India’s Securities and Exchange Board of India (SEBI) is proposing required monitoring of proceeds from covered share issues regardless of size, while its working group cites timely disclosure and investor protection as goals.
A consultation paper issued Oct. 13 covers Main Board and SME IPOs, further public offers, preferential issues and qualified institutional placements. It excludes the offer-for-sale portion, which represents shares sold by existing shareholders. The proposal remains open for public comment until Nov. 3 and has not been adopted as a rule.
SEBI’s working group recommends tracking all gross proceeds, excluding offer-for-sale money. Its proposed scope includes relevant pre-IPO funds, money held in bank accounts and issue expenses. When an issuer raises money to invest in another company, monitoring would also cover that investee company’s use of the funds. The working group says the changes are intended to improve governance and support timely disclosure.
Under the consultation, a monitoring agency could report a company’s non-cooperation to stock exchanges using the information available and flag the lack of cooperation in its report. Exchanges would be asked to display those reports prominently. A company would not be treated as uncooperative solely because it owed fees to its monitoring agency.
The draft proposes a ₹50,000 fine for each reported instance of non-cooperation. If the issue or fine remained unresolved after notices first to the company and then its promoters, exchanges would inform depositories to initiate freezing the promoters’ demat (electronic securities) accounts.
SEBI’s working group says the current process can be delayed when companies withhold information or supporting documents, or fail to send monitoring reports to exchanges on time. In a Feb. 11 address, SEBI Chairman Tuhin Kanta Pandey said the regulator had seen listed small and midsize companies channel issue funds to associated parties and shell firms under promoter control.
The working group lists current monitoring thresholds of ₹100 crore for Main Board IPOs and ₹50 crore for SME IPOs, with no threshold prescribed for rights issues. The consultation would remove size thresholds for the covered share issues. Separately, NDTV Profit reported that Pandey said at a Mumbai event Wednesday, Oct. 28, that SEBI was developing a system for third-party agencies to check whether IPO proceeds were used for their stated purposes. NDTV Profit also reported that he warned that some listed companies without economic activity posed market risks.
