Sucheta Dalal :Random scrutiny
Sucheta Dalal

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Random scrutiny  

Sep 27, 2004


Finance Minister P. Chidambaram has cleared a random scrutiny of tax returns of salaried employees through a computer-generated process. But it will be far more effective if the random sample is generated on the basis of pertinent parameters. A good starting point would be family members of officials of the revenue and investigation departments. They are the most likely conduits for regularising black money collection through investment in real estate, jewellery and the stock market. A second target would be highly-paid senior executives of most companies, especially those working at large Indian companies, IT companies and multinationals. Sources say that a growing number of employees at these firms spend long hours indulging in hectic stock market trading. Often the trades are based on inside information and generate hefty profits. Most such executives are tech savvy and are registered at Internet trading platforms such as or India Bulls. Tax evasion in fairly high on trading profits and is often justified on the ground, that they are already in the highest tax slab on their salary income. The third group is politicians. The harassment of ordinary citizens through tax scrutiny can only be justified if politicians are subjected to it too. Affidavits filed for the Maharashtra Assembly elections reveal that the wealth of most candidates runs into several crore rupees. And this is not even always a correct declaration. A former chief minister has had the audacity to leave out his present residence, which alone is valued at nearly twice his declared wealth of over Rs 6 crore. The question that most people want answered is about the process of wealth acquisition (in one case running into over Rs 200 crore) and whether there is a full audit trail available of their growing riches and tax payments.


Proving MAPIN


The SEBI had controversially asked all capital market intermediaries and their directors to get themselves biometrically finger-printed and allotted a Unique Identification Number. Now that SEBI has a reasonable database of market intermediaries and their directors, market circles wonder whether any effort has been made to analyse the database and cross check directorships. The chairman of a top bank tells us that many well-known names, who are ostensibly independent directors of banks and capital market intermediaries, also figure on the boards of shady, defaulter companies, or those that have vanished with investors’ money. Bankers are the first to figure out the connection because these directors often surface to help renegotiate loans on behalf of such dubious entities. SEBI may well argue that its database is incomplete because it has not been extended to directors of companies. A stay by the Delhi High Court stopped it in its tracks. But the regulator’s case for MAPIN will only be strengthened if it is able to establish the utility of MAPIN by showing how the data gathering effort is useful either to expose dubious linkages or initiate corrective action.


More action


Although the SEBI has imposed its harshest penalties yet against DSQ Software, the woes of its chief Dinesh Dalmia are far from over. Recently, the Enforcement Directorate has also slapped a Rs 2 crore penalty on Dalmia for violations connected with his Overseas Corporate Bodies. And they are continuing to investigate his sale of DSQ’s lucrative contracts to Ramesh Vangal’s Scandent Technologies. This is in addition to SEBI having barred Dalmia from accessing the capital market for 10 years and being asked to deposit Rs 630 crore in an escrow account, to represent the value of fraudulently allotted shares. And it doesn’t include the scores of people and companies who have separately filed litigation against him for recovery of dues. Ironically, while DSQ Software was the first case to be handed over to the Serious Frauds Office (SFO) of the Ministry of Company Affairs, its officials recently claimed that their investigation has been stymied due to a stay obtained by Dalmia from the Madras High Court. It is, however, not clear whether the SFO is using the recent developments to have the stay vacated or appeal to a higher court.


Foreign experts


Fifteen out of 430 members on 19-odd committees is indeed a tiny number. But the clout wielded by foreign consultants with the Indian Government has been a multiple of their numerical minority. In the early 1990s, many public sector banks were ‘urged’ by the government to seek the advice of various foreign consultants on their restructuring plans. Most banks ended up forking out large sums of money with little to show for the payment.



Email: [email protected]

-- Sucheta Dalal