Srushti Vaidya | December 2, 2022
The Registrars and Transfers Agent company has multiple cases and penalties levied by regulators
The initial public offering (IPO) documents of KFin Technologies Ltd, which plans to raise ₹2,400 crore, reveal that the company has allegedly forged the death certificates of a living person and siphoned money, helped corner shares meant for retail consumers, and engaged in unfair practices while dealing with securities.
KFin is a related party of Karvy Stock Broking Ltd., a company banned by SEBI for misusing client funds in 2019. KFin is one of the largest Registrars and Transfers Agent (RTA) companies in India. An RTA maintains records of investors’ transactions for securities.
The Pension Fund Regulatory Development Authority (PFRDA) held KFin responsible for carrying out Point of Presence (POP) activities without being registered with the regulator, according to the Draft Red Herring Prospectus (DHRP) filed with SEBI. POP is a service provider that opens and operates National Pension Scheme (NPS) accounts, and has to be registered with a regulator.
UTI Asset Management, a POP registered with the PFRDA, had outsourced KFin for managing and storing data of the NPS subscribers. During this period, the accumulated pension of two subscribers was transferred to unauthorized accounts of KFin officials, according to a PFRDA order accessed by The Bottomline. KFin officials in 2018 forged the death certificate and Aadhar card of Jaya Banvaliker, an NPS subscriber after declaring her dead and allegedly transferred her pension corpus to their accounts. An Adjudicating Officer inquiry by PFRDA revealed that KFin had processed or operated 634 requests of NPS subscribers, which confirms that KFin was carrying out POP functions, without a registration.
The Central Bureau of Investigation (CBI) in October 2007, filed a criminal case against KCPL—which changed its name to KFin Technologies Limited in 2022—for helping Karvy Stock Broking Limited corner shares meant for retail investors, according to the DRHP. Cornering shares is a practice of holding a significant portion of securities of a company to manipulate its share price.
A complaint filed by R. Ravichandran, the ex-general manager of SEBI, alleged that KCPL, allowed fictitious Demat accounts to subscribe to Yes Bank Limited’s IPO. Karvy, being an institutional investor, knowingly picked up these shares and subscribed to Yes Bank Limited’s IPO as a retail investor in October 2007. KCPL, earlier in September 2007, was on CBI’s radar for a similar fraud, when it allegedly helped Karvy corner shares of Infrastructure Development Finance Company Limited, which were meant for retail subscribers.
Several calls and emails to KFin by The Bottomline for clarifications on the cases were not answered. KFin is yet to get SEBI’s approval for an IPO. Emails to SEBI and PFRDA regarding the case remained unanswered.
The Enforcement Directorate (ED) issued a freezing order on KFin. This blocked the company from transferring, disposing, and parting KFin’s subject shares unless permitted by the ED, according to a press release filed by ED in September 2021. KFin’s subject shares are held by former KFin director C Parthasarathy, his son Rajat Parthasarathy, and Compar Estates and Private Limited.
The freezing order comes after Karvy Stock Broking Limited was held by ED in September 2021, for pledging shares of its clients, taking loans against it, and then defaulting on the loans. The size of these bad loans exceeds ₹4000 crore. The freezing order was issued as C Parthasarathy tried to offload shares he held in the group companies—including KFin— through private deals, and kept the proceeds to himself.
SEBI in December 2021, levied a ₹1.5 crore penalty on KFin for (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations,2003) in the Taurus Mutual Fund case.