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Wilful defaulters to face curbs on fund mop-up from capital market

To sternly deal with wilful defaulters, Sebi today decided to impose restrictions on such entities with respect to raising funds from capital markets.

Such measures are expected to further enhance the protection of investors in the securities market.

As part of new norms, the watchdog will impose restrictions on companies, promoters, and directors that are categorised as a 'wilful defaulter' from accessing the capital markets.

"The Board approved the proposal to review the policy in respect of restricting an issuer company/its promoter/ directors, categorized as wilful defaulter, from raising capital after going through the public consultation process," Sebi said in statement after the board meeting.

At present, Sebi norms bar wilful defaulters from issuing convertible debt instruments. However, there is no restriction on such entities from raising funds from the capital market by way of public or rights issues, among others

Before finalising stricter regulations to deal with wilful defaulters, Sebi is expected to gather views from various stakeholders. The matter would also be discussed in the Primary Market Advisory Committee (PMAC).

The approval comes at a time when the amount of bad loans is on the rise in the banking system, mainly due to higher number of wilful defaulters.

To tighten the regulatory noose around wilful defaulters, the Reserve Bank has suggested to Sebi that such entities should be prevented from raising funds through capital markets.

Meanwhile, the government is planning to come out with a separate Bill in Parliament to deal with instances of wilful defaults in payment of bank loans.

Stringent action against the wilful defaulters in terms of attachment of properties under Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), change in management and other legal action against the promoters, among others, are under consideration.

 Article referred: http://articles.economictimes.indiatimes.com/2014-11-19/news/56265873_1_wilful-defaulters-regulatory-noose-sarfaesi-act

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