A public interest litigation (PIL), up for hearing next week in the high court here, has alleged that nearly Rs 1.8 lakh crore of investments by small investors is locked in suspended companies and the market regulator, the Securities and Exchange Board of India (Sebi), has not initiated any steps to protect these investments.
Filed by Atul Agarwal, a Delhi-based commercial pilot, it urges the court “to take action in the matter to protect the interest of over 10 million public shareholders/investors of these 1,405 suspended companies, whose enormous investment of more than Rs 1,79,560 crore in these suspended companies is at stake”.
Sebi, the Bombay Stock Exchange (BSE) and the Union ministry of corporate affairs (MCA) are respondents, in addition to the Union government. The respondents have asked for time until May 30, when the hearing resumes, to respond. The petition also seeks revocation of BSE’s recently announced relisting guidelines.
Suspended companies constitute 16.6 per cent of the total list of the BSE, the petition says. Ajay Veer Singh, partner, BS Jain &Co, who is advising Agarwal, said, “This is a conservative estimate, based on data available for 949 companies. The entire amount could be much higher.”
According to publicly available data, these 949 companies have a public shareholding of 8,978 crore shares. The petitioner assumes that each of these shares were bought by investors for at least Rs 20, (the IPO price may be anything between Rs 10 per share and Rs 500 per share or more) arriving at the sum of Rs 1.8 lakh crore.
The petition alleges the exchange has not done anything to protect the interests of the investors.
It has accused BSE and the promoters of these companies of colluding to get listed, “then collecting money from innocent investors by making tall promises and, thereafter, getting suspended for non-compliance of the listing agreement and finally getting delisted and disappearing with public funds”.
The petition notes the MCA and Sebi maintain a portfolio, called the Investor Education and Protection Fund. The petitioner filed a petition under the Right to Information Act and found as much as Rs 1,055 crore was unused in this fund. It accuses BSE of “rampant and continuous misuse of powers” and of a “nonchalant attitude” from Sebi.
When a question about such practices was raised in a recent conference, Sebi chairman U K Sinha had said, promoters and companies doing such “asset stripping” would be dealt with in an appropriate manner. BSE officials declined comment, when asked.
Singh said the entire compulsory delisting process was skewed in favour of errant promoters. “If a promoter wants to shut the company and not pay the shareholder, all he has to do is stop paying the listing fees. The exchange will suspend the company. This is exactly what they want,” he charged. The flawed system, instead of penalising the company or promoter, lets them off easily while the investor is left carrying the can, he adds.
“Instead of compelling these errant listed companies to make adequate disclosure, the exchange is providing an easy way out for these errant listed companies by suspending the trading of stock/shares... after the promoters of errant companies siphon off all public money with them and vanish altogether, no steps or actions are ever initiated to trace these companies,” the petition says.