Mumbai — The Bombay High Court has refused to quash proceedings against Rajiv Ranjan Singh, former CEO of Karvy Stock Broking Ltd, ruling that the absence of penalties in regulatory findings does not absolve criminal liability. The case stems from allegations that Karvy misused client securities worth ₹2,700 crore, in violation of SEBI regulations.
Background: Allegations of Misuse of Client Funds
Karvy Stock Broking Ltd, a registered stockbroker and depository participant with SEBI, NSE, BSE, NSDL, and CDSL, was accused of pledging and diverting client securities without consent. Investigators alleged the company violated multiple circulars and statutory obligations under the SEBI (Stock Brokers) Regulations, 1992, breaching its fiduciary duty to investors.
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The alleged offences, estimated at ₹2,700 crore, included unauthorized pledging of securities and diversion of client funds. SEBI filed a complaint naming the company and its top executives, including Singh, then CEO and Managing Director.
Singh moved to discharge himself from liability, arguing that regulatory proceedings had not imposed any penalty on him and thus should be considered exoneration.
Court’s Analysis: No Exoneration Without Clear Findings
Justice Amit Borkar, hearing the revision plea, rejected Singh’s arguments. The Court clarified that exoneration in departmental or regulatory proceedings only shields individuals from criminal liability under three strict conditions:
- All facts and evidence must be examined in detail.
- The findings must explicitly declare the allegations as baseless or unproven.
- The order must clearly state the individual’s innocence.
In this case, the Adjudicating Authority’s order refrained from imposing penalties but also noted that Singh had participated in the asset collection drive and failed to exercise the diligence expected from a CEO. The order recorded negligence and irregular pledging of client securities, suggesting responsibility rather than innocence.
“The mere absence of penalty does not amount to exoneration,” the Court observed.
Legal Implications and Next Steps
Relying on inspection reports by SEBI, NSE, forensic audits, and bank records, the Court held that sufficient material exists to prosecute Singh under Section 27(1) of the SEBI Act, 1992, which makes senior officers liable for violations by the company conducted under their watch.
The Court emphasized that liability does not require proof that Singh himself carried out the wrongful acts — only that, as CEO, he bore responsibility for ensuring compliance.
Accordingly, the Court upheld the Special Judge’s earlier rejection of Singh’s discharge plea, clearing the way for prosecution.
Legal experts say the ruling strengthens the principle that corporate executives cannot escape liability merely by distancing themselves from misconduct carried out under their leadership. The case now proceeds to trial, with the potential to set a precedent in India’s long-running battle against financial sector malpractices.