Karvy lenders explore DRT, IBBI route
MUMBAI: Lenders to Karvy Stock Broking Ltd have started exploring other avenues after failing to secure any relief from the Securities and Exchange Board of India (Sebi) on client shares pledged by the brokerage.
The options include filing pleas with the Debt Recovery Tribunal (DRT) and Insolvency and Bankruptcy Board of India (IBBI), and selling minority stakes in sister concerns of Karvy. A total of seven entities have lent more than ₹1,400 crore to the brokerage against share collateral worth ₹2,319 crore.
“Most of the lenders have decided against appealing Sebi’s decision as by now majority of shares have been transferred to client accounts and are out of their reach,” said a person with direct knowledge of the matter. “In addition to shares, the lenders had taken other assets as collateral which can be used for recovery.”
On November 22, Sebi barred Karvy from acquiring new clients and from using power of attorney, thereby preventing the company from trading on behalf of clients, after the broker allegedly transferred clients’ money for other purposes and indulged in trades that were not authorized by them. Karvy had, instead of pledging its own shares, pledged shares belonging to clients and used them to raise funds. These funds were then transferred to its sister concerns such as Karvy Realty Ltd.
ICICI Bank Ltd on December 20 became the first lender to approach the Hyderabad DRT for recovery of dues. If the broking firm does not deposit an equal amount of collateral with the tribunal by January 5, assets of Karvy and its promoters can be attached. Other lenders that hold similar collaterals could also initiate similar recovery proceedings. “At least three other lenders are also likely to approach DRT in the coming two weeks to recover their dues,” said the person cited earlier.
Karvy Group’s former chairman and managing director, C Parthasarathy, and director Rajat Parthasarathy have already been issued notices to submit their passports, restraining them from leaving the country during the case proceedings. They have also been asked to disclose their assets to the tribunal. Karvy owes ICICI Bank ₹642 crore against a loan facility of ₹700 crore. The amount was due in November but the brokerage missed the schedule. ICICI Bank could not invoke the pledged shares as they belonged to clients and Sebi through its November 22 order prevented their transfer except to beneficiary owners.