The SEBI Board has, in a meeting on 12th March, 2016 decided to impose restrictions on willful defaulters, review the manner of dealing with Audit Reports containing Qualifications, and to provide clarification on definition of ‘control’ in SEBI Takeover Regulations. Press Release No. 56/2016, dated 12-3-2016 has been issued in this regard.

For restricting access to capital markets for raising funds from the public by willful defaulters, the following proposals were approved by the Board:

  • The issuer company or its promoter or its director, which is in the list of willful defaulters, is not permitted to make a public issue of equity securities/debt securities/non-convertible redeemable preference shares.
  • If a company or its promoter or its director is in the list of willful defaulters, it may not be allowed to take control of other listed entity. However, if the listed company or its promoter or its director is a willful defaulter and there is a take over of the listed company, then they may be allowed to make a competing offer for the said listed company as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
  • The criteria for determining a ‘fit and proper person’ under SEBI Regulations shall be amended to include that no fresh registration shall be granted to any entity or its promoters or its directors or key managerial personnel, if such entity is categorized as a willful defaulter

A revised procedure to review audit qualifications in audit reports as incorporated in SEBI (Listing and Other Disclosure Requirements) Regulations, 2015 has now been proposed by SEBI, which purports that listed entities shall now disclose cumulative impact of all the audit qualifications on relevant financial terms in a separate form called “Statement on Impact of Audit Qualifications” and not in Form B. It was decided that if there are no audit qualifications, the requirement of signing Form A by top officials or directors of the company and auditors will not be necessary. Further, adjustment in the books of accounts of the subsequent year shall now not be necessary. This new mechanism shall be applicable from the financial year which will end in March 2016 and the earlier cases.

  • To identify ‘Control’ as per the SEBI (SAST) Regulations, SEBI has invited comments on the following amendments to the definition of “control”, 
  • an illustrative list of protective rights not amounting to acquisition of control, subject to obtaining the public shareholders’ approval, and
  • amend the definition of ‘control’ as, “The right or entitlement to exercise at east 25% of voting rights of a company irrespective of whether such holding gives de-facto control and/or the right to appoint majority of the non-independent directors of a company.”