Sebi denies relief to lenders for flouting regulations in Karvy case

The NSDL's move to transfer 80,000 client shares came after Sebi passed an interim order on November 22
Noting that the pledging of shares done by Karvy Stock Broking didn’t have any legal sanctity, the Securities and Exchange Board of India (Sebi) on Friday denied relief to the lenders that had extended loans to the brokerage against securities. 

According to the Sebi order, its June circular had made it clear that clients’ securities lying with a stock broker in “client collateral account” could not be pledged to banks or non-bank financial companies for raising funds.

The circular “directly concerned the business activity” of the lenders and they should have taken appropriate action to ensure its compliance, the order said.

It also observed that under “no circumstances, the securities received in payout can be retained by the stock broker beyond five trading days and or can be used for any other purpose”.

IndusInd Bank, Bajaj Finance, HDFC Bank and ICICI Bank had moved the Securities and Appellate Tribunal after the National Securities Depository  transferred the client shares wrongfully pledged by Karvy Stock Broking back to client accounts.

"In the absence of corresponding trade instruction, the pledging of securities of such clients is also unauthorised and, hence, in law not treated as a valid pledge," it said.

IndusInd Bank, Bajaj Finance, HDFC Bank and ICICI Bank had moved the Securities and Appellate Tribunal (SAT) after the National Securities Depository (NSDL) transferred the client shares wrongfully pledged by Karvy Stock Broking back to client accounts.

The NSDL's move to transfer 80,000 client shares came after Sebi passed an interim order on November 22, which among other things, asked depositories and exchanges to initiate appropriate disciplinary proceedings in the Karvy matter. 

After hearing the pleas of the lenders, SAT had directed Sebi to pass an order in the matter.



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