Sebi slaps Rs 90-lakh fine on Anugrah for misusing clients' funds

Mumbai-based brokerage misused client funds worth Rs 119 crore, says regulator's investigation

The Securities and Exchange Board of India (Sebi) on Tuesday imposed a penalty of Rs 90 lakh on Anugrah Stock & Broking for allegedly misusing Rs 119 crore worth of clients’ funds. This comes on the back of a joint investigation carried out by Sebi, BSE, NSE, and the Central Depository Services between April 2017 and September 2018.

“It is established that the noticee (Anugrah) failed to segregate client’s funds inter-se and 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, failed to settle client accounts etc. Hence, the lapses/violations committed by the noticee deserves and attracts penalty as per law,” the market regulator said in its order.

Investigations also revealed that the brokerage had used client securities for pledging. Between 2017 and 2018, Anugrah used securities worth several crores belonging to hundreds of clients.

Sebi observed that the brokerage had given loans and advances to its group companies and associates and was not correctly reporting margin collection to the exchanges. It found lapses in the client registration process, where Anugrah had not uploaded correct and complete details.

In November 2020, Sebi had suspended Anugrah pending completion of the enquiry proceedings. 

The regulator had also ordered its directors not to dispose of any assets till the completion of proceedings. In August 2020, NSE had disabled the brokerage’s trading terminal.

In January, the economic offences wing (EOW) had taken Anugrah’s director Paresh Kariya into police custody on allegations of cheating and siphoning off investor funds.

This case and some others, where brokers were seen misusing client funds, prompted Sebi to tighten norms for pledging of investor securities last year.

Under the earlier system, several brokers obtained a power of attorney (POA) from their clients to access their account as part of the account opening form. The POA allowed brokers to move client securities from their dematerialised (demat) account to a collateral account, which could be accessed by both the broker and the client.

Sebi has now done away with the system to prevent brokers from having direct access to client securities. The new system allows clients to pledge and re-pledge their holdings using an interface created by the depositories.