Karvy Stock Broking Scam: Axis Bank's fight for justice continues
Hyderabad: In a significant development, the Nampally Court has breathed new life into the Karvy Stock Broking Limited (KSBL) fraud case. The court set aside a lower court's dismissal of a protest petition filed by Axis Bank, potentially reopening criminal proceedings against KSBL and its former chairman, C. Parthasarathy.
KSBL, once a prominent stock broking firm, has been accused of misusing client securities and diverting funds to group entities. Since 2009, KSBL has been availing working capital limits from Axis Bank in the form of loan against property, overdraft and bank guarantee facilities, renewed or enhanced from time to time. As of 2022, a total amount of Rs.159 crores excluding interest, penal interest, commission, and other charges is due from KSBL to the Petitioner bank under above facilities.
The scandal erupted in November 2019 when the Securities and Exchange Board of India (SEBI) passed an order against KSBL stating that it misutilized client securities and generated funds diverted to KSBL group entities. Following the SEBI order, Axis Bank filed a police complaint in 2022. Based on which Hyderabad police booked a case under Sections 406, 409, and 420 of the Indian Penal Code.
Consequently, the Enforcement Directorate (ED) has commenced an investigation into KSBL under the Prevention of Money Laundering Act, 2002 (PMLA). ED investigation revealed that the accused allegedly diverted a significant amount of funds borrowed from various financial lenders, including the Petitioner bank, to the tune of Rs. 906.59 Crores.
KSBL fraud case, Hyderabad police terms ‘lack of evidence’
After the investigation, the Hyderabad police filed a closure report citing “lack of evidence.” Following this, Axis Bank filed a protest petition, aggrieved by the final report filed by the Investigating Agency referring to the case due to “lack of evidence”. The protest petition was dismissed by the lower court for non-appearance. The bank then filed a revision petition in the Sessions Court.
The court highlighted the ongoing Enforcement Directorate investigation under the Prevention of Money Laundering Act, leading to the provisional attachment of assets belonging to KSBL and related entities.The court noted, “The events alleged by the petitioner shows that there has been siphoning of huge public funds by the KSBL.
“In the interests of justice and to give a fair opportunity to the Petitioner, this Court is of the considered view that the Petitioner is entitled to put forth their case before the trial court before the final report as filed by the Police is accepted,” noted the court.
The court noted a fair opportunity to be provided to Axis Bank to present all their evidence. It directed the trial court to pass orders on merits after providing a fair opportunity for the petitioner to present their evidence.
