Market regulator Securities and Exchange Board of India (SEBI) has barred Prabhudas Lilladher Pvt Ltd from taking up any new assignment, contract or launching any new scheme as a SEBI-registered stockbroker for seven days, effective 15 December 2025. The action follows a joint inspection by SEBI, National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Multi-Commodity Exchange (MCX) which uncovered multiple regulatory violations across client fund management, margin reporting, know-your-customer (KYC) compliance and handling of client securities.
One of the most serious findings was the misuse of client funds, revealed through negative G-values on three sample dates 12th July, 13th July and 15 July 2021 indicating a shortfall of ₹2.70 crore. SEBI held that once the G-value shows a deficit, the burden lies on the broker to justify the shortfall, which the stockbroker failed to do. The regulator concluded that the firm violated key provisions protecting client funds.
The broker was also found to have failed in settling client accounts on time. Funds worth ₹36.09 lakh belonging to 1,283 non-traded clients remained unsettled, along with ₹2.85 crore across 677 monthly instances. In addition, funds of traded clients worth ₹39 lakh were not settled in three quarterly cases. SEBI rejected the firm’s claims of software issues, noting that no documentary evidence was produced and that timely settlement is essential for safeguarding client money.
Further, SEBI found multiple violations in margin reporting and collection. The broker incorrectly reported End-of-Day margins in four cases and peak margins in five cases. It also short-collected a peak margin of ₹55.46 lakh from one client. SEBI held that inaccurate reporting and mismatches between collected and reported margins amounted to regulatory breaches since brokers must maintain strict accuracy in risk-management submissions.
SEBI inspection also showed that Prabhudas Lilladher wrongly passed on penalties for upfront margin shortfalls to clients, amounting to ₹15.64 lakh, despite explicit Exchange rules prohibiting this. While SEBI accepted the firm’s explanation for MTM-related penalties, it rejected its defence for peak-margin and SPAN-related cases. The regulator noted that the broker refunded penalties in only five of the 33 required instances.
KYC compliance lapses were also recorded. The broker failed to upload KYC documents within the prescribed 10 working days in 15 cases. SEBI found the broker’s explanations, such as software errors or delays due to CKYC, to be unsupported by any evidence.
The inspection revealed incorrect reporting of client funds and collateral on three dates, where ₹1.26 crore of base capital was mistakenly shown as ‘funded collateral’. SEBI emphasised that such errors distort client-fund protection mechanisms and cannot be excused as mere misinterpretation.
The broker was also held responsible for the incorrect reporting of clear ledger balances and peak ledger balances. While minor differences were overlooked, the remaining mismatches demonstrated clear violations of SEBI’s reporting norms as outlined in the 2016 circular.
A significant violation emerged from the handling of client securities. Fully-paid securities worth about ₹1.30 crore belonging to 91 clients were wrongly kept in the client's unpaid securities account (CUSA) instead of being transferred to the client's demat accounts. SEBI held that the broker’s justification citing F&O positions and client letters was invalid, as regulations mandate the transfer of fully-paid securities without exception.
The broker was also found to have incorrectly reported client exposure on 27 occasions by failing to consider eligible collateral, leading to inflated exposure figures. SEBI rejected the explanation of manual errors, stating that exposure reporting is a crucial risk-management function.
SEBI inspection further confirmed that the broker collected excess brokerage in ten instances, violating the cap prescribed under SEBI regulations. The explanation of clerical error was not accepted, as brokerage caps are absolute and refunds made only after inspection do not erase the violation.
Finally, Prabhudas Lilladher failed to close two demat accounts tagged as ‘stock broker–client account’ within the mandated timeline of 30 September 2019. The accounts remained open until December 2022, long past the extended deadline.
Given the wide range and seriousness of these violations, SEBI decided to impose a seven-day prohibition on the broker from taking on any new assignments.
