Sebi refuses to lift market ban on Modex International, 2 others

Further, stock exchanges and the clearing corporations have been directed to ensure that shortfall of client funds are made good through realisation of funds through the assets of MISL, Arora and Sachdeva. Sebi found that MISL had recorded incorrect entries in the back office register of securities which resulted misrepresentation of the security balances.

Regulator Sebi has refused to lift capital market ban imposed on Modex International Securities Ltd (MISL) and its two directors for misusing clients' funds and securities. The directors restrained by the regulator are Dharmendra Kumar Arora and Pavan Kumar Sachdeva.

They were the directors of MISL during the period when the violations were committed by the broking house, according to the regulator order. Further, stock exchanges and the clearing corporations have been directed to ensure that shortfall of client funds are made good through realisation of funds through the assets of MISL, Arora and Sachdeva.

Sebi found that MISL had recorded incorrect entries in the back office register of securities which resulted misrepresentation of the security balances. Also, it was noted that the broking firm had misused clients' fund. "The directions issued in the interim order dated April 30, 2020, against Noticees no. 1 (MISL), 2 (Arora) and 3 (Sachdeva) are confirmed," Sebi in an confirmatory order passed on September 11.

However, the regulator has revoked market ban imposed on seven other directors saying some of them were not involved in day-to-day affairs of the company. It also noticed that others have not received any remuneration, salary or benefits of any kind from the company and one of them was just a legal consultant. MISL is a trading member with the National Stock Exchange (NSE) and the BSE, and is also a depository participant of Central Depository Services Ltd (CDSL).

The regulator, through an interim order in April , had restrained the company and its nine directors from the capital markets "till further orders" for misusing clients' funds and securities. The interim order was passed following an NSE report.

As part of offsite supervision, the NSE observed mismatches and inconsistencies between the security balances reported by MISL in its monthly and weekly client securities balances submission in November 2019, with the depository participant records and clearing members' submissions with clearing corporation. Accordingly, an inspection was conducted by the NSE for the period from March to December 2019, and it was observed that MISL posted manual adjustment entries in register of securities of clients.

Therefore, to determine the assets and liabilities of MISL along with the value of securities or funds potentially misappropriated by it, forensic audit of the broking house was also conducted for the period from April 2017 to January 2020. During the course of the forensic audit, it was observed that MISL had recorded incorrect entries in the back office register of securities resulting into misrepresentation of the security balances and also it had misused clients' fund.

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