Sebi cracks whip on Rs 1,800-cr tax evasion case

In a fresh clampdown on entities misusing stock markets for evading taxes, watchdog Sebi on Friday imposed trading restrictions on 33 entities and suspended trading in one listed company, which have been found to have made undue gains of over Rs 1,800 crore (Rs 18 billion).

While 24 entities have been barred from the entire capital markets, nine others have been restrained from trading in the shares of Kamalakshi Finance Corp Ltd. The trading has also been suspended in its shares till further orders.

This is the fourth such order by Sebi against misuse of stock market framework for evasion of taxes in recent weeks. Together, the regulator has suspended trading in 27 companies so far in such cases, wherein the manipulators are estimated to have made cumulative undue gains of about Rs 2,500 crore (Rs 25 billion).

Those having faced action so far include promoters and top executives of many listed companies.

In the latest case, Sebi found that the entities were trading in the scrip of Kamalakshi above the Last Traded Price (LTP) and their trades resulted into artificial increase in price.

"Thus, these group of entities prima facie manipulated the price of the scrip during the examination period (January 15, 2014 to December 26, 2014)," Sebi said in an order.

The market regulator noted that entities had "the intention of using securities market system to artificially increase volume and price of the scrip for creating bogus non taxable (i.e. LTCG) profits".

"Unless prevented they may use the stock exchange mechanism in the same manner...for the purposes of their dubious plans as prima facie found in this case," Sebi said.

Sebi also noted in the order the artifice employed in this case, "apart from being a possible case of tax evasion, which could be seen by the concerned law enforcement agencies separately, is prima facie also a fraud on the securities market in as much as it involves manipulative transactions in securities and misuse of the securities market".

Pursuant to detection of a huge rise in the price of the shares of Kamalakshi Finance Corp on BSE, Sebi had conducted a preliminary inquiry in the dealings in the scrip of the firm during the period from January 15, 2014 to December 26, 2014.

It was noticed that during the examination period, the price of the scrip of the company rose from Rs 10.20 to Rs 489 an increase of 4,694 per cent (48 times) in 150 trading days.

During the entire examination period, the total traded volume in the firm was only 1,385 shares as against total 2,.84 crore subscribed shares.

Accordingly, Sebi has barred Kamalakshi Finance Corp, its 24 other entites including the company's promoters and directors from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions.

It has also restrained nine entities from dealing in the scrip of the company.