Description

SEBI enquiry order against Prabhudas Lilladher Private Limited for multiple violations including misuse of client funds, non-settlement of accounts, incorrect margin reporting, and other regulatory breaches during inspection period April 2021 to October 2022.

Summary

SEBI issued an enquiry order under Section 12(3) of SEBI Act, 1992 read with Regulation 23 and Regulation 27 of SEBI (Intermediaries) Regulations, 2008 against Prabhudas Lilladher Private Limited (SEBI Registration No. INZ000196637, PAN: AAACP2733Q). The order follows a comprehensive joint inspection conducted by SEBI along with NSE, BSE, and MCX from November 2-8, 2022, covering the inspection period from April 1, 2021 to October 31, 2022.

Key Points

  • Joint inspection by SEBI, NSE, BSE, and MCX revealed multiple prima facie violations
  • Misuse of client funds in violation of Section 23D of SC(R) Act, 1956
  • Non-settlement of traded and non-traded client accounts
  • Incorrect reporting and short collection of margins from clients
  • Passing of penalty on short reporting of margin to clients
  • Delay in uploading documents to KRA (Know Your Client Registration Agency)
  • Incorrect uploading of client fund details on stock exchange systems
  • Incorrect reporting of Clear Ledger Balance and Peak Ledger Balance
  • Unauthorized transfer of securities from credit balance clients to “Client unpaid securities account”
  • Incorrect reporting of exposure given to clients

Regulatory Changes

No new regulatory changes introduced. This is an enforcement order addressing violations of existing regulations.

Compliance Requirements

  • Stock brokers must not misuse client funds as per Section 23D of SC(R) Act, 1956 and related SEBI circulars
  • Proper settlement of all traded and non-traded client accounts as per multiple SEBI circulars (2009-2022)
  • Accurate reporting and collection of margins from clients
  • Timely uploading of KYC documents to KRA within specified timelines
  • Correct uploading of all client fund details on stock exchange systems
  • Accurate reporting of ledger balances in cash and cash equivalents
  • Proper handling of client securities and adherence to unpaid securities account regulations
  • Accurate reporting of client exposure limits

Important Dates

  • Inspection Period: April 1, 2021 to October 31, 2022
  • Inspection Conducted: November 2-8, 2022
  • Order Reference: QJA/MN/MIRSD/MIRSD-SEC-1/31821/2025-26

Impact Assessment

Market Impact: High - The order highlights serious compliance failures by a registered stock broker operating across multiple exchanges (NSE, BSE, MCX), potentially affecting client protection and market integrity.

Operational Impact: High - The violations span critical operational areas including client fund management, margin collection and reporting, account settlement, KYC compliance, and exposure reporting. The misuse of client funds is particularly serious and undermines investor confidence.

Regulatory Impact: This enforcement action reinforces SEBI’s strict oversight of intermediary compliance, particularly regarding client fund safety and accurate regulatory reporting. Stock brokers must ensure robust internal controls and compliance systems across all operational aspects to avoid similar violations.

Impact Justification

High severity enforcement action involving multiple serious violations including misuse of client funds, margin reporting failures, and non-settlement of client accounts by a registered stock broker across NSE, BSE, and MCX.