MUMBAI — The Securities and Exchange Board of India (SEBI) is preparing a framework under which third-party monitoring agencies will independently verify whether funds raised through initial public offerings (IPOs) are deployed for the purposes disclosed in offer documents, Chairman Tuhin Kanta Pandey said at a panel discussion in Mumbai on Thursday, October 29, IANS reported.
Source: IANS via The Freedom Press
"Public capital brings public responsibility," Pandey said, stressing that companies must remain accountable for how investors' funds are utilised. He was speaking at a panel discussion hosted by NDTV Profit, IANS reported.
Source: IANS via The Freedom Press
What changes under the proposal
Under the current framework, IPO proceeds must be monitored by a SEBI-registered credit rating agency only when the fresh issue size exceeds Rs 100 crore. A SEBI consultation paper floated earlier this month proposes making monitoring agencies mandatory for all public issues, irrespective of size, excluding only the offer-for-sale component, Nation Press reported.
Source: Nation Press
The proposals would empower stock exchanges to fine a company Rs 50,000 for each reported instance of non-cooperation with a monitoring agency. If a company fails to rectify the default or pay the fine, exchanges would notify its promoters, and continued default could lead to depositories freezing the promoters' demat accounts, The Hindu BusinessLine reported. A company reported for non-cooperation also could not terminate the agency's agreement or appoint a replacement until the default is cleared.
Source: The Hindu BusinessLine
AI watch on debt defaults, and a wider review
Pandey said SEBI is also reviewing the framework governing debenture trustees, with an emphasis on stronger oversight, and is piloting an AI-based tool to monitor disclosures by debenture trustees, stock exchanges, depositories and credit rating agencies, intended to flag early warning signs of corporate debt defaults, Nation Press reported.
Source: Nation Press
He added that some listed entities with little or no real economic activity function like shell companies and "add risk to the market" — a warning SEBI has been repeating as it reviews the main-board IPO and follow-on offer framework, listing and disclosure obligations, the SME IPO framework and the Innovators Growth Platform, Nation Press reported.
Source: Nation Press
The monitoring changes are in SEBI's consultation paper, with public comments invited until November 3. They have not yet been notified as formal rules, so the Rs 50,000 fine and demat-freeze steps would apply only after SEBI finalises the framework.
What happens next: SEBI will consider the comments received by November 3 before deciding the final shape of the monitoring regime. For investors in smaller IPOs — which today sit below the Rs 100 crore monitoring threshold — the change would mean an independent agency tracking their money from listing onwards.