SEBI, NSDL and NSE may have to pay over Rs 1,400-cr compensation to Karvy lenders post SAT order

Lenders Axis Bank, ICICI Bank, Bajaj Finance, HDFC Bank and IndusIndBank approached the tribunal.

The Securities and Exchange Board of India (Sebi), the National Stock Exchange (NSE) and the National Securities Depository Limited (NSDL) may face a financial liability of over Rs 1,400 crore, following an order by the Securities Appellate Tribunal on December 20.

According to the order, they have been asked to return the shares pledged by Karvy Stock Broking to the brokerage's lenders or compensate the lenders with the value of the underlying securities along with an interest of 10 percent per annum.

Lenders Axis Bank, ICICI Bank, Bajaj Finance, HDFC Bank and IndusInd Bank approached the tribunal after the market regulator asked the depository to transfer securities that were pledged by Karvy back to the client investors.

The regulator had found that the brokerage had misappropriated client's funds and pledged clients' securities. Therefore, the regulator asked the depository not to transfer the pledged securities.

The lenders submitted that they had advanced loans to Karvy against securities 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.

The Sebi order dated December 13, 2019, details the dues that were pending. It recorded that balance outstanding for Bajaj Finance was Rs 3,44.49 crore, ICICI Bank was Rs 642.25 crore, HDFC Bank was Rs 280.5 crore and IndusInd Bank was Rs 159.16 crore.

The SAT order records AXIS Bank's pending dues as Rs 80.64 crore.

The outstanding dues total to over Rs 1,433 crore.

In the December 13, 2019, order, the market regulator had held that reliefs sought by the lenders are "not tenable" and that the remedy lies against Karvy before civil court of competent jurisdiction.

(This is a developing story. Please check here for updates.)