Sebi opts for middle path on preferential offers

The amendments, along with the approved recommendations, have been sent to Sebi’s legal committee headed by former CJI, M.N. Venkatachaliah for drafting and is expected to be completed by the end of this month. The changes in Takeover code will soon be notified. The Bhagwati panel had earlier recommended that preferential allotments be kept out of the purview of the Takeover Code citing reasons of corporate democracy. However, the panel had recommended that the present exemption for preferential allotment be continued subject to the condition that any resolution for a preferential issue should provide for by postal ballot to enable greater shareholder participation.

However, even after the recommendation of the review panel, Sebi had made up its mind that preferential allotments need to be brought under the Takeover code. Sebi’s firm view to plug the loophole by bringing the preferential issue under the code, it was said, was the outcome of pressure on the regulator from all quarters including investors’ associations who left no stone unturned to convince the regulator. They were of the view this provision is being misused by nexus of promoters and brokers. In January this year, when the Bhagwati panel submitted its first set of recommendations after almost three years of delibrations, one of its major recommendations was to bring preferential allotments under the takeover code. The panel took note of the misuse of the provision pertaining to such allotments and advocated bringing it under the code. Some members of the panel had expressed reservation about continuing the exemption for preferential allotments. Prof Manubhai Shah of CERC, was of the opinion that interested parties should not be allowed to vote on a resolution for preferential allotment.