SEBI should insist on details of shares pledged by promoters
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Sale of pledged shares upon payment default has, more often than not, set off huge convulsions within a corporate entity.
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The Securities and Exchange
Board of India
(SEBI) must make it mandatory
for companies to disclose
details of shares pledged by
their promoters to raise
finance.
This suggestion, which is
whispering around for a
while, has assumed considerable
importance in the wake
of the ongoing ugly developments
at Satyam Computer
Services.
Simultaneously, it is also
felt necessary for SEBI to
make it mandatory for any
lender against shares to inform
the regulator of any sale
of pledged shares, triggered
primarily by payment defaults
of promoters who have
borrowed money. Sale of
pledged shares upon payment
default has, more often than
not, set off huge convulsions
within a corporate entity. Satyam
was the latest to witness
this. Corporate India has seen
such turmoil in the past. Opponents
of the suggestion argue
that `share pledge' is an
exercise involving the promoters
and the lenders and that
the company per se is unconnected.
The proponents of the suggestion,
however, feel that
since the action arsing out of
the promoter-lender relationship
impinges on the
company affairs, the regulator
must insist on disclosures
on shares pledged.
The Satyam imbroglio also
calls for a water-tight mechanism
that addresses deliberate
fiddling of valuation of a
firm that is sought to be taken
over by a company. A view is
that the Institute of Chartered
Accountants of India
(ICAI) must immediately
come out with an institutional
mechanism to prevent any
misrepresentation of the valuation
of the firm that is being
taken over. In this context, it
is suggested that ICAI frame a
SEBI-approved workable formula
and make it compulsory
for corporates to adhere to in
the case of any takeover. Any
non-compliance could elicit
stringent action by suitably
amending the law.
K. T. JAGANNATHAN
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