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Karvy Wealth faces challenge in Delhi High Court for fraudulent activities.

On 13th August, 2021 clients of Karvy Private Wealth, a wealth management company, filed a case against it under Section 7 of the Insolvency and Bankruptcy Code on the ground that the Company did not provide restitution to financial creditors in cases where the corporate debtor raised money through fraudulent schemes. The clients were promised assured returns and buyback schemes. The investment received from schemes had in turn been disbursed to builders in different parts of the country who defaulted in their payments.

The clients have filed a number of cases against Karvy in different forums including the Supreme Court, Delhi High Court, National Company Law Tribunal, Delhi and National Company Law Tribunal, Chandigarh. The cases have been filed not only against Karvy Private Wealth but also against the different builder companies which had taken the investments from Karvy and had defaulted on the payments to the clients. 

In the instant case, the petition has been filed against the resolution process of C and C Towers Pvt. Ltd. (Herein after ā€œCompanyā€), a builder developing a Bus Terminal in Mohali, Punjab. The builder had taken funds from the Karvy Private Wealth for completion of the project and had offered buyback schemes and promised assured returns. Karvy Realty Ltd, a part of the parent company Karvy Stock Broking, hid essential information from the clients while marketing the Company for investment. It hid the fact that the project was severely delayed and that accounts of the Company have been declared NPA.

The Company was unable to fulfil its promise and defaulted on its payment. Thereafter, the Company went into insolvency proceedings. The Resolution Plan accepted by the CoC proposed an 87% cut to the creditors. The retail investors categorically rejected the aforementioned resolution plan but since they were in a minority, Edelweiss Asset Reconstruction Company with 60% voting share was able to approve it to the detriment of the investors.

Apart from the specific instances of Karvy and its builder clients, the petitioners have also challenged various provisions of laws related to investor rights. The petitioners had first challenged the -minimum 10% requirement from a class of investors for initiating insolvency proceedings- which was introduced through an amendment in the IBC. The Supreme Court however ruled against them and upheld the amendment. 

The petition filed against Karvy also challenges provision of the Banning of Unregulated Deposit Schemes Act, 2020 for providing a savings clause in favour of IBC and SARFASI Act under Clause 12 of the impugned Act. The petition further prays for the Court to fill the lacuna in the IBC relating to the redress the grievances of individual retail investors who have been fraudulently lured into investing in Ponzi schemes by declaring it violative of Article 14 and 21 of the Constitution.

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