1. Securities and Appellate Tribunal to the rescue of SEBI-331 suspected shell companies

Securities and Appellate Tribunal to the rescue of SEBI-331 suspected shell companies

SAT has told SEBI that natural justice should have been followed before the action against these companies was taken. It also said that it needs to know under what law or regulation SEBI has taken action.

By: | Published: August 9, 2017 4:55 PM
SAT has told SEBI that it should hear the suspect shell companies making representations and then pass orders. (Image: Reuters)

The Securities and Appellate Tribunal on Wednesday appeared to come to the rescue of lakhs of investors who have their capital got stuck in 331 companies which were banned by the SEBI from trading on the bourses on the suspicion of being shell companies. The appellate tribunal has told the capital markets regulator that it should hear the suspect shell companies making representations and then pass orders, TV news channels CNBC TV18 and ET Now reported. SAT has told SEBI that natural justice should have been followed before the action against these companies was taken, the news reports said. Further, SAT also said that it needs to know under what law or regulation SEBI has taken action.

Earlier this week, SEBI directed BSE, NSE and Metropolitan Stock Exchange to initiate action against 331 listed companies which were suspected to be shell firms. These scrips will not be available for trading this month, and could even face “compulsory delisting”. The regulator’s directive came after the corporate affairs ministry shared a list of 331 listed companies that are suspected to be shell entities.

Some of the companies have made statements expressing their dissatisfaction on the SEBI order, and have sought to make it plain that they are not shell companies and have legitimate business operations. Some others, including J Kumar Infra, Parsvnath Developers and Kavit Industries have challenged the order and have moved SAT against SEBI in the suspect shell company probe.

On its part, SEBI sought to inform that the action was not final, and that it has not yet arrived at a conclusion. SEBI has reportedly told SAT that it has taken only a first time action against the suspected shell companies and that it was the Ministry of Corporate Affairs which shortlisted these firms. The regulator said that it has not concluded that the all the companies are shell companies.

In its petition, J Kumar Infra had requested that the SEBI direction on trading ban should be stayed with the immediate effect. The company had submitted that SEBI’s trading ban on its shares is arbitrary and unreasonable. SAT will continue hearing in the matter tomorrow (Thursday, 10 August, 2017).

Earlier today, TV news channels reported that the Finance Ministry has said that trading in about a dozen of these 331 companies is expected to resume in one week’s time. The Securities and Exchange Board of India may also issue a notification soon to give the identified companies time to explain their position on the matter, the reports said, adding that the companies may be asked to submit documents to prove their stand.

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