Hdfc Bank Ltd. vs Sebi

Date : 19.02.2021

Misc. Application No. 110 of 2021 And Appeal No. 83 of 2021

HDFC Bank Ltd. ...Appellant

Versus

Securities and Exchange Board of India ...Respondent

Mr. Janak Dwarkadas, Senior Advocate with Ms. Bindi Dave and Mr. Sameer Pandit, Advocates i/b Wadia Ghandy & Co. for the Appellant.

Mr. Rafique Dada, Senior Advocate with Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates i/b The Law Point for the Respondent.

ORDER:

1. The present appeal has been filed against the order dated

January 21, 2021 passed by the Whole Time Member ('WTM'

for short) of the Securities and Exchange Board of India

('SEBI') directing the appellant to transfer a sum of Rs. 158.68

crore along with interest with effect from October 14, 2019

onwards in an escrow account and further penalized the 2

appellant a sum of Rs. 1 crore for violation of the SEBI

circulars.

2. The facts leading to the filing of the appeal is, that the

appellant granted credit facilities to M/s. BRH Wealth Kreators

Limited ('BRH' for short). BRH pledged its shares against the

loans given to it and also gave a declaration that it is the

absolute owner of these securities and that the securities were

not that of its clients based on which a pledge agreement was

executed between the parties.

3. It transpires that BRH made several irregularities which

led the SEBI to conduct an investigation into the affairs of

BRH, pursuant to which an ex parte interim order dated October

7, 2019 was passed against BRH and eight other entities. By the

interim order BRH and other entities were restrained. The said

restraint order is extracted hereunder:-

"9. Under the above circumstances, I, in exercise of powers conferred upon me under Sections 11(1), 11(4), 11B and 11D read with Section 19 of the SEBI Act, 1992 and Regulation 35 of SEBI (Intermediaries) Regulations, 2008, by way of this ex parte ad interim order, hereby issue the following directions:

(i) BRH Wealth Kreators Limited (formerly BMA Wealth Creators Limited), Shiv Kumar Damani, Anubhav Bhatter, 3

Murgesh Devashrayi, BRH Commodities Private Ltd.(formerly BMA Commodities Pvt.Ltd.), Prosperous Vyapaar Private Limited, Polo-Setco Tie Up Private Limited and Parton Commercial Private Limited are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, either directly or indirectly, or being associated with the securities market in any manner whatsoever, till further directions;

(ii) The aforesaid Noticees shall cease and desist from undertaking any activity in the securities market, directly or indirectly, in any manner whatsoever till further directions;

(iii) The aforesaid Noticees are directed not to dispose of or alienate any assets, whether movable or immovable, or to create or invoke or release any interest or charge in any of such assets except with the prior permission of NSE and BSE;

(iv) The aforesaid Noticees are directed to provide a full inventory of all their assets, whether movable or immovable, or any interest or investment or charge in any of such assets, including details of all their bank accounts, demat accounts and mutual fund investments immediately to NSE and BSE but not later than 5 working days from the date of receipt of this order;

(v) Till further directions in this regard, the assets of the Noticees shall be utilized only for the purpose of payment of money and / or delivery of securities, as the case may be, to the clients / 4

investors under the supervision of the concerned exchanges/depositories;

(vi) The depositories are directed to ensure that no debits are made in the demat accounts, held jointly or severally, of the aforesaid Noticees and persons except for the purpose mentioned in sub-para (v) above, after confirmation from NSE/BSE;

(vii) The banks are directed to ensure that no debits are made in the bank accounts held jointly or severally by the Noticees except for the purpose of payment of money to the clients/investors under the written confirmation of NSE/BSE;

(viii) The exchanges, clearing corporations and depositories shall appoint forensic auditor to track misuse of client's funds/securities and to identify the net assets/liabilities of Noticee no. 1 and Noticee no. 5 and submit the report to SEBI within 90 days;

(ix) The exchanges shall deal with the complaints/claims of the clients against the member and may return the amount of client fund and securities to the clients and may also use assets of the Noticee no. 1 to meet clients' / exchanges' / clearing members'/ clearing corporations', obligations; and

(x) The above directions are without prejudice to the right of SEBI to take any other action that may be initiated in respect of aforesaid entities/persons."

4. It transpires that the appellant invoked the pledge

agreement which resulted in the issuance of the show cause 5

notice dated March 19, 2020. This show cause notice inter alia

alleged that appellant did not comply with the directions of the

WTM's interim order dated October 7, 2019, violated clause 2.5

of the circular dated September 26, 2016 and June 22, 2017

issued by SEBI, the appellant did not conduct adequate due

diligence to verify the securities that were submitted by BRH

and violation of clause 4.8 of the circular dated June 20, 2019

which requires a notice of 5 days to be given before invoking

the securities.

5. Reply was submitted and thereafter the impugned order

was passed.

6. Having heard the learned senior counsel for the parties at

some length prima facie we find that an ex parte restraint order

dated October 7, 2019 does not operate against the appellant. In

fact, the interim order notes that certain securities were pledged

by BRH to the appellant but no restraint order was directed

against the appellant restraining them from encashing the

pledged securities. It has been specifically asserted that the

securities so pledged were that of BRH and were not of BRH

clients and therefore there has been no violation of the circulars

of SEBI which has been issued from time to time. 6

7. Considering the aforesaid, the fact that the circulars have

been violated or not and whether the securities have been rightly

invoked by the appellant requires consideration. We accordingly

grant three weeks time to the respondent to file a reply. Two

weeks thereafter to the appellant to file a rejoinder. The matter

would be listed for admission and for final disposal on April 7,

2021.

8. Considering the aforesaid, we find that the appellant is one

of the largest private sector bank and as per balance sheet it has

assets of 1,654,228 crore and therefore has sufficient financial

strength and ability to furnish the amount as per the impugned

order.It is not a case where the bank will run away or will

become insolvent. We accordingly stay the effect and operation

of the impugned order till further orders of the Tribunal subject

to the condition that appellant will give an undertaking to SEBI

that they will abide by the result of the appeal and the directions

given therein within four weeks from the date of the disposal of

the appeal. Such undertaking shall be given by a responsible

officer of the appellant to be filed before SEBI within two

weeks from today. Urgency and Misc. Applications are

disposed of.

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9. Parties are directed to take instructions from the Registrar

48 hours before the date fixed in order to find out as to whether

the matter would be taken up for hearing through video

conference or through physical hearing.

10. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to sign

a copy of this order nor a certified copy of this order could be

issued by the registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of the bench

and all concerned parties are directed to act on the digitally

signed copy of this order. Parties will act on production of a

digitally signed copy sent by fax and/or email.

Justice Tarun Agarwala Presiding Officer

Justice M.T. Joshi Judicial Member

19.02.2021 RAJALAK Digitally signed by RAJALAKSHMI

msb SHMI H H NAIR Date: 2021.02.22 NAIR 14:04:59 +05'30'