Sebi plans to impose restrictions on wilful defaulters

New Delhi: To sternly deal with wilful defaulters, Sebi is looking to impose restrictions on such entities on raising funds from the capital market.

As part of reviewing its existing norms, the watchdog plans to impose restrictions on companies, promoters, and directors that are categorised as a 'wilful defaulter' from accessing the capital market, according to a senior official. Stricter norms for wilful defaulters would help make sure that their exposure to the capital market is limited. They could be barred from "taking control in another company" and that kind of mechanism would also ensure that more listed firms are protected from the promoters or management of those entities categorised as wilful defaulters, the official said. The Securities and Exchange Board of India (Sebi) is expected to discuss the proposal during its board meeting scheduled for Wednesday.

At present, Sebi norms bar wilful defaulters from issuing convertible debt instruments. However, there is no restriction on such entities from raising funds from the capital market by way of public or rights issues, among others. Before finalising stricter regulations to deal with wilful defaulters, Sebi is expected to gather views from various stakeholders. The matter would also be discussed in the Primary Market Advisory Committee (PMAC). The proposal comes at a time when the amount of bad loans is on the rise in the banking system, mainly due to higher number of wilful defaulters.

To tighten the regulatory noose around wilful defaulters, the Reserve Bank has suggested to Sebi that such entities should be prevented from raising funds through capital markets. In September, Sebi Chairman U K Sinha had said that the regulator was working on guidelines to deal with wilful defaulters. Meanwhile, the government is planning to come out with a separate Bill in Parliament to deal with instances of wilful defaults in payment of bank loans. Stringent action against the wilful defaulters in terms of attachment of properties under Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), change in management and other legal action against the promoters, among others, are under consideration.