New Delhi, Dec. 19: The Joint Parliamentary Committee report on stock market scams has unearthed evidence that rogue overseas corporate bodies (OCBs) operating out of Mauritius—the island tax haven in the Indian Ocean—were directly responsible for the stock market shenanigans of 2001.
These OCBs, which are now suspected of being fronts for promoters of Indian companies, have been indicted for circular trading to rig prices of specific shares by artificially pushing them up or down. They have also been accused of trading in shares without actual deliveries and even without real fund flows, implying a nexus with brokers and corporates.
Investigations into the trading patterns of some scrips—Mascon Global, Shonk Technology, Aftek Infosys, Adani Exports, Global Trust Bank, Lupin Labs—have brought out that Ketan Parekh, among others, used many of these OCBs and FII sub-accounts to park shares and trade in circles, thereby creating an artificial market bubble. At times these ‘smart’ and illegal market moves also circumvented several established rules such as the takeover code.
Five OCBs—Kensington Brentfield, Wakefield, Far East and Almel, besides sub-accounts of the FII Credit Suisse First Boston—have been accused of “aiding, assisting and abetting in creating artificial market and volumes, circular trading and building up concentrated positions” in Mascon Global, GTB and Lupin Labs.
Most revealing was their trade with Ketan Parekh group companies. KP companies sold shares to OCBs who, in turn, sold them back to KP, driving up or down prices as they pleased in selected scrips.
The report clearly states that Sebi’s probe into the OCB route has shown these so-called NRI companies have been draining out more money from India than bringing in capital in foreign exchange for the stock market. OCBs with nominal capital ranging from $ 1 to $ 10,000 were making trades worth several millions of dollars in the stock markets.
For instance, Rafs Corporation Ltd, operating out of the fourth floor, LiWanPo House, 12 Remy Oltier St, Port Louis, with a total paid-up capital of just $ 2,000, brought in nil amount into India during the period April 1, 1999 and March 31, 2001. But within three years, they managed to earn and take out Rs 33.17 crore.
However, Delgrada Ltd, operating out of the sixth floor, Came House, Chaussee, Port Louis with a paid-up capital of a token $ 1, beat Rafs and others in the game hollow. It took out Rs 476.12 crore out of the country within the same three-year time span without bringing in even a single rupee.
Interestingly, some 60 OCBs were found to be sharing the same post box number as its address. “It is suspected that certain unscrupulous persons residing in India are operating behind the facade of these OCBs. It is suspected that some Indian promoters were also using these OCBs as fronts,” the report stated.
Nearly 80 per cent of the OCBs operating in India are based in Mauritius, possibly to take advantage of the zero tax status that OCBs enjoy in the island nation by virtue of local tax laws and a tax avoidance treaty with India. In fact there are so many OCBs operating in India, that in November 1999, the RBI gave up monitoring them and asked individual banks to do the job.