SAT Stays SEBI’s Seven-Day Business Ban on Prabhudas Lilladher

The Securities Appellate Tribunal (SAT) has put on hold a SEBI order that barred Prabhudas Lilladher from taking on new business for seven days over alleged regulatory violations. In its December 9, 2025, order, the tribunal stated: “Having regard to the fact that debarment is for seven days, which can be imposed later if the appeal is dismissed, we direct that the order shall remain stayed.”

SAT has granted SEBI 6 weeks to file its response to the brokerage’s appeal. Prabhudas Lilladher may file a rejoinder within three weeks thereafter. The next hearing in the matter is scheduled for March 23, 2026.

Brokerage Challenges SEBI’s Action

Prabhudas Lilladher approached SAT after SEBI imposed a 1-week ban on adding new business, citing failures in key market-risk and investor-protection norms.

The firm argued that in recent cases involving technical violations, SEBI had typically levied monetary penalties rather than restricting business activities. It also highlighted that this was the first such violation in its more than 80-year history, adding that SEBI’s inspections are meant to be remedial, not punitive.

SEBI Found 11 Regulatory Violations

SEBI’s November enquiry order had pointed to 11 rule breaches based on inspections conducted between April 2021 and October 2022. Key findings included:

Shortfall in Client Funds and Collateral

On three occasions in 2021, the broker’s G-value, a measure of whether client funds and collateral are adequately maintained, turned negative, showing a shortfall of ₹2.7 crore.

Misreporting Client Exposures

The broker allegedly misreported client exposures 27 times, inflating figures used by exchanges to monitor leverage and margin adequacy. SEBI rejected the firm’s defence of “clerical errors,” saying intentional or inadvertent misreporting carries similar risks and lacked supporting documentation.

Also Read: SEBI Widens Strategic Investor Definition for REITs and InvITs

Overcharging Brokerage Fees

The inspection revealed 10 instances of overcharging clients, amounting to ₹4,322.75. While Prabhudas Lilladher said incorrect system settings caused the problem and refunds had been issued, SEBI held that refunds after detection do not nullify a violation.

Non-Compliance with Account and Margin Rules

Other lapses included:

• Failure to close “stock broker–client” demat accounts as mandated by a 2019 SEBI circular.
• Passing on margin-shortfall penalties to clients.
• Delayed submission of KYC documents.
• Incorrectly moving securities worth ₹1.3 crore belonging to 91 clients into the client's unpaid securities account.

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