Synopsis–IIFL Securities had won the bid to acquire the 11 lakh demat accounts held by Karvy. Axis Securities emerged as the successful bidder for Karvy’s trading accounts. This was the first time depositories separately sold trading and demat accounts. Exchanges had terminated the membership of Karvy amid allegations the brokerage had misused clients’ securities and funds.
Mumbai: The Bombay High Court has directed SBI Capital Markets and KPMG to value Karvy Stock Broking’s demat and trading accounts after the firm challenged the recent move by National Securities Depository (NSDL) and Central Depository Services (CDSL) to sell them separately.
The beleaguered Karvy Group argued in its plea that the acquisition of the demat accounts and trading accounts of its broking arm should have fetched at least Rs 816 crore. However, the depositories sold them at a ‘throwaway’ price of Rs 140 crore considering the volume of the accounts and custody value of the demat and trading accounts, it said.
IIFL Securities had won the bid to acquire the 11 lakh demat accounts held by Karvy. Axis Securities emerged as the successful bidder for Karvy’s trading accounts. This was the first time depositories separately sold trading and demat accounts. Exchanges had terminated the membership of Karvy amid allegations the brokerage had misused clients’ securities and funds.
The division bench of Justice AA Sayed and Justice Madhav Jamdar has asked SBI Caps and KPMG to submit separate valuation reports on the valuation of the demat accounts and trading accounts.
“This is the first time such a situation has arisen and there is no earlier precedent where bids have been invited for the acquisition of the demat accounts/trading accounts of a Depository Participant/Trading Member who has been expelled/terminated,” said the court in its 33-page order of March 18. “To satisfy our judicial conscience, we are inclined to call for valuation report/s notwithstanding the contention of the respondents that the said demat accounts and trading accounts cannot be valued.”
The valuers will have to submit their report to the court before the next date of hearing. The court has posted the hearing on May 3. Karvy has also made the National Stock Exchange (NSE), BSE and Metropolitan Stock Exchange of India (MSEIL) respondents in the case.
Karvy’s argument has been that that the bidding process to buyout the demat and trading accounts was ‘arbitrary’ and faced a “serious issue of credibility”.
Lawyers of NSDL and CDSL argued that the entire bidding process was fair and transparent and that the valuation method sought by Karvy to value its accounts would not be applicable in this case.
The court also observed the decision of the exchanges and the depositories to undertake the process of nomination of another trading member or depository participant in place of Karvy cannot be faulted.
“Their action was only to protect the interest of the clients of KSBL, whose interest is paramount,” observed the court, while rejecting Karvy’s plea to restrain respondents from completing or confirming the process of transferring the demat and trading acccounts to IIFL and Axis Securities.
Vikram Nankani, Senior Counsel appeared for Karvy, while CDSL and NSDL were represented by Senior Advocate Zal Andhayarujina and Somasekhar Sundaresan respectively.