Highway Robbery or Investor Assurance? SEBI on Pledging of Client Securities by Stock Brokers

Kriti Kumaria and Palak Rastogi

(SVKM's NMIMS School of Law, Navi Mumbai)

Abstract

On 18 January 2024, the Supreme Court, in the matter of Securities and Exchange Board of India v. Axis Bank Limited & Ors., asked to maintain the status quo of client securities that have been in a state of limbo since the Karvy Stock Broking Ltd. scam was unearthed in 2019. This appeal comes in light of the Securities Appellate Tribunal order, penalizing not only the securities regulator itself but also the National Stock Exchange and National Securities Depositories Ltd. to compensate lenders of the stockbroker or restore their claim on the client securities pledged by Karvy Stock Broking Ltd., which, according to the order, were in unilateral action by SEBI, in an overreach of its powers, declared invalid and returned to the rightful investors, thereby leaving the lenders with no collateral.
This case commentary examines the Karvy scandal through the lens of market participants, including lenders, who, in the capacity of SEBI's regulator, might feel neglected as SEBI prioritizes investor protection. Additionally, it underscores the significance of the SAT's ruling, which extends market safeguarding not only to investors but also to the participants, facilitating seamless operations.