BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision: 3.12.2019
Misc. Application No.631 of 2019
And
Appeal Lodging No.587 of 2019
Karvy Stock Broking Limited
Plot No.31/P, Karvy Millenium,
Nanakramguda, Financial District,
Gachibowli, Hyderabad,
Telengana – 500032.

….. Appellant
Versus
National Stock Exchange of India
Exchange Plaza, C-1 Block G,
Bandra Kurla Complex,
Bandra (East), Mumbai – 400051.

…… Respondent
Mr. Vikram Nankani, Senior Advocate with Mr. KRCV
Seshachalam, Mr. A. Rama Rao, Ms. Sabeena Mahadik, Mr.
Pankaj Uttaradhi, Mr. Sagar Hate and Mr. Aayush Kothari,
Advocates i/b. Visesha Law Services for the Appellant.
Mr. Venkatesh Dhond, Senior Advocate with Mr. Somasekar
Sundaresan, Ms. Shruti Rajan, Mr. Aditya Sikka, Mr.
Pratham and Ms. Drishti Das, Advocates for the Respondent.

CORAM: Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
Per : Justice M.T. Joshi (Oral)
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Misc. Application No.631 of 2019
Heard. For the reasons stated in the application, the
application is allowed. The compilation of documents
containing
show
cause
notice
and
decision
dated
2nd December, 2019 is accepted on record.
Appeal Lodging No.587 of 2019
1.

By the present appeal the appellant is seeking
quashment of the impugned order/circular dated December 2,
2019 issued by respondent National Stock Exchange of India
Ltd. (hereinafter referred to as ‘NSE’).
2.

Vide the said circular respondent NSE had suspended
the present appellant from its membership due to the alleged
non compliance of the regulatory provisions of the Exchange
with effect from 2nd December, 2019.
3.

Learned counsel for the respondent raised objection on
the maintainability of the present appeal on the ground that
the equally efficacious remedy is available to the appellant
under National Stock Exchange of India Ltd. Rules
(hereinafter referred to as ‘the Rules’).
submitted that the appeal be not entertained.

He therefore
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4.

From the submission of both the sides and from the
record it appears that on 22nd November, 2019 the Whole
Time Member (hereinafter referred to as ‘WTM’) of
Securities and Exchange Board of India (hereinafter referred
to as ‘SEBI’) passed an ex-parte ad-interim order against the
appellant.
5.

The reading of the order would show that on the basis
of the report dated 22nd November, 2019 forwarded by the
present respondent NSE it was prima-facie found that the
present appellant was misusing the clients’ securities and
various other misappropriation of the clients’ securities as
detailed in the said order. The WTM of the SEBI in the
circumstances issued following directions:(i) KSBL is prohibited from taking new clients in
respect of its stock broking activities;
(ii) The Depositories i.e. NSDL and CDSL, in order
to prevent further misuse of clients’ securities by KSBL,
are hereby directed not to act upon any instruction
given by KSBL in pursuance of power of attorney given
to KSBL by its clients, with immediate effect;
(iii) The Depositories shall monitor the movement of
securities into and from the DP account of clients of
KSBL as DP to ensure that clients’ operations are not
affected;
(iv) The Depositories shall not allow transfer of
securities from DP account no. 11458979, named
KARVY STOCK BROKING LTD (BSE) with immediate
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effect. The transfer of securities from DP account no.
11458979, named KARVY STOCK BROKING LTD
(BSE) shall be permitted only to the respective
beneficial owner who has paid in full against these
securities, under supervision of NSE;
and
(v) The Depositories and Stock Exchanges shall
initiate
appropriate
disciplinary regulatory
proceedings against the Noticee for misuse of clients’
funds and securities as per their respective bye laws,
rules and regulations;
6.

In view of these directions it appears that respondent
NSE had passed the impugned.
7.

Learned counsel for the respondent submits that the
order is in the nature of a temporary suspension as provided
in the Rule 13A(a) of the Rules. The relevant portion is
extracted as under:
Temporary Suspension
(13A) (a) Notwithstanding what is contained in clause
(13) herein above if in the opinion of the Managing
Director it is necessary to do so, he may, for reasons to
be recorded in writing, temporarily suspend a trading
member, pending completion of the proceedings for
suspension under this chapter by the relevant
authority, and no notice of hearing shall be required
for such temporary suspension and such temporary
suspension shall have the same consequences of
suspension under this chapter.
(b) A notice to show cause shall be issued to the
trading member within five working days of such
temporary suspension.

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(c) Any such temporary suspension may be revoked at
the discretion of the Managing Director, for reasons to
be recorded in writing, if the Managing Director is
satisfied that the circumstances leading to the
formations of opinion of the Managing Director to
effect temporary suspension, have ceased to exist or
are satisfactorily resolved.
(d) A trading member aggrieved by the temporary
suspension may appeal to the relevant authority,
provided that such appeal shall not automatically
suspend the temporary suspension unless otherwise
directed by the relevant authority.
8.

Adverting the attention of the Tribunal to sub-rule
13A(d) of the Rules he submits that the appellant ought to
have filed an application before the relevant authority as
established under Rule 24 of the Rules and, therefore, the
present appeal is not maintainable.
9.

On the other hand, Mr. Vikram Nankani, learned Senior
counsel for the appellant submits that the appellant in law is
entitled to prefer an appeal before this Tribunal as provided
under Section 23L of the Securities Contracts (Regulation)
Act, 1956. Relevant provision is as under:Section 23L in The Securities Contracts (Regulation)
Act, 1956
23L. Appeal to Securities Appellate Tribunal.—
(1) Any person aggrieved, by the order or decision of
the recognised stock exchange or the adjudicating
officer or any order made by the Securities and
Exchange Board of India under section 4B, may prefer
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an appeal before the Securities Appellate Tribunal and
the provisions of sections 22B, 22C, 22D and 22E of
this Act, shall apply, as far as may be, to such appeals.
10. Mr. Vikram Nankani, learned Senior counsel for the
appellant further submits that the Rules framed by respondent
NSE cannot overrule the statutory provisions. He further
submits that reading of the order of the learned WTM would
show that the investigation in the alleged misconduct of the
appellant was going on since long. The WTM of the SEBI
under the provisions of Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as ‘SEBI Act’) could
have very well issued the directions, if any, regarding the
continuation or otherwise of the appellant as a trading
member.

However, the appellant is being unnecessarily
involved
in
multiple
proceedings.

The
long
drawn
investigation would show that there was no need of suddenly
issuing a drastic direction of suspension of the appellant’s
rights vide impugned direction/circular. He took us through
the details of the investigation and submitted that even if it is
assumed that alternate remedy is available considering the
above background the appeal may be allowed.
11. Upon hearing both sides, in our view, the Rules are
framed by respondent NSE in exercise of the powers of the
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Section 9 of the SCRA.

The appellant has equally
efficacious remedy to challenge the impugned order before
the relevant authority of the respondent NSE. In that view of
the matter, we do not find any reason to entertain the appeal.
Mr. Venkatesh Dhond, learned Senior counsel for the
respondent submits that the appeal, if any, filed by the
appellant with the respondent, they would be heard
expeditiously by convening meeting of the relevant authority.
There is no need to bypass the statutory Rules. At this stage,
learned counsel for the appellant submits that the appellant
may be provided with liberty to seek documents from the
respondent. We do not find any hitch in acceding to the said
request. The respondent shall supply the documents or grant
inspection of the same relevant to the dispute.
12. For the reasons stated above, the appeal is disposed of.
Appellant would be at liberty to file an appeal as provided by
Rule 13A(d) of the NSE Rules. In case, if such an appeal is
filed, appellant shall be heard as expeditiously as possible
and in any event shall be decided by December 6, 2019. In
case the relevant authority would not be able to decide the
appeal within the period, the decision on the temporary stay
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to the impugned order may be taken by the relevant authority
on or before December 6, 2019. No order as to costs.

Sd/Dr. C. K. G. Nair
Member
Sd/Justice M.T. Joshi
Judicial Member
3.12.2019
Prepared and compared by
RHN