MUMBAI: The market regulator has sought information from some large Indian business houses about the nature of their financial dealings with UBS, one of the largest banks in the world, about eight years ago.
The Securities and Exchange Board of India (Sebi) is collating data on these companies and the bank to zero in on the ones who could have used FII sub-accounts to channelize money into India through the Mauritius route to jack up their own stock prices, sources in Sebi told TOI. In financial circles, this is called round-tripping.
Some companies which have been asked to furnish details of their transactions include United Breweries, Sterlite (Vedanta Group's former standalone entity which merged with Sesa Goa to create Sesa Sterlite), and real estate giants Unitech and DLF. Spokespersons for Sterlite and DLF denied receiving any such query from Sebi while United Breweries and Unitech declined to comment. A spokesperson for UBS said the bank does not comment on market speculation or rumour and, "in any case, considers all correspondence with the regulators confidential".
According to Sebi officials, in 2007 it had received information from UK's Financial Services Authority — the sectoral regulator of that country — about suspicious use of funds by some Indian companies using the British banking channel. Sebi suspects some Indian companies first opened bank accounts in the UK and deposited money in those accounts. They channelized those funds to Mauritius, the island nation known for its taxation friendly rules, and then opened sub-accounts with FIIs there. Finally, FIIs sub-accounts were used to buy the companies' own stocks to jack up prices, a Sebi official said. Under Indian laws, such transactions are illegal.
Based on the FSA report, Sebi had launched its investigations. According to a consent document on the market regulator's website, Sebi had found that some companies belonging to the Anil Ambani (ADA) Group had raised money abroad through external commercial borrowing (ECB)/foreign currency convertible bonds (FCBBs). Instead of bringing the funds back into the country, the group allegedly used them to manipulate the stock prices of the ADA Group (now Reliance Group) companies. During the course of Sebi's investigation and after a show-cause notice was issued to eight entities from the group in June 2010, its top officials moved a consent petition with the regulator.
Eventually, their consent request was accepted in January 2011 and they settled by paying a record consent fee of Rs 50 crore. In addition, some of these entities were also barred from the market for a period ranging between one and two years. However, under the terms of the consent order, the ADA Group entities neither admitted nor denied any of the charges which were mentioned in the Sebi's show-cause notice.
According to Sebi sources, UBS was also involved in the ADA Group case, but the consent order then did not name the bank.
"The FSA report had also mentioned about banking transactions by these companies. Our investigations found that some Indian companies had also used bank accounts in Belgium to route funds to FII sub-accounts in Mauritius and then utilized the money in their own stocks," a Sebi official said. "We also want to know from where they got the money that they put in the UK bank accounts that was eventually channeled to India through the Mauritius route," the official said.