In 2000, the Securities and Exchange Board of India (Sebi) investigated Dolat Capital Markets and its group companies (referred to in the JPC report as the Shailesh Shah Group) for ‘‘unauthorised negotiated deals’’. This is one of those cases where the JPC asked Sebi to conduct ‘‘further investigations’’, since it has not provided conclusive evidence to substantiate its conclusions. Typically, Sebi seems to have done precious little follow-up during the past three years, but last week, the Income Tax authorities hit a bonanza. Top sources confirm that the group (now an active arbitrageur in the commodities market) has confessed to having hidden a whopping tax liability of Rs 125 crore. Will the charges stick?
Top IT sources say there is little leeway available to the group when there is a written confession. Given the pressure to increase tax collections, brokers are worried that this disclosure could trigger off detailed investigation of the books of other leading brokers as well. Incidentally, the Income Tax Department’s effort at tracing the money may unearth more scam-related offences than Sebi’s investigation has done so far.
While on recoveries, a complaint by a Bombay Stock Exchange (BSE) sub-broker had led to the arrest of a leading builder-broker Suresh Mittal in mid-February. The broker was let off after a brief lock-up, after he paid up the Rs 1.04 crore that was owed to the sub-broker. The charge was that Mittal had traded at the complainant’s firm through a bunch of fake entities and disowned the resultant losses. However, that may not be the entire story. We learn that Mittal, who is politically well-connected and financially well-off, was himself cheated by a notorious market operator/industrialist, who has been indicted for manipulating his group company shares during the 2000 Scam. After his arrest, Sebi and the two leading stock exchanges inspected brokerage firms connected with Mittal; but it is not clear if they found any irregularities. Mittal himself has made no official complaint against the industrialist who owes him money and is absconding from the country, probably because the dealings were benami. Without a formal complaint, the slippery industrialist, who owes crores of rupees to dozens of companies and institutions, will get away scot-free again.
Last week the media reported that well-known hotelier Ajit Kerkar’s Rs 153 crore acquisition, the Juhu Centaur hotel (now known as Tulip Star), was on the verge of being sold, at more than twice its purchase price, to a consortium of Mumbai-based builders. If Kerker sells this over-leveraged acquisition at the speculated Rs 370 crore, it would again prove that the BJP government bungled its disinvestment of hotel properties. We learn that the decision to sell the hotel property is being forced by a winding-up petition against Kerkar and Tulip Star that was recently admitted by the Mumbai High Court. A Bangalore based consulting company — Tremac India Pte — which has helped Kerkar raise funds to acquire Centaur Hotel filed a case in the Mumbai High Court, after he failed to pay Rs 84.58 lakh owed to it (including interest). Hearing the petition, the Judge brushed aside Kerkar’s contention that criminal complaints had been filed against the petitioner and admitted the petition. Interestingly, this is just one of the many petitions filed against Kerkar’s Tulip Hospitality Services by creditors. It remains to be seen if the acquisition by a consortium of builders, allows Kerkar to pay off all his debtors and still manage a neat little profit for himself.
Withdraw withdrawal cess?
The media is interpreting Finance Minister P. Chidambaram’s cryptic statement to Parliament to mean that savings bank accounts will be exempt from the proposed Banking Transaction Tax (BTT) of Rs 10 on every withdrawal of Rs 10,000. The FM had introduced this tax claiming that it would help flush out black money and help create audit trails to tax evaders. We suspect that the FM’s decision is based on banks’ inability to modify their systems to collect the tax. Unlike national stock exchanges, which operate in a completely automated environment, the banking sector — especially small private banks and co-operative banks — is still in the manual era and would find it extremely arduous to collect and transfer the tax to government. On the other hand, restricting the BTT to current accounts is meaningless, because a lot of black money flows through savings accounts, which are easily opened and closed down. Maybe the FM will repeat what he did with the Securities Transaction Tax (STT), which was first rolled back beyond market expectations and raised this year when it has gained acceptance. The FM could give banks the space to create a tax collection mechanism for current accounts this year and allow him to introduce it for savings accounts next year after blunting criticism.