Under the new framework, the Monitoring Agency Report would also need to list out all deviations from the fund utilisation objectives stated by the company at the time of public offer, as also the comments from their management and auditors on such matters.
The Monitoring Agency, which can be a public financial institution or a scheduled commercial bank, would also grade the deviations observed in the utilisation of public offer proceeds, which their reports need to be made public through stock exchanges within 45 days of the end of every quarter.
Inviting public comments on these new norms by March 25, Sebi said necessary amendments would be made in the existing regulatory framework to bring about proposed changes.
Currently, companies are required to appoint such Monitoring Agencies only for IPOs and other public issues worth Rs 500 crore or more. Also, these agencies are presently required to submit their reports on a half-yearly basis, while such reports are not made public under current regulations.
Proposing new norms, Sebi said that these requirements would now be made compulsory for all companies, irrespective of the issue size, while the companies would also have to made the Monitoring Agency Reports public. The frequency of such reports will also be increased from half-year to quarterly.
Sebi said its regulations are aimed to ensures that the amount to be utilised towards each object of the issue is specifically earmarked and disclosed in the offer document.
"Mandating such detailed disclosures helps in monitoring of utilisation of the funds raised through public issues as well as enables the investors to take informed decision," Sebi said.
Keeping similar objective in mind, the regulator recently amended its regulations and put a limit on the amount that can be earmarked for 'General Corporate Purpose' to 25 per cent of the total issue size.
Sebi has come across several case where the companies have diverted funds raised through public offers for motives beyond the stated objectives, while money has also been used for personal gains of the promoters and others in some cases.
The regulator has also proposed a new format for the Monitoring Agency Report, wherein details of each deviation would be required to be mentioned alongwith comments of the agency, audit committee and the management of the company.
Also, a board committee would need to oversee the monitoring of utilisation of issue proceeds by the company.
The Monitoring Agency Report would also need to mention details about delay in implementation of projects, for which the company has raised money from public, alongwith comments from management for such delays.
Explaining the rationale behind proposed changes, Sebi said the new Companies Act also contains certain provisions to deal with deviation in utilisation of issue proceeds and the new noms would strengthen the monitoring framework for capital raised from public shareholders.
At present, the companies are required to disclose only "material deviations" in utilisation of issue proceeds, but this provision has been vulnerable to possible misuse.
Sebi felt that a mandatory public disclosure of report submitted by monitoring agency to the company would help shareholders get regular update on utilisation of issue proceeds and bring in more transparency in the disclosures.
Also, there is presently no specific requirement for categorising the report in case of deviation of funds from the stated objects of the issue in the offer document.
Under the new norms, the monitoring agency would grade the deviation on a 2-digit scale, wherein first digit would be for deviation from the objects stated in offer document, with 0 being for no deviation, 1 for utilisation being different from stated objects but in line with changes approved by shareholders and 2 for utilisation neither in line with stted objects nor approved by shareholders.
The second digit would indicate range of deviation from the specified objects on a scale of 0-5, with 0 being for upto 10 per cent, 1 for 10-25 per cent, 2 for 25-50 per cent, 3 for 50-75 per cent, 4 for 75-100 per cent and 5 for deviation being 'not ascertainable'.
All the deviations reported by monitoring agency would need to clearly indicate the same along with the reasons for such deviation and also indicate whether necessary approvals from boards or shareholders have been obtained.
The stock exchanges would need to prominently disseminate list of monitoring agency reports based on their grades.
Sebi also wants audit committees and management of the concerned company to provide their comments for deviations, if any, pointed out in the monitoring agency report.
Before opening of the public offer, a board committee would be required to be constituted by the company to oversee the monitoring of utilisation of issue proceeds. This committee would facilitate monitoring of issue proceeds by a monitoring agency, while it needs to be headed by an independent director.
The idepdendent directors would also need to be in majority in such a committee, Sebi said, while adding that constitution of such committee will also ensure active involvement of Board of Directors in monitoring of utilisation of issue proceeds.