SEBI said that the bank had extended loan facility to BRH and BRH commodities to the tune of ₹87.75 crore against shares, however, it invoked securities pledged to the extent of ₹158.68 crore without giving any notice to the clients
It has therefore asked HDFC bank to deposit an equivalent amount of ₹158.68 crore along with interest
Mumbai: The Securities Exchange Board of India (SEBI) has imposed a fine of Rs1 crore for invoking securities pledged by BRH Wealth Kreators in violation of the regulator's interim orders.
The markets regulator in an order issued on Thursday said that the bank had extended loan facility to BRH and BRH commodities to the tune of ₹87.75 crore against shares, however, it invoked securities pledged to the extent of ₹158.68 crore without giving any notice to the clients.
According to the regulator, the invocation of pledge of client securities was not in conformity with the directions contained in the interim order which was issued on 7 October 2019. SEBI has therefore asked HDFC bank to deposit an equivalent amount of ₹158.68 crore along with interest from 14 October, 2019 till date, at the rate of 7% per annum in a separate interest bearing escrow account, till the issue of settlement of clients’ securities is reconciled.
The interim order against BRH banned the broker from buying or selling any shares from the market and also the bank from selling off the pledged shares. Following this order HDFC bank had recalled credit facilities from the borrowers as it had been called upon to honour the bank guarantees which it had issued for exchange margin requirements.
The Sebi order said that HDFC bank did not conduct adequate due diligence at the time of creation of pledge and that the bank also invoked the pledge of securities without giving the requisite notice of 5 days to the clients of BRH thus depriving them of a fair opportunity to claim back their securities.
However the bank in its reply to SEBI last year maintained that it is entitled in law to appropriate proceeds from sale of the securities for any outstanding of the concerned borrowers, whether the securities were provided for that specific facility or not.
“The Bank humbly submits that its actions are in accordance with law … and thus it would not be correct to state that the same are not in conformity with (the Interim Order), whether for the reasons cited in your letter or otherwise. The Bank’s act of invoking the securities provided under the Overdraft (“OD")/ Loan against Securities (“LAS") facility for amounts higher than the outstanding under the said facility is in accordance with its right of general lien as afforded under Section 171 of the Contract Act, 1872, which right is expressly reserved in the relevant loan documents executed with BRH and BRH Commodities, respectively, as stated in our letter dated November 7, 2019," the bank had said in a 14 February letter to Sebi.