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<ul><li>SEBI is planning to tag defaulters as 'difficult to recover' if it's virtually impossible for them to pay back their loan.</li><li>The tag will also be used for individuals found be 'untraceable' and with cases in multiple courts.</li><li>The proposal will be presented at SEBI's next board meeting in the coming week.</li></ul> Capital market regulator SEBI is planning to attach a 'difficult to recover' tag for individual defaulters who are found to be 'untraceable' as also for cases facing parallel proceedings by other agencies or in various courts and tribunals. The proposal, likely to be discussed at SEBI's board meeting next week, is aimed at better utilisation of resources towards cases with higher chances of recovery, a senior official said. This separate 'difficult to recover' category is for cases where recovery of penalties and other dues from defaulters proves to be virtually impossible and the amount involved is not found to be worth an attempt beyond a point. However, SEBI can initiate or continue its prosecution proceedings against the defaulters even after such a segregation and recovery procedure can be reopened in case there is any change in the prevailing parameters regarding the defaulter. The regulator is now considering a modification to its policy on 'difficult to recover' dues to include the criteria of 'untraceable' for individuals and 'parallel proceeding barring recovery', the official said. In case of individuals, the existing policy provides for this classification for a person who has died leaving behind no assets and those who are alive but have no attachable assets or have become insolvent. However, the income tax department rules for 'difficult to recover' cases has two more categories -- individuals who are untraceable and those who have left India. The official said that SEBI did not include these categories earlier as it did not have enough data with respect to the cases involving untraceable individuals, while the final category became redundant after promulgation of the Fugitive Economic Offenders Act. However, its analysis of pending recovery cases has now shown that many cases involving untraceable individual defaulters are fit for being declared 'difficult to recover'. In case of companies, this classification applies to those having gone into liquidation or insolvency proceedings or are defunct, as also entities whose directors, promoters, partners or representatives have no attachable assets. Regarding foreign companies, this category includes those having no presence, place of business, management, representative or attachable assets in India. The Securities and Exchange Board of India (SEBI) has got powers to recover money from various entities by way of passing orders for refund of money to investors, disgorgement of funds to be distributed to investors, and also collect fees and penalties levied by it. Since getting the recovery powers in 2013, SEBI has initiated recovery proceedings against a large number of defaulters, but it has experienced difficulties during the execution of these proceedings in certain cases. According to officials, difficulties mainly arise due to the defaulter being insolvent or financially unsound without having any attachable assets, or being a company whose assets or directors/ promoters are not traceable, as also individual defaulters being untraceable. In some cases, the dues remain unrecovered even after executing all modes of recovery. Earlier, SEBI norms did not provide for declaring any unrecovered dues as 'difficult to recover' and therefore all the proceedings used to remain in force along with other recoverable cases, thus hindering optimal utilisation of resources for cases with better chances of recovery, officials said. In 2018, SEBI had formulated this policy, after taking cues from the procedure followed by the income tax department, following extensive consultations with the Finance Ministry, the Reserve Bank of India and the Corporate Affairs Ministry, but it has always been made clear that it should not be seen as "scaling down or writing off" of the dues. Out of 2,500 recovery orders passed by SEBI so far, as many as 1,790 recovery certificates were pending (at end of November 2019). Out of these, 136 were found fit to be declared 'difficult to recover', though not a single case has been put in that category as yet because the final verification of the steps are being carried out by newly appointed recovery officers prior to any such categorisation. Out of the total 1,790 pending cases, the maximum number of 1,308 cases are pending at a stage after attachments of bank, demat and mutual fund accounts as the funds or securities available are not sufficient. Also, 301 of them are 'defunct' (17 per cent) and 254 have been found to be 'untraceable' (14 per cent). Besides, the 136 cases that are fit to be treated as 'difficult to recover', as many as 97 are 'untraceable' for reasons including of failure to serve demand notice despite best efforts, non-availability of demat or bank account details, non-existence of right address and even PAN details being unavailable. Besides, SEBI is also proposing a 'difficult to recover' tag for cases facing 'parallel proceedings' before various judicial and quasi-judicial fora such as National Company Law Tribunal, special courts, debt recovery tribunals, as also cases where stay on recovery has been granted by high courts or the supreme court, or where parallel attachment has been done by agencies like ED, Tax Department, EPFIO etc. Out of the total 1,790 pending recovery cases, SEBI found that parallel proceedings were pending in 90 cases with some facing multiple litigations. In cases where insolvency and bankruptcy proceedings have commenced, SEBI has no scope of recovery as the Insolvency and Bankruptcy Code prevails over the SEBI Act. See also: <a href="https://www.businessinsider.in/you-may-earn-up-to-1-crore-with-a-tip-off-on-insider-trading-sent-to-sebi-conditions-apply/articleshow/69729976.cms">You may earn up to ₹1 crore with a tip-off on insider trading sent to SEBI — conditions apply</a> <a href="https://www.businessinsider.in/india/news/indian-stock-market-regulator-wants-to-use-ai-to-curb-manipulation/articleshow/73570976.cms">Indian stock market regulator wants to use AI to curb manipulation</a> <a href="https://www.businessinsider.in/business/news/sebi-to-hire-independent-agencies-to-dispose-of-attached-assets/articleshow/73517907.cms">SEBI to hire independent agencies to dispose of attached assets</a>

SEBI wants to tag defaulters as "difficult to recover" where recovery is virtually impossible

Vijay Mallya's Rs 515-crore 'golden parachute' to exit United Spirits faces an extensive scrutiny by markets regulator <keyword id="35210" type="ORGANIZATION" weightage="100" keywordseo="sebi">SEBI</keyword>, which has begun looking into possible violations of corporate governance and other norms because of this deal. 
 
SEBI is looking into the role of United Spirits and its main promoter UK-based Diageo Plc, as also that of Mallya and his group firms that are or have been shareholders in India's leading liquor maker, a senior official said. 
 
SEBI is scrutinising intricacies of the deal and may soon seek further details from USL, Diageo, Mallya and others. Besides, the regulator is also looking into the trading data for USL shares to check whether there have been any violation of insider trading norms or other irregularities. 
 
He further said that the Corporate Affairs Ministry and other agencies may also join in as the the deal, struck yesterday between Mallya and Diageo, has raised "serious doubts" about whether the corporate governance norms have been followed in "letter and spirit" in this matter. 
 A new scrutiny has been launched even as an earlier probe is continuing against Mallya and his <keyword id="7229" type="CITY" weightage="100" keywordseo="UB-Group">UB Group</keyword>, as also others, with regard to alleged financial irregularities at United Spirits Ltd (USL) relating to loans advanced to UB firms including for long-defunct <keyword id="6373962" type="CITY" weightage="100" keywordseo="Kingfisher-Airlines">Kingfisher Airlines</keyword>. 
 
Besides, various UB Group firms are already facing probes by Sebi relating to listing rule violations, while Corporate Affairs Ministry is also looking into alleged violations of certain provisions of the Companies Act. The role of previous auditors is also under the scanner. 
 
The Corporate Affairs Ministry may also look at the fresh developments that have taken place because of Mallya deciding to quit as Chairman and Non-Executive Director at USL after Diageo agreeing to pay $75 million (over Rs 515 crore) and to absolve him of all liabilities with regard to alleged financial regularities in the past. 
 
Also under the scanner are financial transactions entered into by USL, Mallya and various UB Group firms with entities abroad, including those before Diageo buying into the company. Some of these deals relate to various sporting ventures floated by Mallya including for cricket and Formula One race. Recently, also he ventured into Caribbean Premier League. 
 Mallya, who has been known for his flamboyance and used to be referred to as '<keyword id="1019762" type="UNKNOWN" weightage="20" keywordseo="King-of-Good-Times">King of Good Times</keyword>' before his empire ran into troubles beginning with collapse of Kingfisher AirlinesBSE 3.03 %, managed a good deal yesterday to end a year-long boardroom battle at USL, wherein he had sold controlling stake to Diageo in a multi-billion dollar deal. 
 
Such an exit arrangement is commonly known in the business parlance as golden parachute' or 'sweetheart deal'. 
 
Mallya, who along with his group firms is fighting 'wilful defaulter' tags given by various lenders in relation to loans taken by long-defunct Kingfisher Airlines, said he would now "spend more time in England" closer to his children. 
 
Image credit: Indiatimes

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SEBI wants to tag defaulters as "difficult to recover" where recovery is virtually impossible

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