The latest directive, effective immediately, is aimed at preventing possible market manipulations through such suspended stocks and protect "gullible investors" from being left in the lurch.
The restrictions would also be applicable on directors of suspended companies, holding entities and subsidiaries.
"A suspended company, its holding/subsidiary, its promoters and directors shall not issue prospectus or advertisement soliciting money from public for issue of securities directly or indirectly till suspension is revoked by concerned stock exchange or securities of such company are delisted," Sebi said in a circular.
In addition, Sebi said the suspended company and the depositories would not be allowed to transfer, by way of sale, pledge, of scrips of a suspended firm held by promoter entities and directors. In case the suspended entities remain listed, then such activities can be done only after three months from the date of revocation of suspension.
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To ensure effective compliance with the new directive, the capital markets watchdog has also asked stock exchanges and depositories to coordinate with each other with regard to suspended companies.
In market parlance, suspended companies are those listed firms whose trading is suspended by a stock exchange due to non-compliance with listing requirements.
According to Sebi, it has been noticed that several listed companies continuously fail to comply with listing conditions stipulated under the equity listing agreement and consequently trading in their shares is suspended by the concerned recognised stock exchange.
While the non-promoter shareholders of such suspended firms remain in disadvantageous position on account of information asymmetry, their promoters/directors, who are responsible for such defaults, could use the undisclosed information and dispose of their shareholding. Such a scenario would leave "gullible investors in lurch", Sebi said.