While investors were forced to default on deliveries for ONGC trades undertaken before the faulty allotments were frozen, the government is well protected against any legal action on this front.
It had introduced, well in advance, a special clause in the ONGC offer document. The clause clearly specified that the disinvestment proceeds could be transferred to the government's account even before the divested ONGC shares were formally transferred to investors.
What's more, this clause is unique to the ONGC offer and does not figure in any of the other government issues. According to top government officials, it will protect the government against legal suits from aggrieved investors. "Under the Companies Act, the issuer can not touch the share application money unless the allotment is completed. We have never come across an instance where such a concession has been availed of. The government has cleverly avoided a breach of company law as well as the Contracts Act through the insertion of this special clause," said an expert.
The clause was put in the offer document, to ensure that the divestment proceeds were transferred to government account before the close of the fiscal on March 31, said the official. The clause enables the government to transfer funds from the escrow account after the registrar provides just the list of successful bidders to the depositories. This means share allotment was not a condition for the transfer of the proceeds from the sale to the government account.
Meanwhile, the NSE has once again put up an auction for over 2.3 lakh ONGC shares on Monday to cover up for delivery shortages. Monday's trades were settled by the stock exchanges today and a shortage cropped up, said brokers.
Investors could not deliver the committed number of shares as only partial allotments were received in time for the settlement. "For the first time since I started trading I was short by more than 10% today. The losses will be around Rs 40 a share," said an HNI.
Other retail brokers who did not trade on Monday, however, also await their allotments.
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