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Sebi conducts massive crackdown on 331 suspected shell firms

Sebi fired a bullet between the eyes of 331 listed entities suspected to be shell companies, on Monday.

Published: 09th August 2017 09:01 AM  |   Last Updated: 09th August 2017 09:01 AM   |  A+A-

SEBI  (File photo | Reuters)

SEBI (File photo | Reuters)

By Express News Service

MUMBAI: Sebi fired a bullet between the eyes of 331 listed entities suspected to be shell companies, on Monday. This is the regulator’s first such massive crackdown and markets responded in a predictable fashion, dumping the stocks. On Tuesday, Sensex fell 0.5 per cent, while Nifty was down 0.48 per cent.

The 331 firms comprise 7 per cent of the total listed entities, have a public float of Rs 12,000 crore, and some even have marquee investors like Rakesh Jhunjhunwala, besides mutual funds and FPIs.
Following Sebi’s order, the firms are restricted from regular trading with immediate effect, while their promoters cannot sell shares until further notice.

Sebi also asked bourses to verify the credentials, conduct a forensic financial audit and de-list scripts if violations are found. Such firms cannot deal with any security on exchanges and their depository accounts will be frozen till they are de-listed.

“Sebi must have done the investigation before taking action. It is a good thing for stock markets and it would give a pause for investors amid frenzied buying,” Shriram Subramanian, founder of InGovern Research Service, a proxy advisory firm, told Express.

The move comes months after the Ministry of Finance warned of taking punitive action against erring firms. According to Sebi, trading in all the 331 listed securities is placed under Stage VI of the Graded Surveillance Measures (GSM), where trading is permitted once a month under the trade-to-trade category. Some of these firms had first been identified as shell companies by the Ministry of Corporate Affairs.

But not all firms agree with Sebi’s decision and have refuted the basis of the classification.

“Pincon has been a dividend-paying company and does not have any complaints pending pertaining to dividend payments or investor complaints,” said Pincon in a BSE filing. “We have six production units, and for liquor verticals, we pay government excise duties ranging in crores of rupees to run the business,” the company added.

“We are not a company which by any stretch of imagination can be termed as such and we are a healthy profit-making company having an annual turnover of Rs 2,400 crore and profit of Rs 78 crore during financial year 2016-17,” said Prakash Industries, adding that the company also has “over 52,000 shareholders and our scrip is actively traded in NSE and BSE current average daily volume is over one
million shares”.



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