Sebi cracks the whip on ‘wil­ful’ de­fault­ers

De­fault­ers barred from boards, can’t raise funds through stocks

Hindustan Times ST (Mumbai) - HT Navi Mumbai Live - - FRONT PAGE - HT Correspondent let­ters@hin­dus­tan­

NEW DELHI: Mar­ket reg­u­la­tor Se­cu­ri­ties and Ex­change Board of In­dia de­cided on Satur­day to bar wil­ful de­fault­ers from be­ing ap­pointed on the boards of listed com­pa­nies and rais­ing funds through stocks and bonds.

The de­ci­sion came amid ris­ing out­rage over Vi­jay Mallya, pro­moter of the now de­funct King­fisher Air­lines, leav­ing the coun­try. The liquor baron re­cently re­signed as chair­man and di­rec­tor of United Spir­its for which he re­ceived an exit pack­age of Rs 515 crore but he con­tin­ues to be on the boards of other com­pa­nies in­clud­ing a few from the UB Group. The exit deal has come un­der the reg­u­la­tory scan­ner.

A wil­ful de­faulter is a bor­rower who has the ca­pac­ity to re­pay but does not. Such de­fault­ers will not be al­lowed to set up mar­ket in­ter­me­di­aries such as mu­tual funds and bro­ker­age firms and will be re­strained from tak­ing con­trol of any other listed com­pany.

“If some­body is proved by RBI or or­ders that he is a wil­ful de­faulter, then it is very risky to al­low that per­son or com­pany to raise money from retail per­sons in the mar­ket,” Sebi chair­man UK Sinha told re­porters.

“They will not be al­lowed to raise money from the mar­ket. They will also be de­barred from tak­ing any po­si­tion in a listed com­pany. Such per­sons will also be de­clared not fit and proper un­der var­i­ous in­ter­me­di­ary reg­u­la­tions.” The new rules on re­strain­ing wil­ful de­fault­ers will come into ef­fect af­ter they get no­ti­fied. “Af­ter the no­ti­fi­ca­tion, all such per­sons would stand dis­qual­i­fied from all po­si­tions at listed com­pa­nies,” Sinha said.

For more clar­ity on change of con­trol in merg­ers and ac­qui­si­tions, the reg­u­la­tor will launch a pub­lic con­sul­ta­tion for defin­ing “con­trol” and pro­posed fix­ing 25% vot­ing rights as a thresh­old.

Fi­nance min­is­ter Arun Jait­ley, who held the cus­tom­ary post­bud­get meet­ing with the Sebi board, asked the reg­u­la­tor to be alert on mar­ket su­per­vi­sion, es­pe­cially in the wake of global de­vel­op­ments, and ex­pand the in­vestor base. He said pas­sage of the Aad­haar law would help in that re­spect.

Jait­ley said a well de­vel­oped mu­tual fund in­dus­try would prove to be a “counter-bal­ance” to for­eign port­fo­lio in­vestors.

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