The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing stricter oversight of how companies use funds raised from IPOs. The regulator aims to improve transparency by mandating monitoring agencies for all issuances and empowering exchanges to freeze promoter demat accounts if companies fail to cooperate with compliance requirements.
The Securities and Exchange Board of India (SEBI) has moved to strengthen the rules surrounding how companies utilize money raised from public investors. Through a newly released consultation paper, the regulator is seeking to close loopholes that have occasionally allowed companies to remain opaque about the usage of IPO proceeds.
At the core of this proposal is the mandatory appointment of a monitoring agency for all IPOs, excluding the offer-for-sale component. While many companies already use these agencies to verify that funds are spent on the projects mentioned in their prospectus, the new framework aims to make this process more rigorous and standard across the industry.
Under the proposed rules, these monitoring agencies will be required to report directly to stock exchanges. If a company fails to provide the necessary documents or cooperate with the review process, the agency must formally declare it a case of non-cooperation. This shifts the dynamic, placing the responsibility on the company to provide transparent answers rather than simply delaying the disclosure.
To ensure these rules have teeth, SEBI has proposed a clear penalty structure. Companies that do not cooperate could face a penalty of ₹50,000 for every instance identified in a quarterly or half-yearly report. The proposal also suggests an escalation mechanism if the company remains unresponsive. If a default persists for 15 days, and then continues for a further 10 days, stock exchanges would be authorized to instruct depositories to freeze the demat accounts of the company’s promoters. Additionally, companies flagged for such defaults would be prohibited from changing their monitoring agency until the issues are resolved.
The regulator also plans to shift these monitoring timelines from the Issue of Capital and Disclosure Requirements (ICDR) regulations into the broader Listing Obligations and Disclosure Requirements (LODR) framework. This move is intended to ensure that the rules for IPO monitoring are treated with the same importance as other ongoing listing obligations, preventing companies from treating post-IPO reporting as a one-time formality.
For investors, this proposal represents an effort to reduce the risk of funds being diverted or misused after the listing. While it increases the compliance workload for companies, it is designed to protect retail shareholders by forcing greater accountability. The effectiveness of this move will depend on how quickly these proposals are implemented and the strictness with which exchanges enforce the penalties. The next step for the market will be to observe the industry feedback on this consultation paper and the eventual timeline for its adoption by the regulator.