21-Dec-2023
2 mins read
In a significant legal development, the Securities Appellate Tribunal (SAT) has overturned orders from the Securities and Exchange Board of India (SEBI), impacting India’s market regulation landscape and imposing substantial financial liabilities on major financial institutions.
SAT’s Decision and Its Implications
The SAT’s ruling in favour of the lenders of Karvy Stock Broking Ltd. poses a major shift. SEBI, the National Stock Exchange (NSE), and the National Securities Depository Ltd (NSDL) now face a potential financial liability exceeding Rs 1,400 crore.
The tribunal’s decision mandates SEBI, NSE, and NSDL to either restore the pledged shares to the lenders or compensate them, including a 10% annual interest. This ruling comes after SEBI’s November 2022 interim order against Karvy, which had significant consequences for the market.
Background of the Karvy Case
Initially, SEBI had prohibited Karvy from acquiring new clients and directed depositories and stock exchanges to initiate proceedings against them. The heart of the issue was Karvy’s misuse of client securities, pledging them for loans without proper disclosure.
Major banks and financial institutions like HDFC Bank, Axis Bank, and ICICI Bank challenged SEBI’s order, leading to this landmark ruling.
The Legal Perspective
This scenario is rare, where the regulator and market infrastructure intermediaries face significant financial repercussions.
The decision has sparked discussions among legal experts about the obligations and powers of regulatory bodies like SEBI, NSE, and NSDL, particularly in managing pledged securities. The SAT ruling impacts the immediate parties and sets a precedent in securities law, potentially influencing future regulatory actions and the treatment of pledged securities in India.