Sebi Bars Wilful Defaulters From Fund-Raising, Board Positions

12/03/2016 8:24 PM IST | Updated 15/07/2016 8:26 AM IST
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Bandra-Kurla Complex where SEBI, NSE, Bank of India , ICICI Bank and so on have their HQ.

In a multi-pronged clampdown on 'wilful loan defaulters', stock market regulator Securities and Exchange Board of India (Sebi) on Saturday barred them from raising public funds, as also from taking control of listed firms and holding board positions -- a move that would disqualify beleaguered Vijay Mallya from various posts.

Besides, such defaulters -- including individuals and the companies as well as their promoters and directors -- would be debarred from setting up or being associated with the market entities like mutual funds and brokerage firms.

Sebi is also mulling making it mandatory for listed companies to disclose their bad loans if they breach certain thresholds set by the banking sector regulator Reserve Bank of India.

After an all-important meeting of its board, which was also addressed by Finance Minister Arun Jaitley, Sebi Chairman U K Sinha also announced measures to enhance surveillance actions in the marketplace and to check financial frauds, including by making it mandatory for listed firms to disclose impact of lapses flagged by the auditors.

Jaitley asked Sebi to be alert on market supervision and take measures to expand investor base and deepen the commodity derivatives segment.

This was the first Sebi board meeting after Sinha got another extension at the helm.

Sinha said Sebi also plans to energise the Institutional Trading Platform for start-ups, REITs, Infrastructure Investment Trusts and Municipal Bond markets. He expressed confidence that many startups will get listed soon, while REITs would also begin hitting the market following new measures announced in this year's Union Budget.

Sebi would also take steps to deepen the commodities markets by allowing new participants, such as banks and foreign portfolio investors, during the next fiscal, while measures are underway to check manipulation in this segment and to improve price-discovery mechanism especially for agriculture commodity derivatives.

The measures to choke funding avenues for wilful loan defaulters assume significance in the wake of a raging controversy over UB Group Chairman Vijay Mallya, who has left the country amid continuing efforts by 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 various other companies including of his UB Group as also a few others including Indian subsidiaries of some multinational firms.

Addressing reporters after the board meeting, Chairman said the new rules on restraining wilful defaulters would come into effect immediately after they get notified and would apply to all listed firms and their promoters and directors.

"After the notification, all the persons would stand disqualified from all positions at listed companies," Sinha said, but refused to comment on any individual. The new rules are likely to be notified within a few weeks.

These restrictions would apply to every individual and company declared as wilful defaulter as per RBI norms.

"If somebody is declared by RBI, or by other orders, that he is a wilful defaulter, then it is very risky to allow that person, or company to raise money from retail persons in the market," Sinha said.

"They will not be allowed to raise money from the market.

They will also be debarred from taking any position in a listed company. Such persons will also be declared not fit and proper under various intermediary regulations," he added.

An individual or a company is declared 'wilful defaulter' for deliberate non-payment of the dues despite adequate cash flow and good net worth and for siphoning off funds to the detriment of the defaulting unit.

Other factors leading to such declaration by banks include assets not being purchased as per the financing conditions or proceedings being misutilised.

An entity can also be declared wilful defaulter for misrepresentation or falsification of records, for disposal or removal of securities without bank's knowledge and for frauds.

RBI had approached 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.

The decision follows discussions between various regulators and government departments to tighten the regulatory noose on wilful defaulters, especially in the wake of many such cases coming to fore in recent months.

Seeking to enhance its enforcement actions, Sebi also decided today to complete the entire enforcement procedure -- starting from the launch of the probe to the passage of final orders in a case -- within two years.

To curb malpractices in the securities and commodities markets, the watchdog will also boost surveillance mechanism and enhance the supervision of brokers and other intermediaries, Sinha said.

For merger and acquisitions, Sebi decided to launch a public consultation process for putting in place a definition of 'control' of a listed company, wherein one proposal is to fix a threshold of 25 per cent voting share.

Sinha also said that Sebi has given its in-principle approval for the listing of BSE, which said it might launch its IPO in the next 6-9 months.

"After the notification, all the persons would stand disqualified from all positions at listed companies," Sinha said, but refused to comment on any individual. The new rules are likely to be notified within a few weeks.

These restrictions would apply to every individual and company declared as wilful defaulter as per RBI norms.

"If somebody is declared by RBI, or by other orders, that he is a wilful defaulter, then it is very risky to allow that person, or company to raise money from retail persons in the market," Sinha said.

"They will not be allowed to raise money from the market.

They will also be debarred from taking any position in a listed company. Such persons will also be declared not fit and proper under various intermediary regulations," he added.

An individual or a company is declared 'wilful defaulter' for deliberate non-payment of the dues despite adequate cash flow and good net worth and for siphoning off funds to the detriment of the defaulting unit.

Other factors leading to such declaration by banks include assets not being purchased as per the financing conditions or proceedings being misutilised.

An entity can also be declared wilful defaulter for misrepresentation or falsification of records, for disposal or removal of securities without bank's knowledge and for frauds.

RBI had approached 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.

The decision follows discussions between various regulators and government departments to tighten the regulatory noose on wilful defaulters, especially in the wake of many such cases coming to fore in recent months.

Seeking to enhance its enforcement actions, Sebi also decided today to complete the entire enforcement procedure -- starting from the launch of the probe to the passage of final orders in a case -- within two years.

To curb malpractices in the securities and commodities markets, the watchdog will also boost surveillance mechanism and enhance the supervision of brokers and other intermediaries, Sinha said.

For merger and acquisitions, Sebi decided to launch a public consultation process for putting in place a definition of 'control' of a listed company, wherein one proposal is to fix a threshold of 25 per cent voting share.

Sinha also said that Sebi has given its in-principle approval for the listing of BSE, which said it might launch its IPO in the next 6-9 months.

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