SEBI Imposes Rs90 Lakh Penalty on Anugrah Stock & Broking for Repeated Violations of Norms

Moneylife Digital Team 09 March 2021

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs90 lakh on Anugrah Stock & Broking Pvt Ltd for repeated violation of regulations and compliance.

In an order, Prasanta Mahapatra, adjudicating officer (AO) of SEBI says, "It is established that Anugrah Stock & Broking failed to segregate client’s funds inter-se and/ or between clients’ funds and its own funds, mis-utilised the funds of clients, pledged the securities of clients other than the respective client obligation, funding the clients by allowing exposure beyond the prescribed timeframe as specified in the regulations, and failed to settle client accounts. Hence, the lapses and violations committed by Anugrah Stock & Broking deserves and attracts penalty as per law."

The order mentions an inspection carried out by a team comprising officials from SEBI, NSE, BSE and Central Depository Services India Ltd (CDSL). At the time of inspection, the market regulator was aware about the over Rs100 crore shortfall in Anugrah Stock & Broking account. Yet, it initiated adjudication proceedings against the brokerage.

The AO says, "As regards the repetitive nature of the default, I do not find inspection having brought on record any regulatory action taken by SEBI in past three years against Anugrah Stock & Broking for violations and under charging provisions, same as observed in the instant inspection."

"...there are no investor complaints on record arising out of failure on the part of Anugrah Stock & Broking. However, I cannot ignore the fact that Anugrah Stock & Broking was under a statutory obligation to abide by the provisions of the acts, rules and regulations and circulars and directions issued thereunder, which it failed to do during the inspection period," the SEBI order says.

The inspection report also mentions misuse of credit client’s fund, which was known to National Stock Exchange (NSE) as early as in November 2018. It says, "On 39 out of 40 dates, broker has misused client funds. Misuse of funds ranges from 5.40% to 45.69% of funds of credit balance clients. Funds of credit balance clients have been used for purpose of debit balance clients. The broker has mis-used the credit client’s fund in the range of the amount of Rs8.05 crore to Rs118.77 crore for the selected sample days. In addition to the above, NSE has also verified data with respect to enhanced supervision submission for 30 November 2019. NSE has observed that the broker had shortfall of funds amounting to Rs111.17 crore as on 30 November 2018."

It says, "It was observed that the trading member has not correctly reported margin collection to the Exchange in derivative segment. About 16 Instances of incorrect reporting amounting to Rs71.87 crore."

"It is observed that stock broker has funded to all top10 clients and has allowed further exposure on 179 instances beyond T+2+5 day. The broker has earned from delayed payment charges Rs17.93 crore and Rs14.58 crore during FY 2017-18 and FY 2018-19 (till date of inspection) against the brokerage income of Rs38.87 crore and Rs26.96 crore during FY 2017-18 and FY 2018-19 (till date of inspection), respectively. The extent of interest income earned by the broker vis-à-vis brokerage shows that the broker is not only allowing further exposure to the debit balance clients but also earning interest on debit balance shows that the broker is engaged in business of lending and not only in broking," the SEBI order says.

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