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‘Shell’ Companies Case: Expect Another SEBI Directive Soon

Suspected ‘shell’ companies may get an opportunity to shed the ‘shell’ tag.



A worker cleans the glass of the Securities & Exchange Board of India in Mumbai (Photographer: Adeel Halim/Bloomberg)
A worker cleans the glass of the Securities & Exchange Board of India in Mumbai (Photographer: Adeel Halim/Bloomberg)

The 162 listed companies facing trading curbs may soon get an opportunity to shed the ‘shell’ tag, two people involved in the legal proceedings told BloombergQuint.

The market regulator is likely to direct stock exchanges to ask the suspected ‘shell’ companies to submit auditor-certified information relating to:

  • Income tax filings for the last three years.
  • Pending disputes with the income tax department.
  • Confirmation of compliance under Companies Act, 2013.
  • Description of business model and whether the company is a going concern.
  • Bank statements of last one year with active and dormant status.
  • Details of loan defaults, if any.
  • Confirmation of compliance under Listing Agreement for last three years.

Once the companies submit this information, the stock exchanges will verify it, the people quoted above said.

On August 7, the Securities and Exchange Board of India put 162 listed entities under a graded surveillance measure stage VI with immediate effect. The shares of these companies could be traded only once every month under the trade-to-trade category with certain other restrictions.

Prakash Industries and J Kumar Infra Projects appealed against SEBI’s order before the Securities Appellate Tribunal on Wednesday. The companies argued that the regulator’s direction had no legal basis.

SEBI argued that it acted on the directions of Ministry of Corporate Affairs which had shortlisted the suspected ‘shell’ companies based on intelligence information collected by the Serious Fraud Investigation Office and the income tax department. The regulator said the appeals are not maintainable as the Supreme Court has held that decisions by SEBI in its administrative capacity can’t be challenged.

The Securities Appellate Tribunal will continue to hear the matter on Thursday.