What Is Dabba Trading? Illegal Practices Exposed in Indian Stock Market

Welcome to Steinform Today in this article we will know what is Dabba Trading. Dabba Trading is an illegal form of trading outside the stock market. How does Dabba Trading work and why is it dangerous? What does the Indian legal system or SEBI say about this here.

What is Dabba Trading?

Dabba Trading is also known as bucket trading. It is an illegal trading activity that is done outside the exchanges like NSE or BSE, which does not have any impact on the original market. That is, the money you invest is not used to buy any shares.

It is betting on the price movements of stocks without any legal investment. Although it is an illegal activity.

How Dabba Trading Works

Dabba trading is done through a network run by some illegal operators who promise returns like the stock market but do not trade through a legitimate stock exchange.

Here Is an Example of How Dabba Trading Works.

• Dabba operators enter all transactions into their own ledger and do not actually buy any shares.

• If the share price increases, they calculate it themselves and pay the investor. And if the share price decreases, the customer has to pay.

• Since there is no transaction with the exchange, it can be called speculative gambling.

Why do People Turn to Dabba Trading? Some People Find Dabba Trading Very Attractive for The Following Reasons:

No taxes: Investors think they will not have to pay state income taxes.

Higher leverage: Operators are attracted to shares with higher leverage.

No paperwork required: Here, an account can be opened very quickly without any paperwork, no KYC is required.

Fast profit settlement: Profit and loss, whatever it is, are available immediately and there is no hassle of any account, payment is available in cash.

Legal Status Of Dabba Trading In India

Dubba trading is completely illegal as per the Mercantile Finance Act, it violates the Securities Contracts Act, 1956. And if found involved in this activity, the punishment can be as follows:

Heavy fines

Criminal charges

Forfeiture of assets

Up to 10 years in prison

Securities and Exchange Board of India (SEBI) and state police jointly conduct raids along with the Financial Offences Unit.

Risks involved in dabba trading

No legal protection

Many times, dabba traders run away with a huge amount of money as there is no legal validity, so you have nothing to do.

No tax benefits or consent

No matter how much money is earned from dabba trading, it will be considered black money because this income has no legitimacy.

Raids and arrests

Police ED regularly raids all these centers, due to which investors are in trouble.

Why are the authorities taking strict action

Dabba trading is causing the government to lose crores of rupees in tax. Moreover, it is increasing black money and black market.

SEBI and ED are now investigating unusual transactions And has tightened the enforcement system to catch unregistered brokers.

Famous Dabba Business Incidents in India

1. Rajkot Dabba Scam (2022): A police raid unearthed an illegal business worth Rs 350 crore.
2. Ahmedabad Operators (2023): Over 20 dabba trading rackets busted.
3. Indore Dabba Network (2024): Over 50 laptops and cash recovered from an illegal trading centre.

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How to Spot a Dabba Trading Setup

Be wary if you notice the following red flags:

The broker only requests cash payments.

You are offered to trade without a demat account.

There is no official trade confirmation.

The broker promises guaranteed returns every day.

The transactions are done through private WhatsApp or Telegram groups.

What You Should Do

Always trade through brokers under SEBI.

Open a verified demat and trading account through a regulated platform.

Avoid get-rich-quick schemes in the stock market.

Report suspicious activities to SEBI or the local police.

Conclusion

Dabb trading is an illegal trading activity that appears to be profitable quickly. It is risky and dangerous. SEBI and the government have taken strict measures to eliminate this type of black market. Investors are advised to work with brokers approved by SEBI.