Around 270 Companies Face Delisting Risk as SEBI Targets Inactive Firms Used in Pump-and-Dump Schemes

India’s market regulator, the Securities and Exchange Board of India (SEBI), and stock exchanges are preparing to scrutinise around 270 inactive listed companies that could be vulnerable to market manipulation. The proposed exercise will focus on firms with little or no meaningful business activity, including companies with market capitalisation below ₹10 crore. Those unable to demonstrate genuine operations or satisfy exchange queries could face delisting proceedings.

The move follows warnings from SEBI chairman Tuhin Kanta Pandey that inactive companies can become vehicles for pump-and-dump schemes, exposing retail investors to losses. Importantly, the 270 companies are under consideration for scrutiny; they have not all been ordered to delist. The identification criteria are still being discussed, and companies would have an opportunity to respond before any action.

Around 270 Inactive Companies Under the Scanner

According to people familiar with the discussions cited by Moneycontrol, stock exchanges are examining around 270 companies that may have limited or no meaningful business operations.

The preliminary estimate includes approximately 250 companies listed on one exchange and another 20 listed on a second exchange. These firms could be examined under a set of parameters designed to identify businesses that remain listed despite having little economic activity.

The proposed screening criteria include:

• Market capitalisation below ₹10 crore.
• Profitability over several years.
• Net worth and financial position.
• Shareholding patterns.
• Unusual or significant share-price movements over short periods.
• Evidence of genuine business operations.

The ₹10 crore market-capitalisation level is among the parameters under discussion, not a final standalone rule that automatically triggers delisting.

Once exchanges prepare a preliminary list, they are expected to conduct physical verification. This could involve visiting registered offices and business locations to establish whether the companies are genuinely operating.

Companies that cannot be located at their registered addresses or appear to have no meaningful operations could receive notices asking them to explain why they should remain listed.

If their responses are unsatisfactory, exchanges could initiate delisting proceedings under the applicable securities regulations.

Why SEBI Wants to Remove Inactive Companies

The primary concern is that companies with little or no business activity can still attract speculative trading. Their shares may have low liquidity, limited public information and relatively small market capitalisations, making them potentially vulnerable to manipulation.

SEBI chairman Tuhin Kanta Pandey said on November 1 that companies with no economic activity could pose a danger to investors and that the regulator was working to remove such firms from the listed market.

He also highlighted the use of inactive company shares in pump-and-dump operations, where manipulators attempt to influence prices before selling their holdings.

The proposed exercise is intended to address several potential forms of misuse.

1. Pump-and-dump schemes

A pump-and-dump scheme involves artificially increasing a stock’s price through misleading information, coordinated buying or promotional activity.

Once the price rises, operators sell their holdings at inflated levels. Other investors who buy during the price increase may suffer substantial losses when the stock falls.

Inactive companies can be attractive targets because limited trading activity and a lack of reliable business information may make their shares easier to manipulate.

2. Misuse through reverse mergers

An inactive listed company may also become a potential route for a reverse merger.

In this arrangement, an unlisted business merges with an already-listed company and gains access to the listed market through the transaction.

SEBI and exchanges are concerned that an inactive listed entity could potentially be used by businesses that might otherwise struggle to meet the requirements for a conventional listing.

3. Tax-related transactions

Another concern involves the alleged use of shares in inactive companies for transactions designed to generate artificial capital gains or book losses to reduce tax liabilities.

The regulator has previously taken action against market participants involved in fraudulent trading and artificial price movements. The latest screening exercise is intended to reduce the number of companies that could potentially be used for such activities.

How the Delisting Process Could Work

The proposed exercise is expected to involve multiple stages rather than immediate removal from the stock exchanges.

Stage	Proposed action
Initial screening	Exchanges identify potentially inactive companies using financial and market-related parameters
Preliminary list	Firms meeting the screening criteria are shortlisted
Physical verification	Exchanges examine registered offices and business locations
Company notices	Firms may be asked to explain their business activities and continued listing
Review	Exchanges assess company responses and supporting information
Delisting proceedings	Eligible cases could proceed under applicable regulations

This process is important because low market capitalisation or weak profitability alone does not establish that a company is inactive or fraudulent.

A business may have limited operations for legitimate reasons, including restructuring, financial difficulties or temporary suspension of activities. The verification process is intended to distinguish such cases from entities that cannot demonstrate genuine operations.

What Existing Rules Say About Compulsory Delisting

The Securities Contracts (Regulation) Rules, 1957, already provide recognised stock exchanges with powers to delist securities in specified circumstances.

Rule 21 sets out several grounds on which a company’s securities may be delisted. These include:

• The company has incurred losses for three consecutive years and has a negative net worth.
• Trading in its securities has remained suspended for more than six months.
• Its shares have been infrequently traded over the preceding three years.
• The addresses of the company, its promoters or directors are unknown, or false addresses have been provided.
• The company has failed to restore the prescribed minimum public shareholding within the applicable period.

The rules also provide procedural safeguards. A company cannot be delisted without receiving a reasonable opportunity to be heard.

In cases of compulsory delisting covered by the applicable provisions, the company, its promoters and directors may be jointly and severally liable to purchase outstanding shares from investors who wish to sell, at a fair price determined under SEBI regulations.

However, this does not mean every company facing a proposed delisting review will automatically receive a guaranteed exit payment. The applicable regulatory provisions and circumstances of the delisting matter.

SEBI Is Also Increasing Market Surveillance

The proposed action against inactive companies is part of a wider effort to strengthen investor protection and monitor suspicious market activity.

Pandey has said SEBI is using artificial intelligence techniques to track and scrutinise suspicious accounts. The regulator is also seeking to improve its ability to identify potentially manipulative activity and protect retail investors.

The concern is particularly relevant as more individuals participate in India’s securities markets. According to SEBI’s recent remarks, the number of distinct investors in the country’s securities market has crossed 150 million.

A larger investor base increases the importance of reliable disclosures, effective surveillance and action against misleading investment promotions.

Inactive companies can create additional challenges because their shares may continue to attract attention through online groups and social media despite having little underlying business activity.

What the Move Means for Investors and Stock Exchanges

For investors, the proposed exercise could improve market transparency by addressing companies that have remained listed without meaningful economic operations.

However, investors holding shares in potentially affected companies should not assume that delisting is certain. The reported list is preliminary, and the criteria are still under discussion.

Shareholders should pay attention to company announcements, exchange notices, financial statements and any communication regarding compliance or delisting proceedings.

For stock exchanges, removing inactive companies could reduce listing-fee income at the margin. At the same time, it could reduce the surveillance burden associated with monitoring companies that have little meaningful activity.

The broader objective is to improve the quality of the listed market rather than simply reduce the number of companies trading on exchanges.

The Bigger Picture

SEBI’s proposed scrutiny highlights a challenge in India’s expanding equity market: maintaining the quality of listed companies as retail participation increases. A stock exchange listing provides businesses with access to public investors, but it also carries responsibilities relating to disclosures, governance and genuine economic activity.

Removing companies that cannot demonstrate meaningful operations could help reduce opportunities for market manipulation. However, the process must distinguish genuinely inactive entities from businesses experiencing temporary financial or operational difficulties. Transparent criteria, proper verification and the right to be heard will be important to ensuring that the exercise protects investors without unfairly penalising legitimate companies.

Looking Ahead

The next step will be for stock exchanges to finalise their screening parameters, prepare preliminary lists and begin verification of the companies identified. The number of firms that ultimately face formal proceedings could differ from the reported estimate of around 270, depending on the findings and explanations provided by each company.

For investors, the key development to watch will be formal notices and exchange announcements rather than the preliminary screening itself. SEBI’s broader effort to remove inactive companies could become an important part of strengthening market integrity and reducing the risks associated with speculative trading in poorly monitored stocks.