The regulator is also mulling over banning an issue of warrants to promoters who have defaulted on their commitments to exercise their right to convert them.
Sebi took note of these concerns while hearing the case of petitioner Rajkot Saher Jilla Grahak Suraksha Mandal versus the Union Bank of India.
The petitioner had also requested Sebi to investigate the manner in which the decisions were taken by the board of directors regarding allotment of warrants to the same promoters who had defaulted on their commitment earlier.
The petition further said that Sebi should amend preferential issue guidelines so that any preferential issue, including those to promoters, could only be of shares or convertible instruments on payment of full amount towards the issue. However, both these were rejected by the regulator.
The regulator was of the view that there were Sebi guidelines to prescribe the preferential issue of equity shares under Section 81(1A) of the Sebi Act.
While no permission from Sebi is required for making preferential issues by listed companies, companies have to follow strict compliance norms with regard to disclosures, pricing, allotment of preferential shares, payment of subscription amount, tenor of convertibles, lock-in period and other miscellaneous requirements.
"Mere non-exercise of warrants by promoters or consequent fresh issuance of warrants to promoters does not appear to be in violation of the Sebi Act," the regulator said.
Moreover, Sebi is of the view that amending guidelines to the effect that promoters could be allotted shares or convertible instruments on preferential basis only on the payment of full amount would discourage companies to raise funds through the allotment of warrants and also indirectly restrict the issue of capital to only shares of the company.
"Such a step would disable a product which is accepted universally as a fund-raising tool and restrictions on issuance of warrants may also deprive the operational and capital structuring flexibility for Indian companies," said Sebi, disposing off the petition.
Image: The Bombay Stock Exchange