Anugrah Stock & Broking case: SAT quashes Edelweiss Custodial appeal

The Securities Appellate Tribunal (SAT) on Friday dismissed an appeal by Edelweiss Custodial Services (now Nuvama) in a matter related to Anugrah Stock and Broking where the brokerage misused client securities worth Rs 450 crore.

Edelweiss Custodial appealed against an order of the Core Settlement Guarantee Fund Committee of NSE Clearing, which directed it to reinstate the securities and return the shares to the clients, which were wrongly sold off.

Edelweiss Custodial provided clearing services to Anugrah for trades taken in the derivatives segment and collected collateral for the margin requirements. Most of these collaterals were in the form of shares.

However, in 2020 Anugrah failed to pay the dues, and to recover them, Edelweiss sold the collaterals to the tune of Rs 460 crore and used the proceeds to meet the clearing obligations towards NSE Clearing.

In its order, the committee of NSE Clearing said Edelweiss failed to perform adequate due diligence while handling client securities and failed to ensure that the clients’ securities were only utilized for meeting the clients’ obligations.

SAT has upheld the order by the committee.

“The innocent clients whose securities have been, thus, misused/misappropriated, cannot be deprived of their right to get back their shares,” noted SAT.

The tribunal pointed out that directing the restitution of the shares was essential for the public to have faith in the system.

“It would be a travesty of justice and undermine the regulation of the markets if any intermediary is permitted to misuse/misappropriate clients’ securities by selling off the same unilaterally when the concerned investor has no outstanding obligation or liability, and then permitting the intermediary to benefit from the same at the cost of the expense of the investors,” noted Justice Tarun Agarwala in the order.

The tribunal added that ‘an innocent party cannot be made to suffer or be deprived of his property’.