Sebi may amend norms on promoters' voting rights

The Securities and Exchange Board of India (Sebi) today said that it would initiate a consultative process to bring about necessary policy changes regarding prohibiting promoters from voting in the company general meeting on any resolution in which they themselves are interested in. The board also said that it would take view from market players and think over the issue of prohibiting an issue of warrants to promoters who have defaulted on their commitments to exercise their right to convert warrant.

Sebi took note of these concerns while hearing the case of petitioner Rajkot Saher Jilla Grahak Suraksha Mandal and another versus the Union Bank of India. The petitioner had also requested Sebi to investigate the manner in which decisions have been taken by the board of directors for allotment of warrants to the same promoters who had defaulted in their commitment earlier.

The petition had further said that Sebi should amend preferential issue guidelines to the effect that any preferential issue, including to promoters can only be of shares or convertible instruments on payment of full amount payable towards the issue. However, both these were rejected by Sebi.

The board was of the view that there were strict Sebi guidelines to prescribe the preferential issue of equity shares under Section 81(1A) of the Sebi Act. While no permission from Sebi is required for making preferential issues by listed companies, companies have to follow strict compliance norms with regard to disclosures, pricing, allotment of preferential shares, payment of subscription amount, tenor of convertibles, lock in period and other miscellaneous requirements. "Mere non-exercise of warrants by promoters or consequent fresh issuance of warrants to promoters does not appear to be in violation of Sebi act."

Moreover, Sebi is of the view that amending the Sebi guidelines to the effect that promoters can be allotted shares or convertible instruments on preferential basis only on the payment of full amount towards the issue would discourage the companies to raise funds through the allotment of warrants and also indirectly restrict the issue of capital to only shares of the company. "Such a step would disable a product which is accepted universally as a fund raising tool and restrictions on issuance of warrants may also deprive the operational and capital structuring flexibility for Indian companies," said Sebi disposing off the petition.