The Securities Appellate Tribunal on November 29 directed regulator Sebi to reconsider its order restraining Karvy Stock Broking from using its clients' power of attorneys (PoAs).
The regulator's decision to debar the brokerage from using PoAs was part of an ex-parte order issued last Friday barring the brokerage from taking new broking clients as it has misused the clients' securities for its own benefits.
Karvy had moved SAT on Thursday challenging the curbs using the PoAs, and Friday's order by the two-members SAT bench Tarun Agarwala and MT Joshi is an interim relief for the crippled brokerage.
SAT also directed the Sebi to consider Karvy's request made in three letters to the regulator since the order was passed, and gave Sebi time till December 2 on the same.
At the hearing, Karvy said not being able to use the PoAs was creating problems in settling trades with the clearing house and hence it became necessary to seek clarifications from the regulator.
"Since clients of Karvy are trading online they are also unable to transfer the securities from the clients demat accounts to the pool account for the purpose of clearing the trades," the SAT noted.
However, Sebi said it has "serious apprehensions" with the same as "it might lead to further misuse of the power of attorney given to them by their clients".
The Sebi action was in response to a report of the NSE which found non-compliance with respect to the pledging/misuse of client securities by Karvy during period since January 1, 2019. The NSE submitted the report on August 19.
In a 12-page ex-parte interim order, Sebi whole-time member Ananta Barua said there is a "need for urgent regulatory intervention to prevent further misuse of clients' securities".
Apart from prohibiting Karvy from taking new broking clients, the watchdog directed NSDL and CDSL not to act upon any instructions given by Karvy in pursuance of power of attorney given by its clients.
"Depositories shall monitor the movement of securities into and from the DP account of Karvy clients to ensure that clients' operations are not affected," the order said.
Karvy has also informed the SAT that in due course, it will be filing an application for revocation of the order before the whole-time member.