SEBI dismisses charges of broker-regulation violations against Aditya Birla Money

The brokerage had submitted that the impugned shares were received by the client through off-market transactions.

The market regulator dismissed allegations of violations of broker regulations against Aditya Birla Money, in an order issued on July 18.

Between September 2009 and March 2013, the Securities and Exchange Board of India (SEBI) officials investigated reports of certain entities dematerialising and selling shares in dormant accounts using forged documents.

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In this regard, the brokerage was accused of failing to exercise due skill, care, diligence, professionalism and efficiency in the conduct of its business, in relation to the dealings of one of its clients, Abhay Dattatray. The investigation suggested that the brokerage had not effectively verified the email ID and mobile number of the client; and that it had not reported the dealings of the client, which were not commensurate with his income, to the Financial Intelligence Unit (FIU).

Considering these, it was alleged that the brokerage had violated the provisions of Clause A(2) of Code of Conduct as specified in Schedule II read with regulation 9(f) of the Securities and Exchange Board of India (Stock-Brokers) Regulations, 1992.

Following this, SEBI appointed a Designated Authority (DA) to enquire into these allegations. After an enquiry, the DA found the first charge of not verifying client details as not established, but the DA found some merit in the second charge of not reporting of suspicious transactions.

According to the DA, going by SEBI circulars on prevention of money laundering, the brokerage was obligated to report certain transactions of the client to the FIU, “which it failed to do”.

Therefore, the DA had recommended that the brokerage’s Certificate of Registration be suspended for three months.

A show-cause notice was issued to the brokerage and the brokerage made its submissions.

The final SEBI order has come after considering these. The brokerage had submitted that the shares under investigation were received by the client through off-market transactions. Therefore, the SEBI order noted, “the noticee, as a broker, could not have been involved in the credit of such shares” to the account of the client.

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On the two sell transactions done by the client, “since the shares received through the aforesaid off market transactions were sold by Mr. Abhay, a correlation between the said sell transactions and annual income cannot be reasonably established in absence of other surrounding/ supporting factors”.

As the SEBI order noted, the client could have received the shares as a gift or otherwise.

“Since the receipt of these shares did not involve the noticee, the noticee could not have formed any opinion with respect to the legality/ genuineness of the said shares and similarly, for the sell transactions, the noticee had no reason to suspect the source of such shares because the client already had the shares in his demat account,” the order added.

Taking all of this into account, the SEBI order stated that the transactions under investigation could not have been labelled as ‘suspicious’ in nature.