IDBI, at that time, was represented by a respected well-known and senior civil servant on ACC board. At the board meeting he gave his consent for the proposal, which was shot down by financial institutions. Unfortunately, IDBI did not inform their representative on the board and he promptly resigned. He was replaced by a deputy general manager.

At the annual general meeting none of the directors representing public financial institutions were present to explain to lay shareholders the rationale of financial institutions decision. It is arguable that nominees of financial institutions owe no duty to shareholders at large and hence need not offer any clarifications on theirviews.

As a matter of fact, IDBI guidelines to their nominee directors state that their nominees on board of assisted companies need not attend annual general meeting of shareholders. It may be stated to the credit of financial institutions the cement industry at that time was passing through difficult times since there was price and distribution control.

Thereafter, ACC came out with a rights issue which was at premium of Rs 25 per share. The issue was not successful as lay investors perception of the cement industry was dull. The renunciation of right shares was quoted at 0.25 paise per share. ACC did issue bonus shares in 1992 and 1996 which was approved by the financial institutions.

It may be stated that there was relaxation in price and distribution control and cement industry was passing through a bright phase during that period.

In January, 1995, ACC came out with a right issue at a hefty premium of Rs 3900 per share. The right issue remained undersubscribed. Some industrial houses saw anopportunity to get a foothold in the company and made applications for a substantial quantity of additional shares just at the time when the issue was about to be closed.

There were rumours that there was panic in the ACC management circle. It was said that a senior director, representing managements core company, arrived at a negotiated settlement with a Calcutta-based business house. An application for additional shares from a large business house from Bombay on the last day of the closure of the issue was turned down on technical grounds.

Normally in a rights issue when shareholders request for additional shares, such applications, otherwise being in order, are considered and prorata allotment is done in consultation with stock exchange authorities where shares are listed. In the above case applications for additional shares were summarily rejected by the ACC board and the rights issue remained to be under subscribed. Tatas subscribed to their portion of right shares and also took extra entitlement.Nominees of financial institutions on the ACC Board agreed to the right issue being undersubscribed, financial institutions who had underwritten the issue had to honour their obligation as per the underwriting agreement which they did.

As per news reports ACC now proposes to issue right shares to shareholders in the ratio of one share for every four shares held at a price of Rs 55 per share. That is the issue will be at a premium of Rs 45 per share. The nominal value of the share being Rs 10. The preferential offer to Tatas is at Rs 110 per share. That is at a premium of Rs 100 per share. It will be noticed that the rights offer to shareholders is at a discount of 35 per cent to the current market price and seems to be investor friendly.

News reports reveal that IDBI will like to review the price for preferential issue to Tatas on the following grounds. The last rights issue of ACC was at a premium of Rs 3,900 per share. The preferential issue now made to Tatas is at considerably lower price. Thus, Tataswill retain control of the company by increasing their holdings at lower cost. Besides consequent to underwriting agreement financial institutions had to honour their commitment at a considerable price since the issue remained undersubscribed.

Both these arguments cannot bear scrutiny of discerning investors. IDBI received underwriting commission for honouring their obligation. It was a commercial decision which IDBI had taken at the time of underwriting the issue and they have no right to grumble. It is a price which IDBI had to pay for allowing right issue to remain undersubscribed which was their conscious decision.

The price for preferential issue is determined on the basis of last six months average as per the formula fixed by SEBI. Therefore, it cannot be said that the Tatas stand to benefit merely because they have strictly observed SEBI guidelines. All participants in the capital market have to observe the rules of the game. It will set a bad precedent if the SEBI formula in determining price forpreferential issue is altered to merely suit wishes of a financial institution. The sanctity of SEBI guidelines is at stake.

Presently the general sentiment in stock market is rather gloomy. Perhaps this is the best opportunity for promoters to pick up shares, when ruling price in the market is well below the intrinsic value of the share. This will reassure small shareholders that promoters have full faith and confidence in the long-term prospects of the company. Shareholders interest is fully protected with increase in holdings of promoters.

The price of right issue is essentially market related in the same manner as interest rates on bonds issued are determined by financial institutions. Shareholders of ACC will get opportunity to lower their average cost of holdings in the scrip by subscribing to the issue.

With the increase in holdings of Tatas, by the proposed preferential issue, the question whether ACC belongs to Tata group or is merely associate of the Tata group is set to rest.