The Securities and Exchange Board of India (Sebi) on Friday imposed a penalty on Motilal Oswal Financial Services (MOFSL) of Rs 17 lakh for failing to maintain segregation of client’s funds and misuse of client funds, violating its circular dated November 18, 1993.
The Sebi circular of 1993 says: “It shall be compulsory for all member brokers to keep the money of the clients in a separate account and their own money in a separate account. No payment for transactions in which the member broker is taking a position as a principal will be allowed to be made from the client’s account.”
Sebi said that in the showcause notice (SCN) it was alleged that on 11 days out of 20 sample days (approximately 55% of the total selected sample days), the noticee (MOFSL) had ‘misutilised’ the funds of credit balance clients lying with MOFSL and the value of misutilised credit balance clients’ funds ranged from Rs 5.01crore (3% approx) to Rs 102.06 crore (46% approximately) for the sample dates.
“On the basis of above mentioned, inspection alleged that there were instances where MOFSL had indulged into intermingling/misuse of clients’ funds,” Sebi said in its order. The period of inspection was from April 1, 2012 to March 31, 2014.
MOFSL had replied to the SCN dated on October 3, 2019, stating that in the present case, it was not clarified as to how and which part of the 1993 circular was allegedly violated by MOFSL nor the exact instance where MOFSL had withdrawn funds from clients account for purposes other than those permitted was highlighted.
“In our humble submissions, there has not been even a single incidence of client’s complaint against it for denial of limits of fund & securities withdrawal. Had it resorted to use one client’s money for other, then at least on few days, clients with credit balance would have not been allowed to take position as the same would have been already consumed by other clients, as wrongly alleged. The fact is that there has never been any single instance where clients with credit balance have been restricted in using their balance,” said MOFSL in its reply to Sebi which was part of the order.
An official at MOFSL replied to FE, stating: “We state that Sebi’s order dated February 28, 2020 pertains to inspection of books / records of Motilal Oswal Financial Services Limited (MOFSL), for the old period from April 1, 2012 to March 31, 2014. We are in the process of examining the order and would take appropriate action.”
In a separate order, Sebi also slapped a fine of Rs 30 lakh on Nirmal Bang for misutilised client funds ranging from Rs 3.89 crore to Rs 57.21 crore.