The Securities Appellate Tribunal (SAT) has suspended the Securities Exchange Board of India’s (SEBI) order that banned IIFL Securities from onboarding new clients for two years. The SAT will determine the final outcome of the case on August 23. Previously, IIFL Securities had been penalized with Rs 2 crore through two separate adjudication orders for the same allegations. The earlier two orders for monetary penalties by SEBI are awaiting a decision from the SAT.
Nishith Doshi, Head (Legal) at IIFL, stated, The SEBI order restricting the opening of new client accounts has been stayed by the Hon’ble SAT. The tribunal recognized that the same facts had already resulted in monetary penalties in previous appeals that were pending before SAT.
IIFL Securities emphasized SEBI’s own assurance in the order that imposed the restrictions, stating that even SEBI did not find anything wrong if the changes to the law made in 2017 were applied prospectively. IIFL reaffirmed its commitment to serving clients in full compliance with the law.
The SEBI order was based on allegations that IIFL Securities commingled client funds with its own funds during an inspection conducted by the regulator from 2011 to 2014. However, the order was passed based on the Enhanced Supervision Circular 2017, which was applied retrospectively to the 2011-2014 period.
In its appeal to the SAT, IIFL Securities argued that the order referred to a period prior to July 2017 when a new circular, known as the ‘Enhanced Supervision Circular,’ came into effect on September 26, 2017. The appeal claimed that the order was being applied retroactively.
IIFL Securities also argued that the SEBI punishment was disproportionately harsh and unreasonable. The company claimed that the impugned order was executed too hastily and caused significant damage to the appellant. IIFL Securities emphasized that the impugned order should be set aside due to the lack of judicial deference.
Furthermore, SEBI’s own order stated, I find no violation where wrong nomenclature was assigned to ‘clients accounts’ by the noticee (IIFL Securities)… Furthermore, the violations committed by mixing clients’ funds with its own funds were not observed during the March 2017 inspection. Additionally, I find no instance of clients’ funds misuse placed before me that occurred after the implementation of the Enhanced Supervision Circular dated September 16, 2016.
In conclusion, the SAT has suspended SEBI’s order prohibiting IIFL Securities from onboarding new clients for two years. The final decision on the matter will be made on August 23. IIFL Securities has already faced monetary penalties for the allegations, and the company argues that the SEBI order was applied retroactively and disproportionately. The company remains committed to serving clients in compliance with the law.
