Karvy Crisis: Banks Move SAT Against Depositories, SEBI Seeking Damages, Reversal Of Share Transfers
IndusInd Bank, HDFC Bank and ICICI Bank are seeking damages against the transfer of pledged shares.
Three private lenders have moved the Securities Appellate Tribunal, seeking damages from National Securities Depository Ltd. and Central Depository Services Ltd. over damages arising from the market regulator’s order last year that barred Karvy Stock Broking Ltd. from signing up new customers.
HDFC Bank Ltd., ICICI Bank Ltd., and IndusInd Bank Ltd. have moved the tribunal seeking indemnification and damages from the depositories in a plea that names Securities and Exchange Board of India and National Stock Exchange as parties.
Somasekhar Sundaresan, counsel representing NSDL and the NSE, challenged the banks’ plea saying that it isn’t maintainable as it’s outside the tribunal’s jurisdiction. To this, the banks’ counsel said that full details relating to clients’ accounts haven’t been disclosed by the depositories and their lack of due diligence led to the undermining of financial system and stock markets.
The tribunal directed both the parties to file their replies and will hear their detailed arguments on March 18.
Plea Background
The market regulator, in its order dated Nov. 22, 2019, had restrained transfer of securities from Karvy’s depository participation account except to those who had made full payment.
Banks and financial institutions then moved the Securities Appellate Tribunal seeking reversal of transfers made by the depositories. The banks claimed that certain shares in Karvy’s DP account were pledged to them. The SEBI order permitting transfer of shares to beneficial owners, they said, was against law and curtailed their chances of recovering amounts extended as loan to Karvy.
On Dec. 4, the Securities Appellate Tribunal denied relief to banks and directed and them to approach SEBI to secure shares pledged to them by Karvy. The market regulator had denied relief and directed them to approach a civil court to seek recourse against Karvy.
Following this, ICICI Bank and Axis Bank Ltd. filed an application in the Hyderabad Debt Recovery Tribunal under the SARFAESI Act to recover dues and sought attachment of properties belonging to Karvy Stock Broking, C Parthasarathy, Rajat Parthasarathy and Compar Estates and Agencies—an entity that holds shares of Karvy on behalf of the Parthasarathys.