SAT Asks SEBI to Partially Review Order in Karvy Broking Issue

The Securities Appellate Tribunal on Friday directed the Securities and Exchange Board of India to review certain aspects of its ex-parte order against Karvy Stock Broking Ltd and pass an appropriate order in the matter by Monday.

Karvy, in its plea today, sought limited modifications to the direction issued by the market regulator, which restrained it from utilising power of attorney on behalf of their clients.

SEBI, in its order, had told depositories Central Depository Services (India) Ltd and National Securities Depository Ltd that they should be watchful of Karvy's transactions even if it held power of attorney on behalf of the clients. Further, it should only be allowed the transfer of shares from demat account only if they were backed by full payment from the clients.

Karvy claimed it had written to SEBI seeking clarification on certain aspects of orders and that the regulator responded to none of them.

The SEBI's counsel said that shares were sold in disguised and unauthorised manner to get loans by severely misusing the power of attorney. Further, he said Karvy has credited their funds to six bank accounts of their own.

Karvy Broking's counsel responded saying, "We need to safeguard our clients interest. SEBI's order has led to the client's loss of 80 mln rupees."

Last week, SEBI had issued an ex-parte order against Karvy Stock Broking. This came after Karvy was said to have pledged client shares to lenders to avail themselves of loan without prior consent from clients.

SEBI's action was primarily based on a probe report by National Stock Exchange, which said that Karvy had indulged in various unapproved transactions.

Currently, SEBI is carrying out a forensic audit on the company, the regulator informed the appellate tribunal.