Work in progress for guidelines on wilful defaulters, says SEBI chief

Market regulator Securities and Exchange Board of India plans to ask listed companies to mandatorily put out an Annual Information Memorandum.

The regulator is also working on guidelines for action against wilful defaulters.

The Annual Memorandum will be a compilation of all the disclosures that are now made under various regulations, including the listing agreement. The move is to bring more transparency and easier regulatory oversight.

Wilful defaulters On wilful defaulters, SEBI Chairman UK Sinha, talking to reporters on the sidelines of a CII event, clarified that currently there is no restriction on such entities from raising money from the capital market. This issue came to the fore after United Bank of India declared Kingfisher Airlines a wilful defaulter, while other banks are in the process of doing so. A wilful defaulter is an entity that does not repay a loan intentionally and also diverts money for purposes other than that for which the money was provided.

Though the RBI shares its list of wilful defaulters with SEBI to prevent their accessing the capital market, in the absence of proper norms, it is difficult to debar these entities.

Now, the Centre is also working on a new law to deal with wilful defaulters for which a Bill is likely to be introduced in the winter session of Parliament. The provisions of the new Bill are expected to include attachment of property, change in management besides other legal action against the promoters.

Info memorandum Listing the benefits of publishing the Annual Information Memorandum, Sinha said, “First, you will not face undue litigation from regulators. Second, if you are going to raise some funds, debt or equity, you don’t have to update the information again and again.”

The memorandum will also state risk the factors for a company and industry, give an overview of sectors, legal proceedings and information on material events.

Sinha said that the memorandum requirement will be introduced through guidelines and by amending the corporate governance norms. “Work on this project has already started.”

“This will be a far reaching move because today a corporation that has filed everything as per SEBI requirement can still be hauled up, which is a lacuna in our system,” he said, adding that if an entity has filed some information under the takeover regulations as well as part of disclosure requirements, both are taken separately.

“So, for an analyst, a shareholder and a stakeholder, this becomes a problem. It also becomes a problem for corporations that are willing to comply,” he added.

Follow-on-public offer The SEBI chief said the regulator would also come out with a discussion paper soon for reducing the time-frame for approval of Follow-on Public Offers.