Tag: SAT

SAT quashes NSE’s directive to Axis Bank in Karvy case, BFSI News, ET BFSI

Banking & Finance

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New Delhi, In a relief to Axis Bank, the Securities Appellate Tribunal (SAT) has quashed a direction issued by NSE that funds lying in the bank account of Karvy Stock Broking are the assets of the exchange’s defaulter committee. The order came after Axis Bank challenged the communication issued on December 8, 2020 by NSE holding that the bank accounts of Karvy become the assets of the defaulter committee of the exchange since the stock broker has been declared a defaulter and expelled from the membership of the bourse.

Axis Bank challenged the communication on the ground that the exchange has no power to issue any directions to the bank to freeze its accounts on which the lender has a banker’s lien.

It also contended that Axis Bank is a commercial bank and not a trading member and therefore is not bound by Sebi laws, including the bye laws of the National Stock Exchange of India Ltd (NSE).

“We are of the opinion that respondent no.1 (NSE) had no jurisdiction to hold that the funds lying in the account of Karvy Stock Broking Ltd are assets of the committee as per…NSE bye laws,” SAT said in an order on Monday.

Citing NSE bye laws, the tribunal said the vesting of the assets in the defaulters committee is limited and cannot include all the assets of Karvy, the defaulter. Only such security deposited with the stock exchange vests with the defaulters committee.

In addition, other monies, securities and other assets due, payable or deliverable to the defaulter by any other trading member also vest with the defaulters committee, it added.

“The bye law 12 makes it apparently clear that a defaulter committee can only issue directions against the trading member and cannot issue any direction to a third party, namely, the appellant (Axis Bank) who admittedly is not a trading member,” SAT noted.

It further said NSE does not get any jurisdiction to pass such order based on Sebi’s confirmatory order.

The confirmatory order asked NSE to initiate appropriate action against Karvy for violation of its bye laws. It also allowed the exchange to invite and deal with claims of the clients in accordance with its bye law, the tribunal noted.

“The impugned communication issued by NSE dated 8th December, 2020 invoking bye law 11 of its bye laws is totally without jurisdiction and is quashed,” SAT said.

It was alleged that in the course of its banking business, Axis Bank had granted several credit facilities to Karvy, which owed Rs 165 crore alongwith interest to the lender.

Also, it is alleged that on January 27, 2021, Axis Bank had Rs 8.27 crore in the bank account and fixed deposit accounts of the lender. Of the Rs 8.27 crore, a sum of Rs 7.98 crore was the exclusive property of Karvy and the balance amount of Rs 28.66 lakh belonged to clients and other parties.

Sebi, through an interim order in November 2019, put several restrictions on Karvy, including prohibiting the brokerage from taking new clients in respect of its stock broking activities as it had misused clients’ securities by unauthorisedly pledging the securities.

Among others, the regulator had directed the stock exchange to initiate appropriate action against Karvy for violation of bye laws. This order was confirmed by the regulator in November 2020.

Further, Karvy was declared a defaulter in November 2020 under the bye laws of NSE and was accordingly dismissed from the membership of the exchange as a trading member. PTI SP ABM ABM



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Sebi moves SC, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: PNB Housing has informed the stock exchanges that markets regulator Sebi has approached the Supreme Court against a split order by the Securities Appellate Tribunal (SAT).

Sebi is pushing the housing finance firm to relook at a deal to sell a Rs 4,000-crore stake to private equity investors led by Carlyle on the grounds that valuation norms have not been followed.

“It has been brought to our notice that Sebi has filed an appeal (no. CA5052 of 2021) to the Supreme Court of India against the order of SAT. The company is examining the appeal filed by Sebi,” PNB Housing Finance said in a notice to the stock exchanges.

On August 9, SAT delivered a split verdict over PNB Housing’s share allocation to Carlyle Group. This followed an interim order where SAT had restricted PNB Housing from disclosing the results of shareholder votes on the deal.

Sebi had asked the housing finance companies to call off the voting. However, following an appeal by the company, SAT allowed the general body to vote on the proposal.

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PNB Housing Finance plans to raise Rs 35,000 crore debt as Carlyle deal in abeyance, BFSI News, ET BFSI

Personal Finance

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PNB Housing Finance is now looking to raise Rs 35,000 crore debt, after facing legal hurdles in the Carlyle group deal, days after SAT gave a split verdict in the matter.

The company will seek shareholders’ nod in its annual general meeting (AGM) on September 3, 2021, PNB Housing Finance said in a regulatory filing.

The company said it will seek shareholders’ approval for further fund raising by way of debt issue.

“Shareholders’ approval is being sought in the 33rd AGM for further fund raising by way of debt issue and the shareholders are being requested to authorise the board of directors to offer, from time to time, the subscription of redeemable, secured/unsecured non-convertible debentures aggregating to Rs 35,000 crore in one or more tranches,” it said in the filing.

On Monday, Securities Appellate Tribunal (SAT) gave a split verdict in the company’s appeal to the court in the matter related to Rs 4,000 crore equity fund infusion led by its existing investor Carlyle group, and others through preferential allotment of shares and warrants.

Had the deal not stuck into regulatory and legal hurdles, the company would have been successful in raising the equity capital.

The Carlyle deal

The Carlyle-led deal was announced on May 31, in which a clutch of investors including former HDFC Bank MD&CEO Aditya Puri‘s family investment vehicle Salisbury Investments, were to infuse equity capital in PNB Housing. Puri is also a senior advisor for Carlyle in Asia.

However, the deal soon got into a controversy after a proxy advisory firm raised issues and said it would hurt the interest of the minority shareholders as well the promoter. It said the issue price of Rs 390 apiece was too low vis-a-vis the prevailing stock price.

Subsequently, Sebi asked the company to get the valuation of the issue price done from an independent registered valuer, while the company approached the SAT in June, citing it followed the Sebi guidelines on deciding on the price.

The SAT order

SAT in its order, by the two-member bench of Justice Tarun Agarwala and Justice M T Joshi said:”In view of the difference of opinion between the members of the bench “we direct the interim order dated 21st June, 2021 to continue till further order.” Prevalence of interim order means the company can’t disclose the results of the shareholders’ voting that happened on June 22, to know if they cleared the proposal with requisite majority or not.

The company has been looking to raise funds for the past few years. Also, the Reserve Bank of India earlier this year had barred PNB from infusing capital into its subsidiary.

The Carlyle matter is likely to reach the Supreme Court since the tribunal did not provide a clear verdict on the way forward for the deal.



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Franklin Templeton MF: SC says SAT direction of ₹250-crore deposit is ‘fair’

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The Supreme Court has allowed Franklin Templeton Mutual Fund (FTMF) to deposit ₹250 crore into an escrow account instead of ₹512 crore as earlier directed by SEBI.

In June, the market regulator had asked FTMF to return nearly ₹512 crore it had collected as management and advisory fees since June 2018 on its six debt schemes that were shut down last year. Further, SEBI had banned the fund from launching any new debt schemes for two years.

Debt MFs: SEBI moots swing pricing

But the Securities Appellate Tribunal (SAT) stayed the SEBI penalty after Franklin Templeton challenged the market regulator’s order. SAT also found the SEBI penalty ‘excessive’ and directed FTMF to deposit ₹250 crore in an escrow account till the case is disposed of. SEBI had challenged this in the top court.

SEBI argued that reducing the penalty amount will set a precedent because its decision to ask the company to return ₹512 crore was based on facts and statistics.

However, the Bench of Justices Abdul Nazeer and Krishna Murari said that the court will not interfere with the SAT order. “Four weeks further time is given to SEBI before SAT, Mumbai. We direct SAT to dispose of the matter expeditiously as possible,” the Supreme Court said.

FTMF submitted that it would not launch any new debt schemes till the matter is disposed of by SAT.

Franklin Templeton: Suspended debt schemes to pay Rs 3,303 crore

‘A drop in the ocean’

“The SC feels that ₹250 crore is enough. But the real question is how will this help the investors. The amount is just a drop in the ocean against what FTMF owes its investors. Also, ₹250 crore is peanuts versus the adjustments that FTMF has done in its books,” said Anil Jain, a chartered accountant and investor litigating the case in the Supreme Court.

Jain says that ₹512 crore that SEBI had asked FTMF to deposit was based on the NAV adjustments done by the fund house and it was the clawback amount that would have come to the unitholders. “There is a huge difference in the NAV of the six debt schemes that FTMF had given in April 2020, when the schemes were shut, versus the NAV they gave out recently. Of the ₹512 crore, ₹452 crore was clawback amount and ₹60 crore the interest on it. After a scheme is shut, rules do not provide for daily NAV adjustments. Investors say FTMF on its own resorted to declaring NAV adjustments even after the schemes were shut and brought down the valuation and thereby influenced the clawback amount,” Jain says.

Franklin Templeton declined to comment on the Supreme Court order.

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PNB Housing Finance: ‘Stake sale singled out’

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PNB Housing Finance on Monday told the Securities Appellate Tribunal that the ₹4,000-crore stake sale to a clutch of investors, led by private equity firm Carlyle Group, was being singled out by SEBI when similar fund-raising by other entities have gone through without any objections.

Senior advocate Janak Dwarkadas, arguing the case on behalf of PNB Housing, said that SEBI did not have jurisdiction on the issue.

In June, the Securities and Exchange Board of India had asked PNB Housing Finance not to go ahead with the stake sale, until the housing finance company undertakes an independent valuation of its shares. The market regulator said the notice given by PNBHF on May 31 for an Extraordinary General Meeting to approve the stake sale is “ultra-vires of Article of Association (AoA) and shall not be acted upon until the company undertakes the valuation of shares.”

PNB Housing challenged the SEBI order after which SAT had allowed PNB Housing to go through with the EGM but asked it to not disclose the voting results until further orders.

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SAT hearing on PNB Housing-Carlyle deal put off a week

Banking & Finance

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The Securities Appellate Tribunal (SAT) will hear the case related to the PNB Housing Finance-Carlyle deal next Monday.

The order in the matter was expected on July 5, however, it was adjourned for July 12.

PNB Housing had filed an appeal before the SAT against the letter issued by the Securities and Exchange Board of India last month, requesting it not to go ahead with the proposal until due diligence was done.

“As sought by the company, the Securities Appellate Tribunal, in its hearing on July 5, 2021, adjourned the case for Monday, July 12, 2021,” PNB Housing Finance said in a regulatory filing on Tuesday.

Capital infusion by Carlyle

Under the deal announced on May 31, the US-based Carlyle, alongside other investors, is slated to infuse ₹4,000 crore capital into PNB Housing through the issuance of preference shares and warrants.

However, the deal has come under the scanner of the regulator. The company was directed to carry out the valuation process of shares as per the relevant legal provisions.

PNB Housing contended that it has followed SEBI norms in deciding the issue price at ₹390 apiece.

The scrip of the company traded at ₹695.35 apiece on BSE, down 1 per cent from its last close.

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Kudva to move SAT against SEBI order

Banking & Finance

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Vivek Kudva, Head of Franklin Templeton Asia Pacific, plans to move the Securities Appellate Tribunal against the Sebi order levying a penalty of ₹7 crore on him and his wife besides ordering him to transfer ₹31 crore realised by redeeming just before the six debt schemes were suspended from trading.

Kudva has claimed that he has already set aside the proceeds from the sale of units and will not enjoy more than what other investors in the scheme get after the closure of the schemes. This apart, Sebi has also banned Kudva from accessing capital market for one year.

Also read: Franklin AMC to return ₹460-cr advisory fees

“I have the highest regard for SEBI. However, I am reviewing the order and considering appropriate next steps which may include filing an appeal before the Securities Appellate Tribunal,” said Kudva in a statement on Tuesday. “I have always acted in accordance with Sebi regulations, including in this instance. My personal transactions in the two schemes (under winding-up) have been conducted in good faith and with no intent to gain unfair benefit,” he added.

As stated in the SEBI order, he said “I had already placed myself in a similar position as investors in April 2020 and the proceeds of the redemptions were voluntarily set aside such that I and my family will ultimately receive no more than the investors remaining in the Schemes.” My interests therefore remain fully aligned with outcomes that investors in the two schemes under winding up will have, said Kudva.

Emphasis on compliance

Meanwhile, a Franklin Templeton spokesperson said the fund house has placed great emphasis on compliance and have policies in place to cover a variety of matters including personal transactions of employees and managing conflicts of interest, consistent with applicable regulations and global best practices.

The schemes under winding up continue to have significant investments from employees and management, as well as from the asset management company and other group companies of Franklin Templeton, he said.

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SAT asks LIC, SBI, Bank of Baroda to develop protocols to comply with securities laws, BFSI News, ET BFSI

Personal Finance

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MUMBAI: In a firmly-worded order, the Securities Appellate Tribunal urged state-owned enterprises to form protocols to comply with applicable laws and regulations.

“It is necessary that governmental entities, including public sector undertakings, need to develop protocols for coming out from being prisoners of protracted procedures for complying with applicable laws and regulations timely, because as legal entities accountability falls on them,” the Tribunal said.

The Tribunal said that all rules and regulations should be equally applicable to every legal entity irrespective of its ownership. “Only such an approach would bring in clarity and certainty to laws and regulations and a predictable rule of law regime,” it added.

SAT’s advise takes prominence in the context of concerns that the capital market rules are not applied in the same spirit to public sector undertakings as they are to private sector listed companies.

The Tribunal was presiding over an appeal made by Life Insurance Corp of India, Bank of Baroda and State Bank of India against a Securities and Exchange Board of India (Sebi) order against them with respect to violations of certain mutual fund norms.

In August, the capital market regulator had imposed a fine of Rs 10 lakh each on the three appellants for violating SEBI’s mutual fund regulations, under which a sponsor of one mutual fund cannot hold a more than 10 per cent stake in another mutual fund.

LIC, SBI and Bank of Baroda each have their own mutual funds but also hold significant stakes in UTI Asset Management Co.

SAT has turned the monetary penalty for the three state-owned entities into a warning as it found no “justifiable” reasons to impose a monetary penalty on the violators.

“In these matters, a warning is sufficient. Further, SEBI is at liberty to impose penalty for similar violations in future,” the Tribunal said.



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