Market regulator Securities and Exchange Board of India (Sebi) has directed bourses to initiate action against 331 suspected shell companies that are listed and these scrips will not be available for trading this month, according to a communication.
The regulator's directive came after the corporate affairs ministry shared a list of 331 listed companies that are suspected to be shell entities and could even face "compulsory delisting".
Stepping up the surveillance measures, these entities would be subject to independent audit and if required, forensic audits could also be initiated to check their credentials.
In a communication sent to the BSE, the NSE and the Metropolitan Stock Exchange, the markets regulator has asked them to keep the 331 shares in stage four of the Graded Surveillance Mechanism (GSM) with immediate effect.
Securities coming in stage four are permitted to trade only once a month under trade to trade category. Since these shares would be moved to stage four from tomorrow, these securities would not be available for trading this month.
"Trading in these securities shall be permitted once a month (first Monday of the month)," the communication said.
Further, any upward price movement would not be permitted beyond the last traded price while additional surveillance deposit of 200 per cent of trade value would be collected from the buyers. This amount would be retained by the exchanges for five months.
Apart from initiating a "process of verifying the credentials/ fundamentals of such companies", the exchanges have also been asked to appoint an independent auditor to carry out audit of these entities. If necessary, even forensic audit could be ordered to verify their credentials and fundamentals.
On verification, if the bourses do not find appropriate credentials or fundamentals about existence of these companies, they proceeding for "compulsory delisting" would be started.
Besides, these entities would not be permitted to deal in any security on exchange platform and its holding in any depository account would be frozen till such delisting process is completed.
"The shares held by the promoters and directors in such listed companies shall be allowed to be transferred by depositories only upon verification by concerned exchanges," the communication said.
They would not be allowed to transact in the security except to buy shares in the particular listed company until verification of credential is completed.
The announcement by the Securities Exchange Board of India (SEBI) late on Monday did not say what illegal activities the companies may have been engaged in.
The government has been going after companies it suspects of engaging in irregular transactions after a ban on high-value currency bills late last year, including transferring money abroad illegally, or "black money," and evading taxes.
Some analysts said the trading restrictions had taken investors by surprise.
"(Investors) should wait for the full facts to emerge," Amit Tandon, founder and managing director of shareholder rights group Institutional Investor Advisory Services, said in a chat room operated by Reuters.
"If these companies indeed have been used for money-laundering, then strict penal action needs to be taken. If not, they need to be excluded from this order."
Out of the list of shell companies, if securities of any of the listed company are under suspension, the trading in such securities shall be placed under stage four of the GSM directly on revocation of suspension, Sebi has told the exchanges.
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 companies that have not been carrying out business activities for long.
The ministry is implementing the Companies Act and firms are required to be registered under this law.
While the term 'shell company' is not defined under the Companies Act, Corporate Affairs Minister Arun Jaitley, last month, told the Lok Sabha that many such entities have been found to be indulging in large scale tax violations.
"However, the Registrars of Companies (RoCs) have removed 1,62,618 companies from the register of companies as on July 12, 2017 after following the due process under Section 248 of the Companies Act, 2013," he had said.
(PTI and Reuters)