The new Companies Bill will give SEBI the powers to look into the end-use of Initial Public Offerings (IPOs). Changes to this effect would be incorporated in the draft Companies Bill, 2009, Corporate Affairs Ministry sources told Business Line. Simultaneously, to enhance transparency, SEBI guidelines are likely to direct all issuer companies with IPOs of even less than Rs 500 crore to appoint an agency to monitor the use of such proceeds. Currently, SEBI guidelines specify that a monitoring agency is required only for issues of over Rs 500 crore. The monitoring agency, such as a bank or a financial institution, is appointed by the company going for an IPO. The agency reports to the company's Audit Committee regarding the use of IPO money. During official discussions, SEBI had said Section 55A of the Companies Act does not grant it powers to look into the end-use of IPOs. SEBI currently has powers only until the issue of the IPO and not beyond it. “Changes will be made in the draft Companies Bill in this regard so that SEBI can have the powers it needs. IPOs come solely under SEBI regulation and it is important that they have all the powers,” an official said. This is in line with the Corporate Affairs Ministry's insistence that the balance-sheets of all the companies coming out with IPOs be subjected to strict technical scrutiny. Besides, an expert group comprising the Corporate Affairs Ministry, SEBI, BSE and NSE has submitted its report on plugging the regulatory loopholes regarding scrutiny of the usage of IPO money. It has been left to SEBI to change its guidelines to ensure that all IPOs have a monitoring agency, the sources said. Currently, the specification of monitoring agency is only for IPOs over Rs 500 crore due to the high costs involved. However, there have been complaints of price-rigging and mis-utilisation of money in IPOs of less than Rs 500 crore. Of the 60 IPOs in 2008-09 and 2009-10, 50 (or 83.3 per cent) were less than Rs 500 crore and only 10 were over Rs 500 crore, according to Prime Database, a primary capital market database. “All IPOs should have a monitoring agency that gives its report to SEBI and shareholders on the use of IPO money. It will prevent promoters from diverting IPO money to illegal activities such as terrorism and smuggling as well as for personal purposes, such as purchasing aircraft or yachts or even for subsidiary units,” an official said. Mr Prithvi Haldea, Chairman and Managing Director, Prime Database, said, “If enforced properly, these changes will have a positive impact on the market and boost investor confidence. Ideally, the Government should set up a Fund Utilisation and Monitoring Agency Authority of India to look into end-use of all fund raising activities.”
