30th Broker Default as NSE Expels CM Goenka Stock Brokers for Misusing Client Funds

Moneylife Digital Team 16 February 2022

CM Goenka Stock Brokers Pvt Ltd has become the 30th broker since May 2019, to be expelled by the National Stock Exchange (NSE) for default. According to NSE, the Jaipur, Rajasthan-based broker has been declared as a defaulter and expelled for misusing client funds. It is the second broker default declared by NSE in 2022.

There have been a series of 30 broker defaults (including Modex International Securities, Anugrah Stock and Broking Pvt Ltd, Karvy Stock Broking, BMA Wealth Creators, Fairwealth Securities) on NSE since May 2019 till date.

Since January 2020, the beginning of the COVID pandemic, the number of broker defaults, most of which are found to be misusing client funds or securities, has reached 26. NSE expelled four brokers in 2019, 14 in 2020, 10 in 2021 and two in the first two months of 2022, taking the total number of brokers defaulted and expelled by NSE to 30.

The NSE notification says, “All members are hereby informed that the following trading member has been expelled from the membership of the Exchange under Rules 1 and 2 of Chapter IV of the NSEIL Rules and has been declared as a defaulter under provision 1 (a) of Chapter XII of Exchange Bye-laws with immediate effect.”

In the same release, the bourse says, “Members’ attention is also drawn to the sub-rule 4(A) & 5 under Rule 8 of Securities Contract (Regulations) Rule, 1957 (SCRR) which provides for disqualification on persons from holding the office of a Director/Partner in a company/firm if such persons had previously held the office of the Directors/partners in any company/firm which had been a Member of the Exchange and has been declared defaulter or expelled by the stock exchange.” Om Prakash Goenka and Kapil Goenka are the directors of CM Goenka Stock Brokers.

Moneylife has been writing about the sudden increase in broker defaults in the past three years which has led to thousands of investors losing big chunks of their savings. Our ‘well-regulated capital market’, which boasts multiple safeguards such as investor protection funds and settlement guarantee funds, has turned out to be a mirage. (Read: 20 Broker Defaults: It’s Time the Finance Minister Demanded These Specific Actions)

Sr No	Date of Declaration	Expelled Members	Reasons for declaring the member as expelled	Directors/partners
1	15-Feb-2022	C. M. Goenka Stock Brokers Pvt Ltd	Misuse of client funds	Om Prakash Goenka Kapil Goenka
2	15-Feb-2022	Omkam Capital Markets Pvt Ltd	Failure to recoup shortfall of client securities and settle the same	Peeyush Aggarwal Sachin Garg
3	18-Oct-2021	First Futures And Stocks Pvt Ltd	1) Shortfall of client funds 2) Non-resolution of investor complaints	D. Gunasekar G. Shri Shivam
4	12-Oct-2021	Indovision Securities Ltd	1) Misuse of client securities 2) Non-settlement of client accounts	Subodh Kumar Dhanuka Sanjay Kumar Dhanuka Rekha Devi Dhanuka
5	06-Sep-2021	Yuvraj Securities (Proprietor: - Mr. Vijay Kumar Goel)	1) Failure to recoup client funds & securities 2) Failure to resolve investor complaints	-
6	13-Jul-2021	Star Share & Stock Brokers Ltd	1) Failure to honour arbitral award. 2) Failure to fulfill obligations and to abide by the arbitration proceedings	Manoj Kumar Harleen Kaur Bindra Vinod Kumar Garg
7	13-Jul-2021	Destiny Securities Ltd	1) Failure to honour IGRP orders and 2) Failure to resolve investor complaints	Anil Kumar Bajoria Manoj Kumar Agrawal Babita Agrawal Pranay Agrawal
8	02-Jul-2021	Arcadia Share & Stock Brokers Pvt Ltd	1) Member engaged in borrowing securities from their clients outside the framework of lending and borrowing securities (SLB Platform) established by SEBI and the Exchanges 2) Shortfall of clients’ funds and securities, indicating misutilization of clients’ assets. 3) Failure to resolve investor complaints	Nitin Brahmbhatt Antony Sequeira
9	26-Mar-2021	Conard Securities Private Limited	1) Failure to resolve the investor complaints 2) Member not contactable or responded to any of the Exchange communication 3) Being incommunicado, member failed to cooperate with the Exchange in the conduct of the inspection and furnish information for the same	Rajdeep Manoj Javeri Shikha Hemang Shah
10	24-Mar-2021	Bezel Stock Brokers Pvt Ltd	1) Misuse of clients’ funds and securities 2) Non-settlement of client accounts 3) Shortfall in the net worth 4) Failure to resolve investor complaints	Angad Singh Bhatia Gurbachan Singh Bhatia
11	12-Mar-2021	Reflection Investments	1) Shortfall in client funds 2) Shortfall in net worth 3) Falsification of lnformation and misrepresentation of data submitted to the Exchange 4) Failure to resolve investor complaints and non-fufillment of Grievance Redressal Committee (GRC) order 5) Failure to comply with the directions of the Member & Core Settlement Guarantee Fund Committee (MCSGFC)	Vijay Sambrani Chandrika Sambrani
12	22-Jan-2021	Action Financial Services (India) Ltd	1) Misuse of client securities 2) Shortage of client Funds 3) Non-settlement of client accounts 4) Shortfall in Net worth 5) Mis-statement and incorrect reporting of data submission to the Exchange 6) Failure to resolve investor complaints	Bakul R Parekh Parul Doshi Harbhajan Singh J Dhillon Milan R Parekh Raja Gupta
13	14-Dec-2020	Sumpoorna Portfolio Ltd	Sumpoorna Portfolio Ltd	Nitesh Aggarwala Rahul Yadav Manoj Kumar
14	26-Nov-2020	Anugrah Stock & Broking Pvt Ltd	1) Shortfall and misuse of client funds and securities 2) Inter Client Adjustments in Client Ledgers 4) Monthly pay-outs made to clients 5) Derivatives Advisory Services provided by the member to its clients offered through its own Company as well as through its client and Associated entity 6) Falsification of records 7) Failure to resolve investor complaints	Paresh Kariya Sadhana Kariya
15	23-Nov-2020	Karvy Stock Broking Ltd	1) Misuse of client funds and securities 2) Non-settlement of client accounts 3) Unsatisfactory financial conditions 4) Non-submission of data to Exchange 5) Non-resolution of investor complaints	M Yugandhar Bhagwandas Narang Jyothi Prasad C Parathasarathy
16	15-Sep-2020	Anee Securities Pvt Ltd	1) Member not contactable or responded to any of the Exchange communication 2) Being incommunicado, member failed to cooperate with the Exchange in the conduct of the inspection and furnish information for the same	Anjanee Kumar Ajit Kumar Gupta
17	15-Sep-2020	Modex International Securities Ltd	1) Non-availability and Misuse of client funds 2) Shortfall in net worth 3) Non-settlement of client accounts 4) Non-availability and misuse of client securities 5) Falsification of books 6) Non-resolution of investor complaints	Ajay Jain Sarika Chawla Pavan Kumar Sachdeva Parminder Singh Kindra Dharmendra Kumar Arora
18	30-Apr-2020	Vineet Securities (P) Ltd	1) Non-availability of Client funds and securities 2) Misuse of client securities 3) Falsification of accounts 4) Non-settlement of client accounts 5) Failure to resolve investor complaints	Vineet Jindal Sushil Kumar Jindal Vibhor Jindal
19	30-Apr-2020	Grovalue Securities Pvt Ltd	1) Failure to co-operate with the Exchange in the conduct of the inspection 2) Unavailablity of funds to meet the client payables and non- availability of client securities 3) Non-settlement of client accounts 4) Shortfall in net worth 5) Failure to resolve investor complaints	Vineet Chopda Amit Gala
20	29-Apr-2020	Quantum Global Securities Ltd	1) Misuse and Non-availability of client funds and securities 2) Non-settlement of client accounts 3) Shortfall in net worth 4) Falsification of books of accounts and Register of Securities of Clients 5) Failure to resolve investor complaints	Atul Narendra Malik Pankaj Kumar Singh Bhavesh Kumar Singh Shipra Kasana Nitesh Pratap Malik
21	29-Apr-2020	Wellindia Securities Ltd	1) Misuse of client’s funds and securities 2) Non-Settlement of client accounts 3) Failure to resolve investor complaints	Alok Gupta Ashok Gupta Rajiv Agrawal
22	28-Feb-2020	Ksbl Securities Ltd	1) Misuse of Client Funds and Securities 2) Falsification of books 3) Shortfall in net worth 4) Failure to resolve investor complaints	Suman Arora Ramesh Chand Arora Tika Ram Khare
23	13-Feb-2020	Vrise Securities Pvt Ltd	1) Non-availability of funds to meet client payables 2) Misuse of client funds and securities 3) Failure to co-operate with the Exchange in the conduct of the inspection 4) Failure to resolve investor complaints	Rakesh Kirit Kadakia Sonal Rakesh Kadakia Ankit Hasmukh Chheda
24	13-Feb-2020	Bma Wealth Creators Ltd	1) Non-availability and misuse of client securities 2) Non-availability of sufficient funds to pay-off creditors 3) Mis-representation of data submitted to the Exchange 4) Failure to resolve investor complaints	Murgesh Devashrayi Anubhav Bhatter Shiv Kumar Damani
25	13-Feb-2020	Kaynet Finance Ltd	1) Failure to honour arbitral award. 2) Failure to fulfill obligations and to abide by the arbitration proceedings 3) Failure to resolve investor complaints	Rajendra S Daga Sanjay A Shah Paresh Arvind Shah Mukesh Vasantlal Shah
26	14-Jan-2020	Fairwealth Securities Ltd	1) Non-availability and misappropriation of client securities 2) Non-availability of client funds 3) Shortfall in networth 4) Non-settlement of client accounts 5) Failure to resolve investor complaints	Sandeep Jindal Naveen Gaba Dhirender Gaba
27	04-Nov-2019	Allied Financial Services Pvt Ltd	1) Dealing with unregistered entities 2) Misuse of client funds 3) Shortfall in net worth 4) Non-availabilty of securities 5) Non-settlement of client accounts 6) Non-resolution of investor complaints	R P Basia Awanish Kumar Mishra Lalit Agarwal Rajiv Asopa
28	04-Nov-2019	Credential Stock Brokers Ltd	1) Misuse of client funds for meeting proprietary obligations 2) Non-availability of client funds and securities 3) Failure to co-operate with the Exchange in the conduct of the inspection 4) Non-resolution of investor complaints	D K Agrawal Karuna Agrawal Nikita Agrawal
29	04-Nov-2019	Raghukul Shares India Pvt Ltd	1) Non-availability of client funds and securities 2) Non-settlement of client accounts 3) Mis-representation of data submifted to Exchange 4) Shortfall in net worth 5) Failure to co-operate with the Exchange in the conduct of the inspection 6) Failure to resolve investor complaints	Dhruvesh Patel Gangaram Khandelwal Seema Khandelwal Amit Sharma Siya Ram Khandelwal Sandesh Khandelwal
30	06-May-2019	Guiness Securities Ltd	1) Misuse of client funds and securities 2) Non-settlement of client accounts 3) Non-resolution of investor complaints	Soumen Chatterjee Tarun Kanti Sengupta Kamal Kumar Kothari Dharmendra Kothari

(Source: NSE https://www.nseindia.com/invest/defaulter-expelled-members )

Most broker defaults have inflicted crippling losses on investors, although the settlement guarantee ensures no impact on the market itself. In many cases, brokers used investors’ shares to obtain leverage and take speculative positions on the derivatives market leading to losses.

Sometimes, they passed back a little interest for the pledged shares; but, in many cases, investors were unaware of their shares being pledged.

For instance, in 2019, Karvy Stock Broking was banned by the Securities and Exchange Board of India (SEBI) for defaulting clients for around Rs2,000 crore, making it one of the biggest such cases in India.

Among the recent expulsions are: Sumpoorna Portfolio Ltd, Action Financial Services Ltd, Reflection Investments, Bezel Stock Brokers Pvt Ltd, Conard Securities Pvt Ltd, Arcadia Share & Stock Brokers Pvt Ltd, Star Share & Stock Brokers Pvt Ltd, Destiny Securities Ltd, and Stampede Capital Ltd.

This list does not include the two firms which abruptly closed their capital market business of their own accord (voluntarily). One is IndiaNivesh, whose voluntary closure has led to litigation between HDFC Bank and Edelweiss Custodial Services and exposed the shady practice of ‘funded fixed deposits’ being accepted by the clearing corporation as collateral. In this case, the dispute is over a Rs100 crore funded FD, which HDFC Bank refused to honour. The other was Action Financial, which initially claimed to have done a voluntary closure but was later expelled by the exchange since it had failed to refund investors money. (Read: IndiaNivesh, Edelweiss & HDFC Bank: The Curious Case of Rs100 Crore Fixed Deposit Receipts)

In June last year, SEBI issued a framework to minimise the risk of misuse of investor funds by stock brokers. The new measures are part of the market regulator’s effort to prevent misappropriation and misuse of client funds by brokers and also to protect the clients in the event of a default by the brokers. (Read: SEBI Develops System to Detect Misuse of Client Securities by Brokers)

This follows several instances of brokers misusing clients’ securities for trades that were not authorised by them and submitting false information to stock exchanges.

Unfortunately, nothing seems to stem the spate of broker defaults and voluntary closures of business by brokerage firms—especially among commodity brokers.

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