SEBI Slaps ₹9 Lakh Penalty on Prabhudas Lilladher Pvt Ltd.
• Client Funds Misused During Pandemic
• Settlements Delayed for 1,283 Clients
• Margin Reporting Blunders Exposed
Unmesh Gujarathi
Sprouts News Exclusive
Contact: +91 9322755098
SEBI has fined Prabhudas Lilladher Pvt Ltd ₹9 lakh for serious regulatory lapses, including misuse of client funds, inaccurate reporting, and failure to settle client accounts. A joint inspection by SEBI, NSE, BSE, and MCX uncovered multiple violations. The Sprouts News Investigation Team (SIT) reports the complete breakdown.
SEBI, NSE, BSE, and MCX Joint Inspection Uncovers Multiple Breaches
In a decisive regulatory action, the Securities and Exchange Board of India (SEBI) has imposed a monetary penalty of ₹9 lakh on Prabhudas Lilladher Pvt Ltd for a series of violations revealed during a joint inspection conducted alongside NSE, BSE, and MCX. The inspection exposed misuse of client funds, discrepancies in margin reporting, delayed settlements, and failure to follow mandatory SEBI directives.
The adjudication order, issued by SEBI officer Amar Navlani, cites non-compliance with critical provisions under the Securities Contracts (Regulation) Act, 1956, SEBI (Stock Brokers) Regulations, and circulars issued by SEBI and NSE. Navlani stated that the violations demonstrated serious systemic issues warranting regulatory penalties.
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Misuse of Client Funds: ₹2.70 Crore Involved
The Sprouts News Investigation Team (SIT) found one of the gravest violations was the misuse of client funds. On three occasions in July 2021, Prabhudas Lilladher recorded a negative ‘G’ value—a red flag suggesting the use of client funds for unauthorised purposes—totaling ₹2.70 crore.
The firm blamed the lapse on internal errors during the COVID-19 pandemic, but SEBI invoked Section 23D of the SCR Act, holding the broker accountable. The SIT has reviewed similar past cases where such excuses were rejected, strengthening the regulatory stance taken in this instance.
Inactive Clients Denied Funds, Delayed Settlements Rampant
SEBI flagged another serious lapse: failure to settle ₹36.09 lakh with 1,283 inactive clients and delayed settlement of ₹2.85 crore in 677 instances. Prabhudas Lilladher’s claim of system-generated payouts and internal approval delays lacked supporting documentation.
The settlement violations contravene SEBI’s guidelines issued under its investor protection framework. Such actions not only erode trust but also threaten retail investor confidence—an area the Sprouts News Investigation Team has highlighted as increasingly vulnerable due to rising fintech brokerage volumes.
False Margin Reporting, Short Collections & Unjust Penalties
The joint probe also exposed underreporting of end-of-day margins (₹1.14 crore) and peak margins (₹1.55 crore). In addition, a short collection of ₹55.47 lakh in client margin was identified, and SEBI rejected all explanations as unsubstantiated.
Furthermore, Prabhudas Lilladher wrongly passed on ₹15.64 lakh in penalties for margin shortfalls to 33 clients. Partial refunds were issued but SEBI deemed these measures insufficient and indicative of weak internal compliance controls.
Misreporting, Wrong Transfers & Non-Eligible Securities
Investigators found multiple misreporting instances: client balances were incorrectly reported in three cases, and ledger discrepancies appeared 56 times. The broker acknowledged these but couldn’t provide exemptions or rationale, suggesting systemic reporting failures.
Most notably, securities worth ₹1.30 crore belonging to 91 fully-paid clients were wrongly moved into unpaid securities accounts, an act SEBI found egregious. Prabhudas Lilladher also allowed margin trading in non-eligible securities worth ₹13.68 lakh and misreported margin exposures on 27 occasions.
Though the benefit of doubt was extended on the securities eligibility issue, SEBI upheld the rest of the charges, citing the broker’s own admissions.
Minor Violations Also Add to Regulatory Burden
Even smaller violations added to the regulator’s case. Prabhudas Lilladher collected ₹4,322 in excess brokerage from four clients across 10 trades, only refunding them after SEBI’s intervention. Moreover, two demat accounts remained open despite closure deadlines, and KYC documents in 15 cases were delayed, with 10 attributed to technical glitches—excuses SEBI dismissed as insufficient.
The Sprouts News Investigation Team notes this pattern reflects a casual compliance culture, a growing concern as smaller investors increasingly enter the markets through such brokerages.
Also Read: Starbucks Tightens In‑Office Work Mandate: Four Days a Week or Exit.
SEBI’s Final Verdict: Compliance Failures Warrant Penalty
Citing the breadth, volume, and seriousness of the violations, SEBI concluded that Prabhudas Lilladher Pvt Ltd had failed in its fiduciary and regulatory duties. The ₹9 lakh penalty was imposed not just as a punitive measure, but as a signal to all market intermediaries on the non-negotiable nature of compliance.
As markets expand and investor participation deepens, the findings of the Sprouts News Investigation Team (SIT) emphasize the critical need for robust internal controls, transparent practices, and regulatory adherence to protect investor interest and market integrity.
