Exclusive: Sebi not to give P-Note holders’ details to the taxman

The Securities and Exchange Board of India (Sebi) is not in favour of providing the details of the participatory note (PN) holders to the income tax department as desired by the Special Investigative Team (SIT) on black money.

A senior Sebi official told The Financial Express, “It will tantamount to a roving inquiry and that is not right and will hurt investment into the country as no investor would invest after knowing that his details are being given to the income tax department”.

He added that possibilities of market manipulation or any entry of ill-gotten wealth through the PN route is remote now as the market regulator had introduced norms which have forced the players to disclose all details on a regular basis.The norms now have made it mandatory for the FPIs to provide the names of the participants and also transfers to Sebi at the end of every month, and with all the details available in the market regulator’s system, any investigation can be initiated immediately, if required.

The official pointed out that because of the restrictions, out of over 2,000 FPIs registered with Sebi, only 40-50 are issuing PNs at present. The current norms have been formulated after Ketan Parekh scam when there was unrestricted entry of PNs in the Indian market.

But, disclosing all the details to the investigating agencies without suggesting manipulative or illegal activity, will be dicey.

“The SIT wants Sebi to disclose all details, but we can’t do that,” said the official.

It is a fact that the investors opting for the PN route do so because they don’t want to face any regulatory hassles. The moment they are subjected to I-T department’s scrutiny, they will, in all likelihood, start avoiding India.

Though the possibilities of entry of black money through the PN route can’t be completely ruled out, this window needs to be handled carefully as any attempt that is seen as government targeting everyone unnecessarily will result in adverse reaction from the investors which includes hedge funds and high net worth (HNI) individuals.

This has happened in the past and the government needs to tread cautiously here.

Securities and Exchange Board of India ( SEBI )