Miscellaneous Order in the matter of Modex International Securities Limited

Miscellaneous Order in the matter of Modex International Securities Limited

WTM/AB/SEBI/MIRSD/NRO/03/2020-21

SECURITIES AND EXCHANGE BOARD OF INDIA MISCELLANEOUS ORDER

On the representations from Shri Suresh Kumar Gupra (PAN: AAKPG4217F), Shri Ankit Gupta (PAN: AJZPG6768K) and Shri Anuj Gupta (PAN: AGIPG2383C) – In respect of ex parte ad interim order dated April 30, 2020 passed in the matter of Modex International Securities Limited.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) passed an ex parte ad interim order dated April 30, 2020 (hereinafter referred to as “interim order”) in the matter of Modex International Securities Limited (hereinafter referred to as “MISL”) against the following entities, namely:-

Noticee no. Noticee Name 1. Modex International Securities Limited 2. Mr. Dharmendra Kumar Arora 3. Mr. Pavan Kumar Sachdeva 4. Mr. Ajay Jain 5. Mr. Parminder Singh Kindra 6. Mr. Sanjay Mohan Uniyal 7. Ms. Sarika Chawla 8. Ms. Sharda Gupta 9. Mr. Vikram Duggal 10. Mr. Suresh Agarwal

2. In the interim order, inter alia, following directions were issued against the aforesaid entities:

Quote (i) All Noticees are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, either directly or indirectly, or being associated with the securities market in any manner whatsoever, till further directions;

(ii) The aforesaid Noticees shall cease and desist from undertaking any activity in the securities market, directly or indirectly, in any manner whatsoever till further directions;

(iii) The aforesaid Noticees are directed not to dispose of or alienate any assets, whether movable or immovable, or to create or invoke or release any interest or charge in any of such assets except with the prior permission of NSE and BSE;

(iv) The aforesaid Noticees are directed to provide a full inventory of all their assets, whether movable or immovable, or any interest or investment or charge in any of such assets, including details of all their bank accounts, demat accounts and mutual fund investments immediately to NSE and BSE but not later than 5 working days from the date of receipt of this order;

(v) Till further directions in this regard, the assets of the Noticees shall be utilized only for the purpose of payment of money and /or delivery of securities, as the case may be, to the clients/investors under the supervision of the concerned exchanges/depositories;

(vi) The depositories are directed to ensure that no debits are made in the demat accounts, held jointly or severally, of the aforesaid Noticees except for the purpose mentioned in sub-para (v) above, after confirmation from NSE/BSE;

(vii) The banks are directed to ensure that no debits are made in the bank accounts held jointly or severally by the Noticees except for the purpose of payment of money to the clients/investors under the written confirmation of NSE/BSE;

(viii) The stock exchanges shall deal with the complaints/claims of the clients against the member and may return the amount of client fund and securities to the clients and may also use assets of the Noticee no. 1 to meet clients’/exchanges’/clearing members’/clearing corporations’, obligations; and (ix) The above directions are without prejudice to the right of SEBI to take any other action that may be initiated in respect of aforesaid entities/persons. Unquote

3. After passing of the interim order, Shri Suresh Kumar Gupta, Shri Ankit Gupta and Shri Anuj Gupta (hereinafter collectively referred to as “Representors”), who are the family members of Ms. Sharda Gupta (Noticee no. 8 in the interim order), have made separate representations, dated May 11, 2020 and May 13, 2020, in respect of the aforesaid interim order passed by SEBI. Brief of the representations made by Representors is as follows:

(i) Shri Suresh Kumar Gupta is the husband and Shri Ankit Gupta and Shri Anuj Gupta are the sons, of Ms. Sharda Gupta i.e. Noticee no. 8 to the interim order.

(ii) Ms. Sharda Gupta was an independent lady director from September 2016 to 11th December 2017 (date of resignation). She was not involved in the day to day working of MISL, and received no pecuniary benefits like salary /sitting fee / travel expense, etc. As to the best of her memory, no such matter pertaining to the interim order came to her knowledge during her tenure.

(iii) The interim order is not passed against the Representors and hence, freezing of their bank accounts, funds and other investments, is not justified.

(iv) Their bank accounts have been frozen without providing them any notice or any opportunity of hearing;

(v) They had not had relationship with MISL in the past. They had not worked in any capacity with MISL.

(vi) Following are the details of their bank accounts which are jointly held by them with Ms. Sharda Gupta and which stand frozen due to interim order against Ms. Sharda Gupta:

Name of the Name of Account Number First PAN of Fist Second Mode of Representor Bank Holder Holder Holder Operation Suresh Axis Bank 040010100001023 Suresh AAKPG4217F Sharda Either or Kumar Gupta Kumar Gupta Survivor Gupta Ankit Gupta Axis Bank 040010100020044 Ankit AJZPG6768K Sharda Either or Survivor Gupta Gupta HDFC 50100296941735 Ankit Sharda Either or Survivor Bank Gupta Gupta Anuj Gupta Axis Bank 040010100020036 Anuj Gupta AGIPG2383C Sharda Either or Survivor Gupta I (vii) The interim order is not passed against them in any manner. Hence, freezing of their bank accounts and mutual funds is not justified.

(viii) Their accounts seem to have been frozen on the basis of PAN of Ms. Sharda Gupta who is the second holder in the aforesaid bank accounts. Representors submit that all the deposits in the aforesaid respective bank accounts are out of the personal income of respective first holder of the bank account and incomes are included in their annual income tax return. None of the deposits in the account belong to Ms. Sharda Gupta.

(ix) Similarly, in case of Mutual Funds investments, Ms. Sharda Gupta has been included as second holder for ease of operations only. The investments where the Representors are the first holder are from their respective accounts only. Further, any gain and tax liabilities from such investments, are accrued to them and are accounted in their respective personal ITR.

(x) The Representors have their own independent source of income and report their bank accounts and mutual fund gain/loss in their respective annual income tax return independent of Ms. Sharda Gupta. The Representors have also enclosed their respective ITRs for the last three assessment years.

(xi) The freezing of bank accounts has caused genuine hardship to them. Representors have been facing difficulties in meeting their day to day expenses including payment of utilities, credit card bills, etc. This has also adversely their work obligations at such difficult times, when their source of income are strained due to the pandemic.

(xii) The Representors had no relationship with MISL, lifting the attachment of their bank accounts will not cause any prejudice to the interest of the SEBI.

(xiii) In view of the aforesaid, Representors have requested to issue an order directing their bank accounts, mutual fund AMCs and all other financial institutions in preview of the interim order to de-freeze all their accounts in which Representors are primary holders and Ms. Sharda Gupta is a joint holder and not a primary holder, on an urgent basis.

4. In the present matter, interim order was passed on the basis of the report of the National Stock Exchange of India Ltd. (NSE). Accordingly, comments of NSE was sought in the matter. NSE has intimated as under:

(i) As per the client details available in the UCI Database as uploaded by MISL, it has been observed that Shri Anuj Gupta, Shri Ankit Gupta, Shri

Suresh Kumar Gupta and Ms. Sharda Gupta are the registered clients of MISL. Details are as under:

Code Name PAN A95 Anuj Gupta AGIPG2383C A99 Ankit Gupta AJZPG6768K S152 Suresh Kumar Gupta AAKPG4217F S154 Sharda Gupta AAKPG7214J (ii) As per the records of NSE, Shri Anuj Gupta, Shri Ankit Gupta and Shri Suresh Kumar Gupta are not associated as directors with MISL.

(iii) As on January 24, 2020, the financial ledger balance of all above clients is NIL. Further, as per the Forensic Audit report, Shri Ankit Gupta is observed to have a negative balance of 6000 Qty. of Vadanta Ltd. (INE205A04011) worth Rs. 6000 (@ as Rs. 1 base price) as on January 24, 2020. On verification of register of securities (ROS) of Shri Ankit Gupta, there are only 2 entries in scrip Vadanta Ltd. details of which are as under:

Date Particulars Debit Balance 1-Apr-18 Opbal 6000 22-May-18 Delivered 6000 0 (iv) As per ROS of all clients provided by member, entries of Opening Balance in the starting of year were coming with nomenclature "Opening". However, some entries were coming with nomenclature "Opbal". Further, in ROS of Ankit Gupta, there was no closing balance as on March 31, 2018, however, 6000 shares of Vadanta Ltd. were shown as opening as on April 01, 2018 with nomenclature "Opbal". Since member has not explained about this entry to the auditor, auditors removed the impact of entry of “Opbal” from ROS of Shri Ankit Gupta, resulting in negative balance of 6000 holding of Vadanta Ltd. Further, it has also been verified from trade data and DP transaction statements of the MISL that during the period of forensic audit from April 1, 2017 to January 24, 2020, Shri Ankit Gupta has not purchased 6000 shares of Vadanta Ltd. and also have not transferred these shares to MISL.

(v) Securities holdings of Ms. Sharda Gupta, Shri Suresh Kumar Gupta and Shri Anuj Gupta were NIL as on January 24, 2020.

(vi) Ms. Sharda Gupta (DIN: 00985054, DOB - 10/03/1953) was the non-designated Director of MISL from September 17, 2016 to February 07, 2018. Since, DIN for other persons viz. Shri Anuj Gupta, Shri Ankit Gupta and Shri Suresh Kumar Gupta are not available, we are not able to get the details for companies / LLP in which they may be director / partners.

(vii) On verification of ledger accounts of these parties and bank statements/bank book of the MISL, it has been observed that payments and receipts made to/from these parties were in capacity of the clients. However as on January 24, 2020, the financial ledger balance of all these clients is NIL.

(viii) It has also been observed that there are deposits in Shri Suresh Kumar Gupta bank account from Ms. Sharda Gupta. The details of the same is as follows:

Tran Date Particulars Debit Credit 12-03-2018 INB/IFT/SHARDA GUPTA/TPARTY TRANSFER - 50,00,000 03-04-2018 INB/IFT/SHARDA GUPTA/TPARTY TRANSFER - 50,00,000

5. I have considered the representations made, interim order passed and the comments of NSE, as mentioned above. It is noted that in the interim order there is no adverse findings against the Representors. Their bank accounts and other investments have been frozen as Ms. Sharda Gupta, one of the Noticee to the interim order, is joint holder in such bank accounts and investments. It is noted that Representors are the clients of MISL and are not connected with MISL as directors. Representors have also submitted that they have got their independent source of income and the funds lying in the banks accounts sought to be de-freezed, are out of their personal income and are included in their income in ITRs. A perusal of the ITRs, furnished by the Representors alongwith their respective representations, reveals that all the bank accounts except the HDFC Bank account on Shri Ankit Gupta, have been disclosed in their respective ITRs for the last three assessment years.

6. I note that examination of statement of bank accounts of the Representors, which have been sought to de-freezed, shows transfers of funds between the Representors and MISL, however, prima facie, same has to be seen in the light of the fact that Representors are the clients of MISL especially when there is no allegation of any wrongdoing by the Representors, in the interim order. There is also a deposit of Rs. 1 Crore by Ms. Sharda Gupta, Noticee no. 8 to the interim order, in the bank account of Shri Suresh Kumar Gupta. However, forensic report or the comments received from NSE, does not impute any wrongdoing to such transfer per se. The interim order has been passed against Ms. Sharda Gupta on the basis of the fact that she was the director of MISL.

7. It is also observed that Representors have sought de-freezing of their investments in mutual funds, details whereof have been claimed to be provided in their Respective ITRs. However, on perusal of ITRs, it is noted that there is mention of investments made by the Representors in the mutual funds, however, other details like folio numbers, name of the mutual fund and which are jointly held with Ms. Sharda Gupta, are not available.

8. In view of the aforesaid, I hereby direct that the bank accounts of the Representors shall be de-freezed, the details whereof are as under:

Name of the Name of Account Number First PAN of Fist Second Holder Representor Bank Holder Holder Suresh Axis Bank 040010100001023 Suresh AAKPG4217F Sharda Gupta Kumar Gupta Kumar Gupta Ankit Gupta Axis Bank 040010100020044 Ankit AJZPG6768K Sharda Gupta Gupta

Anuj Gupta Axis Bank 040010100020036 Anuj Gupta AGIPG2383C Sharda Gupta

9. Representations dated May 11, 2020 and May 13, 2020, made by the Representors, stand disposed of with the aforesaid direction.

10. This order comes into force with immediate effect.

11. A copy of this order shall be forwarded to all the Representors, Stock Exchanges, the relevant banks and the Depositories to ensure that the direction given above is strictly complied with.

Sd/- ANANTA BARUA Date: May 22, 2020 WHOLE TIME MEMBER Place: Mumbai SECURITIES AND EXCHANGE BOARD OF INDIA