Karvy Share Pledge Case: Supreme Court Grants Partial Stay On SAT Order
The court has also said that status quo must be maintained with respect to Axis Bank.
The Supreme Court has granted a stay on a SAT order, which had allowed certain lenders to invoke the shares pledged in their favour by Karvy Stock Broking Ltd.
The lenders in the case include Axis Bank Ltd., Bajaj Finance Ltd., ICICI Bank Ltd., HDFC Bank Ltd., and IndusInd Bank Ltd.
The top court has granted a stay only with respect to the Securities Appellate Tribunal order against the Securities and Exchange Board of India.
The court has also said that status quo must be maintained with respect to Axis Bank, one of the lenders in the case, as the shares pledged in its favour haven't been returned to investors yet.
The matter has been posted for interim orders on the status of the other lenders on Monday.
The case will come up for a final hearing in April.
In December last year, the SAT invalidated two SEBI orders, which restrained some lenders from invoking the pledge on shares held by Karvy Stock Broking.
The tribunal allowed the lenders which included Axis Bank, Bajaj Finance, ICICI Bank, HDFC Bank, and IndusInd Bank to invoke the shares pledged in their favour.
The tribunal instructed SEBI, NSE and NSDL to reinstate the pledge made in favour of the banks within four weeks. On failure to do so, they must compensate the banks for the value of the securities pledged along with 10% interest per year within the same time frame.
The case pertains to certain securities held by Karvy, which were allegedly used by the brokerage firm for borrowing overdraft facilities from these financial institutions.
The five lenders had given loans to Karvy against the pledged securities.
Since these banks had provided Karvy with overdraft facilities against its shares, Karvy owed these lenders approximately Rs 1,400 crore. However, some of these securities belonged to those clients which did not have any debit balance with the brokerage firm.
Even though these shares were pledged in favour of the banks, SEBI and NSDL unilaterally transferred the pledged shares to the clients of Karvy without revoking the pledge.
In its order, the tribunal noted that SEBI and NSDL's action to unilaterally transfer the pledged shares was wholly illegal and without jurisdiction.
The tribunal observed that no revocation of a pledge is permitted unless consent is obtained from the pledgee, i.e., the banks in this case.
