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ICICI Bank Files Rs 563-crore Fraud Case Against Karvy Stock Broking

The accused company had become a defaulter by allegedly diverting these funds to itself as well as other connected business entities.

The accused company had become a defaulter by allegedly diverting these funds to itself as well as other connected business entities.

The case was transferred to the Economic Offences Wing of Cyberabad, where a special team had been formed to investigate the incident according to reports.

ICICI Bank filed a case against Karvy Stock Broking Ltd’s promoter C. Parthasarathy as well as others for allegedly cheating the bank out of Rs 563 crore. The press release was issued by the police on Tuesday evening and the case was booked under Sections 406 (criminal breach of trust), 420, r/w 34 (cheating) of IPC against the accused.

Karvy Stock Broking had raised the funds by pledging shares of its six bankers. These funds were then supposedly transferred to the firm’s personal bank account instead of the Stock Broker Client Account. This move was in contravention to the guidelines put in place by the Securities and Exchange Board of India (SEBI), according to the release. Additionally, all the pledges on securities were closed without approval and securities were transferred to the end clients of Karvy Stock Broking. This severely impacted the security of all lenders involved, including ICICI Bank, said the press release.

After this happened, the case was transferred to the Economic Offences Wing of Cyberabad, where a special team had been formed to investigate the incident. Parthasarathy was arrested by the city police on August 19 on the charges of defaulting on a Rs 137 crore loan taken from IndusInd Bank, according to reports.

The Chairman of the stockbroking firm had allegedly not only defaulted on the loan but also diverted it to other bank accounts according to a statement made by Avinash Mohanty, the Joint Commissioner of Police.

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The accused company had become a defaulter by allegedly diverting these funds to itself as well as other connected business entities. This led to SEBI revoking the pledge of securities on November 22, 2019, that the firm had made with the banks and NBFCs. The banks in question were left with no collateral and thereby the Karvy Stock Broking defaulted in repayments that amounted to Rs 137 crore as on March of 2021, according to a press release by the police.

A further investigation into the case had revealed that the accused had previously diverted around Rs 720 crore of its client’s funds to the firms trading account. It was also alleged that the firm had taken credit facilities from several other NBFCs to the tune of Rs 680 crore by pledging its clients’ securities without their consent. This led to the repayments falling into default according to the release. The reports also mentioned that there were two other cases filed against the brokerage firm as well as Karvy Commodities for allegedly committing loan fraud against HDFC Bank. This supposed fraud added up to Rs 340 crore and another Rs 7 crore according to the press release.

In November of 2019, the SEBI had barred Karvy Stock Broking from taking on any new brokerage clients after it was found to have supposedly misused the clients’ securities, which amounted to Rs 2,000 crore. The brokerage house was also removed from the Bombay Stock Exchange for being an alleged defaulter. Its membership with the National Stock Exchange underwent the same treatment.

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first published:August 25, 2021, 11:03 IST