Order in the matter of Moongipa Investments Limited

WTM/RKA/NRO/133/2015 SECURITIES AND EXCHANGE BOARD OF INDIA EX-PARTE ORDER UNDER SECTION 11(4), 11B AND 11D OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992. IN RESPECT OF MOONGIPA INVESTMENTS LIMITED, MR. MADHUR AGARWAL, MR. SUDHIR AGARWAL, MR. SUBHASH CHANDER SINGAL AND MR. SHIV KUMAR AGARWAL. 1. Moongipa Investments Limited (hereinafter referred as “MIL”) having its registered office at Plot No 6, 2nd Floor, B.N. Block Local Shopping Centre, Shalimar Bagh, New Delhi – 110088 is registered with SEBI in the following categories: (a) as a stock broker in equity segments of National Stock Exchange Ltd. (NSE) (Registration no.: INB230811734); (b) as a stock broker in equity segment of Bombay Stock Exchange Ltd. (BSE) (Registration no.: INB010811736); (c) as a trading member in the derivative segment of NSE (Registration no. INF230811734) (d) as a trading member in the derivative segment of BSE (Registration no.: INF010811736). 2. Mr. Madhur Agarwal, Mr. Sudhir Agarwal and Mr. Subhash Chander Singal are the directors of MIL. Mr. Shiv Kumar Agarwal (father of Mr. Madhur Agarwal and Sudhir Agarwal) was a director in MIL until recently. The shareholding pattern of MIL as submitted by Mr. Madhur Agarwal and enumerated hereunder indicates that MIL is wholly owned by Mr. Madhur Agarwal and his family members. Table 1 – Shareholding details of MIL S. Name Relationship No. of Face Amount % share No shares value paid-up holding held per (` in share lacs) 1 Shiv Kumar Agarwal Father of Sudhir 279000 27.90 18.60 and Madhur 10 2 Pushpa Agarwal Mother of Sudhir 169500 16.95 11.30 and Madhur 10 3 Sudhir Agarwal Brother of Madhur 175000 10 17.50 11.66 4 Madhur Agarwal Brother of Sudhir 175500 10 17.55 11.70 5 S.K. Agarwal & Sons HUF 139000 13.90 9.27 (HUF) 10

In the matter of Moongipa Investments Limited

6 Sudhir Agarwal (HUF) HUF 106000 10 10.60 7.07 7 Madhur Agarwal HUF 94000 9.40 6.27 (HUF) 10 8 Shalu Agarwal Wife of Sudhir 130000 10 13.00 8.67 9 Tripta Agarwal Wife of Madhur 103000 10 10.30 6.87 10 Palak Agarwal Daughter of Sudhir 49000 10 4.90 3.26 11 Moongipa Infosystem Group Company 80000 8.00 5.33 Ltd. 10 Total 1500000 150.00 100.00

3. During the period July 11-23, 2015, SEBI received 16 complaints against MIL in the SEBI Complaints Redressal System (SCORES) that were in the nature of non-payment of funds and non-delivery of securities to the clients by MIL. In view of the nature of these complaints, the status of previous investor complaints against MIL were also analysed. It was observed that in respect of three investor complaints received in June 2015, Investor Grievance Resolution Panel (IGRP) of NSE and Investor Grievance Redressal Committee (IGRC) of BSE had directed MIL to return the funds/securities to the investors/clients as described below: Table 2: Details of IGRP/IGRC orders Sl. No. Stock Exchange Date of Order Refund of Amount (in `Lakh)

1 NSE 06/07/2015 10.65* 2 BSE 15/07/2015 26.43 3 BSE 15/07/2015 2.43 * NSE has informed that MIL has expressed its intention to opt for arbitration. 4. As per SEBI circular no. CIR/MRD/ICC/30/2013 dated September 26, 2013, the stock broker against whom any IGRC order has been issued shall inform to the stock exchange within 7 days of such order if the stock broker intends to pursue the next level of investor complaint resolution, i.e., arbitration. I note that in the instant case only in respect of IGRP order dated July 06, 2015 MIL has informed NSE about its intention to opt for arbitration. In respect of the other two IGRC/IGRP orders dated July 15, 2015, MIL has not informed the concerned stock exchanges whether it intends to opt for arbitration.

5. In addition to the above, in 2 more cases, vide two separate orders dated July 24, 2015, IGRP of NSE has directed MIL to refund to its clients/investors amount of `5 lakhs and `1.81 lakhs. It is observed that MIL has not complied with any of these directions/orders till date. 6. In view of this sudden spurt in the investor grievances against MIL and non-compliance of the directions of IGRP/IGRC orders, SEBI carried out inspection of MIL with a focus on “Monthly/Quarterly running account settlement”. During the course of inspection, it was, inter alia, observed that: (a) MIL had shifted its office from Plot No. 6, 2nd Floor, B.N. Block Local Shopping Centre, Shalimar Bagh, New Delhi – 110088 without leaving any notice regarding the change of its office address. (b) as admitted by Mr. Madhur Agarwal, MIL had sold some clients’ securities for meeting its own pay-in/margin obligation. (c) MIL had obtained unsecured loans from 53 entities amounting to `6.83 crore. Out of the said 53 entities, who had provided secured loans to MIL, 8 entities had also taken Unique Client Code (UCC) from it. MIL also admitted that interest was being paid in the range of 9% to 18% in 13 out of 53 loan accounts, after deducting TDS on interest payments. (d) as submitted by MIL, its asset and liabilities as on August 3, 2015 are as under: Table 3: Details of Assets and Liabilities of MIL Liabilities Amount Assets Amount (` in crores) (` in crores) Clients Credit Balance 0.77 Clients Debtors Balance 1.17 Clients securities 13.50 Group Companies Debit Balance 5.58 Clients margin 0.49 Non client loan 6.30 accounts Total 21.06 6.75 Short Fall (14.31)

7. The details of the pending investor complaints against MIL on SCORES as on August 31, 2015 are as under: Table 4: Details of Pending Investor Grievances Entity <=30 days 30 to 60 days 60 to 90 days Total Pending NSE 35 7 1 43 BSE 10 3 1 14 CDSL 14 0 0 14 Total 59 10 2 71 8. The facts brought out during the course of inspection prima facie indicate that: (a) MIL has failed to segregate its own and clients' funds and securities and as such has failed to comply with requirements of SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993 read with circular no. MRD/DoP/SE/Cir-11/2008 dated April 17, 2008 and circular CIR/MIRSD/16/2011 dated August 22, 2011.

(b) MIL has failed to refund to its clients funds and securities due to them despite directions of IGRP/IGRC. Clause 12 of SEBI circular no. MIRSD/SE/Cir-19/2009 dated December 03, 2009 read with clause 33 of Rights and Obligations document for Stock Brokers, Sub-Brokers and Clients as prescribed by SEBI vide its circular CIR/MIRSD/16/2011 dated August 22, 2011. (c) MIL was carrying out fund based activities. MIL, being a registered intermediary, indulged in fund based activities involving personal financial liability, which it cannot undertake, being a member of a recognised stock exchange and SEBI registered stock broker and as such has contravened rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957 (the SCRR). 9. In view of the aforementioned facts, I, prima facie, find that MIL has failed to comply with the requirements of the aforesaid circulars and has contravened conditions of registration as specified under regulation 9(e) of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred as “Stock Brokers Regulations”) read with clauses A(1) and A(5) of the Regulations.

The relevant provisions of the SEBI circulars, the Stock Brokers Regulations and the SCRR are reproduced as following: Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993: “6. Member brokers shall issue the contract note for purchase/sale of securities to a client within 24 hours of the execution of the contract.” Circular no. MRD/DoP/SE/Cir-11/2008 dated April 17, 2008: “2.1 Brokers should have adequate systems and procedures in place to ensure that client collateral is not used for any purposes other than meeting the respective client’s margin requirements /pay-ins.” Circular no. CIR/MIRSD/16/2011 dated August 22, 2011: Rights and Obligations documents for Stock Broker, Sub-brokers and Clients: “15. The stock broker shall ensure that the money/securities deposited by the client shall be kept in a separate account, distinct from his/its own account or account of any other client and shall not be used by the stock broker for himself/itself or for any other client or for any purpose other than the purposes mentioned in Rules, Regulations, circulars, notices, guidelines of SEBI and/or Rules, Regulations, Bye-laws, circulars and notices of Exchange.” Clause 12 of SEBI circular no. MIRSD/SE/Cir-19/2009 dated December 03, 2009: "Unless otherwise specifically agreed to by a Client, the settlement of funds/securities shall be done within 24 hours of the payout."

"The stock Broker shall transfer the funds/securities lying in the credit of the client within one working day of the request if the same are lying with him and within three working days from the request if the same are lying with the Clearing Member/Clearing Corporation."

Clause 33 of Rights and Obligations document for Stock Brokers, Sub-Brokers and Clients - CIR/MIRSD/16/2011 dated August 22, 2011: "The stock broker shall make pay out of funds or delivery of securities, as the case may be, to the Client within one working day of receipt of the payout from the relevant Exchange where the trade is executed unless otherwise specified by the client and subject to such terms and conditions as may be prescribed by the relevant Exchange from time to time where the trade is executed." “Conditions of registration. 9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a) .....................................................................................................................................

(e) he shall take adequate steps for redressal of grievances of the investors within one month of the date of receipt of the complaint and inform the Board as and when required by the Board;” Schedule II Code of Conduct for Stock Brokers "A. General (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. ………………………………………………………………………………… (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him."

The Securities Contracts (Regulation) Rules, 1957 “Qualifications for membership of a recognised stock exchange. 8. The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that: (3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if – (f) he engages either as principal or employee in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability, ....”

10. It has also been bought to my notice that the trading terminals of MIL were disabled by NSE in capital market segment on July 06, 2015 due to fund shortage and subsequently on July 15, 2015 due to deposit shortage and on July 23, 2015 in F&O segment due to deposit shortage. BSE had also disabled the terminals of MIL with effect from July 22, 2015 and the Bank Guarantee (BG) of `15 crore which was extended by Karnataka Bank against his residential property has already been invoked by Globe Capital Markets Ltd. (its clearing member for F&O segment). From the above it is clear that there is a huge shortfall in the assets of MIL in comparison to its outstanding liabilities and if immediate steps are not taken then there is a distinct possibility that its outstanding liabilities may increase and/or MIL may alienate or divert its assets to the detriment of its clients/investors. It is also noticed that NSE vide its letter dated August 13, 2015 has requested Delhi Police for taking appropriate action against MIL for misappropriation of clients’ securities. In these facts and circumstances, it becomes incumbent upon SEBI to take necessary steps expeditiously so as to prevent MIL and its directors from causing further damage to the interest of their investors/clients.

11. A person acting as a securities market intermediary is expected to protect the interest of investors in the securities market in which he operates and it ill-behoves him to become a party to any market misconduct. Such a person is required to maintain high standards of integrity, promptitude and fairness in the conduct of his business dealings, and not be motivated purely by prospects of financial gain. As a regulator of the securities market, SEBI has the duty to safeguard the interest of investors and protect the integrity of the securities market. Since the conduct of MIL and its directors is not in the interest of investors in the securities market, necessary action, including impounding and retaining the assets of MIL by way of an interim measure has to be taken against them immediately, else it may lead to further harm to the investors and loss of investors’ trust in the securities market.

12. In view of the above, I, in exercise of powers conferred upon me by virtue of section 19 read with sections 11(1), 11(4), 11B and 11D of the SEBI Act, 1992, by way of this ex parte ad-interim order, hereby issue the following directions: (a). The financial assets of Moongipa Investments Limited (PAN: AAACM5584A) and its directors namely, Mr. Madhur Agarwal (PAN: AAFPA1251Q), Mr. Sudhir Agarwal (PAN: AAFPA1250R) and Mr. Subhash Chander Singal (PAN: AALPS3587R) and its former director Mr. Shiv Kumar Agarwal (PAN: AAFPA1252P) are hereby impounded till further directions. They are further directed not to dispose off or alienate any of their assets, whether movable or immovable, or any interest or investment or charge in any of such assets except for the purpose provided herein. (b). Till further directions in this respect, the assets of these entities shall be utilised only for the purposes of refund of money and/or delivery of securities, as the case may be, to the clients/investors of Moongipa Investments Limited under the supervision of the concerned stock exchanges. (c). The banks and depositories are directed that no debits shall be made in their bank accounts/demat accounts, held jointly or severally, except for the above purpose and after confirmation from the concerned stock exchange in this regard.

(d). The concerned stock exchanges and the banks and depositories are directed to ensure that all the above directions are strictly enforced. (e). The aforesaid entities 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 their all bank and demat accounts immediately but not later than 7 working days from the date of receipt of these directions. (f). The aforesaid entities 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, with immediate effect, till further directions. (g). The aforesaid entities shall cease and desist from undertaking any activity in the securities market, directly or indirectly, in any manner whatsoever till further directions. 13. The above directions are without prejudice to the right of SEBI to take any other action that may be initiated against Moongipa Investments Limited, Mr. Madhur Agarwal, Mr. Sudhir Agarwal, Mr. Subhash Chander Singal and Mr. Shiv Kumar Agarwal, in accordance with law including the actions of imposing monetary penalties, suspension/ cancellation of registration, launching of criminal prosecution, etc. in accordance with the provisions of the Securities and Exchange Board of India Act, 1992 and the regulations framed thereunder.

14. This Order shall come into force with immediate effect. A copy of this Order shall be forwarded to all the Stock Exchanges and the Depositories to ensure that the directions given above are strictly complied with. 15. This Order shall also be treated as a show cause notice. Moongipa Investments Limited, Mr. Madhur Agarwal, Mr. Sudhir Agarwal, Mr. Subhash Chander Singal and Mr. Shiv Kumar Agarwal may show cause as to why appropriate directions/prohibitions under section 11 and 11B of the Securities and Exchange Board of India Act, 1992 and the regulations framed thereunder should not be taken/imposed against them. 16. The entities/persons against whom this Order is being passed may file their objections, if any, within twenty one (21) days from the date of this Order and, if they so desire, may avail themselves of an opportunity of personal hearing before the Securities and Exchange Board of India at its Head Office at SEBI Bhavan, Plot C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai- 400051 on a date and time to be fixed on a specific request in writing, to be received in this behalf from the entities/persons.

Sd/-

DATE: SEPTEMBER 10th, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA