In an order last week, Biju S, chief general manager (CGM) and quasi-judicial authority of SEBI said, “As a SEBI-registered intermediary, Modex International Securities (the Noticee) is under a statutory obligation to comply with the applicable SEBI Regulations, circulars and rules. The Noticee was involved in various malpractices, including misrepresentation of books of accounts and misuse of client funds and securities. Further, the Noticee was also engaged in business other than as a stockbroker and was providing services similar to unregistered portfolio management services to its clients in violation of prescribed regulations. The violations established above strike at the core principles of investor protection, transparency and regulatory compliance.”
“The initiation of the corporate insolvency resolution process (CIRP) against the Noticee reinforces the inference that the Noticee has been unable to maintain the financial capacity necessary to discharge its own debts and obligations. Further, the expulsion of the Noticee from the membership of both NSE and BSE, its admitted non-operational status for a prolonged period, and the demise of the principal director (Dharmendra Kumar Arora) who was overseeing its day-to-day affairs, cumulatively cast serious doubt on the Noticee's capacity, continuity, and overall ability to function as a stockbroker. Membership of a recognised stock exchange is a fundamental requirement for an entity to be eligible for continued registration as a stockbroker. The Noticee's own submission and conduct reveals it has no desire to continue as a registered intermediary,” the CGM said in the order.
The case arose after the National Stock Exchange of India (NSE), during its off-site supervision and on-site inspection, found that Modex International Securities had falsified its register of securities (RoS) by making false entries relating to transfers of client securities. NSE submitted its inspection report to SEBI in December 2019 and sought regulatory intervention to protect investors.
SEBI subsequently directed NSE to conduct a forensic audit of Modex International Securities' books for the period from 1 April 2017 to 24 January 2020. The audit by KPMG found, among other things, misappropriation of client funds and securities, and a shortfall of ₹125.92 crore. SEBI thereafter passed an ex parte ad interim order against the broker on 30 April 2020 which was subsequently confirmed.
The designated authority (DA) later found that Modex International Securities had failed to maintain adequate client securities and funds, misappropriated client assets, misrepresented its books and accounts, made periodic payments to certain clients and misused client funds and securities. The DA recommended cancellation of the company’s stockbroker registration.
SEBI’s final order found that the securities shortfall was ₹95.29 crore as of 24 January 2020. Against net securities payable to clients with positive holdings of ₹186.72 crore, securities actually available with Modex International Securities and its clearing members were valued at ₹104.24 crore. The regulator rejected the company’s argument that recoverable securities from certain clients should be considered while determining the shortfall, observing that such recoverable positions could not substitute for securities actually payable to other clients.
The regulator also found a shortfall of ₹79.61 crore in client funds as of 24 January 2020. This comprised net creditors of ₹30.63 crore, bank overdrafts of ₹49.09 crore and margin of ₹11 lakh. SEBI said the shortfall demonstrated that Modex International Securities did not maintain adequate funds to discharge its obligations towards clients.
A more serious finding related to the diversion of client funds. SEBI said Modex had transferred ₹100.37 crore from its cash settlement account to its F&O settlement account and rejected the company’s argument that the money could not be considered misappropriated because it remained within the company. Client funds, the regulator said, were required to remain segregated and could not be used to meet obligations in another segment. SEBI also rejected the explanation that ₹10.47 crore used as advances for purchasing flats was subsequently recovered through their sale.
According to the forensic audit, Modex International Securities had collected funds and securities from certain clients in exchange for assurances of periodic payments. These assets were deployed in the F&O segment, and after incurring losses, the company met its resulting obligations and periodic payment commitments by selling securities belonging to other clients.
The fund-flow analysis showed that Modex International Securities received net cash settlement of ₹126.31 crore from exchanges against the sale and purchase of clients’ securities, but the proceeds were not transferred to the clients. The audit also identified a fund shortage of ₹48.73 crore as of January 24, 2020. SEBI therefore noted potential fund misappropriation of ₹136.29 crore.
SEBI also found that Modex International Securities had made incorrect manual adjustments in its RoS. In the accounts of 118 clients, negative securities holdings of ₹113.03 crore across 323 scrips were identified. In the case of the top 16 clients, negative holdings of ₹111.12 crore were accompanied by manual margin adjustments of ₹116.65 crore and manual transfer adjustments of ₹6 crore. According to SEBI, these entries were used to artificially adjust securities holdings and facilitate transactions involving securities of other clients.
The regulator further concluded that Modex International Securities was effectively providing services similar to those of an unregistered portfolio manager. It found that the company had collected funds and securities from clients while assuring and providing periodic returns despite losses. Such activity, SEBI said, amounted to carrying on a business other than that of a stock broker and violated applicable regulations.
SEBI rejected Modex International Securities' objections to the forensic audit, noting that the company had failed to provide substantive material to contradict its numerical findings. It concluded that the violations, including misuse of client funds and securities, misrepresentation of books and accounts and unregistered portfolio management, struck at the core of investor protection and regulatory compliance.
The regulator also noted that Modex International Securities had already been expelled by NSE with effect from 15 September 2020 and by BSE from 18 September 2020. The company stated that its business had come to a standstill and was non-operational. SEBI observed that the company’s prolonged non-operational status and expulsion from both exchanges further undermined its ability to function as a stockbroker.
SEBI consequently cancelled Modex International Securities’ certificate of registration with immediate effect. However, the regulator clarified that cancellation does not absolve the company of liability for acts or omissions committed as a stockbroker or from its responsibility to pay outstanding fees and dues to investors and clients in accordance with law.
You may also want to read…
Tata Sons’ Listing Inevitable after RBI Rejects Deregistration Request as CIC
Moneylife Digital Team
12 September 2026
The Reserve Bank of India (RBI) has rejected Tata Sons Pvt Ltd’s application to voluntarily surrender its registration as a core investment company (CIC), bringing an end to a long-running uncertainty over the holding company’s...
New E-commerce Rules To Rein in Dark Patterns, Misleading Listings and Hidden Charges from 1st January
Moneylife Digital Team
12 September 2026
The Union government has tightened India's e-commerce rules, bringing stricter requirements for online platforms on consumer complaints, search rankings, sponsored listings, discounts, dark patterns, seller disclosures and the use of...
IndusInd Bank Fined ₹1 Crore by IRDAI for Failing to Maintain Insurance Grievance Redressal Mechanism
Moneylife Digital Team
11 September 2026
The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of ₹1 crore on IndusInd Bank Ltd, in its capacity as a corporate agent (CA), for failing to establish and implement an appropriate grievance...
RBI Slaps ₹1.15 Lakh Penalty on Azamgarh Jilla Sahakari Kendriya Bank for CIC, KYC Lapses
Moneylife Digital Team
11 September 2026
Reserve Bank of India (RBI) has imposed a penalty of ₹1.15 lakh on Azamgarh, Uttar Pradesh-based Jilla Sahakari Kendriya Bank Ltd for non-compliance with RBI’s directions relating to membership of credit information companies (CICs)...
