ED attaches assets worth Rs 134 crores in Karvy Group money laundering case
The diverted loan funds were funnelled into related companies like Karvy Data Management Services Ltd and Karvy Realty India Ltd, among others,
By Newsmeter Network Published on 26 Oct 2023 2:36 PM GMT
Hyderabad: The Directorate of Enforcement (ED) provisionally attached assets worth Rs 134.02 crores, which consisted of 1,000 Non-Convertible Redeemable Preference Shares worth Rs 200 each from KFin Technologies Ltd or KFintech.
These shares were held in the name of Adhiraj Parthasarathy, son of C Parthasarathy, the CMD of Karvy Stock Broking Ltd. This action was taken under the Prevention of Money Laundering Act (PMLA) on October 23.
Karvy Stock Broking Ltd used clientsā shares for loans
The ED initiated an investigation based on the FIRs filed by CCS Hyderabad Police, alleging that Karvy Stock Broking Ltd (KSBL) obtained loans by illicitly pledging clientsā shares worth approximately Rs 2,800 crores and failed to repay these loans, leading to them being declared as Non-Performing Assets (NPAs) and fraud accounts.
The diverted loan funds were funnelled into related companies like Karvy Data Management Services Ltd and Karvy Realty India Ltd, among others, for purposes other than what was originally stated. These diverted funds passed through multiple defunct Non-Banking Financial Companies (NBFCs) to Karvy Financial Services Limited, an NBFC of the Karvy Group, to manage their bad debt accounts and NPAs.
The EDās investigation uncovered that C Parthasarathy had special rights to subscribe to additional equity shares of KFintech as per a Shareholders Agreement from August 3, 2017. To terminate the Shareholders Agreement and eliminate these rights, KFintech issued 1,000 Non-Convertible Redeemable Preference Shares in the name of Adhiraj Parthasarathy, C Parthasarathyās son, at par value on October 25, 2021.
The agreed redemption premium or termination fee was initially Rs 164 crores but was reduced by Rs 30 crores due to unauthorised transfers of shares to the Demat accounts of KSBL and Karvy Consultants Ltd, triggering an indemnity payout clause. As a result, these shares would be redeemable after two years at a net redemption premium of Rs 134.02 crores.
The investigation further revealed that these Redeemable Preference Shares were issued in exchange for the rights and privileges held by C Parthasarathy in KFintech, and he had primary ownership of the consideration received.
An arrangement was made where the consideration from KFintech was taken in the name of Adhiraj Parthasarathy, as he was not accused in the FIRs. Unfortunately, Adhiraj Parthasarathy concealed this property and did not disclose it deliberately in his submissions to the ED during the investigation.
The total attachment in this case now amounts to Rs 2,229.56 crores, and further investigation is ongoing.
