SAT Stays SEBI Order against HDFC Bank in BMA Wealth Case
The Securities Appellate Tribunal (SAT) has stayed an order passed by market regulator Securities and Exchange Board of India (SEBI) against HDFC Bank Ltd in the BRH Wealth Kreators Ltd (BRH) (formerly BMA Wealth Creators Ltd) and BRH Commodities Private Ltd (formerly BMA Commodities Pvt Ltd) matter. Last month, SEBI had asked the lender to deposit Rs158.68 crore along with interest in an escrow account and pay a penalty of Rs1 crore in this case.
 
In an order, the SAT bench of justice Tarun Agarwala and justice MT Joshi pointed out that HDFC Bank is one of the largest private sector banks, and as per balance sheet it has assets of Rs16.54 lakh crore and, therefore, has sufficient financial strength and ability to furnish the amount as per the impugned order.
 
"It is not a case where the bank will run away or will become insolvent. We accordingly stay the effect and operation of the impugned order till further orders of the Tribunal subject to the condition that appellant will give an undertaking to SEBI that they will abide by the result of the appeal and the directions given therein within four weeks from the date of the disposal of the appeal. Such undertaking shall be given by a responsible officer of the appellant to be filed before SEBI within two weeks from today," the Tribunal says. 
 
SEBI found HDFC Bank violated its interim order and unilaterally invoked securities pledged by BRH and BRH Commodities worth Rs158.68 crore. 
 
In the order, G Mahalingam, whole-time member (WTM) of SEBI, had said, "Given the unilateral action of HDFC Bank to avoid SEBI’s interim order, I am of the view that the alleged violations of SEBI circulars as also the failure to conduct due diligence by HDFC Bank to verify the ownership of securities pledged at the time of creation of the pledge, are not relevant for consideration at this point in time. As stated earlier, the validity of the pledge at the time of creation does not justify the subsequent act of invocation by HDFC Bank on 14 October 2019, post the interim order."
 
"I find the invocation of pledge of client securities available in the two demat accounts of BRH by HDFC Bank, was not in conformity with the directions contained in the interim order. I find that HDFC Bank had unilaterally invoked securities pledged by BRH to the extent of Rs158.68 crore. I am therefore, of the considered view that HDFC Bank be directed to deposit an equivalent amount of Rs158.68 crore along with interest from 14 October 2019 till date, at the rate of 7% per annum (being the marginal cost of fund-based lending rate (MCLR) notified by the Reserve Bank of India-RBI) in a separate interest bearing escrow account (in any nationalised bank by marking a lien in favour of SEBI), till the issue of settlement of clients’ securities is reconciled," the order says.
 
HDFC had granted credit facilities to BRH worth Rs191.16 crore and to BRH Commodities worth Rs26.61 crore, out of which Rs87.75 crore was granted as loan against securities (LAS). On 14 October 2019, HDFC Bank invoked securities pledged by BRH to the extent of Rs158.68 crore.
 
SEBI, in its order on 7 October 2017, had barred BRH Wealth Kreators, Shiv Kumar Damani, Anubhav Bhatter, Murgesh Devashrayi, BRH Commodities, Prosperous Vyapaar Pvt Ltd, Polo-Setco Tie Up Pvt Ltd and Parton Commercial Pvt Ltd from markets.
   
However, on 7 November 2019, HDFC Bank informed SEBI about recalling its credit facilities from BRH and BRH Commodities. HDFC Bank says it had granted credit facilities to BRH and BRH Commodities aggregating to Rs191.16 crore and Rs26.61 crore, respectively.
 
Responding to this, SEBI told HDFC Bank that the lender's action is against the directions given by the market regulator under its interim order. "It is observed from your letter that HDFC had granted overdraft or loan against securities (LAS) for Rs87.75 crore. However, it is observed from the information provided by National Stock Exchange (NSE) that the HDFC Bank has invoked securities pledged by BRH to the tune of Rs158.7 crore as on 14 October 2019," SEBI says.
 
On 2 January 2020, SEBI confirmed its direction given in the interim order issued on 7 October 2017. (Read: SEBI Asks HDFC Bank to Deposit Rs158.68 Crore in Escrow Account, Pay Penalty of Rs1 Crore for Violating Its Order in BMA Wealth Matter
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