SAT asks NSDL to hold back remaining stocks of Karvy clients

The Securities Appellate Tribunal (SAT) has instructed National Securities Depository (NSDL) to halt transfer of the balance investor securities that  Karvy Stock Broking had pledged with lenders.

The decision came after Bajaj Finance challenged SEBI's decision to return to Karvy’s clients the securities that the broking house had illegally pledged to raise money for itself.

The tribunal further directed SEBI to hear out the lender's concerns by December 4 and pass an order by December 10.

NSDL on December 2 transferred securities worth Rs 2,013.77 crore to over 83,000 clients of the affected 90,000 Karvy investors. Most of the remaining accounts are in dispute with Karvy Stock Broking, so they may get their money/securities after clearing dues with Karvy.

This SAT ruling now puts a question mark on the receipt of securities for these investors.

"Bajaj Finance had lent Rs 100 crore after SEBI's June circular mandated segregating client and proprietary accounts. This circular clearly states that financial institutions cannot grant loans against client pledged shares," a source told Moneycontrol.

This could indicate that Bajaj Finance does not have a strong claim in the case.

Another source stated that SAT does not have the power of invocation, which rests with higher courts.

HDFC Bank, ICICI Bank challenge SEBI move

Separately, HDFC Bank and ICICI Bank have also approached SAT contesting SEBI's decision.

HDFC Bank has lent Rs 400 crore to Karvy based on these pledged shares.

The counsel for the banks sought immediate freezing of all securities that have been transferred to client accounts. "Pledged shares cannot be transferred without consent of the banks," the counsel said.

The counsel further argued that going forward banks will be forced to seek additional collateral from all brokers due to SEBI's December 2 action.

Karvy's trading licence

The SAT also asked the National Stock Exchange (NSE) to take a decision on Karvy's trading license by December 6. The NSE and BSE had on December 2 suspended Karvy's trading license.