Reprieve for J Kumar, Prakash Industries as SAT stays Sebi order

Amid the bedlam in the stock market, the Securities Appellate Tribunal (SAT) on Thursday stayed regulator Sebi’s order on ‘shell’ companies in the case of J Kumar Infraprojects and Prakash Industries. “In the facts of these two appeals, we are prima facie of the opinion that the impugned communication issued by Sebi on the basis that the appellants are ‘suspected shell companies’ deserves to be stayed,” SAT said in its order running 11 pages.

The regulator on Monday evening had directed stock exchanges to restrict trading on 331 stocks to just one day in a month. Sebi had received the list 331 suspected shell companies from the corporate affairs ministry. These firms are under the scanner of the Serious Fraud Investigation Office (SFIO) and the income tax department. J Kumar Infraprojects and Prakash Industries, besides Parsvnath Developers, which figured in the list, moved the tribunal contesting their tagging as shell companies. SAT will hear the plea of Parsvnath on Friday. The SAT has also directed stock exchanges to “reverse their decisions.” “Since the delay in disposal of the representation is causing serious prejudice to the appellants, we proceed to consider the plea of the appellants for grant of interim relief,” the SAT order said.

While some legal experts have raised eyebrows over Sebi’s sudden directive without even giving a showcause notice, some others have termed it as only an administrative action.
“It is no order, in fact it is a administrative action to prevent wrongdoing in the market. If some of the companies are genuine then could approach the regulators to lift the restrictions,” said JN Gupta, co-founder and MD of proxy advisory firm Stakeholders Empowerment Services (SES).

Following the SAT order, BSE and NSE said trading in J Kumar Infraprojects and Prakash Industries would resume on Friday.

The tribunal also said it is apparent that Sebi passed the impugned order without any investigation. “As rightly contended by counsel for appellants, letter addressed by the MCA (Ministry of Corporate Affairs) on June 9, 2017, merely required Sebi to investigate as to whether the 331 companies named therein which were suspected to be shell companies, were in fact shell companies and whether the said companies had any credentials  or fundamentals.”

The tribunal observed that the very fact that Sebi took nearly two months to comply with government directions “clearly shows that  there was no urgency in issuing the impugned communication without even investigating the credentials or fundamentals of those companies”.

The Sebi’s counsel submitted that in the current case, it has merely implemented the directions received from the corporate affairs ministry and no independent investigation has been carried out by the regulator.

The companies contended that without investigating into the suspicion entertained by the MCA that 331 companies could be shell companies, Sebi could not have issued the impugned communication without giving an opportunity of hearing.

The tribunal would on Friday hear pleas by Parsvnath Developers and Kavit Industries against trading restrictions imposed on their shares by exchanges on markets regulator Sebi’s directions.

(With inputs from PTI)