Stock market regulator Sebi has said a case involving leading stock broker Rakesh Jhunjhunwala should be brought to the notice of Reserve Bank of India as many non-banking finance companies violated the latter’s lending norms to stock brokers in 2002.

In an order today, Sebi whole-time member TC Nair said Rakesh Jhunjhunwala had obtained funds from several NBFCs against pledge of shares. ‘‘The manner in which the funds were borrowed and the shares transferred to the dematerialized accounts showed that the RKJ group had circumvented the lending limits imposed by the RBI on banks and NBFCs,’’ the Sebi order said in a case relating to the price manipulation of select shares in July 2002.

Sebi, however, did not issue any direction against Jhunjhunwala in the case.

The RKJ group had borrowed funds from several non-banking finance companies such as IL&FS, Cholamandalam Investment & Finance Ltd, Citicorp Finance (India), Birla Global Finance Ltd and Kotak Mahindra Finance Ltd and invested in its dealings in the securities market.

In his reply, Jhunjhunwala said there was no prohibition on RKJ from borrowing and it cannot be said that there was any attempt to defraud anybody.

The matter came to light when Sebi conducted a preliminary investigation into volatility in the securities market during the period July to August, 2002 and it observed that Jhunjhunwala had traded through a number of brokers across stock exchanges and taken concentrated positions in certain scrips. Trading of these brokers was concentrated in the scrips in which the RKJ group had substantial exposure.

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