Shell companies: SEBI should have explained logic

In a chat with ET Now, says Shriram Subramanium of InGovern, says of course companies which have operating businesses and which are making disclosures periodically and are compliant with the guidelines as well as minority shareholders are aggrieved.

Edited excerpts :

Sebi’s argument was that what they had done was to just come out with an administrative circular or a order and therefore the Securities Appellate Tribunal (SAT) is not really the appropriate forum to knock the doors of. The investors or the companies should have gone to a High Court. SAT has stayed the Sebi order relying on an earlier Supreme Court verdict but from a minority investors point of view how big a relief is this because the word in the markets is that if this had not happened as suddenly as it did, then at least the minority investors would have got a chance to take appropriate action in terms of their exposure to these companies?

Obviously especially the companies which have operating businesses and which are making disclosures periodically and are compliant with the guidelines. Those companies will definitely feel very grieved and minority investors of course will feel additionally grieved because there was no opportunity for them to even understand the rationale behind why these companies have been sort of moved out.

The fact is that Sebi while it gave out this administrative action could have at least given the process and the logic it adopted. Sebi should have at least asked and revealed what is the logic and that has not been the case.

This action was abrupt but that said, given the nature of the market here, this basically puts all market operators, brokers and all market participants on the edge saying that look there can be some abrupt administrative action or regulatory action with basic and additional surveillance of the trading volumes so at least all these bad companies are weeded out of the system. I think that is the outlook which this was administered.

Link: Economic Times – 10 Aug 2017