Sebi, NSE, NSDL may face ₹1,400-cr liability as SAT rules in favour of Karvy’s lenders
HDFC Bank, Axis Bank, ICICI Bank, IndusInd Bank and Bajaj Finance had petitioned against Sebi’s order to transfer securities held with Karvy Stock back to the clients. Sebi had said that Karvy had misused client securities, and pledged them for loans against shares from banks and non-bank lenders.
It also said Karvy had not disclosed one of its demat accounts. Essentially, Karvy had taken loans of ₹600 crore by pledging securities worth over ₹2,300 crore belonging to 95,000 clients.
As per Sebi’s rules, brokers are required to segregate client accounts and broker accounts. On Wednesday, the Securities Appellate Tribunal said that not allowing lenders to revoke the pledge under the Depositories Act and removing the pledged shares without the consent of the lenders were “wholly illegal and without any authority of law" on the part of NSE and NSDL.
“The shares removed and transferred by NSDL under the directions of Sebi are liable to be restituted," the appellate tribunal held. The primary grievance of the lenders was that Sebi, NSE and NSDL had on their own accord unpledged the shares, turning them into unsecured creditors from the earlier secured status.
The banks and NBFCs had said the pledge was created in accordance with the Depositories Act and the Depositories and Participants (DP) regulations. They claimed that they had the right to exercise the pledge over the encumbered securities and that Sebi, NSE and NSDL were wrong in returning the securities to the accounts of Karvy’s clients.Milestone Alert!
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