Mumbai: The Securities and Exchange Board of India(Sebi) has rejected Axis Banks request to allow it to invoke the pledge on shares in the Karvy Stock Broking case.
The regulators order comes after the Securities Appellate Tribunal(SAT) last month asked Sebi to pass an order by January 15, 2020 in the matter.Last month, Sebi has rejected the relief sought by other lenders too including HDFC Bank, ICICI Bank, IndusInd Bank and Bajaj Finance saying it was not tenable and the remedy for them against Karvy Stock Broking should be sought in the civil court.
Axis Bank had moved the tribunal seeking the shares pledged by Karvy to it be unfrozen, so that the lender can invoke the pledges.
The move came following a Sebi directive to depositories in November that prevented the lenders from accessing the securities pledged by Karvy Stock Broking.
Axis Bank lent Rs 80.47 crore to Karvy Stock Broking in the form of overdraft against shares.
The regulator said as per data provided by National Stock Exchange on pledged securities indicates that securities pledged by Karvy Stock Broking in favour of Axis Bank belonged to its fully paid as well as partly or unpaid clients.
The value of securities belonging to fully paid client is Rs 171.74 crore and the value of securities of other than fully paid clients is Rs 13.69 crore.
"Even if securities belonging to fully paid clients are pledged by the stock broker, such pledge does not pass any title to the pledgee, as the stock broker in such case himself/itself does not possess any title/right over such securities.
Thus, pledge of securities, belonging to fully paid client, is not treated as valid pledge in law," Sebi whole time member Ananta Barua said in his order.
"Pledging of securities of unpaid clients required taking of 'explicit authorization' by the stock broker from each such client and in respect of each such pledging.
The Representor (Axis Bank) has submitted that the PoA (power of attorney) given by the client was sufficient authorization to create such a pledge.
However, I do not agree with such interpretation given to the scope of PoA,"Sebi member said.
If the bank is able to show proof of authorisation in respect of securities having value of Rs 13.69 crore belong to unpaid clients, such securities can be released to it after following the procedure under supervision of NSE, Sebi said in its order.