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| PIL challenges SEBI guidelines on preferential share allotment |
| Press Trust of India / Mumbai Jun 11, 2009, 14:11 IST |
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A public interest petition filed in the Bombay High Court has challenged the constitutional validity of SEBI's guidelines for allotting preferential shares, which it alleges has been misused by promoters to deprive companies of thousands of crores of rupees.
Petitioner Rajkot Jilla/Sahar Grahak Suraksha Mandal, an NGO, has taken exception to the rules contained in 13.1.2 of Chapter XIII (Disclosure and Investor Protection) Guidelines of SEBI and said using these rules many promoters were playing fraud on the companies.
The petition said that these guidelines, which allow companies' promoters to pay the value of shares over a period of 18 months, are arbitrary and have no bearing on the object of protecting the interests of the shareholders.
In the recent past, there had been instances in which the (rpt) the board of a (rpt) a company has issued huge warrants on a preferential allotment basis to the promoters.
Reasons such as want of funds for new projects were given. Promoters paid 10 per cent of the aggregate value of share warrants.
Promoters kept quiet till the general elections of 2009. After the results were out, they informed the board that they would not subscribe to the warrants even though the last date for the subscriptions is away.
The board then cancelled the allotment, and when it suited the promoters, issued warrants afresh.
This implies that the company board initially misled the shareholders as well as SEBI as regards the need for funds, it said.
Due to this common practice, companies have been deprived of thousands of crores of rupees committed by the promoters for the company on a preferential allotment basis, it said.
In general, when a preferential allotment is made, the allottee has to pay the full amount at the time of application, but exception has been made in the case of warrants where an applicant has the option to subscribe over 18 months. This concession is used primarily by company promoters, the petition said.
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