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The court issued a similar notice to the Union government, too.
Responses to the notices have to be received before the next hearing, scheduled for May. “They have to file their responses well in advance and we shall file our rejoinders, if any,” said one of the petitioners.
The notices followed a combined hearing of two public interest litigations (PILs) seeking a probe by the Central Bureau of Investigation into regulatory inaction on suspended companies. The PILs were filed by Delhi-based Midas Touch Investors Association and Delhi-based pilot Atul Agarwal last year. As both PILs dealt with the issue of investor money locked up in companies suspended by stock exchanges, the court decided to combine these.
While running an investor helpline, Midas Touch had received about 2,000 complaints against 450 companies “suspended” by stock exchanges for “non-compliance with the listing agreement”. Midas said when these grievances were taken up with stock exchanges, they had expressed their inability to help redress grievances against suspended companies and advised the company to take up the matter with Sebi.
At a meeting on December 7, 2010, Midas founder Virendra Jain had raised the issue with Sebi and the Investors’ Association and requested assistance. He had said though suspension from the bourses didn’t affect the companies’ operations, it had an adverse impact on its public shareholders, as they couldn’t sell shares on the exchange until the suspension was revoked by the exchange or Sebi. According to Agarwal’s petition, there were “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”.
The petitioner alleged Sebi’s inaction and the failure of stock exchanges to initiate action against defaulting companies had enabled these listed companies, their promoters and directors to get away with unfair practices and violation of listing agreement terms without statutory monetary penalty and penal action. “Small investors are the biggest losers due to such inaction. Resultantly, their estimated investment of about Rs 1 lakh crore has been blocked and is in suspended animation for years. The number of affected small investors may be 10 million. They have lost heavily and withdrawn from the securities market, severely affecting raising of money by companies for speedier development of the economy,” the petition had said.
Sebi agreed to the petitioner’s request on December 7, 2010 and decided the committee that had looked into investor grievances against suspended companies would look into the issue of “non-compliance with the listing agreement” and suggest appropriate action. The committee was told 1,845 companies listed on the BSE and 203 on the NSE hadn’t complied with various clauses of the listing agreement. These included 425 active companies (60 were listed on the NSE, while 365 were listed on the BSE) that were not suspended. The committee recommended specific action against these companies and their promoters and directors for non-compliance with the listing agreement. It also recommended several measures to strengthen the monitoring system.
However, even after about two years, the committee’s recommendations for action against the 2,048 companies and its promoters, directors, etc, haven’t been implemented. The petitioners alleged the steps recommended to strengthen the monitoring system had also not been put in place.
