Market regulator Securities and Exchange Board of India (SEBI) has suspended the certificate of registration of Keshav Securities Pvt Ltd for two months for failing to submit any bank account statement or details of loans given to Modispaces Real Estate Pvt Ltd.
In an order, GP Garg, executive director (ED) of SEBI, says, "...I note that the amount of loan provided by Keshav Securities to Modispaces Real Estate was not Rs22.51 crore as stated in the enquiry report. In fact, I note from the ledger account submitted by Keshav Securities itself indicates that during the inspection period, the amount of funds transferred to Modispaces Real Estate was Rs58.03 crore and the total amount of funds transferred since April 2015 was Rs289.91 crore. However, I note that Keshav Securities has conveniently remained silent and not made correct submission of the loans given to Modispaces Real Estate to either the designated authority (DA) or before me."
"...Keshav Securities has failed to provide the same in its written submissions and have chosen not to submit any bank account statement or details of loans given to Modispaces Real Estate to clarify the actual and correct amount of loan given or recovered from or to Modispaces Real Estate. In view of the above facts and circumstances and defence advanced by Keshav Securities, I find that it is a fit case to disagree with the recommendations of the DA and the directions of suspension of the certificate of registration of Keshav Securities for the period (of two months) is warranted in this case," the SEBI order says.
Keshav Securities was inspected by SEBI for the period from April 2020 to September 2021. The market regulator found that the broker had given loans amounting to Rs22.66 crore to BNE Infraprojects Ltd (Rs15 lakh) and Modispaces Real Estate (Rs22.51 crore) which are related entities or outside parties and not involved in the securities business.
Keshav Securities submitted that Modispaces Real Estate is its sister concern. The loan given to BNE Infraprojects is an interest-free loan given to relatives which has now turned into bad debt, it stated.
The broker also submitted that all its clients are family members and relatives, and it does not have outside clients and stopped trading with its clients in December 2021. Further, it stated that it has applied for a 'total surrender' of its membership with the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in December 2021 and is awaiting a response from the stock exchanges.
During the hearing, Keshav Securities expressed its ignorance regarding the law governing the brokering activity. "In this regard, I find that ignorance of law is not an excuse, especially for a registered intermediary who is required to know the conditions for registration. Keshav Securities has been a registered stock broker with SEBI in the equity segment since 2004, hence its contention of being unaware of rules is untenable. Further, I note that Keshav Securities was also to submit details of its net worth and its clients during the period of inspection. However, I note that it has not provided any details of its net worth in its written submissions dated 4 March 2023," the SEBI ED observed.
SEBI then decided to suspend the registration of Keshav Securities for two months.
In January this year, the market regulator imposed a fine of Rs16 lakh on Keshav Securities for violation of various regulations. The violations include the misuse of clients' funds and securities, delay in settlement and payment of funds, failure in stock reconciliation, client registration process, and risk-based supervision.
SEBI also observed that even after being penalised by NSE and BSE for various infringements, the company repeated those. In reply to the long-distance problem, it was noted that the company failed to give any documentary evidence showing the rectification of errors as claimed by them.
Barnali Mukherjee, adjudicating officer (AO) of SEBI says, "The ignorance exhibited by the company in the case of giving loans to a sister concern company cannot be tolerated as postulated by the legal maxim 'ignorantia juris non excusat', ignorance of the law is no excuse and everyone is presumed to know the law of the land."
SEBI found that the company has not submitted any substantive or documentary evidence showing that the clients' having the same emails belonged to the same family or that they had requested for it.