Why SEBI banned new business for stock broker Prabhudas Lilladher
What's the story
The Securities and Exchange Board of India (SEBI) has imposed a seven-day ban on stock broker Prabhudas Lilladher Pvt. Ltd. The restriction, which will come into effect on December 15, 2025, prevents the firm from taking up any new assignment/contract or launching a new scheme. The action comes after SEBI found lapses in key market-risk and investor-protection rules during its inspection of the broker.
Violation details
SEBI identifies multiple violations by Prabhudas Lilladher
SEBI's inquiry order, issued by chief general manager N. Murugan, identified 11 violations based on inspection findings and the broker's own submissions. The regulator acknowledged corrections made after inspection and small monetary values in some cases, but said these breaches were core regulatory obligations that warranted a formal penalty. The probe also revealed instances where the broker's "G-value," a measure of whether available client funds and collateral match total credit balances, was negative on three days in 2021.
Defense dismissed
Broker's defense and SEBI's rejection
The broker defended the negative G-value figures by saying they occurred during the COVID-19 pandemic due to operational disruptions. However, SEBI rejected this explanation, viewing the shortfall as evidence of misappropriation of client funds. The regulator also accused Prabhudas Lilladher of misreporting client exposure on 27 occasions, with levels exceeding actual amounts. These discrepancies were attributed to manual and clerical errors by the broker who claimed there was no intention to misstate numbers.
Regulatory response
SEBI's stance on misreporting and excess brokerage collection
SEBI rejected the broker's defense, saying it does not differentiate between intentional and unintentional misreporting as both pose the same risk to the system. The regulator also noted that no documentation was provided by Prabhudas Lilladher to prove its claim of error. The inquiry further found that the broker collected brokerage beyond the prescribed limit on 10 occasions, amounting to ₹4,322.75 in total. The firm did not dispute these figures but said they were due to mistakenly entering a higher minimum slab per share and had been refunded afterward.
Other breaches
Additional allegations against Prabhudas Lilladher
Other violations include non-compliance with SEBI's 2019 circular regarding the closure of demat accounts labeled as "Stock Broker-Client Account," and passing on penalties for short collection of upfront margins to clients. The brokerage is also accused of failing to submit KYC documents within the stipulated time, and transferring securities worth ₹1.3 crore belonging to 91 clients into the Client Unpaid Securities Account instead of their respective demat accounts.