Sebi's diktat leaves 331 suspected shell companies out in the cold

Sebi's diktat leaves 331 suspected shell companies out in the cold”

India imposed trading restrictions on 162 listed entities identified as shell companies, a surprise move that analysts said was part of a broad crackdown on illegal offshore transfers and tax evasion.

The regulator's directive came after the corporate affairs ministry shared a list of 331 listed companies that are suspected to be shell entities and could even face "compulsory delisting".Stepping up the surveillance measures, these entities would be subject to independent audit and if required, forensic audits could also be initiated to check their credentials. The regulator in a August 7 circular to stock exchanges said these companies will not be allowed to trade this month. Under current rules, investors are allowed to keep shares as guarantee (margin) with the bourses when they trade in the derivatives segment.There are shares of these 331 companies which are a part of the total margin now deposited with the bourses.

"We are not a shell company by any stretch of imagination ..."

The government has been going after companies it suspects of engaging in irregular transactions since demonetisation a year ago.

"(Investors) should wait for the full facts to emerge", Amit Tandon, founder and managing director of shareholder rights group Institutional Investor Advisory Services, said.

Sebi chairman Ajay Tyagi is soon expected to also issue orders for similar restrictions on the trading of other companies followed by an audit into their share market transactions. "Devil lies in the details so we need to deep dive on this order".

These companies holding in any depository account will be frozen till the delisting process is completed.

The move spooked overall market sentiments on fears about possible action against more such firms.

The benchmark BSE Sensex fell as much as 358 points to hit an intra-day low of 31,915.20 before finishing down 259.48 points or 0.80 percent at 32.014.19.

Sebi on Monday asked the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and the Metropolitan Stock Exchange to keep the 331 shares in stage four of the graded surveillance measures (GSM) with immediate effect.

Some of the companies named by SEBI include Prakash Industries, SQS BFSI, Parsvnath Developers, Pincon Spirit, Gallantt Ispat, J Kumar Infra, Prime Capital Market, Dwitiya Trading, Adhunik Industries and VB Industries. While at least 124 companies are believed to be under the scanner for alleged tax evasion, another 175 firms were being investigated by the Serious Fraud Investigation Office (SFIO).

A huge majority of the shell companies hail from West Bengal, the new capital of shell companies, with states of Maharashtra, Gujarat and Delhi following closely. There are also companies from Orissa, Assam, Karnataka, Andhra Pradesh and Tamil Nadu.

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