Illegal ‘Dabba Trading’ apps thrive in India

In a recent case of Dabba trading, or Box trading, ICICI Securities has released an email warning for all its subscribers to beware of a Dabba trading entity named V Money traders operated by persons named Mohit Sharma and Santosh Yadav. The broker has specifically warned its subscribers not to subscribe to any Dabba trading scheme or product while detailing the provisions of law that deem them illegal.

Dabba trading, regardless of the name, is not related to any trading on stock market. Rather, it's betting on stock price movements, akin to gambling, which is illegal in India. While the term ‘trading’ associated with ‘Dabba trading’ innocuously masquerades the act of gambling as a stock market transaction, the only connection of ‘Dabba trading’ with the stock market is that the bets are placed on stocks and market indices. Dabba Trading are informal bets that are placed outside the purview of stock exchanges. Most of the new and aspiring investors of the stock market would not know this fact and may innocently be complicit in the illicit act. Organisers and participants in an act of gambling are both deemed culpable by law.

Despite being illegal, Dabba trading apps and platforms are openly thriving in India by marketing themselves on the internet through websites, Meta groups, Instagram, and X (erstwhile Twitter) etc.

The criminality of Dabba trading

The Public Gambling Act, 1867, prohibits Gambling in public places, public establishments, and through the online medium. Only legally permitted establishments in the states of Sikkim, Goa, and the Union Territory of Daman, may carry out the business of Casinos. Yet, Dabba trading apps and websites are luring gullible or greedy masses openly through the online medium.

Dabba trading operations also violate multiple provisions of the Securities Contracts (Regulation) Act, 1956 (SCRA) and are punishable under Section 23 of the SCRA. As per Section 25 of SCRA, offences punishable under section 23 are cognisable offences within the Code of Criminal Procedure, 1973 and as such can be investigated by state law enforcement authorities also.

Additionally, Dabba trading operations also attract Section 406, 420 and Section 120-B of the Indian Penal Code, 1870, which are related to criminal breach of trust, defrauding and cheating, and criminal conspiracy respectively.

Modus operandi of Dabba trading operators:

Several websites such as  vmtrading.in, closefriendstraders.com, or FaceBook Groups like Dabba Trading With India Box Trader openly identify themselves as Dabba trading platforms. However, the allied content on these websites or groups appear similar to genuine stock trading platforms with charts and technical jargons. To the uninitiated, who are unaware about Dabba trading, this may appear to be another stock trading platform. The advantages that these operators list out often include terms like Best or Minimum Margins, Lowest Brokerage, 500X Leverage, 24X7 customer support, Quick or Instant Payouts, start trading with ₹1,000/-, and more. The advantages also appear quite similar to the stock trading platforms, albeit with better deals and facilities, which lure a stock market newbie.

The customer is asked to enquire on a WhatsApp number for further information or is asked to fill up an enquiry form. From here on, the prospective customer is fed all kinds of misleading information to induce them to pay up and start Dabba trading. More often than not, the customer loses in a bet and loses money to the operator. In case the customer wins, he is not paid anything by the operator. Often, that is whatn the customer realises that he has been a victim of an elaborate fraud.

Why Dabba trading thrives despite being illegal:

If an innocent victim approaches the Securities Exchange Board of India (SEBI) he is in for a rude shock that Dabba trading operations are illegal and do not come under the purview of SEBI. The only recourse left to the victim is lodging a police complaint. By then the victim realises that he has been a participant in a gambling operation in which he is also an accomplice!

One of the major reasons for the unapologetic existence of Dabba trading operations is that the participants in a Dabba trading operation inadvertently become culpable of performing the act of betting and gambling, as per the Public Gambling Act, 1867. The Act deems both the organisers and the participants of an illegal gambling operation as offenders under the law. While the penalty for gambling in an unlicensed establishment may vary from state to state, it is a punishable offence across India. Since the victim himself may get charged for an offence, it will be unusual for any victim of Dabba trading fraud to approach the police to lodge a complaint.

Under such circumstances, the only recourse left with the society to stop the Dabba trading operations is that the authorities take suo moto cognisance of such platforms and operations and hold them culpable under the law.

The long term and more effective solution seems to be investor education initiatives by SEBI and organisations associated with the stock market. An aware investor would stay away from Dabba trading and a large pool of aware investors may induce Dabba trading to die its own natural death.