Shares slide after SAT lifts ban on 'shell' firms

Shares of eight companies fell sharply on Monday after the Securities Appellate Tribunal (SAT) temporarily stayed the trading ban imposed on them by market regulator Securities and Exchange Board of India (Sebi) for being "suspected shell companies".

Shares of Pincon Spirit, Signet Industries and KKalpana Industries hit their 20 per cent lower limit, while that of Parsvnath Developers hit its 10 per cent lower limit. SQS India BFSI and Kavit Industries saw their share prices erode by six per cent and three per cent respectively.

Trading in these companies resumed after August 7, when stock exchanges had moved the scrips to the so-called stage VI of Graded Surveillance Measure (GSM) for being suspected shell companies. Under stage VI, trading is allowed only on the first Monday of each month. Plus, buyers have to provide three times the trade value as additional surveillance deposit.

SAT, which hears appeals against Sebi orders, on Friday had provided interim relief to these six companies by lifting the restrictions on trading.

Meanwhile, shares of JKumar Infraprojects and Prakash Industries extended Friday's 20 per cent fall by another 18 per cent and seven per cent respectively. JKumar and Prakash Industries had obtained SAT relief on Thursday and their shares had resumed trading on Friday.

"The investor sentiment against the 331 companies has been tarnished due to the Sebi order. A lot of the selling seen on Friday and Monday in these shares is a knee-jerk reaction. Some of the institutional investors are looking to exit their investments. The shares of these companies may continue to remain soft till they a get a clean chit from Sebi," said a broker asking not to be named.

Compiled by BS Research Bureau

Last week, SAT had said the market regulator should have granted a hearing to the companies before taking a final decision. The tribunal had said Sebi was free to conduct any investigation and "initiate proceedings if deemed fit" against these companies.

Meanwhile, Sebi has asked stock exchanges to verify the credentials and fundamentals of the "331 suspected shell companies", which have been barred from trading. In a letter dated August 9, the markets regulator has asked exchanges to seek the auditor's certificate from the companies, with a list of other disclosures. These include annual income-tax returns for three years and description of pending tax disputes, if any. Companies also need to provide status reports on compliance with the Companies Act and Sebi's listing regulations.

Out of the 331 companies barred by Sebi, trading was active in 161 companies. These companies have 2.7 million public shareholders.