The police in Telangana has, finally, registered a first information report (FIR) against Anugrah Stock & Broking Pvt Ltd (ASBPL), one of the 30 brokers of the National Stock Exchange (NSE) that have defaulted or been expelled since May 2019. Investors have lost over Rs1,200 crore in ASBPL, which was running an illegal portfolio management scheme that NSE failed to catch, and was instead felicitating the broker for a sharp increase in turnover
T Ravi Prakash, an investor from Hyderabad, had filed the FIR against ASBPL, Paresh Kariya, Anil Gandhi, proprietor of Tejimandi Analytics, NSE, Vikram Limaye, managing director (MD) and chief executive officer (CEO) of NSE, Priya Subbaraman, the chief regulatory officer of NSE, Edelweiss Custodian Services and CDSL.
The FIR registered on 9 February 2022 claims that the entities “with a common intention deceived and caused a wrongful loss of Rs1.87 crore” to Mr Ravi Prakash and his wife.
Separately, V Balashowry, a member of Parliament (MP), has asked the Securities and Exchange Board of India (SEBI) chairman to share steps taken in wide-scale fraud committed by ASBPL. “It is learnt that EOW, Telangana has been investigating the matter and have recently sent a summons to senior management including the managing director (MD) of NSE and also to Edelweiss Custodial Services Ltd. Therefore, I am eager to understand the steps taken by the market regulator in this regard. I request you to look into all these issues, including the revenue earned by the institutions in the matter and whether any conspiracy exists between various entities as this does not seem to be a task done by one stockbroker.”
Responding to the Lok Sabha MP, SEBI says, “A prosecution case against ASBPL, its directors Paresh Mulji Kariya and Sadhana Paresh Kariya, and Om Sri Sai Investments (OSSI) has been filed in the SEBI Special Court, Mumbai. The other enforcement proceedings initiated by SEBI against ASBPL and related entities are in progress and yet to be concluded.”
The reply also reveals a lethargic attitude and lapses at regulatory levels. SEBI passed an order against the crisis-hit Anugrah Stock and Broking only in November 2020, even though it had conducted a joint inspection of the broker in 2018 itself.
In response to the query from economic offences wing (EOW) of Cyberabad police, the market regulator says, “SEBI, National Stock Exchange (NSE), BSE and Central Depository Services Ltd (CDSL) conducted a comprehensive joint inspection of ASBPL from 3 September 2018 to 7 September 2018 covering an inspection period from 1 April 2017 to 17 December 2018. SEBI has passed a speaking order dated 13 November 2020 in the matter of Anugrah, which deals with the details of the nature of the default.”
The reply from SEBI also reveals findings from the forensic audit conducted by NSE. SEBI says, “The report has inter-alia observed that derivative advisory services (DAS) as a service was pitched to potential clients under two plans, gold and platinum, having minimum investment of Rs10 lakh and Rs1 crore respectively. Under the gold plan, there was no restriction on withdrawal whereas platinum plan consisted of a lock-in period of one year with assured return of minimum 12% per annum.”
“The forensic audit report has also indicated a shortfall of securities to Rs683.87 crore and shortfall of funds amount to Rs297.62 crore. The forensic audit report also made other observations such as potential misstatement of debtors and creditors, misstatement of client ledger available with the clients, discrepancies in certain accounts in trial balance, transaction in ledgers not appearing in the bank book and bank statement, transaction appearing in the bank book submitted by Anugrah not present in back end data and bank statements and potential deletion of data by Teji Mandi Analytics Pvt Ltd,” the market regulator informed the MP.
On 9 March 2021, SEBI imposed a penalty of Rs90 lakh on ASBPL for repeated violation of regulations and compliance. The order mentions an inspection carried out by a team comprising officials from SEBI, NSE, BSE and CDSL. At the time of inspection, the market regulator was aware about the over Rs100 crore shortfall in the account of ASBPL. Yet, it initiated adjudication proceedings against the brokerage.
In an order, Prasanta Mahapatra, adjudicating officer (AO) of SEBI mentions misuse of credit client’s fund, which was known to NSE as early as in November 2018. “On 39 out of 40 dates, the broker has misused client funds.
"Misuse of funds ranges from 5.40% to 45.69% of funds of credit balance clients. Funds of credit balance clients have been used for the purpose of debit balance clients. The broker has misused the credit client’s funds in the range of Rs8.05 crore to Rs118.77 crore for the selected sample days. In addition to the above, NSE has also verified data with respect to enhanced supervision submission for 30 November 2019. NSE has observed that the broker had a shortfall of funds amounting to Rs111.17 crore as on 30 November 2018,” the March 2021 order passed by SEBI says.
Earlier, in March 2021, after hearing the grievances of investors and clients of Anugrah Stock & Broking, the bench of justice SS Shinde and justice MS Karnik says there exists a prima facie case and the statutory authorities have, indeed, failed in performing their duties under the law.
The observations of the HC came after Dr Birendra Saraf of Parinam Law Associates representing investors, pointed out in his submission how clients and constituents of Anugrah have suffered due to the lapses of SEBI, NSE, NSE Clearing Ltd (NCL) and CDSL.
Dr Saraf, in his written submission, also contended that NSE, NCL, and CDSL acted as silent spectators until SEBI intervened in April 2020, after which, inspections into the affairs of Anugrah were initiated. He says, “...NSE was aware of the active misuse of client funds and securities by Anugrah. On one occasion, Anugrah had also advanced loans worth over Rs300 crore to certain entities, the fate of recovery of which is unknown to the petitioners and which will go a long way in securing the recovery of the outstanding dues of the petitioners and other clients and constituents of Anugrah. It appears that NSE has not taken any steps to recover the same from these entities.”
“NSE was aware that Anugrah was giving incorrect ledgers and not reporting the correct holding positions to the clients,” the senior counsel says, adding, “NSE was aware that Anugrah was incorrectly and wrongfully reporting the margins to NSE which is a serious offence and that is the same misconduct, which resulted in Anugrah trading in huge volumes without informing its clients.”
“Though nominal penalties were levied, no action was taken to suspend the broker and clearing member or inform the investors about such violations, which would have put the investors to notice about the same. These instances of violation, inaction of the NSE to take appropriate measures and having measures on paper without implementation clearly shows the way the purported investor protection is done by the largest stock exchange in the world,” Dr Saraf added. (Read: In 2014, Ravi Varanasi of NSE Feted Anugrah for 2,546% Jump in Volume; NSE Calls it ‘Routine’ Matter
On 4 September 2020, NSE had withdrawn all trading rights of the crisis-hit ASBPL. Earlier on 1st September, the stock exchange had withdrawn ASBPL's trading rights in futures & options (F&O), currency derivatives and commodity derivatives segments.