In a 60-page order issued on 20th October, the NSE Clearing Ltd/ National Stock Exchange (NSE) has asked Edelweiss Custodial Services Ltd to credit Rs460 crore that was provided as a bank guarantee by Anugrah Stock & Broking Pvt Ltd (Anugrah) to an escrow account. Following an investigation, a committee constituted by the NSE is understood to have rejected all the contentions of Edelweiss and asked it to reinstate the money/securities in an escrow account within 15 days or face a penalty that runs into several lakh rupees. The Anugrah issue was first reported by Moneylife
While NSE would not confirm the order, reliable sources, privy to details, tell us that NSE has sent this order to the Securities & Exchange Board of India (SEBI). An email sent to Edelweiss for its comments had not been responded to at the time of publishing. Any reply from them will be added to the report.
Update 8.31pm: Edelweiss denies it has been asked to reinstate securities in a designated account; we, however, understand the order differently. According to Edelweiss: "The order states that NSE will do a detailed inspection of Anugrah’s books and the balances of its clients’ and only in the event that they find that shares of clients having credit balance were liquidated, will they direct us to reinstate these shares in a separate account. We are given to understand that as of date, neither NSE or NCL are in possession of the full details of the exact balances of the complainant clients’ in the books of Anugrah."
It is important to note that this is in addition to an order of the additional chief metropolitan magistrate on 1 October 2020, where Edelweiss Custodial Services agreed to submit a bank guarantee/security of unencumbered assets worth Rs460 crore until the main application is disposed. This was also in connection with the Anugraha scam, following action taken by the Economic Offences Wing (EOW) of the Mumbai police.
Update: Edelweiss claims this action of the EOW has been stayed by the courts; however, Moneylife has a copy of the order of the esplanade court, Mumbai. The facts are that Edelweiss Custodial Services moved court seeking to set aside the lien exercised by EOW on a particular 'City Bank' account, instead it undertook to secure 'unencumbered assets worth Rs460 crore'. The court agreed to vacate the lien on Edelweiss Custodial Services submitting a bank guarantee/security of unencumbered assets worth Rs460 crore until the main application is disposed. This order was passed on 1st October 2020.
According to sources, Edelweiss Custodial Services will move the Securities Appellate Tribunal (SAT) against the NSE order. However, it is important to note that Edelweiss Custodial Services faces similar allegations in two other matters, already before SAT. In the case of banned sub-broker VRise, NSE had directed Edelweiss to return securities belonging to after investors complained that their shares were fraudulently submitted as collateral. Advocate Ravi Hegde of Parinam Law Associates has filed an intervention petition on behalf of investors in that case.
Also interesting to note is a SAT order of 3 July 2020 in a case filed by Axis Bank as clearing member for Modex International Securities, a failed brokerage, where NSE had issued orders on 28th May and 8th June to release certain securities of the broker (which represented clients who had zero credit/debit to their account). Axis Bank’s claim that NSE’s action was arbitrary and illegal was rejected. This means that any approach to SAT is not guaranteed to go in favour of Edelweiss.
By way of background, on 4th September, the NSE had withdrawn all trading rights of crisis-hit Anugrah Stock and Broking Pvt Ltd for being unable to meet settlement obligations. Earlier on 1st September, the stock exchange had withdrawn Anugrah's trading rights in future & options (F&O), currency derivatives and commodity derivatives segment. Anugrah and its associates had raised Rs1,300 crores in what appeared to be a Ponzi scheme, claiming high returns from derivatives trades.
In addition to the actions mentioned above, another petition has been filed by Parinam Law Associates, which has again made the regulator, stock exchange, clearing corporation and others as respondents in the Anugrah case. Hundreds of investors have lost large sums of money, with one south Mumbai-based family alone having invested over Rs150 crore. So, the number of litigants is likely to swell, unless other investors seek other options.
Update: Edelweiss says, "We will take recourse to remedies available to us and in keeping with the stated regulations. We continue to maintain that we have followed all existing regulations governing Clearing members and strict diligence, as is expected and allowed to clearing members, has been undertaken throughout our dealings with Anugraha."
The bulk of investors in Anugrah has 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.
(Yogesh Sapkale contributed to this article).