The end use of money raised by companies through initial public offerings (IPOs) should be monitored by the Corporate Affairs Ministry in coordination with market regulator SEBI, a parliamentary panel has said.
The Standing Committee on Finance, which scanned the provisions of the Companies Bill 2009, has suggested that the end use of IPO funds be monitored by the Registrar of Companies (RoCs), along with the Securities and Exchanges Board of India (SEBI).
“The fresh explanation…proposed by the Ministry for mandating SEBI with regard to monitoring of utilisation or application of end use of monies received by the Company does not appear to be tenable, as this falls in the domain of the ROCs, who have to ensure this in coordination with SEBI,” the panel said in its report.
Currently, the MCA, through technical scrutiny of balance sheets, keeps a check if companies are using IPO proceedings as promised in the prospectus. Section 55A of the Companies Act 1956 does not grant SEBI powers to look into the end-use of IPOs and limits its jurisdiction only till the issue of the IPO and not beyond it.
MCA has for long been asking SEBI to devise ways of monitoring the end use of money collected through IPOs to keep a check on vanishing companies.
The Committee further said that it relies on the J J Irani Committee report that there should be harmony between regulators with proper demarcation of jurisdiction in the Companies Bill.
“The Committee would emphasise in this regard that sectoral regulators like SEBI should continue to provide for a more detailed or stringent regulations, consistent with the benchmarks proposed in the Bill…with this approach, there would be harmony between the provisions of the Bill and rules prescribed by different regulators,” it said.
India Inc has raised46,778 crore through the IPOs in the current fiscal, 23 times higher than2,034 crore mopped up in the last fiscal, according to a study by Prime Database.
The study said that most the complaints regarding price-rigging and mis-utilisation of IPO proceeds have been of less than500 crore. In 2008-09 and 2009-10, of the 60 complaints, 50 were below500 crore and just 10 were more than500 crore.
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