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'Sebi should plug loopholes on allotment of shares'

A Bharatiya Janata Party member in the Lok Sabha on Thursday demanded that the government should ask the Securities and Exchange Board of India to plug existing loopholes and come out with comprehensive guidelines on preferential allotment of shares to ensure that small investors were not affected.

Raising the issue during Question Hour, Kirit Somoiya said there were several multi-national companies where promoters were making preferential allotment at the lower rate and selling it in the open market when the rates were high, raking in huge profits.

P H Pandian of AIADMK (Anna Dravida Munnetra Kazhagam) asked whether SEBI has powers to deal with erring stock exchanges indulging in insider trading while V Radhakrishnan, Communist Party Marxist, sought more transparency on preferential allotment.

Law Minister Arun Jaitely said there were no restrictions on sale of shares by the preferential allottees in the open market other than the lock-in requirements.

He said companies can make preferential allotment by passing a special resolution of shareholders under Sec.81(1A) of the Companies Act, 1956 and in compliance with the conditions imposed by SEBI such as minimum pricing, disclosure to shareholders and lock-in of shares allotted on preferential basis, if they desire to seek listing at stock exchanges.

Companies have been making such preferential issue to persons including overseas entities, he said.

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