By Ruma Dubey

Suspension is a form of punishment issued by SEBI; a punishment for the promoters. But it seems to be more of a punishment for the shareholders of these suspended companies. The very fact that the promoters allowed their companies to be suspended, shows that they are pretty thick skinned, with no real conscience. So how would it matter to them if their company gets suspended? Infact, they might celebrate the move as it will allow them to get away scot free, with all the money. They get rich while the shareholders who made them rich, well, like always, will rue their fortune, losing some more money.

There are already 1235 companies on the BSE that have been suspended and just two days ago, SEBI added another 49 more companies.

Companies are suspended for various reasons – non redressal of investor complaints, Non submission of Annual Report within 6 months from the end of the financial year, Non-submission of shareholding pattern for 2 consecutive previous quarters. OR Late submission of shareholding pattern for any 2 out of 4 consecutive previous quarters; Non submission of financial results for minimum 2 consecutive previous quarters. OR Late submission of financial results for any 2 out of 4 consecutive previous quarters; Non submission of Corporate Governance report for 2 consecutive previous quarters. OR Late submission of Corporate Governance report for any 2 out of 4 consecutive previous quarters; Non submission of Reconciliation of Shares and Capital Audit report for 2 consecutive previous quarters OR Late submission of Reconciliation of Shares and Capital Audit report for any 2 out of 4 consecutive previous quarters. Over and above all this, the exchange may suspend trading in the securities for non-compliance with clauses of the listing agreement, for reasons other than the specific triggers given above, considering the seriousness of the non-compliance. This may include a combination of the specific clauses discussed above, even though the triggers have not been breached.

Well, if the company is deliberately seeking suspension, can it be helped? So the promoters get what they want but those who have bought into such shares get stuck, with no exit route SEBI is in a catch-22 situation  - if it allows these companies to continue trading, it is wrong but at the same time, if they are suspended, that is a bigger wrong!

Most of these vanishing companies were incorporated during the capital market boom in the 1990’s where any and every company was raising money. The plantation companies, finance companies, cotton ginning and milling companies, oil extraction companies, shrimp/prawn farm companies, soya companies; they all just came and disappeared with the public money.

Some time ago, the Ministry of Corporate Affairs (MCA) had directed the Serious Fraud Investigation Office (SFIO) to cull out details of directors of over 50 companies who had gone underground after raising funds from the public. According to records with the ministry, there were 115 such firms that have literally disappeared since coming out with an IPO. Once these promoters are identified, MCA wanted to track down the end use of the IPO money raised and prosecute them under the Companies Act. Well, nothing happened. It was more of a loud bark by the MCA with no bite. Most of these companies have given incorrect addresses with the RoC and no traceable detail of the director’s is usually available. So what was the point of mouthing these things?

So the question is – why do we not have more stringent punitive measures to bring such fly-by-night promoters to task? The fear of punishment should be such that no promoter would dare to dupe the shareholders like this. Have you ever heard of a company promoter behind bars for non-compliance? Never! Suspension is an easy way out.

Instead of allowing the promoters to slink away by deliberately not complying and thus getting delisted, SEBI should attach their assets and liquidate that to pay back the shareholders. This is the only way to get their money back. SEBI should seriously look at a mechanism to be built in place to catch such scamsters.

The moment a company fails to publish its results for one or two consecutive quarters, SEBI should issue a warning to the investors, so that they have the opportunity to get out before it vanishes. Also the promoters should be black listed. None of the promoters should be allowed to raise money or even stand in as non-executive director for other companies for the next 10 years. From being a mere ornament on the Board, these non-executive directors need to be made more accountable.

BSE and NSE have the new SME exchange where small and medium scale enterprises can get listed. But what is the guarantee that soon half the stocks in the exchange might not vanish, get suspended and eventually delist? When there are no protective rules, what is the point of having this SME?

Promoters should not be given an easy exit route. They should be made accountable for every penny they have taken from the small investors.

Go to the official website of MCA - C:\Documents and Settings\Administrator\My Documents\Downloads\vanish114.mht

On the BSE - http://www.bseindia.com/about/datal/suspend.asp 

Both these will give you the entire list of vanishing companies.