Letters: A clarification on 'Over to Sebi'

This is with reference to the editorial, "Over to Sebi" published on October 6. This was preceded by an article titled, "Sebi and black money" (October 5). A strong opinion has been expressed about the functioning of Securities and Exchange Board of India (Sebi) without ascertaining facts from it or caring to find out the legal arrangement of the role of various agencies.

Law breakers do not work in silos, trying to violate only one law or the jurisdiction of a singular government agency. Often, their illegal activities encompass various provisions of law, which may fall within the domain of multiple government agencies. Sebi's mandate is to protect the interest of investors and curb market manipulation. All transactions in the secondary market are permitted only through banking channels where AML checks are already in place.

A copy of the letter written by the then revenue secretary on July 28, 2015, has been obtained and conclusion has been drawn that Sebi is a 'major roadblock'. No care was taken to check whether Sebi replied to the letter and what the facts of the matter are. Through various letters starting as early as December 18, 2014, Sebi informed the CBDT, ED and FIU about the orders passed by it in LTCG cases and requested them to take action they deemed appropriate. On August 6, 2015, Sebi replied to the then revenue secretary, highlighting the action taken by it and clarifying that the primary responsibility of identifying a tax evasion case lies with the Income Tax Department, not Sebi.

It is clarified in brief that Sebi's surveillance system generated alerts about the share prices of certain companies going way above the general increase in the market. Such shares were identified and their price movement was verified with the company's actual business by looking at its balance sheet, profit and loss accounts and disclosures like order book and increase in turnover. In places where the correlation was not established, Sebi sought to find out whether there was any connection with a set of clients and brokers regularly involved in manipulating prices.

Sebi had to look into the transactions in the bank accounts of thousands of clients and brokers. Once this was concluded, orders were passed under the Sebi Act, against hundreds of entities, starting from December 2014. When it was discovered that the possible motive could be avoidance of long-term capital gains tax, a reference was made to CBDT, ED and FIU.

The letter quoted in the editorial acknowledges in the third paragraph that CBDT is in receipt of the orders passed by Sebi in connection with the bogus long-term capital gains racket and these orders have been passed on to the respective directorates of investigation of the Income Tax Department for taking action against the beneficiaries. It also says the investigation by the department is in progress.

It is sad that instead of appreciating Sebi's proactive role as a securities market regulator, adverse findings have been made in your editorial without verifying the legal position or facts.

N Hariharan Chief general manager, Communications Division, Sebi

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