Investor, Beware

Delisting just lets companies go scot-free, says Madhu T

Want to get rich quick? Here is a three-step DIY plan, all free.

Stage I

Get ready. Pretend, you are the next golden geek in the block. The idea is to impress the financial pundits, with your entrepreneurial skills. Remember, only impossible, impractical ideas stand a good chance. Try, say, for suggestions sake, sericulture on the moon. Leave it to the experts, they will build the hype around your venture and make sure that your IPO is subscribed many times over.

Stage II

Get listed in the countrys premier exchange the Bombay Stock Exchange (BSE). Obviously with your projects still on paper, you may be in for a drubbing in the bourse. The prices may fall, investors of all hues may cry, analysts will analyse the reasons for the fall. Dont worry. Default wherever possible. And your stock is hardly traded in the exchange.

 

Stage III

You are into the final act: dont pay the annual listing fee due to the exchange. Your company is delisted from the exchange. Vroom.. there go your challengers investors, in other words. Keep the change. Adios to whomsoever it may concern, as they say in officialese.

No. This is not a parody to any dark satire. Face it. The scenario adumbrates the ordeal of investors in todays stock market. That the finance minister and Sebi still welcome you back to the markets means nothing. If anything, they just want some more money from you to prop up the market.

Consider. The BSE has decided to delist less than 175 companies which failed to pay the annual listing fee.

Do you know what does that measure mean to you? Simple. Those shares wont be traded at the exchange anymore. You are denied a forum to trade, that is, if at all there is anybody for this heap of scrap. Add the fact that most of these scrips are quoting below par, and you know what is in store for you. Hurry up, time for a trip to the raddiwala.

But you say the finance minister, Sebi and all the exchanges only mean well? Listen to this. Says RC Mathur, executive director, BSE, As per the listing agreement, companies are required to pay annual listing fee to the exchange on the basis of capital before April 30. Delisting of securities is a result of breach of an agreement. Well said.

But is the exchange unaware that the action hurts the investors most? We are aware that the measure impinges on the shareholders right to trade in the shares, but we feel that shareholders as a body should make the company answerable to them, he replies.

Investors will be badly hit as an exit route is closed for them, says professor Manubhai Shah, managing trustee, Consumer Education and Research Centre (CERC), Ahmedabad.

BSE is an old, archaic brokers den, right? What about its rival, the National Stock Exchange (NSE)? Says a top official who would prefer to remain unknown, BSE is within its right to delist the shares. That is all an exchange can do when a company refuses to pay its dues. Well, yet another instance of uniting against a common foe? But what then of the hapless investor here?

But was it the only solution? Yes, claims Mathur, In the given circumstances, there is no other course open to the exchange. The NSE official also agrees.

Still, is the move justified? Dinesh Vyas, senior advocate, supreme court, opines that the exchanges cant be blamed as they dont have any other option within the company law.

The exchange calls it a punishment. Who are they punishing, the erring company or the investors? In fact, they are helping the company to go scot free, fumes Ashokkumar Bakliwal, vice president of the Bombay Shareholders Association. It is like adding insult to injury, he adds.

We are opposed to the concept of delisting. It is worse if it is done on the ground that the company has not paid the listing fees. Neither the company nor the exchange should be allowed to do that, says Shah.

Junk shares: The exchange authorities are quick to add that these companies were already in trouble for inadequate book closure, record date, winding up cases, etc. Most of them were suspended and prices too are below the issue price. Delisting only highlighted the fact, claims Mathur. Seems like the ghost of the IPO boom will never stop

haunting us.

The exchange claims that it saved the future investors from peril. It has also told the companies that if they enter the market through a new company, the fact of delisting should be mentioned in the prospectus.

However, investor forums feel BSE could have initiated legal action against the promoters, or asked for contingency provisions to cover such events. Given the market situation, it should have moved Sebi or finance ministry before the delising, they say.

Back to the future: Now the investors will have to find willing buyers themselves, informs Shah. Are we heading for days prior to the advent of stock exchanges. Surprises never cease. Mathur says the investors can use other exchanges where the shares are listed. If they are not chucked out from there. The shareholders can also approach the company directly.

The investors can challenge the decision before Sebi, department of company affairs, or the court, opines Shah. Vyas agrees: Investors can file a public interest litigation against the promoters. Sadly, the Shareholders Association doesnt have the resources to fight the case and is not registered with Sebi.

However, Vyas points out that these are bogus companies with 90 per cent dummy holdings. He cites this as a reason for the muted response to the issue. But what about the minority shareholders?

Over to Sebi, the guardian angel of small investors. Shah says Sebi can restrain BSE. But, no, Sebi is not obliging. Since this measure is a consequence of breach of listing agreement, Sebi has so far not intervened, informs Mathur.

As for you, how about eating bhel on that scrap paper, as suggested by a broker? Dont worry. You are not alone: the same exchange had delisted 216

companies in 1994-95 and 87 in 1995-96 for the non-payment of listing fees.