Somesh Lund
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009[1] (ICDR Regulations) requires that while raising funds from the public, the company has to mention the object for raising the fund.
Thus to maintain the integrity of the above clause, SEBI in its board meeting conducted on April 26, 2017[2] has proposed stringent rules and provisions to have better oversight on the utilization of funds raised through the public. This is a measure to keep a check on the misuse of these funds.
The Major changes proposed are:-
- Appointment of Monitoring agency
| Present Requirement | every company issuing securities in excess of Rs. 500 crore has to appoint a Monitoring agency |
| Proposed Requirement | every company issuing securities in excess of Rs. 100 crore has to appoint a Monitoring agency; |
| Rationale for Proposal | To determine if the funds raised are utilized for the prescribed purpose. By decreasing the limit a larger number of companies will fall under the net of Monitoring agencies |
- Frequency of report by monitoring agency report
| Present Requirement | Monitoring Agency is required to submit its report to the issuer half-yearly. |
| Proposed Requirement | Monitoring Agency is required to submit its report to the issuer quarterly |
| Rationale for Proposal | Gives SEBI better oversight and timely information |
- Timely submission of Monitoring Agency Report
| Present Requirement | No such requirement exist |
| Proposed Requirement | Report to be submitted within 45 days from end of the quarter. |
| Rationale for Proposal | Such disclosure will help investors and other concerned persons to obtain timely information. |
- Disclosure of the Monitoring Agency Report on Company’s website
| Present Requirement | Disclosure of the Monitoring Agency Report on companies website not mandatory |
| Proposed Requirement | Disclosure of the Monitoring Agency Report on companies website is mandatory |
| Rationale for Proposal | Companies Act, 2013 prescribes that prior approval from shareholders is required for any change of object. Thus it is very important that the shareholders get regular update on utilization of issue proceeds. |
- The Board of Directors comments on the findings of the monitoring agency.
| Present Requirement | No such requirement exist |
| Proposed Requirement | It is mandatory for the Board of director’s comments on the findings of the monitoring agency. |
| Rationale for Proposal | Creates onus on the Board of Directors to insure that the funds are utilized for the prescribed purpose. |
Conclusion
These measures will help SEBI to monitory the utilization of funds as all deviations, other than the purpose for which the fund was raised, are to be reported by the monitoring agency. If the funds are utilized for any other purpose the report will also mention if the prerequisite approvals from board/shareholders have been obtained.
[1] http://www.sebi.gov.in/legal/regulations/apr-2017/sebi-issue-of-capital-and-disclosure-requirements-regulations-2009-last-amended-on-march-6-2017-_34697.html
[2] https://taxguru.in/sebi/instant-access-facility-ewallet-investments-mutual-funds.html.
(Author is associated with Vinod Kothari & Company and can be reached at corplaw@vinodkothari.com)
