BSE’s faulty act

Olga Tellis

One of the continuing concerns of lakhs of investors is the delisting of 992 companies by the Bombay Stock Exchange in 2004. Thou-sands of investors who had subscribed to initial public offers during the stock market boom in the early and mid-1990s were left high and dry when over 1,000 co-mpanies that collected mo-ney through IPOs vanished from the scene after taking the investors’ money. To add to their troubles, 992 companies were delisted by the BSE after Midas Touch Inv-estors Association (MTIA) filed a public interest litigation demanding action against these companies.

Investors victimised

The MTIA’s Investor Helpl-ine has received over 500 grievances relating to 150 delisted companies. At the time of delisting, numerous companies were working and had tangible assets, but the BSE action has resulted in a loss to nearly 50 lakh investors as their shares have been reduced to waste paper. The whereabouts of over 400 companies were not known to Bombay Stock Exchange and were under the scanner of the joint coordination and monitoring committee for inclusion in "Vanishing Companies".

So Midas moved an application before the Securities and Exchange Board of India under the Right to Information Act in 2007, asking for information on what process was followed when delisting the 992 companies.

When Sebi asked the BSE about this, it forwarded the public notices it issued to the companies that were delisted. Midas said that this information was incomplete and went in appeal to the Central Information Comm-issioner (CIC) seeking deli-sting orders.

Guidelines flouted

According to the Sebi guidelines for compulsory delisting, the exchange has to follow a procedure that includes forming a committee and then according to the BSE’s own byelaws the board has to pass a special resolution for delisting. All these documents should have been made available to Sebi, if the procedures were followed.

However the Sebi representative made the shocking disclosure before the CIC that it could not show the orders, as the BSE did not pass any orders.

Wealth destruction

Mr Virendra Jain, honorary secretary of Midas, said Sebi’s guidelines are made to protect investors’ interests. The investors have not only been left in the dark but they have not got a paise of their investment back.

Mr Jain has written to the finance minister demanding the revocation of the delisting for the following reasons:

n Delisting was carried out without complying with the norms so there should be an inquiry in the matter.

n During delisting, these companies were working and had tangible assets. But the BSE action has resulted in a loss to nearly 50 lakh investors.

n The delisting was carried out for non-compliance with the terms of Listing Agreement. Though Sebi had directed all the stock exchanges to invoke penal provisions of the Securities Contract (Regulation) Act for such violation, instead of invoking these provisions, the BSE, for reasons best known to it, chose to delist the companies.

In the instant case, it means exonerating violation of laws and rew-arding wealth destruction.