INDIA BUSINESS WORLD - DECEMBER 2005
THE MONTH THAT WAS

PROMOTERS NOW ALLOWED TO CROSS 55%

SEBI has eased the rules for corporate takeovers and restructuring by removing restrictions on open market purchases of shares by promoters and founders. The capital market watchdog has also decided to rewrite norms for all investors in the market with the resumption of the registration process for obtaining unique identification number (UIN). Acting tough, it has also decided not to extend the December 31 deadline for complying with the provisions of Clause 49 of the listing agreement that relate to corporate governance norms.

Sebi has now proposed that all investors going for a trade order value of Rs 5 lakh or more would have to obtain a UIN. Earlier, when the proposal was first mooted, the cut-off figure for obtaining UIN marked by biometric impression such as fingerprints was pegged at Rs 1 lakh. Investors who have a trade order value of less than Rs 5 lakh will now have to reconcile to the fact that they can trade only if the quote their PAN or the UIN obtained under the MAPIN.

Obviously, by creating a clear trail through this process, the regulator hopes to keep a check on benami accounts and fraudulent trades. The changes relating to quoting of the UIN will come into force only after Sebi amends its regulations. Investors of mutual funds would, however, be exempt from meeting this requirement. According to the new rules approved at a marathon board meeting of Sebi, promoters of companies holding 55% equity stake, can purchase more shares from the market to increase their holding. Earlier, the promoter had to make an open offer for at least 20%. This was expensive. “The amendment (to the Takeover Regulations) will give flexibility for corporate restructuring,” chairman M Damodaran told reporters in Mumbai. At the same time, the minimum public holding of 25% equity stake would be maintained. And consistent with its earlier stance, articulated again recently by Mr Damodaran, Sebi decided not to extend the December 31 deadline for complying with clause 49.

This clause, relating to corporate governance, stipulates that of the total number of directors on board, at least half or 50 % should be independent. The only concession that seems to have been made is in terms of the timing of board meetings. The maximum time between two board meetings has been increased to four months, from the current three months. “However, the minimum number of board meetings that a company can have, hasn't been reduced. It remains at four,” Mr Damodaran said.
Companies that don't comply with these norms will be penalised, said Mr Damodaran. Till date, only 20 companies have complied with the norms on corporate governance, compared with 5,000 companies that are listed.