SAT Sets Aside SEBI Order Barring IIFL Securities From Onboarding Clients

The Securities Appellate Tribunal on Thursday set aside the Securities and Exchange Board of India's order restraining IIFL Securities Ltd. from taking on new clients for two years.

The tribunal has also reduced the penalty imposed on IIFL Securities, earlier known as India Infoline Ltd., to Rs 20 lakh from Rs 1 crore.

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 to show that there was a misuse of client funds which is patently erroneous, the SAT said.

Any amount deposited in excess, in terms of the order, shall be refunded to the appellant within four weeks from today, the tribunal said.

"Debarring the appellant under the Intermediaries Regulations from taking a new client for a period of two years cannot be sustained," it said.

"Since we have already held that there is no misuse of the client's 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," it said.

As an interim relief to IIFL Securities, in June, the SAT stayed SEBI's order that banned the broking house from onboarding new clients for two years.

The order came after IIFL Securities filed an appeal against the order passed by the Securities and Exchange Board of India.

The marker regulator had alleged that IIFL Securites mixed clients' funds with proprietary funds, utilising funds of the credit balance clients for settlement obligation of the debit balance clients and proprietary trades.

SEBI conducted six inspections on IIFL for the period from April 1, 2011 to Jan. 31, 2017.