Business

SEBI should insist on details of shares pledged by promoters

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.

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