Delhi High Court - Orders
Bajaj Finance Limited vs Karvy Stock Broking Ltd on 14 May, 2024
Author: Dinesh Kumar Sharma
Bench: Dinesh Kumar Sharma
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 1148/2023
BAJAJ FINANCE LIMITED
..... Petitioner
Through: Ms. Shally Bhasin, Mr. Prateek Gupta
and Mr. Prateek Yadav, Advocates.
versus
KARVY STOCK BROKING LTD
..... Respondent
Through:
CORAM:
HON'BLE MR. JUSTICE DINESH KUMAR SHARMA
ORDER
% 14.05.2024
1. The present petition under Section 11 of the Arbitration and Conciliation Act, 1996 has been filed for appointment of an arbitrator to adjudicate the disputes inter se between the parties.
2. The petitioner is a public limited company incorporated under the provisions of the Companies Act, 1956 and registered with the Reserve Bank of India („RBI‟) as a deposit taking „non-banking financial institution‟, engaged in the business of lending and allied activities. The petitioner has submitted that the respondent is an expelled trading member/stock broker of the National Stock Exchange of India Limited („NSE‟) and BSE Limited („BSE‟).
3. Learned counsel for the petitioner submits that the petitioner had This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06 advanced a financial facility to the respondent as follows:
Sanction Existing Top-up (Rs.in Total Sanction
Letter/Agreement Sanction (Rs.in Crores) (represents the
Date Crores) aggregate limit)
(Rs.in Crores)
30.12.2014 20 0 20
23.04.2015 20 5 25
21.07.2015 25 10 35
15.10.2015 35 15 50
27.06.2016 50 50 100
20.03.2017 100 100 200
07.09.2018 200 50 250
24.01.2019 250 25 275
30.08.2019 260 85 345
4. The petitioner has filed copies of Loan Agreements, including Sanction Letters, Power of Attorneys, Demand Promissory Notes and Letters of Continuity for the aforesaid transactions pertaining to the Financial Facility. Learned counsel submits that as per terms of Loan Agreements, more particularly „Article IV, Covenants, Representations and Warranties‟, it was specifically represented that the securities offered by respondent no.1 to the petitioner towards the disbursal of the Financial Facility, were the absolute property of respondent no.1. The respondent no.1 has already provided a written undertaking stating that the securities lying in the KSBL Account were absolutely owned by respondent no.1 and did not belong to any of its clients/constituents. The undertaking was taken This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06 to ensure that there are no complications in the event of default or enforcing the securities so offered by the borrower. The petitioner has submitted that unlike any immoveable property, the shares in the demat account are fungible and the lender only relies upon the demat account statement and the statement from the depositories which provides the names of the beneficial owner of shares.
5. The petitioner has submitted that in and around October-November 2019, there were persistent defaults committed by the respondent in maintaining the required margin in the Loan Account. The petitioner submits that during the period several emails were addressed by the petitioner to the respondent, intimating them of the margin shortfall and calling upon the respondent to make good the margin shortfall either by pledging additional securities or to make cash payment under the Financial Facility. Since the respondent did not come forward, loan recall dues was sent to the respondent to repay the total outstanding in the sum of Rs.344,49,81,608/- within a period of three days, failing which the petitioner would exercise its remedies under the Loan Agreements. The petitioner has submitted that on November 22, 2019, basis a preliminary report of NSE, which highlighted various non-compliances of the SEBI Regulations committed by the respondent with respect to pledging/misuse of client securities, the Whole Time Member, SEBI passed an ex-parte Ad-interim order with 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 SEBI (Intermediaries) Regulations, 2008, by way of this ex parte Advocate interim order, pending forensic audit, hereby issue the following directions:
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06
(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 securities as per their respective bye laws, rules and regulations."
6. The petitioner, in view of the aforesaid description addressed letters/representations, to SEBI and NSDL, seeking permission to invoke the pledge and sell the securities in KSBL Account. However, no response was received therefore petitioner preferred Appeal (L) No.585 of 2019 before the Securities Appellate Tribunal („SAT‟) seeking to set aside the directions contained in paragraph 21(iv) of the ad-interim order, amongst other ancillary and incidental reliefs.
7. The petitioner has submitted that vide order dated December 3, 2019 and December 9, 2019 the SAT directed SEBI to pay the petitioner. In the interim, further transfer of securities from the KSBL Account, in terms of paragraph 21(iv) of the SEBI Ad-interim order was suspended. However, the SEBI vide order dated December 13, 2019 dismissed the representations made by the petitioner.
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06
8. Learned counsel for the petitioner submits that this order was challenged by the petitioner before the SAT and SAT has allowed the appeal, however, depositories has challenged this before the Supreme Court. The petitioner has submitted that on 23.11.2020, NSE declared the respondent as a defaulter and expelled the respondent from membership. Similarly, BSE also declared respondent no.1 as a default and expelled respondent no.1 from its membership on 24.11.2020.
9. The petitioner invoked the arbitration clause on 18.01.2023. Learned counsel submits that the petitioner has neither responded to Loan recall notice nor to the invocation.
10. Learned counsel submits that as per loan agreement, sole arbitrator was to be appointed by the petitioner however, in view of judgment of Perkins Eastman vs. HSCC, 2019, SCC Online, SC 1517, the petitioner has invoked jurisdiction of this Court for appointment of an arbitrator.
11. Summons was sent to the respondent.
12. As per office note dated 11.03.2024, ordinary process was returned with the remarks "received after date of hearing". However, the petitioner has filed the affidavit of service alongwith receipt and tracking report.
13. Perusal of the record indicates that as per affidavit of service, the respondent has been served through speed post. However, the courier has been received back.
14. The email has been sent at [email protected]. Let the petitioner file a fresh affidavit within authenticated email ID on which email has been sent. In the meanwhile, the petitioner is directed to send the fresh process on the email service @ karvy.com as appearing on a certificate issued by V. Saleja, company secretary on 28.08.2019.
This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06
15. Let process be given dasti.
16. List on 21.05.2024.
DINESH KUMAR SHARMA, J MAY 14, 2024/ssc/DG This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 17/05/2024 at 22:29:06