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Out of shell: Prakash, J Kumar back in trade

Shares of the two companies will resume trading on the bourses from today

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Ajay Tyagi, Sebi chairman
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Three days after the big-bang action on 'shell' companies, the Securities and Exchange Board of oIndia's (Sebi) move seems to be backfiring.

The Securities Appellate Tribunal (SAT) has directed bourses BSE and National Stock Exchange (NSE) to reverse their decisions to suspend trading of J Kumar Infraprojects and Prakash Industries.

Accordingly, shares of the two companies will resume trading on the bourses from Friday while SAT will hear petitions of Parsvnath Developers and Kavit Industries.

The two stocks would be allowed to trade in a price band of 20%.

Kamal Gupta, director of J Kumar Infraprojects, told DNA Money, “Trading will commence from Friday and we will cooperate with Sebi and provide the documents required to prove our point of our organisation not being a shell company.”

On Monday, Sebi had issued an order to allow trading of 331 companies once a month as they are suspected to be “shell firms”. The following day, trading was suspended on the bourses. J Kumar Infraprojects, Prakash Industries, Parsvnath Developers and Kavit Industries too featured in that list.

Headquartered in Delhi, Prakash Industries is into mining, steel and power business. J Kumar Infraprojects is a Mumbai-based infrastructure company with various engineering, procurement and engineering contracts, Gujarat-based Kavit is a manufacturer and supplier of edible oil, while Parsvnath Developers is a Delhi-based real estate company.

On Thursday, SAT heard counsels of Sebi as well as of J Kumar Infraprojects and Prakash Industries. Both the companies argued that Sebi issued the communication without giving an opportunity of hearing.

According to the two companies, the order “is ex-facie, arbitrary, unreasonable, whimsical and is issued without application of mind”. Additionally, it contended “by no stretch of imagination, Sebi could consider the appellants as suspected shell companies, especially when the appellants do not satisfy any one of the 10 criteria prescribed by the Ministry of Finance for considering a company to be a shell company.”

Even while implementing Sebi’s communication, BSE and NSE did not investigate as to whether the companies could be considered as shell companies or not, it said.

While passing the order, SAT observed the Ministry of Company Affairs had issued the list to Sebi on July 6 wherein it was only required to investigate whether the 331 companies were shell companies or not. If at all these 331 were so, the requisite action was to be taken. Instead, without conducting any investigation, on Monday (nearly after two months) Sebi directed the stock exchanges to suspend security trading of these companies.

“...the very fact that Sebi took nearly two months to comply with the directions given by the MCA clearly shows there was no urgency in issuing the impugned communication without even investigating the credentials/fundamentals of those companies,” read the SAT order.

ORDER REVERSAL

  • Shares of the two companies will resume trading on the bourses from today
     
  • The two stocks would be allowed to trade in a price band of 20%
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