Suspected Shell Firms: SEBI Orders Forensic Audit Of Hit Kit

• SEBI has ordered a forensic audit of Hit Kit Global Solutions
  
• SEBI said there are inconsistencies between HKGSL’s books of accounts and its submissions before the regulator
  
• SEBI noted, restrictions imposed on promoters and directors be removed
  

Market regulator SEBI has ordered a forensic audit of Hit Kit Global Solutions Ltd (HKGSL), which figures among 331 suspected shell companies under regulatory scanner, even as trading curbs imposed on the firm have been removed.

Earlier this week, the Securities and Exchange Board of India (SEBI) had ordered forensic of two other such companies - Kavit Industries and GV Films, while revoking trading curbs on their shares.

In an interim order dated September 7, SEBI said there are inconsistencies between HKGSL’s books of accounts and its submissions before the regulator.

"Also, there is lack of documents to substantiate the transactions entered into by the company”, it added.

The regulator also noted that it would be appropriate that the restrictions imposed on promoters and directors of the company be removed and trading in securities of HKGSL be reverted to the status as it stood prior to issuance of letter dated August 7 by SEBI.

HKGSL is among the firms against whom SEBI initiated action on August 7 by ordering trading restrictions, following receipt of a list of 331 “suspected shell companies” from the government.

In the 13-page order, SEBI observed that the financials of the company are dominated by “long term loans and advances” of Rs 9.65 crore as on March 31, 2016 as against the networth of Rs 9.73 crore as on March 31, 2016.

“From the loans and advances certain amounts of Rs 5.84 crore has been shifted to capital work-in progress and Rs 3.87 crore has been shifted to other current assets in year 2016-17 as shown in balance sheet of FY 2016-17,” SEBI said.

The ordered trade restrictions -- allowing trade only once a month and that too for only buy transactions with a 200 percent security deposit -- were revoked in some cases a few days later following appeals filed by them with the Securities Appellate Tribunal, but SEBI was asked to continue with its probe and pass its orders expeditiously.

Continuing with its probe, SEBI has now passed interim directions in case of three firms including HKGSL, while more such orders are expected for several others.

SEBI received the list from the government on June 9, wherein it was asked to initiate necessary action under its regulations. The regulator found that the companies identified as shell companies were potentially involved in misrepresentation including of their financials and business in violation of listing regulations.

Besides, the regulator observed that they were possibly misusing the books of accounts and funds of the companies including by facilitating “accommodation entries to the detriment of minority shareholders”, thus reneging on the fiduciary responsibility cast on the board, controlling shareholders and the key management personnel.