As a multi-agency probe continues to check the black money menace, regulator Securities and Exchange Board of India (SEBI) will update its board next month on actions being taken against suspected shell companies - listed as well as unlisted ones - abetting alleged routing of illicit funds through stock markets.
While a large number of listed companies are under the scanner for allegedly being conduits for illicit money, the regulator is also keeping a close watch on cases where entities are availing LTCG (Long Term Capital Gains) benefits through sham transactions in stocks.
The SEBI board, in its meeting scheduled for September 18, is likely to have a detailed discussion on the developments related to suspected shell companies listed on the bourses and actions taken against them, sources said.
A slew of issues, including protecting the interest of investors who have put their money in suspected shell companies and regulatory measures that can be initiated against officials of such firms, would be deliberated upon.
Post demonetisation, authorities have detected cases of same entities that have been using multiple PAN numbers to trade in shares. Such instances are also being probed by the SEBI, which has strict KYC norms in place for market participants, sources said.
On August 7, the watchdog directed exchanges to restrict trading in shares of 331 companies following government identifying these entities as suspected shell firms.
Following appeals, the Securities Appellate Tribunal (SAT) lifted the curbs imposed on some among the list of 331 companies. The SEBI has also asked exchanges and brokers to verify credentials of 107 unlisted entities and bar them from trading in stocks if results are found unsatisfactory.
This list also includes entities supposed to be engaged in real estate, plantation, trading and finance related businesses.
These lists were shared with SEBI by the Ministry of Corporate Affairs and are based on ongoing investigations by various agencies, including income tax department and SFIO.
Already, the watchdog is in the process of bolstering its investigation and enforcement mechanism to check misuse of stock market platform for generating "bogus" long-term capital gains to launder black money. The Sebi has come across instances wherein fraudulent tax benefits have been claimed through trades in some blue-chip stocks.
While the rules provide exemption from long-term capital gains through stock market trades, the government in this year's Budget, announced steps to limit such benefits only to "genuine trades" as part of a concerted effort to clamp down on tax evasion through "sham transactions".
The modus operandi in such cases typically involved stock market dealings aimed at evading long-term capital gains tax (LTCG) and showing the source of income as legitimate from stock markets. Besides, bogus losses are also created through stock trades to offset the same against capital gains.
While penny stocks have been known as being among the most preferred vehicle for such misdeeds, the regulator is looking into possible misuse of LTCG benefits by trading in blue-chip stocks. The SEBI along with other authorities are keeping a tab on thousands of cases where exemptions from long-term capital gains tax have been misused to declare unaccounted income.