quarterly basis (as against semi-annual basis) and should make the report public through dissemination to the stock exchanges.
“Considering that Companies Act, 2013 requires prior approval from shareholders for any change of object and a provision for exit to dissenting shareholders, it is very important that shareholders get regular update on utilisation of issue proceeds,” said the working paper, giving the rationale behind making the report public.
Earlier, in several cases, companies have given one reason in the object of raising the money while coming up with their IPO, and later, the promoter would change the stated object of use of funds by getting a resolution passed through a majority.
Experts say that while the new Companies’ Act provides minority shareholders with the power to recall their money in case of any change in the use of funds by the promoter, Sebi’s proposal on quarterly disclosure of the report at the stock exchanges would further empower investors as they would get an update on the use of funds on a quarterly basis.
On the categorisation of the report, it has been proposed that the monitoring agency will have to grade the deviation from stated use of funds on a two-digit scale — first stating the deviation from object (on a scale of 0-2 where 1 stands for no deviation)and the second indicating the range of deviation (on a scale of 0-5 where 1 indicates deviation up to 10 per cent).
“Monitoring Agency Reports where there is a deviation from objects of the issue should be segregated from reports where the utilisation is in line with objects of the issue. Companies Act, 2013 requires that the company shall not change its objects for which it raised the money through prospectus unless a special resolution is passed by the company and dissenting shareholders have been given opportunity for exit by the promoters and shareholders having control,” said the paper.
Responsibility on independent directors
Not only has the role of promoters and management on the use of funds has come under the lens, the regulator has also brought independent directors’s role to the fore. While Sebi has proposed that the companies need to set up the a sub-committee of board of directors before the opening of the issue that will oversee the monitoring of utilisation of issue proceeds, it has further said that the majority of that committee will be constituted by the independent directors and will be headed by