The SAT quashed the two orders passed in January 2020 and December 2019 that barred lenders to invoke the pledge on shares in the Karvy Stock Broking Limited (KSBL) matter.

The tribunal allowed the lenders to invoke the shares pledged in their favour.

“A direction is given to SEBI, National Stock Exchange (NSE) and National Securities Depository Limited (NSDL) to restore the pledge which was made in favour of the appellants within four weeks,” the SAT said in its order.

In the alternative, the SEBI, NSE and NSDL have been directed “to compensate the appellants (lenders) with the value of the underlined securities pledged in their favour, along with interest at 10 per cent per annum, within the same period”.

The total dues payable to these lenders are more than ₹1,400 crore, according to the order passed by the Securities and Exchange Board of India (SEBI) in December 2019.

An outstanding amount of ₹80.64 crore, along with interest, was due to the Axis Bank from Karvy, ₹642.25 crore to the ICICI Bank, ₹344.5 crore to Bajaj Finance, ₹208.5 crore to the HDFC Bank and ₹159 crore to the IndusInd Bank, the order noted.

In its order, the tribunal noted that the action of the SEBI and NSDL to unilaterally transfer the pledged shares to the clients of Karvy was wholly illegal and without jurisdiction. Such unilateral transfer of the shares, without revoking the pledge, is per se illegal and against the provisions of the Depositories Act and Regulation 58 of the DP Regulations.

“We are of the opinion that no revocation of pledge is permitted unless consent is obtained from the pledgee … which in the instant case were the appellants,” it said.

The case pertains to the securities held by Karvy, which were allegedly used by the brokerage firm for borrowing courtesy the power of attorneys that it had. The securities held by more than 83,000 clients were given back to them after the SEBI’s direction.

The five lenders had given loans to Karvy against the pledged securities.