New Delhi : Capital markets regulator Sebi may soon frame a new set of norms to check illicit nexus between market intermediaries and promoters of listed firms, where shares are used informally as collateral for trades.
Taking benefit from the regulatory gaps, some depository participants enter into tripartite arrangements with the promoters of listed companies and the traders for lending or borrowing of shares without using the formal pledging or encumbrance of such securities.
However, such arrangements can lead to possible frauds and multiple pledging of shares and there have been cases where any default on part of any of the three parties has resulted into a massive fall in the share price — thus hurting the interest of minority shareholders. To check this menace, the Securities and Exchange Board of India (Sebi) is now looking into a proposal to bar the depository participants (DPs) from entering into such arrangements, a senior official told PTI.
The panel has noted that certain depository participants “allow the promoters of companies to use tripartite agreements usually referred to as Non-Disposal Agreement/Non-Disposal Undertaking (NDU) to extend facilities to its clients for lending or borrowing of shares instead of following the pledging facility available in the depository system. Consequently, it recommended that “DPs should not be party to such arrangements as there is no regulatory mechanism whereby depositories and DPs can treat shares covered by NDU as pledged or encumbered, leading to potential for fraud and multiple pledging”.
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Sebi, exchanges ask 75 firms to restate a/c on audit red-flags
New Delhi : Coming down heavily on companies where auditors have flagged serious lapses, regulator Sebi and stock exchanges have asked at least 75 listed firms, including Kingfisher Airlines and its parent UB Holdings, to restate their financial accounts after addressing these issues.
The companies that fail to submit a compliance report to the exchanges would face penal action by the regulators, a senior official said. According to information available with the two exchanges, the companies which have been issued directions to restate their financial accounts include Vijay Mallya-led group’s holding company United Breweries Holdings Ltd (UBHL), long-grounded air carrier Kingfisher Airlines, as also another crisis-hit company Financial Technologies India Ltd (FTIL).
Other such companies include Videocon Industries, state-run NHPC, GMR Infra, Lanco Infra, GTL Ltd, DCM Financial Services, Kitply, CESC, Oudh Sugar Mills, Binani Industries, Bartronics, Indowind and Indian Metal and Ferro Alloys (IMFA).
The irregularities were mostly found in the areas like investment values shown in balance sheets, provisions for debt recovery, estimated losses for capital work in progress, promoters’ contribution under current liabilities, as also in accounting for taxation, related party disclosures, etc.
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