Capital market regulator SEBI has made it harder for companies with a wilful defaulter on their boards to raise funds from the securities market, either as debt or equity. Effectively, companies will now be forced to show such directors the door if they wish to access the securities markets.
SEBI has defined a wilful defaulter as any person who is “categorised as a wilful defaulter by any bank or financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the Reserve Bank of India and includes any person whose director, promoter or principal officer is categorised as such.” SEBI has said that no issuer can make a public issue of equity shares or convertible debt instruments if any of the promoters or directors of the issuing company is a wilful defaulter, or has defaulted in repaying interest or principal of any debt instrument that the company had issued more than six months earlier.
SEBI had announced its intention to alter the rules regarding barring wilful defaulters from the market after its board meeting in March.
The regulations appear to be in response to the large number of corporate defaults on the balance sheets of public sector banks, especially by former liquor baron Vijay Mallya, who owes the banking system over ₹9,000 crore in unpaid loans.
Mallya continues to be on the boards of some companies, including Sanofi India and Bayer CropScience.
A wilful defaulter cannot make an open offer to the market either, unless it is a competing offer in response to a takeover offer made by someone else.
In the case of listing of debt securities made through a private placement, the company also needs to make disclosures regarding the wilful default, including the name of the wilful defaulter, the name of the bank that named him so and the date, the outstanding amount, and steps taken to remove his name from the list of wilful defaulters.