SAT Mumbai Refuses To Condon Karvy's 688-Day Delay Against SEBI Order, Finds Reasons Not Genuine

On Wednesday, 9 September, the Securities Appellate Tribunal (SAT) at Mumbai dismissed an appeal filed by Karvy Stock Broking Limited after refusing to condone a 688-day delay in challenging an order passed by a SEBI Whole Time Member.

A Bench comprising Presiding Officer Justice P.S. Dinesh Kumar with Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar observed that the reasons cited by Karvy for the delay were not based on genuine facts and that its application lacked bona fides. The Tribunal held:

“Though this is a first appeal, in view of appellant's conduct, it shall not be entitled for the discretionary remedy of condonation of delay.”

Karvy Stock Broking Limited, a SEBI-registered stock broker and depository participant, was investigated by the National Stock Exchange (NSE) in 2019. The NSE found that Karvy had allegedly raised funds by pledging clients' securities through misuse of powers of attorney and diverted funds to group entities. It also allegedly sold excess securities worth about Rs. 485 crore through nine related client entities.

Following SEBI's interim order and the NSE's suspension and subsequent expulsion of Karvy's membership, the NSE appointed Ernst & Young to conduct a forensic audit. Based on the audit findings, SEBI issued a show cause notice in January 2021 and subsequently passed an order, along with a corrigendum, imposing various directions and penalties.

Karvy challenged the order before the Tribunal with a delay of 688 days. It attributed the delay to non-receipt of the order, seizure of relevant records by regulatory agencies, difficulties in accessing documents, delay in engaging advocates, and the incarceration and health condition of its Chairman and Managing Director, Comandur Parthasarathy.

SEBI opposed the application for condonation, submitting that the order had been served on Parthasarathy on 6 May 2023. It also submitted that Karvy and its CMD had actively pursued around 70 legal proceedings during the relevant period.

On Karvy's contention that the SEBI order had not been served, the Tribunal noted that SEBI had produced the speed post acknowledgment as proof of delivery. It rejected Karvy's argument that the acknowledgment did not establish its knowledge of the order, observing that Karvy had not taken a definite stand on whether the order had been served.

It also noted that the CMD had been released from judicial custody one year before the SEBI order was passed. It further noted that Karvy was pursuing around 70 cases during the relevant period.

On Karvy's claim that the relevant documents were unavailable, the Bench noted that the company had produced no material to show that it had made any effort to obtain them.

It relied on the Supreme Court's decision in Shivamma (Dead) by LRs v. Karnataka Housing Board, which held that an application for condonation of delay must be decided on whether sufficient cause has been demonstrated and that the merits of the underlying case cannot substitute for an explanation for the delay.

Applying this principle, the Tribunal noted that Karvy had been prosecuting and defending several cases. It also noted that its Managing Director had admitted receiving the impugned order on 6 May 2023, while Karvy had not expressly denied receipt of the order by speed post.

It concluded that “the cause shown in the application for condonation of delay are not based on genuine facts. Hence, the application for condonation of delay lacks bona fides.” While acknowledging that the matter involved a first appeal, the Bench held that Karvy's conduct disentitled it to the discretionary remedy of condonation of delay.

Accordingly, the SAT dismissed Karvy's application seeking condonation of the 688-day delay and consequently dismissed the appeal.

For Appellant: Senior Advocate Zal Andhyarujina, Advocates Abhishek Venkatraman, Joby Mathew, Serena Jethmalani and Aditiya Joby

For Respondent: Senior Advocate Shiraz Rustomjee, Advocates Sumit Yadav, Smriti Singh, Abhay Chauhan, Karthik K.P. and Devya Shah