The Securities and Exchange Board of India (SEBI), on Tuesday, proposed mandatory appointment of monitoring agency for all issues, irrespective of its size.
“It is pertinent to extend the requirement of monitoring of utilisation of issue proceeds to all the companies to ensure that such instances are identified and addressed in accordance with extant legal framework. It will also strengthen the monitoring of utilisation of all the equity capital raised through issuance of equity shares to public,” said SEBI in a discussion paper on “Monitoring agency report and related disclosures.”
Till now, the appointment of monitoring agency is compulsory for all issues where the issue size exceeds Rs.500 crore. The monitoring agency is a public financial institution or one of the scheduled commercial banks named in the offer document as bankers of the issuer.
Further, it has suggested that mandatory submission of report by the monitoring agency would be on a quarterly basis till the funds are fully utilised. The SEBI said that it was mandatory for the companies to submit monitoring agency report to stock exchanges for public dissemination. At present, the report submitted by the monitoring agency to the issuer is not required to be made public.
“Considering that Companies Act, 2013, which requires prior approval from shareholders for any change of object and a provision for exit to dissenting shareholders, it is very important that the shareholders get regular update on utilisation of issue proceeds.”
All deviations, other than the purpose for which the fund was raised, would be reported by the monitoring agency, said SEBI adding, it should also clearly indicate the deviation along with the reasons for the deviation and also indicate whether necessary approvals from board/shareholders have been obtained.
Further, the regulator proposed that audit committee and the board/ management of the company should provide their comments for the deviation, if any, pointed out in the report of monitoring agency. For effective monitoring and timely disclosure, it is desirable to have a fixed time limit for submission of the report and SEBI proposed that the issuer company should ensure that the report is submitted within 45 days from the end of the quarter.
SEBI also suggested companies to constitute a committee of board of directors to oversee the monitoring of utilisation of issue proceeds before opening of the issue and this committee would facilitate monitoring of issue proceeds by the monitoring agency. SEBI has invited comments for these proposals and suggested to e-mail the comments on or before March 25, 2014.