Karvy case: SAT to pronounce order on banks’ plea today

By: |
Published: December 4, 2019 3:22:52 AM

In an email response, Aditya Birla Capital, spokesperson said, “We have not lent any money to Karvy Stockbroking but to a group company. The asset of Karvy securities is only mortgaged to us.”

Further, SAT asked NDSL not to transfer any more shares to the clients of Karvy. The tribunal will pronounce its order on Wednesday.

The Securities and Appellate Tribunal (SAT) has reserved the order on the plea of HDFC Bank, ICICI Bank and IndusInd Bank against capital market regulator Sebi’s move to transfer pledged shares to clients of the troubled Karvy Stock Broking.

Further, SAT asked NDSL not to transfer any more shares to the clients of Karvy. The tribunal will pronounce its order on Wednesday.

Sebi has estimated the total exposure of lenders to Karvy at Rs 2,800 crore. Karvy has taken loans by pledging securities worth more than Rs 2,300 crore of 95,000 clients with lenders. Of these nearly 83,000 have got their securities after the reversal by National Securities Depository (NSDL). With the latest transfer by NSDL, nearly 90% investors
have got back their securities and the remainder will get after clearing their dues.

HDFC Bank has an exposure of Rs 300 crore, ICICI Bank’s exposure stands around Rs 460 crore and IndusInd Bank at Rs 100 crore. Earlier, on Tuesday, SAT gave the markets regulator time till December 10 to pass an order in the Bajaj Finance’s plea against its inability to access the shares pledged by Karvy. Bajaj Finance has an exposure of Rs 345 crore.

Banks argued that NSDL was totally unjustified in reversing the shares back to clients accounts as the pledgees (bankers) were not consulted. They also argued that it was impossible to conduct the forensic audit on accounts if 90% shares were reversed by NSDL.

Gaurav Joshi, HDFC Bank’s counsel, argued that there was no mandatory order to NSDL to transfer the shares back to clients account. “We want to know under what authority they have done this? Shares are fungible in nature, once they are sold in market it cannot be taken back. NSDL has done a unilateral closure, pending forensic audit. Our 470 crore shares were transferred from account pledged with us. Sebi should have heard all the parties. After judicial determination they could have decided to transfer the shares,” he said.

“NSDL can still take steps to control those shares. If it goes to market it will become totally untraceable. There is no way to prove if the shares in the account were of clients or if they were benami shares. Who will reimburse my loss from transfer of shares to clients account. The NSDL decision has affected the rights of Banks. We want the status quo to be preserved,” Joshi said.

ICICI Bank counsel Sandeep Parekh said, “The whole system was built around trust in depository. We cannot be forced to pay for the sins of the regulator and regulatee. The regulators could not find out even once in so many years that there was something wrong with the account. It was not even disclosed to the NSE. Let, the account holders sue Karvy individually, we are obliged to be paid.”

IndusInd counsel Pesy Mody, argued, “Loans against securities is the most common form of lending by Banks. Earlier, there were physical shares with us, now it is not there. What we have is the promise of the law. Regulator in this case is acting contradictory to its own law. Status quo ante should be restored,” he said.

Sebi’s counsel Rafiq Dada, however, argued that banks should have done the due diligence on the pledged shares and noted that pledgees cannot have higher rights than the pledger (Karvy).

In an email response, Aditya Birla Capital, spokesperson said, “We have not lent any money to Karvy Stockbroking but to a group company. The asset of Karvy securities is only mortgaged to us.”

—With inputs from PTI

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Bharti Airtel shares stage marginal recovery; Vodafone Idea dips 9 per cent
2Rupee ends steady ahead of RBI monetary policy outcome
3HDFC AMC OFS opens tomorrow: Standard Life to offload stake; check price, other details