Sebi's 331 suspected shell firms case: SAT lifts trading restrictions on JKumar and Prakash Industries

 PTI   New Delhi     Last Updated: August 11, 2017  | 00:00 IST
Sebi's 331 suspected shell firms case: SAT lifts trading restrictions on JKumar and Prakash Industries

The Securities Appellate Tribunal on Thursday stayed trading restrictions imposed on JKumar Infraprojects and Prakash Industries, which are among the 331 suspected shell companies identified by the government, saying Sebi passed the order without carrying out any probe. Sebi, on August 7, asked stock exchanges to restrict trading in shares of 331 "suspected shell companies" , some of which have investments by several well-known domestic and foreign investors.

READ ALSO:Sebi imposes restrictions on 331 suspected shell firms: What will happen to them?

The move came after the watchdog received the list of such companies from the corporate affairs ministry and many of the 331 firms are under the scanner of the Serious Fraud Investigation Office (SFIO) and the Income Tax Department. JKumar Infraprojects and Prakash Industries had moved the SAT against the Sebi directions.

Following their appeals, the SAT has stayed the trading restrictions imposed on the two companies and these shares can resume normal trading tomorrow. "In the facts of these two appeals, we are prima facie of the opinion that the impugned communication issued by Sebi on the basis that the appellants are suspected shell companies deserves to be stayed," the tribunal said in an 11-page order.

READ ALSO:Suspected shell firms: BSE imposes trade curbs on remaining five shell companies

Along with staying the Sebi order against the two firms, the SAT has also directed stock exchanges to "reverse their decisions". The tribunal noted that the Sebi's whole-time member has heard the firms. The member has sought additional information from the companies. "Since the delay in disposal of the representation is causing serious prejudice to the appellants, we proceed to consider the plea of the appellants for grant of interim relief," the order said. Following the SAT order, BSE and NSE said trading in JKumar Infraprojects and Prakash Industries would resume tomorrow.

Shares of these companies would be moved out of GSM (Graded Surveillance Measures) framework and made available for trading with effect from August 11, the exchanges said in similarly-worded circulars. The two stocks would be allowed to trade in a price band of 20 per cent. In its order, the tribunal said it is apparent that Sebi passed the impugned order without any investigation.

"As rightly contended by counsel for appellants, letter addressed by the MCA (Ministry of Corporate Affairs) on June 9, 2017, merely required Sebi to investigate as to whether the 331 companies named therein which were suspected to be shell companies, were in fact shell companies and whether the said companies had any credentials or fundamentals...," the order said.

Further, the SAT observed that the very fact that Sebi took nearly two months to comply with MCA directions "clearly shows that there was no urgency in issuing the impugned communication without even investigating the credentials or fundamentals of those companies".

The matter will be heard on September 4. The Sebis counsel submitted that in the current case, it has merely implemented the directions received from the corporate affairs ministry and no independent investigation has been carried out by the regulator. It was submitted by the counsel of the companies that the communication was issued on August 7 without giving an opportunity of hearing to the appellants and was "arbitrary, unreasonable, whimsical and is issued without application of mind".

According to the companies, without investigating into the suspicion entertained by the MCA that 331 companies could be shell companies, Sebi could not have issued the impugned communication without giving an opportunity of hearing. In these circumstances, considering the appellants as suspected shell companies has seriously prejudiced the reputation of the appellants in the securities market, as per the submissions.

The tribunal would tomorrow hear pleas by Parsvnath Developers and Kavit Industries against trading restrictions imposed on their shares by exchanges on markets regulator Sebis directions. On August 8, 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. Out of the 331 companies on the list, more than 160 are actively traded shares on the exchanges.

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