Regulator Sebi has ordered a forensic audit of JMD Ventures Ltd (JVL), which figures among 331 ‘suspected shell companies’, after finding prima facie evidence of misuse of the firm’s funds. JVL is at least the eighth firm against which the Securities and Exchange Board of India (Sebi) has ordered a forensic audit. In an interim order dated September 14, Sebi said that BSE should appoint an independent forensic auditor to verify misrepresentation including of financials and business of JVL and misuse of the books of accounts and funds including facilitation of accommodation entries, if any. “The recoverability of loans and existence of investment made by JVL are in serious question,” Sebi said, adding that failure of the company to produce supporting documents to substantiate the transactions entered into by it leads to further evidence of misrepresentation of financials.
According to Sebi, JVL has also entered into transactions detrimental to the interest of the shareholders. “Thus, there is prima facie evidence of misrepresentation of business/financials as well as of misuse of funds/the books of accounts of the company,” Sebi said. Noting that the directors and key management persons of JVL have prima facie failed to discharge their fiduciary responsibility, the regulator said that it is imperative that in the interest of investors, the financials of the company be independently audited to establish their genuineness.
The promoters and directors of JVL have been permitted by Sebi only to buy the securities of the firm. According to the regulator, the shares held by the promoters and directors in JVL should not be allowed to be transferred for sale by depositories. Easing the trading curbs on the firm, Sebi noted that dealing in securities of JVL should be reverted to the status as it stood prior to issuance of letter dated August 7 by Sebi. JVL is among the firms against whom Sebi initiated action on August 7 by ordering trading restrictions, following receipt of a list of 331 ‘suspected shell companies’ from the government. While the curbs were imposed on the 331 firms from August 8 onwards, they were eased with regard to some companies following appeals against the ruling.
In some instances, the Securities Appellate Tribunal asked the regulator to continue with its probe and pass orders expeditiously. Sebi’s move came after it received the list of 331 suspected shell companies from the government on June 9 and was asked to initiate necessary action. The regulator found that the companies identified as shell companies were potentially involved in misrepresentation including of their financials and business in violation of listing regulations. The regulator said it was of the view that they were possibly misusing the books of accounts and funds, including by facilitating “accommodation entries to the detriment of minority shareholders”.