SEBI tightens noose on wilful Defaulters

In a bid to bring congruency with RBI’s strict norms for wilful defaulters, SEBI has issued a series of amendments modifying its various regulations to keep wilful defaulters under check. The RBI has defined a ‘wilful defaulter’ as an entity that defaults on its payment obligations even though it has the financial capacity to pay back its debts. The amendments thereto are summarized below:

  • SEBI (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2016 provide that a company cannot issue equity shares to the public if the company or any of its promoters / directors is a wilful defaulter.

    Further, a company is restricted from issuing convertible securities to the public if has defaulted in making interest / principal payments to the public for more than six (6) months.

    However, the issuers are allowed to tap its existing shareholders including promoters by way of rights issue, private placement or preferential allotment. In which event, they are required to disclose the name of the bank which declared them a wilful defaulter along with outstanding amount, the year in which it was declared a wilful defaulter and steps taken by the issuer to remove itself from this list.

  • Further, pursuant to the SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2016, wilful defaulters are restricted to make a takeover offer or acquire such number of shares that would trigger a mandatory offer requirement.
  • Wilful defaulters are also prohibited from making a public issue of debt securities or of non-convertible redeemable preference shares pursuant to the amendments made to the SEBI (Issue and Listing of Debt Securities) (Amendment) Regulations, 2016.