Market infrastructure institutions, including the National Stock Exchange (NSE), have withheld fund payouts worth ₹78 crore after receiving a police alert regarding breach of risk management protocols and unauthorised trading in a client account. According to reports from Business Standard, the police received the complaint on May 5, following which they directed an immediate halt to settlement of trades executed that day. The incident has affected over 160 brokers and more than 3,000 clients, prompting discussions with relevant authorities including regulators.
The Securities Markets Code (SMC) Bill has been referred to Parliament's Standing Committee on Finance, with discussions underway to include provisions addressing such instances. As reported by Business Standard, NSE issued a notice on May 6 confirming that payouts to certain clients who were counterparties to alleged fraudulent transactions in the equity derivatives segment had been withheld. The exchange stated the payouts were withheld in accordance with standard operating procedures (SOPs). Brokerages are seeking a clear timeline for resolution in such cases and have recommended granting market infrastructure institutions greater powers to independently assess and act on such matters.
Legal experts have raised concerns about proportionality in fund freezing measures. According to Business Standard, Rohit Jain, managing partner at Singhania & Co., highlighted that while freezes may protect complainants and preserve disputed proceeds, they can also penalise innocent counterparties. He emphasised the need for due process safeguards including written reasons, notice to affected parties, maximum freeze periods, and compensation where freezes are found to be wrongful. Sonam Chandwani from KS Legal & Associates cautioned against blanket restrictions, noting that excessive discretion without statutory clarity could invite judicial scrutiny.
Brokerages have recommended specific timeframes for fund release based on case merits, citing instances where crores of rupees have remained stuck for decades in investor grievance matters due to pending police complaints. As reported by Business Standard, MIIs have both the data and market understanding to take more informed decisions in such situations. The regulatory approach is shifting from reactive enforcement to preventive control, though excessive discretion without statutory clarity could invite judicial scrutiny on grounds of arbitrariness and proportionality.
