Edelweiss Asked To Credit Rs460 Crore Bank Guarantee of Anugrah Stock & Broking to Escrow by NSE Clearing
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.
 
 
It may be recalled that Anugrah faces litigation by over 500 investors who have moved the Bombay High Court through multiple cases. Several of these have made SEBI, NSE, NSE Clearing Corporation and Edelweiss Custodial Services party to the litigation. Investors have pleaded for a multi-agency probe into what happened with Anugraha. Read out report here: https://moneylife.in/article/bombay-high-court-investors-plead-for-multi-agency-special-investigation-team-probe-into-rs1300-crore-anugraha-scam/61824.html
 
The primary allegation is that Edelweiss Custodial Services invoked the bank guarantees of Anugrah Stock & Broking and partly sold off the securities after it discovered that the securities pledged to it belonged to the broker’s individual clients. Read more here: https://moneylife.in/article/anugrah-scam-many-unanswered-questions-for-sebi-nse-and-edelweiss/61540.html
 
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).
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    COMMENTS

    Sigmadadixit

    1 month ago

    Edelweiss has to pay cost for their mistakes.

    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

    1 month 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.

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