The Securities Appellate Tribunal (SAT) has stayed an enquiry order issued by the Securities and Exchange Board of India (Sebi) that had barred Prabhudas Lilladher from taking on any new business for seven days over rule breaches.
“Having regard to the fact that debarment is for seven days, which can be imposed later if the appeal is dismissed, we direct that the order shall remain stayed,” read the tribunal order passed on 9 December.
The markets regulator has been given six weeks' time to file a reply 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 had challenged a Sebi order that had imposed a ban on acquiring new business for a week after it found lapses in key market-risk and investor-protection rules. The brokererage house argued that in similar matters related to technical violations in the recent past, Sebi had only imposed a penalty, claiming that the purpose of inspection is remedial and not punitive. Prabhudas Lilladher also said this was the first time it had made such a violation in its history of over 80 years.
11 regulatory violations
Sebi, in an enquiry order issued in November, had 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 holds sufficient client funds and collateral, was negative, indicating a ₹2.7 crore shortfall. The broker also allegedly misreported client exposures on 27 occasions, inflating figures that exchanges rely on to monitor leverage and margin adequacy.
Sebi dismissed the brokerage house's defence of clerical errors, stating that both intentional and inadvertent misreporting pose the same risk and that no supporting documents had been provided.
The inspection also found it had overcharged brokerage on 10 occasions, totalling ₹4,322.75. Although the broker said this had stemmed from incorrect system configuration and that refunds had been issued, Sebi held that post-detection refunds do not negate a breach.
Other violations included failure to close “stock broker-client” demat accounts as mandated in Sebi’s 2019 circular, passing on margin-shortfall penalties to clients, delayed submission of know-your-customer documents and wrongly moving securities worth ₹1.3 crore of 91 clients into the client unpaid securities account.
The next hearing on the matter is scheduled for March 23, 2026.
