Lenders get no immediate relief from SAT in Karvy case

Mumbai: The Securities Appellate Tribunal (SAT) on Wednesday asked Sebi to pass the final order in the pleas filed by ICICI Bank, HDFC Bank, IndusInd Bank and others against the regulator’s move to transfer pledged shares to clients of Karvy Stock Broking Ltd.

The SAT refused to give any immediate relief to the top lenders, who challenged the transfer of securities held with Karvy Stock Broking back to the clients and sought transfer of the shares into an escrow account.

HDFC Bank and ICICI Bank had on Tuesday fought to lay their hands on the client shares that Karvy had pledged with them, seeking to recover Rs 1,000 crore they had lent to the brokerage. IndusInd Bank had also joined in the plea, claiming dues of Rs 132.50 crore.

The three private banks had contended that many of these securities had been used to borrow money from them and had pleaded with the tribunal to either get the securities back to them or put them in an escrow account to protect their funds.

The case pertains to the securities that were used by Karvy for borrowing, courtesy the power of attorneys that they held. The securities held by over 83,000 clients were given back to them on Monday after the Securities and Exchange Board of India asked NSDL to do so, forcing Bajaj Finance to move the SAT and secure an interim relief on further transfers.

The NSDL transfers helped 90 per cent of the Karvy demat account-holders get back their shares bought on borrowed money from these lenders.

The private sector banks joined the Bajaj Finance petition on Tuesday and there was a lengthy hearing.

On November 22, Sebi barred Karvy from taking new brokerage clients and also prevented it from using the power of attorneys (PoAs) given by its clients after the brokerage was found to have allegedly misused clients’ securities.

On Wednesday, SAT bench comprising M.T. Joshi and C.K.G. Nair refused to give nay relief to the lenders beyond the order in the Bajaj Finance plea and asked them to approach Sebi by December 6.

The SAT also asked Sebi whole-time member Ananta Barua, who issued the order against Karvy on November 22, to give a personal hearing to the aggrieved parties and pass an order by December 12.

In the Bajaj Finance case, SAT on Tuesday asked Sebi to hear the financier latest by Wednesday, and directed Sebi to pass a fresh order by December 10.
On these banks' specific request for either getting back the securities which have been given out as loans or at least freezing them till a decision is reached, the SAT maintained that such a plea is "untenable" as the securities are already with the clients.

During the course of the arguments on Tuesday, a counsel for HDFC Bank said it has an exposure of Rs 300 crore to such loans, while the value of the securities against which the loans were made is Rs 470 crore, while Bajaj Finance's exposure is Rs 312 crore.

The lenders had collectively said that the NSDL decision following a Sebi direction on Monday can put the entire loans against securities business in a quandary if the underlying security will no longer be available to be invoked.

The NSDL counsel had told the SAT that the decision was taken by its board and also cited a June 19 Sebi order that barred them from taking such securities.
Speaking to reporters earlier in the day, Sebi chief Ajay Tyagi  declined to comment on the matter, saying the matter is sub-judice.