<p>It cannot be anybody’s case to protect shell companies which are taken as “rogue” firms in popular perception. These companies are perceived to be round-tripping the money and laundering the unaccounted funds into the accounted ones or black into white. Following demonetisation, which is yet to be established as something that helped the nation, the government’s narrative on the shell companies got intensified. Addressing the chartered accountants just after the roll out of the Goods and Services Tax on July 1, Prime Minister Narendra Modi said his government meant business when it comes to crushing those indulging in tax evasion and frauds. As many as 1,00,000 shell companies have been de-registered. So far so good.<br /><br />But the Securities and Exchange Board of India (Sebi), apparently depending on data mining by the Ministry of Corporate Affairs and the Serious Fraud Office, has rather acted in a zealous manner and asked the stock exchanges, August 7, to put punishing restrictions on trading of shares of 331 suspect companies, of which 162 were actively traded with a shareholder base of 2.7 million, including the gullible retail investors as also the mutual funds which invest on behalf of millions of small savers. The restrictions, under Stage VI of the Graded Surveillance Measure, virtually meant halting of trading, leaving shareholders in a lock-up kind of situation. The market regulator acted in haste without bothering about the consequences, merely on the basis of suspicion and without first conducting a thorough probe of any wrong-doing by these companies. For all you know, some of them may be rogue and into shell business, but it could also be that Sebi’s suspicion may turn out to be wrong. In the latter case, who would be responsible for the kind of damage that has been done to the promoters and the shareholders of these companies?<br /><br />A few of the aggrieved firms have gone in for an appeal against the impugned order and obtained a stay from the Securities Appellate Tribunal (SAT). While Sebi and other economic agencies should go all out against the tax offenders and those indulging in wrong–doing, the zealous approach must be avoided and the principle of natural justice should not fall prey to narratives of different kinds of black money. The SAT stay order is being considered as a setback to Sebi which denied the basic right of self-defence to the companies concerned. One of them pleaded before the appellate tribunal with an argument that bulk of its business comprises government orders; then how is it a shell firm?</p>
<p>It cannot be anybody’s case to protect shell companies which are taken as “rogue” firms in popular perception. These companies are perceived to be round-tripping the money and laundering the unaccounted funds into the accounted ones or black into white. Following demonetisation, which is yet to be established as something that helped the nation, the government’s narrative on the shell companies got intensified. Addressing the chartered accountants just after the roll out of the Goods and Services Tax on July 1, Prime Minister Narendra Modi said his government meant business when it comes to crushing those indulging in tax evasion and frauds. As many as 1,00,000 shell companies have been de-registered. So far so good.<br /><br />But the Securities and Exchange Board of India (Sebi), apparently depending on data mining by the Ministry of Corporate Affairs and the Serious Fraud Office, has rather acted in a zealous manner and asked the stock exchanges, August 7, to put punishing restrictions on trading of shares of 331 suspect companies, of which 162 were actively traded with a shareholder base of 2.7 million, including the gullible retail investors as also the mutual funds which invest on behalf of millions of small savers. The restrictions, under Stage VI of the Graded Surveillance Measure, virtually meant halting of trading, leaving shareholders in a lock-up kind of situation. The market regulator acted in haste without bothering about the consequences, merely on the basis of suspicion and without first conducting a thorough probe of any wrong-doing by these companies. For all you know, some of them may be rogue and into shell business, but it could also be that Sebi’s suspicion may turn out to be wrong. In the latter case, who would be responsible for the kind of damage that has been done to the promoters and the shareholders of these companies?<br /><br />A few of the aggrieved firms have gone in for an appeal against the impugned order and obtained a stay from the Securities Appellate Tribunal (SAT). While Sebi and other economic agencies should go all out against the tax offenders and those indulging in wrong–doing, the zealous approach must be avoided and the principle of natural justice should not fall prey to narratives of different kinds of black money. The SAT stay order is being considered as a setback to Sebi which denied the basic right of self-defence to the companies concerned. One of them pleaded before the appellate tribunal with an argument that bulk of its business comprises government orders; then how is it a shell firm?</p>
