SEBI's Review of IPO Proceeds Monitoring and Disclosure

When a company raises money from the public, the offer document tells investors what the money is for. The harder part comes afterwards: showing, quarter after quarter, that the money went where the document said it would. On 13 October 2026, SEBI released a consultation paper proposing to tighten how that evidence is gathered, reported and enforced. Public comments are open until 3 November 2026, and nothing in the paper is yet a binding requirement.

The short answer

SEBI's paper, which covers Chapter I of the first report of its Working Group reviewing the LODR Regulations, proposes (among other things) that a monitoring agency be appointed for every issuance regardless of size (excluding the offer-for-sale portion), that the agency report directly to stock exchanges, and that a company's failure to cooperate with the agency carry escalating consequences, including fines and, ultimately, steps against promoters' demat accounts. These are proposals. The framework currently in force continues to apply until SEBI amends the regulations.

1. Why IPO Proceeds Monitoring Matters

Money raised in an IPO is raised against a stated purpose: repaying borrowings, funding capital expenditure, meeting working-capital needs, general corporate purposes, and so on. Investors price the issue partly on that plan. Because cash is fungible, the gap between "what was promised" and "what was spent" is where governance risk sits: delayed deployment, funds parked for long periods, spending on items not listed in the offer document, or payments to related parties that were never clearly disclosed.

Three terms are often used interchangeably but mean different things:

• Utilisation is the actual spending of proceeds against the stated objects.
• Deviation or variation is a change from the objects, amounts or timelines in the offer document. Under company law, a variation in the objects stated in a prospectus generally needs shareholder approval by special resolution, with an exit opportunity for dissenting shareholders.
• Monitoring is independent oversight of utilisation, typically by a monitoring agency, in addition to the company's own audit committee review.

2. SEBI's October 2026 Consultation Paper

The paper is titled Recommendations of the Working Group for review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Review of framework for monitoring and disclosure of utilization of issue proceeds. SEBI's consultation paper dated 13 October 2026 seeks public comments on proposals to strengthen monitoring and disclosure under the LODR and ICDR Regulations. The Working Group is chaired by V S Sundaresan, a former SEBI Executive Director, and the paper deals only with Chapter I of its first report; Chapter II (penal provisions and the exchanges' standard operating procedure) and Chapter III (related party transactions) are separate. SEBI discussed the Working Group's recommendations with its Advisory Committee on Listing Obligations and Disclosures and internally, and has added proposals of its own. Comments close on 3 November 2026.

3. Role of Monitoring Agencies

A monitoring agency is an independent institution appointed by the issuer to review how the proceeds of an issue are being used and to report on it. In practice, credit rating agencies and banks commonly perform this role. The agency reviews the issuer's records against the objects stated in the offer document, reports on any deviation, and gives the audit committee and the market an external reference point that does not depend only on management's own statements.

Existing framework (in force today). Under the ICDR Regulations, the requirement to appoint a monitoring agency is linked to issue size. Commentary on the paper describes the present trigger as ₹100 crore, with the offer-for-sale portion excluded, and SEBI has also extended monitoring to preferential issues and QIPs above that level. The agency reports periodically, and the report goes to the issuer's audit committee and is then filed with the stock exchanges; a company filing on record cites both Regulation 32(6) of the LODR Regulations and Regulation 41(4) of the ICDR Regulations for this step. Separately, Regulation 32 requires a statement of deviation or variation in the use of proceeds, reviewed by the audit committee.

Proposed role. The paper proposes to make the agency more independent of the company and more consequential, as set out below.

4. Reporting Timelines and Disclosure

Today, the monitoring agency's report is prepared periodically until the proceeds are fully utilised, and its filing with the exchanges is tied to a prescribed period after the reporting date. The company also publishes its own statement of utilisation with its financial results.

Proposed. According to published summaries of the paper:

• The agency would submit its report directly to the stock exchanges within prescribed timelines, rather than relying on the company to forward it.
• Where the company does not cooperate, the agency would report on the best available information and include a statement of non-cooperation.
• Once the company rectifies the position, the agency would have to file a subsequent complete report within 15 days of receiving the complete information, stating that the non-cooperation has been rectified.
• Stock exchanges would display the reports and any non-cooperation statement prominently on their websites.
• The timelines for the agency's report would move from the ICDR Regulations into the LODR Regulations, under a new Regulation 32A.

These timelines are proposed, not operative. The final periods may change after the consultation.

5. Potential Changes to the Monitoring Framework

The escalation sequence described in commentary on the paper runs as follows: the exchange issues a notice to the company within 30 days of the report's due date; the company has 15 days to pay the fine and the agency may file the complete report; if the position remains unresolved, a notice goes to the promoters; after a further 10 days the exchanges inform the depositories, who may freeze the promoters' demat accounts.

The paper also proposes that the Regulation 32 statement of utilisation apply to companies that are exempt from appointing a monitoring agency, and it addresses monitoring of gross issue proceeds, the report format, terminology and transitional provisions.

6. Implications for Issuers and Merchant Bankers

For issuers: if adopted, cooperation with the monitoring agency stops being an administrative courtesy and becomes a compliance obligation with public consequences. A late or incomplete response could produce a visible non-cooperation flag on the exchange website, a fine, and eventually pressure on promoters. Smaller issuers that currently fall below the size threshold would face a recurring cost and a new reporting relationship.

For boards and audit committees: the audit committee's review would increasingly be compared against an independent report that reaches the exchanges directly. Discrepancies between the company's own Regulation 32 statement and the agency's findings would be harder to explain.

For merchant bankers: offer-document disclosures on the objects of the issue, and the monitoring arrangements built around them, will need to be designed with ongoing reporting in mind. The quality of the object-wise cost estimates, deployment schedule and supporting documentation at the time of the issue will shape how easily a company can evidence utilisation later.

A hypothetical example (illustrative only)

A company raises ₹40 crore through a fresh issue, of which ₹25 crore is for a plant expansion and ₹15 crore for working capital. Under a size-based trigger, it might not need a monitoring agency at all. Under the proposal, an agency would be required. In the second quarter, the company pays ₹6 crore to a contractor but cannot produce the invoices and bank advice promptly. The agency would report on best available information with a statement of non-cooperation, and the company would face the consequences described above until it supplied the documents. Nothing about the spending was improper; the gap was in record-keeping.

7. How Companies Can Prepare

The proposals may change, but the direction of travel is clear enough to justify a review now. Companies that already operate sound controls are unlikely to find the proposals onerous; the exposure lies in informal processes.

1. Confirm which rules apply to you. Monitoring requirements depend on the type of transaction (IPO, SME IPO, rights issue, further public offer, preferential issue or QIP), the issue size and the regulations in force at the time. Do not assume a single threshold applies everywhere.
2. Map objects to evidence. For every object of the issue, define what documents will prove spending: sanction letters, purchase orders, invoices, bank statements, loan repayment confirmations, statutory-auditor certificates.
3. Give one person ownership. Assign a named finance owner for issue-proceeds tracking, with a deputy.
4. Align the two reports. The Regulation 32 statement and the monitoring agency's report should be built from the same ledger so they do not diverge.
5. Review the agency engagement terms. Check fee timing, refund provisions on early termination, information-request timelines and escalation contacts.
6. Consider submitting comments. Issuers, agencies and advisers can respond to SEBI by 3 November 2026.

8. Practical Checklist for Fund Utilisation Controls

Common Mistakes to Avoid

• Treating the proposals as final, or ignoring them because they are not yet final.
• Assuming that because no monitoring agency is currently required, no formal tracking is needed. The Regulation 32 statement and the audit committee's duties apply regardless.
• Reconciling spending to the offer document only at the time of the quarterly report.
• Letting an informal "general corporate purposes" bucket absorb spending that belongs to a named object.
• Failing to document why a delay or reallocation occurred.

Conclusion

The main point of SEBI's consultation is not new in spirit: money raised from the public must be used as disclosed, and the evidence should be available. What the paper proposes is a harder edge, with direct reporting to exchanges, public flags for non-cooperation and personal consequences for promoters. Whether and in what form those proposals are adopted will become clear only after the consultation. Companies that build clean, object-wise records now will be well placed under either outcome.