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SEBI has proposed to bar entities that are categorised as ‘wilful defaulter’ from raising funds from capital markets. The regulator has also barred such entities from taking control of a listed company.
Under the existing rules, wilful defaulters may raise money from capital markets by way of public issue or rights issue, bypassing the restriction of access to bank finance.
Follows bank procedure “The wilful defaulters do not have access to bank finance which means that the exposure of banks to such wilful defaulters is restricted. Along the same lines, exposure in the capital markets to such wilful defaulters may also be restricted,” SEBI said in a discussion paper on Monday.
An individual or a company is declared a ‘wilful defaulter' for deliberate non-payment of the dues despite adequate cash flow and good net worth.
The paper follows the SEBI board decision on November 19, after public consultation, to review its policy to restrict wilful defaulter from raising capital. The paper is in line with the recommendations of the Financial Sector Legislative Reforms Commission.
SEBI has, however, suggested that listed entities that are categorised as ‘wilful defaulter’ should be allowed to make counter offer in case of a hostile bid to take over the company. Such entities may go for private placement to qualified institutional buyers, with full disclosures in the offer document.
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