The Securities and Exchange Board of India (Sebi) on Tuesday proposed a stricter framework for monitoring how listed companies use money raised from the public. Monitoring agencies would report directly to stock exchanges, and defaulting firms could face fines and, ultimately, freezes on promoters' demat accounts.
The market regulator issued a consultation paper on Tuesday on recommendations from a working group set up to review the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015.
The working group, chaired by V S Sundaresan, a former executive director of Sebi, has recommended making the appointment of a monitoring agency mandatory for all issuances, regardless of size, excluding the offer-for-sale portion.
Under the proposals, if a listed entity does not cooperate, the monitoring agency would file its report based on the best available information, along with a "statement of non-cooperation".
Exchanges may be allowed to levy a fine of ₹50,000 per instance of non-cooperation reported in a quarter or half-year and issue notices within 30 days of the report's due date. If the complete report is not filed or the fine is unpaid within 15 days of the notice, exchanges would issue notices to promoters. If the default continues for 10 days after that, exchanges would ask depositories to initiate the freezing of promoters' demat accounts under the standard operating procedure.
Also Read
Non-payment of fees to the agency would not count as non-cooperation. Agencies could instead seek the entire fee in advance and would have to refund the proportionate amount if the agreement ends before the proceeds are fully used.
If a company later rectifies its non-cooperation, the agency must file a complete report within 15 days of receiving the information, stating that the non-cooperation has been rectified. Stock exchanges would display the reports and any non-cooperation statements prominently on their websites.
A company reported for non-cooperation could neither terminate its agreement with the monitoring agency nor appoint a new one until it rectifies the default and enables a complete report for that quarter.
To harmonise the rules, timelines for monitoring agency reports would move from the Issue of Capital and Disclosure Requirements (ICDR) Regulations to the LODR rules.
The consultation paper covers only one chapter of the recommendations submitted by the working group. The group has also submitted its reports on clarifications regarding related-party transactions and penal provisions by stock exchanges for non-compliance with Sebi regulations by listed companies.