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SCANDALS in the Indian financial market, it would seem, just never cease. Since the news of the securities scam broke in March 1992, there have been revelations of underhand dealings at various levels in the capital market.

  The latest to hit the headlines is the news that several top officials of the Reserve Bank of India (RBI) were beneficiaries of preferential shares from promoters' quotas in public equity issues.

  As the watchdog of the Indian economy and financial system, the RBI wields a lot of clout, and top officials are ideal targets for bribery. At the moment, the personal investment portfolios of several senior RBI officials are being closely examined by its anti-corruption cell.

  Two executive directors of the bank are understood to be facing the charge of receiving preferential share allotments from the special quotas reserved for promoters and group company employees, from several public issues floated in the recent past.

  Finance Minister Manmohan Singh is understood to have taken a strong stand against those found guilty of accepting such favours, and has moved to block their promotions.

  The whole investigation is understood to have been triggered by a list of more than 500 RBI officials suspected of receiving preferential allotments.

   The list was compiled by the Securities and Exchange Board of India (SEBI), and submitted to the RBI a few months ago.

  SEBI is believed to have stumbled on to this information in the course of investigating investors' complaints of non-receipt or delayed receipt of share allotments, dividend and interest warrants from a number of companies.

  Several officials who have availed themselves of the promoters' quota allotments have pleaded innocence to the investigators, claiming they may have unsuspectingly made share applications on forms that arrived unsolicited in the mail.

  Be that as it may, the under-the-table efforts of promoters to win favour from officials in the right place will now come to naught.

   Also being frowned upon is their propensity to allot themselves preferential shares at prices less than those at which the shares are offered to the general public.

  Financial institutions which have large chunks of equity in most public limited companies, have decided to oppose preferential allotments to promoters, unless these are done at market-related prices.

  All along, promoters have made preferential allotments of equity to themselves a few months before coming out with public offers, and at prices very favourable to themselves.

   This has allowed them to get equity at prices well below the prevailing market quotations.

  The one to trigger the latest move by the financial institutions was an effort by Bombay Dyeing and Manufacturing Company to ram through a resolution to issue non-convertible debentures and secured premium notes with detachable warrants to promoters at adiscount.

   These warrants give the holders the right to apply for equity shares of the company at a subsequent date.

  Financial institutions, which hold about 22 per cent of the stake in Bombay Dyeing, had made it clear before the extraordinary general meeting of the company on November 30 that they would oppose the proposal.

   Seeing the writing on the wall, the company's chairman Nusli Wadia withdrew the controversial resolution.

  The financial institutions have been able to present a united front after a recent meeting in New Delhi with Finance Ministry officials, where the issue came up for detailed discussion.

   A study of company law in most other countries showed there was no provision to allow preferential shares allotment to any particular type of shareholder.

   The particular section was inserted into the Indian company law in the early 1970s for reasons that are not immediately apparent.

        Institutions will continue to take a stand against cheap allotments to promoters until such time as the Companies Act can be duly amended.

   The Finance Ministry has already requested the Department of Company Affairs to bring about the desired changes.



Officials accepted preferential shares