Summons On 15 Brokers For Illegal Badla Deals

In a bid to curb `illegal badla financing, the Registrar of Money Lenders, Mumbai, yesterday issued summons to 15 Bombay Stock Exchange (BSE) brokers for lending funds without possessing the required licence.

This is the first time the authorities have cracked down on brokers indulging in such financing. The move followed month-long investigations by the registrar to trace transactions carried forward from one settlement to another.

The brokers will face prosecution if they fail to present themselves before the authorities within a fortnight.

According to the registrar, badla financing in its present form clearly violates the Bombay Money Lending Act, 1946, and whosoever undertakes the business of money lending should hold a valid licence under section 7 of the Act.

 

The summons have been issued under the Section 13-A of the BMLA, directing these brokers to produce transaction records and related documents for the 10-year period ended March 1997.

The authorities did not reveal the identities of the brokers, saying that the investigations would continue and summons may be issued to more brokers in a phased manner. The registrar had initially planned to send a notice to the exchange, asking the members to take the necessary licence.

However, considering the ramifications of such a move on the capital market, the registrar later decided to individually issue summons to brokers. Sources said the brokers will now have to register themselves with the registrar.

Under the Money Lending Act, the highest rate which can be charged by the money lender has been fixed at 21 per cent per annum.

While the licensed money lender cannot charge more than this fixed percentage, the badla financier at times charge nearly 30 to 40 per cent as interest to carry forward the transactions, the source said.

Former Bombay Stock Exchange executive director M R Mayya argues that the Money Lenders Act is being read erroneously.

It (badla financing) is a part and parcel of forward trading; it is share financing rather than money lending. Further, the entire jurisdiction governing stock and commodity exchanges falls under the Central List and not in the State or Concurrent lists. The body would thus not need to look into the issue, he said.