ED freezes shares worth ₹700 crore of Karvy group
Company had allegedly pledged securities of its clients, taken ₹329 crore loan and diverted the same
The Enforcement Directorate said it has frozen shares worth ₹700 crore of Karvy group, held directly or indirectly by its Chairman and Managing Director C. Parthasarathi, his two sons and their entities, following search operations at six locations connected to Karvy Stock Broking Limited (KSBL) under Prevention of Money Laundering Act (PMLA).
Parthasarathi is currently lodged in Chanchalguda jail after he was arrested on August 19. The Chief Executive Officer of Karvy Rajeev Ranjan Singh and Chief Financial Officer G. Krishna Hari were arrested by the police earlier this month.
A statement of ED said the Central agency initiated money laundering investigation on the basis of FIRs registered by police on the complaint of HDFC Bank alleging that KSBL had illegally pledged the securities of its clients and taken a loan of ₹329 crore and diverted the same. Another FIR was registered by Central Crime Station of Hyderabad police for defrauding IndusInd Bank to the tune of ₹137 crore and one more FIR was registered by Cyberabad police authorities of Hyderabad for defrauding ICICI Bank to the tune of ₹562.5 crore.
The total loan proceeds taken from multiple banks was around ₹2,673 crore. National Stock Exchange and Securities Exchange Board of India were also investing the affairs of KSBL. During the course of investigation, it came to light that KSBL did not report the Depository Participatory account Karvy Stock Broking Limited (BSE) in the filings made from January 2019 to August 2019 with regulators/exchanges. Further, KSBL fraudulently transferred shares belonging to its clients to its own demat account (which was not disclosed to the exchanges) and pledged the shares held in these accounts with the lenders/banks (HDFC, ICICI, IndusInd and Axis Banks).
The quantum of such loans taken by KSBL from illegal pledging of shares was to the tune of ₹2,873 crore. KSBL credited the funds raised by pledging client securities to six of its own bank accounts and has not reported this to SEBI. Prima facie, a net amount of ₹1,096 crore was transferred by KSBL to its group company Karvy Realty (India) Limited between April 1, 2016 and October 19, 2019.
The ED conducted search operations at various premises of Karvy group of companies, connected entities and residential premises of Parthasarathi. It was reliably learnt that Parthasarathi was trying to offload his shares in the group companies through private deals and, thus, the freezing order against the shares was issued.