“There has been no misuse of client funds and by wrongly considering the non-funded portion of the bank guarantee as per the 2016 circular, an attempt has been made out to show that there was a misuse of client funds which, in our opinion, is patently erroneous,” SAT said in their order.
“On account of the aforesaid, the direction of the WTM debarring the appellant under the Intermediaries Regulations from taking new client for a period of two years cannot be sustained,” the SAT order read.
Reducing the penalty imposed on the brokerage firm from ₹1 crore to ₹20 lakh, the tribunal said “Since we have already held that there is no misuse of the clients’ funds and since there is no failure on the part of the appellant to segregate monies of the client nor monies of the client have been misused by the appellant for its own purposes, no penalty under Section 23D of the SCRA could be imposed.”
However, the tribunal noted that the firm failed to change the nomenclature of the bank accounts of the client as required to be done under the 1993 circular. Considering the lapses only a “technical breach”, SAT said a penalty of ₹20 lakh in total would be sufficient.
In June, Sebi prohibited IIFL Securities—earlier known as India Infoline Ltd.—from taking up new clients for two years for alleged mis-utilisation of client funds.
The capital markets regulator stated that IIFL failed to segregate its funds from clients’ funds, and misused the funds of its credit balance clients for settlement of its proprietary trades as well as the trades of its debit balance clients from April 2011 to June 2014. The violations were again noticed during March 2017 inspection for the period of FY2015-16 and 2016-17, the market regulator added.
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Published: 07 Dec 2023, 11:58 PM IST