Sebi's circular naming defaulters draws flak; companies approach FinMin

The list featured some prominent names like SBI Capital, Axis Capital, GMR Holdings, United Breweries, Alpic Finance, Saradha Realty, United Bank of India &Trident India

Market regulator Securities and Exchange Board of India (Sebi) is once again caught on the wrong foot, and this time for one of its recent circulars that made public names of over 2,000 entities, which have defaulted on its dues. 

Some of the companies named in the list have raised objections with the finance ministry, stating that the list was erroneous, said sources aware of the development.   
 

The regulator had pulled out the circular dated 2 April within hours without any explanation. But, the uncertainty and confusion among market players, triggered by the list, lingered. 

The list featured some prominent names like SBI Capital, Axis Capital, GMR Holdings, United Breweries, Alpic Finance (a Cipla group unit), Saradha Realty, United Bank of India and Trident India. 

“Putting our name on the defaulter list has sent a wrong message to our shareholders. It has affected the company image,” said the official of a company whose name was on the list. An executive with another firm said, “We were surprised to see the name on the defaulter list and sought clarification from our legal team. During the course of inquiry, we came to know that matter has been settled long ago.” An email sent to the Sebi, seeking clarity on the issue, drew a blank.

Industry players said the list could be a case of system error. “The list was old and system-generated, which was not updated. Some of these cases are pending before adjudicating authority, while some entities have already paid the penalty and settled the issue,” said a person privy to the development.

MOVES THAT MISFIRED 

* On April 2, Sebi released a defaulter list for non- payment of dues

* The circular was withdrawn without any explanation

* List featured over 2,000 companies, including SBI Caps, Axis Caps and GMR, Trident 

* Companies named in list opposed the move, approached FinMin

* They alleged that the list was prepared without any status check of the cases

* Earlier, Sebi’s move to suspend 331 suspected shell firms had faced similar criticism

* Another Sebi rule on disclosure of loan default was also deferred without any explanation

The list released by Sebi had named 2,183 defaulters, including individuals and companies, against whom the watchdog has passed adjudication orders. Some of the cases dated back to 1998. The amount of penalty imposed varied between Rs 15,000 and Rs 100 million.

They have been slapped with charges such as failing to redress investor grievances, breaching of disclosure and insider trading norms. 

In some cases, the regulator has initiated recovery proceedings and has attached assets to recover dues. Non-payment of dues in cases such as Saradha Realty India, Rose Valley Real Estate and Pearl Agrotech Corporation is on account of pending appeals before various courts.

Legal experts are of the opinion that making defaulters' list public is a good move and it will help the market tackle such entities with caution. 

Last year, Sebi had faced similar criticism for suspending trading in 331 “suspected” shell companies. 

Some of them were well-known companies with proper operations and complied with disclosure requirements, including filing of quarterly results.

Some of the firms had challenged Sebi’s move before the Securities Appellate Tribunal (SAT) and got a temporary relief. SAT also asked the regulator to conduct fresh inquiry into the matter. 

On another occasion, the regulator invited criticism for the last-minute withdrawal of circular mandating listed companies to disclose any kind of loan default within 24 hours.

Of late, Sebi has become more proactive with dealing with the cases of non-payment of dues and other disclosure lapses. Sources say the regulator has directed the stock exchange to red flag cases where such defaults are consistent and the company is not complying with certain securities norms.