Business Standard

Sebi orders forensic audit of two suspected shell firms


Stepping up its crackdown on suspected shell companies, market regulator Securities and Exchange Board of India (Sebi) has ordered forensic audit of two listed firms — Kavit Industries and GV Films— even as it eased some trading curbs on their shares.

In case of GV Films, the regulator said the “balance sheet is disproport­ionate to the profit and loss of the company” which warrants an independen­t audit of its assets and liabilitie­s, even as “there appears to be no prima facie evidence of misuse of books of the firm”.

Regarding Kavit Industries, Sebi said there is prima facie evidence of misreprese­ntations by the company and violation of listing norms, as also about misuse of funds and books of accounts. Stating that the company’s directors and top management have failed to discharge their fiduciary responsibi­lities, the regulator said they are “prima facie liable for action by Sebi and should not be permitted to exit the company at the cost of innocent shareholde­rs”.

Besides ordering a forensic audit, Sebi also barred Kavit's promoters and directors from selling the company shares, though they can purchase the scrips. Kavit and GV Films, where trading would now be allowed with applicable price bands and in trade-to-trade category, are among the firms against whom Sebi initiated action last month, by ordering trading restrictio­ns, following receipt of a list of 331 “suspected shell companies” from the government.

The ordered trade restrictio­ns — allowing trade only once a month and that too for only buy transactio­ns with a 200 per cent security deposit — were revoked in some cases following appeals filed by them with the Securities Appellate Tribunal, but Sebi was asked to continue with its probe and pass its orders expeditiou­sly. Continuing with its probe, Sebi has now passed interim directions in case of GV Films and Kavit Industries, while more such orders are expected for several others.

Sebi received the list from the Ministry of Corporate Affairs on June 9, wherein it was asked to initiate necessary action under its regulation­s.

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