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Sebi, NSE move SC against SAT relief to HDFC Bank

A Bench led by Justice SA Nazeer will hear the matter on Monday.

Sebi, NSE move SC against SAT relief to HDFC Bank
SAT had held that HDFC Bank was justified in invoking the pledge made by BRH and in doing so, did not violate any Sebi directions.

The Securities and Exchange Board of India (Sebi) and the National Stock Exchange of India have moved the Supreme Court against a sectoral tribunal order that quashed the market regulator’s order against HDFC Bank in a case relating to invoking securities pledged by stockbroker BRH Wealth Kreators.

A Bench led by Justice SA Nazeer will hear the matter on Monday.

The Securities Appellate Tribunal (SAT) had in February quashed the Sebi’s January 2021 order that had imposed a Rs 1 crore fine on the lender for flouting directions passed in its interim order of October 2019. The regulator had also directed HDFC to transfer Rs 158.68 crore with 7% interest per annum into an escrow account till the issue of settlement of clients’ securities was reconciled.

SAT had held that HDFC Bank was justified in invoking the pledge made by BRH and in doing so, did not violate any Sebi directions.

Sebi has told the SC the SAT had failed to consider that a pledge created on the securities of investors/ clients in favour of the bank was bad in law and against the intent of the Depositories Act, 1996, and Sebi Act, 1992, and circulars issued under them.

In its appeal, filed through counsel Pratap Venugopal, Sebi said BRH had misappropriated its clients’ securities of Rs 169.24 crore in September 2019 and misutilised them by pledging them for grant of a loan of Rs 191.16 crore from the bank.

“Because in any event, the banks/ NBFCs as a pledgee of DMAT securities as well as a prospective transferee on invocation is a ‘person associated with the securities markets’. It cannot be said that the banks therefore are not within the jurisdiction of Sebi; any person dealing with securities, including a person dealing in the depository system by creating a pledge in his favour, is within the Sebi jurisdiction and bound by the Sebi orders,” it said.

BRH had availed a loan against shares from HDFC Bank. The brokerage firm had in October 2019 defaulted on its obligations, following which the bank recalled a loan worth Rs 191 crore. As BRH failed to repay the loan, the bank sold shares pledged by the broker worth Rs 140 crore between October to December 2019. This was despite Sebi restraining BRH in October 2019 from accessing the securities market and disposing of its assets.

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