Market regulator Securities and Exchange Board of India (Sebi) decided on Saturday to bar wilful defaulters from being appointed on the boards of listed companies and raising funds through stocks and bonds.
The decision came amid rising outrage over Vijay Mallya, promoter of the now defunct Kingfisher Airlines, leaving the country. The liquor baron recently resigned as chairman and director of United Spirits for which he received an exit package of Rs 515 crore but he continues to be on the boards of other companies including a few from the UB Group. The exit deal has come under the regulatory scanner.
A wilful defaulter is a borrower who has the capacity to repay but does not. Such defaulters will not be allowed to set up market intermediaries such as mutual funds and brokerage firms and will be restrained from taking control of any other listed company.
“If somebody is proved by RBI or orders that he is a wilful defaulter, then it is very risky to allow that person or company to raise money from retail persons in the market,” Sebi chairman UK Sinha said.
“They will not be allowed to raise money from the market. They will also be debarred from taking any position in a listed company. Such persons will also be declared not fit and proper under various intermediary regulations.”
The new rules on restraining wilful defaulters will come into effect after they get notified. “After the notification, all such persons would stand disqualified from all positions at listed companies,” Sinha said.
For more clarity on change of control in mergers and acquisitions, the regulator will launch a public consultation for defining “control” and proposed fixing 25% voting rights as a threshold.
Finance minister Arun Jaitley, who held the customary post-budget meeting with the Sebi board, asked the regulator to be alert on market supervision, especially in the wake of global developments, and expand the investor base. He said passage of the Aadhaar law would help in that respect.
Jaitley said a well developed mutual fund industry would prove to be a “counter-balance” to foreign portfolio investors.