Gujarat bourses have most vanishing firms

They took investor money via IPOs and then disappeared; investors ask Sebi why it isn't using its legal powers to get after the offenders.

Two defunct regional stock exchanges, from Gujarat, account for a little over three-fourths of vanishing companies in the country.

In all, 683 companies from 10 RSEs were reported on the National Stock Exchange (NSE, 492) and BSE (191) dissemination boards (DBs).

Of these, 77 per cent or 528 were listed on Gujarat-based exchanges. Thousands of investors who hold the shares of these companies are stranded.

DBs were platforms created by the two national exchanges in line with the market regulator's policy for derecognition of regional bourses, to ensure a smooth transition for shareholders of companies listed on the latter.

Ahmedabad Stock Exchange (ASE), whose companies have been moved to the DB of NSE, led the list with 407 companies.

Followed by the Vadodara Stock Exchange (VSE), which had 121 such companies. VSE companies are on the DB of BSE. Vanishing companies are listed entities that raised money from investors through Initial Public Offers of equity and then disappeared.

In 2000, a coordination and monitoring committee (CMC), set up jointly by the Union ministry of corporate affairs and the Securities and Exchange Board of India (Sebi), had prescribed a three-point criteria for identifying such companies.

One, those which have not complied with listing or filing requirements of a stock exchange or registrar of companies, respectively, for a period of two years.

Two, where no correspondence has been received by the exchange from the company for a long time.

Three, where no office of the company is located at the registered office address at the time of stock exchange inspection.

Some Gujarat-based entities which have disappeared include Aircommand India, Anagram Finance, Baroda Dyeing, Gujarat Apparels, Saurashtra Calcine Bauxite, Superstar Welding and Topline Shoes.

The number of vanishing companies could be higher - only 10 of the 22 RSEs that have wound up have declared the number of such companies.

Over the past couple of years, Sebi has been prodding and allowing regional bourses to wind up.

Those in Delhi and Kolkata are likely to have a significant number of such companies, people familiar with these said.

In addition, 78 entities had been identified as vanishing companies by the CMC a little over 15 years ago.

Investor associations have argued that Sebi should disgorge the assets of these companies and promoters, to repay the investors who have lost.

In many cases, the chartered accountants have also played a key role, apart from the promoters.

Virender Jain, President, Midas Touch Investor Association, says: “We are deeply concerned at the high number of companies found to have disappeared by their respective RSE and the likely loss to retail investors due to the failure to monitor companies after listing.”

Jain recently wrote to Sebi, asking for a series of steps. These include disgorgement of promoter assets and barring those who abetted the siphoning or diversion of funds in these companies from the market for life.

In the late 1990s, when the problem of vanishing companies first surfaced, Sebi did not have enough teeth to deal with such offences. However, subsequent amendments to the securities laws have provided it with enough for search and seizure. Such powers could be used, Jain said.

Photograph: Reuters