Sub: SEBI directions w.r.t. listed Shell Companies – Update
In continuation with the Exchange notice no. 20170807-31 dated August 07, 2017 informing that, SEBI vide their letter no. SEBI/HO/ISD/OW/P/2017/18183 dated August 07, 2017 inter alia had directed Exchange to initiate a process of verifying the credentials / fundamentals of such companies, the market participants / concerned companies are further directed to take note of the following:
I. Process for dealing with Forensic audit observations: -
Based on the discussion of SEBI with Stock Exchanges, following process shall be followed for processing of forensic audit (FA) observations in case of companies wherein the forensic auditor is appointed by BSE (“Exchange”):
a. In case of no adverse FA observations, Exchange shall issue suitable direction to remove restrictions imposed on Promoters / Directors of the concerned companies.
b. In case of adverse FA observations, following process shall be followed: -
i. FA observations shall be shared with the concerned company to provide them opportunity to respond within 10 days. On specific request of the company giving genuine reasons, an additional time of 10 days may be granted for their response.
ii. The company shall note that the Exchange shall not be grant any additional time for providing their response beyond the aforesaid stipulated period.
iii. On receipt of the response from the company, the same shall be placed before the External Expert Committee (“Committee”).
iv. In case, the company fails to provide any response, the matter shall be proceeded ex-parte before the Committee.
v. The concerned company may seek for an opportunity of personal hearing before the Committee while providing response to the Exchange as mentioned above.
vi. The concerned company may seek an adjournment of hearing giving genuine reasons, provided such request for adjournment is received by the Exchange at least 3 days prior to date of hearing by the Exchange. The concerned company shall note that no further adjournment shall be granted for the purpose of the proceeding before the Committee.
vii. The concerned company shall provide response / documents, if any, strictly within the time prescribed by the Exchange / Committee.
c. If the Committee is satisfied with the response provided by the company, then Exchange shall issue suitable direction to remove restrictions imposed on Promoters / Directors of the concerned company.
d. If the Committee is not satisfied with the response provided by the company or if the company accepts the FA observations or if company does not respond to the Exchange letter within time prescribed, following actions shall be initiated
i. Suitable directions shall be issued to concerned companies w.r.t. decision of the Committee and disseminate the same on Exchange website;
ii. Trading in the securities of the company shall be shifted to “Stage III” of GSM framework i.e. trading permitted once a week trading and ASD 100% of trade value to be deposited by the buyers;
iii. Continuity of freezing of holding of Promoters / Directors;
iv. Companies to close the audit observations within timelines as provided by the Exchange.
e. If company closes the FA observations or takes corrective steps and submits a certificate to that effect from its auditor within the stipulated time, Exchange shall move the securities of the company out of “Stage III” of GSM framework and shall also remove restrictions imposed on Promoters / Directors of such companies.
f. If company fails to take steps as mentioned in clause (e) above within the timelines prescribed, then trading in the securities of such company shall be suspended with immediate effect, followed by, initiation of compulsory delisting process, in terms of SEBI (Delisting of Equity Shares) Regulations, 2009.
II. Process for dealing with non co–operation with forensic audit: -
a. Pursuant to the aforementioned, Exchange has appointed independent auditors to conduct forensic audit for verification of credentials / fundamentals of various companies from time to time.
b. It has also been observed that in some of the cases, in spite of repeated reminders from the Audit Firms / Exchange, some of the companies are neither co-operating with forensic audit process nor providing the required documents/ clarifications to auditors by giving various frivolous reasons which include seeking extension of time, concerned officer/ Key officials not available, not providing documents even after extension of time, providing only part of documents, only hard copy of the document can be provided, company is busy in preparation of AGM / EOGM, etc. and thereby causing substantial delays to the process undertaken pursuant to direction of SEBI.
c. It may be noted that, several opportunities have been provided to companies to provide requisite documents / information to the audit firms for completion of audit and despite that, the companies have failed to comply with the Exchange directions.
d. In view of the above, since the verification process is a time bound activity and needs to be concluded in line with SEBI defined process, as a last opportunity, a period of 10 days from the date of present notice by the Exchange, is granted to all such companies to provide their response / information to the Forensic Auditor, failing which, the process as contemplated will be followed by the Exchange.
Please note that, the Exchange shall not be granting any further extension of time and the concerned companies are advised to strictly adhere to the process mentioned in the present Notice and co-operate with the audit firm to complete the said process in a time bound manner. Names of such companies shall be intimated separately.
e. In cases wherein the companies do not provide all information to audit firms within 10 days of present Notice or continue non co-operation with audit firm, the following consequences shall be applied:
i. The securities of the concerned company shall be reverted back to “Stage VI” of Graded Surveillance Measures (“GSM”) framework with immediate effect i.e. as per SEBI letter dated August 07, 2017.
ii. If the securities of the company continue to in “Stage VI” for a period of a month pursuant to non co–operation by the company, then trading in the securities of such company shall be suspended, followed by initiation of compulsory delisting process in accordance with provisions of SEBI (Delisting of Equity Shares) Regulations, 2009.
iii. If the concerned company co-operates with the audit firm and submits the required documents/ information to their satisfaction, the Exchange shall review its action, if any accordingly.
In addition to aforesaid processes, wherever required matter may be referred to SEBI as may be appropriate.
All concerned companies and market participants are requested to take strict note of the present circular.
In case of any clarifications, please contact on 022 – 2272 8083 & 022 – 2272 8792
For & On behalf of BSE Ltd.
Usha Sharma Rajesh Gandhi
Addl. General Manager Deputy General Manager
Surveillance Surveillance
Date: - October 29, 2018