SEBI's Proposed Overhaul of Issue-Proceeds Monitoring: Direct Reporting, Fines and Promoter Demat Freezes

On 13 October 2026, SEBI released a consultation paper on the first report of the Working Group reviewing the LODR Regulations. It is chaired by V S Sundaresan, a former Executive Director of SEBI. The paper covers only Chapter I of that report, on how listed companies monitor and disclose the use of money raised from the market. Public comments are open until 3 November 2026.

The proposals shift power towards the monitoring agency and put real consequences behind a company's cooperation. They are proposals, not law.

Background

The Working Group was set up to streamline the LODR Regulations after years of piecemeal amendments. Its first report has three chapters:

• Chapter I: monitoring and disclosure of utilisation of issue proceeds, the subject of this paper.
• Chapter II: penal provisions and the stock exchanges' standard operating procedure for non-compliance.
• Chapter III: clarifications on related party transaction provisions.

The report was then discussed with SEBI's Advisory Committee on Listing Obligations and Disclosures (ACLOD) and internally, and SEBI has added proposals of its own.

The Big picture: 13 Recommendations

The main thrusts are:

1. Monitoring agencies would submit their reports directly to stock exchanges within prescribed timelines.
2. Where the company does not cooperate, the report would be based on best available information and carry a "Statement of non-cooperation".
3. Stock exchanges would fine the company for non-cooperation reported by the monitoring agency.
4. A monitoring agency would be mandatory for all issuances, whatever their size, excluding the offer-for-sale portion.
5. The ICDR and LODR Regulations would be harmonised, with a new Regulation 32A for monitoring agency reports.

Other recommendations clarify monitoring of gross issue proceeds, change the report format, align terminology in Regulation 32, and add transitional provisions. Regulation 32, covering the "Statement of utilization including variation(s)", would also apply to companies exempt from appointing a monitoring agency.

What SEBI has added

1. Non-payment of fees is not "non-cooperation". The Working Group's list of non-cooperation included non-payment of the agency's fee. SEBI proposes to remove that ground.

• Agencies can protect themselves through contract terms, for example by collecting the entire fee in advance.
• If an agency has collected the full fee and the agreement ends before the proceeds are fully used, it may have to refund the proportionate amount for the remaining monitoring period.

2. A fix for the information gap. A best-information report leaves investors short. SEBI therefore proposes that, once the company rectifies non-cooperation, the agency must file a subsequent complete report within 15 days of receiving the complete information. That report must state expressly that the company has rectified its non-cooperation. Stock exchanges must also display the report and any statement of non-cooperation prominently on their websites .

3. A hard escalation ladder. The Working Group recommended a fine of ₹50,000 per instance of non-cooperation reported by the monitoring agency in a reporting quarter. SEBI summarises the exchanges' SOP in Section VII-A of the Master Circular as follows:

The last rung is the notable one. A company's failure to cooperate with its monitoring agency can ultimately reach the promoters' own holdings.

4. No exit while in default. If the monitoring agency reports non-cooperation for one or more quarters, the company can neither terminate the agreement with that agency nor appoint a new one until it rectifies the non-cooperation and lets the existing agency file a complete report for that quarter. This closes the "switch agencies to escape a bad report" route. Where the agreement does end before 100% utilisation, both sides must ensure timely quarterly reports during the transition.

5. Cleaner ICDR/LODR alignment. Timelines for the agency's report would move out of the ICDR Regulations and into the LODR Regulations. SEBI also proposes dropping the words "on a quarterly basis" from these ICDR provisions:

• Regulation 41(2): IPO on the Main Board
• Regulation 82(2): rights issue
• Regulation 137(2): further public offer
• Regulation 162A(2): preferential issue
• Regulation 173A(2): QIP
• Regulation 262(2): IPO by SMEs

The paper also highlights deleting Regulation 262(5) and modifying Regulation 262(6) of the ICDR Regulations.

The most consequential change: monitoring agencies for every issue

At present the ICDR Regulations require a monitoring agency only when an issue crosses a size threshold, which I understand to be ₹100 crore. The proposal would remove that threshold entirely: every issuance would need a monitoring agency, excluding the offer-for-sale portion. For smaller issuers, preferential allottees and SME issuers, that adds a recurring cost and a reporting relationship they did not have before.

What it means for professionals

• Issuers: respond to your monitoring agency's requests promptly and with supporting documents. A lapse now risks a fine, a visible exchange-website flag, and promoter-level consequences.
• Monitoring agencies: review your engagement terms for advance-fee clauses, refund mechanics and the 15-day follow-up report obligation.
• Company Secretaries and CAs: build a calendar for monitoring agency report dates, and align the statement of utilisation under Regulation 32 with the agency's reports so the two don't diverge.
• Promoters: the demat-freeze rung means non-cooperation by the company is a promoter-level risk.

Open points to raise in comments

• The paper doesn't say how the 15-day follow-up report interacts with quarter-end report dates.
• Cost and practicality of universal monitoring for very small issues.
• Whether promoters of widely held companies should face the demat-freeze step for a company's non-cooperation.
• Clarity on "gross issue proceeds" monitoring (recommendation 8.7).

How to comment: submit comments with rationale through SEBI's public comments link by 3 November 2026 . If the web form fails, email consultationcfd@sebi.gov.in with the paper's title as the subject.

Bottom line

The proposals make cooperation with the monitoring agency a compliance obligation with escalating consequences. For anyone who raises money in the market, how issue proceeds are used is becoming harder to leave unreported.