TMI Blog2023 (3) TMI 1334X X X X Extracts X X X X X X X X Extracts X X X X ..... l that not only the grievance of the petitioners but the grievance of similarly situated investors has also been considered by the appropriate authority as per the procedure prescribed by law. The manner in which grievances have been considered of course, would not be relevant at this stage as the investors and the petitioners would have appropriate remedy to test the validity of those decisions. Under the facts of the present case, this court is not inclined to accept the prayer for constitution of any individual committee or to monitor the further action to be taken by respondent No.3-NSE. Accordingly, the instant petitions stand dismissed alongwith pending application. - W.P.(C) 5665/2021 & CM APPL 17694/2021 and W.P.(C) 14371/2021 - - - Dated:- 13-3-2023 - HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Petitioner : Mr. G.S. Chaturvedi, Advocate Mr. Arjun Prasad Sinha and Mr. Saurabh Kumar, Advocates For the Respondent : Mr. Ravi Prakash, CGSC alongwith Mr. Farmon Ali, Mr. Varun Aggarwal and Ms. Usha, Advocates for respondent No. 1 Ms. Udita Singh, Advocate for respondent No. 2 Mr. Neeraj Malhotra, Senior Advocate alongwith Mr. Ishan Bisht and Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the innocent investors have been fraudulently cheated and to take appropriate action not only against respondent No. 9/ Karvy but to ensure that the innocent investors should get their refunds. They further submit that this entire scam/irregularity has been committed under the nose of regulatory authorities such as the BSE, NSE and SEBI. 6. Learned counsel for the petitioners have placed reliance on a decision of the Hon ble Supreme Court in the case of Indian Bank v. Godhara Nagrik Cooperative Credit Society Limited and Another (2008) 12 SCC 541 and a recent decision of the Hon ble Supreme Court in the case of Vishal Tiwari v. Union of India (UOI) and Ors. MANU/SC/0194/2023 and they submit that under the facts of those cases the Hon ble Supreme Court has either approved the order of constitution of appropriate committee or itself has directed for the same in the larger public interest. He further submits that if the facts of the present case are examined, the same would depict a larger conspiracy and the magnitude is higher than, in those cases, which have been dealt with by the Hon ble Supreme Court in the case of Vishal Tiwari (supra) and Indian Bank (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the Stock Exchanges and Depositories to initiate appropriate action against Respondent No. 9-Karvy. However, the claim of the petitioners was to be submitted to respondent No.3-NSE and it is respondent No.3-NSE who were required to take into consideration any of the claims so submitted by either the petitioners or any other investors. 12. It is also to be noted that the present petitions are moved at the instance of the private investors, who were dealing in the sale and purchase of securities. Chapter-XII of NSE Bye-Laws provides for the declaration of a trading member as a defaulter. The assets of the defaulter trading members vest ipso facto in the NSE for the benefit of persons including investors like the petitioners. The Member and Core Settlement Guarantee Fund Committee ( defaulter s committee ) distributes the assets of the defaulter trading members on pro rata basis amongst its creditors including investors, other trading members and sub-brokers after clearing the dues to the Exchange. There are various other provisions under the NSE Bye-Laws to ensure that the investors claims are appropriately dealt with and their grievances are mitigated. One of the Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d maintaining the integrity of the securities market and the same is borne out by its actions in response to Karvy's misconduct. Indeed, NSE noted discrepancies in the management of securities by Respondent No. 9 as early as January 2017, when it sought information from other regulators in this regard. 21. Thereafter, NSE coordinated with SEBI to undertake a client-level reconciliation of Karvy's security balances as on 16 May 2019. During the verification, NSE noted that there were 23,109 mismatches of which Karvy provided clarifications only for 14,876 mismatches. In view of the same, NSE repeatedly followed up with Karvy seeking clarifications for the remaining mismatches. However, Karvy failed to provide any details or clarifications for the remaining 8,233 mismatches. 22. In view of Karvy's failure to provide the requisite details and clarifications, on 19 August 2019, NSE carried out a Limited Purpose Inspection of the books, records etc. at Karvy's registered office. During the said inspection, NSE found inter alia the following discrepancies in Karvy's accounts: i. Mismatches between the client securities reported under the weekly holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arvy's temporary suspension, resulting in the suspension of Respondent 9 from other trading platforms including that of Respondent No. 4. Pertinently, Karvy's appeal against NSE's order of temporary suspension dated 02 December 2019 was dismissed by the Defaulter's Committee vide order dated 06 December 2019. 27. It is humbly stated that the Answering Respondent and its Defaulter's Committee pursued the issue assiduously. In its meeting held on 13 November 2020, the Defaulter's Committee observed that several opportunities had been provided to Karvy for more than 12 months to settle claims of its investors. However, even though Karvy was given multiple opportunities to be heard and to settle the claims of its investors, Karvy sought to delay the proceedings on one pretext or the other, giving only assurances and no solution. 28. In view of the same, by order dated 23 November 2020, the Defaulter's Committee declared Karvy a defaulter under Byelaw l(a) of Chapter XII of the NSE Byelaws and expelled it from the membership of NSE in accordance with Rules 1 and 2, Chapter IV of the NSE Rules with immediate effect. 29. Pertinently, in light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sections 403, 406, 409, 418, 420, 467, 468, 471 and 474 r/w Section 120 Band Section 34 of the Indian Penal Code (IPC) Steps taken by NSE to settle investors' claims. 31. Pursuant to SEBI's order dated 24 November 2020, NSE issued Public Notice dated 26 November 2020 inviting claims against Karvy from its constituents/investors. A copy of the said Public Notice dated 26 November 2020 is annexed herewith and marked as Annexure R-2. 32. Pertinently, by 10 November 2020, the Answering Respondent had already facilitated the settlement of funds to the tune of Rs. 96.92 crores belonging to 2,14,402 of Karvy's clients/investors and securities to the tune of Rs. 2,345.82 crores belonging to 1,57,641 of Karvy's clients/investors. 32. Pertinently, by 10 November 2020, the Answering Respondent had already facilitated the settlement of funds to the tune of Rs. 96.92 crores belonging to 2,14,402 of Karvy's clients/investors and securities to the tune of Rs.2,345.82 crores belonging to 1,57,641 of Karvy's clients/investors. 33. Since Karvy's assets have been insufficient to meet all of its clients' claims, NSE' s Defaulter's Committee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g claim was valued by the Answering Respondent at Rs. 3,19,285/- (Rupees Three Lakh Nineteen Thousand Two Hundred and Eighty-Five Only), which claim was held to be inadmissible for payment out of the IPF, being against securities which are the subject matter of litigation before the Hon'ble SAT. Pertinently, by its said letter dated 26 March 2021, NSE informed the Petitioner that the remainder of its claim may be payable based on the outcome of the proceedings before the Hon'ble SAT and in accordance with its directions. A true copy of the NSE's aforesaid letter dated 26 March 2021 is annexed herewith and marked as Annexure R-3. Claim by Petitioner 2 39. Petitioner 2's claim before the Defaulter's Committee dated 19 January 2021 was for an amount of Rs. 1,22,57,180.25/- (Rupees One Crore Twenty-Two Lakhs Fifty-Seven Thousand One Hundred and Eighty and Twenty-Five Paise Only) towards the alleged value of 8351 shares of ICIC Lombard General Insurance Co. Ltd. The aforesaid claim made by Petitioner No. 2 was held to be inadmissible for payment out of the IPF, being entirely against securities which are the subject matter of litigation before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd overreach the proceedings before the Hon'ble SAT. 16. Learned counsel for respondent No.5-NSDL submits that pursuant to the directions by respondent No. 2-SEBI and termination of membership of respondent No.9-Karvy by respondent No.3-NSE, respondent No.5-NSDL issued a letter dated 01.12.2020 informing Karvy about termination of its participant ship w.e.f. 30.12.2020 in accordance with NSDL Bye-laws and thereafter, all the demat accounts of investors remaining with respondent No.9-Karvy were transferred to another depository participant. The counter-affidavit of respondent No.6 states that the grievance of the petitioners does not fall within its ambit and it has taken the necessary steps in its limited sphere of action, under directions from respondent No.2-SEBI. Learned counsel appearing on behalf of respondent No.8-SFIO states that respondent No.9-Karvy is protected by an interim order granted by the Hon ble High Court of Telangana and hence, has not been able to carry out its investigations against respondent No.9-Karvy. 17. Having considered the submissions made by learned counsel appearing for the parties, it is seen that with respect to respondent No. 9-Karvy, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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