SAT Quashes Sebi Order Against HDFC Bank In BRH Wealth Kreators Case

The Sebi had imposed a fine of Rs 1 crore on HDFC Bank in a case pertaining to invoking securities pledged by stockbroker BRH Wealth Kreators

New Delhi: An order by Securities and Exchange Board of India against HDFC Bank has been revoked by the Securities Appellate Tribunal (SAT) where the market regulator had imposed a fine of Rs 1 crore on the private sector lender.

HDFC Bank was involved in a case pertaining to invoking securities pledged by stockbroker BRH Wealth Kreators.

The Sebi had also asked the bank to transfer Rs 158.68 crore along with 7 per cent interest per annum into an escrow account until the issue of settlement of clients’ securities is reconciled.

The Sebi had issued these orders in January 2021, as HDFC Bank invoked securities pledged by BRH Wealth Kreators in violation of the regulator’s interim order passed in October 2019.

According to a report in PTI, HDFC Bank moved to SAT after the Sebi’s verdict.

In a relief to HDFC Bank, SAT in its order on Friday 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 in a statement.

The tribunal noted that the pledge was created by the broker BRH under the Depositories Act in favour of HDFC Bank.

According to SAT, once a pledge is validly created by the broker in favour of the appellant (HDFC Bank) and the appellant is recorded as the beneficial owner in the records maintained by the depository, the beneficial owner becomes the registered owner.

Consequently, if a default is committed by the broker, the appellant gets a right to invoke the pledge under the agreement, it added. “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.

Accordingly, the tribunal said that Sebi’s order “cannot be sustained and is quashed”.