Regulation 32 of SEBI LODR, Regulations, 2015 – A Detailed Analysis

APPLICABILITY:

Regulation 32 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (SEBI LODR, Regulations, 2015) requires every Listed Entity to submit a Statement of Deviation or Variation, on a quarterly basis, in the use of proceeds raised from the public issue, rights issue, preferential issue, or Qualified Institutions Placement, as against what is stated in the offer document or explanatory statement to the notice calling the general meeting, as applicable.

Now let’s understand the horizon of this Regulation in detail considering every aspect:

Some Important Terms:

Statement of Deviation: It is to be given in case when the proceeds are utilized for objects other than what is stated in the offer document or explanatory statement annexed to the notice calling the general meeting.

Statement of Variation: It is to be given in case when there is no deviation in the objects for which the proceeds are to be utilized, however, when there is variation in Projected category wise utilization of funds [Capital Expenditure, Sales, Marketing, Working Capital, etc.] stated in the offer document or the explanatory statement annexed to the notice calling the general meeting and the actual category wise utilization of funds.

Hence we can say that Statement of Deviation is to be given when there is a deviation in the objects for which proceeds are to be utilized and a Statement of Variation is to be given when there is variation in Category wise utilization of funds.

Now the next question which arises is when the company gives the offer document and when an explanatory statement to the notice calling the general meeting is given:

• In the case of Public Issue and Right Issue the company issue an Offer Document or letter of offer demonstrating the entire objects for which the proceeds are to be utilized.

• In the case of Preferential Issue or Qualified Institutional Placement being Private Placement, the company does not issue an Offer Document or Letter of Offer, instead, the company is required to take permission from the Shareholders by way of passing Special resolution and hence an Explanatory Statement is annexed to the notice calling the general meeting.

What does Regulation 32 speak about?

Regulation 32 of SEBI LODR says that when a listed entity raises funds by way of Public, right or Preferential issue, Qualified Institutions Placement (QIP) and

• Where the proceeds from such issue are being utilized for the object other than what is stated in the offer document, or are being utilized for a purpose different than what is stated in the explanatory statement to the notice issued for calling the General meeting for taking shareholders’ approval, (Deviation(s))

• OR where there is any variation in category-wise allocation (Capital Expenditure, sales, and marketing, working capital) of such proceeds from what is specified in the offer document or explanatory statement to the notice issued for calling General meeting, (Variation(s))

1. THEN THE DISCLOSURE IS TO BE MADE:

• Whereby, it shall be mandatory for the listed entity to submit a statement of such deviation(s) or variation(s) to the stock exchange on a Quarterly basis along with the declaration of financial results within 45 days from the end of each quarter / 60 days from the end of last quarter of the financial year, till the time the proceeds are fully utilized or the purpose has been achieved.

2. ROLE OF AUDIT COMMITTEE:

• Further prior to submission of the aforesaid statements to the stock exchanges, such Statement of Deviation/ Variation Report shall be placed on a quarterly basis before the Audit committee for their review, and after such review, the Statement along with the comments of the Audit Committee if any, shall be disclosed or submitted to the stock exchange in the prescribed format as per SEBI Circular bearing reference no. CIR/CFD/CMD1/162/2019 dated 24th December 2019.

• Also an explanation of such variations should be given in the Directors report section in Annual Report

• Further the listed entity shall prepare an annual statement of funds utilized for a different purpose other than what is specified in the offer document or explanatory statement to the notice, get it certified, by the statutory auditors of the listed entity, and place it before Audit Committee for their review, till the time the full money raised through the issue has been fully utilized.

3. ROLE OF MONITORING AGENCY:

Where the Listed Entity has appointed a monitoring agency, to monitor the utilization of proceeds of public or right issues, the listed entity shall submit to the stock exchange(s) any comments or reports received from the monitoring agency within forty- five days from the end of each quarter.

Where the listed entity has appointed a monitoring agency to monitor the utilization of proceeds of a public issue or rights issue, the report of such agency shall be placed before Audit Committee on a quarterly basis, promptly on its receipt.

Where the entity has raised funds through Preferential Allotment or Qualified Institutional Placement, the listed entity shall disclose every year, the utilization of such funds during that year in its Annual Report until such funds are fully utilized.

Now the question arises that when the listed entity is required to appoint monitoring agency, so as per SEBI [ICDR] regulations 2009 amended wide 2017 amendment, where, If the issue size exceeds one hundred crore rupees, the issuer shall make arrangements for the use of proceeds of the issue to be monitored by a Monitoring Agency [credit rating agency registered with the Board].

4. FORMAT OF DISCLOSURE: (PDF & XBRL Mode)

Ever since the applicability of Listing Regulations i.e. December 2015, no format of statement of deviation/ variation has been prescribed, consequently all the listed entities were making disclosure under Regulation 32 in their own formats and randomly on a quarterly basis.

Therefore, in order to bring consistency in the format and Frequency of Reporting, SEBI has prescribed a uniform format for disclosing the statement of deviation/ variation.

SEBI vide its Circular bearing reference no. CIR/CFD/CMD1/162/2019 dated December 24, 2019, has prescribed the PDF format on Statement of Deviation or Variation for proceeds of a public issue, rights issue, preferential issue, Qualified Institutions Placement (QIP), etc.

Further, with a view to making the disclosure more accurate and efficient, the Exchange wide its Notice No. 20200721-13 dated 21^st July 2020 has introduced the facility of filing of Statement of Deviation or Variation in XBRL mode under Regulation 32 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 with immediate effect.

Accordingly, it has been decided that filings in respect of Statement of Deviation or Variation (Regulation 32) should be filed by all listed companies, through XBRL mode in addition to the filing in PDF mode.

Hence, the listed companies are required to submit a Statement of Deviation or Variation in PDF mode along with the submission of Financial results in PDF mode, and a Statement of Deviation or Variation in XBRL mode shall be submitted along with the submission of the Financial results in XBRL mode.

5. PENALTY FOR NON-COMPLIANCE:

Disclosures should always be as unvarying and regular as possible so that there is no room for confusion. One pertinent fact needed to be noted and considered by the listed entities is that until the introduction of SEBI

Circular bearing reference no. CIR/CFD/CMD1/162/2019 dated December 24, 2019, there was no fixed timeline for disclosure of Statement of Deviation/ Variation, however, with the issuance of this circular, it was very clear that the disclosure to the Stock Exchange shall be made by listed entities on a quarterly basis along with the declaration of financial results (within 45 days of the end of each quarter / 60 days from the end of the last quarter of the financial year) until such funds are fully utilized or the purpose for which these proceeds were raised has been achieved.

Further, SEBI wide its Circular bearing reference no. SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020, [which replaced SEBI circular bearing reference no. SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018,] has specified the uniform structure for imposing fines as a first resort for non-compliance with certain provisions of Listing Regulations, including regulation 32 of SEBI (LODR) Regulations, 2015, freezing of entire shareholding of the promoter and promoter group and Standard Operating Procedure for suspension of trading in case the non-compliance is continuing and/or repetitive.

As per the aforesaid circular delay in making the disclosure under Regulation 32(1) of the SEBI (LODR) Regulation 2015, will attract a fine amounting to Rs. 1000/- per day until such delay is rectified.

CONCLUSION:

Through this article, I tried to explain the complete aspect of Regulation 32 of SEBI (LODR) Regulation 2015, however the readers are requested to go through the respective regulation along with all the circulars issued in this regard.

Source:

1.  SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015

2. SEBI notifies Statement of Deviation / Variation in utilisation of funds raised

3. BSE notice no. 20200721-13 dated July 21, 2020

4. SEBI SOP for suspension & revocation of trading of specified securities