SEBI Proposes Mandatory Monitoring Agency for All Public Issues and Rs 50000 Fine for Non-Cooperation

The Securities and Exchange Board of India (SEBI) has released a comprehensive consultation paper proposing sweeping reforms to how listed companies account for funds raised from the public. The regulator plans to make the appointment of an independent monitoring agency mandatory across all public issuances—irrespective of issue size—excluding only the offer-for-sale (OFS) component.

The proposals stem from the recommendations of a working group set up to review the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), chaired by former SEBI Executive Director V S Sundaresan. Stakeholder comments on the consultation paper have been sought until November 3, 2026.

Mandatory Oversight Across All Issue Sizes

Under current norms, monitoring agencies are only mandatory above certain issue thresholds. SEBI's working group has recommended removing size distinctions, proposing the insertion of a new Regulation 32A under the LODR Regulations.

A monitoring agency—typically a scheduled commercial bank or a credit rating agency—acts as an independent third party tasked with verifying whether a company is deploying fresh issue proceeds strictly according to the objectives stated in its offer documents. By extending this mandate to all issues, the regulator aims to plug surveillance gaps in smaller mainboard and SME offerings where governance risks have historically been higher.

Strict Penalty and Direct Exchange Reporting

A central feature of the consultation paper is giving monitoring agencies teeth to counter evasive issuers. If an issuer delays or refuses to furnish the necessary financial documents and information within prescribed timelines, the agency will be empowered to bypass the company and submit its report directly to stock exchanges.

The framework details the following mechanism for uncooperative companies:

• Statements of Non-Cooperation: When an issuer fails to provide details, the agency must draft its report based on the "best available information" accompanied by an explicit "statement of non-cooperation".
• Public Flagging: Stock exchanges will be mandated to prominently flag and display these statements of non-cooperation on their portals for public scrutiny.
• Monetary Penalties: A fine of ₹50,000 will be levied on the listed entity for every instance of reported non-cooperation during a quarterly or half-yearly reporting cycle.
• Restriction on Agency Swapping: Listed entities flagged for non-cooperation will be barred from terminating their contracts or switching to a new monitoring agency until the pending review is completed and rectified.

Graded Enforcement and Freezing Demat Accounts

To prevent habitual non-compliance, SEBI has outlined a time-bound standard operating procedure (SOP) that escalates directly to company promoters.

Under the proposed escalation matrix:

• Stock exchanges will issue a compliance notice within 30 days of the reporting due date.
• If the non-cooperation is not rectified or the fine remains unpaid within 15 days of that notice, the exchanges will issue formal default notices to company promoters.
• If the default persists for an additional 10 days, stock exchanges will direct depositories to freeze the demat accounts of the promoters.

If a company subsequently rectifies its default and provides all required records, the monitoring agency will have to file a revised, comprehensive report with the stock exchanges within 15 days. SEBI also clarified that non-payment of monitoring fees by an issuer cannot be used by agencies as a valid ground to submit a statement of non-cooperation.

What It Means for Indian Investors

Misallocation and slow deployment of IPO proceeds have long been a pain point for retail and institutional investors in India's primary markets. By tying promoter personal equity access to full transparency on fund usage and removing regulatory exemptions for smaller offerings, the proposed framework seeks to curb fund diversion, ensure capital discipline, and safeguard minority shareholder interests.

Tags: SEBI Primary Markets IPO BSE NSE LODR