SEBI orders attachment of Bank and Demat Accounts in order to recover the penalty amount

Introduction

On February 2, the Securities Exchange Board of India (SEBI), ordered the attachment of bank accounts, mutual funds, and Demat accounts belonging a penalty defaulter to recover the penalty amount for his involvement in a Global Deposit Receipt (GDR), manipulation case. The SEBI imposed a penalty of Rs.50 cr in June 2020. The penalty amount, along with interest and recovery costs, has reached Rs. 50 crore since June 2020. 53.24 million. SEBI also imposed a total fine on the firm of Rs 10.25 Crore and Rs 1 Crore on its chairman, managing director and managing director in connection with the manipulation case.

Further notices from the SEBI also stated that they have ordered the attachment of Demat and bank accounts of two more firms in order to recover a total penalty amounting to Rs1.65 lakh, and Rs5.75 lakh. SEBI also ordered the attachment of bank accounts, demat accounts, and mutual fund holdings of 19 entities. This is in response to certain market regulations being violated. SEBI also requested the attachment of lockers that are in the possession of defaulters.

SEBI also issued guidelines that specifically prohibit debit transactions from being made from accounts. According to the regulator, defaulters may try to avoid paying fines by siphoning money from their Demat accounts into bank accounts. This would delay or block the payment of the fine.

What's the GDR manipulation case?

A GDR manipulation case is the latest news story that has brought out the largest fine collection. Understanding what a Global Deposit Receipt is (GDR) is crucial to understanding this case. GDRs are a type bank certificate that indicates shareholding in foreign companies. The shares are held at a foreign branch or international bank. GDRs are used by private entities to raise foreign currency capital. GDRs can also be traded on open markets by investors.

SEBI discovered that USD 10 million worth of GDRs had been issued by a company in 2010. This was only subscribed to by one entity.

To fulfill this obligation, the entity sought a loan from an international bank. This transaction was secured by the company that was issuing the GDR. They pledged their GDR receipts to the loan as collateral.

Moreover, more than 50% of GDR shares were issued without adequate consideration.

This was done to profit from the GDRs being converted into underlying shares by FII's. These shares were then sold on the Indian securities exchange to make a profit of around Rs 18.20 crore.

This move

2013 saw the passing of an ordinance by the government that allowed the SEBI to act as a regulatory body, and to take action against frauds and illicit pool schemes. The ordinance included several amendments that gave the authority to the Chairman of SEBI, to search and seize documents relevant to an investigation.

SEBI was granted the most important power: it was allowed to attach bank accounts and properties, arrest and detain people for not complying with any monetary penalties. There has been considerable concern about how the money collected will be used and if people who were duped by the accused would be entitled to their money back.

Since long, the regulator has wanted to stop fine-paying entities from getting away with it. According to SEBI data, there were 1,677 defaulter entities with penalties exceeding Rs 189 crore as of March 2018. These penalties are still unpaid.

In an effort to ensure that penalties are recovered before they become too severe, the regulator also has a policy of collecting and imposing fines before final judgments are made. The regulator has noticed that the penaltyd parties can create third-party rights to properties and divert money to other accounts while appeals are pending final judgment. This makes it difficult for the regulator and their staff to track the money and recover it.

Conclusion

The Security Exchange Board of India is adept at dealing with defaulters who have been punished by the board for frauds and regulatory violations. The board has over 189 crores in unpaid dues. It is actively seeking defaulters to address the problem and attaching their assets, such as bank accounts, Demat accounts and mutual fund holdings, to recover their penalties. The delay in collecting the fine can make it difficult to recover the penalty. The SEBI can collect the fine from the accused and act according to the judgments. The regulator has issued several notices in recent years to attach assets of defaulters penalised for fraud and illegal pooling.