Telangana HC notes that the DRT proceedings were ‘ex-parte’ in nature and thus prejudicial to Karvy
Karvy says it has not defaulted in its payment obligations to ICICI Bank till Oct 2019, under the facility agreements
Karvy Stock Broking Ltd, which is embroiled in allegations of misuse of client securities, has got relief against debt recovery proceedings filed by ICICI Bank with the Telangana high court in an order last week staying the Debt Recovery Tribunal (DRT) proceedings.
The high court noted that the DRT proceedings were “ex-parte" in nature and thus prejudicial to Karvy.
“The company has approached the honourable High Court of Telangana challenging the impugned order passed by the DRT. The honourable high court, having found the impugned order to be arbitrary and unreasonable, has stayed the operation of the impugned order, vide its order dated 24 December 2019," read an emailed statement from Karvy.
“The company has not defaulted in its payment obligations to ICICI Bank till October 2019, under the facility agreements," according to the emailed statement.
ICICI Bank Ltd had extended a loan of ₹642 crore to the stock broking firm against a loan facility of ₹700 crore against share pledges and other collateral.
The problem for the lender started when it was rendered incapable of invoking the pledge as on 22 November the Securities and Exchange Board of India (Sebi) passed an interim order against Karvy, where it restricted share transfer except to beneficiary owners. Sebi in the interim order found that the shares pledged by Karvy belonged to clients and thus these were transferred by the National Securities Depository Ltd (NSDL) to the accounts of clients on 2 December.
ICICI Bank, along with three other lenders including Bajaj Finance Ltd, HDFC Bank, and IndusInd Bank, had then approached Securities Appellate Tribunal (SAT) for relief against the Sebi order and NSDL action as the lenders held bona fide pledges and thus were beneficiary owners of these shares. ICICI Bank had issued a letter to Karvy on 5 November to repay all the outstanding amounts availed by Karvy under the facility agreement, according to the court documents filed with SAT.
ICICI Bank had in its plea with DRT also sought that the promoters disclose their assets and that Karvy Group’s former chairman and managing director C. Parthasarathy and director Rajat Parthasarathy be restrained from leaving the country during the case proceedings.
However, the lenders were unable to get relief from SAT and Sebi. This led ICICI Bank to approach DRT for recovery of its loan amount by taking possession of the collateral especially as its call to repay outstanding amounts was not honoured by Karvy.
However, following the Telangana high court order, the prayers seeking disclosure of assets, and submission of passport by C. Parthasarathy and Rajat Parthasarathy also stand stayed.
The high court has also directed ICICI Bank to file a reply in the case by the end of January.
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