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S. Vaidya Nathan

When it comes to corporate actions and their material disclosure, hair-splitting distinction between intent, objective and development is best avoided.

THE failure of the Securities and Exchange Board of India (SEBI) to take note of the violation of material disclosure norms by Bajaj Auto does not send out the right signals. The Bajaj Auto Chairman, Mr Rahul Bajaj, has laid out the plans for restructuring, without keeping the market properly informed. The space given in the electronic and select print media to Mr Bajaj's views can be cited as constituting adequate dissemination. But the information may not have reached investors across the country as regional media may have ignored, or underplayed it. If such information is placed on the exchange board and filed with SEBI, the access would be of wide-ranging. There can be no cause for complaint. Material move: The norm for disclosures relating to material events has had a salutary effect in the timing and manner of flow of information from listed companies, though the depth and breadth of disclosures still leave a lot to be desired.

Information dissemination through the stock exchanges and EDIFAR (an electronic corporate information filing Web site) has brought about order and placed different classes of investors on an even keel.

Throwback to past: Before this now-mandatory requirement, it was common for promoters/top management of companies to selectively disclose material information and, that too, at a time of their choosing. Such selective disclosure also created room for price manipulation.

If the top management is allowed to articulate views in the manner Mr Bajaj has done, it would be an undesirable throwback to the past. The price impact of such announcements can be used to trade and profit. The timing can be tailored to suit the requirements of the promoters/top management. There is a possibility that an intent may not lead to a concrete development eventually. This would enhance the scope for manipulating stock prices. It is these aspects that should engage SEBI's attention.

Sweeping views: Mr Bajaj has discussed in detail the future of the company, on the sidelines of a press conference. The views can be considered as the intention or objective of the top management, or at least the Chairman. The issue is not at a stage where it can be classified strictly as a development. But the range of possibilities — demerger of the investment portfolio, its vesting in a separate company, and the listing and possible delisting of the new investment company — indicated by Mr Bajaj cannot, by any yardstick, be dismissed as not having material significance, or the potential to impact prices. The magnitude of what has been outlined ought to have been first placed before the board of directors.

Having placed his ideas in the public domain, and attributed them to pressures from investors, Mr Bajaj has presented a fait accompli before the board. A professional and independent board of directors should take strong objection to such practices.

Blinkers on: More than the lack of any action on SEBI's part, the views expressed by its Chairman, Mr G. N. Bajpai has come as a shocker. Queried on potential SEBI action in this case, Mr Bajpai has been quoted as saying, "Unless I know the case, I cannot comment. If there is something that has impact on anything, we will have to look into it. This case has not come before me. Let it come before me, then I will tell you."

Mr Bajaj's plans for Bajaj Auto have been widely reported in the business press. For the SEBI Chairman to say that he is not aware of the case, and that SEBI may look into it if there is merit, occasions only surprise, to put it mildly. SEBI has powers to take up matters for investigation at its discretion. The violation of the material disclosure norms in the Bajaj Auto case is an instance that ought to have caught SEBI's eye immediately.

Avoid hair-splitting: When it comes to corporate actions and their material disclosure, it would be better to avoid hair-splitting distinctions between intent, objective and development. An intent in relation to any potential corporate action can be an internal process, provided there are checks and balances to avoid insiders profiteering from such information.

At a particular stage, intent and objectives have to be disclosed, though they are yet to concretise into a development. This is already the case when board meets are announced for considering corporate action. Bypassing the board and the markets, as Mr Bajaj has done, is certainly not the right way.

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