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SEBI Orders Bank and Demat Account Attachments to Recover Penalty Amounts

With a strategy in mind, the Securities and Exchange Board of India, or SEBI, has issued an order stating that defaulters’ bank accounts and demat accounts be attached as a result of non-payment of penalties. This order goes for the said defaulter’s mutual fund account as well. To compel defaulters to clear penalties for their involvement with a Global Deposit Receipt (GDR) case of manipulation, their accounts are being attached. Penalties in this case amount to the tune of Rs. 50 crores.

What has SEBI enforced?

Along with the imposed attachment of firms involved in this case, SEBI has formulated guidelines to stop any kind of transactions from the accounts mentioned in its order. With an online demat account, SEBI has anticipated that defaulters may siphon funds from there. This would permit the defaulter in question, to place money in bank accounts from demat accounts, thus, causing a delay in fine payments.

What is GDR case?

One of the most relevant cases in which some of the highest penalties are to be collected is the case of the manipulation of the GDR. To comprehend what this is all about, you should first know what is Global Depository Receipt or GDR. A GDR is a kind of a certificate from a bank denoting the holding of shares in a company that is foreign. The said shares are held in a branch of an international foreign bank. Entities that are private depend on GDRs to raise wealth in currency that is foreign. There are also options to trade GDRs in markets of an open nature.

An investigation was conducted by SEBI in 2010, wherein it was discovered that a firm had issued GDRs to the amount of 10 million USD. This was subscribed solely by just one entity. The story goes that the said entity acquired a loan from a leading global bank in order to fulfill obligations. The collateral for this particular transaction was made available by the firm that was issuing the GDR. This collateral was a pledge of the GDR receipts as security for the loan. Additionally, above 50% of the shares of the GDR issued were done so without any consideration. So that there would be a substantial profit off this, the estimate of FIIs to get the GDRs changed into shares and sold on the Indian stock market was close to a profit of Rs. 18.20 crores.

The Move by SEBI

In this particular case, you may well think how far individuals may go with a free demat account. Moreover, it's important to note how SEBI was able to take prompt action. Let’s shed some light on this. The Indian government, in 2013, gave SEBI the authority to act as a stringent regulatory entity. The authorization gave SEBI’s Chairman the sanction to search and seize documentation related to the ongoing investigation. Now, SEBI is proficient at checking on defaulters with a vigilant eye, especially on individuals involved in demat account opening, and the opening of bank accounts attached to demat accounts.

SEBI to the Rescue

With above an amount of Rs. 189 crores of dues as penalties, SEBI is strictly following up on all defaulters with gusto. When you open a demat account and begin your trading journey, especially with a reputed broker like Motilal Oswal, you should be careful not to default on payments in case you are ever fined.