Even as the regulator has tightened the rules to prevent misuse of investors’ funds and shares, yet another brokerage firm—Anugrah Stock & Broking Pvt Ltd—seems to be teetering on the brink, despite a reprieve from the Securities Appellate Tribunal (SAT) on 17th August against action by the National Stock Exchange (NSE).
The action by NSE and SAT has panicked the clients of Anugrah and its associates who claim to ‘manage’ well over Rs1,000 crore. The clients have drawn a blank in reaching associates who channelled their investments. Worried investors have been flocking to the Vile Parle office (in Mumbai) of Anugrah and sending emails and letters demanding answers. Almost everyone has hit a wall. Importantly, reliable sources say, Anugrah’s “trading on the exchange is not so high to warrant the kind of loss in his formal book.” So what is going on?
Until a couple of days ago, the Securities and Exchange Board of India (SEBI) seemed to be unaware of what is going on, although a simple search shows that both Anugrah and one of its associates, Teji Mandi Analytics Pvt Limited, ought to have been on the regulator’s radar since they have both been fined in the past.
NSE began to investigate various brokers following the post-COVID turmoil in the market and especially after the sudden and voluntary closure of India Nivesh.
The Exchange discovered that Anugrah was running an unauthorised derivatives advisory service (DAS) through an associate firm called Om Shri Sai Investments (OSSI) since 2017. The service was shut down in 2019. It had collected Rs165.10 crore from investors. NSE issued a show-cause notice on 17th July and asked Anugrah to respond by 27th July. A day before the deadline ended, the firm asked for more time. So NSE shut down Anugrah’s trading rights in all derivatives segments (futures, options, commodities and currency) from 3rd August.
The brokerage firm rushed to SAT and won a reprieve of sorts. SAT decided, in its wisdom, that there was no tearing hurry for NSE’s ex-parte action after giving just 10 days. So, it ordered trading rights to be restored immediately. NSE had to fall in line and restart Anugrah’s trading on 17th August.
But the Tribunal also imposed two conditions on Anugrah. It asked the firm to deposit Rs165 crore with the NSE within two weeks, while granting three weeks to file a response. The next hearing has been posted for 14th October and Anugrah cannot enrol any fresh clients in the derivatives segment until then nor can it continue DAS through OSSI. (Misc. Appln No244 of 2020- Urgent Application, Anugrah Stock & Broking Ltd vs NSE)
A Google search however, reveals that Anugrah had been fined Rs5 lakh on 20 March 2019, for failing to settle client accounts, especially those of inactive clients. This pertained to an inspection in April 2017. This is exactly the issue that is being fixed from September by SEBI’s new rules. Did SEBI not find any links to unauthorised derivatives advisory being run by associates such as Teji Mandi and Om Shri Sai at that time?
It is important to note that there were no investor complaints then. This shows that when the going is good, investors are happy to provide a blanket power of attorney (POA) to brokers and their associates without too much checking.
Teji Mandi Analytics and the Rs1,000 Crore Question
In response to a tweet of mine on this issue, several investors have sent me documents, POAs, presentations and contracts which reveal that the biggest associate of Anugrah was Teji Mandi Analytics Pvt Ltd. Most advisory accounts were opened by Teji Mandi, whose link with Anugrah comes up in a simple Google search. Worryingly, this firm too has gone incommunicado and investors attempting to check on their funds have got no response.
Teji Mandi’s latest marketing presentation to investors claims to have Rs800 crore under the service. Here are screen shots that show that it has earned annualised returns of over 19%. Is it any wonder that investors had no complaints? The latest balance sheet and audit report for 31 March 2020, shared by an investor, also show no cause for concern.
Between Teji Mandi and Om Shri Sai Investments as well as Anugrah’s direct clients and fund raising, the firm clearly had operations of over Rs1,000 crore.
While SEBI claims to have highly sophisticated software that offers real-time tracking, much of what I found out about Anugrah was through a most basic Google search and a question posed on twitter. On 25 May 2009, SEBI had barred Anugrah from buying and selling securities.
While these fines are nothing more than a slap on the wrist, SEBI apparently does not bother to flag such entities or monitor their activities and compliance, despite spending on highly sophisticated systems that allegedly provide real-time trading information. Surely, a powerful and hugely funded regulator ought to be able to do a lot more than what an open Google search provides?
Anugrah has been taking short-term loans for its operation as well as bank guarantees and an overdraft. Here, too, its record has been patchy. In December 2017, CRISIL reported that the issuer was ‘not cooperating’ with the rating agency, despite consistent follow-up and had, hence, ‘migrated’ the rating. The agency warned investors, lenders and all other, which included a bank guarantee of Rs14 crore and an overdraft facility of Rs11 crore.
Anugrah had obtained a rating from ICRA to raise Rs13 crore in short-term fund-based bank lines. All this is relevant in the context of the court case/arbitration involving India Nivesh’s Rs100 crore ‘funded’ fixed deposit. Is this another case of raising funds by pledging a borrowing as margin/bank guarantee? I have emailed Anugrah as well as Teji Mandi for answers and will post their response, if any, when I get them.
Here is some feedback from investors, whose names have been changed. Arvind Sinha thinks Teji Mandi is a sub-broker of Anugrah and is “running some algo based trading in F&O segment (only options of Nifty and Bank Nifty) across all clients.” He says, “We are not asking for losses to be repaid, but what about the balance that is with the firm? It looks like the broker has gone insolvent,” since his many emails and calls have not elicited any response.
This investor had demanded a closure of his trading account and alleges that he has “identified fake contract notes that raise concerns about fraud, misrepresentation and unauthorised trading” by Teji Mandi and/or Anugrah. This investor says that even after NSE restored trading, he was not allowed to trade even in the cash segment by Anugrah and Teji Mandi. He alleges that shares have not been transferred back from the pool account in contravention of SEBI rules (SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated 25 February 2020) and a request to unpledge shares and return them to his depository account has been ignored.
Another investor, using a pseudonym, says that a group of investors has collectively invested over Rs19 crore through the associate of Anugrah (who he does not name but is in all probability it is Teji Mandi Analytics). Some of them have found stocks missing from their demat accounts, which have probably been used for margin payments and not credited back. Their follow-up to have their accounts closed and funds/shares transferred has also drawn a blank. This group included an investor who put in Rs1.55 crore along with his wife as recently as in March 2020 through Teji Mandi Analytics.
The big question now is whether Anugrah is able to cough up Rs165 crore in the next five days, as SAT has ordered. But investors are panicking; NSE is watching developments closely and the regulator remains silent.