The Securities and Exchange Board of India (Sebi) has prohibited stock broker Prabhudas Lilladher Pvt. Ltd from taking on any new assignment, contract, or launching a new scheme for seven days after it found lapses in key market-risk and investor-protection rules.
The prohibition on new business will take effect on 15 December 2025.
Sebi established 11 violations based on inspection findings and the broker’s own submissions to the markets regulator in its enquiry order, issued on Friday, by chief general manager N. Murugan.
Although the regulator took note of corrections made after inspection, as well as small monetary values in some instances and penalties already paid in related proceedings, it held that the breaches involved essential regulatory duties and therefore required a formal sanction.
The violations
The Sebi inspection found that on three separate days in 2021, the broker’s “G-value”, which reflects whether available client funds and collateral match the clients’ total credit balances, was negative. The combined shortfall was ₹2.7 crore. This means that on those three days, the broker did not have sufficient client funds and collateral to cover its outstanding obligations to its clients.
Prabhudas Lilladher did not dispute the negative figures but argued that the discrepancies occurred in the covid-19 period due to operational disruptions. The market regulator rejected the explanation and saw the shortfall as proof of misutilization of client funds.
Sebi also alleged that the broker had, on 27 occasions, misreported client exposure, which was higher than the actual levels. Brokers must submit client exposures accurately after adjusting for the collateral collected from each client. These figures feed directly into the exchange’s monitoring of leverage and margin adequacy.
The broker blamed these discrepancies on manual and clerical mistakes and argued that there was no intention to misstate numbers. It also said no client had complained and that it had strengthened systems following the inspection.
Sebi rejected the explanation on the grounds that it does not distinguish between intentional and inadvertent misreporting because the risk to the system is the same in both cases. It also pointed out that the broker produced no documentation to support its claim of error.
The enquiry also established that the broker collected brokerage in excess of the prescribed ceiling on ten occasions, totalling ₹4,322.75. The inspection data showed, trade by trade, the permitted brokerage and the amounts actually charged. The firm did not dispute these figures.
It said the excess stemmed from wrongly entering a minimum slab of 50 paise instead of 25 paise per share and that the additional amounts had been refunded. Sebi said the responsibility for correct configuration rests entirely with the broker and that a refund made only after detection does not undo the breach.
Among other breaches were not complying with Sebi’s 2019 circular for the closure of demat accounts labelled as “Stock Broker-Client Account”, and passing on penalties for short collection of upfront margins to clients.
The brokerage is also accused of not submitting know-your-customer (KYC) documents within the prescribed time period and moving securities worth ₹1.3 crore belonging to 91 clients into the Client Unpaid Securities Account instead of the clients’ demat accounts.
A Client Unpaid Securities Account is an account where a broker is allowed to temporarily hold a client’s securities only when the client has not yet paid or has partially paid for those securities.
The establishment of these allegations was based on a joint inspection by the regulator, the National Stock Exchange, BSE, and the Multi-Commodity Exchange of India, conducted from 2 November 2022 to 8 November 2022, covering the inspection period from 1 April 2021 to 31 October 2022.
Mint‘s emailed queries to the stock broker, but didn’t get an immediate response.
