You are using an older browser version. Please use a supported version for the best MSN experience.

Sebi for action against 331 listed entities suspected to be shell companies

LiveMint logoLiveMint 08-08-2017 Jayshree P. Upadhyay

New Delhi: The Securities and Exchange Board of India (Sebi) has directed stock exchanges to initiate action against 331 listed entities suspected to be shell companies. These companies will not be allowed to trade this month, according to a Sebi circular sent to exchanges on 7 August.

Markets fell after the announcement. At 11.44am, the BSE’s benchmark Sensex index fell 0.5% to 32,106.94 points. The National Stock Exchange’s Nifty was down 0.48% to 10,009.65 points.

The BSE Metal index was the only gainer. The index rose 2.6% after Tata Steel Ltd jumped 4% to a six-year high after it reported a net profit of Rs921.10 crore in the June quarter against a loss of Rs 3,183 crore a year ago. Hindalco Industries Ltd surged over 5% to its highest level since February 2011 after its arm Novelis Inc.’s net profit tripled.

Shares of these 331 companies will be kept in stage four of the so-called Graded Surveillance Mechanism (GSM) with immediate effect. Stage four GSM allows trading in stocks only once a month. These companies would also be subject to independent audit and also a forensic audit to examine their financials.

These 331 companies were identified by the corporate affairs ministry and communicated to Sebi last month. “Trading in these securities shall be permitted once a month (first Monday of the month),” the communication said.

Any upward price movement would not be permitted beyond the last traded price while additional surveillance deposit of 200% of trade value would be collected from the buyers. This amount would be retained by the exchanges for five months.

After the completion of the audits, if the exchanges do not find evidence that these companies indeed exist, they would be delisted.

The companies would not be permitted to deal in any security on exchange platform and its holding in any depository account would be frozen till the delisting process is completed.

MCA has already cancelled the registration of more than 162,000 companies that have not been carrying out business activities for long in an effort to crack down on black money.

“Three hundred and thirty companies is a fairly large number, makes up 7% of total listed companies. The question is what process was followed before Sebi issued this missive,” said Amit Tandon, founder and managing director of Institutional Investor Advisory Services, a proxy advisory firm. “Assuming this comes at the back of the drive to curb black money and that some criterion was followed to crack down on these companies, it should be disclosed. Ideally, companies which were identified should have been first asked for explanation and then sent into audits before they were put in restricted trading bands.”

More From LiveMint

image beaconimage beaconimage beacon