Moneylife EXCLUSIVE: 'No Sealed Cover', Bombay HC Tells Anugrah Stock & Broking
The Bombay High Court (HC) has appointed a court receiver for all fixed assets of Anugrah Stock & Broking Pvt Ltd, while asking directors of the brokerage firm, as well its sub-broker Teji Mandi Analytics Pvt Ltd, not to leave the HC jurisdiction or country without permission.
 
Justice Gautam Patel of the Bombay HC also came down heavily on Anugrah for submitting additional material in a sealed cover and not filing a clean copy of its affidavit. The Court also directed all petitioners to include Teji Mandi Analytics as respondent in the case, if not already done, through amended petitions. 
 
The bench clarified that it will not accept any submission in sealed cover saying "Anything that I can see, all parties before me are entitled to see." Justice Patel says, "I am told that Mr Rohan Cama’s clients (Anugrah) have put some additional material in a sealed cover. Of course, that has not been made available to me because these hearings are conducted online. In any case, I am making it abundantly clear that at least in my Court there is no question—and there will be never be a question—of anything being done ‘in sealed cover’." 
 
"Anything that I can see, all parties before me are entitled to see. That is all there is to it. This is the only method that I know of to ensure an open and transparent decision-making process. Those details will, therefore, need to be set on affidavit. I am also making it clear that it is not possible for any party to unilaterally decide to put material into a sealed cover.
 
"Since I have made it clear that I am not permitting any sealed cover submissions there is no question of any party arrogating to itself any such right or privilege of any such nature in any circumstances," the judge says.
 
Mr Cama, representing Anugrah, expressed apprehension that the additional material if not submitted in a sealed cover will find its way to the press. Justice Patel, however, said it was not his concern.
 
"The fourth estate will do its job and I will do mine. I decide matters before me on the basis of the papers filed in Court, not newspapers delivered to my doorstep. The press exists for a reason. It has a purpose, one that it serves. I cannot and will not curtail the rights of the free press at the instance of this or that party. I refuse to proceed on the basis that the press is always irresponsible. There will be no gag orders here," the judge said. 
 
Justice Patel, in his order says, "The choice before Anugrah is, therefore, clear. It may choose not to file whatever it has said in sealed cover and then take the consequences that follow, or it will file whatever it has said in that sealed cover on affidavit and serve this on all parties." 
 
Fixed assets worth Rs32 crore was disclosed by Anugrah Stock and Broking including its offices at Ahmedabad, two adjoining flats in Mumbai, two office premises at Jogeshwari’s Lotus Corporate Park. In addition, there were two BMWs, including one sports model (bought at Rs91 lakh), one Mercedes-Benz (Rs61 lakh). "Anugrah will need to explain the provenance of this funds, especially in light of its showing in the same affidavit that it has negligible liquidity today," the HC said.
 
The list of assets was submitted by Paresh Kariya, director of Anugrah Broking to the HC. It also lists other items including office furniture and equipment, as well as air-conditioners, computers, and printers. 
 
Anugrah has also disclosed certain financial assets, such as shares of a few companies and over 60 bank accounts. However, after reviewing the submission, Justice Patel observed "Curiously the financial securities said to be held by Anugrah are almost worthless. There are seven scrips enumerated. Four are delisted. One holding of 48,000 shares trades at Rs9.15 per share, probably below par; another holding of 168 shares is trading at Rs4.9 per share; and third holding of 48,000 shares trades at Rs0.56 per share. I am not persuaded that this is an accurate listing at all. It seems to me unreasonable to accept that a company that was doing such a high volume of business, and acquiring so many expensive assets, would have itself keep so very little in such financial investments."
 
Commenting on the list of bank accounts submitted by Mr Kariya, the HC pointed out that "Most of these today have a nominal balance. There is one account with Yes Bank that had a balance of merely Rs1.20 crores in August.
 
"Another account with HDFC had Rs79 lakh (roughly). But the major holding seems to be in the last three accounts listed at page 14. One is with IndusInd Bank and two are with Bank of India. Again, there has been some depletion in one of the Bank of India accounts, dropping from Rs9.99 crore to Rs4.98 crore in the period from April 2019 to September 2020."
 
While observing that the assets listed by Anugrah are way too below than the claims submitted by petitioners, which would be about Rs100 crore, the Bombay HC says, the court receiver will take symbolic possession of all assets listed by the brokerage. While the directors of Anugrah may use the flat and cars, they cannot do any transaction related with these assets as listed, the court clarified. 
 
Senior advocate Birendra Saraf, advocate Ravi Hegde and other associates from Parinam Law Associates are representing many investors; advocate Kamal Bulchandani, who has his own money stuck, is appearing in person and representing certain investors as well, and advocate Aditya Mehta appearing for a few petitioners sought an injunction from the court on all the assets mentioned in the affidavit. Anugraha is represented by Advocate Rohaan Cama and others and Teji Mandi by Advocate Ativ Patel. 
 
During the hearing, Dr Saraf submitted before the court that it is not a question of only wealthy investors being duped and there are pensioners who have lost their life savings and others of modest means who were promised high returns but are today left with nothing at all. 
 
"The disclosures so far made do not even begin to address of fraction of the entirety of the aggregate claims that lie against Anugrah," the court noted.
 
In its affidavit, Teji Mandi Analytics disclosed "an agreement between itself and Anugrah and also pointed out that all trades and transactions were being done by Teji Mandi on behalf of Anugrah. The holding statements, contract notes if any, and the margin money statements were all issued in Anugrah’s name."
 
The court, taking their submissions into account, and after going through Anugrah’s affidavit, asked why an injunction order should not be passed and court receiver appointed across all its assets, including those bank accounts. Responding to this, Mr Cama, counsel for Anugrah, informed the bench that the brokerage's bank accounts were frozen by the Securities and Exchange Board of India (SEBI). He also assured the court that Anugrah would not transact in any of the bank accounts listed in the affidavit, without prejudice to his rights and contentions.
 
When asked to deposit passports of directors of Anugrah, Mr Cama informed the bench that the passports are already with the economic offences wing (EOW) of Mumbai police. 
 
Justice Patel also asked Parinam Law Associates to nominate one person from their firm to serve as a single-point contact person to coordinate all these matters and collate necessary information in tabular form including all claims. 
 
Here is the order passed by Bombay HC...

 
Earlier this month, the Bombay HC had barred crisis-hit Anugrah Stock and Broking from using assets worth Rs58 crore that belong to more than 25 investors, who filed a petition after the firm has stopped responding to them and their accounts have become inaccessible. 
 
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.
 
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 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 week, 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

    m.prabhu.shankar

    1 month ago

    Excellent Excellent

    Judge Says "Anything that I can see, all parties before me are entitled to see. That is all there is to it. This is the only method that I know of to ensure an open and transparent decision-making process. "

    Shrikrishna Kachave

    1 month ago

    Justice G.S. Patel once again sets a remarkable example.

    sheoratan

    1 month ago

    Hats off to MONEYLIFE ! I strongly feel, Moneylife , should ,get into Legal Practice ,with its Resource Persons.WHY? Since 1990s, SUCHETA JI has created WAVES and today SHE and Respected DEBASHISH SIR,are the ONLY SAVIOURS of Ordinary Investors.I Request MONEYLIFE to have Centers All Over India,I'm ready and willing to operate Jaipur,Kolkata,and New Jersey Centers to start with.I'm Blessed to be A LOYAL of MONEYLIFE.....

    s5rwav

    1 month ago

    Mr #JudgeGautamPatel the #DaringJudge of #BombayHighCourt Order is #BigSlap on the Face of Judges of #SupremeCourtOfIndia who have been Routinely Indulging in #SealedEnvelope for Decades. I am Babubhai Vaghela from Ahmedabad. Thanks.

    Anugrah Stock & Broking: Bombay HC Appoints Court Receiver; Bars Directors from Leaving Country
    The Bombay High Court has appointed a court received for all fixed assets of Anugrah Stock & Broking Pvt Ltd, while asking directors of the brokerage as well its sub-broker Teji Mandi Analytics Pvt Ltd, not to leave the HC jurisdiction or country without permission.
     
    Fixed assets disclosed by Anugrah Stock and Broking includes its offices at Ahmedabad, two adjoining flats in Mumbai, two office premises at Jogeshwari’s Lotus Corporate Park, two BMWs, including one sports model, and one Mercedes-Benz.
     
    However, while hearing more than 60 petitions against the broking house, Justice Gautam Patel expressed surprise at the value of the assets disclosed, which comes to just over Rs35 crore. “I am not persuaded that this is an accurate listing at all. It seems unreasonable to me that a company which was doing high-value business till recently would keep so little in stocks [shares]. There is a large number of bank accounts but most of these have a nominal balance,” the judge pointed out in the order.
     
    The list of assets was submitted by Paresh Kariya, director of Anugrah Broking to the HC. It also lists other items including office furniture and equipment, as well as air-conditioners, computers, and printers. 
     
    As per a report from Mumbai Mirror, Anugrah has also disclosed certain financial assets, such as shares of a few companies and over 60 bank accounts. However, the value of all the shares put together is shown as under Rs7 lakh and except two bank accounts, which hold Rs6 crore and Rs5 crore, all other accounts either have zero balance, or the amount held is under Rs14,000.
     
    While observing that the assets listed by Anugrah are way too below than the claims submitted by petitioners, which would be about Rs100 crore, the Bombay HC says, the court received will take symbolic possession of all assets listed by the brokerage. While the directors of Anugrah may use flat and cars, they cannot do any transaction related with these asset as listed, the court clarified. 
     
    As per the news report, senior advocate Birendra Saraf, advocate Kamal Bulchandani, who has his own money stuck and is representing certain investors as well, and advocate Aditya Mehta appearing for a few petitioners sought an injunction from the court on all the assets mentioned in the affidavit.
     
    "They pointed out a few cases where the balance mentioned against their names in the demat accounts had depleted even after the National Stock Exchange (NSE) had barred Anugrah from carrying out any trades in certain segments of the market. Senior counsel Saraf also pointed out that it was not only relatively big investors who had put their money through Anugrah and are now stuck, but also a good number of senior citizens and pensioners, who had put in their life savings," the report says.
     
    The court, taking their submissions into account, and after going through Anugrah’s affidavit, asked as to why an injunction order should not be passed and court receiver appointed across all its assets, including those bank accounts. Responding to this, Rohan Cama, counsel for Anugrah informed the bench that the brokerage's bank accounts were frozen by the Securities and Exchange Board of India (SEBI). He told the court that Anugrah would not transact in any of the bank accounts listed in the affidavit, without prejudice to his rights and contentions.
     
    Earlier this month, the Bombay HC had barred crisis-hit Anugrah Stock and Broking from using assets worth Rs58 crore that belong to more than 25 investors, who filed a petition after the firm has stopped responding to them and their accounts have become inaccessible. 
     
    Justice Gautam Patel, in his interim order, had asked the brokerage not to use assets of its investor-clients for its ordinary and usual course of business. It is learnt that advocate Rohaan Cama, representing Anugrah Stock & Broking, offered to disclose all movable, immovable and financial assets of the brokerage firm, along with details of any encumbrance on them. 
     
    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. 
     
    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 withdrawn its trading rights and also seized its computers and books, the brokerage firm has told investors thronging to its office. 
     
    Last week, the economic offences wing (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

    joydalia.co

    1 month ago

    Paresh has squarely blamed Kalapi and Edelweiss in his affidavit...

    kpushkar

    1 month ago

    Wow .. 150 cr from a South mumbai family.. seems too casual approach here or may be the inherited money.. For a change lawyers are also involved in loss here. Hopefully it can lead to some better law implementation in time
    India is indeed land of opportunities .

    s5rwav

    1 month ago

    Just Wonder whether the Financial Fraudsters already Left India to Other Countries that are Safe for these Financial Fraudsters? I am Babubhai Vaghela from Ahmedabad. Thanks.

    s5rwav

    1 month ago

    Why EOW of Mumbai Police Not Arrested the Accused is a Question. I am Babubhai Vaghela from Ahmedabad. Thanks.

    Anugrah Scam: Many Unanswered Questions for SEBI, NSE and Edelweiss
    Edelweiss Custodial Services Ltd (ECSL) allegedly sold Rs420 crore of clients’ shares, mutual funds and securities from 9th March to 7 May 2020, without first seeking additional cash collateral or encashing the bank guarantee (BG) available with it, alleges Paresh Mulji Kariya, promoter of the failed Anugrah Share & Brokers Pvt Ltd (Anugrah) in a court affidavit. He states on oath that ECSL did not exercise ‘reasonable care and diligence’ and, “as a consequence, in some instances, it is very probable that securities may have been improperly sold by ECSL.”  
     
    This is a serious charge which formalises the allegations that were made about the clearing member and could open a can of worms. Anugrah, with its associates, was managing over Rs1,000 crore of investors’ money and has run up huge losses in derivatives trading. It has been running an unauthorised derivatives advisory service (DAS) with Teji Mandi Analytics Pvt Ltd, (TMA) and Om Shri Sai Investments (OSSI). Nearly 37-odd investors have sued Anugrah in the Bombay High Court, and more are likely to join in. 
     
    Mr Kariya’s affidavit in connection with these arbitration petitions (No.30 of 2020 and others) argues that the general practice in the derivatives segment is that when a trading member has a debit balance, he is first asked to bring in additional collateral. If that is not provided, the clearing member/ custodian encashes the BG that is available. It is only if the BG falls short, that clients’ shares pledged with the clearing member are sold to meet the settlement requirements. He accuses ECSL of having sold client shares on 26 different dates since March 2020.
     
    Moneylife has earlier reported how TMA had made similar allegations against ECSL in an email to its investors. TMA was running an unauthorised DAS scheme offering extremely high monthly returns and had garnered over Rs800 crore; however, its entire business was routed through Anugrah. The nature and legality of that arrangement, and why it was not flagged by annual inspections of the National Stock Exchange (NSE), is unclear. 
     
    On 31st August, we had reported how ECSL and Anugrah terminated their relationship and the brokerage firm moved to ICICI Bank as clearing broker on 20th July, just days before the NSE, after a surprise inspection, switched off its derivatives trading facility bringing its problems to a head and exposing the ponzi scheme that it seems to have been running. 
     
    Interestingly, Mr Kariya has tried to wash his hands off any responsibility for ‘clients’ of TMA which was running the illegal DAS. He says that trades of all TMA clients in all market segments including cash, derivatives, commodities and currency were independently executed and Anugrah merely offered a platform and passed on the brokerage to the firm. He claims that invoking arbitration provisions by TMA clients is misconceived because arbitration is only possible between Anugrah and TMA and not the latter’s clients. He goes on to offer a detailed explanation of how TMA conducted its own trades through Anugrah. This is important because the largest chunk of money owed to investors (over Rs800 crore) came through TMA. 
     
    Remember, NSE switched off Anugrah’s derivatives business on discovering Anugrah’s unauthorised DAS through OSSI which had collected Rs165 crore and shutdown in 2019. Why did it fail to spot TMA’s significantly larger DAS of over Rs800 crore? So far, there is no action whatsoever against TMA, although investors have rushed to the economic offences wing (EOW) of the Mumbai police as well as the Bombay High Court against Anugrah. 
     
    In an interim order on 31 August 2020, Justice Gautam Patel of the Bombay High Court asked Anugrah not to alienate assets to the tune of Rs52 crore covering the claims of a set of petitioners. We understand that many more investors have filed similar petitions since then which would probably be taken up at the next hearing on 18th September.
     
    Meanwhile, Mr Kariya has submitted a list of his assets including offices, cars, computers, air-conditioners and a small list of shares, etc, which are largely unencumbered. He also mentions a large number of bank accounts with various public and private sector banks for the multiple trading memberships of the group across market segments (equities, commodities, currency, etc) and admits that he has multiple BGs against deposits maintained in these accounts. These add up to a fraction of the money owed to investors. 
     
    Moreover, not all the assets seem to be a part of this affidavit. Moneylife recently reported how a search of the statutory filing website MCA21 of the ministry of corporate affairs (MCA) reveals that Mr Kariya and his wife had significant interest in real estate. Many of these are not included in the affidavit. 
     
     
    Way Forward
    What is the way forward for those who have lost money to Anugrah and other dubious brokers who promised high returns of derivatives arbitrage and went bust? Those with smaller investments could benefit from the stock exchange’s investor protection fund, when a broker is finally declared a defaulter. But, remember, it took nearly nine months for NSE to expel Modex International Securities who lured investors with a similar scheme. It was declared a defaulter on 16th September and investors will now have to file claims with NSE’s investor protection fund (IPF). This has a cap of Rs25 lakh and that too is available only in respect of trades on the Exchange and loss of securities placed as margin. These investors will be lucky to see any money before the end of 2020.
     
    Since Anugrah went belly up in August, there will be a similarly long-drawn process of audit, inspection, hearings, etc, before it leads to concrete action. That may be too late to recover anything meaningful. For investors who have lost large sums in failed brokers such as Anugrah (including TMA), BMA Wealth Management, Modex and Allied, it may be futile to wait for NSE and the Securities and Exchange Board of India (SEBI) to complete their long-winded investigations. 
     
    Already, a SEBI circular of 1 July 2020 compromises their interest by closing arbitration as an option. Advocate Ravi Hegde of Parinam Law Associates, a securities law firm, says that SEBI’s or NSE’s circulars also cannot be challenged before the Securities Appellate Tribunal following the Supreme Court order in NSDL vs SEBI (civil appeal 186 of 2007). 
     
    This leaves only the writ jurisdiction of the high courts to raise some important issues that are unlikely to be heard otherwise. For instance, did the Exchange and the regulator do enough to stamp out dubious derivatives schemes? Why didn't the large trading volumes of brokers, like Anugrah and Modex, lead to additional checks and inspections as is warranted by specific circulars of the Exchange?
     
    For instance, NSE’s 3 July 2017 circular on enhanced supervision makes it mandatory for brokers to upload the fund balance and securities balance of the clients. Did Anugrah upload accurate information? Who is responsible for verifying these facts, especially since investors now say that the broker maintained two sets of books and false information may have been provided?
     
    Were the funds lying with brokers adequately monitored as per NSE’s 20 July 2017 circular? In Anugrah’s case, did the clearing member, ECSL, alert NSE to the repeated payment problems of Anugrah since January 2020? What action was taken by the Exchange? Why did inspections fail to spot the illegal DAS through TMA? Many of these issues are not addressed by SEBI’s new regulations that kicked in on 1 September 2020 which make it harder for brokers to misuse client securities and funds. But will shady brokers discover loopholes and work their way around those too?
     
    None of these questions is going to be answered unless SEBI, NSE, NSE’s clearing corporation and the clearing member are required to provide answers in a judicial hearing. The unfortunate truth is that while we have a powerful market regulator since 1992, SEBI has long ago stopped listening to ordinary retail investors or being accountable to them.
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    COMMENTS

    Ramesh Popat

    1 month ago

    let the nifty go below 5000 (and sensex below 15000) and all people will be wiser!

    REPLY

    bhogibhaigandhi

    In Reply to Ramesh Popat 1 month ago

    What about payment made by cheqe major potion,and whataboutshares sold but payment not made,pl guide

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