Bombay High Court orders status quo on FDs2 min read . Updated: 18 Aug 2020, 07:25 AM IST
The matter for recovery of ₹100 crore of dues allegedly owed to Edelweiss will be resolved through arbitration under section 9 of Arbitration and Conciliation Act, 1996
The Bombay high court has ordered a status quo in the contentious case of HDFC Bank Ltd not honouring the fixed deposit receipts (FDRs) that Edelweiss Custodial Services Ltd claims were pledged with it as collateral by brokerage IndiaNivesh Shares and Securities Pvt. Ltd.
The matter for recovery of ₹100 crore of dues allegedly owed to Edelweiss will be resolved through arbitration under section 9 of Arbitration and Conciliation Act, 1996.
“It is clarified that no party shall ask Respondent No. 2 (HDFC Bank) for liquidating these FDs. In other words, the status-quo as of today, shall be maintained with reference to these FDs," the Bombay high court said in its order passed on 4 May.
The matter goes back to 2 April, when IndiaNivesh shut down its broking, commodity and portfolio management businesses, citing a “liquidity crunch" caused by the fall in stock markets amid the covid-induced lockdown.
In a statement filed with the exchanges on 2 April, IndiaNivesh said that “there (have) been mark-to-market losses, which (have) been funded by Edelweiss Custodial Services Ltd, and Edelweiss Custodial Services Ltd was covered with STL (short-term loan) which was available for the credit balances of the clients."
It added that the amount would “be enough to cover the creditors of IndiaNivesh".
The problem started when HDFC Bank declined to honour the FDRs issued by it as IndiaNivesh’s collateral pledged with Edelweiss, which was acting as the clearing member.
Edelweiss claimed that the FDRs issued by HDFC Bank were pledged by IndiaNivesh as collateral for the entire trade, while HDFC Bank claimed that these were meant only as margin and not for mark-to-market or M2M losses.
M2M losses are accounting procedures that involve adjusting the profit or loss investors make for the day.
Edelweiss then moved the Bombay high court to recover its dues on 29 April.
The arbitration on the ₹100 crore cleared by Edelweiss with the clearing corporation would be completed in coming three months, said a lawyer advising the parties involved in the process.
A spokesperson for Edelweiss declined to comment as the matter is sub judice. HDFC Bank, in an emailed statement, also said, “We will not be able to comment on this as the matter is sub judice".
FDRs work like bank guarantees but are typically required to be backed by actual fixed deposits. The issuing bank needs details such as the trading members’ primary member code of the segment and security/margin deposit and segment for which the FDR is required.