SEBI Cancels Stockbroker Registration of Modex International Securities Over Misappropriation of ₹136 Crore

The Securities and Exchange Board of India (SEBI) has officially cancelled the certificate of registration of Delhi-based brokerage firm Modex International Securities Ltd (MISL), culminating an extensive regulatory crackdown on the entity for illicit diversion of client assets, falsification of back-office records, and gross regulatory non-compliance.

The order follows detailed regulatory proceedings, exchange inspections, and a comprehensive forensic audit, which revealed that the firm had misappropriated approximately ₹136.29 crore in client funds and caused a substantial shortfall in client securities holdings.

Audit Findings and Regulatory Breaches

The trouble for Modex International began when the National Stock Exchange of India (NSE), through routine off-site supervision and on-site inspections, uncovered discrepancies and falsifications in the brokerage firm’s Register of Securities (RoS). NSE observed that the broker had recorded manual adjustment entries in client registers to misrepresent client securities balances.

NSE submitted its inspection report to SEBI in December 2019, prompting the market regulator to mandate a full-scale forensic audit conducted by KPMG covering the period from April 1, 2017, to January 24, 2020.

The forensic investigation uncovered severe structural violations:

• Shortfall of Client Securities: Modex faced a confirmed shortfall of ₹95.29 crore in client securities across 288 scrips.
• Misappropriation of Holdings: Securities worth ₹113.03 crore across 323 scrips were found to have been improperly handled, with negative holdings in 118 client accounts indicating the broker had sold holdings of certain clients to cover obligations for others.
• Diversion of Client Capital: Modex received net cash settlement proceeds of ₹126.31 crore from exchanges for the purchase and sale of client shares, which were not remitted to clients. In total, the audit identified a potential misappropriation of client funds amounting to ₹136.29 crore.
• Falsification of Ledgers: Manual margin adjustment entries totaling ₹116.65 crore were passed to artificially inflate securities balances in 16 client accounts before those securities were transferred to the cash market and liquidated.

Modex had contended that portions of the funds never left the company and were merely transferred from its cash settlement account to its futures and options (F&O) settlement account to meet derivative losses. SEBI firmly dismissed these arguments, stating that commingling and diverting funds across accounts is prohibited under exchange regulations and investor protection mandates.

Loss of Exchange Membership and Insolvency History

SEBI had initially issued an ex-parte ad-interim order on April 30, 2020, restraining Modex and its whole-time directors from accessing the securities market, which was confirmed later that year. In September 2020, both the NSE and BSE expelled Modex from trading membership.

The firm was briefly admitted into the Corporate Insolvency Resolution Process (CIRP), stalling SEBI’s enquiry proceedings until the National Company Law Tribunal (NCLT) recalled the insolvency admission on June 12, 2025, on grounds that financial service providers registered with SEBI as stockbrokers are excluded from the default framework of the Insolvency and Bankruptcy Code (IBC).

In August 2026, SEBI levied penalties of ₹7 lakh each on Modex International and its whole-time director Pavan Kumar Sachdeva (totaling ₹14 lakh), continuing their market ban until all pending investor claims are cleared via the lead exchange. Proceedings against principal director Dharmendra Kumar Arora abated following his demise in April 2021.

Cancellation of Intermediary License

In the final enquiry order, SEBI's competent authority emphasized that membership of a recognized stock exchange is an indispensable eligibility condition for maintaining a stockbroker registration.

The order noted that the company's expulsion from the NSE and BSE, long-standing non-operational status, failure to honor client obligations, and deliberate ledger manipulation struck at the heart of investor confidence and market integrity. Consequently, SEBI revoked Modex International Securities Ltd’s registration as a stockbroker.

For Indian market participants, the action marks the definitive conclusion of one of the market's major defaulting broker sagas from the 2019–2020 cycle, underlining SEBI's current stringent architecture on mandatory client fund segregation, pledge-repledge mechanisms, and exchange-level monitoring.

Tags: Modex International Securities SEBI National Stock Exchange BSE Capital Markets Brokerage