BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 02.12.2019
Date of Decision
: 03.12.2019
Appeal (L) No. 585 of 2019
Bajaj Finance Limited
3rd Floor, Panchshil Tech Park,
Plot 43/1, 43/2 and 44/2, Viman Nagar,
Pune – 411 014 (Maharashtra).

….. Appellant
Versus
1.

Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051.

2.

Karvy Stock Broking Limited
Karvy House, 46,
Avenue 4, Street No. 1,
Banjara Hills,
Hyderabad – 400 034.

.…Respondents
Mr. Janak Dwarkadas, Senior Advocate with Mr. Sandeep
Parikh, Mr. Rashid Boatwalla, Ms. Deepika Goyal, Mr. Rahul
Jain and Mr. Pruthvi Dhinoja, Advocates i/b Manilal Kher
Ambalal & Co. for the Appellant.
Mr. Rafique Dada, Senior Advocate with Mr. Anubhav Ghosh
and Ms. Rashi Dalmia, Advocates i/b The Law Point for
Respondent No. 1.
Mr. Vikram Nankani, Senior Advocate with Mr. KRCV
Seshachalam, Ms. Sabeena Mahadik, Mr. Pankaj Uttaradhi,
Mr. Sagar Hate and Mr. Aayush Kothari, Advocates i/b
Visesha Law Services for Respondent No. 2.
CORAM : Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
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Per : Dr. C.K.G. Nair, Member
1.

Not on Board. Mentioned by the learned Senior Counsel
for the appellant for urgent hearing.
2.

This appeal has been filed by Bajaj Finance Limited, a
Non Banking Financial Company (‘NBFC’ for short)
aggrieved by the interim order of the Whole Time Member
(‘WTM’ for short) of the Securities and Exchange Board of
India (‘SEBI’ for short) dated November 22, 2019 in the
matter of M/s. Karvy Stock Broking Ltd. (‘Karvy’ for short).
Appellant is particularly aggrieved by direction no. (iv) in the
said order which reads as follows:“(iv) The Depositories shall not allow transfer of
securities from DP account no. 11458979,
named KARVY STOCK BROKING LTD.
(BSE) with immediate effect. The transfer of
securities from DP account no. 11458979,
named KARVY STOCK BROKING LTD.
(BSE) shall be permitted only to the
respective beneficial owner who has paid in
full against these securities, under
supervision of NSE;”
3.

It is the contention of the appellant that Karvy has an
outstanding obligation of Rs. 3,44,49,81,609/- + applicable
interest and other charges towards the appellant and its said
3
rights got destroyed by the impugned order. Hence, this
appeal.
4.

Learned Senior Ccounsel Shri Janak Dwarkadas
appearing for the appellant submits that the appellant is in the
normal business of an NBFC including lending against
pledged securities. Accordingly, by way of a Loan Against
Securities Arrangement with Karvy it has been lending funds
towards working capital requirements against pledge of
securities since December 2014. Further, there has been an
undertaking from Karvy that such pledged securities were
owned by Karvy itself and not from clients’ accounts. Citing
various circulars issued by SEBI relating to maintenance of
clients accounts and securities vis-à-vis brokers accounts and
securities, it was emphasized that given the increasingly
tightened regulatory approach to this issue the appellant has
had no reason to doubt the pledges made by Karvy for
obtaining loans because the standard operating procedure for
such accounts and securities was rigorous and monitored by
the Depositories, Exchanges and above all SEBI.
5.

It was further contended that since Karvy violated
certain clauses of the loan agreement and withdrew beyond
the sanctioned amount a Loan Recall Notice was issued to
4
Karvy on November 20, 2019 seeking refund of the full
outstanding loan of Rs. 345 crore (approximately) along with
interest and charges. In the event of failure by Karvy to
refund the same the appellant was planning to invoke the
pledge. However on account of the impugned order dated
November 22, 2019 which inter alia prohibited transfer of
securities from DP account no. 11458979; named KARVY
STOCK BROKING LTD. (BSE) with immediate effect the
appellant could not invoke the pledge. At the same time
before passing such an order which affected its rights the
appellant was not given any notice or opportunity of being
heard in any manner. On becoming aware of the impugned
order, immediately on November 23, 2019 despite being a
Saturday the appellant sent a representation to SEBI raising
all these issues which, however, remain unanswered even
today. Such unilateral action by SEBI has left the appellant to
face the consequences of the impugned order despite no fault
of the appellant. In this background given that the rights of
the appellant are seriously affected and not providing an
opportunity by SEBI has seriously prejudiced the appellant,
the appellant seeks to quash the impugned order or in the
alternative atleast a direction to be heard by SEBI along with
stay on the direction to transfer the shares held by the
5
appellant in the form of pledge to respective beneficial
owners.
6.

Learned Senior Counsel Shri Rafique Dada representing
SEBI, Respondent No. 1 submits that the order is dated
November 22, 2019; the account concerned is not a pool
account but a beneficiary client account; appellant has not
done proper due diligence; NSE and NSDL have been
directed to release the shares to the beneficial owners as per
direction no. (iv) in the impugned order but they have not
been made party in the appeal; the appellant lent to Karvy on
the basis of share pledges even after the latest SEBI circular
ring fencing client securities and funds has been issued; and
most of the pledged shares are reportedly transferred to
beneficial owners, the exact information on which is not
available because neither NSE nor the Depositories have been
arrayed as parties in this appeal. In any case it was contended
by the learned senior counsel that the appellant has recourse
to the civil remedy.
7.

Learned
Senior
Counsel
Shri
Vikram
Nankani
representing Karvy, Respondent No. 2 submits that he has no
instructions on the matter.

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8.

Having heard the parties we find that the impugned
order notes that Karvy had raised funds pledging securities
from banks and 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 atleast on their representation they were entitled to be
heard. It is on record that the appellant wrote to SEBI on
November 23, 2019 (received by SEBI on November 25,
2019, 23rd and 24th being Saturday and Sunday). It is also an
undisputed fact that lending against securities is a normal and
permitted business activity of banks and NBFCs and SEBI is
fully aware of the same. Therefore, we are of the considered
view that the impugned order has prejudiced and adversely
affected the rights of the appellant as a bonafide lender. Since
it is the impugned order which has impacted the rights of the
appellant, not arraying NSE and NSDL as parties, though
their arraying might have brought in more facts on table, does
not impact the maintainability of this appeal.
9.

Accordingly, without commenting on the merit of the
case, we direct the WTM of SEBI to hear the appellant on the
basis of their representation dated November 23, 2019 and /
or any other additional representation which they may like to
7
make. If the appellant is desirous to make any additional
representation it shall be made latest by December 4, 2019.
Thereafter,
the
WTM
of
SEBI
shall
consider
the
representation(s) of the appellant and, after giving an
opportunity for personal hearing, pass an order as per law
latest by December 10, 2019. In the interim further transfer
of securities shall remain suspended from DP account no.
11458979, named KARVY STOCK BROKING LTD. (BSE)
in terms of direction no. (iv) of the impugned order (supra).
10. Appeal is disposed of on above terms at the stage of
admission itself. No order on costs.
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M.T. Joshi
Judicial Member
03.12.2019
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