MARKET regulator Securities and Exchange Board of India has notified new guidelines barring wilful defaulters from tapping the securities markets to raise funds and holding board positions in listed companies.
The regulator has also restrained such entities from setting up market intermediaries like mutual funds and brokerage firms and taking control of any other listed company.
On March 13, the Sebi board had cleared the proposal to restrain wilful defaulters from accessing capital markets for fund raising from the public. It also said companies who have defaulted on payments on their debt instruments will not be permitted to issue debt to the public.
Data from Cibil, the agency which collates information on credit, show 6,819 wilful defaulters — who have the capacity to repay but default on repayment — owed banks Rs 74,699 crore until December 2015, up from Rs 22,332 crore that 3,703 wilful defaulters owed until December 2012.
The new rules, which became effective from May 25, would apply to every individual and company declared as wilful defaulter as per the Reserve Bank norms. The issuer cannot 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, the Sebi notification said.
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. 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.
However, they can be allowed to tap existing shareholders including promoters by way of rights issue, private placement or preferential allotment. In case defaulters take these routes for fund mobilisation, they need to disclose about the name of the bank which declared them wilful defaulters along with outstanding amount. Besides, they need to declare the year in which the entities were declared wilful defaulters and steps taken by them for the removal from such list among others.
The RBI approached the Sebi to put curbs on fund-raising activities of wilful defaulters, after which the capital markets regulator had started a process of seeking inputs from all the stakeholders for such a move.