Karvy case: Interim relief to Axis Bank from Securities Appellate Tribunal

The Securities Appellate Tribunal (SAT) on Wednesday granted interim relief to Axis Bank in the appeal filed by the latter against the order passed by the Securities and Exchange Board of India (Sebi) in the Karvy case.

Axis Bank had moved SAT seeking status quo on the order which stated that pledging of shares by Karvy Stock Broking — where clients had “fully-paid” — was legally invalid. 

The tribunal granted interim relief in light of the fact that the National Securities Depository had earlier reversed securities to clients on the basis of Sebi’s November 2019 order.

Confirming the development, an official spokesperson for Axis Bank said, “The bank has filed an appeal before SAT against the Sebi order. The SAT on Wednesday granted interim relief to Axis Bank by directing status quo to be maintained on the Sebi order till further hearing on the matter.”

Sebi, in its order, had identified Rs 171.74 crore worth of shares where clients had fully-paid the dues. The spokesperson for Axis Bank said, “Our submission is that even in these shares, there is indebtedness, and the data needs to be re-examined.” 

In its order, Sebi said the transfer of unpaid client shares worth Rs 13.69 crore, which were pledged in favour of Axis Bank by Karvy, can be allowed if the bank is able to furnish proof of authorisation by each client.

“If the representor (Axis Bank) is able to show proof of authorisation in respect of securities having value of Rs 13.69 crore belonging to unpaid clients, such securities can be released to the representor after following the above procedure under supervision of the NSE,” Sebi said in its order.

Sebi’s whole-time member also observed that pledging of securities of unpaid clients required “explicit authorisation” from each client and power of attorney (PoA) given by clients was not sufficient authorisation to create such a pledge. Axis Bank in its arguments had said the PoA was sufficient authorisation, the order pointed out.  Axis Bank had extended an overdraft facility to Karvy Stock Broking, against which the share pledges were created. Karvy owed Rs 80.47 crore to Axis Bank. Overall, Rs 185.43 crore worth of securities were pledged in favour of Axis Bank.

Axis Bank had sought that in respect of partly or unpaid clients, Karvy should be directed to issue five days’ notice to clients or the bank can issue five days’ notice to clients to pay dues and redeem the shares. If the clients fail to do this within the stipulated period, the bank sought permission to invoke the pledged shares.

Karvy’s MF application on hold as NJ gets nod

Sebi has put Karvy Stock Broking’s application for an mutual fund (MF) licence on hold. The regulator’s processing status report showed that Karvy’s application was “put on hold in view of pending regulatory action”. 

Karvy had made the application for an MF business in February last year, much before the broking firm came under regulatory glare for pledging client securities. 

Meanwhile, NJ India Invest — India’s largest MF distributor in terms of commission — got in-principle approval to set up the MF business.