The Securities and Exchange Board of India (SEBI) has lately initiated a rash of reforms that make it easier for domestic companies to launch IPOs (Initial Public Offers) in uncertain markets. Last week, it mooted draft regulations seeking to substantially tighten the rules around utilisation of IPO proceeds by issuers.
The consultation paper recommends three key changes. One, all issuers, irrespective of the offer size, would be required to appoint an external monitoring agency to verify that IPO proceeds are utilised as specified in the offer document. Right now, external monitoring is mandatory only for issuers raising over ₹100 crore on the main board, or over ₹50 crore from the SME exchanges. This is welcome as smaller companies may be prone to weak governance and funds diversion. Two, monitoring agencies will directly share their findings on utilisation of IPO proceeds with stock exchanges, within 45 days of the end of each quarter.
They will first share their draft report with the company for vetting by its audit committee. In case there’s a delay, the monitoring agency must go ahead and file the report. Three, where the issuer fails to share adequate information or evidence, the monitoring agency must file a ‘statement of non-cooperation’ with the exchange, along with its utilisation report. Exchanges are required to issue notices to the errant firm and levy a fine of up to ₹50,000 for non-compliance, or eventually freeze promoter shares. If a monitoring agency files a non co-operation report, the issuer company cannot terminate its services without rectifying the issue. While these rules may seem onerous, such tightening is called for. SEBI investigations have unearthed innumerable cases of promoters diverting IPO proceeds to pet projects and related parties.
In the recent case of Gensol Engineering, SEBI found IPO funds raised for electric vehicle procurement were used to bankroll private luxury purchases. In the case of Varanium Cloud, money raised for data centres reportedly found its way into a hospitality venture. However, there could be many a slip between the cup and the lip in enforcing the new rules. First, there’s the question of whether credit rating agencies (which are the designated monitoring agencies) have the capacity to conduct the forensic checks and physical verification necessary to confirm where IPO funds are being deployed. To assess whether a firm is creditworthy, all rating agencies need to do is to analyse their audited financial statements (even here, they are known to miss a trick or two). Verifying whether a firm is indeed using its cash balances for stated purposes is better suited to an audit firm. There’s also the problem of conflict of interest. Credit rating agencies earn their revenues from the issuers they rate. That apart, stock exchanges, too, have not been effective in acting as frontline regulators, even as the new rules place the onus of enforcement entirely on them.
Published on October 18, 2026
