SHARES SLIDE AFTER SAT LIFTS BAN ON ‘SHELL’ FIRMS INDIA TOP DRAW FOR GLOBAL PE INVESTORS
Shares of eight companies fell sharply on Monday after the Securities Appellate Tribunal (SAT) temporarily stayed the trading ban imposed on them by markets regulator Securities and Exchange Board of India (Sebi) for being “suspected shell companies”.
Shares of Pincon Spirit, Signet Industries and Kkalpana Industries hit their 20 per cent lower limit, while that of Parsvnath Developers hit its 10 per cent lower limit. SQS India BFSI and Kavit Industries saw their share prices erode by six per cent and three per cent, respectively. Trading in these firms resumed after August 7, when stock exchanges had moved the scrips to the socalled stage VI of Graded Surveillance Measure (GSM) for being suspected shell companies. Under stage VI, trading is allowed only on the first Monday of each month. Plus, buyers have to provide three times the trade value as additional surveillance deposit.
SAT, which hears appeals against Sebi orders, on Friday had provided interim relief to these six companies by lifting the restrictions on trading.
Meanwhile, shares of J Kumar Infraprojects and Prakash Industries extended Friday’s 20 per cent fall by another 18 per cent and seven per cent, respectively. J Kumar and Prakash Industries had obtained relief from SAT on Thursday and their shares had resumed trading on Friday.
“The investor sentiment against the 331 companies has been tarnished due to the Sebi order. A lot of the selling seen on Friday and Monday in these shares is a knee-jerk reaction. Some of the institutional investors are looking to exit their investments. The shares of these companies may continue to remain soft till they a get a clean chit from Sebi,” said a broker asking not to be named.
Last week, SAT had said the markets regulator should have granted a hearing to the companies before taking a final decision. The tribunal had said Sebi was free to conduct any investigation and “initiate proceedings if deemed fit” against these firms.
Meanwhile, the markets regulator has asked stock exchanges to verify the credentials and fundamentals of the “331 suspected shell companies”, which have been barred from trading. In a letter dated August 9, Sebi has asked exchanges to seek the auditor’s certificate from the companies, with a list of other disclosures. These include annual income-tax returns for three years and description of pending tax disputes, if any. Companies also need to provide status reports on compliance with the Companies Act and Sebi’s listing regulations.
Of the 331 companies barred by Sebi, trading was active in 161 companies. These companies have 2.7 million public shareholders. A key finance ministry official said the markets regulator acted in haste by not giving 331 companies a chance to tell their side of story before placing a trading ban on them on the grounds that they might be shell companies.
He said quite a few of these firms might not be shell companies. “I think it was unfair to not give these companies a chance to explain themselves. Sebi (Securities and Exchange Board of India) acted in haste,” he said.
“Bankruptcy and insolvency proceedings may have been filed against them but they are not necessarily shell companies.” Many businesses with active dealings were part of this list.