SAT raps SEBI for shell company diktat sans probe

Stays the market regulator’s order against two companies The Securities Appellate Tribunal (SAT) stayed the order passed against two companies —J Kumar Infraprojects and Prakash Industries —that challenged the SEBI decision at the tribunal, ruling that the Securities and Exchange Board of India (SEBI) did not conduct any investigation before imposing trading restrictions on 331 shell companies, In its Thursday’s order, SAT directed the stock exchanges to lift the trading restrictions on the two firms — a decision that could lead to other companies moving the tribunal to seek immediate relief. Incidentally, SAT stayed the order even as a whole-time member of SEBI heard the arguments of the listed entities and directed them to furnish additional information before the regulator could decide on any form of relief. “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,” said the order. “.. it is apparent that SEBI passed the impugned order without any investigation... 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,” it added. The tribunal also highlighted the fact that the capital market regulator issued the circular after two months of receiving the letter from the MCA that showed “that were no urgency in issuing the impugned communication without even investigating the credentials/fundamentals of those companies.” In a statement issued to the stock exchanges on Tuesday, J Kumar Infraprojects, said that it cannot be termed a shell company since it had a work order book of Rs.9,334.810000000 as on March 31, 2017. In a circular issued late on Monday, the stock exchanges said that SEBI, based on a list compiled by the Ministry of Corporate Affairs (MCA), has directed them to put trading trading restrictions on 331 shell companies. The restrictions include allowing trading only once a month with higher margins. The exchanges were even directed to appoint an independent auditor to audit such listed firms and if necessary even conduct a forensic audit to verify the business credentials of such firms. If the exchanges are not able to to find appropriate credentials, they could initiate compulsory delisting proceedings against the company