Now, benami shares are coming home to roost

13 Mar, 2008, 2139 hrs IST,Shaji Vikraman, TNN

One of India’s leading depositories issued a warning to scores of investors saying that penal charges would be imposed every month if they failed to furnish details of their identification in the form of the Permanent Account Number.

Lakhs of demat accounts of investors were frozen last year after they failed to fufill the 'know your customer' or client norms. So when the depository issued the letter, about 6,000 investors only came forward with details of their PAN.

This was after a few deadlines were set for such investors. At review meetings later, the regulators and depositories discussed the fact that despite the value of holdings in some accounts aggregating crores of rupees, account holders declined to come forward to provide further details of their identity proof.

That is when it was decided that the best course of option would be to pass on the information relating to all these demat account holders on to the income tax department for further action.

Their reading is that some of these accounts could well have been benami accounts of some of the bigger operators in the market. Once the heat is turned on and the securities in the demat accounts are attached, there could well be more revelations. One investigator who was involved in the exercise to expose such benami accounts says that in just one frozen demat account alone, the value of shares is worth over a thousand crore.

Although over 20 lakh demat accounts have been frozen, some of the accounts have been receiving credits.
What this means is that the beneficiary owners continue to be receiving allotments of shares purchased by them like for instance allotments made in some of the recent Initial Public Offerings.

Officials say that they cannnot place any restrictions on investors receiving credits but no debits take place. In other words investors whose accounts have been frozen cannot sell off their securities until the mandatory identification exercise is completed.

The finance ministry has been provided with the complete details of all those demat accounts that have been frozen. This is being passed on to the Central Board of Direct Taxes which in turn will through the field units send out letters to the beneficiary owners. Tracking some of the owners may well be difficult considering that there could be someone fronting for them.

But at the end of the deadline, if the tax department is able to attach the securities and later auction them it could well help finance some welfare scheme or spending.

VIA:E.T