The Securities and Exchange Board of India circular urging stock exchanges to take action against 331 listed firms suspected to be shell companies spooked equity markets on Tuesday, with the benchmark indices tumbling 0.8 per cent.
The BSE Sensex closed down 259 points at 32,014.19 and the Nifty also slipped below the 10,000 level and ended down 79 points at 9,978.55 points.
The circular named 331 companies, which will be placed in the stage four of the graded surveillance mechanism with immediate effect. Trading in these companies will only be allowed once a month.
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.
What got investors worried was the fact that the list included several firms, which have been in business for long and profit making.
Several of these companies have questioned the market regulator's move and some of them may also be planning a legal recourse.
One of them, Pincon Spirit, said it had been a dividend paying company and had six of its own production units and has been paying government excise duties in crores for running the liquor business.
“We find it quite surprising that the company has been placed under the surveillance list of the shell companies. We are ready to provide all the necessary information and extend all cooperation to the regulators to resolve the issue so that the company is excluded from the shell companies list at the earliest,” it said.
Others were also left baffled over their names appearing in the circular.
“We are not a company which by any stretch of imagination be termed as such and we are healthy profit making company having an annual turnover of Rs 2,400 crore and profit of Rs 78 crore during financial year 2016-17. We also have over 52,000 shareholders and our scrip is actively traded in NSE and BSE current average daily volume is over million shares,” said Prakash Industries in a statement on BSE.
Another company that finds itself in the list is J Kumar Infraprojects. The company is executing several infrastructure projects across the country, including the Andheri-Dahisar Mumbai metro corridor and also part of the underground metro rail in Delhi.
"J Kumar Infraprojects is not a shell company and the suspension of the regulator is uncalled for," it said.
The company reported a revenue of Rs 1,466 crore on profit of Rs 106 crore in the year ended March 2017 and also wants SEBI to remove its name from the list.
"We are seeking legal advice in the matter and we are approaching the regulator requesting it to recall its direction," J Kumar Infra said.
Experts wondered if these companies were given time to respond before the circular was made public.
"It is not clear whether show cause or appropriate notice was given to these companies to justify whether these are actually shell companies or not. Protection of consumer interest is paramount, however, balance needs to be explored between protection and logical interference," said Rajesh Narain Gupta, managing partner, SNG & Partners.
Valuations of some of these companies could take a hit even if they were later found not to be shell companies, he added.
