Action Financial Services Closes Trading Business Leaving Investor-clients in Lurch
Close on the heels of several brokerages shutting shops, Mumbai-based Action Financial Services (India) Ltd (AFSL), a listed company, has also closed its business as stock trading member. While AFSL has disabled its terminals from 18 September 2020, several of its clients are clueless about this decision and are raising complaints on social media about their money being stuck with the brokerage. Further, on 1st October, CRISIL downgraded its ratings on AFSL citing non-cooperation from the broker and on reports about default in paying towards invoked bank guarantee facility. 
 
In a release, the ratings agency says, "CRISIL has downgraded its rating on the Rs10 crore bank facility of AFSL to 'CRISIL D issuer not cooperating' from 'CRISIL A4 Issuer Not Cooperating' based on feedback received from the banker. As per the banker, AFSL's bank guarantee facility was invoked, and part of the invoked amount has remained unpaid for more than 30 days.
 
"CRISIL understands that this bank guarantee facility was backed by 50% fixed deposits, and the bank has accounted for recovery to that extent. However, AFSL has not yet cleared the remaining amount as on date, as confirmed by the banker. The account has also been classified under the 'Special Mention Account' category. The downgrade is in line with CRISIL's approach to recognising default."
 
 
 (Source: CRISIL)
 
Last month, in a regulatory filing, Action Financial Services says, "...we are a trading member registered in capital market, equity derivatives, currency derivatives segment of the NSE and capital market segment of the BSE. We have voluntarily requested the membership departments of the BSE and NSE on 18 September 2020 to disable our trading terminals in all segments from closing of trading hours on Friday, 18 September 2020."
 
A few days later, the company decided to dispose-off its depository business. A resolution passed in its board meeting says, "...having received the approval of the audit committee, the consent of the board be and is hereby accorded to sell or dispose-off the depository business of the company, taking into consideration the estimated investment being less than 20% of net-worth as per the audited balance sheet as on 31 March 2019 and estimated income being less than 20% of total income during the previous financial year, as continuing with the said business may be detrimental/ disadvantageous to the interest of the company and its stakeholders."
 
Several investors are finding it difficult to access their account details and are not being given pool account shares and money despite contacting top management, including Milan Parekh, who is chairman and managing director (MD) of the brokerage. According to investors of AFSL from Bokaro, “The broker first said seven days, then 15 days and now two months (for refunding our money) ... All our hard-earned money and savings are stuck with this fraud Broker. Everytime the owner is giving different excuse and reasons.”
 
 
 
 
AFSL has also witnessed exit of independent directors. Earlier this month, Harbhajan Singh Dhillon and Bindiya Joshi, both independent directors, resigned from AFSL. While Mr Dhillon cited prolonged illness, Ms Joshi clearly stated that she resigned due to "personal reasons as well as owing to the decision of the company to voluntary close the membership registration with the BSE and NSE."
 
Earlier on 25 August 2020, its joint managing director (JtMD) and chief financial officer (CFO) Bakul Parekh resigned. Bakul Parekh is one of the promoters of AFSL along with his brother Milan Parekh. This explains why despite resigning as JtMD and CFO, Bakul Parekh remains as non-executive, non-independent director of AFSL.
 
While there was so much action happening in AFSL, market regulator SEBI (Securities and Exchange Board of India) was either too slow to act or not bothered at all. An order passed in August 2019 by Santosh Shukla, adjudicating officer (AO) at SEBI, highlights the delay in proceeding against the brokerage. 
 
"...the misappropriation of the Company’s fund is a heinous act, and thus, same need to be dealt sternly and suitably penalised. However, while so holding I am also mindful of the fact that the instant proceedings have been initiated in 2019 much after the preferential allotment in questions i.e. 4 December 2012... While no direction to refund such monies to the company or cancellation of shares allotted in the impugned preferential allotment are possible in the instant proceedings, the leniency to exonerate the violators merely on account of delay in initiation of these proceedings be against the very objective of penal provisions under section 15HA of the SEBI Act. Although such delay and quantity / value of shares could be considered as a mitigating factor while adjudging the quantum of penalty," the AO had said in his order. 
 
Mr Shukla then had imposed a penalty of Rs5 lakh each on Bakul Parekh, Milan Parekh, AFSL, Yoshita Gupta, Girish Vyas, Raja Gupta and Kamalkant Laxmilal Jain under Section 15 HA of the SEBI Act.
 
Set up in 1992, AFSL is in the retail broking business and has membership of the NSE, BSE and National Securities Depository Ltd (NSDL). 
 
AFSL has two subsidiaries, Action Securities Ltd and Action Commodities Ltd, which are yet to start full-fledged operations. AFSL has not yet declared its financial results for the year ended in March 2020.
 
We sent emails to SEBI and AFSL about the issues being faced by investor-clients. Till writing this story, we have not received any reply from them. We will update this article as and when we receive any reply from SEBI and AFSL.
 
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    Modex Securities: BSE Asks Investors with Outstanding Claims To File Their Claims
    Investors of Modex International, a brokerage firm, which has apparently duped investors of around Rs100 crore can finally hope to get some money from stock exchange investor protection funds.  Although the largest default was on the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), which also had some client losses due to the default, has issued a public notice calling for investors with outstanding claims against Delhi-based Modex International Securities to file their claims.
     
    NSE declared Modex a defaulter last month and the formalities of compensating investors from the investor protection fund have begun after that. 
     
    The public notice says “Investors having any outstanding claims against Modex International Securities Ltd are advised to file their claims with BSE within 90 days from the date of issue of the notice i.e by 17 December 2020.”
     
    The eligible claims filed during the specified period would be considered for compensation from the IPF as per the SEBI (Securities and Exchange Board of India) provisions to the maximum extent of Rs15 lakh per client.
     
    As per this notice, investors can file their claim against Modex International at the concerned regional investor centre of BSE Ltd (list available at this link https://www.bseindia.com/static/investors/cac_tm.aspx )
     
    The notice adds that investors can alternatively lodge their claims through the BSE website under the Complaint Registration link given here :
     
    Investors have been advised to go through the documentation required for filing their claims against the defaulter by going through the detailed checklist here
     
    Investors have also been advised to go through the norms for the eligibility of claims for compensation fro IPF to the clients of the defaulter at the following link: https://www.bseindia.com/downloads1/Normseligibilityclaimsdefaultermember.pdf
     
    Investors filing their claims after the specified period would be required to provide reasons for delay in filing their claims and will need to satisfy the IPF that the claims could not be filed during the specified period for reasons beyond the claimant’s control. 
     
    In May 2020, Moneylife had written about the misappropriation of about 100 crores of client money in Modex International. Last month, National Stock Exchange (NSE) had expelled Modex International Securities Ltd from its membership.  This happened after market regulator SEBI refused to lift the ban imposed on Modex International Securities and its two directors for misusing clients' funds and securities.
     
    BSE has also posted another notice, which says that trading in Modex International Securities will be suspended with effect from 21 October 2020 on account of non-compliance with Regulation 33 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for two consecutive quarters i.e. December 2019 and March 2020. 
     
    The notice adds that this includes “freezing of the entire shareholding of the promoter and promoter group in the noncompliant listed entity as well as all other securities held in the demat account(s) of the promoter and promoter group w.e.f September 29, 2020 till further notice.”
     
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    COMMENTS

    mr.singhvi

    2 weeks ago

    when will NSE will take action against, KARVY , who have also, duped investor, as defaultor, and put up the notice against them as above, so that investor like us can file claim against KARVY.

    Bombay High Court: Investors Plead for Multi-Agency Special Investigation Team Probe into Rs1,300 Crore Anugraha Scam
    In a petition before the Bombay High Court, hundreds of investors of Anugrah Stock & Broking Ltd have come together to demand the setting up of a multi-agency special investigation team so that the assets are consolidated and auctioned efficiently. The petition has made the National Stock Exchange (NSE), the NSE Clearing Corporation and Edelweiss Custodial Services as respondents. 
     
    The petitions (CRI WPST/2876/2020 and CRI WPST/2878/2020) were listed before Justice SS Shinde and Justice MS Karnik on 13 October 2020. The high-profile case had advocate Yusuf Iqbal Yusuf representing several hundred investors who have come together to try and recover their money. The amount involved and believed to be lost exceeds Rs1,300 crore. Moneylife has covered the details of this case extensively. Our articles can be read here:  https://www.moneylife.in/tags/anugrah.html
     
    Following a detailed hearing, the Bombay High Court, while hearing the Anugrah Stock & Broking Pvt Ltd fraud case, has asked the public prosecutor to submit status report on investigation being carried out by economic offences wing (EOW) of Mumbai police and the enforcement directorate (ED).
     
    During the hearing, senior counsel Amit Desai, representing NSE, contended that there was no need to implead NSE in this matter. However Adv Yusuf submitted that NSE had the investor protection fund (IPF) which cover losses for investors up to Rs25 lakh per investor and urged the Exchange to be asked to release this amount immediately so that relief can be provided to the small investors. 
     
    Appearing for Edelweiss Custodial Services Ltd, counsel Sameer Pandit claimed that Edelweiss Custodial Services was not a party to the fraud, had no contractual relations with investors of Anugrah and, therefore, investors should opt for arbitration. 
     
    Similar objection was raised by senior counsel Venkatesh Dhond, representing NSE Clearing Ltd. 
     
    However, advocate Yusuf pointed to a circular, issued by SEBI (Securities and Exchange Board of India), which explains the role of the depository and clearing member in ensuring that individual securities are not sold for meeting other obligations.
     
    After the hearing, the bench posted the matter for 19th October, while asking the PP (public prosecutor) to submit status report of EOW and ED investigations.
     
    The bulk of investors in Anugrah have come through an associate firm, called Teji Mandi Analytics, which was apparently running a derivatives portfolio of over Rs1,000 crore like a Ponzi scheme with assured monthly returns. 
     
    On 4th September, the National Stock Exchange (NSE) had withdrawn all trading rights of crisis-hit Anugrah Stock and Broking Pvt Ltd. Earlier on 1st September, the stock exchange had withdrawn Anugrah's trading rights in future & options (F&O), currency derivatives and commodity derivatives segment.
     
    In a circular, NSE says, "On account of the regulatory concerns observed, the relevant authority of Exchange has decided to withdraw the trading rights of the member in all segments of the Exchange with immediate effect. Accordingly, in addition to the aforementioned segments, Anugrah Stock & Broking Pvt Ltd shall also be disabled in all other segments of the Exchange from 4 September 2020 before market hours."
     
    Anugrah Stock and Broking, which won a reprieve from Securities Appellate Tribunal (SAT) on 17th August, was unable to deposit Rs165 crore with the NSE by 1st September. The Exchange then had withdrawn its trading rights and also seized its computers and books, the brokerage firm has told investors thronging to its office. 
     
    Last month, the EOW of Mumbai police has registered a case of cheating against the troubled stock-broking house, Anugrah Stock & Broking Pvt Ltd, for duping an investor of Rs8 crore. As Moneylife has reported in the past, the extent of investor losses in Anugrah could be as high as Rs1,000 crore and investigators have confirmed that more complaints having been subsequently coming to the EOW.
     
    The case was registered by Ashutosh Shah at Juhu police station against the firm’s director Paresh Kariya, and Kalap Shah and Anil Gandhi of Teji Mandi Analytics and others, under criminal breach of trust and criminal conspiracy. However, no arrests have been made yet.

     

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    COMMENTS

    mr.singhvi

    2 weeks ago

    let us form an investors association cheated by karvy, and file a case against them in High court, otherwise they will siphon off the Assets, and investors will be left with nothing.

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