Every Public Issue Would Need a Monitoring Agency, With ₹50,000 Fine and Demat Freeze

SEBI has proposed making a monitoring agency compulsory for every public issue, whatever its size, and giving stock exchanges a set of escalating penalties for companies that do not cooperate with their monitoring agency. The consultation paper is dated 13 October 2026, and comments are due by 3 November 2026.

For an investor who wants to know whether a company spent its IPO money as promised, two questions matter: who checks the spending, and whether the findings are made public. The current rules and the proposed changes answer those questions differently, and the sections below set out how.

How Issue Proceeds Are Monitored Today

Under the ICDR Regulations, which govern public issues, a monitoring agency is required when the issue size, excluding the offer-for-sale portion, exceeds ₹100 crore. Issues at or below that size fall outside the requirement.

Amendments notified on 14 January 2022 changed the role in two ways. Credit rating agencies replaced scheduled commercial banks and public financial institutions as monitors, and monitoring was set to run until 100% of the proceeds were used, where the earlier threshold was 95%.

Monitoring agencies also send details of utilisation to the issuer's audit committee. Under the same amendments, that reporting moved from an annual basis to a quarterly one, so the committee receives the figures four times a year.

The rule therefore has two parts: a size test that decides whether an agency is needed at all, and a reporting cycle that decides how often its findings reach the audit committee. In plain terms, an issue above the threshold has a monitoring agency for as long as its proceeds are not fully used, so a single issue can produce reports over a number of quarters.

Who Would Need a Monitoring Agency

The paper would require every listed company raising funds from the market to appoint a monitoring agency, whatever the issue size. The offer-for-sale portion is excluded from the issue size, as it is now.

The change removes the ₹100 crore threshold that now limits the requirement. Issues below that figure would therefore need an agency too, alongside the larger issues that already do.

Under the current rule, the offer-for-sale portion is also excluded, so that carve-out is not new. The paper keeps it.

For readers, the key question is which companies would be covered at all. Under the paper, that would be every listed company raising funds from the market, with the offer-for-sale portion left out of the issue size.

Reporting to Exchanges and What Counts as Non-Cooperation

Under the paper, monitoring agencies would submit their reports directly to stock exchanges within prescribed timelines. Reporting would be quarterly or half-yearly, and the timelines would move from the ICDR Regulations into the LODR Regulations, which set listing obligations for listed companies.

The report depends on the company's cooperation. Where a listed company does not cooperate, the agency would base its report on the best available information and include a statement recording that non-cooperation.

The paper separates non-cooperation from fee disputes. Non-payment of fees is excluded as a ground for reporting non-cooperation, so an unpaid bill would not by itself be recorded as non-cooperation by the company.

Exchanges would therefore receive two kinds of document: the agency's report on the use of proceeds, and, where the company has not cooperated, a statement saying so. In plain terms, the report is the agency's account of spending, and the statement is its record that the company did not supply what was needed to write that account.

The ₹50,000 Fine and the Demat Freeze Timeline

Stock exchanges could impose a fine of ₹50,000 for each instance of non-cooperation reported in a quarter or half-year. The fine is set per instance, so more than one reported instance in the same period could carry more than one fine.

Escalation begins with a notice to the listed company, which exchanges would issue within 30 days of the report's due date. The clock runs from the due date for the agency's report under the LODR Regulations. The company would then have to rectify the default and pay the fine.

If the default continues for 15 days after that notice, exchanges would issue notices to the promoters. If the matter is still unresolved 10 days after the promoter notice, the paper provides for exchanges to notify the depositories, which would freeze the promoters' demat accounts.

Put in order, the steps run from a reported default to a ₹50,000 fine and a notice to the company, then to promoter notices, and finally to the demat freeze. Each later step applies only while the default remains unresolved. In plain terms, a company that rectifies the default and pays the fine within 15 days of the first notice would not reach the promoter stage or the freeze under this sequence.

The paper would require every listed company raising funds from the market to appoint a monitoring agency, whatever the issue size.

Fees, Replacements and Catching Up on Reports

Agencies could ask for their fees in advance. If the agency has collected the full fee in advance and the agreement ends before the issue proceeds are fully used, it may be required to refund the proportionate amount for the remaining monitoring period.

Once the company supplies the missing information, the agency would file a complete report within 15 days. The report would show that the status of the non-cooperation has been corrected.

Until the non-cooperation is rectified and a complete report is submitted, a listed company could not terminate or replace its monitoring agency. In plain terms, the agency stays appointed until the outstanding report is complete.

The paper treats non-cooperation as the trigger for both the replacement limit and the penalty steps. Fee arrangements and replacement limits sit alongside the reporting rules in the same proposal.

What It Means for IPO Investors

Under the paper, stock exchanges would prominently display monitoring agency reports, along with any statements of non-cooperation, on their websites. An investor could then look on those exchange websites for a monitoring report on a company's use of proceeds, and for any non-cooperation statement recorded against the company.

Under the 2022 amendments, monitoring reports go to the company's audit committee each quarter. The paper would add direct submission to the exchanges and display on their websites. In plain terms, the proposal adds a public location for a report that goes to the company's audit committee.

The freeze would apply to promoters' demat accounts, not to the accounts of other shareholders under the steps described.

These are proposals, and comments can be sent through SEBI's public-comment portal until 3 November 2026.