SEBI’s proposed curbs on ‘Willful Defaulters’

The Securities and Exchange Board of India (SEBI) put out a discussion paper that proposes restrictions on borrowers who had deliberately not repaid loans despite having adequate resources or who had engaged in fraudulent transactions, such as siphoning of funds.
In SEBI’s proposal, an issuer, its controlling/key shareholder, group company or director on the list of willful defaulters would be prohibited from a public issue of equity shares, debt securities, and preference shares. It would also be prohibited from controlling any other listed entity. Currently, willful defaulters are only prohibited from issuing convertible debt instruments. They will, however, be allowed to make a rights issue or a private placement to qualified institutional investors. The list itself would be maintained by a Central Repository Authority.