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Markets regulator Sebi will update its board on Monday about action being taken against suspected shell companies allegedly abetting routing of illicit funds through stock markets. Those under scanner include over 300 listed companies as also hundreds of unlisted entities and individuals, suspected to be mis-using the stock exchange platform for tax evasion, among other wrongdoings, a senior official said. Besides, the board would consider other proposals including expediting settlement proceedings and streamlining its internal mechanism to better decide on whether they need soft or hard enforcement actions. To select cases for enforcement actions, the markets regulator will soon put in place internal guidelines, which would also be made applicable to pending cases. The proposal assumes significance against the backdrop of various high-profile cases, including those related to the NSE and PwC, where settlements are being sought. The board is likely to have a detailed discussion on the developments related to suspected shell companies listed on the bourses and actions taken against them, sources said. While a large number of listed companies are under the scanner for allegedly being conduits for illicit money, the regulator is also keeping a close watch on cases where entities are availing LTCG (Long Term Capital Gains) benefits through sham transactions in stocks. A slew of issues, including protecting the interest of investors who have put their money in suspected shell companies and regulatory measures that can be initiated against officials of such firms, would be deliberated upon. Post demonetisation, authorities have detected cases of same entities that have been using multiple PAN numbers to trade in shares. Such instances are also being probed by the Sebi, which has strict KYC norms in place for market participants, sources said. On August 7, the watchdog directed exchanges to restrict trading in shares of 331 companies following government identifying these entities as suspected shell firms. Following appeals, the Securities Appellate Tribunal (SAT) lifted the curbs imposed on some among the list of 331 companies.
Last week, Sebi ordered a forensic audit of around half a dozen of the suspected shell firms. These lists were shared with Sebi by the Ministry of Corporate Affairs and are based on ongoing investigations by various agencies, including income tax department and SFIO. The regulator found that the companies identified as shell companies were potentially involved in misrepresentation including of their financial and business in violation of listing regulations. The regulator said it was of the view that they were possibly misusing the books of accounts and funds, including by facilitating "accommodation entries to the detriment of minority shareholders". Sebi is also considering relaxing REITs and InvITs to allow these trusts to raise funds through issuance of debt securities. Further, the regulator would discuss a proposal to hire a chief economist, whose position will be equivalent to that of an executive director in terms of pay and benefits. These proposals would be discussed during the board meeting of Securities and Exchange Board of India (Sebi) tomorrow, the official said.