Unlisted firms may be allowed to fix pref allotment price

NEW DELHI: The Department of Company Affairs is considering whether to let the managements of unlisted companies decide the pricing norms for making preferential allotments and issuing sweat equity.
DCA, which is in the process of framing comprehensive guidelines for unlisted Indian companies on preferential allotments, employee stock options and sweat equity, has constitued a 12-member committee headed by JR Verma for the purpose and the norms are expected to be announced soon, official sources said here on Thursday.
"The Verma Committee has held several meetings to discuss matters related to preferential allotments and ESOPs. We are considering if the pricing of such issues can be left to the management of the unlisted companies," sources told PTI.
Also, the committee is yet to take a view on whether the mandatory lock-in period - imposed in the case of listed companies making preferential allotments, issuing sweat equity and even ESOPs - holds any relevance in the case of unlisted ones and whether this requirement can be waived in this case.
Besides, one of the suggestions made by a committee member relates to a cap on the extent of equity of any unlisted company which can be issued as ESOP.
"We may fix a year-wise cap on ESOPs," they added. DCA will notify the new guidelines for unlisted firms under Section 79 (A) of the Companies Act.
Besides Professor Verma of the Indian Institute of Management, the committee at DCA also comprises a nominee of market watchdog Securities and Exchange Board of India (Sebi), official sources said here, adding, Sebi already regulates these issues for all listed companies and its input would be vital in the case of unlisted ones.
Other members of this committee include a nominee from the Reserve Bank of India, besides two each from the Institute of Chartered Accountants of India and the Ministry of Commerce apart from DCA officials.
DCA''s move to frame guidelines for unlisted companies follow close on the heels of the Department deciding to frame comprehensive rules for enabling multinational companies to list on Indian bourses via the Indian Depository Receipt (IDR) route.
The Department is also in the process of devising norms for audit committees of companies so that these become more responsible and effective.