SAT Overturns SEBI Decisions in Landmark Ruling on Karvy Stock Broking Case

the Securities Appellate Tribunal (SAT) has overturned two key orders issued by the Securities and Exchange Board of India (SEBI) in the Karvy Stock Broking case. The decision came in response to appeals filed by major financial institutions, including Axis Bank, HDFC Bank, ICICI Bank, IndusInd Bank, and Bajaj Finance, challenging the SEBI orders.

The SAT ruled to quash the SEBI orders from January 2020 and December 2019, which had previously prohibited lenders from invoking the pledge on shares in Karvy Stock Broking Limited (KSBL). As a result, the tribunal has now granted the lenders the right to invoke the shares pledged in their favor.

In its official order, the SAT directed SEBI, National Stock Exchange (NSE), and National Securities Depository Limited (NSDL) to reinstate the pledges made in favor of the appellants within four weeks. Alternatively, the regulatory bodies have been instructed to compensate the lenders for the value of the pledged securities, along with a 10% annual interest, within the same timeframe.

The outstanding dues owed to these lenders, as per SEBI's December 2019 order, amount to more than ₹1,400 crore. Notably, Axis Bank is owed ₹80.64 crore, ICICI Bank ₹642.25 crore, Bajaj Finance ₹344.5 crore, HDFC Bank ₹208.5 crore, and IndusInd Bank ₹159 crore, including interest.

The tribunal strongly criticized SEBI and NSDL for their unilateral transfer of pledged shares to Karvy's clients, deeming it illegal and lacking jurisdiction. The SAT emphasized that the revocation of a pledge is impermissible without the consent of the pledgee, in this case, the appellants.

The case revolves around securities held by Karvy, allegedly utilized by the brokerage firm for borrowing through granted power of attorneys. After SEBI's directive, more than 83,000 clients received the securities previously held by Karvy. The five lenders had extended loans to Karvy against the pledged securities, leading to the protracted legal battle that has now culminated in the SAT's landmark decision.