The Hindu Business Line : DCA in talks with SEBI to tighten pref allotment norms

THE Department of Company Affairs (DCA) is in talks with the Securities and Exchange Board of India (SEBI) on the matter of bringing about further changes in the existing pricing guidelines and issuance norms on preferential allotment of securities.

"The rule concerning six months average or the last two weeks' price average, whichever is low in the case of preferential allotments, needs revision as it can be manipulated," Mr Vinod Dhall, Secretary, DCA, said in his address at a National Accounting Convention organised by the Associated Chambers of Commerce and Industry (Assocham).

Mr Dhall said that the revised guidelines would specify the persons who would be eligible for getting a preferential allotment in a company. "Preferential allotment was permitted to enable managements to induct a new stockholder without incurring the expense of public issue. But we cannot understand why a company should make preferential allotment to 10 persons. In one case, a preferential allotment was made to a broker at a price much lower than the market price," he said.

He held that preferential allotments in India were going the way of "stock options" in the US where a number of instances of their misuse had surfaced.

The preferential allotments by promoters have been a controversial issue in India ever since the mid-90s. The guidelines formulated on this issue by the authorities concerned have been undergoing frequent changes.

`Inadequate powers'

After the SEBI Chairman, it is now the turn of the DCA Secretary, Mr Vinod Dhall, to moan about the absence of adequate powers and stringent penalties to bring to book erring companies and individuals.

"The only power that I seem to have is to order departmental inspections on companies. In most of the cases, the inspections do not detect any meat.

DCA should have the powers to appoint professional persons to conduct investigations. There is also a need to increase the value of penalties that can be imposed under the Companies Act," Mr Dhall said.

Interestingly, DCA had recently objected to certain powers being vested with SEBI and had come in the way of an early amendment to the SEBI Act.

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