Sebi bans wilful defaulters from markets, holding board positions

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New Delhi | Published: May 26, 2016 3:33:51 PM

Wilful defaulters will no longer be able to tap the securities markets to raise funds and hold board positions at listed companies with Sebi notifying the amended norms in this regard.

Securities and Exchange Board of India (Sebi) (Source: IE)Securities and Exchange Board of India (Sebi) (Source: IE)

Wilful defaulters will no longer be able to tap the securities markets to raise funds and hold board positions at listed companies with Sebi notifying the amended norms in this regard.

While putting in place a stringent framework to choke the funding sources for wilful defaulters, Sebi has also restrained such entities from setting up market intermediaries like mutual funds and brokerage firms. Also, these defaulters have been barred from taking control of any other listed company.

The move assumes significance in the wake of a raging controversy over UB Group Chairman Vijay Mallya, who has exited the country amid continuing efforts by the banks to recover dues totalling over Rs 9,000 crore of unpaid loans and interest. Mallya recently resigned as Chairman and Director of United Spirits Ltd as part of a sweetheart deal with the company’s new owner Diageo, a deal which itself is under Sebi’s scanner. He, however, remains on board of some other companies.

The new rules, which has become effective from yesterday, would apply to every individual and company declared as wilful defaulter as per the Reserve Bank norms. The issuer can not make a public issue of shares, debt securities or non-convertible redeemable preference shares if the company or its promoters or directors figure on the list of wilful defaulters, Securities and Exchange Board of India (Sebi) said in a notification dated May 25.

Besides, any company or its promoters and directors categorised as wilful defaultes are not allowed to take control over other listed company. However, if a listed company or its promoters or directors is categorised as wilful defaulter, and there is a takeover offer in respect of that listed company, they may be allowed to make competing offer.

The regulator said no fresh registration will be granted to any entity in case the entity itself or its promoters or directors or key managerial personnel are included in the list of wilful defaulters. Some entities tend to tap equity and debt markets for funds after banks stop giving credit for willfully defaulting on loans, but small investors get trapped due to lack of information about their ‘defaulter’ status.

However, there was a counter-view that a complete fund- raising ban on ‘wilful defaulters’ could come in way of the promoters of a listed company seeking to infuse fresh funds, which may hurt the interest of minority shareholders. Seeking to strike a balance, the Securities and Exchange Board of India (Sebi) has put a curb on IPOs and FPOs by such entities where funds are raised from the public.

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