Sebi bars wilful defaulters from raising funds from market

Capital market regulator Securities and Exchange Board of India (Sebi) will restrict so-called wilful defaulters of bank loans from raising fresh funds by issuing securities through capital markets. The decision was announced at today's meeting of the Sebi board.

The restriction is part of efforts to tackle bad loans hampering state-run banks. Wilful defaulters are classified as firms or individuals who deliberately thwart repayment of dues to lenders. The master circular on "Wilful Defaulters" issued by the Reserve Bank of India from time to time lays down safeguards to be exercised by banks to contain the financial activities of a wilful defaulter.

With the objective of restricting access to capital markets for raising funds from public, by such wilful defaulters, the Sebi board today approved the following proposals:

  • No issuer shall make a public issue of equity securities / debt securities / non-convertible redeemable preference shares, if the issuer company or its promoter or its director is in the list of the wilful defaulters;
  • Any company or its promoter or its director categorised as wilful defaulter may not be allowed to take control over other listed entity. However, if a listed company or its promoter or its director is categorized as wilful defaulter, and there is a take-over offer in respect of the listed company, they may be allowed to make competing offer for the said listed company in accordance with SEBI (SAST) Regulations, 2011.

The criteria for determining a 'fit and proper person' in Sebi Regulations will 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, as defined under Sebi (ICDR) Regulations, 2009, are included in the list of wilful defaulters.

Sebi has also put in place a mechanism to review the audit qualifications contained in the audit reports. This mechanism has been incorporated in the Sebi (Listing and Other Disclosure Requirements) Regulations, 2015 ('Listing Regulations') in order to ensure that the impact of the audit qualification is disseminated without any delay.

To further streamline the process, the board made it mandatory for listed entities to disclose the cumulative impact of all the audit qualifications on relevant financial items in a separate form called "Statement on Impact of Audit Qualifications" instead of present Form B. Such disclosure would be in a tabular form along with the annual audited financial results filed in terms of Listing Regulations.
In cases where there are no audit qualifications, the existing requirement of filing Form A signed by top officials / directors of the company and auditors shall not be necessary.

The management shall have the right to give its views on the audit qualifications in the new form.

The existing requirement of adjustment in the books of accounts of the subsequent year shall not be necessary.

The new mechanism is applicable from the financial year ended March 2016, as well as for the earlier cases.

Briefing media persons after a board meeting, Sebi chairman UK Sinha said Sebi has given its "in-principle" approval for Bombay Stock Exchange to get itself listed in bourses.