Have a claim against Karvy? Complain to stock exchange's grievance cell

To prove Karvy withdrew securities from your demat account, obtain a transaction statement

The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have both terminated the brokerage membership of Karvy Stock Broking. NSE has also declared Karvy a defaulter. The brokerage firm had transferred securities from clients’ demat accounts without their authorisation to its own account by misusing the power of attorney (PoA) obtained from them. It sold their shares and diverted the money to another entity. It also pledged clients’ shares to take loans from banks. While many clients have got their money back, around 90,000 have not.

Declaration of the stockbroker as a defaulter is a crucial step. “Once a broker is declared a defaulter, customers can claim up to Rs 25 lakh from the investor protection fund (IPF). If this was not done, the claims would have remained the liability of the broker alone,” says B Gopkumar, managing director and chief executive officer, Axis Securities.

Make a claim: Customers who have a claim and have not complained yet should do so with the Investor Grievance Cell (IGC) of their exchange. The IGC will examine the complaints on a case-by-case basis as well as in aggregate to arrive at total liability. If claims are found to be valid, money will be paid first out of Karvy’s assets lying with the exchange and thereafter from the IPF. The process may take some time.

To make a claim, customers need to submit proof to their exchange that their stocks are missing. “Obtain a transaction statement for your demat account from your depository—NSDL or CDSL. It will clearly show that Karvy had transferred stocks from your demat account to its pool account,” says Gopkumar.

Shift to a new broker: Investors who have not shifted shares lying in their demat account with Karvy should open a new account with another broker and do so right away. To open a new account, they will have to get a document called client master report (CMR) from Karvy. The CMR has the client ID, DP ID, contact details, etc. “When you transfer shares from one demat account to another, you incur charges. But when you close one demat account and open another and then do the transfer, no charge is levied,” says Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm. The CMR will have to be sent in physical form to the new broker. The account opening can largely be accomplished online. Since ownership of the shares remains unchanged, there will be no tax incidence when shares are moved from one demat account to another.

Steps for mutual fund investors: Many investors have purchased mut­ual funds through Karvy. If you had used Karvy’s services as a MF distributor, go to the website of the registrar and transfer agency (RTA), which cou­ld be CAMS or K Fintech. An option is available there wherein you can enter your email ID and get a complete statement of all your fund holdings across RTAs. To redeem your money, go to the fund house’s website and place a request. If you had purchased MFs through your trading account with Karvy, you will have to approach it to learn if your units are safe and also to sell and redeem your money.

Keep a watch on your stockbroker

• Update your mobile number, email ID with your depository to get notifications for every transaction in your demat account
• Check demat statement regularly
• Give limited purpose PoA for pay-in and pay-out only and not a general PoA allowing broker to transact on your behalf
• Shares need not be transferred to broker’s account for margin pledging. Lien can be marked on them in your demat account itself
• Go with a broker who, depending on option chosen, undertakes monthly or quarterly settlement
• Shift idle funds lying with broker to your bank account