Mumbai, Nov. 29 :    Mumbai, Nov. 29:  In a move to check misuse of tax havens like Mauritius, the Reserve Bank of India today banned overseas corporate bodies (OCBs) from investing in the Indian capital market through the portfolio investment scheme (PMS). The OCBs that have already made investments under the portfolio investment scheme may continue to hold such shares and convertible debentures till they are sold on the exchanges, RBI said in a statement here. The OCBs would continue to enjoy the facility of opening non-resident account and make direct investments, it added. The sudden RBI announcement, that came long after the stock markets closed for an extended-weekend, took everybody by surprise and operators had hardly any time to react. However, brokers say that the move may not immediately dampen the market mood as only fresh investments have been banned. According to RBI officials, since the central bank has not set any timeframe for liquidating the current investments of OCBs through the PMS route, the adverse reaction will be limited. OCBs, with 60 per cent non-resident Indian ownership and 40 per cent foreign holding were initially allowed to invest in secondary market to boost foreign exchange reserves of the country, RBI sources said. However, in the last two years this route was misused by some market participants and over Rs 3,800 crore were taken out of the country which prompted the Securities and Exchange Board of India (Sebi) to look into the matter. Sebi investigations into the March 2 capital market crash had revealed that some NRIs in collaboration with market operators had set up OCBs with tiny capital of $ 10 in Mauritius and conducted high value transaction in markets to gain tax benefits. Though OCBs are banned from making direct investment in the secondary market, NRIs are free to invest directly and foreigners could bring in funds by having account with foreign institutional investors (FIIs, Sebi sources said. It had often been alleged that the real beneficiaries of the stock market bull run are OCBs or corporate houses run by non-resident Indians with real or dummy offices on the island nation of Mauritius who play the Indian bourses heavily. The same taxation treaty between India and Mauritius that allows FIIs to get away with paying just 15 per cent income tax on earnings, allows a large number of OCBs to go scot free with no tax burden at all, Sebi officials had ruled in the past. A little known clause in the Indo-Mauritius tax treaty, notified in 1983, allows OCBs, registered in Mauritius before July 2000, the option of paying anything between zero and 35 per cent tax tax on their earnings and that too at their discretion. A circular issued by the finance ministry last year to bail out FIIs who were under attack for using dummy front companies in Mauritius to avoid paying tax on income from capital gains, has given the Mauritian authorities the sole power to decide which OCB or FII is a resident of the island. (Indian authorities cannot challenge this even if they are convinced the OCB or FII in question is using dummy fronts).