When it comes to protecting foreign investment through Participatory Notes (PNs), even national security takes a back seat. These derivative instruments allow those who are otherwise ineligible to invest in the Indian stock market. The National Security Advisor recently claimed that terrorist groups were profiting from India’s powerful bull run by investing through non-transparent Participatory Notes (PNs). A little later, we were told of the stupendous wealth of Hasan Ali Khan, an alleged hawala operator based in Pune who had managed to fly under the evasion detection techniques of the tax department for several years. Later, former BJP parliamentarian Kirit Somaiya alleged that Hasan Ali Khan was linked to two Union ministers. But his party, too, seems reluctant to follow up on this sensational allegation and has moved on to more routine protests against Special Economic Zones. Somaiya now provides statistics to show that no matter all the controversy, investment through PNs rose 80 per cent in 2006 from Rs 117,325 crore to Rs 202,487 crore. So much for our avowed concerns about transparency, customer identity and national security.

Convoluted structure

The twists and turns in the holding pattern of Stock Holding Corporation of India (SHCIL) and its subsidiaries continue to unravel and confound. SHCIL Services Ltd (SSL), a brokerage entity registered with the Bombay Stock Exchange (BSE) is 76 per cent owned by private entities, but still claims the parent SHCIL as its promoter. We now discover that the parent is also the sub-broker (or dependent) of SSL following a registration granted by the regulator on 18th May, 2006. Apparently neither the stock exchange nor the Securities and Exchange Board of India (Sebi) found it necessary to demand a separation of ownership and infrastructure. Since very little information about SSL is publicly available, we went into its history. It was registered in February 1995 as Depository Company of India Ltd, a fully owned subsidiary of SHCIL, was renamed National Depository Corporation of India Ltd in June 1995. It was renamed SHCIL Services Ltd for which SHCIL has quietly diluted its shareholding down to a mere 24 per cent. Of the private holding, we learn that Vaishnav & Co of Ahmedabad holds 33 per cent, while E-Ventures Capital Pte Ltd of Singapore owns another 33 per cent. Dr V Subramanian, a Hyderabad based individual who owns a distillery company, holds a 10 per cent stake as well. We learn that there has been some change in the Singapore-based holding recently. Will SHCIL's major shareholders, IDBI, LIC and IFCI explain why SSL did not go for a transparent dilution through a public offer for such a drastic dilution of equity into private hands? In fact, the Registrar of Companies does not have clear information either. Is the regulator asking any questions?

... contd.