Thirty-nine entities, barred from stock markets by SEBI last week for circular trading, may also face inspection by the Ministry of Corporate Affairs (MCA) for possible anomalies in their balance sheets.
"We are considering to inspect the books of these companies under section 234 of the Companies Act 1956, as we thought they caused huge losses to investors," a senior MCA official told media.
In the first stage, the probe into the allegations of circular trading may be done by the Director of Inspection and Investigation in the MCA.
If there is a prima facie case, it would then be referred to the Registrar of Companies (RoC) which can launch scrutiny under Section 234 of the Companies Act that gives it powers to call for information or explanation from corporate firm.
MCA inspection could include ascertaining whether the 39 entities punished by market regulator Sebi were linked to each other through common directors, the official said. Circular trading refers to fraudulent scheme where 'sell' orders are entered by a broker who knows that certain numbers of 'buy' orders in advance.
The barred firms, including LGS Global ,Spectacle Infotek, Well Pack Papers & Containers , Goldstone Technologies , and Gemstone Investments , belong to Pabari-Parikh and Walmiki-Shah Groups.
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Sebi investigations, between 2008 and 2010, revealed that there was a huge trading volume around these scrips with wide variations in values, causing loss to investors.
Sebi also directed the stock exchanges to ensure that the entities do not take fresh positions or increase their open positions.