SEBI debars BRH Wealth Kreators, BRH Commodities and Others from Markets for up to 7 Years

SEBI debars BRH Wealth Kreators, BRH Commodities and Others from Markets for up to 7 Years

The Securities and Exchange Board of India (in short SEBI) imposed a penalty of Rs. 11.50 crore and restrained BRH Wealth Kreators Ltd., formerly known as BMA Wealth Creators Ltd. (in short BRH) and BRH Commodities Private Ltd., formerly known as BMA Commoditied Pvt Ltd., and others from dealing in the market for a period of five to seven years.

The single member, Ashwani Bhatia (Whole Time Member) of SEBI directed, "Upon consideration of the penalty provisions, I find that Noticees 1- (BRH) and Noticees 2- (BRH Commodities), by failing to segregate securities or funds of its clients and diverting such securities or funds to third parties, has failed in performing its statutory and fiduciary obligations and, therefore, make them liable for imposition of monetary penalty under section 23D of the Securities Contracts (Regulation) Act, 1956 (in short SCRA). Further, the conduct of the noticees fall within the definition of 'fraud' under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (in short PFUTP regulations) and therefore, noticees 1 to 3 ( Noticee 3-Anubhav Bhatter) and 7 to 11 (Prosperous Vyapaar Pvt Ltd, Polo-Setco Tie Up Pvt Ltd, Parton Commercial Pvt Ltd, AB Investments and Bluesnow Supplier Pvt Ltd) are also liable for monetary penalties under Section 15HA of the Securities and Exchange Board of India Act, 1992 (in short SEBI Act)."

In a report a submitted by the National Stock Exchange (in short NSE) email, prima facie violations were observed in an Ex Parte Ad Interim Order passed by SEBI dated 7th October, 2019 against BRH, BRHCPL, Anubhav Bhatter, Shiv Kumar Damani, Murgesh Devashrayi, Prosperous Vyapaar Pvt. Ltd., Polo-Setco Tie Up Pvt. Ltd., and Parton Commercial Pvt. Ltd. The interim order was confirmed by SEBI on 2 January, 2020.

The forensic audit report (in short FAR) by NSE, the market regulator issued a show-cause notice to BRH, BRH Commodities and others. It reported that the pledge information submitted by BRH showed a significant increase in pledge during the quarter ended (in short QE) December 2018. The clients' securities that were pledged, which stood at Rs. 169 crore at the end of QE June 2018, amplified to Rs. 448 crore by the end of December 2018. The debit balance, which was owned by its clients, was only Rs. 156 crore in QE December 2018. This resulted in a mismatch of Rs. 292 crore (Rs. 448 crore–Rs. 156 crore) between the client securities pledged and clients having debit balance indicated that BRH was pledging securities of clients without having any debit balance.

Further, SEBI noted from the FAR that client's securities transferred from clients' Dematerialisation Account (in short DEMAT account) to the DEMAT account of BRH and, following to the account of BRH Commodities for pledging. These clients, whose securities were pledged in this way, were non-clients of commodity segment or traded in the commodity segment during the pledging period, it added.

As per the data received from Central Depository Services Ltd (in short CDSL), SEBI discovered that BRH and BRH Commodities had pledged client securities with six financial institutions (in short FIs), including HDFC Bank, JM Financial, Bajaj Finance Ltd, ICICI Bank, Axis Bank and ICCL, for receiving loan against securities (in short LAS) facility.

The Board noted that as per the examination conducted by FAR, the LAS statements of three out of six banks and non-banking financial companies (in short NBFCs), which had provided loans to BRH and BRH Commodities and Rs. 513 crore was distributed by these three FIs to BRH and BRH Commodities as LAS from 1 April 2016 to 30 September 2019.

SEBI also received complaints alleging that Anubhav Bhatter, director of BRH, had dishonestly taken funds from BRH to related parties.

SEBI in its order asked BRH, BRH Commodities and Noticee 3 to return the securities outstanding to the investors or clients of BRH or their monetary value as of the date of actual payment of money in place of shares, under the supervision of NSE. All three were banned from disposing or alienating any of their assets, including funds in bank accounts or creating any interest or charging on these assets until the refunds were completed.

The Board imposed a penalty of Rs. 5 crore each on BRH and BRH Commodities; Mr Bhatter was fined Rs. 1 crore, and restrained all three from the market for upto seven years while Prosperous Vyapaar, Polo-Setco Tie Up, Parton Commercial, AB Investments and Bluesnow Supplier were asked to pay a fine of Rs. 10 lakh each and barred them from the markets for five years.