Monitoring of issue proceeds: SEBI proposes an agency for every issue
The Securities and Exchange Board of India (SEBI) on 13 October 2026 proposed a mandatory monitoring agency for every issue, whatever its size, to check how raised money is spent. A Main Board IPO now needs one only above Rs 100 crore. Non-cooperating companies would be fined Rs 50,000 per instance. Comments close on 3 November.
Syllabus: GS3 · Indian Economy & Growth; GS4 · Ethics in Public Administration; GS2 · Statutory & Regulatory Bodies
Why this matters for UPSC
GS3 Economy, capital markets, and GS2 regulatory bodies: Prelims can ask what a monitoring agency is, who may act as one and what the ICDR and LODR Regulations govern; Mains, how disclosure and enforcement protect investors from diversion of funds.
Why it matters
Picture a small investor who buys into an IPO because the company promises a new factory. The monitoring agency's report is how that investor learns whether the money went into the factory or was diverted. Today a small IPO has no agency at all, and a company that withholds papers can hold up the report. Under the proposal every issue would be watched, the agency could publish without waiting for the company, and promoters who control a defaulting company would risk frozen demat accounts. Small issuers would now pay an agency's fee; to limit their burden, the Working Group recommends keeping half-yearly reporting for SME companies. The larger issue is how much disclosure and enforcement it takes to make sure money raised from the public is used as promised.
Prelims pointers
- SEBI was set up as a non-statutory body on 12 April 1988 and became statutory under the SEBI Act, 1992, in force from 30 January 1992.
- Purpose under the SEBI Act, 1992: to protect the interests of investors in securities and to promote the development of, and regulate, the securities market.
- ICDR Regulations, 2018: an IPO is an unlisted issuer's offer to the public; a further public offer is a listed issuer's offer to the public.
- A rights issue is offered to existing shareholders on a record date; a qualified institutions placement goes to qualified institutional buyers on a private placement basis.
- An offer for sale is the sale of existing holders' shares within an issue; the money goes to the selling shareholders, not the company.
- Credit rating agencies are registered and regulated under the SEBI (Credit Rating Agencies) Regulations, 1999.
- Regulation 59 of the ICDR Regulations: promoters must give dissenting shareholders an exit offer, as the Companies Act, 2013 provides, if an issue's objects change.
- LODR Regulation 32(7): the monitoring agency's report goes before the company's audit committee every quarter.
Practise a UPSC-style question
With reference to monitoring agencies under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, consider the following statements:
1. A monitoring agency must be a credit rating agency registered with the Securities and Exchange Board of India.
2. For a Main Board IPO, the size test for appointing one leaves out the offer for sale by selling shareholders.
3. The monitoring agency reports to the issuer once every half year until all the issue proceeds are used.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Show the answer
Answer: (a) 1 and 2 only
1 is correct: regulations 41, 82 and 262 require the use of proceeds to be monitored by a credit rating agency registered with SEBI. 2 is correct: regulation 41 counts the issue size excluding the offer for sale by selling shareholders, with a Rs 100 crore trigger. 3 is incorrect: the agency reports to the issuer every quarter, not every half year, until 100% of the proceeds are used.
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