Explained In Details Dabba Trading , Generation of Black Money in India
Explained In Details Dabba Trading , Generation of Black Money in India
Dabba trading, also known as box trading or bucket trading, is an illegal and unregulated form of trading in securities that takes place outside the official stock exchanges in India.
The term "dabba" means "box" in Hindi, symbolizing its secretive and off-the-books nature. In this practice, traders and brokers bet on stock price movements without actually executing trades on recognized exchanges like the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE).
Instead, transactions are managed internally by a dabba operator, bypassing the oversight of the Securities and Exchange Board of India (SEBI) and other regulatory bodies.
Here’s how it works:
A trader places a bet with a dabba broker on whether a stock’s price will rise or fall. For example, if a trader bets ₹1,000 on a stock and the price increases to ₹1,500, they earn a ₹500 profit, paid by the broker in cash.
If the price drops to ₹900, the trader pays the ₹100 difference to the broker. No actual shares are bought or sold, making it akin to gambling rather than legitimate trading. Settlements are typically done in cash, leaving no official record, which allows participants to evade taxes like the Securities Transaction Tax (STT) or Commodity Transaction Tax (CTT).
Effects of Dabba Trading -
- It evades taxes like the Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT).
- It lacks regulatory oversight, exposing traders to fraud and manipulation.
- There is no legal recourse if disputes arise, as these transactions are not recognized by SEBI (Securities and Exchange Board of India).
Dabba trading is illegal under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956, as it violates securities laws. It also falls under Sections 406 (criminal breach of trust), 420 (cheating), and 120-B (criminal conspiracy) of the Indian Penal Code, 1870. If caught, participants can face up to 10 years in prison, fines up to ₹25 crore, or both. The practice originated in informal financial networks, particularly gaining traction in Gujarat in the early 2000s, and has since evolved with technology, including apps and software that facilitate these illicit trades.
The allure of dabba trading lies in its low costs—no exchange fees or taxes—and high leverage, sometimes up to 500x, which can amplify profits.
