Supreme Court breather for Sebi on SAT ruling in Karvy pledge case

The Supreme Court has stayed the order of Securities Appellate Tribunal (SAT)  which directed Securities Exchange Board of India (SEBI) to return the shares pledged by Karvy Stock Broking to the brokerage’s lenders.

SAT had directed the regulator to compensate the lenders with the value of the underlying securities along with an interest of 10 percent per annum.

The lenders include Axis Bank, HDFC Bank, IndusInd Bank, ICICI Bank and Bajaj Finance.

The court said status quo must be maintained with respect to Axis Bank as the shares pledged in its favour haven't been returned to investors yet.

While the SAT’s direction was to SEBI, National Stock Exchange (NSE) and National Securities Depositories Limited (NSDL), only SEBI has got reprieve. The apex court will hear pleas by NSE and NSDL for interim reliefs on January 29.

Supreme Court’s order said “There shall be a stay of the impugned order of the SAT dated 20 December 2023, insofar as the Security Exchange Board of India is concerned.”

Karvy reportedly had misappropriated clients’ funds and pledged their securities with these lenders. The SAT order exposed the regulator, the depository and the exchange to a financial liability of over Rs 1,400 crore. Following this, the market regulator filed an appeal with the Supreme Court.

The lenders had advanced loans to Karvy against shares pledged by the brokerage. When Karvy defaulted, the lenders wanted to invoke the pledge but were stopped by Sebi passing an interim order on September 22, 2019, directing the depositories not to allow the transfer of securities.