NBFC’s Bid to Lift Sebi Restrictions on Frozen Bank Accounts Due to Client Inconvenience Fails
In an attempt to have its bank accounts unfrozen, a non-banking financial company (NBFC) named Econo Trade, which was one of the entities subject to an interim order by the Securities and Exchange Board of India (Sebi), argued that the order had also frozen its client accounts, causing significant inconvenience.
However, Sebi found that only the bank accounts associated with the NBFC itself had been frozen. In a Miscellaneous Order issued on November 7, following Econo Trade’s appeal against Sebi’s interim order before the Securities Appellate Tribunal, Sebi considered various factors, including the consequences of the frozen bank accounts, and determined that it was “inappropriate to modify any of the directions of the Interim Order.”
Sebi had issued the interim order after an investigation into the manipulation of five securities and had identified Econo Trade as closely associated with a person referred to as the “kingpin” of the operation, Hanif Shekh. The interim orders were issued “to insulate the securities market from the mischievous acts of the entities and also to urgently prevent these entities from continuing with their prima facie fraudulent activities while dealing in the securities market.”
The interim order further stated, “Further, there is an urgency to protect the wrongful gains from getting siphoned off beyond the regulatory reach.”
Econo Trade had sought modifications in the directions of the order and argued that it is an RBI-registered NBFC and that the order’s directions had “resulted in freezing of even its client bank accounts in which the clients’ money is held.”
It emphasized that if the interim directions were not lifted immediately, “all the clients of Econo Trade will suffer,” and it would lose its clients and business.
Econo Trade also contended that the directions had led to the closure of its business and had caused significant harm and losses to the NBFC, its 470 clients, and approximately 2,764 public shareholders.
However, Sebi’s investigators found that the bank account details provided for “immediate defreezing” were exclusively linked to the NBFC, as per the Sebi’s latest Miscellaneous Order.
The order stated, “I note from the information provided by the banks, stock exchanges, and depositories that the said bank accounts, demat account, and trading account pertain to the Applicant (Econo Trade). Though the Applicant has contended that the interim directions in the Interim Order have resulted in freezing of even its client bank accounts in which the clients’ money is held, as per the records available before me, I note that the bank accounts mentioned… belong to the Applicant.”
The order also pointed out that Econo Trade has yet to comply with other interim directions, including the impounding of the amount of unlawful gains of Rs 126,00,94,597 generated in five securities, jointly and severally, with other entities subject to the order, and the provision of a full inventory of all its assets to Sebi.
