SEBI proposes stricter IPO fund oversight, with fines and promoter demat freezes

The Securities and Exchange Board of India (SEBI) has proposed tougher oversight of how listed companies use money raised through public issues, including ₹50,000 fines for non-cooperation and the eventual freezing of promoters’ demat accounts if companies fail to comply.

The proposals are part of a consultation paper issued on October 13 to review the framework for monitoring and disclosure of issue proceeds under SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations.

The regulator has also proposed making the appointment of a monitoring agency mandatory for all issuances, irrespective of issue size, excluding the offer-for-sale component.

The proposals are open for public comments until

November 3. The changes are proposals at this stage and have not yet been finalised.

Monitoring agencies to report directly to stock exchanges

Under the proposed framework, monitoring agencies would be empowered to submit their reports directly to stock exchanges within prescribed timelines if listed companies fail to cooperate during the monitoring process. Non-cooperation could include withholding information, delaying submissions or failing to provide adequate supporting documents.

In such cases, the agency would be allowed to file its report based on the best available information, accompanied by a statement of non-cooperation. If a company subsequently provides the complete information, the monitoring agency must submit a revised, complete report to the stock exchanges

within 15 days of receiving the required information, explicitly stating that the company has rectified its non-cooperation status.

The regulator has also proposed that stock exchanges prominently display monitoring agency reports and, where applicable, statements of non-cooperation on their websites to bring them to investors’ immediate attention.

Fines, escalation to promoters and demat account freeze

SEBI has outlined a graduated enforcement mechanism for companies that fail to cooperate or do not resolve the issue. Stock exchanges would levy a ₹50,000 fine for each instance of non-cooperation reported by a monitoring agency in a reporting quarter or half-year, as applicable. Exchanges would be required to review compliance and issue notices to non-compliant companies within 30 days of the due date for submission of the monitoring agency’s report.

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If the company fails to rectify its non-cooperation status, the monitoring agency does not submit the subsequent complete report, or the company fails to pay the fine within 15 days of receiving the notice, stock exchanges would issue notices to the company’s promoters.

If the issue remains unresolved 10 days after the promoter notice, stock exchanges would inform depositories to initiate the freezing of promoters’ demat accounts, in line with the existing standard operating procedure framework.

SEBI has also proposed that a company should not be allowed to terminate its existing monitoring agency’s agreement or appoint a new agency while a reported non-cooperation status remains unresolved. The restriction would continue until the company rectifies the issue and the existing agency submits a complete report for the relevant reporting quarter.

Fee disputes and reporting rules

The consultation paper clarifies that non-payment of fees to a monitoring agency would not, by itself, qualify as non-cooperation. Instead, agencies could include contractual provisions requiring the issuer to pay the entire monitoring fee in advance. If the agreement is terminated before the issue proceeds are fully utilised, the agency may have to refund the proportionate fee for the remaining monitoring period where the full amount was paid upfront.

SEBI has proposed aligning the ICDR Regulations, which govern capital issuance, with the LODR framework to remove inconsistencies and streamline reporting timelines. This includes removing the words “on a quarterly basis” from specified provisions dealing with monitoring agency reports for mainboard IPOs, rights issues, further public offers, preferential issues, qualified institutional placements and SME IPOs.

Other recommendations include clarifying the monitoring of gross issue proceeds, revising the existing monitoring agency report format, aligning terminology under Regulation 32 of the LODR Regulations, and introducing a separate Regulation 32A to deal specifically with monitoring agency reports.

Regulation 32 would also cover statements on utilisation of proceeds and variations, including for listed entities exempt from appointing a monitoring agency. The proposals include changes to Regulation 262 of the ICDR Regulations and transitional provisions for implementation.