SAT upholds Sebi order barring Prabhudas Lilladher from new business

The Securities Appellate Tribunal (SAT) has stayed an inquiry order issued by the Securities and Exchange Board of India (Sebi) barring Prabhudas Lilladher from taking up any new business for seven days due to rule violations. “Considering the fact that exclusion is for seven days, which can be imposed later if the appeal is dismissed, we order that the order should remain suspended,” reads the tribunal order passed on December 9. The market regulator was given six weeks to submit a response to the broker’s appeal. The tribunal gave an additional three weeks if Prabhudas Lilladher wants to file a rejoinder to the reply. Prabhudas Lilladher challenged a Sebi order that imposed a ban on acquiring new business for a week after it found that key market risk and investor protection rules had lapsed. The brokerage argued that in similar matters related to technical violations in the recent past, Sebi had only imposed a fine, asserting that the purpose of inspection is corrective and not punitive. Prabhudas Lilladher also said it was the first time it had made such a violation in its more than 80-year history. 11 regulatory violations Sebi, in an inquiry order issued in November, identified 11 regulatory violations based on its inspection findings and the broker’s own submissions during April 2021 to October 2022. On three days in 2021, the broker’s G-value, which measures whether a broker maintains sufficient funds, and a negative fund, had a shortfall of ₹2.7 crore. The broker also allegedly misreported client exposures on 27 occasions, inflating figures that exchanges rely on to monitor leverage and margin adequacy. Sebi rejected the brokerage house’s defense of clerical errors, saying that both intentional and unintentional misreporting carry the same risk and that no supporting documents were provided. The inspection also found it overpaid brokers on 10 occasions, totaling ₹4,322.75. Although the broker said it stemmed from wrong system configuration and that refunds were issued, Sebi said post-detection refunds do not negate a wrongdoing. Other violations include failure to close “stockbroker-client” demat accounts as required in Sebi’s 2019 circular, passing on margin deficiency penalties to clients, delayed submission of know-your-customer documents and wrongly moving securities worth ₹1.3 crore from 91 client securities to the client’s account. The next hearing on the matter is scheduled for March 23, 2026.