Sebi orders attachment of bank, demat accounts of Karvy and its CMD

New Delhi: Markets regulator Sebi on Thursday ordered the attachment of bank accounts as well as shares and mutual fund holdings of Karvy Stock Broking and its CMD C Parthasarathy to recover dues of around Rs 25 crore. Before this, the regulator on August 7 sent a notice to Karvy and Parthasarathy asking them to pay dues within 15 days in a case pertaining to misappropriation of clients' funds by misusing the Power of Attorney (PoA). The notice came after the entities failed to pay the fine imposed on them by Sebi. The Securities and Exchange Board of India (Sebi) in April 2023 barred KSBL and Parthasarathy from the securities market for seven years and also imposed a penalty of Rs 21 crore on them for misappropriating clients' funds by misusing the Power of Attorney given to the broking firm.

Individually, the regulator levied a fine of Rs 13 crore on Karvy Stock Broking Ltd (KSBL) and Rs 8 crore on Parthasarathy, promoter-cum-managing director. In four separate attachment notices issued on Thursday, the markets watchdog has ordered the attachment of bank, demat accounts, and mutual fund folios of the two entities to recover the pending dues. Going by the notices, dues of Rs 15.34 crore and Rs 9.44 crore were pending from KSBL and Parthasarathy respectively, which includes interest and recovery cost. As per the attachment notices, Sebi said there is sufficient reason to believe that the defaulters may dispose of the amounts in the bank accounts and securities in the demat accounts or mutual fund folios and "realisation of the amount due under the certificate would, in consequence, be delayed or obstructed."

Accordingly, the regulator asked all banks, depositories, and mutual funds not to allow any debit from the accounts. The case relates to KSBL's massive asset mobilisation drive followed by raising of huge funds from financial institutions by using the securities mobilised from the clients with a promise to pay them interest. These funds were misappropriated and diverted to KSBL's connected entities, thereby defaulting in its obligations to settle the securities and funds with the clients as per regulatory instructions. In its order passed in April last year, the regulator found that KSBL was raising funds by pledging clients' securities and by misusing the Power of Attorney granted to it by its clients. Further, the funds by KSBL were being diverted to its group entities thereby violating various provisions of law.