The Securities Appellate Tribunal (SAT) has reportedly asked Karvy Stock Broking Ltd or Karvy to approach National Stock Exchange (NSE)'s disciplinary committee on revoking the trading suspension. Separately, the Tribunal also asked the Securities and Exchange Board of India (SEBI) to hear Bajaj Finance Ltd, a client of Karvy, and pass an order by 10 December 2019. SAT also ordered suspension of any further transfer of securities that Karvy Stock Broking had pledged with the lenders. Karvy has approached the SAT after NSE, Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX) on Monday suspended its trading licence across all segments of equity, cash, commodities and currency on regulatory concerns.
According to a report from the Mint
, after hearing Karvy's representation, NSE's disciplinary committee will pass final order on whether the trading suspension stays or is revoked by 6th December. The petition by Karvy against SEBI would now be heard on 13 December 2019.
In a separate order, the SAT bench of Dr CKG Nair and justice MT Joshi, asked SEBI's whole-time member (WTM) to hear Bajaj Finance and pass an order by 10th December. Bajaj Finance has approached SAT contesting an order passed by SEBI on 22 November 2019 barring trading accounts of Karvy.
In its contention, Bajaj Finance, represented by senior counsel Janak Dwarkadas, says since Karvy violated certain clauses of their loan agreement and withdrew beyond the sanctioned amount, on 20 November 2019, it had issued a loan recall notice to the brokerage seeking refund of its full outstanding loan of about Rs345 crore, including interest and charges. Bajaj Finance was planning to invoke the pledge, however, on 22 November 2019, SEBI prohibited Karvy from transferring securities and the Bajaj group company could not invoke its pledge.
In its order passed on Tuesday, the SAT says, "...we find that the impugned order notes that Karvy had raised funds pledging securities from banks and non-banking finance companies (NBFCs) and therefore was aware that rights of those entities would be impacted by the said order. As such, even if they could not be heard while passing the impugned order at least on their representation they were entitled to be heard...we are of the considered view that the impugned order has prejudiced and adversely affected the rights of the appellant as a bonafide lender."
Last month, market regulator SEBI found that Karvy Broking had illegally diverted nearly Rs2,000 crore of more than 95,000 clients’ shares to its own accounts.
Based on a preliminary report from NSE, the WTM of SEBI had issued an ex-parte ad interim order on 22 November 2019 restraining Karvy from taking new clients in respect of its stock broking activities and also prevented the brokerage from using the power of attorney (PoA) given by its clients. Later, on 29th November, the SAT asked SEBI to consider request of Karvy and pass appropriate orders. However, on the same day, SEBI disposed all contentions made by Karvy and barred the brokerage from using PoA of its clients.
In an email to its clients on Monday, Karvy had said, "All of you must be aware of the fact that the NSE and the BSE have suspended trading by us on all stock exchanges. We have received this communication from the NSE only at 8.27am, in the morning, and were informed that we have been temporarily suspended under rule 13 A (a) of the NSEIL Rules, with effect from 2 December 2019, on account of regulatory concerns. We are yet to receive a show cause notice from them, and we propose to respond to the show cause notice appropriately. The BSE has also sent an intimation to us about the suspension of trading. We are approaching the SAT to intervene."
Reports suggest that Karvy is facing a liquidity crunch due to a number of bad client trades on castor seeds. The Hyderabad-based financial services group is facing liquidity problems as some clients have defaulted on payments after incurring huge losses on trades in castor seed contracts. The payments contagion now seems to have spread to other investors who are complaining that Karvy is not making the payments.