Sebi , in an order late on Friday, said the relief sought by
Earlier this month, Sebi had directed share depositories to transfer majority of the shares owned by clients of Karvy Stock Broking which were pledged with these lenders by the firm back to their demat accounts. The Sebi direction came after the regulator noticed Karvy had misused the power of attorney given to the brokerage by its clients. Following which, Karvy’s lenders had moved the Securities Appellate Tribunal seeking a status quo with regard to the securities in the Karvy Stock Broking account.
“In this case, it has been observed that there was neither any instructions from the clients to Karvy Stock Broking (KSBL) and nor any corresponding trade on the stock exchange. Thus, there was no occasion to use/activate the PoA by KSBL,” Sebi whole-time member Ananta Barua said in his order posted on the website.
The regulator said in one demat account of Karvy Stock Broking, which was not disclosed by it in its filings with stock exchanges, securities worth Rs 2,300 crore of more than 95,000 clients were unauthorizedly transferred into this account by Karvy to generate funds for its group entities.
Karvy’s creditors submitted to Sebi that the pledge created is a valid pledge and the depositories had no right to unilaterally release the pledge without their consent and also to transfer the securities to clients of Karvy Stock Broking.
“In the present case, in respect of impugned securities which have been unauthorizedly removed/transferred by KSBL were belonging to the clients who had paid in full against these securities and there was no further instructions to act upon them. Therefore, KSBL was not at all authorized to pledge securities owned by its fully-paid clients. The unauthorized transfer of securities of fully-paid clients by KSBL is misappropriation of clients’ securities by KSBL,” Sebi said.
“These securities were subsequently unauthorizedly pledged by KSBL to the representors (banks and NBFC) for availing the loans. Thus, the pledge created by KSBL of the securities owned by its clients, was unauthorized, and in law, not treated as a valid pledge,” Sebi said.
The regulator said rules allow only a beneficial owner to create pledge on the securities owned by him.
“…in the present case, securities lying in the demat account... which were unauthorizedly pledged by KSBL with the Representors (lenders), were owned by the clients of KSBL and the clients continued to be entitled to all the benefits attached to such securities in terms of Section 10(3) of the Depositories Act, 1996,” Sebi said.
“These securities were not at all owned by KSBL. Therefore, in terms of the provisions of the Depositories Act, 1996 and DP (Depository Participant) Regulations, KSBL could not have pledged these securities. Accordingly, such unauthorized pledge was not in accordance with law and hence, did not create any right in favour of the Representors (lenders),” Sebi said.
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3 Comments on this Story
Ravi Agarwal443 days ago
Ksbl has also pledged the shares which iam having in the pool account and they have not yet transferred to my demat, and the fund with the ksbl is also been not yet transferred.
Hudaf Shaikh443 days ago
It is shocking that NSDL permitted Karvy to transfer client shares to an undisclosed account in gross violation of SEBI rules -
SEBI should immediately order NSDL to compensate all parties impacted by this scam - further to restore investor confidence in the depository system, SEBI should immediately dismiss NSDL top management and file an EOW complaint.
Shibu Mathew443 days ago
One of the best bet judgement. Book the bank officials responsible in this scam.