In his keynote address at the "Indian corporate finance convention," Krishnamurthy said the preferential allotments should be made only to qualified institutional investors and to the promoters only in specific cases such as nursing a sick unit.

The DCA secretary's comments came in view of the recent attempt by the Tatas to raise their equity at a discount in cement major ACC through the preference share route. Due to pressure from the shareholders, the financial institutions had to block the ACC's board move to let the Tatas increase stake at Rs 1100 per share as compared to Rs 4,000 paid by the small shareholders and FIs themselves in 1995.

He said the Centre was seriouslyconsidering changes in the legal framework to ensure that corporate restructuring, by way of mergers and acquisitions (M&A), did not have drastic implications on the investor and the consumer.

Krishnamurthy said the government was also reviewing the Monopolies and Restrictive Trade Practices (MRTP) Act, not only in the light of M&A and consumer protection but also to revise it with regard to the changing economic scenario.

The DCA secretary was speaking at the Invest India seminar on corporate finance here. "Some kind of protection should be available so as to ensure that restructuring does not become play thing," he said adding that some kind of protection was necessary given the poor corporate track record and ill-informed investors. We have started examining protection for consumers and investors so as to ensure that the restructuring process is conducted smoothly, with no adverse impact on the consumer and investor in the long run," he added.

"Our legal systems are archaic regards the implication ofthe M&A process", he said. He also felt that the domestic industries such as steel, cement, aluminium and heavy engineering are in need of restructuring.

He, however, ruled out a relook at buyback norms. While forming the regulations, the government had no intention that the entire corporate sector would resort to buy back, he said adding that buybacks should be well thought of and carried out with caution and circumspection.

Addressing the convention, former governor of the Reserve Bank of India (RBI) S Venkitaramanan said if it was not resolved, corporate restructuring would be of no use. He was of the opinion that the success of a merger or acquisition depended largely on the state of the economy. ``Can M&A survive if interest rates are so high?'' he asked.

Bulk of the corporate sector borrows at interest rates of 19-20 per cent, he said. Credit is the lubricant for growth, he said while stressing that the Reserve Bank's method of treating non-performing assets had made bankers fearlending.