Black money: Billion-dollar worth ‘tax evasion shops’ busted, says Sebi’s UK Sinha

By: | Updated: July 22, 2015 7:16 PM

Black money in stock markets: Suspecting tax evasion of at least Rs 5,000-6,000 crore, Sebi clamped down on a large number of organised syndicates...

sebi black moneyBlack money in stock markets: Giving example of the IPO market, U K Sinha said Sebi found “some people had virtually set up shops” there. (PTI) (Express Archive)

Suspecting tax evasion of at least Rs 5,000-6,000 crore, regulator Sebi has clamped down on a large number of organised syndicates who had set up ‘shops’ to convert black money into legitimate-looking funds through the stock market platform.

While more than 900 entities have been banned from capital markets by the Securities and Exchange Board of India (Sebi), it has also referred these cases to the Income Tax Department for further investigations.

“We have banned more than 900 entities and my guess is that the tax avoidance that has happened in these cases is more than Rs 5000-6,000 crore,” Sebi Chairman U K Sinha said.

“We have given all the details to the CBDT (Central Board of Direct Taxes) and we have told them that they should probe them,” Sinha told PTI in an interview here.

Talking about the menace of money laundering and other market-related manipulations, Sinha said the regulator is trying to curb such cases one-by-one very successfully.

“As far as markets are concerned, one by one we are trying to curb the manipulation very successfully — be it IPO markets, GDR markets or secondary markets. But I must also say that this is an ongoing battle and I cannot say that we have controlled every thing,” he said.

Giving a “complete picture” on this menace, the Sebi chief said, “In any country or in any market, there are always people who are trying to find loopholes and take advantage.

“These are the people who have criminal intent. They are not here to help in the growth of the country. They work with a desire to corner money with criminal intentions.”

Giving example of the IPO market, U K Sinha said Sebi found “some people had virtually set up shops” there.

“If you want to raise Rs 200 crore, come to me, I will provide you the buyers, I will provide you the platform and I will provide you with a mechanism on how to go for the listing. They were manipulating the market after listing,” Sinha said, while adding that Sebi was able to crack this.

Sinha further said similar activities were taking place in the GDR market also, where Sebi passed some orders which have now been upheld by the Supreme Court as well.

“So, segment-wise, we have been able to control it — first in IPO market and then in the GDR market. Now let us come to the secondary market.

“Here our insider trading regulations have been strengthened now. In addition, we found that there is a need for very active surveillance and therefore we strengthened our surveillance systems,” Sinha said.

These measures helped Sebi crack a major organised and syndicated financial crime that was taking place in the stock market, he added.

“We found that there are these companies where the price has gone up by 10-times, 20-times and even more in some cases. Our surveillance systems caught this signal and we started probing. We started asking if your share price has gone up ten times, has your business also grown. Has your profit, turnover, order book, etc grown?

“We found that there was no correlation in the price and the business of these companies. Then we went to the next step and started getting into who were the buyers and sellers of these shares and from which bank account the money was coming.

“Then we realised that there was a racket going on. The same set of people were at play at all the levels and their intention was not just to manipulate the market, but their intention was actually to make the black money white.

“But they were doing it through our stock market mechanism. We caught then and we have banned more than 900 entities and my guess is that the tax avoidance that has happened in these cases is more than Rs 5000-6,000 crore,” he added.

Many startups plan to list; final norms being notified: U K Sinha

Bullish on a vibrant startup ecosystem in India, regulator Sebi today said many new-age companies have initiated plans to get listed and the final rules for their listing would be notified within 7-10 days.

Promising an easier set of compliance requirements and other regulations for startups to get listed on a new platform, Sebi Chairman U K Sinha said such companies might lack a profitability track-record, but many of them have huge potential to become highly profitable.

The relaxations would include removal of caps on the money spent by such companies on publicity and advertisements as they need to spend much more for such purposes, Sinha said.

There is also a significant likelihood that many of these companies would eventually become eligible in a few years for listing in the main market, thus enabling even the retail investors to participate directly in their growth story, the Sebi chief told PTI in an interview here.

Terming the proposed rules as game-changer in the primary market and to push entrepreneurship in the country, Sinha said the Institutional Trading Platform would allow the new technology companies, or startups, to get listed in the domestic market and raise funds easily, without them going overseas for such requirements.

“For them, we have a new system where only institutional investors, or people having at least Rs 10 lakh can invest. So we have protected the small investors from investing there, because these are the companies which are difficult to understand.

“They do not have a profitability track record. You look at any of these ecommerce companies, they are making losses. But going by certain valuation exercises, certain assessments of their businesses, certain global standards, there is a very strong likelihood that they will make very strong profits.”

Sinha, who himself has been very actively working on this new listing regime, said he along with other top Sebi officials actually travelled to Bangalore to understand the requirements of startups.

“We have done all this very proactively. I went to them in Bangalore to listen their concerns. We spent almost an entire day with them, we had a lot of representations, we heard the market participants and all other experts. Then I invited them here (to Sebi office) and after a thorough discussion we have implemented this,” he said.

Asked about his expectations for response to the new platform, Sinha said, “Their feedback is very positive. We are going to notify these regulations within 7-10 days and I am hopeful that many of these companies, which were being approached by Singapore and New York exchanges earlier, would come and list here.

“I won’t say that all of them, but many of them would now start listing in India. Once even 2-3 companies list, you will find that there is a lot of progress thereafter.”

Sebi chief Sinha said it is not easy for a small investor to understand these metrics and therefore it has been decided to make it an institutional platform and not a retail platform.

“But these companies can eventually come on the main board at a later stage after meeting the eligibility criteria and then even retail investors would be able to invest in those.

“We will be very happy if they grow further and come on the board and I am sure many of them would eventually do that. But that would happen after a few years, not immediately,” he said.

Sinha said the relaxations are being given because there are only institutional and large investors who would be allowed to invest here.

“These are the companies which do not have a profitability track record and more importantly they do not have tangible assets. Earlier the concept of the company used to be that they will have a plant, land, machinery, raw materials, stocks etc. But these companies have got none of these. Everything is in the virtual world. So, we have said these requirements we will do away with,” he said.

Sinha further said many of these companies also spend a lot of money on publicity and advertisements, “whereas Sebi rules are that you can not spend more than 25 per cent on what is called General Corporate Purposes.

“We have put this ceiling on such expenses (by companies listed in the main market) because we realised that the people are not disclosing the real purpose of IPO and then they are diverting the money and misusing the funds collected from public investors.

“Here (for startups) we have removed that ceiling also. So, these companies are very happy that for their sake a lot of changes and relaxations have been made by Sebi,” he added.

Sebi’s move for startups to get listed and raise funds through a dedicated platform on domestic stock exchanges has been welcomed by e-commerce firms and other new-age ventures.

The new norms are aimed at encouraging Indian entrepreneurs and their technology and other startups to remain within the country, rather than moving to overseas markets for funds.

Under the new norms, the exchanges would have a separate institutional trading platform for listing of startups, while the minimum amount that an individual or institutional investor would need to invest in such ventures would be Rs 10 lakh. However, small retail individual investors would not be allowed to invest.

A higher investment cap has been decided with a view to keep small investors away, as risks could be higher in such investments and the disclosure and other listing requirements have been relaxed, as compared to other companies.

For their listing, Sebi has also relaxed the mandatory lock-in period for promoters and other pre-listing investors to six months, as against three years for other companies.

Besides, the disclosure requirements for these companies have also been relaxed.

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