Karvy Stock Broking case: Supreme Court stays SAT order quashing SEBI refusal to allow banks to revoke shares

The Supreme Court on Thursday stayed an order of the Securities Appellate Tribunal (SAT) which quashed two orders passed by the Securities Exchange Board of India (SEBI) prohibiting Axis Bank, ICICI Bank, HDFC Bank, IndusInd Bank and Bajaj Finance from revoking shares pledged with them by Karvy Stock Broking Limited (SEBI v. Axis Bank).A Bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Satish Chandra Sharma also directed that there shall be status quo with regard to proceedings against Axis Bank. "We will stay the order qua SEBI and pending payments on further directions of the court. Payment can go to ICICI, Axis etc. So far as Axis is concerned, status quo will be maintained. List on second week of April for final hearing...List the case on Monday for interim relief qua NSDL etc," the Bench ordered..Earlier this week, the Court had directed that no coercive action be taken against SEBI, National Securities Depository Limited (NSDL), and National Stock Exchange of India Limited (NSE) pursuant to the SAT order..Karvy owed the banks close to ₹1,400 crore after overdraft facilities were extended to the company against the pledged shares. Notably, these shares belonged to the clients of Karvy who had a debit balance with the broker.SEBI had held that the pledges were wrongly created by Karvy by including securities of clients who had no debit balance and, therefore, could not be invoked by the appellants.As a consequence, NSDL, without revoking or cancelling the pledges, transferred the shares to Karvy's clients. Axis Bank's shares remained intact after it obtained a stay order on transfer of shares from the Debts Recovery Tribunal (DRT) in Hyderabad..In its order passed in December, the SAT said that if the pledge was wrongly created by Karvy, then the appropriate remedy for SEBI or the NSDL was an application before the National Company Law Tribunal (NCLT) for rectification of its register.The Appellate Tribunal expressed dissatisfaction with the fact that this process was not followed. It criticized NSDL for transferring the pledged shares to Karvy's clients without proper legal authority, likening the action to that of a highway robber."This process was not done and like a highway robber NSDL through illegal directions from SEBI transferred the pledged shares (which were fungible) to the clients of Karvy which action was without any authority of law," the order stated.Thus, it permitted Axis Bank to revoke the shares. For the other appellants, SEBI was directed to restore the pledges made in their favour within four weeks.In the alternative, it directed SEBI, NSE and NSDL to compensate the banks with the value of the pledged securities along with interest at 10% per annum..[Read live coverage here]