Specialists to conduct forensic audit of shell companies, says BSE chief

The Bombay Stock Exchange will conduct forensic audits on shell companies identified by market regulator SEBI, Ashishkumar Chauhan, MD & CEO of BSE, said.

The market regulator has so far identified eight companies for such audits, out of the 331 companies who were declared as shell companies a couple of weeks ago following a reference from the government.

The exchange will employ specialists in forensic audit for the purpose, who will go to the companies’ offices, check their books and transactions in detail and do the verification according to due process, Chauhan said.

Specific timeframes have been given for the commencement of the exercise, he said. The actual process of the audit will depend on the availability of information required by auditors, the state of readiness of the firms whose books are being inspected, he added.

Asked if the exchanges could have prevented the shell companies controversy with their own measures, Chauhan said, “On the shell companies issue, exchanges do not really have much of a role to play, in a broadway. Exchanges have no say in the day-to-day operations of these companies. As and when regulators take action, we coordinate with them when these issues are brought to our notice. We have acted accordingly. There will be a process of verification now and if things are found to be okay, then appropriate relaxation will be given.”

Asked if the exchange’s surveillance mechanisms could have thrown up some hint about these shell companies, Chauhan clarified, “Our transactions are about buying and selling of stocks.

What companies (whose stocks are being traded) do behind, we do not have any connection. We get to know once in a quarter, the aggregate numbers and once a year, the annual results which are reported in little more detail. But individual transactions, we don’t know. It is not comparable.

“An exchange is basically about transactions on the exchange and ownership transfer. How companies are running — whether by way of aggregate numbers, accounts, the individual transactions, production that has happened today, or the raw material used today — or whether it was brought by cash or cheque — those kind of details are not told to us.”

He added, “Laymen often end up ascribing too much power to some authorities — most of which don’t exist in those authorities.

“We have a limited jurisdiction, limited information and limited set of powers.”

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