Heads I win, tails you lose! – Dheer Kothari

Ever heard of a company doing more than what it is required to do statutorily? Particularly, when there is a cost attached to it. I do not rule out a few stray examples of responsible corporations which have committed resources for the social sector but by and large companies prefer to play by the rule book and not the spirit of the law.

I was pleasantly surprised to come across an instance of ‘self-injury’ inflicted by Rushil Decor, an Ahmedabad-based company which went public last year. In its prospectus dated June 28, 2011 company stated that its entire pre-issue equity share capital shall be locked in for a period of one year from the date of commencement of commercial production or the date of allotment of new shares under the public issue whichever is later, However, Regulation 36(b) under Sebi (ICDR) Regulations, 2009 clearly states that “promoters’ holding in excess of minimum promoters’ contribution shall be locked in for a period of one year”. Obviously, the company’s merchant banker had made an error of judgment.

Sometime in May 2012, a month before completion of one year from the date of allotment of new shares the company sought clarification from Sebi on this faux pas. Sebi authorities made it clear that the provision in the offer prospectus was binding on the company. Sensing that an adverse ruling would restrict its liquidity in the market the company created an enabling provision for seeking shareholder approval for a special resolution to modify terms of lock in stated in its prospectus.

This resolution also stated in its explanatory statement to the Notice of annual general meeting (held in August this year) that “Presently, the entire pre-issue share capital of a company other than the minimum promoter’s contribution is locked in upto December 7, 2012″. It added: “This was mentioned inadvertently in the prospectus which was not in line with Sebi (ICDR) Regulations, 2009 which is to be rectified”.

Subsequently, the company announced commencement of commercial production at its Chickmagalur plant in the first week of October, thereby releasing a large chunk of shares belonging to the promoters. Although the mess has now been cleared, questions still remain about the implications of such goof-ups (intentional or otherwise) for minority shareholders. Uninformed investors often suffer the consequences of mistakes made by the so-called ‘savvy’ investor groups who have their own agendas.

It would be worthwhile for Sebi to look into this case to establish if there was any foul play involved and who benefited from this ‘transgression’.

(Dheer Kothati is a veteran journalist a stock market aficionado with more than three decades of experience in hard core reporting, analysis and market research. He can be contacted at dheer.kothari@gmail.com.)