SEBI’S Position on Willful Defaulters

INTRODUCTION

There has been various steps taken by Reserve Bank of India related to dealing with the defaulters which get further weight by the Securities and Exchange Board of India which is related to proposal of completely bar of such freeloaders from tapping financial markets.[1] RBI had initially approached SEBI[2] to put curbs on fund- raising activities of wilful defaulters, after which the capital markets regulator had started a process of seeking inputs from all the stakeholders for such a move.[3]            

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”.[4] SEBI has issued amendments to the various regulations for operating such curbs. The wilful defaulters who have been stipulated by Reserve Bank of India cannot access the capital markets.[5] A person can only be categorised under the wilful defaulter by the RBI if he does not follow the relevant guidelines as stated by Reserve Bank of India.[6] Under the guidelines of RBI there are some guidelines under which a promoter a director can also be recognised as a wilful defaulter.[7] Various new regimes has been implemented by SEBI which are as follows-

1.     PRIMARY MARKETS

A company cannot issue equity shares to the public if its promoters or directors come under the category of wilful defaulter. A company cannot issue convertible securities to the public if it has a default of payment of interest for principal for a period which is more than 6 months in respect of the instrument it as it has issued to the public.[8]

A Company that falls under the category of wilful defaulter can proceed with the rights issue and appropriate disclosures have to be made regarding the circumstances which have been declared a wilful defaulter. A promoter has the right of renouncing their rights in the favour of outsider.[9] In the same way preferential allotment of securities can only be permitted if it is a complete with appropriate disclosures.

2.     MARKET FOR CORPORATE CONTROL

The control over the company can be prevented by wilful defaulters. They cannot acquire such a number of shares that with offer a mandatory of a requirement or cannot take over an offer.[10] Wilful defaulter can make a completing offer that would enable a person to defend its position in the company so that the subject matter to take over the acquisition of control should be there.[11]

3.     DEBT SECURITY AND PREFERENCE SHARES

There are will full defaulter which can be prohibited from making public issue of securities from non convertible redeemable preference shares which can be restrained.[12]

4.     INTERMEDIARIES

The people who come under the category of wilful defaulters can be disqualified for acting as intermediaries in the capital markets and will not be granted registration by SEBI.[13]

CONCLUSION

With the defaulters coming up this would lead to different effect to borrow monies from the Bank and Financial Institutions. It can also be considered as a negative thing because this will allow the info before it up from assessing the capital markets even though that may not be necessary for restructuring for revival of the business. SEBI (Securities and Exchange Board of India) has come to decision of banning all entities that will oppose to permit some on case by case basis. Shareholders inventors of a will full defaulter cannot improve their position as this will lead them a very big disadvantage from assessing the capital markets. The promoters or directors who come under the category of will full defaulters, this will result in to the consequences of other stakeholders to may be innocent.


References

[1] SEBI’s Regime on Wilful Defaulters, SEBI’s Regime on Wilful Defaulters (2016), http://indiacorplaw.blogspot.in/2016/05/sebis-regime-on-wilful-defaulters.html (last visited Jun 26, 2017).

[2] Securities and Exchange Board of India.

[3] PTI, Sebi bans wilful defaulters from marktes, holding board positions (2016), http://economictimes.indiatimes.com/markets/stocks/news/sebi-bans-wilful-defaulters-from-marktes-holding-board-positions/articleshow/52449050.cms (last visited Jun 26, 2017).

[4] Shrimi Choudhary , Sebi ban on wilful defaulters participating in markets kicks in (2016), http://www.business-standard.com/article/markets/market-ban-kicks-in-for-wilful-defaulters-116052601374_1.html (last visited Jun 26, 2017).

[5] SEBI’s Regime on Wilful Defaulters, (2016), http://indiacorplaw.blogspot.in/2016/05/sebis-regime-on-wilful-defaulters.html (last visited Jun 26, 2017).

[6] Sebi bans wilful defaulters from markets, holding board positions, (2016), http://www.businesstoday.in/latest/trends/sebi-bans-wilful-defaulters-from-mkts-holding-board-positions/story/233031.html (last visited Jun 26, 2017).

[7] Clampdown on wilful defaulters, (2016), https://www.telegraphindia.com/1160313/jsp/business/story_74207.jsp (last visited Jun 26, 2017).

[8] K. R. SRIVATS, Public funds tap to go dry for ‘wilful defaulters’ (2016), http://www.thehindubusinessline.com/companies/sebi-clamps-down-on-wilful-defaulters/article8346412.ece (last visited Jun 26, 2017).

[9] Anirudh Laskar, Sebi says entities declared as wilful defaulters will not be allowed to raise money through sale of shares, debt securities and non-convertible preference redeemable shares to the publicSebi board clears wilful defaulter rules; clarifies on definition of control (2016), http://www.livemint.com/Money/LSmk1XiZ26pZnyGj5m4ufP/Sebi-bars-wilful-defaulters-from-markets-posts-at-listed-fi.html (last visited Jun 26, 2017).

[10] Sebi’s new wilful defaulters’ norms will disqualify Vijay Mallya from several posts, (2016), http://www.dnaindia.com/money/report-sebi-s-new-wilful-defaulters-norms-will-disqualify-vijay-mallya-from-several-posts-2188404 (last visited Jun 26, 2017).

[11] New SEBI Norms for Wilful Defaulters , New SEBI Norms for Wilful Defaulters (2016), http://www.drishtiias.com/upsc-current-affairs-article-New-SEBI-Norms-for-Wilful-Defaulters (last visited Jun 26, 2017).

[12] Sebi Bars Wilful Defaulters From Fund-Raising, Board Positions, (2016), http://www.huffingtonpost.in/2016/03/12/sebi-bars-wilful-defaulte_n_9445756.html (last visited Jun 26, 2017).

[13] [13] Anirudh Laskar, Sebi says entities declared as wilful defaulters will not be allowed to raise money through sale of shares, debt securities and non-convertible preference redeemable shares to the publicSebi board clears wilful defaulter rules; clarifies on definition of control (2016), http://www.livemint.com/Money/LSmk1XiZ26pZnyGj5m4ufP/Sebi-bars-wilful-defaulters-from-markets-posts-at-listed-fi.html (last visited Jun 26, 2017).

Leave a Reply

Your email address will not be published. Required fields are marked *