The Deccan Chronicle saga is getting murkier by the day and this time, Future Capital & Karvy Stock Broking may have fallen victim to a fraud.
The media company’s promoters are now facing criminal charges including of forgery, fraud and concealment.
The issue came to light after the Hyderabad-based Karvy Stock Broking Ltd filed a complaint with the Central Crime Station in Hyderabad alleging that the promoters of the listed media entity tricked them during an exercise to pledge shares and raise funds.
According to a complaint filed by Uma Maheswara Reddy, an employee of Karvy, T Venkattram Reddy, chairman of Deccan Chronicle Holdings Ltd, T Vinayak Ravi Reddy, vice chairman, and P K Iyer, also vice-chairman, have been operating their depository accounts at Karvy for some time.
Each has 24.61% stake in the company. The trio apparently entered into an agreement with Future Capital Holdings Ltd, Mumbai, for availing of a loan.
US private equity giant Warburg Pincus controls Future Capital with a 54% stake bought in June for about Rs560 crore.
As part of the loan agreement, the Deccan Chronicle promoters entered into a non-disposal undertaking power of attorney (NDU-POA) in favour of Future Capital, wherein they have undertaken not to dispose of the shares without the consent of the lender.
Karvy, as the depository maintaining their accounts, was requested to confirm the balance (of shares) available in their accounts and countersign the NDU-POA.
The promoters held 6.04 crore shares on the day Karvy confirmed to Future.
However, in May this year, Future approached Karvy again wanting to know if the promoters had brought more shares as additional security (top up) for any fall in the margin due to a decline in the price of shares.
Karvy said there was not enough balance in their accounts and forwarded the enquiry from Future to the Deccan Chronicle promoters.
Later that day (June 1, 2012), the promoters informed Karvy that the arrangement with Future is being terminated and a letter dated June 1, 2012, from the account holders was received stating that the NDU-POA agreement made by them with Future has been terminated by settling all financial and other terms and the shares are now free from encumbrance.
It was also stated in the letter that the confirmation letter to this effect would also be sent by Future on the same day or latest by June 4, the complaint said.
However, Karvy said, the Deccan promoters also asked it to transfer a part of the shares held in their accounts to their respective accounts held with another depository participant, Religare Enterprises.
The instruction was carried out by Karvy “considering the reputation of the Deccan promoters”, Karvy said. But it sought sought a letter from Future Capital confirming the termination of the deal with Deccan, “which didn’t arrive despite several reminders”.
According to Karvy, on July 2 and 3, the promoters of Deccan asked Karvy to pledge a part of the free shares in favour of IDFC Ltd and the same was executed under the belief that the shares were free from any encumbrance.
The episode took an ugly turn after Future sent a fax message to Karvy confirming that it had provided Rs120 crore to Deccan and Rs50 crore to Aviotech Ltd, a group company, and that they had a Charge I Lien (first rights) on an aggregate of 11.2851 crore Deccan shares held in the accounts of the promoters.
But the records available with Karvy showed that the accounts held only 6.04 crore shares.
Karvy claimed that the fax letter sent by Future was also acknowledged by P K Iyer as authorised signatory for DCHL and Aviotech.
Future also faxed a copy of a letter purported to have been issued by Karvy on May 28 which confirms that an additional quantity of 1.7467 crore shares of Deccan Chronicle have been topped up in each of the accounts, so the total quantity of shares in their depository accounts covered under the NDU-POA stands at 11.2851 crore.
Karvy now says it never issued any such letter, and claims it is a forgery. It says that a notice questioning the discrepancy was sent to the account holders on July 17, but elicited no response.
“It is very clear that the depository account holders by using a forged letter, committed a fraud on us and misrepresented the facts that a higher number of shares existed in their accounts for availing of a loan against them thereby committed a breach of trust and forgery,” Karvy’s complaint goes.
“Further by concealing the actual facts and intimating Karvy wrongly that the NDU-POA with Future is terminated, they have induced us to effect the transfer and pledge of shares held in their accounts which, as per Future, the NDU-POA continues to subsist,” the complaint said.
Based on the complaint, the police have registered a case under sections 406 (criminal breach of trust), 420 (cheating), 468 (forgery for purpose of cheating), 471 (using as genuine a forged document or electronic record) read with 34 of the Indian Penal Code. The case is currently being investigated.
Sources said that the charges are severe in nature and the investigation would lead to certain major developments in the case.
Meanwhile, sources said that the Future Capital, which has already advanced funds based on the pledge, was also considering the option of filing a complaint in the case.