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Badla investors seek their billions back

Sangita Shah & Ashwin Punnen

Investors are flooding stock exchanges with complaints against member-brokers for non-payment of their dues, particularly with regard to money invested in vyaj badla. The amount involved is believed to about Rs 5-6 billion.

According to sources, the Bombay Stock Exchange has received more than 200 such complaints, while National Stock Exchange is also reported to have received complaints in hundreds.

While a BSE spokesman confirmed that they had received complaints against members for non-fulfilment of payment obligations or refusal of returning investors money, NSE officials could not be contacted.

Sources said the problem concerns brokers who have not routed their clients' money through the official system but have instead used it for private badla financing deals.

Under the badla financing system, (the BLESS on the BSE or ALBM on the NSE), a broker has to deposit clients' money in the clients pool account in the clearing bank.

However, the clearing bank does not give a client code for such deposited amounts.

Since the clearing bank is not equipped to allot code numbers to each financier separately, nor does it issue any kind of certificate on the holding of financiers, it offers brokers room to divert the money.

It is understood that badla financiers -- mostly corporates and high net worth individuals -- have lost over Rs 5 billion as brokers have misused the funds for meeting their pay-in requirements and also for speculative trading through proprietory accounts.

According to market sources, several big brokers of the BSE and the NSE are understood to be involved.

They have incurred huge losses on the exchanges in the alleged bear-hammering case and to avoid defaults on the exchange, they have either used the funds for pay-ins over the past few weeks or have utilised for proprietary trading and have incurred loss.

These brokers are understood to have indicated to their clients that they are unable to return the money at this juncture but were willing to pay interest on the amount taken.

Some brokers are also putting pressure on their clients to accept only a part of the capital invested as one-time settlement, sources said.

However, some brokers were of the view that certain clients who had basically lent funds on fixed interest to brokers on loan accounts are now clamouring for their return.

Though badla finance is a secured mechanism as there is trade guarantee fund on stock exchanges to honour defaults by brokers, it can be useful only if the clients have proper contract notes to back up their claims.

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