Karvy case: SAT asks Sebi to hear Axis Bank's plea, pass order within 15 days

The Securities Appellate Tribunal (SAT) on Tuesday asked Sebi to pass an order within 15 days in Karvy Broking matter on Axis Bank's plea, which said the regulator's ruling is preventing the lender from accessing securities pledged by the broking firm through another account.

The order comes following a Sebi directive to the National Securities Depository Ltd (NSDL) in November that prevented Axis Bank from accessing the securities pledged with the lender by Karvy Stock Broking Limited (KSBL).

The case pertains to the securities held by KSBL, which were used by the brokerage for borrowing, courtesy the power of attorneys (PoA)that they held.

The securities held by over 83,000 clients were given back to them after Sebi asked NSDL to do so, forcing lenders -- Bajaj Finance, ICICI Bank, HDFC Bank and IndusInd Bank -- to move SAT and secure an interim relief on further transfers.

However, SAT refused any immediate relief to top lenders.

NSDL's move helped 90 per cent of KSBL's demat account holders get back their securities.

Sebi, through an interim order passed on November 22, barred KSBL from taking new brokerage clients and also prevented it from using PoAs given by its clients after the brokerage was found to have allegedly misused clients' securities.

In its plea, Axis Bank, which lent Rs 81 crore to KSBL on the basis of securities pledged by the brokerage, contended that its position viz-a-viz other lenders is different as the other lenders were directly impacted by Sebi's directive that asked depositories not to allow transfer of securities from one account of Karvy.

The bank said that the Sebi order did not contain any direction preventing Axis Bank from operating another demat account of KSBL, and NSDL has kept the said account in abeyance and the lender could not invoke the pledge when tried to do so.

"Though, the account frozen explicitly by the WTM (whole time member) of Sebi by order dated November 22, 2019 is not the same account as that of the appellant (Axis Bank) implicitly the order has got extended to such accounts because of the sweeping nature of the WTM's directions to protect the interest of the investors," as per the order.

Accordingly, the tribunal "directed the appellant to file an appropriate representation before Sebi. If such an application is filed, Sebi will hear the appellant and other relevant entities and pass appropriate directions within 15 days".

It further said that "status quo shall be maintained in respect of the securities" with regard to disputed demat account.

On Saturday, Sebi refused to provide any relief to Bajaj Finance and three other lenders -- ICICI Bank, HDFC Bank and IndusInd Bank -- in the KSBL matter regarding pledged shares.

On December 4, the tribunal denied any immediate relief to top lenders who had petitioned against the transfer of securities held with KSBL back to the clients.

The tribunal had directed the four lenders to approach Sebi by December 6 and that Sebi pass an order.