The Bombay Chartered Accountants’ Society asked SEBI to allow CA firms to monitor IPO fund utilisation. BCAS said this would expand capacity as SEBI proposes mandatory monitoring for all issues. The society also flagged gaps in current reports, noting that such changes would “make the report more useful to investors.”
The Bombay Chartered Accountants’ Society (BCAS) has suggested that chartered accountant firms meeting specified criteria should be allowed to act as monitoring agencies for companies raising funds, as the Securities and Exchange Board of India (SEBI) proposes extending the mandate to all issues, irrespective of their size.
In its representation on SEBI’s proposals, BCAS said the requirement would significantly increase the workload for monitoring agencies. Currently, only credit rating agencies registered with SEBI can undertake this role. Allowing CA firms holding a valid peer review certificate from the Institute of Chartered Accountants of India (ICAI) to act as monitoring agencies, at least for issues below a specified size, would help expand capacity, it said. Such firms are subject to auditing standards, quality control requirements and ICAI’s disciplinary jurisdiction, and have experience in verifying the application of funds.
In October, SEBI proposed making the appointment of a monitoring agency mandatory for monitoring the utilisation of funds raised through all public issues, requiring agencies to submit their reports directly to stock exchanges, and introducing penalties for companies that fail to cooperate. It also proposes aligning the monitoring and disclosure requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations and the SEBI (Issue of Capital and Disclosure Requirements) Regulations.
BCAS urges SEBI to allow CA firms to monitor utilisation of IPO fundsBCAS flags gaps in monitoring reports
BCAS has also flagged gaps in the existing monitoring reports, citing instances where agencies recorded fund utilisation without providing their own assessment. In one report, about 59 per cent of the IPO proceeds was shown as utilised for purposes outside the stated objects, without any observation from the monitoring agency.
In another instance, the agency recorded the issuer’s explanation that a particular use of funds formed part of the stated objects, although the offer document did not mention such use.
The Society has suggested that agencies be required to state whether utilisation is outside the objects specified in the offer document and whether any variation is, in their view, prejudicial to shareholders’ interests. Such conclusions would “make the report more useful to investors”, it said.
Seeks stricter disclosure of fund utilisation
It has also sought specific reporting of every payment made out of issue proceeds to a related party, along with the nature of the payment. For unutilised funds placed with scheduled commercial banks, agencies should confirm that no lien or charge has been created on the deposits or that they have been used as security for borrowings, including those of group entities.
Calls for clarity on penalties for non-cooperation
BCAS has also called for a clear definition of non-cooperation, including failure to provide information or supporting documents within prescribed timelines, refusal to permit verification and submission of incorrect information. It has also sought clarity on how fines are calculated, suggesting higher penalties for defaults that continue over consecutive reporting periods.
BCAS has also sought clarity on how fines would be calculated, suggesting that the term ‘instance’ be defined or penalties be levied for each reporting period. Higher fines could apply where non-cooperation continues for two or more consecutive reporting periods.