JKumar, Parsvnath move SAT against shell company tag

Several other firms gear up to challenge market regulator’s decision; Sebi defends the move

Mumbai : A number of companies, including Parsvnath Developers, JKumar Infraprojects and Prakash Industries, on Wednesday moved the Securities Appellate Tribunal (SAT) against Sebi classifying them as ‘shell companies,’ contesting that their businesses are legitimate.

Defending the move, Sebi said it took the action after receiving the list of companies from the Union Ministry of Corporate Affairs. Several other firms are expected to take similar recourse to challenge the market regulator’s decision asking stock exchanges to restrict trading in 331 firms for being ‘suspected shell companies.’ JKumar Infraprojects and Prakash Industries told the SAT that their businesses are legitimate and that they are not shell companies.

The trading ban in 331 stocks from Tuesday turned out to be a major jolt to about 36 lakh investors in addition to MFs and foreign funds. The hearing at the tribunal has been adjourned till Thursday and the market regulator is expected to give its reply on the same day

Meanwhile, NSE announced that only 48 companies from Sebi’s list of 331 firms listed on its platform, of which 10 were already suspended. NSE is in the process of collecting information and verifying credentials of 48 ‘suspected shell companies’ as per regulator Sebi directions.

BSE has imposed maximum trading curbs on five more firms to cover all 167 active stocks from Sebi’s list of 331 suspected shell companies. The tribunal asked Sebi as to why the matter was not investigated before issuing the circular.

The Securities and Exchange Board of India (Sebi) told the tribunal that it got the information from the corporate affairs ministry and subsequently asked the exchanges to investigate and take action. The hearing at the tribunal has been adjourned till Thursday and the market regulator is expected to give its reply on the sameday.

Observing that Sebi received the list of companies on June 9 and the circular was issued on August 7, the SAT asked the regulator whether investigation was carried out in the intervening period. Contrary to general perception, shell companies are apparently being referenced here for those suspected to have indulged in abetment of tax evasion and money laundering activities post demonetisation, including through share dealings, regulatory sources said.

Many of those stocks also saw huge jump in their prices and volumes after demonetisation in November last year. Last month, Prime Minister Narendra Modi had said 37,000 shell companies indulging in tax evasion had been detected and more than three lakh firms were under the scanner for suspicious dealings after demonetisation. Sebi has asked the exchanges to restrict trading in shares of 331 "suspected shell companies", some of which have investments by several well-known domestic and foreign investors.

Out of the 331 companies, shares of more than 160 firms are actively traded on the exchanges.“We have filed an appeal before SAT. Our plea is to set aside the Sebi order. We are not a shell company and we have complied with all the rules and regulations and not evaded any tax,” Parsvnath chairman Pradeep Jain said.

On Tuesday, many of the companies tagged annual reports and other financials along with their filings to press upon the exchanges that they are not shell companies and are in compliance with all regulations.

It may be recalled that the Centre had cancelled registration of 1.62 lakh companies for not carrying out any business activity for long. Out of these deregisered firms, 76,451 companies were located in Mumbai, Delhi and Hyderabad. RoC deregistered 20,588 companies in Hyderabad, 33,000 in Mumbai and 22,863 firms in Delhi.