Shell-shocked firms tap tribunal
Aug 9, 2017
A number of firms today approached the Securities and Appellate Tribunal (SAT) seeking a stay on the trading curbs imposed on them by Sebi amid reports that the capital market regulator may give relief to a dozen entities who are on the list of 331 that are suspected to be shell companies.
The firms that approached the tribunal included Parsvanath Developers, J Kumar Infraprojects and Prakash Industries.
The companies argued that Sebi's decision was arbitrary and that no detailed verification was done on the nature of their operations. Besides, the directive came without giving them a chance to explain. Observers do not rule out the possibility of more companies challenging the Sebi decision before the tribunal.
The SAT is a statutory body established under the provisions of Section 15K of Sebi Act 1992 to hear appeals against the regulator.
On Monday, Sebi had asked the bourses to place the shares of 331 firms under Stage VI of the "Graded Survelliance Measure" (GSM) with immediate effect. It meant that investors would be able to trade in these securities only on the first Monday of next month.
No upward movement will be permitted in these shares beyond the last traded price. The bourses will also collect an additional survelliance deposit of 200 per cent of the trade value from the buyers of these shares.
Many well known funds are investors in some of these companies.
The Sebi action came after it received a letter from the ministry of corporate affairs on June 9 which cited 331 firms as suspected shell companies. The MCA had asked the regulator to take necessary action.
Some of these companies have now approached the SAT, seeking a stay on the trading restrictions.
On Tuesday, the companies cited their financials and the nature of their operations along with other filings as they sought to explain that they are not shell companies and that they comply with various regulations.
For instance, Parsvnath Developers, one of the largest real estate development companies in North India, said in a filing to the exchanges that it was "shocked" to find its name on the list of suspected shell companies.
"As a result, our company's securities may be traded only once in a month on a trade-to-trade basis and Sebi has envisaged a 'financial audit' thereby implicitly castigating us and tarnishing our reputation," Parsvnath Developers said.
The company went on to add that before placing its scrip on the GSM Stage VI category, the stock exchanges should have began the process of verifying its credentials.
"The step has been taken by Sebi without affording us an opportunity of being heard and without even putting us to notice,'' it added.
J Kumar Infraprojects yesterday said it was not a shell company and the suspicion of the regulator is uncalled for.
"Our company's compliance track record both with the exchanges and the registrar of companies have been impeccable."
Even as the matter will be heard at the SAT, reports emanating from the capital said that the market regulator may give relief over the next few days to 12 firms (who have business operations) from the trading restrictions. This will be done after these firms submit documents to prove that they are not shell companies.
The BSE today said that it has imposed maximum trading curbs on five more companies in the wake of Sebi's directive, taking the number of companies to 167.
The National Stock Exchange said it had started collecting information on the 48 of the 331 companies that were listed on the exchange. The bourse had suspended 10 of the entities even prior to Sebi's directive.
Markets tense
A growing sense of disquiet pervaded the markets over the Sebi order.
It was the third straight session of loss for stocks today as the Sensex took a hit of 216 points to close at a three-week low below the 32000-mark.
Investors also ran for cover after a flare-up in tension between the US and North Korea over the latter's ballistic missile programme.
Selling pressure built up following muted June quarter earnings by some companies, they added. It was so strong that all the sectoral indices, led by healthcare and auto, ended in the negative zone.
The Sensex recovered partially before settling down 216.35 points, or 0.68 per cent, at 31797.84 its lowest closing since July 18. The index has now lost 527.57 points in three sessions.
The NSE Nifty also remained under pressure and was down 70.50 points, or 0.71 per cent, to close at 9908.05. Intra-day, it cracked below the 9900-mark to touch 9893.05.
"Global headwinds owing to geo-political tension between North Korea and the US provided more cues to the domestic market, which is already reeling under Sebi's regulatory pressure... Small- and mid-cap underperformed today," said Vinod Nair, head of research, Geojit Financial Services.
Overseas, Asian stocks ended lower and European shares dropped in early hours.
In the Sensex pack, Sun Pharma was battered the most, plunging 5.13 per cent to an over four-year low, after its US subsidiary Taro Pharmaceutical Industries reported weak quarterly numbers.
Others to lose ground were Adani Ports (4.12 per cent), along with Cipla, Tata Motors and Bajaj Auto. NTPC looked up, climbing 1.25 per cent, followed by ONGC, HDFC and Asian Paints.
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