SAT Stays SEBI Order Banning IIFL Securities from On-boarding New Clients for 2 Years
The securities appellate tribunal (SAT) has stayed the Securities Exchange Board of India's (SEBI) 19th June order prohibiting IIFL Securities from onboarding new clients for two years. The matter has been listed for final disposal on 23rd August.
The stay order by SAT considered that IIFL Securities has already been penalised for Rs2 crore through two separate adjudication orders for the same allegations. The earlier two orders of SEBI for monetary penalties are pending before SAT and has received stay.
Nishith Doshi, head (legal), IIFL, said, “The SEBI order placing restrictions on opening new client accounts has been stayed by the Hon’ble SAT. The tribunal after considering that the same facts had already led to monetary penalty in earlier appeals which were pending before SAT.”
“IIFL Securities would like to reiterate SEBI’s own assurance in the very order imposing restrictions that even SEBI has not found anything wrong if its changes to the law effected in 2017 were applied prospectively. IIFL reiterates its commitment to serving its clients as it always has in full compliance with the letter and spirit of the law.”
The SEBI order was based on allegations of mixing client’s and own funds by IIFL Securities during inspection by the regulator during 2011-2014. However, the order was passed based on Enhanced Supervision Circular 2017 applying it retrospectively to the 2011-2014 period. 
IIFL Securities in its appeal before SAT said, “The impugned order relates to a period prior to July 2017 when a new circular popularly known as ‘Enhanced Supervision Circular’ dated September 26, 2017 came into effect. The impugned order contains a positive certification that after the Enhance Supervision Circular was brought into effect in 2017, there has been no violation. The core submission of the Appellant is that this circular is being applied retrospectively.”
IIFL Securities further submitted that “in utter haste, even deviating from the normal approach of letting orders of suspension of registration (although partial) take effect at the expiry of 45 days (the statutory period for appeal), the impugned order has been brought into force with immediate effect, inflicting serious debilitating damage on the appellant."
IIFL Securities also argued that the SEBI punishment was disproportionately harsh, unreasonable.
“Judicial deference has been thrown to the winds and on this ground alone, the impugned order deserves to be set aside.”
Further, SEBI, in its own order said, "I find no violation by the way of assigning wrong nomenclature to ‘clients accounts’ have been remedied by the noticee (IIFL Securities)… further the violations committed by the way of mixing funds of clients with its own funds has not been observed in March 2017 inspection. Further, I find no instance of misuse of clients’ funds by the notice placed before me which has occurred subsequent to implementation of the Enhanced Supervision Circular dated September 16, 2016.”
There have been such violations earlier where the market regulator had let off brokers with mere fines. SEBI had imposed a penalty of Rs1 lakh on Anand Rathi Share and Stock Brokers Ltd in November 2018; a fine of Rs15 lakh on Systematix Shares & Stocks (I) Ltd in December 2017; a fine of Rs17 lakh on Motilal Oswal Financial Servies on February 2020; a fine of Rs30 lakh on Nirmal Bang Securities in February 2020; and a fine of Rs35 lakh on Edelweiss Securities in settlement order.
In 2020, SEBI had imposed a fine of Rs 12 lakh on Ganganagar Commodities where SEBI had observed usage of funds of credit balance clients for settling some of the trades of debit balance clients.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
Free Helpline
Legal Credit