Previously, on SEBI instructions the depositories had transferred back securities worth Rs 2000 crore to their rightful owners.
The lenders (Bajaj Finance, ICICI Bank, HDFC Bank, IndusInd Bank) had then approached the Securities Appellate Tribunal (SAT) challenging the transfer as the subject securities were pledged with them by Karvy. SAT further directed the lenders to approach SEBI.
SEBI has now refused to provide relief to the lenders. Key points observed by SEBI include –
- The relief sought by lenders against pledged shares (to not transfer back to original owners) is not tenable and the lenders should be instead approaching civil courts for their claim against Karvy.
- Under no circumstances clients’ securities received in payout can be retained by a stock broker beyond five trading days or can be used for any other purpose.
- In the absence of corresponding trade instruction, pledging of securities of such clients is also unauthorized and hence, in law not treated as valid pledge.
Personally, I believe that the arguments used by SEBI are logical, at par and would go a long way in reimposing investors’ faith in the securities markets.
Not to say that the entire fault was those of lenders’. They were maybe doing something within well established practices. However, a better diligence was surely required on their part given the current market conditions, Karvy’s historical track record and adventures into the real estate business.
It would be very hard to argue how retail investors should be held responsible vis-a-vis lender institutions. The former neither have access to the information, nor are part of any decisions related to the alleged scam.