SEBI Proposes Mandatory Monitoring of IPO Funds, Fines and Promoter Demat Freezes

Companies raising money from the public could face stricter monitoring under a proposal put forward by the Securities and Exchange Board of India (SEBI), as per news reports. The regulator has suggested making monitoring agencies compulsory for all issuances, irrespective of size, except the offer-for-sale (OFS) portion. 

The proposal follows a review of the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, by a working group chaired by former SEBI executive director V. S. Sundaresan. 

₹50,000 Fine Proposed for Non-Cooperation 

Under the proposed rules, monitoring agencies would report directly to stock exchanges. If a company fails to cooperate, the agency would submit its report using the information available and record 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. Exchanges would issue notices within 30 days of the report's due date. 

Promoters Could Face Demat Account Freeze 

The proposals also outline action if a company fails to submit a complete report or pay the fine. After the initial notice, exchanges would issue notices to promoters if the default continues for 15 days. 

If the issue remains unresolved for another 10 days, exchanges could ask depositories to freeze promoters' demat accounts under the prescribed procedure. 

Companies Cannot Replace Agencies During Default 

A company reported for non-cooperation would not be allowed to terminate its agreement with the monitoring agency or appoint a replacement until it rectifies the issue and enables submission of a complete report for that quarter. 

Once the company provides the required information, the agency would have 15 days to file the complete report. SEBI has also proposed shifting reporting timelines from the ICDR Regulations to the LODR Regulations. 

Read More: SEBI Revises PMS Rules, Introduces Common Advertising Code! 

Conclusion 

The measures are part of SEBI's proposed changes to oversight of money raised from the public. The consultation paper covers one chapter of the working group's recommendations, with separate reports addressing related-party transactions and penalties for regulatory non-compliance. 

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