Mumbai: The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs 1 crore on HDFC Bank for invocation of client securities pledged by stock broking firm BRH Wealth Kreators in violation of an interim order by the regulator.
A SEBI probe found that the lender had unilaterally invoked securities pledged by BRH to the extent of Rs 158.68 crore and the capital market regulator has thereby directed the bank to deposit an equivalent amount, along with interest from October 14, 2019 till date at the rate of 7 per cent per annum, in a separate interest bearing escrow account, till the issue of settlement of clients’ securities is reconciled.
The regulator had issued an interim order cum show cause notice against BRH Wealth Kreators Ltd (formerly BMA Wealth Creators Ltd) and certain other entities on October 7, 2019 restraining the noticees from accessing the securities market and buying or selling in securities, either directly or indirectly.
The interim order had directed the noticees not to dispose of or alienate any assets, whether movable or immovable, or to create or invoke or release any interest or charge in any of such assets except with the prior permission of National Stock Exchange of India Ltd (NSE) and the BSE.
BRH, along with the other noticees, were also directed to provide a full inventory of all their assets, whether movable or immovable, or any interest or investment or charge in any of such assets, including details of all their bank accounts, demat accounts and mutual fund investments immediately to NSE and BSE but not later than five working days from the date of receipt of the order.
HDFC Bank had granted credit facilities to BRH (Rs 191.16 crore) and BRH Commodities (Rs 26.61 crore) as loan against securities (LAS) out of which an amount of Rs 87.75 crore was granted as LAS.
On October 14, 2019, HDFC Bank allegedly had invoked securities pledged by BRH to the extent of Rs 158.68 crore. The aforementioned invocation of pledge of client securities available in the aforementioned two demat accounts of BRH, by HDFC Bank, was allegedly not in conformity with the directions contained in the interim order.
“Having regard to the facts and circumstances in the instant proceedings, including the fact that the noticee (HDFC Bank) had consciously proceeded to defeat the directions in the Interim Order, I am of the considered view that in terms of Section 15HB of the SEBI Act, a penalty of Rs 1 crore be imposed on the Noticee for non-compliance with the Interim Order,” said the SEBI order.
The intent of the interim order was to protect the interest of the investors or clients of BRH through an immediate freeze of the “assets of the noticees”, and also for ensuring that BRH ceases and desists from undertaking any activity in the securities market.
It added that the interim order was not an ultimate determination of the rights of recovery of the noticee but rather intended to ensure a freeze on the assets of BRH until completion of the investigation or forensic audit and that the investors’ interests are not compromised in any manner whatsoever.
“The noticee (HDFC Bank) cannot now contend that the directions contained in the interim order, including restraining BRH from disposing of its assets for any purpose other than payment of client funds and securities, were not binding on it,” it said.