Sebi to bar wilful defaulters from raising funds, takeovers

To sternly deal with wilful defaulters, market regulator Sebi today proposed barring such entities from raising funds from the capital markets, as also from taking control of a listed company.
The proposed debarment from raising funds through equity or debt markets, including by way of IPOs or FPOs, would apply to all individuals or companies declared as 'wilful defaulter' by RBI.
Besides, the existing listed companies, or their promoters, group companies or directors of an entity declared as 'wilful defaulter' would not be allowed to take control over any other listed company, Sebi said in its draft norms.
The final norms would be framed after taking into account comments from all stakeholders submitted till January 23, Sebi said.

However, existing listed companies, their promoters, group companies and directors of an entity, categorised as 'wilful defaulter', may be allowed to make a rights issue or private placement to qualified institutional buyers, with full disclosures in the offer documents about their 'defaulter' status, Sebi said.
Also, such companies or individuals can be allowed to make a counter offer in case of a hostile bid from another entity, as such capital market dealings would involve outgo of funds, rather than raising of capital by a 'wilful defaulter'.

The decision follows discussions between various regulators and government departments to tighten the regulatory noose on wilful defaulters, especially in the wake of many such cases coming to fore in recent months. Some of the entities declared as 'wilful defaulters' in the recent past include those associated with Vijay Mallya-led UB group after collapse of its aviation venture Kingfisher Airlines.

An individual or a company is declared 'wilful defaulter' for deliberate non-payment of the dues despite adequate cash flow and good net worth and for siphoning off funds to the detriment of the defaulting unit.
Other factors leading to such declaration by banks include assets not being purchased as per the financing conditions or proceedings being misutilized, while an entity can also be declared wilful defaulter for misrepresentation or falsification of records, for disposal or removal of securities without bank's knowledge and for fraudulent transactions.