Sebi orders forensic audit of 3 suspected shell firms

Sebi has asked exchanges to appoint independent auditors to conduct forensic audit of these firms for verification, including their credentials/financials.

Markets regulator Sebi has ordered forensic audit of three firms -- Trinity Tradelink,

Info-Drive Software and Edynamics Solutions -- which figure among 331 suspected shell companies that are under its scanner.

These are in addition to Sebi ordering forensic of four other such firms -- IRIS Mediaworks, Hit Kit Global Solutions, Kavit Industries and GV Films.

In three separate orders dated September 13, Sebi has observed that prima facie Edynamics Solutions Ltd (ESL), Info-Drive Software Ltd (ISL) and Trinity Tradelink Ltd (TTL) were involved in misrepresentation of books of accounts.

In the interest of investors, it said, the regulator believes that financials of these companies should be independently audited to establish their genuineness.

Accordingly, Sebi has asked exchanges to appoint independent auditors to conduct forensic audit of these firms for verification, including their credentials/financials.

Besides, promoters and directors of the firms have been allowed only to buy securities of these companies. However, the shares held by them in these firms would not be allowed to be transferred for sale, by depositories.

Pending the audit, the regulator said, trading in securities of ESL and ISL would be reverted to T and XD group of BSE respectively with applicable price band.

"The trading in securities of TTL shall be reverted to the status as it stood prior to issuance of letter dated August 7, 2017 by Sebi," the regulator noted.

With regard to ESL, Sebi said that there is prima facie evidence that firm has not deployed the proceeds of the IPO in accordance with the objects of the public issue.

"I note that during the hearing, ESL was asked certain specific queries/information in that regard along with relevant documents to substantiate the same, but it has failed to submit any satisfactory response to the same... I find that there is prima facie evidence, by adverse inference, of misuse of funds by ESL," Sebi whole time member Madhabi Puri Buch said.

In the case of ISL, Buch said "there are numerous, often significant contradictions/mismatches in the books of accounts of the company, figures have been wrongly mentioned".

With respect to TTL, Buch said there is "prima facie evidence of misrepresentation of business/financials as well as of misuse of funds/ the books of accounts of the company".

While the curbs were imposed on the 331 firms from August 8 onwards, they were eased with regard to some companies following appeals against the ruling.

In some instances, the Securities Appellate Tribunal asked the regulator to continue with its probe and pass orders expeditiously.

The regulator found that the companies identified as shell companies were potentially involved in misrepresentation including of their financials and business in violation of listing regulations.

Sebi's move came after it received the list of 331 suspected shell companies from the government on June 9 and was asked to initiate necessary action.

The regulator found that the companies identified as shell companies were potentially involved in misrepresentation including of their financials and businesses in violation of listing regulations.

Photograph: Reuters