The Enforcement Directorate (ED) has begun looking into the high-profile Nagpur dabba trading case that was cracked in 2016.
The ED registered an enforcement case information report (ECIR) last week as a follow-up to the first information report (FIR) that was filed by the Economic Offences Wing of Nagpur city’s police in 2016 to investigate illegal dabba trading activity.
Nagpur is said to be one of India’s hubs for dabba trading.
The ED has put under its lens a number of large dabba traders who seem to have shifted to Mumbai recently. The names of these traders couldn’t be ascertained immediately.
The ED has reason to suspect that not only are dabba traders betting on local stock prices, they are also carrying out transactions involving foreign securities such as SGX Nifty, Nasdaq or Dubai gold, a source said. These transactions are being settled through the hawala route.
Dabba trading is essentially informal trading that takes place directly among traders, who bet on movements on stock prices through cash. This system works entirely on trust; traders are often allowed to invest without having adequate collateral, and trades are typically cash-settled -- meaning if a trader buys a stock for Rs 100 and sells it for Rs 110, he simply gets Rs 10 after the position is squared off.
Traders opt for dabba trading over the formal trading system as the transactions and any gains are not subject to taxes such as income tax, securities transaction and commodity transaction tax.
The overall volume of dabba trading in India is pegged at about Rs 3 lakh crore per day, a source that tracks this market told Moneycontrol. Besides Nagpur, Mumbai, Kolkata, Ahmedabad, Indore and Jaipur are said to be the hubs of dabba trading.
In 2016, the Nagpur police busted a huge set-up of dabba trading by carrying massive raids on premises of dabba traders. The subsequent case was heard in the Bombay High Court and the Supreme Court, where it suffered a few upsets. The court insisted on making SEBI a party to the case even though the regulator was not seen as not being keen in following up on the case.
Source: