The Securities and Exchange Board of India (SEBI) has barred Prabhudas Lilladher Private Limited, a SEBI-registered stock broker, from onboarding new clients for a period of seven days, starting December 15, 2025. This action stems from a joint inspection conducted by SEBI and stock exchanges, which revealed multiple violations of regulatory norms.
The inspection, which took place between November 2 and November 8, 2022, scrutinized the brokerage's operations from April 1, 2021, to October 31, 2022. The regulatory probe uncovered lapses in several key areas, including the handling of client funds, settlement of accounts, and margin reporting.
One of the primary findings was the misuse of client funds. SEBI's order revealed that on three sample dates, Prabhudas Lilladher's computed "G-value" (a metric assessing whether client funds and cash-equivalent collateral adequately cover total client credit balances) was negative, indicating a shortfall totaling ₹2.70 crore. SEBI stated that this shortfall was indicative of the misuse of client funds. In July 2025, SEBI had already fined Prabhudas Lilladher ₹11 lakh for flouting market norms, including the misuse of client funds where the shortfall peaked at ₹1.89 crore.
The regulator also flagged the stock broker for the non-settlement of client accounts within the mandatory quarterly or monthly timelines. Specifically, funds belonging to 1,283 non-traded clients (quarterly) amounting to ₹36 lakh were not settled on time, and there were 677 instances of monthly non-settlement totaling ₹2.85 crore. Additionally, there were three quarterly cases involving traded clients where ₹39 lakhs were not settled in time.
Further violations included the incorrect reporting of End of Day (EOD) and peak margins. The inspection revealed that the broker reported margins to the exchange that were not actually collected, and in one instance, there was a short collection of peak margin.
In its defense, Prabhudas Lilladher argued that the lapses were "technical and procedural, not intentional," attributing several errors to manual or clerical mistakes. The brokerage also highlighted that it had already paid a penalty of ₹11 lakh in separate adjudication proceedings. They further contended that a ban on onboarding new clients would cause "disproportionate and lasting harm" to its reputation and employee morale.
However, SEBI Chief General Manager N. Murugan acknowledged the mitigating factors, such as the small quantum of excess brokerage and the corrective steps taken post-inspection, but asserted that these did not absolve the broker of liability.
The prohibition on onboarding new clients will commence on December 15, 2025, and last for seven days. This action reflects SEBI's commitment to ensuring compliance with regulatory norms and protecting the interests of investors in the securities market.
