Government allowed the whole issue of share sales go unregulated in a rush to free our economy, especially the- fl nan cial sector, from all restrictions and controls. The sale of shares to the public by the public limited companies 1s basically governed by the old company law of 1913 and the Capital Issues Act of 1947. The latter governs the details of share issue, both fresh and other kinds, such as right and bonus shares.

In the said Capital Issues Act. share sales at premium was not given a blank cheque, it was a right restricted only to the listed companies. The Act specifically state ', ‘the premium Is not allowed to exceed 50 per cent of difference between the intrinsic value and the paid-up value of the share’. The provision was made keeping the interest of the ordinary shareholders in mind.

The Act further stipulated that fresh sale of shares was not normally to be allowed at premium. The Controller of Capital Issues (CCI) did away with these requirements from the beginning of 1992. Perhaps somebody counselled that It was unjust to keep that restriction in a free economy. But he

Cthat behind every counselling, almost tn every a motive which only suited the counsellor's interest. In this case, exactly that happened.

We also In principle oppose restrictions in the economy, but it does not necessarily mean that there won’t be any regu latton on the economy But this la the case at the moment. The CCI is unable to perform its other vital roles which are linked with the Interest of ordinary shareholders. But it did something which only suited the Interest of the companies.

One may correctly raise the question whether the Interest of companies and that of their shareholders are different. In our context, they are different. Many companies are In the market just to exploit the small Investors, once they arc finished with the exploitation of DF1 finances. A few companies, over the years, earned good reputation by offering high divi dends to their shareholders. Market price of their shares rose high and remained steady for a long period of time Investors reposed their confidence In them and bypassed other opportunities. But this time, this confidence too was shattered as these reputed companies started to sale their shares at a high premium.

Recently, a pharmaceutical company sold shares to Its ex Is ting shareholders at a price more than four times the face ^value This company was paying 25 per cent dividend to Its

shareholders over the last few years. The Investors arc now asking themselves whether this company will pay four limes dividend after the receipt of four times money from the share sales at premium. Even a very optimistic investor will not expect the dividend offer to commensurate its money receipt from the shareholders. What this company Is after Is then a valid question to ask.

Not many domestic Investors purchased the right shares of the pharmaceutical company at four times premium. This company also did not call any meeting of the shareholders before deciding to issue right shares. Though it is not required by law, this has been a tradition in this country. This company instead called a meeting of its chosen people.

A textile mills also Issued fresh share at 50 per cent premium at the beginning of the last year. A famous tannery company also did the same — it sold shares at three times the face value, taking advantage of the waiving of requirement on share issues. Nobody was there to fix-up the premium rate, as if the CCI has surrendered all his functions to the Issuing companies.

In sum. companies are left at complete liberty in case of share Issues, no matter what the intrinsic value of shares are and what reserves are held against them.There is probably no other country in the world where such full-sway freedom is allowed to companies. If such a freedom 1s there, that is qualified by other rules and regulations. In a country where auditors take the side of management, who can say what intrinsic value a share has after all? Now the Investors are left to themselves to calculate the Intrinsic value of a share In their own wa/.

Recently, a leasing company also came to sell its shares at fifty per cent premium. This company also kepi more than three per cent of shares reserved from the public Issue for its own staff — a new phenomenon added to our share market. Also, this company offered on preferential basis seven per cent shares to the other financial institutions apart from ICB. It is not clear why there is so much discrimination and squeezing of public shares.

All these are being done with knowledge of the CCI. It is surprising how this office could comply with the reservation of shares for the staff of the issuing company. This is a bad precedent, and in future many other companies may come up with the same plea. The government should, therefore, rethink the entire matter seriously.