The Hyderabad police on Thursday arrested Karvy Stock Broking Ltd (KSBL)'s chairman C Parthasarathy for allegedly defaulting on a loan taken from IndusInd Bank. The central crime station (CCS) police made the arrest after registering a case against KSBL on the basis of a complaint filed by the Bank.
Mr Parthasarathy will be produced before a city court later in the day, a police official told IANS.
In 2019, IndusInd Bank had granted a loan of Rs185 crore to KSBL on depositing securities and guarantees. However, the broking company failed to repay the loan. It was alleged that KSBL illegally transferred Rs138 crore to other companies.
Two other banks had also lodged the complaint against KSBL but, for now, the police have taken action only in connection with the case registered on IndusInd Bank's complaint.
HDFC Bank, in its complaint, alleged that KSBL defaulted on the loan taken in 2019. The stockbroking company had taken a loan of Rs350 crore against shares but only repaid Rs142 crore. HDFC Bank says the remaining balance loan amount of Rs208 with Rs38 crore interest remains unpaid.
As reported by Moneylife in September last year, a set of lenders—HDFC Bank, ICIC Bank, Indusind Bank and Bajaj Finance Ltd had allowed Karvy to borrow money by pledging clients’ shares, putting the investment of over 90,000 investors at risk. (Read: How Exchanges, Clearing Houses, Clearing Brokers and Banks are Permitting Frauds by Brokers)
Last month, responding to a question on the Rs2,500 crore Karvy scam, Pankaj Chaudhary, minister of state for finance had said, “Securities and Exchange Board of India (SEBI) has already passed orders in the matter of Karvy Stock Broking and initiated action against directors and key management personnel (KMP) of KSBL. In addition, adjudication proceedings have been initiated against both NSE and BSE for violating provisions of SEBI circulars. This is in addition to the criminal complaints filed by the NSE and its declaration of the broker as a defaulter. Claims of investors have been invited through a public notice.”
In November 2019, The SEBI banned KSBL over client defaults worth Rs2,000 crore. The company was banned from taking on new clients and executing trades for existing customers.
This followed an investigation by the National Stock Exchange (NSE) which found that Karvy had allegedly sold client stocks pledged with it through associated entities. The regulator had told depositories not to act upon any instructions by KSBL on the basis of powers of attorney given to the brokerage house in order to prevent further misuse of client securities.
However, as reported by Moneylife, even several months after its expulsion, there was no legal action against Karvy by retail or institutional investors. Mr Parthsarathy has been assuring people that the brokerage was close to selling its data management business, Karvy Data Management Services Ltd (KDMSL) and expected to raise almost Rs1,000 crore.
Some large investors contemplating litigation against Karvy were told that litigation and any coercive action would scuttle the deal and eliminate any chances of investors getting their money back.
Responding to Moneylife query about Karvy negotiations to sell the data management company, NSE had said, "Karvy has, for more than a year, claimed that they have finalised a deal with UK-based non-resident Indian (NRI) to gain full control of KSBL associate, subsidiary company KDMSL but we are not aware of the current status. However, NSE and other exchanges have monetised trading and demat accounts of Karvy. NSE, jointly with other MIIs (market infrastructure institutions), completed the transfer of the trading and demat accounts of Karvy to another stockbroker and depository participant, through a formal bidding process.” (Read: Karvy Once Again Buying Time and Negotiating a Foreign Buyer for Its Data Management Business)
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