As many as 1,088 companies which raised thousands of crores from the public and listed on now-defunt regional stock exchanges are not traceable, markets regulator Securities and Exchange Board of India has said. As these companies have disappeared from the market, they will be included in the list of vanishing companies of the Ministry of Corproate Affairs. The regulator has now decided to initiate action against these “non-compliant exclusively listed companies (ELCs) on the dissemination board (DB) and its directors/promoters”.
When 18 regional stock exchanges were derecognised, these companies were required to be placed on the dissemination board of national exchanges like the BSE or the NSE. Leading stock exchanges like the BSE had launched a dissemination board mechanism enabling dissemination of bids/ offer placed by buyers and sellers of securities of companies that are listed exclusively on exiting or de-recognised regional bourses using the services of the trading members.
“With respect to the 1,088 companies, which are not traceable, a process has been initiated for their inclusion in the list of companies identified as ‘vanishing’ (maintained by Ministry of Corporate Affairs),” Sebi has said. Once a company is declared as vanishing, Sebi debars the directors and promoters of such companies from accessing the capital market, in addition to actions that may be taken by Registrar of Companies, Ministry of Corporate Affairs, including prosecution against promoters and directors of such companies.
According to market estimates, if a company raised an average of Rs 10 crore from investors, the total money stuck in such vanishing companies could be around Rs 10,000 crore. “Most of these are either paper companies floated with the intention of diverting public money. They don’t have any operations or assets and most of them were listed in the early 1990s. Investors who put money in such companies can forget their investment,” said veteran BSE dealer Pawan Dharnidharka.
India’s leading exchanges — BSE and NSE — were demutualised and corporated almost ten years ago in 2007. However, following the exit of 18 regional exchanges since 2014, around 3,000 companies were moved to the dissemination board of nationwide stock exchanges as they failed to get listed on the latter. In January 2015, Sebi had said firms exclusively listed on exiting regional stock exchanges will be given 18 months to get listed on nationwide stock exchanges. These companies could be moved to the dissemination board of a nationwide stock exchange till the time of listing.
In October 10, 2016, Sebi provided three months to these companies to list on the dissemination board and submit a plan of action to the designated stock exchanges (DSEs) either to list or provide exit to its shareholders. To safeguard investors of firms listed on non-operational bourses, Sebi then allowed such companies to raise capital through preferential allotment route to meet listing requirements.
Giving the latest details on companies listed on dissemination board, Sebi said there were 2,253 firms on the dissemination board as on October 10, 2016. While 189 firms obtained listing on the main board of the exchanges, 64 companies exited or were removed from the dissemination board. As on June 30, 2017, companies on the dissemination board were 2,000 and 376 companies submitted the plan of action. While companies which are not traceable are 1,088, those which are traceable but not submitted plan of action were 536.
Sebi had stipulated that failure to comply with the listing would attract stringent actions. These include the company, its directors, promoters and the companies which are promoted by any of them will not directly or indirectly associate with the securities market or seek listing for any equity shares for a period of ten years from exit from the dissemination board. Besides, freezing of shares of the promoters/directors and attachment of bank accounts, other assets of promoters and directors of the companies to compensate the investors would be taken. Sebi said the list of the directors and promoters of all non-compliant companies will be disseminated on the Sebi website and will also be shared with other agencies.