Securities Appellate Tribunal
Karvy Stock Broking Ltd. vs Sebi on 23 April, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision:23.4.2021
Misc. Application No.204 of 2021
And
Appeal No.193 of 2021
Karvy Stock Broking Ltd.
Karvy House,
46, Avenue IV, Street No.1,
Road No.10, Banjara Hills,
Hyderabad-500034. ...Appellant
Versus
The Whole Time Member
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4-A,
'G' Block, Bandra-Kurla Complex,
Bandra (East), Mumbai-400051. ...Respondent
Mr. Vikram Nankani, Senior Advocate with Mr. Vinay
Chauhan, Mr. Harish Khedkar, Mr. K.C. Jacob and Ms.
Dhwani Shah, Advocates i/b. Vis Legis Law Practice for
the Appellant.
Mr. Rafique Dada, Senior Advocate with Mr. Anubhav
Ghosh and Mr. Ravishekhar Pandey, Advocates i/b. The
Law Point for the Respondent
CORAM: Justice Tarun Agarwala, Presiding Officer
Justice M.T. Joshi, Judicial Member
Per: Justice Tarun Agarwala, Presiding Officer (Oral)
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1.For the reasons stated in the application, the delay in the filing of the appeal is condoned. The misc. application is allowed.
2. The appellant is a stock broker and pursuant to an inspection conducted by National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') a preliminary report was submitted on 22nd November, 2019 in which it was prima facie found that the appellant in its capacity as a stock broker had misused its clients' securities in an unauthorised manner in violation of Regulation 9 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Regulations, 1992 (hereinafter referred to as 'Stock Brokers Regulations). Based on this preliminary report, the Whole Time Member ('WTM' for short) passed an ex-parte ad-interim order dated 22nd November, 2019 issuing the following directions.
"21. Under the above circumstances, I, in exercise of powers conferred upon me under Sections 11(1), 11(4) and 11B read with Section 19 of the SEBI Act, 1992 and Regulation 35 of 3 SEBI (Intermediaries) Regulations, 2008, by way of this ex parte ad interim order, pending forensic audit, hereby issue the following directions:
(i) KSBL is prohibited from taking new clients in respect of its stock broking activities;
(ii) The Depositories i.e. NSDL and CDSL, in order to prevent further misuse of clients' securities by KSBL, are hereby directed not to act upon any instruction given by KSBL in pursuance of power of attorney given to KSBL by its clients, with immediate effect;
(iii)The Depositories shall monitor the movement of securities into and from the DP account of clients of KSBL as DP to ensure that clients' operations are not affected;
(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; and
(v) The Depositories and Stock Exchanges shall initiate appropriate disciplinary regulatory proceedings against the Noticee for misuse of clients' funds and 4 securities as per their respective bye laws, rules and regulations;......."
3. Against this ex-parte ad-interim order dated 22nd November, 2019, the appellant preferred an appeal before this Tribunal wherein they prayed that direction no.2 needs clarification and for this purpose they had written two letters to Securities and Exchange Board of India (hereinafter referred to as 'SEBI') seeking clarification and since clarification was not forthcoming an appeal was filed before this Tribunal.
4. This Tribunal by an order dated 29th November, 2019 disposed of the appeal directing the WTM to pass appropriate orders on the letters written by the appellant seeking clarification of its orders.
5. Based on the aforesaid, the WTM considered the request of the appellant and passed an order dated 29th November, 2019 clarifying that it would not be prudent to allow the appellant to use the power of attorney given by its clients.
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6. Against this order of 29th November, 2019 passed by the WTM, the appellant filed appeal no.65 of 2020 before this Tribunal which was dismissed as not pressed by an order of the Tribunal dated 11th February, 2020 on the ground that the appellant would raise all the grounds before the WTM.
7. The WTM gave opportunity to the appellant to contest the ex-parte ad-interim order and apply for revocation and after giving several opportunities the WTM passed the impugned order dated 24th November, 2020 confirming the interim order by issuing the following directions:-
"30. In view of the above, I deem it fit to proceed further in the facts and circumstances of the case and in exercise of powers conferred upon me under Sections 11(1), 11(4) and 11B read with Section 19 of the SEBI Act, 1992 and Regulation 35 of SEBI (Intermediaries) Regulations, 2008, hereby confirm the directions issued vide ex parte ad interim order dated November 22, 2019.
31. Transfer of funds/securities made by the KSBL to its clients subsequent to SEBI order dated November 22, 2019, would not absolve KSBL or its directors from violations of the provisions of the securities laws, as have been 6 found in the forensic audit report received in the matter. It is clarified that confirmation of the directions issued in the ex parte order by the present order shall not in any way come in the way of transfer of the funds/securities, to be made by the KSBL to its clients. KSBL shall not alienate any of its assets, except with the prior permission of NSE till the settlement of claims of the investors or under direction or order by any Court or Tribunal."
8. The appellant being aggrieved by the confirmatory order has filed the present appeal.
9. We have heard Mr. Vikram Nankani, Senior Advocate assisted by Mr. Vinay Chauhan, Mr. Harish Khedkar, Mr. K.C. Jacob and Ms. Dhwani Shah, Advocates for the Appellant and Mr. Rafique Dada, Senior Advocate assisted by Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates for the Respondent .
10. We find from a perusal of para nos. 28 and 29 of the impugned order that no steps whatsoever was taken by the appellant to apply for revocation of the ex-parte ad-interim order dated 22nd November, 2019 and only prayed before the WTM about various steps that they 7 are taking to settle the claim of the clients. We find from a perusal of para nos.28 and 29 that the appellant failed to file any reply and only sought adjournment on the ground that they are making efforts to arrange funds in order to settle the claim of its clients or took adjournment on account of Covid pandemic or heavy rains in Telangana or sickness of its Chairman or alleged buyer.
11. The aforesaid facts narrated in para nos.28 and 29 are not disputed and, consequently, we do not find any reason to interfere with the impugned orders. We further find that the WTM has now issued a show cause notice dated 29th January, 2021 and, consequently, we are of the opinion that it is open to the appellant to contest the show cause notice and give an appropriate reply before the WTM. It would also be open to the appellant to apply for modification of the ex-parte ad-interim order as confirmed by the confirmatory order, if the need so arises which will be dealt with appropriately by the WTM. 8
12. For the reasons stated aforesaid, we do not find any merit in the appeal and the same is dismissed with no order as to costs.
13. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member 23.4.2021 RAJALA Digitally by signed KSHMI RAJALAKSHMI NAIR H RHN Date: 2021.04.29 H NAIR 07:12:28 +05'30'