The Securities and Exchange Board of India (SEBI) has proposed stricter rules to monitor how listed companies use funds raised through public issues. The proposed framework would make monitoring agencies mandatory for eligible issuances, empower stock exchanges to penalise companies that fail to cooperate and allow promoter demat accounts to be frozen if non-compliance persists.
Published on October 13, 2026, the consultation paper seeks to strengthen accountability in India’s capital markets by ensuring that companies provide the information required to track fundraising proceeds. The recommendations include a ₹50,000 fine for each reported instance of non-cooperation, a formal escalation process involving stock exchanges and depositories, and restrictions on changing monitoring agencies while violations remain unresolved. The proposals are open for public comments until November 3, 2026, and are not yet final rules.
Key Takeaways
- Mandatory monitoring agencies: SEBI’s working group proposes requiring monitoring agencies for all eligible issuances, irrespective of issue size, excluding the offer-for-sale component.
- ₹50,000 fine: Stock exchanges could levy a penalty for each reported instance of non-cooperation during the relevant reporting period.
- Possible promoter demat freeze: Persistent failure to cooperate, submit complete reports or pay applicable fines could trigger a process to freeze promoters’ demat accounts.
- Direct reporting to exchanges: Monitoring agencies could report non-cooperation directly to stock exchanges using the best available information.
- Public disclosure: Exchanges would prominently display monitoring reports and statements identifying non-cooperation.
- Consultation deadline: Stakeholders can submit comments on the proposals until November 3, 2026.
What Has SEBI Proposed?
SEBI’s proposal focuses on strengthening the framework used to monitor money raised by listed companies through public issues.
When a company raises capital from investors, it generally discloses how the money will be used. Depending on the type of issue and applicable rules, a monitoring agency examines the utilisation of the proceeds and reports whether the company is using the funds in accordance with the disclosed objectives.
The proposed changes seek to address situations in which companies do not provide documents, delay information or otherwise prevent monitoring agencies from completing their reports.
Under the proposed framework, non-cooperation would no longer be dealt with solely through incomplete reporting or repeated requests for information. It could trigger a formal enforcement process involving the monitoring agency, stock exchange, company promoters and depositories.
What is a monitoring agency?
A monitoring agency is an independent entity responsible for examining the utilisation of funds raised through a qualifying public issue.
Its role can include reviewing the company’s disclosures, examining expenditure against stated objectives, checking supporting information and reporting whether the proceeds have been used as intended.
For investors, these reports provide an additional layer of information about how a company deploys the capital it raises.
For example, if a company raises money to build a manufacturing facility, monitoring helps investors understand whether the funds are being used for that project rather than being redirected without appropriate disclosure.
The proposed rules are intended to make this oversight more consistent across eligible issuances and strengthen the consequences when a company does not cooperate.
SEBI’s Proposed ₹50,000 Fine for Non-Cooperation
One of the central recommendations is to allow stock exchanges to impose a fine of ₹50,000 for each instance of non-cooperation reported by a monitoring agency during the applicable quarterly or half-yearly reporting period.
Non-cooperation could include failing to provide necessary information, delaying documents or preventing the agency from completing its monitoring report.
The proposal also establishes a process for escalating unresolved violations.
| Proposed step | Action under the recommended framework |
|---|---|
| 1. Non-cooperation identified | Monitoring agency records the issue and prepares a report using the best available information |
| 2. Report submitted | Agency reports non-cooperation directly to the relevant stock exchange |
| 3. Exchange notice | Stock exchange issues a notice to the company within 30 days of the report’s due date |
| 4. Fine payment period | Company is given 15 days to pay the prescribed fine |
| 5. Notice to promoters | If the required report remains incomplete or the fine remains unpaid, the exchange issues notices to promoters |
| 6. Further escalation | If the issue remains unresolved for another 10 days, the exchange informs depositories to initiate the proposed promoter demat freeze process under the prescribed standard operating procedure |
| 7. Rectification | Once complete information is provided, the monitoring agency must submit the full report within 15 days of receiving the information |
These are proposed procedural timelines. Their final application will depend on the rules adopted by SEBI.
The structure is designed to give companies opportunities to correct deficiencies before more consequential action is initiated.
How Could Promoters’ Demat Accounts Be Frozen?
The proposed enforcement mechanism is significant because it could affect promoters’ ability to transact in securities held in dematerialised form.
A demat account holds shares and other securities electronically. Promoters often hold substantial stakes in listed companies through such accounts.
Under the proposal, if a company continues to fail to cooperate after receiving notices and the applicable enforcement steps have been completed, the stock exchange would inform the relevant depositories to initiate the freezing process under a prescribed standard operating procedure.
The measure is intended to increase pressure on companies and their promoters to resolve reporting failures and ensure that monitoring agencies can complete their work.
Does this mean every promoter’s account will be frozen immediately?
No. The proposal describes a graduated process rather than an automatic freeze when a company first misses a reporting requirement.
The company would first be subject to notices and the proposed fine-payment process. Further escalation would follow if the relevant non-cooperation remained unresolved within the prescribed periods.
The proposal should also be distinguished from an existing account freeze imposed under a separate legal or regulatory provision. The article concerns a proposed mechanism linked specifically to persistent non-cooperation in monitoring the utilisation of issue proceeds.
The final rules will determine the exact operational requirements, scope and implementation of any freeze.
Monitoring Agencies Could Report Directly to Stock Exchanges
Another important proposal would allow monitoring agencies to submit their reports directly to stock exchanges within prescribed timelines when companies fail to cooperate.
The report would be based on the best available information and accompanied by a statement of non-cooperation.
This is intended to prevent companies from effectively delaying regulatory visibility by withholding information needed to complete a report.
Under the proposal, if a company subsequently supplies the missing information and resolves the issue, the monitoring agency would have to submit a complete report within 15 days of receiving that information. The report would explicitly state that the non-cooperation had been rectified for the relevant reporting period.
Stock exchanges would also be required to display monitoring reports and any applicable statements of non-cooperation prominently on their websites.
That public disclosure could help investors identify companies facing unresolved reporting problems when evaluating corporate governance and the use of capital.
Companies May Not Be Able to Switch Monitoring Agencies During a Dispute
SEBI’s working group has also proposed restricting a company’s ability to terminate an existing monitoring agency agreement or appoint a new agency while non-cooperation remains unresolved.
The restriction would continue until the company rectifies the issue and enables the outstanding report to be completed.
The objective is to prevent a company from changing monitoring agencies while an incomplete report or disclosure problem remains pending.
Without such a restriction, a company could potentially complicate the monitoring process by terminating one agency and appointing another before resolving the underlying information gaps.
The proposal aims to keep responsibility for outstanding reporting issues clear until the matter is addressed.
What about monitoring agency fees?
The recommendations distinguish non-cooperation from a dispute over the agency’s fees.
Non-payment of monitoring agency fees would not, by itself, constitute non-cooperation under the proposed framework.
Agencies could instead use contractual arrangements requiring fees to be paid in advance. If an agreement ends before the proceeds have been fully utilised, the agency would be expected to refund the proportionate amount where applicable.
This distinction is intended to prevent a fee-payment disagreement from automatically triggering the same enforcement process as a company’s failure to provide information.
Why Is SEBI Reviewing the Rules?
The proposals form part of a broader review of the rules governing listed-company disclosures and the utilisation of fundraising proceeds.
Companies raise money through different types of public issues, including initial public offerings, follow-on public offerings and other eligible securities issuances. Investors need reliable information about how the proceeds are used after the capital has been raised.
Monitoring becomes particularly important when the stated objectives involve several projects, expenditure categories or long implementation periods.
If companies do not provide information on time, investors may find it harder to assess whether the original fundraising plan remains on track or whether funds have been deployed as disclosed.
SEBI’s proposed changes seek to strengthen the reporting framework and create clearer consequences for persistent non-cooperation.
Aligning ICDR and LODR regulations
The working group has recommended harmonising relevant monitoring provisions under two major SEBI regulatory frameworks:
- ICDR Regulations: The Issue of Capital and Disclosure Requirements Regulations govern aspects of capital raising, including requirements associated with public issues.
- LODR Regulations: The Listing Obligations and Disclosure Requirements Regulations set ongoing disclosure and compliance requirements for listed entities.
Aligning the monitoring provisions could make the rules more consistent and reduce differences in the way similar requirements are administered.
The working group has also recommended moving certain monitoring-related timelines from specified ICDR provisions into the LODR framework.
The consultation paper covers the monitoring-related recommendations. Other recommendations from the working group, including those concerning related-party transactions and penalties for non-compliance, are part of the wider review but should not be confused with the specific proposals in this paper.
What Could the Changes Mean for Companies and Investors?
If adopted, the proposed rules could affect how companies manage fundraising documentation, communicate with monitoring agencies and respond to compliance notices.
For listed companies
Companies may need more disciplined internal systems to track expenditure against fundraising objectives, maintain supporting documents and respond to requests from monitoring agencies.
Finance teams, company secretaries and compliance departments could face greater pressure to ensure that reports are complete and submitted on time.
Companies with complex projects or multiple spending categories may need clearer coordination between departments responsible for capital expenditure and regulatory reporting.
For promoters
Promoters could face greater pressure to ensure that their companies resolve monitoring-related violations promptly.
The possibility of a demat account freeze would make persistent non-cooperation more consequential, although the proposed process involves several steps and would not be an immediate response to every reporting delay.
For investors
The changes could improve access to information about how companies use the money they raise from public markets.
Prominent disclosure of incomplete reports or non-cooperation statements may help investors identify governance and reporting risks earlier.
However, a monitoring report is not a guarantee that a company will achieve its stated business objectives. Investors would still need to evaluate financial performance, project execution, debt levels, management quality and the commercial rationale for the expenditure.
What Happens Next?
SEBI has invited public comments on the consultation paper until November 3, 2026.
Market participants, listed companies, monitoring agencies, merchant bankers and investors can assess the proposals and submit feedback before the regulator decides whether to adopt them, modify them or seek further consultation.
The final framework may differ from the working group’s recommendations. Until SEBI formally adopts the relevant changes, the proposed fine and promoter demat account freeze mechanism should not be described as a newly implemented general rule.
Investors and companies should therefore distinguish between the existing regulatory framework and the changes currently under consultation.
The Bigger Picture
SEBI’s proposals reflect a broader effort to strengthen accountability after companies raise money from public investors. Capital raising is not complete from an investor-protection perspective when an issue closes; the way the proceeds are subsequently deployed is also important.
Mandatory monitoring for eligible issuances, direct reporting to exchanges and a defined escalation process could make it harder for companies to delay disclosure when monitoring agencies seek information. At the same time, the effectiveness of the framework will depend on clear definitions, proportionate enforcement and procedures that allow companies to correct genuine reporting failures.
Looking Ahead
The November 3 consultation deadline is the next immediate milestone. After considering stakeholder feedback, SEBI will determine whether the proposed measures should be incorporated into the applicable regulations and what operational procedures will govern enforcement.
If the proposals are adopted, listed companies will need to pay closer attention to monitoring agreements, reporting deadlines and the documentation supporting the use of public-issue proceeds. For investors, the key change could be greater visibility into unresolved compliance problems, alongside a stronger mechanism to encourage companies to meet their disclosure obligations.
Frequently Asked Questions
What has SEBI proposed?
SEBI has proposed mandatory monitoring agencies for eligible issuances, direct reporting of non-cooperation to stock exchanges, a ₹50,000 fine for each reported instance and possible freezing of promoters’ demat accounts if non-compliance persists.
How much could companies be fined?
The proposed fine is ₹50,000 for each instance of non-cooperation reported by a monitoring agency during the applicable quarterly or half-yearly reporting period.
When could promoters’ demat accounts be frozen?
Under the proposed process, a freeze could be initiated after the company receives notices and the prescribed escalation periods pass without the issue being resolved. It is not proposed as an immediate consequence of every reporting delay.
Will monitoring agencies be mandatory for every public issue?
The working group recommends mandatory appointment of monitoring agencies for all eligible issuances irrespective of issue size, excluding the offer-for-sale component. The final scope will depend on the rules SEBI adopts.
Can a company change its monitoring agency during a compliance dispute?
Under the proposal, a company would not be permitted to terminate its existing monitoring agency agreement or appoint a new agency until the non-cooperation is rectified and pending reports are submitted.
What is the deadline for public comments?
SEBI has invited comments on the consultation paper until November 3, 2026.
Are the proposed rules already in force?
No. They are recommendations in a consultation paper. They should not be treated as final requirements until SEBI formally adopts the relevant changes.
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