Sebi forms sub-committee to address shell company issues
MUMBAI: The Securities and Exchange Board of India (Sebi) has formed a committee to hear cases of firms (and their directors) that have complained that they have been classified as shell companies because of technical errors, said two people with direct knowledge.
The panel will be a sub-committee of the capital market regulator’s secondary market and advisory committee (SMAC).
“For genuine cases of small technical errors or mis-interpretation, the sub-committee will make representations or help companies to make representations to the ministry of company affairs (MCA) for relief,” said one of the people cited earlier, a member of Sebi SMAC.
A Sebi spokesperson did not respond to an email seeking comment.
At least 500 listed companies have been impacted after the MCA disqualified directors in September. These companies share directors who have been disqualified for associating with other firms which haven’t filed their financial statements or annual returns for three years.
Mint had reported on October 10 that stock exchanges have sent out notices to these firms seeking an explanation on why their directors were disqualified and how do they plan to replace them.
Sebi’s move comes after some directors approached the courts for relief. A group of senior executives in big automakers were granted an interim relief by Delhi High Court on October 10 after they approached the court on finding themselves in the list of directors disqualified by the ministry of corporate affairs (MCA). Separately, the Delhi high court has issued notice to MCA asking whether the ministry has used the Companies Act provisions retrospectively.
“Not all companies have the wherewithal to approach courts for relief. If Sebi can help some of those who are in the cross hairs through no fault of theirs, then it will help in preventing the situation from spiralling further,” said the second person cited earlier.
The sub-committee is also tasked with handling the 330 suspected shell companies which were put by Sebi under increased surveillance measures after receiving a letter from MCA, this person added.
In some of these cases, Sebi whole time member Madhabi Puri Buch has ordered a forensic audit. In several others, trading restrictions have been lifted as the regulator did not find companies to be shell structures or in violations of securities law. At least eight companies were able to secure relief from the Securities Appellate Tribunal. For the companies that need to be investigated further, Sebi is finalising terms of reference for a forensic audit, said the second person.