BackSebi proposes restrictions on ‘wilful defaulters’
The regulator proposed that firms in which a promoter, director or subsidiary is declared a wilful defaulter not be allowed to issue equity, debt securities
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Mumbai: The Securities and Exchange Board of India (Sebi) on Monday published a discussion paper on new norms for wilful defaulters, proposing to bar them from selling shares, debt securities and non-convertible preference redeemable shares to the public.
The new proposals will still allow these companies to go in for a rights issue or a qualified institutional placement to institutional investors with full disclosure. Sebi also proposes to allow wilful defaulters to participate in counter offers in case of hostile bids for taking control of a firm.
On 19 November, following a board meeting, Sebi had said that it will put up a discussion paper on fresh norms for wilful defaulters. Subsequently, the regulator had put out a board note in December, detailing the discussions on proposed norms for wilful defaulters.
The discussion paper largely retained the recommendations that were highlighted in the board note of last month.
In order to prevent the access to the capital markets by wilful defaulters, a copy of the list of wilful defaulters (non-suit filed accounts and suit-filed accounts) was earlier forwarded to Sebi by the Reserve Bank of India (RBI) and Credit Information Bureau (India) Ltd (Cibil), respectively.
Under the existing Sebi norms, an entity identified as wilful defaulter may raise money from the capital markets by way of public issue or rights issue, except by way of issuance of convertible debt instruments.
Highlighting the pros and cons of imposing restrictions on wilful defaulters, Sebi noted that since wilful defaulters do not have access to bank finance, restricting their exposure to the capital markets as well may negatively impact the operations of a listed company, thereby negatively impacting its share price. On the other hand, such measures may further enhance the protection of investors in the securities market, said Sebi.
Sebi is seeking comments from the public on the discussion paper till 23 January.
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