14 March 2016 06:54:39 IST

Public funds tap to go dry for ‘wilful defaulters’ 

Will be denied access to capital markets, says SEBI Chairman UK Sinha

Cracking the whip on ‘wilful defaulters’, market regulator SEBI has decided to ban them from raising public funds through stocks and bonds as also from taking board positions on listed companies.

The measures assume significance in the wake of a raging controversy over business tycoon Vijay Mallya, who has left the country amid continuing efforts by banks to recover dues totalling over ₹9,000 crore of unpaid loans and interest.

The Modi-led Government had come under fire in Parliament last week for failing to prevent Mallya’s departure.

Though the SEBI action came a bit too late, it was widely welcomed by bankers given that the banking sector and securities market are integrated segments of the financial system.

“What SEBI has done is to say that we don't want anyone who has been labelled as wilful defaulter by the banking regulator or banks to enter the capital market. This is a welcome step and should have been done few years back,” V Kannan, former Chairman and Managing Director, Vijaya Bank, told BusinessLine .

After a board meeting here on Saturday, SEBI Chairman UK Sinha, while refusing to be drawn into any particular individual wilful defaulter case, said the new rules are likely to be notified within a few weeks.

“If somebody is proven as wilful defaulter by the RBI or its finding or its orders, then it is very risky to allow that person or company to raise money from retail persons in the market. So they will be debarred from raising money from market,” Sinha told reporters.

Date of disqualification Sinha also clarified that everybody who has been declared ‘wilful defaulter’ as on the date the SEBI regulations get notified will stand disqualified for holding director positions in all listed companies. He was replying to a query on whether the new SEBI restrictions on ‘wilful defaulters’ would take a prospective or retrospective effect.

Sinha also said that such persons will also be declared “not fit and proper” under various ‘intermediary’ regulations, which means the person cannot be involved in launch of a mutual fund or be a broker or debenture trustee in the future.

The only exception that SEBI has made is in the case of a company or its promoter or its director categorised as wilful defaulter, and there is a takeover offer in respect of the listed company.

In such situations, they may be allowed to make competing offer for the said listed company under takeover code, Sinha added.

“We want to ensure that regulations on wilful defaulters do not lead to distress sale of companies. The idea is to debar them from raising fresh money,” he said.