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SEBI bars wilful defaulters from raising capital from markets, acquisitions

14 March, 2016

The Securities and Exchange Board of India (SEBI) has barred ‘wilful defaulters’ of bank loans from raising capital from the market and acquiring another listed entity, as financial regulators step up efforts to deter potential defaulters and improve the worsening asset quality of lenders.

The capital markets regulator made the decisions at a board meeting in New Delhi on Saturday that was also attended by Finance Minister Arun Jaitley.

As per the new norms, any listed company or its promoters that have been declared as wilful defaulters by banks will not be allowed to make a public issue of equity shares, debt or any other convertible securities.

The regulator, however, said that if there is a takeover bid for the listed company or its promoters that have been declared a willful defaulter, it will allow them to make a competing offer.

The development comes at a time when the Reserve Bank of India as well as the finance ministry have expressed concern over the growing amount of bad loans in the banking system, particularly state-run lenders. The central bank, which defines a ‘wilful defaulter’ as an entity that defaults on its payment obligations even when it has the financial capacity to pay back the debts, has also been putting pressure on banks to clean up their books.

The most high-profile case of a wilful defaulter is that of Vijay Mallya. The industrialist’s now-defunct Kingfisher Airlines owes about Rs 9,091 crore to banks. Creditors have moved the Supreme Court against Mallya to recover their dues while government agencies are also probing into the issue.

In other decisions, SEBI said it will start a public consultation to remove any doubts related to the acquisition of control in a company. “Multiple regulators apply the test of control from different perspectives and may arrive at differing results which may lead to ambiguity,” it said.

The regulator proposed to put in place a framework for protective rights and adopt a numerical threshold to clarify the matter.

It said that the definition of control may be amended such that control is defined as the right to exercise at least 25 per cent of voting rights of a company irrespective of whether such holding gives de facto control and/or the right to appoint majority of the non-independent directors of a company.

Besides, it said that an illustrative list of protective rights which would not amount to acquisition of control may be issued. “Grant of such protective rights to an investor may be subject to obtaining the public shareholders’ approval,” it suggested.

The regulator also said that, in 2016-17, it plans to encourage delisting of suspended companies, strengthen its surveillance mechanism, enhance the functioning of credit rating agencies and encourage the use of technology to streamline ‘know your customer’ procedures.


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SEBI bars wilful defaulters from raising capital from markets, acquisitions

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