An appellate tribunal has dismissed market regulator Sebi (Securities and Exchange Board of India) order against HDFC Bank in a case relating to invoking securities pledged by stockbroker BRH Wealth Kreators.
Earlier in 2021, in an order, Sebi has imposed ₹1 crore fine on the private lender and directed to transfer ₹158.68 crore along with seven per cent interest per annum into an escrow account till the issue of settlement of clients' securities is reconciled.
Sebi had then said HDFC Bank invoked securities pledged by BRH Wealth Kreators in violation of the regulator's interim order passed in October 2019.
In its order on the appeal filed by HDFC Bank, Securities Appellate Tribunal (SAT) said the bank was justified in invoking the pledge made by the broker BRH. While invoking the pledge the bank did not violate any direction contained in Sebi's interim order.
"The appellant (HDFC Bank) could invoke the pledge under Depositories Act and is not required to approach any forum or Court of law for invocation of the pledge. The assets of the broker do not include pledge of the shares created by the sub-broker," SAT said.
"Once a pledge is validly created by the broker in favour of the appellant and the appellants is recorded as the beneficial owner in the records maintained by the depository under Section 11 the beneficial owner becomes the registered owner under Section 10. Consequently, if a default is committed by the broker the appellant gets a right to invoke the pledge under the agreement. Nothing has come on record to indicate that the invocation of the pledge by the appellant was wrongly done as there was no default committed by the broker," SAT said.
In the absence of such allegation we are of the opinion that the appellant had the right to invoke the pledge and that no violation was made by the appellant while invoking pledge in respect of the ex-parte ad-interim order which was subsequently confirmed issued by SEBI, it said
SAT said the appellant could invoke the pledge under Depositories Act and is not required to approach any forum or Court of law for invocation of the pledge. "The assets of the broker do not include pledge of the shares created by the sub broker."
"In view of the above, the impugned order by Sebi cannot be sustained and is quashed," SAT noted.
