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."
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.
"...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.