The Securities and Exchange Board of India (SEBI) has proposed stricter action against listed companies that do not cooperate with monitoring agencies tracking the utilisation of funds raised through public issues, including fines and the potential freezing of promoters’ demat accounts.
The markets regulator has proposed that stock exchanges levy a fine of ₹50,000 for each instance of non-cooperation reported by a monitoring agency during a reporting quarter or half-year, as applicable.
The proposals are part of a review of the framework for monitoring and disclosure of issue proceeds under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Public comments have been invited until November 3.
Under the proposed enforcement process, stock exchanges would review compliance and issue notices to defaulting companies within 30 days of the due date for submitting the monitoring agency report. If the company fails to rectify the non-cooperation status or pay the fine within 15 days of the notice, exchanges would issue notices to its promoters.
If the default continues for another 10 days after the promoters are notified, exchanges would inform depositories to initiate freezing of the promoters’ demat accounts, in accordance with the existing standard operating procedure.
SEBI has also proposed that a company should not be allowed to terminate its agreement with an existing monitoring agency or appoint a replacement until it rectifies the non-cooperation and enables the agency to submit a complete report for the relevant period.
Monitoring agencies would be allowed to submit reports directly to stock exchanges, based on the best available information, when companies fail to cooperate. Such reports would carry a statement of non-cooperation. Exchanges would also be required to display these reports prominently on their websites to draw investors’ attention to information gaps.
The proposals follow recommendations by a working group chaired by former SEBI executive director V S Sundaresan. The regulator is also seeking to make the appointment of monitoring agencies mandatory for all issuances, irrespective of issue size, excluding the offer-for-sale component.