A worker unloads sacks of cement from a freight train in Mumbai, India (Photographer: Kuni Takahashi/Bloomberg)  

Dalmia Cement’s Missing Mutual Fund Units Found

The market regulator found that Allied Financial Services Pvt. Ltd., a broker and a depository participant, transferred mutual fund units of the Dalmia Bharat Group arms for using them as collateral to trade in the futures and options market.

Odisha Cement Ltd., which will be renamed as Dalmia Bharat Ltd., informed exchanges on Feb. 27 that its depository participant, which hold securities, had “illegally” and “unauthorisedly” transferred the mutual fund units worth Rs 344 crore from its demat account. The company didn't disclose the name of the depository participant but filed a complaint with the regulator and the police.

The same day, the Securities and Exchange Board of India, according to an order on its website, barred Allied Financial Services and nine other entities from the capital markets pending completion of a forensic audit by the National Stock Exchange. SEBI directed the broker and the entities not to dispose of any asset.

The market regulator found that Allied Financial Services related parties, including its promoter, held 89 percent of broker’s total holdings of Rs 386 crore, including the Dalmia Bharat group subsidiaries mutual fund units.

The SEBI order said it received preliminary observation against the broker from the NSE on Feb. 23, which inspected the transactions and appointed a forensic auditor to investigate the matter.

Modus Operandi

According to NSE's preliminary observations, the broker has been transferring mutual fund units of its clients through its associated entities. That included the promoters, also listed among clients of the broker.

These promoter-led entities transferred mutual fund units from the accounts of Dalmia Bharat subsidiaries and used them as a collateral against margins with a clearing house—IL&FS Securities Services Ltd.

The broker had a total exposure of Rs 990.25 crore in the F&O segment on Feb. 18. The broker had a total margin obligation of Rs 354.95 crore and if all the outstanding positions in the F&O segment were to be liquidated and the client money returned, it would have a shortfall of Rs 312.53 crore, said the NSE. The net worth of the broker was negative at the end of January.