Sebi sharpens teeth; govt can now crack whip against wilful defaulters
Besides, Sebi has also decided to bar such defaulters from setting up market intermediaries such as mutual funds and brokerage firms. These defaulters would also be not allowed to take 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 various other companies including those from his UB Group as also a few others including Indian subsidiaries of several multinational companies.
Addressing reporters after an important board meeting of Sebi, which was also attended by Finance Minister Arun Jaitley, the regulator’s chairman U K Sinha, said the new rules on restraining wilful defaulters would come into effect after they get notified.
“After the notification, all persons would stand disqualified from all positions at listed companies,” Sinha said, but refused to comment on any individual.
These restrictions would apply to every individual and company declared as wilful defaulter as per the Reserve Bank norms.
Sebi said the RBI norms lay down safeguards to be exercised by banks to contain financial activities of a wilful default, but it was felt that the regulator should restrict the access to capital markets for raising funds from public by such defaulters.
The proposals approved by the Sebi board in this regard included that no issuer can 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.
“Any company or its promoters and directors categorised as wilful defaulters would not be 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 offers,” Sebi said.
The regulator further said the criteria for determining a “fit and proper person” in Sebi, regulations would be amended to include that no fresh registration shall be granted to any entity if the entity or its promoters or its 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 wilfully defaulting on their existing 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.
Overstating bad loans crisis may hit lending & growth: Jaitley & Rajan
Amid outrage over Vijay Mallya’s massive defaults, Finance Minister Arun Jaitley and RBI Governor Arun Jaitley on Saturday cautioned against overstating the bad loans crisis in the banking system lest it hampers the economy’s entire lending operations and growth. “We don’t want to create a situation where we overstate the crisis and in the process, the whole activity of lending for growth itself starts suffering because people become extraordinarily defensive.” Rajan said, “We have to be careful that one hand criminal actions are penalised. But at the same time we don’t indulge in a broad fishing expedition which a reason for banks to get worried about making loans which then hamper the recovery and the absolutely important investment in infrastructure that has to take place.”