Investors of Modex International Securities Ltd, a Delhi-based listed brokerage firm, which has been declared a defaulter and expelled from the bourses, have come together to file an FIR (first information report) with the EOW (economic offences wing) of the Delhi police.
Modex International Securities allegedly targeted senior citizens and cheated them by misusing their ‘power of attorney’ to conduct unauthorised trades in their accounts without their knowledge or consent. Modex used the shares as leverage for speculative derivatives trades in order to maximise brokerage earnings allege investors. They also say this is in gross violation of Securities and Exchange Board of India (SEBI) rules.
The problem came to light in January 2020 after Modex lost heavily and investors' shares were sold off to clear its dues. By March 2020, investors started filing complaints in various police stations across NCR (national capital region) including in EOW of Delhi Police. The Delhi police has registered FIR under various sections of Indian Penal Code (IPC) covering breach of trust, forgery and cheating. Investors estimate the losses at Rs150 crore.
On 30th April, SEBI had issued an ex-parte order against Modex International which is suspected to have misappropriated over Rs100 crore of a client’s money. NSE's (National Stock Exchange's) investigation and forensic audit found Modex International Securities to have sold securities from the demat accounts of its clients in a fraudulent manner and use these funds to offset trading losses of other clients in equity derivatives trades.
Meanwhile, the Delhi High Court (HC), in a case related to Modex Securities, held that an investigation or prosecution by the SEBI does not preclude the police/investigating agency from carrying on its own investigation into the commission of offences punishable under the IPC.
The order was passed by a single judge bench of Justice Vibhu Bakhru in a petition by DK Arora, a director of Modex International Secutities, which sought to quash an FIR registered by Delhi Police under Section 420/406/120-B of the Indian Penal Code (IPC).
As per the FIR by an investor, the firm and its directors indulged in fraud and misappropriation of funds and valuable securities worth over Rs126 crore. Following the Karvy Stock Broking scam in November last year, the complainant (an investor) decided to pull away his securities from Modex International and, accordingly, requested that his securities be transferred to his new demat account with JM Financial. However, despite all promises, the securities were never transferred.
Seeking to quash the FIR, Abhi Kumar, the counsel for DK Arora, argued that it did not disclose any cognizable offence as there was no allegation that he entered into transactions with the investor with the intention of cheating. The counsel also argued that since a complaint had also been made with SEBI, which is duly empowered to take necessary steps with regard to the grievances of the complainant, the present FIR could not be sustained.The petitioner also claimed that the disputes arose out of the commercial transactions and were thus essentially civil in nature.
The Delhi HC observed that the FIR disclosed cognizable offences and, thus, to seek its quashing for not disclosing any cognizable offence, was 'clearly unmerited'. It held that the argument that the SEBI investigation should result in its quashing is also unmerited as the regulator's jurisdiction did not extend to prosecuting offences under the IPC.
The Court said, "SEBI’s jurisdiction extends to investigate complaints and take appropriate action for violation of Securities and Exchange Board of India Act, 1992 (SEBI Act) and the Rules and Regulations made thereunder. It does not extend to prosecuting offences under the IPC. The fact that SEBI is investigating or prosecuting the petitioner for offences under the SEBI Act, or the relevant regulations made thereunder does not in any manner warrant quashing of the present FIR. It also does not preclude the investigating agency from investigating the allegations regarding offences punishable under the Indian Penal Code, 1860." The petition was, therefore, dismissed.
