NEW DELHI — India’s market regulator Saturday announced a clampdown on “willful defaulters” as the government tackles mounting bad bank loans, days after tycoon Vijay Mallya left the country owing more than US$1 billion. Under Indian law, business-owning individuals or firms can be declared willful defaulters if they deliberately do not pay their debts despite having adequate cash flow or assets.
In future they will be barred from raising fresh funds by issuing securities on capital markets and from sitting on the boards of listed companies, the Securities and Exchange Board of India (SEBI) said. “Any company who is declared willful defaulter will be barred from raising fresh money from the day SEBI notifies the new rule,” the regulator’s chairman U.K. Sinha told reporters in New Delhi. The move comes as high-profile liquor baron Mallya, who was named as a willful defaulter by the State Bank of India last year, is being chased for 90 billion rupees (US$1.34 billion) in unpaid loans. The self-styled King of Good Times, whose Kingfisher Airlines collapsed in 2012, left India earlier this month, with more than a dozen banks scrambling to the courts to try and reclaim their money. It is not clear whether the new rules will disqualify Mallya from the board positions he holds in his United Breweries Group and other entities.
A report on Indian business news website LiveMint said the rules would only apply prospectively.
Last month the flamboyant businessman stepped down as the chairman of United Spirits, the Indian arm of the UK’s Diageo, following allegations of financial lapses at the company founded by his family. He has been summoned to appear before India’s financial crimes agency on March 18 but has not yet been charged with any crime.
Alarm bells have sounded in India in recent months over the heavy burden of bad loans weighing down banks’ balance sheets.
SEBI said it would also restrict deliberate defaulters from setting up market intermediaries such as mutual funds and brokerage firms.