SEBI fines Rs. 16 lakh on Keshav Securities Ltd. for misutilising Clients Funds

SEBI fines Rs. 16 lakh on Keshav Securities Ltd. for misutilising Clients Funds

The Securities Exchange Board of India (in short SEBI) levied a fine of Rs. 16 lakh on Noticee- Keshav Securities Ltd.- stock broker for misutilising client's securities and funds. The order was passed after the regulator conducted an inspection of Keshav Securities, a Sebi-registered stock broker from April 2020 to September 2021.

It was alleged that Noticee had contravened various provisions of the securities laws in respect of activities carried out by the Noticee as Stock Broker. In view of the above, adjudication proceedings were initiated under Section 23D of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SCRA") and Section 15HB of Securities Exchange Board of India, Act, 1992 (in short SEBI Act, 1992) against the Noticee for the aforesaid alleged violations of various provisions of the Acts, Regulations and Circulars.

The single Adjudicating Officer (in short AO) Barnali Mukherjee, found that the noticee used the funds of its credit balance clients for settlement obligations of debit balance clients or its own purpose. The misutilised funds by the noticee was amounting to Rs 1.75 crore.

Further, the regulator also identified that noticee had failed and delayed in settling the funds of its clients in accordance with the market norms, according to SEBI, there was a mismatch between securities lying in the Depository Participant (in short DP) and client securities accounts on 12 occasions amounting to Rs. 150 crore.

It was found that the noticee has not submitted the correct details to exchange regarding Monitoring of Client assets to Exchange Enhanced Supervision framework. The Board also observed that the funds of credit balance clients were being used for settlement/margin obligation of Proprietary accounts.

Additionally, the Board after examining the records found that the notice had offered loans to other entities, and had disclosed incorrect value of the loans and claimed that it was unaware that it could give loans to sister concern company- viz. Modispaces Real Estate Pvt Ltd.

The Board opined that a person cannot claim the defence of unawareness of his illegal actions, even if he honestly believed that they were not breaking the law. Thus, the contention of the noticee was not tenable.

The Board placed its reliance on the judgment passed by Hon'ble Supreme Court of India in the matter of SEBI vs. Shri Ram Mutual Fund interalia held "once the violation of statutory regulations is established, imposition of penalty becomes sine qua non of violation and the intention of parties committing such violation becomes totally irrelevant. Once the contravention is established then the penalty is to follow."

In view of the same, the Board was convinced that it was a fit case for imposition of monetary penalty on the Noticee under the provisions of Section 23D of SCRA and 15HB of the Securities Exchange Board of India, Act, 1992 (in short SEBI Act, 1992) while imposing a penalty of Rs. 16 lakh on the notice.