SEBI Proposes Tighter IPO Proceeds Monitoring Rules, With Fines For Companies That Default On Compliance

The Securities and Exchange Board of India (SEBI) has proposed tighter rules for tracking how listed companies spend money raised from investors. Under the plan, firms that fail to cooperate with monitoring agencies could face fines of ₹50,000 per instance, followed by action to freeze promoters' demat accounts if the default continues.

The regulator issued a consultation paper on Tuesday, setting out recommendations from a working group reviewing the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015.

The group, led by former SEBI executive director V S Sundaresan, has proposed making monitoring agencies mandatory for all issuances, irrespective of size. The offer-for-sale portion would be excluded from this requirement.

Fines For Non-Cooperation

Under the proposed framework, a monitoring agency would have to submit its report using the information available to it if a company fails to cooperate. The report would also carry a statement recording the non-cooperation.

Stock exchanges could impose a fine of ₹50,000 for each instance of non-cooperation reported during a quarter or half-year. They would have to issue a notice to the company within 30 days of the report's due date.

If the company fails to submit the complete report or pay the fine within 15 days of receiving the notice, the exchange would issue a notice to its promoters.

If the default continues for another 10 days, the exchange would direct depositories to freeze the promoters' demat accounts in line with the applicable standard operating procedure.

Restrictions On Changing Monitoring Agencies

The proposals also seek to prevent companies from changing monitoring agencies to avoid scrutiny.

A company reported for non-cooperation would not be allowed to terminate its agreement with the agency or appoint a replacement until it clears the default and provides the information needed for a complete report for the relevant quarter.

Once the company supplies the missing information and rectifies the issue, the monitoring agency would have 15 days to submit a complete report. It would also have to state that the earlier non-cooperation had been resolved.

Stock exchanges would display monitoring reports and statements of non-cooperation prominently on their websites.

Advance Fee Payments For Monitoring Agencies

The working group has proposed a separate arrangement for agency fees. A company's failure to pay the monitoring agency would not, by itself, be treated as non-cooperation under the proposed rules.

Agencies could instead collect their entire fee in advance. If the agreement ends before the funds raised by the company have been fully utilised, the agency would have to refund the proportionate fee.

The proposal separates payment disputes from failures to provide information needed to track the use of public issue proceeds.

Common Timelines For Monitoring Reports

The working group has also recommended moving the timelines for monitoring agency reports from the Issue of Capital and Disclosure Requirements (ICDR) Regulations to the LODR framework.

The consultation paper covers only one chapter of the group's recommendations. Its other work includes clarifications on related-party transactions and penalties that stock exchanges can impose on listed companies for non-compliance with Sebi regulations.

The proposals are open for consultation and are not yet final rules.

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