Sebi forms sub-committee to address shell company issues
The Securities and Exchange Board of India (Sebi) has formed a committee to hear cases of firms (and their directors) that have complained that theyhavebeenclassified asshell companies because of technical errors, said two people with direct knowledge.
The panel will be a sub-committeeofthecapitalmarketregulator’s secondary market and advisory committee (SMAC).
“For genuine cases of small technical errors ormis-interpretation, the sub-committee will make representations or help companies to make representations to the ministry of company affairs (MCA) for relief,” said one ofthepeoplecitedearlier,amember of Sebi SMAC.
A Sebi spokesperson did not respondtoanemailseekingcomment.
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.
MinthadreportedonOctober 10thatstockexchangeshavesent outnoticestothesefirmsseeking an explanation on why their directors were disqualified and howdotheyplantoreplacethem.
Sebi’s move comes after some directors approached the courts forrelief.Agroupofseniorexecutives in big automakers were grantedaninterimreliefbyDelhi High Court on October 10 after they approached the court on finding themselves in the list of directorsdisqualifiedbytheministry 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 approachcourts for relief. If Sebi canhelpsomeof those who are in the cross hairs throughno fault of theirs, then it will help in preventing the situationfromspirallingfurther,”said the second person cited earlier.
The sub-committee is also taskedwithhandlingthe330suspected shell companies which wereputbySebiunderincreased surveillance measures after receivingaletterfromMCA,this person added.
In some of these cases, Sebi whole time member Madhabi PuriBuchhasorderedaforensic 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 companiesthatneedtobeinvestigated further, Sebi is finalising terms of reference for a forensic audit, said the second person.
MUMBAI: