SEBI Imposes Rs4 Lakh Penalty on Indian Finance Guaranty for Regulatory Violation

Moneylife Digital Team 23 July 2024

Market regulator Securities and Exchange Board of India (SEBI) has imposed a fine of Rs4 lakh on Delhi-based Indian Finance Guaranty Ltd (IFGL) for failing to comply with regulatory standards, including a issue related to its investor grievance system.

In an order, Barnali Mukherjee, adjudicating officer (AO) of SEBI says, "I find that the noticee was under a statutory obligation to abide by and comply with the provisions of the circulars or directions issued by SEBI and stock exchanges, which they failed to do during the inspection period and continue till date. The provisions' very purpose is to deter wrongdoing and promote ethical conduct in the securities market. IFGL being a registered intermediary, is expected to take the statutory compliances seriously and take extra care to maintain a high degree of professionalism in the conduct of their business"

This action follows a detailed inspection of IFGL conducted by SEBI on 19 June 2023.

The inspection by SEBI identified two primary areas of non-compliance. IFGL was found to be engaging in fund-based activities, and multiple deficiencies were noted in its investor grievance redressal system.

IFGL allegedly took Rs7.81 crore in unsecured loans, including Rs4.49 crore from six registered clients. IFGL claims these loans from associate companies are permitted under BSE and NSE circulars. "Rule 8(3)(f) of SCRR restricts non-securities business, but circulars allow loans for working capital from associated entities. It was confirmed that these clients are indeed associates of the IFGL, so the allegation of non-compliance does not hold," it contended.

During the inspection, SEBI found that the email ID used by IFGL for investor grievances was a personal email of the chief executive officer (CEO) and compliance officer, Rajneesh Kumar, which led to significant privacy and transparency issues. This practice violated SEBI's directive that brokers must provide a designated email ID exclusively for investor grievances.

Further, the inspection team was also denied access to this email account, which hindered the examination of complaints and their redressal status. In addition, the company's website lacked critical information, such as the investor charter for stock brokers and updated data on investor complaints. SEBI mandates that stock brokers disclose such data by the 7th of each succeeding month, which IFGL failed to do.

SEBI's inspection of IFGL highlighted significant non-compliance with regulatory provisions, particularly concerning the investor grievance system and the absence of necessary disclosures on the company's website.

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