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Wednesday, Aug 02, 2006

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Confusion over Infomedia record date for buyback

Jayanta Mallick

No intimation of change; aggrieved investors raise issue with SEBI

Kolkata , Aug. 1

The amendment of a Court approved share buyback scheme of Infomedia India Ltd, by which retrospective record date has been achieved for buyback of shares from the small shareholders, has confused market investors.

On June19, Infomedia had informed stock exchanges that on June 16, the Bombay High Court had approved their buyback scheme.

As per the original scheme filed by the company, for any shareholder having more than 50 shares on the record date, 14 per cent of his/her holding was to be compulsorily bought back at Rs 245 per share. Any shareholder holding up to 50 shares was to be given an option to tender his/her entire 50 shares at the same price. In the said scheme, there was mention of only one record date, and not two, for the two categories of investors in terms of their holding.

On July 27, the company informed the stock exchanges that the record date for shareholders holding up to 50 shares would be June16 and for shareholders with bigger holding, it would be August 18. The company also informed that the High Court had "replaced" Clause 4.2 of the scheme by an order dated July 21.

Aggrieved investors have already raised the issue with the market regulator.

Mr N. Choudhary, Secretary of the Citizen Welfare Association, told Business Line that for a listed security, record date for distribution/passing of any benefit had to be on prospective basis and not on retrospective basis. "Infomedia did not give any intimation of this proposed change to SEs before moving the Court for the amendment and also did not take any approval from the shareholders. This has harmed the interests of the small shareholders who had bought 50 shares after the company's intimation to the SEs on June 19. After having bought the shares, they find the scheme amended with effect from back date, without approval by the shareholders.

"The association has requested Infomedia to make the RD as July 21 (the date of the new order by HC).

Company law experts said that a corporate restructuring exercise by a listed company under Section 391 of the Companies Act through a scheme required informing stock exchange under Clause 24(f) of the Listing Agreement. The schemes under Sections 391 and 100 to 104 of the Companies Act require approval of members before they are placed before the court for sanction.

"Any change in the terms of the scheme should in the normal course be granted by the board as well as by the members. Failure to intimate stock exchange and the approval of members for the changed scheme might have gone against the interest of retail investors. This could have been avoided had the company given due intimation to stock exchange in time. This could be viewed as a violation of listing agreement and some of the sections of the SEBI and the Securities Contract Regulation Act. SEBI has powers to inquire into the matter regardless of the court's sanction, especially to see whether the company has misled the court or whether the board or the promoters group have gained by the change in the scheme," commented a former Company Law Board member.

He further said the courts have the right to overrule the shareholders resolution on occasions. Aggrieved shareholders may go in appeal against the order of the court before the Division bench of the High Court.

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