The government has referred a list of 331 suspected shell companies to capital markets regulator Sebi as part of its broader crackdown on illegal offshore transfers of money and tax evasion.
The suspect list includes the names of real estate major Parsvnath Developers, SQS India, Prakash Industries, J Kumar Infraprojects and Pincoin Spirits and Sebi has asked the stock exchanges to restrict trading in the shares of 162 of these companies.
Sebi chairman Ajay Tyagi is soon expected to also issue orders for similar restrictions on the trading of other companies followed by an audit into their share market transactions.
The restrictions include limiting trading in the affected companies to once a month and curbs in the trading of shares held by the promoters and directors of the companies. Some of the companies on the blacklist have investments by prominent domestic and foreign investors and the surprise move rattled market sentiments on Tuesday.
The Nifty plummeted below the key 10,000-mark and the BSE 30-share benchmark Sensex crashed 260 points at the end of the day's trading.
In addition to the curbs imposed by the capital market regulator and the stock exchanges, these companies may face further action depending on the outcome of the probes by the income tax department and the Serious Fraud Investigation Office (SFIO).
West Bengal accounts for the largest number of companies with 127 companies on the list of 331 suspected shell firms, referred by the corporate affairs ministry to Sebi.
Gujarat and Delhi also account for a large number of such firms, against which Sebi has recommended trading restrictions. While at least 124 companies are believed to be under scanner for alleged tax evasion, another 175 firms were being investigated by the Serious Fraud Investigation Office (SFIO).
However, reacting to the Sebi action, Parsvnath Developers, SQS India BFSI Ltd and Pincoin Spirit denied any wrongdoing."We are shocked to find our company's name amongst the list of suspected shell companies as a result of which, our equity shares are being shifted to GSM VI on the stock exchanges. As a result, our company's securities may be traded only once in a month on a trade to trade basis and Sebi has envisaged a financial audit thereby implicitly castigating us and tarnishing our reputation," Parsvnath Developers said in a regulatory filing to the stock exchanges.
J Kumar Infraprojects said it is not a shell company and suspicion of the regulator is uncalled for. The company said majority of its clients consist of government authorities and mentioned Delhi Metro, Mumbai Metro and JNPT Port connectivity as some of the projects underway. Prakash Industries also said that directions issued by Sebi are totally devoid of merit and uncalled for.
Besides, there has never been a occasion when our company has indulged in any kind of malpractices in stock market. Similarly SQS India BFSI Ltd has expressed shock that it has been placed under the surveillance list even as it has been complying with all the norms under Companies Act and Sebi regulations.
Pincoin Spirit also stated that it has been following all the rules and regulations stipulated under Companies Act and Sebi norms.
Prime Minister Narendra Modi had said last month that 37,000 shell companies indulging in tax evasion had been detected and more than three lakh firms were under the scanner for suspicious dealings, post demonetisation announced in November last year. As part of efforts to curb the black money menace, the Corporate Affairs Ministry has already cancelled the registration of more than 1.62 lakh firms.