Deposits on pre-determined RoR: LHC upholds SECP bench’s order against stock broker

ISLAMABAD: The Lahore High Court (LHC) has upheld an order of the Appellate Bench of Securities and Exchange Commission of Pakistan (SECP) against a stock market broker, who sought deposits from its customers on pre-determined rate of return.

In this regard, the LHC has issued an order in favour of the SECP Appellate Bench and dismissed appeal filed by the brokerage house.

This appeal was filed by the brokerage house under section 34 of the Securities and Exchange Commission of Pakistan Act, 1997 (the Act) to call into question order dated 08.05.2020 passed by the Appellate Bench of Securities and Exchange Commission of Pakistan (the Commission).

The facts of the case in brief are that the appellant is brokerage house under a license issued by the Commission. A show cause notice was issued to the appellant under section 150 of the Securities Act, 2015 on the allegation that the appellant had received Rs96.995 million from 19 individuals under loan agreements on a pre-determined rate of return. The appellant filed reply to the show cause notice in which the allegations of violating the relevant law and rules were denied.

The Commissioner SECP passed the orders against the appellant holding that it had violated clause 60(2)(k) of the Securities Brokers (Licensing and Operations) Regulations, 2016 (the Regulations).

A penalty of Rs1,000,000 was imposed and license of the broker was suspended till such time repayment of deposit is made and compliance is shown to circular No.20 of the 2016.

Feeling aggrieved, the appellant tiled an appeal under Section 33 of the Act before the Appellate Bench which was dismissed through the impugned order.

The LHC stated that the fact that the appellant sought deposits from its customers on pre-determined rate of return is not in dispute. It is also an admitted fact that the license of brokerage granted to the appellant did not allow it to indulge in receiving such deposits from its customers. The appellant, however, submits that the transactions entered into by it pre-date the promulgation of the Regulations and as such it could not be penalised for violation thereof. It is furthermore submitted that the amounts received by the appellant from its customers have since been repaid.

The activities which the appellant could lawfully pursue were mentioned in the certificate of registration as broker. Section 64(2) of the Securities Act, 2015 clearly stipulates that the license shall specify the regulated activities that a broker is committed to undertake. It is not in dispute that the appellant accepted deposits from its customers on pre-determined rate of return which activity was not mentioned in the brokerage certificate issued to it. The appellant thus violated the terms of its brokerage certificate and was in violation of section 64(2) and 65(2) of Securities Act, 2015.

The admitted fact of the matter is that the appellant was in violation of the terms of its brokerage license and thus the impugned order was lawfully passed against it.

In the circumstances, the LHC is not inclined to interfere in the order passed by the SECP Appellate Bench. This appeal having no merit is accordingly dismissed, the LHC order added.

Copyright Business Recorder, 2025