Clients of Karvy Private Wealth have challenged certain sections under the Insolvency and Bankruptcy Code (IBC) on the grounds that these do not provide restitution to financial creditors in cases where the corporate debtor has raised money through a fraudulent investment scheme.
The Delhi High Court had issued notices to the Centre, Karvy Stock Broking (under which Karvy Private Wealth was housed) and various other parties on 13 August.
The clients had lent money to various builders, many of whom subsequently went into bankruptcy resolution.
The clients had earlier approached the Supreme Court in January 2020, challenging IBC amendments that imposed requirements of at least 100 creditors or 10% of a class of creditors in order for an insolvency petition to be filed. However, the Supreme Court upheld the amendments.
“We have challenged the scheme of the IBC not only because it prevents cheated investors from invoking any civil remedy against fraudulent companies, it further has the effect of granting protection to such fraudulent companies post the conclusion of insolvency. This is, therefore, a serious lacunae in the IBC, which requires consideration,” said Srijan Sinha, an advocate representing the clients.
The petition by Karvy clients refers to the resolution process for C&C Towers Pvt Ltd, a builder developing a project based in Mohali, Punjab. The builder went into corporate insolvency in February 2019. According to the petition, the resolution professional for the company proposed a scheme with an 87% haircut for creditors in April 2021 and Edelweiss Asset Reconstruction Company with a 60% voting share was able to unilaterally approve the same to the detriment of Karvy clients.
According to the petition, Karvy Stock Broking, through Karvy Realty Ltd, sold the project to the petitioners as one being developed in a public-private partnership.
However, Karvy Realty Ltd. did not inform the petitioners that the project is already severely delayed and the accounts of C&C Towers Pvt Ltd have been declared non-performing assets (NPA).
Karvy Realty Ltd represented to the petitioners that all due diligence in relation to C&C Towers Pvt Ltd and the project had been conducted by it. However, despite there being only 99,000 worth of sq. ft. for allotment, Karvy Stock Broking facilitated overbooking of the space so as to help C&C Towers Pvt Ltd getting unjustly enriched, the petition alleged.
The petition further asked the court to declare that the absence of a provision in the Insolvency and Bankruptcy Code 2016 to redress the grievances of individual retail investors who have been fraudulently induced by corporate debtor to invest in a ponzi scheme to be violative of Articles 14 & 21 of the Constitution.
The Karvy Group did not respond to requests for comments from Mint on the petition.
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