Sebi bans trading in shares of 331 suspected shell companies

Market regulator Securities and Exchange Board of India (Sebi) has directed stock exchanges to suspend trading in 331 notified shares of listed companies, which it suspects to be shell companies.

In a letter dated 7 August 2017, Sebi instructed stock exchanges to deactivate trading in the 331 shell companies. Trading in these scrips has been barred and investors will not be able to buy or sell these stocks.

The Sebi order says trading in all such listed securities "shall be placed in Stage VI of the Graded Surveillance Measure (GSM) with immediate effect. If any listed company out of the said list is already identified under any stage of GSM, it shall also be moved to GSM stage VI directly."

Under the stage VI of GSM framework, trading in these identified securities shall be permitted only once a month under trade to trade category.

Further, any upward price movement in these securities shall not be permitted beyond the last traded price and additional surveillance deposit of 200 per cent of trade value shall be collected from the buyers, which will be retained with exchanges for a period for five months, the order says.

The exchanges have also been asked to appoint an independent auditor to conduct audit of these listed shell companies and if necessary, even conduct forensic audit of these companies to verify its credentials / fundamentals.

Sebi and the central government have of late taken various steps to curb black money and benami dealings in wealth.

The Income tax Department also suspended 1.14 million PAN cards that were used in suspicious activities (See: IT Dept blocks over 1.14 million PAN cards, asks taxpayers to verify).

Shell companies are illegally registered companies created to showing fictitious transactions and laundering of black money. These companies are often managed by bigger companies and businessmen who evade taxes.