and sponsored by Karvy Capital Limited. 4. Pursuant to the examination, it was observed that Noticee No. 1 and 2 along with its Manager and Sponsor ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icee(s) under regulation 27(1) of the Intermediaries Regulations calling upon the Noticee(s) to show cause as to why action as recommended by the DA or any other action including passing of directions, as deemed appropriate by the Competent Authority, should not be taken against the Noticee(s). The SCN further advised the Noticee(s) to submit their reply, if any, within 21 days of receipt of the said SCN, failing which it shall be presumed that the Noticee(s) have no reply to submit. 9. Pursuant to the above, Karvy Capital Limited, Manager and Sponsor of the Noticee(s) vide letter dated February 18, 2025 submitted that a resolution has been passed by the Board of Directors of Karvy Capital Limited on June 12, 2024 to surrender the AIF registrations. Moreover, no funds have been raised by the Noticee(s) and there are also no investors in the subject AIFs. Karvy Capital Limited further conveyed its agreement to the recommendations of cancellation of certificate of registration made by the DA in the Enquiry Report. 10. In terms of the Intermediaries Regulations, an opportunity of personal hearing may be granted where the DA has recommended cancelation of certificate of registrat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (d) does not submit periodic returns or reports as required by the Board; (e) does not co-operate in any enquiry, inspection or investigation conducted by the Board; (f) fails to resolve the complaints of investors or fails to give a satisfactory reply to the Board in this behalf, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. (2) Sub-regulation (1) shall not prejudice the powers of the Board to issue directions or measures under regulation 34 or under sections 11, 11B, 11D, sub-section (3) of section 12 or section 24 or Chapter VIA of the Act or under any other law for the time being in force. SEBI (Intermediaries) Regulations, 2008: Conditions of certificate. 9.(1) Any certificate granted by the Board to an intermediary shall be subject to the following conditions, namely:- .... (c)it shall abide by the provisions of the securities laws and the directions, guidelines and circulars as may be issued thereunder; .... (e) it shall meet the eligibility criteria and other requirements specified in these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated or an order for winding up has been passed against such person; (vii) such person has been declared insolvent and not discharged; (viii) such person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force; (ix) such person has been categorized as a wilful defaulter; (x) such person has been declared a fugitive economic offender; or (xi) any other disqualification as may be specified by the Board from time to time. (6) Any disqualification of an associate or group entity of the applicant or intermediary of the nature as referred in sub-clause (b) of clause (3), shall not have any bearing on the 'fit and proper person' criteria of the applicant or intermediary unless the applicant or intermediary or any other person referred in clause (2), is also found to incur the same disqualification in the said matter: Provided that if any person as referred in sub-clause (b)of clause (2) fails to satisfy the 'fit and proper person' criteria, the intermediary shall replace such person within thirty days from the date of such disqualification failing which the 'fit and proper person' ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iated with the securities market in any manner, whatsoever, for a period of 7 years. Subsequently, the certificate of registration of KSBL as a Stock Broker was cancelled vide Order dated May 31, 2023. 16. Here, it is relevant to refer to Clause 3(b)(iii) of Schedule II of Intermediaries Regulations where for the purpose of determining as to whether any person is a 'fit and proper person', SEBI may take into account an order of restraint, prohibition or debarment that has been passed against such person by SEBI or any other regulatory authority or enforcement agency in any matter concerning securities laws or financial markets and such order is in force. This clause, in my view, covers scenarios of 'cancelation' of the certificate of registration. 17. From the shareholding details as submitted by the Noticee(s) as on March 31, 2023, it is noted that KSBL held approx. 100% shareholding (8,20,256 shares) in Karvy Capital Limited, Manager and Sponsor of Noticee No. 1 and 2. I further find from the submission of the Noticee(s) before the DA that Karvy Capital Limited is a part of the Karvy group of companies and a wholly owned subsidiary of KSBL. 18. As KSBL was holding more t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egistration and the intermediary shall ensure that the promoters or persons holding controlling interest or persons exercising control over the applicant or intermediary comply with the 'fit and proper person' criteria. 22. I note that the present proceedings have been initiated to adjudge whether the Noticee(s) meet the criteria for 'fit and proper person' as specified in the AIF Regulations and the Intermediaries Regulations. The Noticee(s) were obliged to maintain the 'fit and proper person' criteria on a continuous basis. In the instant case, as KSBL is holding more than 20% in Karvy Capital Limited (Manager and Sponsor of Karvy AIFs) and being not 'fit and proper person' was required to divest its holding within 6 months from the date of its disqualification. I find that KSBL has failed to divest its holding in Karvy Capital Limited. Accordingly, the Noticee(s) no longer satisfy the 'fit and proper person' criteria in terms of the provisions of Regulation 4(f), 7(1)(a) and 35 of AIF Regulations read with Regulation 9, Clause 2, 3, 6 and 7 of Schedule II of Intermediaries Regulations. 23. As a regulator of the capital markets, SEBI has the duty to safeguard the interest o....