SAT overturns SEBI order on Karvy

The Securities Appellate Tribunal (SAT) has barred depositories from transferring more securities from Karvy Stock Broking’s (KSB) account while directing SEBI to look into the representation of Bajaj Finance and pass an order by December 10. The National Securities Depository Limited (NSDL) had said on Monday it had transferred the securities of nearly 83,000 clients of KSB from the broking firm’s account to the respective client accounts. KSB, which is under the regulatory scanner for misusing client funds and has already been barred from signing new clients, had borrowed ₹3450000000 from Bajaj Finance, a non-banking financial company (NBFC) by pledging client securities. The issue came to light on Tuesday after the NBFC filed an appeal with SAT against the order passed by the Securities and Exchange Board of India (SEBI) which, among other things, directed depositories to transfer the shares from KSB’s account to the respective client accounts. According to the NBFC, KSB had pledged the securities to raise a total of about ₹3450000000 but had now violated certain terms of the loan agreement. Hence, the NBFC wanted to invoke the pledge but could not do so due to the SEBI order. ‘SEBI’s unilateral action’ “Such unilateral action by the SEBI has left the appellant to face the consequences of the impugned order [for] no fault of the appellant,” stated the SAT order while highlighting the submissions made by Bajaj Finance. As per submissions made by the brokerage’s counsel, the brokerage had also given an undertaking that the pledged securities were owned by the broker and were not from client accounts. According to a stock exchange statement, the current exposure of the NBFC towards KSB is pegged at ₹3120000000. “... we are of the considered view that the impugned order has prejudiced and adversely affected the rights of the appellant as a bonafide lender,” said the SAT order. The tribunal’s order is bound to affect a few000 clients of the troubled brokerage. As per the SEBI probe, securities worth approximately ₹2,3000000000 of more than 95,000 clients were “unauthorisedly transferred” to the demat account of KSB.