The Supreme Court in the case Securities and Exchange Board of India v. Axis Bank Limited & Ors., observed wherein the appeal is filed against the Securities Appellate Tribunal’s, SAT for quashing the order of SEBI in the Karvy Stock Broking case.
The Supreme Court in the case directed that no coercive action be taken against SEBI, National Securities Depository Limited, NSDL and the National Stock Exchange of India Limited, NSE.
The three-Judge Bench of Chief Justice DY Chandrachud, Justices JB Pardiwala and Manoj Misra in the case observed and has directed that status quo be maintained wrt shares of Axis Bank till next date of hearing, i.e. January 25, 2024.
The court observed that the present appeals challenge SAT orders of December last year, whereby the Tribunal quashed orders issued by SEBI against lenders i.e., the Axis Bank, ICICI Bank, HDFC Bank, IndusInd Bank and Bajaj Finance, wherein prohibiting them from revoking the shares pledged by Karvy Stock Broking.
Therefore, the court stated that the lender institutions had advanced loans to Karvy against pledged securities, however, Karvy had defaulted.
The SEBI had passed an order, under which pledged shares were transferred to clients of Karvy.
The Tribunal in the case held in their favor, allowing them to invoke the shares pledged by Karvy. SEBI, NSDL and NSE were directed by the Tribunal to restore the pledge in favor of the lender institutions within 4 weeks, or in the alternative, to compensate them with the value of the underlying securities pledged along with interest.
It has been observed by SAT that once a valid pledge is created in favor of a third party, then a third-party right is created in the attached property, and the same cannot be sold or distributed to discharge the liabilities of the broker.
SAT in its order stated that if SEBI, NSE or NSDL were of the opinion that the pledge was wrongly created by Karvy… the appropriate remedy was to file an application before the NCLT for rectification of its register. Thus, the said process was not done and like a highway robber NSDL, through illegal directions from SEBI, transferred the pledged shares to the clients of Karvy.
The court aggrieved with the order of SAT, SEBI and others approached the Supreme Court.
The court while considering the facts and circumstance of the case stated that the dues payable to the lender institutions exceed Rs.1400 crores.
The counsels, Senior Advocates Aryama Sundaram, Niranjan Reddy, Arvind P Datar and Neeraj Kishan Kaul appeared for the appellant, SEBI/NSDL/NSE.
The counsels, Senior Advocates Dr. Abhishek Manu Singhvi, Dhruv Mehta, Dr. S Muralidhar, Ritin Rai and V Giri represented the respondent.