Suspected Shell Companies of India Have Been Initiated Action by SEBI

SEBI Securities and Exchange Board of IndiaThe securities regulator of Indian Securities and Exchange Board of India (SEBI) has asked the stock exchanges of the country to start action against 331 listed units that are suspected to be shell companies.

The circular of SEBI has also that the companies would not be permitted to continue trading this month.

This announcement from SEBI has met with a lot of criticism and negative feedback from the markets with Bombay Stock Exchange (BSE) falling by more than 0.5% and NIFTY of National Stock Exchange was down by 0.48 percent.

As per the order by SEBI, a total of 331 shares have been identified and they will be put under Stage –IV of GSM or Graded Surveillance Mechanism. It means that these stocks can be traded for not more than once in a given month. The regulatory agency further said that one could trade in such kind of shares only on 1st Monday of every month.


The Corporate Affairs Ministry has identified such companies and forwarded the same to SEBI for taking proper actions in the month of July. After the demonetization drive, a special committee was formed that has isolated companies based on high investments from layering and fund infusion from unlisted Shell companies. According to India’s Bombay Stock Exchange, the total estimated value of the companies is valued at Rs 12,000 crore.

As part of Stage IV process of Graded Surveillance Mechanism (GSM), it is likely the companies would go for independent audit and forensic audit will review the financials and credentials of the companies. If there is a lack of appropriate fundamentals or credentials in the review, the companies would have to face compulsory delisting.

More than 1.6 lakh companies’ registration has been cancelled by the Corporate Affairs Ministry during the past 7 months as their business activities were conducted in a manner that did not prevent money laundering to occur. A number of reputed large companies are featured on the list that includes Adhunik Industries, Pincon Spirits, J Kumar Infra, Parsvnath Developers, Gallant Ispat and Prakash Industries.

Both Prakash Industries and Pincon Spirits have responded to BSE disputing the charge that they were shell companies. The market analysts are now questioning the process that is being used by SEBI to identify the shell companies.

Amit Tandon who is the founder and Managing Director of Institutional Investor Advisory Services which is a proxy advisory firm made the following statement:

Three hundred and thirty-one companies is a fairly large number, makes up 7 percent of total listed companies. The question is what process was followed before Sebi issued this missive. Assuming this comes at the back of the drive to curb black money and that some criterion was followed to crack down on these companies, it should be disclosed.

Amit Tandon further said that it would be ideal for the companies to undergo proper review before they can be put under restricted trading.

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