UAE- A wilful defaulter can't raise funds from the public

(MENAFN- Khaleej Times) Q: There are several media reports about wilful defaulters who have caused losses to banks in India. Who is a wilful defaulter? What action can be taken against such a person?

- K.L. Rama Rao Dubai

A: A wilful defaulter is a person who does not pay his dues to the bank despite having a positive cash flow and assets. A person who siphons out funds from the entity which has borrowed monies from a bank or institution is also classified as a wilful defaulter. Further a borrower who indulges in fraudulent transactions such as overvaluation of assets which are purchased or undervaluation of assets which are sold is also deemed to be a wilful defaulter.

Such a defaulter is now prevented from raising funds from the public by issue of stocks and bonds and also from sitting on the board of any publicly listed company. Such persons are also debarred from setting up market intermediaries such as mutual funds and brokerage firms. Such defaulters are not allowed to take control of any other listed company.

Q: Purchase of real estate in India has not been easy as builders do not stick to their promises. I am told that there is some move to instill confidence among buyers. Is this information correct?

- P.L. Wahi Doha

A: The Indian Parliament has passed a new law dealing with real estate development with a view to protect the interest of buyers. Under the new law developers of property will be required to submit personal details including photographs of promoters and location details with demarcation of land. The timeframe for completing the project will also have to be notified. If the developer fails to complete the project within the stipulated timeframe buyers will be permitted to withdraw their investment with interest.

Every promoter will have to be registered with the regulatory authority. In case of revocation of registration on account of default the developer's bank account can be frozen and the funds therein can be used for completing the project. The photograph of the defaulting builder will be displayed on the website of the regulatory authority and information will be shared with regulators of other states.

A developer cannot make any major change in design and layout of the project unless two-thirds of the allottees of the apartments approve of the change. The promoters will also be required to submit details of all projects which they had launched in the past five years and furnish details of the status of those projects.

Q: For low-cap stocks as well as penny stocks listed on Indian stock exchanges there is lot of volatile movement as well as abnormal price rises. I do not know whether the stock exchanges and regulators are aware of this. If so what action is being taken to prevent frauds?

- R.P. Aggarwal Sharjah

A: As a preventive measure to check abnormal price movement in low-cap stocks the Bombay Stock Exchange has introduced weekly monthly quarterly and annual price bands for such stocks. The object is to prevent persons from booking bogus long-term capital gains which are currently exempt from tax. In fact recently the Securities & Exchange Board of India (Sebi) has prohibited more than 1000 entities from operating on the stock exchanges after they were found indulging in tax evasion to the tune of more than Rs150 billion.

The Sebi has also suspended trading in shares of 167 companies. It has also reported the matter to the Income-tax Department for further investigation. The Sebi has stepped up surveillance measures and taken punitive action against manipulators and fraudsters. The Sebi has furnished details in respect of 1854 entities who have traded beyond their disclosed income limits to the tax department. Punitive action has also been taken against 59 entities for executing suspicious reversal trades in the stock option segment.

The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.