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Sebi imposes Rs 1 crore fine on HDFC Bank in BRH Wealth Kreators case

Invocation of the pledge of client securities in the two Demat accounts of BRH by the HDFC Bank is not in conformity with Sebi directions

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Economy Business Sebi imposes Rs 1 crore fine on HDFC Bank in BRH Wealth...

Market regulator Securities and Exchange Board of India (Sebi) has imposed a penalty of Rs 1 crore on HDFC Bank for invoking securities that BRH Wealth Kreators had pledged, violating the regulator’s interim directions. The private sector bank has been directed to transfer Rs 158.68 crore along with 7% interest per annum into an escrow account till the issue of settlement of clients’ securities is reconciled.

“I find the invocation of the pledge of client securities available in the two Demat accounts of BRH by the noticee (sic) was not in conformity with the directions contained in the interim order,” Sebi Whole Time Member G Mahalingam said in the order on 21 January.

The Sebi has asked HDFC Bank to keep the Reserve Bank of India informed about the order within a week.

The order stems from non-conformity by HDFC Bank with the directions contained in the interim order issued by Sebi against BRH Wealth Kreators and other entities on 7 October 2019.

Through the interim order, Sebi had directed BRH to cease and desist from undertaking any activity in the securities market.

Further, its assets will be utilised only for the purpose of payment of money and/or delivery of securities to clients or investors under the supervision of concerned exchanges or depositories.

As such, the expression assets’ was extended to all properties of BRH including securities that were pledged by it against which funds were raised from HDFC Bank and other financial institutions, said Sebi.

The depositories and banks were directed not to make debits from the demat as well as bank accounts of BRH.

On 14 October 2019 Sebi found that HDFC Bank invoked the pledge of securities to the extent of Rs 158.68 crore and sold most of them to appropriate sale proceeds towards outstanding.

The private sector lender had granted credit facilities to BRH and BRH Commodities aggregating to Rs 191.16 crore and Rs 26.61 crore respectively.

Sebi said the interim order was not an ultimate determination of the rights of recovery of the bank but rather intended to ensure a freeze on the assets of BRH until completion of investigation or forensic audit and investors’ interests are not compromised in any manner. 

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