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1,125 companies suspended from trading in 4 years: FM to LS

Companies were mainly suspended due to non-compliance with the listing agreement

Press Trust of India  |  New Delhi 

There are provisions to safeguard the interest of investors in stocks, including suspension of erring companies, but there is no mechanism for compensating them as the exchange is a private entity and trading involves risk, Finance Minister P Chidambaram said today.

1,125 companies were suspended from trading between April 2009 to February 2013 mainly due to non-compliance with the listing agreement and also due to non-payment of listing fees, he told the Lok Sabha during Question Hour.

Asked how the loss incurred by an investor who put his money in a company that was later delisted can be recovered, he said, "The suspension comes into effect after 21 days. The shareholder can exit in this time period."

He accepted that in case of suspension of a company the shareholder would be affected but the government cannot do anything if the investment was made in a company that failed to comply with the rules.

"Stock exchange is a market place, it is a private entity. Sebi is the regulator. In a market place, there will be some who will not comply. There is no mechanism by which the government can compensate the shareholder. The market is based on speculation and risk," Chidambaram said.

He, however, insisted that share-holding is a legitimate business and only those who break laws are acted against.

"An investor may not be able to buy or sell the shares through that Stock exchange where the scrip is suspended. However, the investor will be able to encash the value of shares whose trading is suspended if they are able to find a willing buyer for the shares, outside the exchange platform," he said.

The Finance Minister said the company whose shares have been suspended will not be able to raise capital during the period under suspension.

"Periodically, the Stock Exchanges disclose the details of compliance or otherwise by the listed companies with respect to various requirements of Listing Agreement including those relating to corporate governance on their website for information of the companies and investors," he said.

The Exchanges also display on their website, every quarter, the name of promoters, directors and compliance officer (along with their PAN and DIN) of the listed companies who have failed to comply with any clause of the listing agreement.

Sebi and Exchanges also impart education to investing public on a regular basis to observe due diligence before investing in securities listed in the stock market.

The awareness material provided by Sebi includes do's and don'ts for the investing public and gives details on the issues that an investor needs to focus on while investing, such as risk factors pertaining to the issue, IPO Grading/ Credit rating, business overview, background of promoters, outstanding litigations and defaults and so on.

It also gives details about rights and responsibilities of the investors.

Chidambaram informed the House that companies are delisted or suspended when they fail to meet the very rigorous provisions. Some of the companies may not apply again for listing and unless they do so they cannot be listed.

There can be a buyback of the stocks of such companies on fair values decided by valuers.

Allaying fears, the minister said the number of delisted companies is very small.

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First Published: Fri, March 08 2013. 14:32 IST