Rs 2873 Crore loan scam: ED freezes Rs 700 Cr worth shares of Hyderabad-based Karvy Group

Enforcement Directorate has frozen Rs 700 crore worth shares of Hyderabad-based Karvy Group after learning that its chairman and managing director (CMD) C Parthasarathy was trying to off-load them in his other companies through private deals in a bid "to preserve the proceeds of crime till further investigation".

On September 22, ED conducted searches at six locations connected to s Karvy Stock Broking Limited (M/s KSBL) under the Prevention of Money Laundering Act (PMLA). Subsequently, ED issued a freezing order to Karvy Group shares held directly and indirectly by Comandur Parthasarathy, his sons, Rajat Parthasarathy and Adhiraj Parthasarathy, and their entities in order to safeguard the proceeds of crime.

ED raided various premises of Karvy Group of Companies, connected entities, and at the residential premises of C Parathasarathy. During the course of the search, several incriminating evidences in the form of property documents, personal diaries, electronic devices, email dumps, etc have been seized.

ED said it is reliably learnt that C Parthasarathy was trying to off-load his shares in the group companies through private deals and thus, in order to preserve the proceeds of crime till further investigation,

ED has issued a freezing order on September 22. ED said the estimated value of these shares is Rs. 700 Crore as per the valuation for the year 2019-20.

ED initiated a money-laundering investigation on the basis of FIRs registered by Telangana Police on the Complaint of HDFC Bank alleging that M/s KSBL had illegally pledged the securities of its clients and taken a loan of Rs 329 Crore and diverted the same.

Another FIR has been registered by Central Crime Station, Hyderabad Police, for defrauding IndusInd Bank to the tune of Rs 137 Crore. ED said one more FIR has been registered by Cyberabad Police Authorities, Hyderabad, for defrauding ICICI Bank to the tune of Rs 562.5 Crore.

ED said KSBL under the leadership of C Parthasarathy had committed gross irregularities and all the illegally taken loans have become NPA. It is learnt that more FIRs are being registered by other Banks and also individual shareholders/ investors.

"The total loan proceeds taken from multiple Banks using the same modus operandi is around Rs 2873 Crore. NSE and SEBI are also investigating the affairs of KSBL. ED is conducting an investigation under PMLA against Karvy Group of Companies for their involvement in the offence of money laundering to the tune of Rs 2873 Crore," ED said.

During the course of the investigation, it came to light that KSBL did not report the Depository Participatory) DP account no. 11458979 of Karvy Stock Broking Ltd (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 is not disclosed to the exchanges) and pledged the shares held in these accounts with the lenders/banks (HDFC Bank, ICICI Bank, IndusInd Bank, Axis Bank, etc.). The securities lying in the aforesaid DP account of KSBL actually belonged to the clients who were/are the legitimate owners of the pledged securities. Therefore, KSBL did not have any legal right to create a pledge on these securities and generate funds," ED said.

ED said the quantum of such loans taken by KSBL from the illegal pledge of shares is to the tune of Rs 2873 crore. KSBL credited the funds raised by pledging of client securities to 6 of its own bank accounts ("Stock Broker-own Account") instead of the "Stock Broker-Client Account".

"It has not reported these 6 own bank accounts ("Stock Broker-own Account") held with various private banks, to SEBI. Prima facie, a net amount of Rs 1096 crore was transferred by KSBL to its group company i.e.M/s Karvy Realty (India) Ltd. (KRIL), between from 01-April 2016 to 19-October-2019," ED said.

Further, KSBL did large-scale trading activities in the names of 9 companies that included M/s Karvy Consultants Limited (KCL), which is a group company of Karvy, and 8 other shell companies, in the guise of doing insurance business.

"During the course of the investigation conducted under PMLA, it also came to light that several Crore of rupees were diverted for acquiring immovable properties through the group company, KRIL, and to other group companies as well. It also came to light that recently deletion of files and emails from the computer servers by using anti-forensic tools had been done under the instructions of C. Parthasarathy," ED said.

ED said the bank statement analysis of these companies revealed that there is a large value rotation of funds between Karvy Group of Companies and shell companies' bank accounts. Earlier, ED has recorded the statement of C. Parthasarathy in Chanchalguda Jail.