Vanishing promoters and languishing shareholders

Over Rs 60,000 crore of shareholders’ wealth is stuck in 1,450 companies suspended by the stock exchanges.

More importantly, near 100 per cent pledging of promoter holding appears to be common in many of these companies. This, almost rules out any chance of the companies bouncing back.

The suspension is for non-compliance of the listing norms.

Vanishing Companies - Definition


As per the definition stipulated by SEBI, any listed company, which raised moneythrough initial public offer and, thereafter, stopped operations, did not file returnseither with the RoC or SEBI and did not exist on the registered premises wastermed as vanishing.There are provisions under Companies Act under which companies are termedvanishing companies on satisfying certain conditions. it is provided a companywould be deemed to be a vanishing company, if it satisfies all the conditions given below :

a) Failed to file returns with Registrar of Companies (ROC) for a period of two years;
b) Failed to file returns with Stock Exchange (SE) for a period of two years (if itcontinues to be a listed company);
c) It is not maintaining its registered office of the company at the address notifiedwith the Registrar of Companies/ Stock Exchange; and
d)  None of its Directors are traceable.The conditions mentioned at (a), (c) & (d) would suffice to declare a company asvanishing if such company has been de-listed from the Stock Exchange.

Rs 61,000 cr market cap

CNI Research, which went into the possibility of relisting of the 1,450 companies suspended as of December 2009, said 536 companies on the BSE and 38 companies on NSE did not have any data regarding equity of the company, promoters details, last traded market price, public shareholding and consequential loss of public money.

The data of the balance 876 companies (789 in BSE and 87 in NSE) suggests that the market cap of these entities on the date of suspension was Rs 61,517 crore of which public money was Rs 58,227 crore, promoters holding Rs 3,290 crore and institutional holding Rs 182 crore.

If the data of the 574 companies were available, it could be as high as Rs 1 lakh crore. As of today, the shareholders loss would be around Rs 62,000 crore as suspension of about 100-odd companies have been revoked as per the newspaper report.

OVER 1,000 firms

Traders said there are at least over 1,000 companies that had been suspended for trading since 1992 where promoter holdings were less than 1 per cent.

A case in point is Pradip Overseas. The company was listed on April 5, 2010, and the promoters pledged their shares from the Q3FY11 onwards.

Today, 99.97 per cent of the promoter holding is pledged and only 7,562 shares remain with its 11 promoters.

The company’s share price remained between Rs 79 and Rs 84 from August 16 to October 3, 2012. During October 4-11, 2012, the price was between Rs 82 and Rs 96 with an intra-day high of Rs 127.70 on October 11.

On October 11, the company in an exchange filing said that its board was considering issue of bonus shares in its meeting to be held on October 18, 2012.

The scrip closed at Rs 56.15 to a share on October 18, 2012, even as the board approved a 1:5 bonus issue. Since then the share price dropped to close at Rs 23.65 on January 2, 2013.

Promoters have been using this method to get rich quick and fast. It is an easy modus operandi. Float a company, run it for some three years, show profits and then take it public, collect horrendous amounts of money from the people, get it listed and after the first year, slowly start erring on publishing results and other basic corporate governance requirements. There will be tonnes of legal notices getting piled up but ignore all of them. Then slowly just disappear from the scene. Voila! The best magic trick to make big money! Get listed and then just scoot away. After all, history has proven that none of the authorities could do much to either trace these companies or bring such promoters to book.

Investors are left just high and dry, with no clue about the company. All of a sudden neither the company nor any of the directors can be traced. Countless letters to SEBI, the Registrar of Company (RoC) and the company does not get any response. The promoters make merry, earn a life time of money and the investors are left merely wringing their hands in frustration.

Most of these vanishing companies were incorporated during the capital market boom in the 1990's where any and every company was raising money. The plantation companies, finance companies, cotton ginning and milling companies, oil extraction companies, shrimp/prawn farm companies, soya companies; they all just came and disappeared with the public money.


Indian stock markets are heavily manipulated and the dice is loaded against the retail investor. The stock market regulator SEBI is too slow to prevent the many scams that take place regularly in the Indian stock markets. Retail investors have been retreating from the stock markets since 2008 and the asset managers in India are seeing heavy redemption despite a rising stock prices. Now the exchanges NSE and BSE have themselves provided proof of how badly run the stock markets are, listing out 2135 securities as being illiquid and requiring additional due diligence (read “stay away”) from investors. With around 40% of the listed shares being deemed as dangerous, it makes sense why retail investors in India prefer gold and bank deposits over stocks.

Some of the popular methods of scamming the public are :-

1) Vanishing Companies – Small companies simply vanish from the stock market. They stop reporting results to the market and the investors have no way to exit as their stock stops trading as the exchange bans the company from trading. You are literally left holding scraps of paper.
2) Collusion between Promoters of Companies and Big Brokers – There have been many instances when promoters and big brokers manipulate the market to ratchet up the prices of stocks with no fundamentals to speak of. The instances of the “pump and dump” are too many to enumerate.
3) Accounting Scandals – While the “Satyam Scandal” is the biggest one, PWC in a recent report estimated that a very high percentage of companies resorted to accounting gimmicks.
4) Incestuous Dealings between private and public companies the same group – Most of the Indian family groups have a labyrinthine maze of company holdings. Most of the dealings done between these companies are to the benefit of the promoter at the expense of minority shareholders.
5) Tax Frauds – Tax Frauds are dime  and dozen. They are frequent and do not even raise much of an eyebrow. Get frequently entangled in the Indian judicial system for years.
6) News Frauds – Somebody circulates a fraudulent letter through major news media. Stock price goes up, people in the know sell out to investors who believe authoritative news media.

A measure of the guilability and culpeability of the Indian public and press is the Pyramid Samira scam.

On December 21, 2008, Business Standard carried a news report, which was faithfully “followed up” by other business newspapers in Mumbai and the rest of the country that Sebi has written to Pyramid Saimira, a Chennai-based theatre chain to make an “open offer” to the shareholders of the company.

As per rules, anyone buying more than 5% stake in a company within a year is expected to make an open offer to its ordinary shareholders, offering to buy shares (upto 20% of the total outstanding shares of the company) at the same price.

At the time of the news reports coming out, the Pyramid Saimira shares were trading at Rs 60. If the Sebi letter and the news reports were true, the promoters would have been forced to make an open offer at Rs 250. “Share at Rs 75. Open offer Rs 250,” screamed the headline of another major financial newspaper. With reports chorusing the impending offer at Rs 250, the shares of the company shot up.

Pyramid Saimira admitted to receiving a couriered letter from Sebi and confirmed the news. It seemed everything was in order.

However, a couple of days later, Sebi clarified that it had never sent any such letter. And Pyramid Saimira too woke up to realise that the “Sebi” letter was forged. By this time, the share price had gone up to Rs 83 from the previous Rs 60s. And as the price went up, someone  – later revealed to be Nirmal Kotecha, a company co-promoter – heavily sold his shares. And exited at a profit before the stock came crashing when it came to light that the reports were fake and there was no Sebi letter and hence no open offer at a high price either.

Where did the media get this fake letter from? Business Standard said in a front page mea culpa that it got the letter from one Ashok Jainani of Khandwala Securities which apparently a forgery. Other media outlets had received the letter from one Rakesh Sharma, a PR agent. Why did the newspapers blindly trust these so called letters?

The police have since arrested PR guy Rakesh Sharma, and questioned Nirmal Kotecha who sold his shares when the stock had gone up. Investigations are on, but there is still no clarity on who forged the letter, who transmitted it among the media and how our venerable business media gleefully swallowed the letter without even a simple fact-checking with the corporate finance department of the market regulator Sebi.


What is required is a set of punitive action. The moment a company fails to publish its results for one or two consecutive quarters, SEBI should issue a warning to the investors, so that they have the opportunity to get out before it vanishes. Also the promoters should be black listed. None of the promoters should be allowed to raise money or even stand in as non-executive director for other companies for the next 10 years. From being a mere ornament on the Board, these non-executive directors need to be made more accountable.

What are the authorities doing?

As of 20th Dec, 2012, The Ministry of Corporate Affairs had initially identified 238 companies as vanishing companies. Out of these, as on date, 87 companies are considered falling under the ‘vanishing’ category. The total amount of Public Issues made by these 87 companies amounted to Rs. 341.90 crore.

FIRs have been lodged against all the 87 vanishing companies and their directors with the Police to trace their whereabouts and also to take action under Indian Penal Code (IPC). Further, prosecutions have been filed against vanishing companies and their Directors under various sections of the companies act. Promoters/directors of the vanishing companies were also debarred by SEBI from raising money from the public. Besides, details of vanishing companies and their promoters/directors have been published in the Newspapers as well as placed on the website of the Ministry (www.mca.gov.in) to facilitate the investors to come forward and lodge their complaints against vanishing companies.

List of vanishing companies
Ambuja Zinc Ltd.	Asian Vegpro Industries Ltd
Bodh Gaya Ceramics Ltd	Cilson Organics Ltd.
Kiev Finance Ltd	Oriental Remedies and Herbals Limited
SSK Fiscal Services Ltd.	Saket Extrusions Ltd
Shree Vaishnavi Printing & Dyeing Limited	Universal Vita Alimentare Ltd.
Aashi Industries Ltd. (Formerly Known as Aashi Pharmachem Limited	Bhavna Steel Cast Limited
Caldyn Aircon Ltd.	Citizen Yarns Limited
Cromakem Limited	Frontline Financial Services Ltd.
Genuine Commodities Development Co. Ltd	Girish Hotels Resorts and Health Farms Ltd.
Global Exhibitions Limited. (Formerly Known as Global Network Limited )	Growth Agro Industries Ltd.
Hi-Tech Drugs Ltd	Hitesh Textile Mills Ltd.
Ichakalanji Soya Ltd	Kesar Greenfield International Limited
Lyons Industrial Estate Enterprises Ltd. (Formerly Known as Lyons Range Finance Ltd.]	Madhyavart Exxoil Limited
Manav Pharma Ltd	Marine Cargo Company Limited
Naisargik Agritech ( India) Ltd	Naturo Pest Ltd
Nishu Fincap Ltd (Formerly Known as Medha Finance and Securities Ltd)	Pur Opale Creations Ltd (Formerly Known as Nuline Glassware ( India) Limited
Pashupati Cables Limited	Protech Circuit Breakers Ltd
Protech Switchgears Limited	Rajadhiraj Industries Ltd
Realtime Finlease Ltd	Rusoday & Company Limited
Shree Yaax Pharma & Cosmetics Ltd	Shreeji Dyechem Ltd
Shri Mahalaxmi Agricultural Developments Co. Ltd	South Asian Mushrooms Ltd
Sparkle Foods Ltd	Spil Finance Limited
Sterling Kalk Sand Bricks Ltd.	Super Domestic Machines Ltd
Sushil Packagings ( India) Ltd	Tirth Plastics Ltd
Topline Shoes Limited	Vipul Securites Ltd
Carewell Hygiene Products Ltd.	Kedia Infotech Ltd (Formerly known as Grives Hotels Ltd.)
Hallmark Drugs & Chemicals Ltd. (Formerly Known as Lifeline Drugs Limited)	Hoffland Investments Limited (Formerly known as Vadra Investments Limited)
Rizvi Exports Ltd.	Shefali Papers Ltd.
Siddhartha Pharmachem Ltd.	Simplex Holdings Ltd.
Star Electronics Ltd.	Sukhchain Cements Ltd. ( Formerly Known As Ganapati Cements Private Limited)
Vidiani Agrotech Industries Ltd.	Zed Investments Ltd.
Aditya Alkaloids Ltd	Amigo Exports Ltd
AVR Securities Limited	Canara Credit Ltd
Crestworld Marines Ltd	Daisy Systems Limited
Deccan Petroleum Ltd	Flora Wall Coverings Ltd
Global Blooms India Ltd	Imap Technologies Limited
Kamakshi Housing Finance Ltd (Presently Known as Kisha Impex Ltd	Ma Capital Market Services Ltd
Nagarjuna Jiyo Industries Ltd	Ocean Knits Ltd
Orpine Systems Limited	P K Vaduvammal Finance & Investments Ltd (Presently Known as Novel Finance (I) Ltd)
Panggo Exports Ltd	Chhakri Tyres & Tubes Ltd Or Rhino Tyres Ltd) (Presently Known as Raam Tyres Ltd
Sai Graha Finance & Engineering Ltd	Sequel Soft India Limited
Shyam Printers & Publishers Ltd	Sibar Media & Entertainment Limited
Sibar Software Services ( India) Limited	Swal Computers Limited
Visie Cyber Tech Limited

Please refer to http://www.mca.gov.in/Ministry/vanishing.html for the complete list

Also refer to:-
http://www.thehindubusinessline.com/markets/stock-markets/vanishing-promoters-leave-shareholders-languishing/article4265832.ece
http://pib.nic.in/newsite/erelease.aspx?relid=91096
http://www.greenworldinvestor.com/2012/10/22/treacherous-indian-stock-market-%E2%80%93-40-of-listed-shares-considered-dangerous-by-exchanges/