Market regulator Securities and Exchange Board of India (SEBI) has imposed a fine of Rs16 lakh on Keshav Securities Pvt Ltd 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.
In an order on 16 January 2023, Barnali Mukherjee, adjudicating officer (AO) of SEBI, says, “I note that material available on record has not quantified the amount of disproportionate gain or unfair advantage and it is not possible to ascertain the exact monetary loss to the investors on account of defaults made by the company. However, the company, as a registered intermediary, is required to comply with the various regulations as laid down by SEBI. The very purpose of the provisions is to deter wrongdoing and promote ethical conduct in the securities market. The gravity of such violations and the other non-compliances certainly deserve a penalty that would act as a deterrent to the company in the future.”
Considering evidence observed in the inspection report, SEBI issued a show-cause notice (SCN) to the company on 7 November 2022. Keshav Securities Ltd made submissions to SEBI on 9 January 2023.
The company contended that the shortage of staff during the lockdown led to the occurrence of clerical errors. This was the reason behind the delay in settlement of funds. It also led to the interpretation that they misused the client’s funds. The failure in stock reconciliation, as per Keshav Securities, was due to software failure in their back office.
It also submitted that regarding the client registration process and verification of unique client code (UCC), the details mentioned in the UCC were of the family members, and it had made the necessary changes after getting the notification from the exchange.
Regarding risk-based supervision, the company stated that the loan amount of Rs22.51 crore was given to the group company Modispaces Real Estate Pvt Ltd. However, it contended that it was not aware that it could not provide loans to sister concern companies and admitted its fault.
Earlier BSE had imposed a monetary penalty of Rs60,000 on the company for client funding for FY17-18.
After the perusal of all documents and submissions, SEBI concluded that the company has accepted the faults it committed. SEBI also observed that even after being penalised by the National Stock Exchange (NSE) and BSE, for different 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.
Ms Mukherjee, the 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 they had requested for same.
A fine of Rs12 lakh was imposed for misuse of clients’ funds and securities, and a penalty of Rs4 lakh for other non-compliance to various laws prescribed by SEBI
(Adjudication Order No. Order/BM/UR/2022-23/22878-22877 Date: 16 January 2023)
