The Hindu Business Line : Curbing unofficial share transactions

IN these troubled times when caution is advised against handling any stray objects, the State Governments and their police force appear to be running scared of one such potentially explosive item - the stock market `dabba'.

And, the Union Ministry of Finance is not quite amused.

Faced with an apparent `lack of will' on the part of the State Government machinery to rein in the flourishing illegal share transactions outside the official trading ring - called `dabba' in market parlance - the Finance Ministry is at its wits end to find ways to put an end to the problem.

"The States have to play a proactive role in tackling the problem. Not enough help is coming from the State police to clamp down on the unofficial transactions," a senior Finance Ministry official said.

The Ministry is particularly worried since the Joint Parliamentary Committee (JPC) on the stock scam had called for prompt and definite action on the unofficial trading racket. The committee had said that the stock market regulator - the Securities and Exchange Board of India (SEBI) - should crack down on such trade.

Officials point out that despite SEBI having initiated action on several entities transacting in the unofficial market, the market regulator is finding itself helpless in the absence of back-up action by the State police force. "SEBI has conducted raids in several places. It has acted in Kanpur, Kolkata, Ahmedabad, Baroda, Surat and Mumbai. Even today one of the kingpins of the unofficial trade Pradeep Kumar Bansal has not been arrested," officials pointed out.

The Finance Ministry had earlier pointed out to the JPC that SEBI has severe limitations in putting a curb on the unofficial trading racket. In its Action Taken Report on the JPC, the Government had pointed out that though prohibited under the Securities Contract Regulation Act (SCRA), illegal trading does not come under the regulatory jurisdiction of the capital market regulator since it is actually a cognisable offence punishable under the Indian Penal Code (IPC).

In view of this, the proper authorities for taking action are the State Governments and their police force, the Government had said.

SEBI had, in fact, in separate communications in December 2002, and January 2003, written to the various State Governments explaining to them the mechanics of the unofficial trade and had asked them to take appropriate action under the legal framework.

The dabba trade, which is conducted by brokers operating as small exchanges, runs as a parallel market outside the official securities market. With huge volumes transacted each day, it has an effect on the pricing of shares in the official market. Unofficial estimates says that the trading amount often run into several thousand crore of rupees a day.

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