SEBI Order in respect of Aditya Birla Money Limited pertaining to investigation of sale of shares using accounts opened using forged documents

JSA advised and successfully defended Aditya Birla Money Limited (“ABML”) in proceedings initiated by the Securities and Exchange Board of India (“SEBI”) under the SEBI (Intermediaries) Regulations, 2008 in an investigation pertaining to dematerialization and sale of shares through demat accounts opened using forged documents. By its order dated July 18, 2023, SEBI has exonerated ABML of all charges.

SEBI conducted an investigation pursuant to allegations of dematerialization and sale of shares of dormant accounts using forged documents by certain entities. Consequently, SEBI initiated proceedings against ABML under SEBI (Intermediaries) Regulations, 2008 and issued a Show Cause Notice (“SCN”) alleging that ABML failed 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. It was alleged that ABML had failed to report its client’s transactions which were not commensurate with his annual income, as declared in the Know Your Customer (“KYC”) form, as “suspicious transactions” to the Financial Intelligence Unit (“FIU”), as required by SEBI Circulars and Prevention of Money-laundering Act, 2002 (“PMLA”) and rules made thereunder. Accordingly, it was recommended by SEBI that ABML’s registration as a stockbroker be suspended for a period of three months.

While defending the charge, it was submitted on behalf of ABML, inter alia, that there were no contemporaneous circumstances which could have raised suspicion in a reasonable person’s mind that Javlekar’s transactions in shares were “suspicious transactions”. It was further submitted that there was no material available on record to indicate that the client’s transactions involved proceeds of crime/ were made in circumstances of unusual or unjustified complexity/ had no economic rationale or bonafide purpose.

SEBI, vide its order dated July 18, 2023, has accepted the submissions made on behalf of ABML and concluded that in the facts and circumstances of the matter, it would not have been possible for ABML to suspect that its client’s transactions were unusual or unjustified or involved proceeds of crime or were not bona fide in nature, requiring ABML to report the same. Accordingly, SEBI has disposed of the proceedings against ABML without any adverse observations/directions.

Our Securities Laws Team Partners – Vikram Raghani, Pulkit Sukhramani, Senior Associate – Vidhi Jhawar and Associate – Deepank Anand.