More orders may come from Sebi on cap gains case: JN Gupta

Latha: How serious do you think this entire tax evasion problem could is? Are you surprised by names like even Bhushan Group promoters coming in?

A: I am not surprised because such things were floating in the market earlier that people are using their stock market x for tax planning. I don't think that tax planning is a bad thing unless and until it involves some systemic issue and here we have to look into the problem in three different parts. One is tax planning, the other is the integrity of the market, third, investor-related issue. Had it been pure tax planning which did not involve any issue of market integrity or did not hurt investors probably it would not have come onto the radar of Sebi or Sebi would not have been bothered or at the most Sebi would have referred the matter to income tax department that it has come to their notice. But what has happened in their case is that those participants in order for tax planning have rigged the market or they have played in the market and they have spoilt the integrity of the market which is a very big issue for the regulator as its primary duty is to maintain the integrity of the market and protect the investor. It is not an isolated case that those two people or three people or ten or twenty people who were planning to reduce the tax or they were doing tax planning they were involved. What happened along with their transactions, the transactions of other innocent investors they are also involved. And they would have bought shares of companies which were not worth what they were quoting at.

Sonia: Our research shows that the market capital of these mysterious companies could be over Rs 50,000 crore, do you think that are more rotten eggs coming in to the market soon?

A: Neither I have a crystal ball nor you have a crystal ball to say what is going to be the size of this thing. Yes it could be a situation because if you have seen it is not one order, there are three successive orders that have come from Sebi. That clearly indicates that it may not be the end of this game and there could be many more orders coming from Sebi because it could just be one portion of the problem that could have come to the surface. So if many more orders like this come and many more people are caught like this then we can say that the size of the problem or the size of the matter which is at hand could be enormous. But it will not be possible for me or anybody else to put a number of 10,000 crore or 20,000 crore or a lakh crore, we could not be doing that. It will not be prudent nor fair for us to make any judgement that whether the big corporates are involved or the small corporates are involved or individuals are involved. It is a very simple issue that people are messing up with the system.

Latha: Is that the only problem because of the existence of tax exemption for long-term capital gains, therefore this problem exists?

A: See, it is a very simple issue that none of the regulators or none of the law enforcing agencies will be able to catch all the culprits. That is why the system of punishment has to be such that it acts like a deterrent for future problems. Unfortunately every where enforcement is a big issue because you are not able to catch. The second most important issue in our country is lack of education with the investor because I really do not know how can an investor buy a stock which is quoting a 2000-3000 PE which has no performance to back up for last couple of years. So my point is that systemic issues are there and people are able to misutilise that and create all the problem for others while making profit for themselves or while tax planning for themselves.

Latha: What are the remedies to stop these tax evasive gains?

A: Remedy would always lie in all the agencies working in harmony and whenever somebody is caught giving a punishment which should be acting as a deterrent. Two months barring or three months barring from the market or something like that is none because then that person will be born in some other name and continue doing this. The issue is that it should be a very tough message that if you are messing up with the system, we are going to mess with your life.

Sonia: Are you surprised that the size of the problem has become so big and that the regulator hasn't done anything so far?

A: I would not say regulators haven't done anything. I would always say that people who are breaking the law will always be one or two steps ahead of the regulator. Regulators will try to plug one problem today, the law breakers will find two other methods to break the law. So regulators will always be lacking in the savvyness of the people who want to break the law. But yes it is an issue and all regulators have to tackle it.

Latha: You would still think that it is the capital market regulator Sebi and tax department which are responsible to unearth this?

A: As I told you all the regulators be it income tax department, be it RBI, be it Sebi, they have to work in harmony. If it is purely an income tax issue then none of the regulators will come into the picture but since here the market infrastructure is being utilised for creating tax planning then Sebi also gets involved. So it has to be a joint effort of all the regulators to put all this problem to an end.