What can investors do when companies in which they hold shares are not to be found and promoters have vanished without a trace?
Well, there is nothing much that can be done, except pray that the authorities can track the companies and the promoters down.
Incidentally, since the companies also do not pay the fees to the exchanges, the stock exchange also delists such companies. Bimal Doshi, chartered accountant, Bhana Shah Doshi management Consultancy said,
"Investors do not have an exit route in case the companies get delisted by the exchanges since it is not a transfer or sale of shares or extinguishment of right. Hence they cannot even claim losses under the head of capital gains."
So the investors are left holding a lot of junk papers in their hands. There is very little which can be done, since so far even the regulatory authorities have been foxed by these vanishing companies.
Jayant Thakur, a chartered accountant, adds, "The options are limited for small investors but they can file a winding up petition or a police complaint or both. They can also approach the regulator for help."
However several years after the vanishing companies did their trick the authorities are still at it. Recently the government said that steps were being taken to ensure 'adequate accountability' of auditors, solicitors and managers to a public issue of a vanishing company.
There is no way of knowing beforehand that a company is going to vanish. But one yardstick would be to steer clear of companies, whose promoters do not have any expertise in the area in which they propose to operate. A little homework here will not hurt.
Company Affairs Minister Prem Chand Gupta recently said the issue of vanishing companies needs to be tackled and several measures are being taken to keep them under the scanner.
Vanishing companies are believed to have eloped with a whopping Rs 10,000 crore (Rs 100 billion) of investor money, forcing the government to put the entire investigating mechanism on a high alert in order to track down such entities.
Among other steps, the government is also taking measures to establish the veracity of promoters and directors of a company at the time it is established. "This helps in ensuring that people with dubious and questionable track records do not enter the market and fool investors," Gupta said.
Also, in order to sensitise the public, the ministry is contemplating issuing advertisements in leading national and regional newspapers, giving details of such promoters. Incidentally the government is also planning to tackle the issue of presence of celebrities on the board of some companies.
"Charging just a fee for being a non-executive member of the board, they can lure many to invest in a company. However, in case of a default by the company concerned, there should be no compromise on compliance," he said, adding that the government was "considering changes" keeping this aspect in mind.