Regulator Sebi today asked brokers to verify the credentials of three unlisted Gujarat- based firms, whose names have been shared by the I-T department as suspected shell firms, before executing any trade for them.
The move comes after Sebi, in August, had asked brokers to verify credentials of 107 unlisted entities and bar them from trading if results are found unsatisfactory.
The directive followed Sebi asking the exchanges, on August 7, to restrict trading in shares of 331 suspected shell companies, which were identified by the Ministry of Corporate Affairs for initiating necessary action as per Sebi's laws and regulations.
While the exchanges had restricted trading in those companies following receipt of Sebi's direction, some of the affected companies have subsequently appealed the decision before the Securities Appellate Tribunal, which ordered resuming trading in their shares while asking the regulator to hear the concerned firms and continue with its probe.
The BSE said in a circular today that the Sebi has advised that trading members, who have registered any of these three unlisted companies -- Premium Polycot, Yuva Trading Company and Spiritual Marketing -- to verify the credentials/ fundamentals of such firms.
"If on verification of credentials of the said clients, the same are not found satisfactory, their UCC (Unique Client Code) should be temporarily disabled by exchanges and report on the same shall be submitted to Sebi," the circular said.
The UCC acts as an exclusive identification of anyone trading in the securities markets and all brokers are required to use the UCC linked to the PAN details of their respective clients for stronger know your client (KYC) norms.
"Accordingly, trading members, who have registered any of these unlisted companies as clients, are requested to verify the credentials/fundamentals of such companies.
"For the purpose of verification of credentials/ fundamentals of the company, they shall seek the auditors certificate from these companies," the BSE said.
The auditor certificate will need to provide details such as status of filing its annual income tax return for the last three years and status of any pending disputes with the income tax department, and status of the company's compliance with all the requirements of the Companies Act and annual returns filing during last three years.
The certificate will also need to mention whether the company is a going concern and description of its business model. It needs to provide bank statements of last one year with active or dormant status and also status with respect of default to any bank or financial institution.
The BSE has asked its trading members to do the due diligence based on the auditors certificate and other documents and submit a report to the exchange by October 23.
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