The task force on shell companies, constituted under the co-chairmanship of revenue secretary Hasmukh Adhia and corporate affairs secretary Tapan Ray in February this year, is likely to seek an explanation from the Securities and Exchange Board of India (Sebi) on the specific triggers that prompted the markets regulator to take action against 331 listed entities suspected to be shell companies.
Officials in the know said that “due diligence” may not have been followed by Sebi in its Tuesday order against the suspected “shell” companies, an order that has come under widespread criticism and has been stayed for two companies by the Securities Appellate Tribunal (SAT) on Thursday.
The next meeting of the task force on shell companies is likely to take place this month. “Sebi does not seem to have followed due diligence in ordering restriction of trading of all 331 companies. Some of the companies may have done some violations, which could have been dealt with accordingly. Not all of them can be categorised as shell companies as they have been trading for long. Sebi officials have been asked to be a part of the next meeting of the task force, wherein details would be sought from them about the reasons that prompted the action from the regulator,” an official aware of the development said. On Thursday, in the hearing of the petition filed by three companies in SAT, the regulator informed the tribunal that its action is not final and that it has not concluded that all the companies are shell companies. Sebi also said that it has taken only a first-time action against the suspected companies after the Ministry of Corporate Affairs shortlisted the firms.
Sebi had directed the exchanges on Tuesday that shares of 331 companies will be kept in Stage VI of the Graded Surveillance Measures with immediate effect. Starting Wednesday, trading of the shares of these companies was stopped on the bourses and will now be allowed to be traded only once (the first Monday) every month. Of the 331 firms identified by Sebi for action, 162 were actively traded on BSE Ltd; 48 were traded on the National Stock Exchange, while the rest have already been suspended by the bourses on account of irregularities. The two companies, J Kumar Infraprojects and Prakash Industries, who obtained a stay order from SAT against the restrictive order by the Sebi, shall resume normal trading beginning Friday. At the time of the formation of the task force on shell companies in February this year, the government had said that there are about 15 lakh registered companies in India and only 6 lakh companies file their annual return, implying that “a large number of these companies may be indulging in financial irregularities”.
On July 1, at an ICAI event, Prime Minister Narendra Modi had said that 37,000 shell companies indulging in tax evasion had been detected and transactions of more than 3 lakh companies were under the radar of suspicion post demonetisation. He had said that “one lakh companies were struck off the list by the stroke of a pen. The names of those companies have been removed from the register of companies.”
On Tuesday, Minister of State for Corporate Affairs Arjun Ram Meghwal said in a written reply to the Rajya Sabha that 1,62,618 companies were removed by the Registrar of Companies as of July 12, 2017 after following the due process under Section 248 of the Companies Act, 2013.