SEBI classifies 330 Companies as Shell Cos., SAT Intervenes and challenges decision


Sebi is cracking the whip on Shell companies in which sudden activity was shown after demonetization.

On Wednesday, the Indian bourses were asked by market regulator SEBI to examine the tax returns and financials of the 331 listed entities suspected to be shell companies retrospectively for three years period.

The stock exchanges have been given a total of 8 parameters, on which the companies must be assessed. The bank statements, compliance requirement along with listing conditions and compliance, trading patterns were some of the most crucial parameters listed by SEBI.

A source privy to the process said, “Exchanges have sent letters to these companies asking for the relevant documents as per Sebi’s direction. Exchanges have been asked to do an audit if required even a forensic audit.”

“Exchanges will have to follow the due process and hear these companies and submit its report to Sebi,” he added.

“NSE has already commenced the process of collecting information, as advised by Sebi and will be reporting to Sebi after completing the exercise,” NSE said in a press statement.

SAT challenges SEBI’s decision

However, SEBI’s order of declaring 300 companies as Shell companies without any questioning and clarification was objected by the Securities and Appellate Tribunal (SAT), after hearing a plea from J Kumar Infraprojects and Prakash Industries.

As per SAT, Sebi should not have passed a blanket order, thereby declaring more than 300 firms as shell companies. These companies should have been given a chance of hearing before taking such decision.

J Kumar Infraprojects and Prakash Industries had filed a plea against the Securities and Exchange Board of India’s decision o label them as shell companies.

What’s more?

Sebi’s instant decision led to a plunge in the share prices of these stocks, thereby wiping off a chunk of the market capitalization of the company. Following SEBI’s order, trading was suspended in these shares which were placed in the Grade VI of Graded Surveillance Mechanism Framework.

The Appellate Authority requested SEBI to hear these companies justification latest by Thursday morning and give its final verdict. Moreover, if the regulator fails to hear the companies, SAT will interfere and hear to the companies at 2:15 on Thursday.

SAT posed Questions to SEBI

Here are the questions which SAT posed to SEBI:

Why there has been a delay in implementing the MCA directions?

When was the decision taken to implement the directions of MCA?

When was the communication from MCA brought to the notice of the Sebi chairman or before the Board?

What steps the officer took once he received the information from MCA?