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Preferential shares: PIL challenges Sebi norms

June 11, 2009 13:18 IST

A public interest petition filed in the Bombay high court has challenged the constitutional validity of Sebi's guidelines for allotting preferential shares, which it alleges has been misused by promoters to deprive companies of thousands of crores of rupees.

Petitioner Rajkot Jilla/Sahar Grahak Suraksha Mandal, an NGO, has taken exception to the rules contained in 13.1.2 of Chapter XIII (Disclosure and Investor Protection) Guidelines of Sebi and said using these rules many promoters were playing fraud on the companies.

The petition said that these guidelines, which allow companies' promoters to pay the value of shares over a period of 18 months, are arbitrary and have no bearing on the object of protecting the interests of the shareholders.

In the recent past, there had been instances in which a board of the company has issued huge warrants on a preferential allotment basis to the promoters.

Reasons such as want of funds for new projects were given. Promoters paid 10 per cent of the aggregate value of share warrants.

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