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The Securities Appellate Tribunal (SAT) has set aside the Securities Exchange Board of India (SEBI)’s order restraining IIFL Securities from taking new clients for a period of two years, and has reduced the penalty imposed on the brokerage firm to Rs 20 lakh from Rs 2 crore.

SAT in an order issued on December 7 said "there has been no misuse of client funds and by wrongly considering the non-funded portion of the bank guarantee as per the 2016 circular, an attempt has been made out to show that there was a misuse of client funds which, in our opinion, is patently erroneous".

The SAT also said: "On account of the aforesaid, the direction of the WTM debarring the appellant under the Intermediaries Regulations from taking new client for a period of two years cannot be sustained."

The tribunal in its order also reduced the penalty imposed on the brokerage from Rs 1 crore to Rs 20 lakh. On the penalty of Rs 1 crore imposed on the brokerage under Section 23D of the Securities Contracts (Regulation) Act (SCRA), the SAT order stated: "Since we have already held that there is no misuse of the clients' funds and since there is no failure on the part of the appellant to segregate monies of the client nor monies of the client have been misused by the appellant for its own purposes, no penalty under Section 23D of the SCRA could be imposed."