SEBI Monitoring Agency Consultation Paper 2026: Mandatory Monitoring Agency for Every Issue, Direct Reporting to Exchanges and Promoter Demat Freeze Proposed

Quick Summary

• What is new: SEBI’s consultation paper dated 13 October 2026 puts out for comment a Working Group’s recommendations on how listed companies’ use of issue proceeds is monitored and disclosed under the LODR Regulations, 2015 and the ICDR Regulations, 2018. These are proposals only. Comments are due by 3 November 2026.
• Monitoring agency for every issue: the paper proposes a mandatory monitoring agency for all IPOs (Main Board and SME), FPOs, preferential issues and QIPs, irrespective of issue size (excluding offer for sale). Today the trigger is an issue size above Rs 100 crore, or above Rs 50 crore for an SME IPO.
• Direct reporting: the monitoring agency would file its report directly with the stock exchanges within 45 days of the quarter end, with a “Statement of non-cooperation” where the company does not co-operate.
• Penalty route: Rs 50,000 per instance of non-cooperation, then notices to promoters and, if still unresolved, freezing of promoters’ demat accounts under the exchanges’ SOP.
• SME changes: the statutory auditor’s utilisation certificate under ICDR Regulation 262(5) would go, and the working capital certificate under Regulation 262(6) would move to half-yearly results.

The SEBI monitoring agency consultation paper of October 2026 proposes to change how listed companies report the use of money raised from investors. If adopted, every fresh issue would need a monitoring agency, the agency would report straight to the stock exchanges, and a company that stonewalls its agency would face fines and, in the end, a freeze on its promoters’ demat accounts. Nothing has changed yet: no amendment to the LODR or ICDR Regulations has been notified. Companies planning an SME IPO, a preferential issue or a QIP, and the CAs who certify their fund use, have until 3 November 2026 to comment.

What does the law say today?

Under the ICDR Regulations, 2018 (as amended up to 21 March 2026), the issuer must arrange for a credit rating agency registered with SEBI to monitor the use of issue proceeds in these cases:

Banks, public financial institutions and insurance companies are excluded by the proviso to each of these regulations. The agency reports to the issuer every quarter in the Schedule XI format until 100 per cent of the proceeds are used. The board of directors and the management comment on its findings, and the issuer uploads the report on its website and files it with the stock exchanges within 45 days of the quarter end.

For SME issuers that do not need an agency, Regulation 262(5) requires a statutory auditor’s certificate on the use of the public issue money (excluding offer for sale), filed with the quarterly financial results until the money is fully used. Regulation 262(6) requires a separate auditor’s certificate where working capital is an object and more than Rs 5 crore is raised for it.

On the LODR side, Regulation 32 requires a quarterly statement of deviations and variations in the use of proceeds (half-yearly for SME listed entities, under Regulation 32(8)). It is reviewed by the audit committee before it is filed. Regulation 32(7A) adds a yearly disclosure in the annual report of funds raised through a preferential allotment or QIP.

What does the SEBI consultation paper propose?

1. A monitoring agency for every issue, irrespective of size

The Working Group recommends removing the issue-size threshold, so that a monitoring agency becomes mandatory for IPOs on the Main Board and SME platform, FPOs, preferential issues and QIPs, “irrespective of the size of the issue (excluding the size of offer for sale by selling shareholders)” (paper, para 8.6; report, para 5.3). With an agency in every case, the report proposes:

• deleting the SME auditor’s certificate in Regulation 262(5) (para 8.9; report, para 8.3);
• applying Regulation 32 only to entities exempt from appointing an agency, such as banks, public financial institutions and insurance companies, through a new Regulation 32(9) (report, para 12.3); and
• omitting Regulation 32(7A) and replacing the annual report item with a web link to the agency’s report or the Regulation 32 statement (report, para 11.3).

2. The agency files directly with the stock exchanges

The agency would submit its report directly to the stock exchanges within 45 days from the end of the quarter, and the company would no longer file it (report, para 1.3.1). For the quarter ending 31 March (the half year ending 31 March for SME entities), the Working Group recommends 60 days, in line with the results timeline under Regulation 33 (report, para 1.4).

The audit committee would review and comment on the agency’s draft report. The company would then send the draft back to the agency and place it before the board for information, under a new Regulation 32A (report, para 4.2.2). SEBI’s additional proposal omits the words “on a quarterly basis” from ICDR Regulations 41(2), 82(2), 137(2), 162A(2), 173A(2) and 262(2), so that reporting timelines sit only in the LODR Regulations (paper, Table 1).

3. Statement of non-cooperation

If the company does not co-operate, the agency would file on the “best available information” with a Statement of non-cooperation (paper, para 8.2). The Working Group report lists what the statement may contain:

• the specific instances of non-cooperation;
• a declaration that the findings rest on the best available information because of the non-cooperation;
• an explicit flag of the potential risk of diversion of issue proceeds; and
• advice to investors to exercise due diligence and caution (report, para 1.3.2).

SEBI’s additional proposals in Table 1 of the paper add four points:

• non-payment of the agency’s fee is not a ground for reporting non-cooperation, and agencies may instead agree to take the full fee in advance, refunding a proportionate amount if the agreement ends before full utilisation;
• once the company rectifies, the agency files a complete report within 15 days of receiving complete information, stating that the non-cooperation has been rectified;
• stock exchanges display the report and any statement of non-cooperation prominently on their websites; and
• a company with non-cooperation reported against it can neither terminate its agency nor appoint a new one until it rectifies and the existing agency files a complete report.

4. Fines and the promoter demat freeze

Table 1 of the paper summarises the action proposed under Section VII-A of SEBI’s LODR Master Circular:

1. a fine of Rs 50,000 per instance of non-cooperation reported by the agency in a quarter (or half year), with exchanges issuing notices within 30 days of the due date for the agency report;
2. if the agency does not file a complete report stating rectification, or the fine is not paid within 15 days of the notice, notices to the promoters; and
3. 10 days after the notice to promoters, if the position is still not rectified or the fine is unpaid, the exchanges intimate the depositories to begin freezing the promoters’ demat accounts, as per the SOP.

5. What “gross issue proceeds” covers

The Working Group would clarify, through a circular, that the agency monitors 100 per cent of gross issue proceeds (other than offer for sale), including:

• pre-IPO proceeds used for the stated objects;
• proceeds placed with scheduled commercial banks;
• issue expenses borne by the company; and
• the end use by an investee where investment in another entity is an object of the issue (report, para 6.2).

6. A revised report format, moved into the LODR framework

The agency’s report format would move from ICDR Schedule XI to a circular under the LODR Regulations (report, para 7.4(iii)). The revised format adds:

• a field for any other fact for investors and a Yes/No field for non-cooperation;
• a column for the amount actually raised, including pre-IPO proceeds;
• a “Revised estimate” column for delayed objects;
• disclosure of any exit offer to dissenting shareholders; and
• a row for any encumbrance on unutilised funds.

“Deviation” would be replaced by “variation” throughout, in line with Section 27 of the Companies Act, 2013 and ICDR Regulation 59. The Regulation 32 statement would be renamed “Statement of utilization including variation(s), if any”. The Working Group notes this would be filed even where there is no variation (report, para 10.3).

7. SME working capital certificate goes half-yearly

Because SME listed entities file financial results half-yearly under LODR Regulation 33(5), the Regulation 262(6) working capital certificate would be filed with the half-yearly results instead of quarterly results (report, para 9.3).

How would the transition work?

The Working Group proposes transitory provisions in the new Regulation 32A (report, para 13.1):

Who is affected?

• SME IPO issuers raising Rs 50 crore or less, and Main Board issuers, FPOs, preferential issues and QIPs of Rs 100 crore or less: under the proposal they would need a monitoring agency for the first time. The SME IPO framework is also under review in a separate paper, covered in our post on SEBI’s SME IPO consultation paper of October 2026.
• Promoters: the proposed escalation ends with a freeze on their demat accounts if non-cooperation is not rectified.
• Audit committees: they would comment on the agency’s draft report before it goes to the exchanges.
• Statutory auditors of SME companies: the Regulation 262(5) certificate would go, and the Regulation 262(6) certificate would move to half-yearly filings.
• Monitoring agencies: direct filing, the non-cooperation statement and the wider gross-proceeds scope.

What should companies and CAs do now?

1. Keep complying with the current rules. Until SEBI notifies amended regulations, Regulations 41, 82, 137, 162A, 173A and 262 of the ICDR and Regulation 32 of the LODR apply as they stand.
2. Comment by 3 November 2026 through SEBI’s public comments link on the consultation page, or by email to [email protected] with the subject line given in the paper.
3. For an issue in the pipeline, note the first transitory row: an issue already initiated but not funded when the amendments come into force would follow the amended rules from that date.

Sources

• Source: Securities and Exchange Board of India, Consultation Paper “Recommendations of the Working Group for review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Review of framework for monitoring and disclosure of utilization of issue proceeds”, 13 October 2026, sebi.gov.in.
• Source: Securities and Exchange Board of India, Report of the Working Group for review of the SEBI (LODR) Regulations, 2015, Chapter I, sebi.gov.in.
• Source: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended up to 21 March 2026, Regulations 41, 82, 137, 162A, 173A and 262, sebi.gov.in.
• Source: SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended up to 14 July 2026, Regulation 32, sebi.gov.in.

Talk to an expert

Planning an SME IPO, a preferential issue or a QIP and want to understand how the proposed monitoring rules could affect your timeline and costs? Tax Update India can help. Let’s discuss your situation.

Disclaimer: This article is for general information only and reflects the law as on the date of publication. It is not legal or tax advice. Please consult a qualified professional before acting on it.

• Author
• Recent Posts

CA Adityavikram Banka

Founder at A S Banka Advisors Private Limited

The author is Founder of A. S. Banka Advisors Private Limited & Partner at Dhiraj & Dheeraj.

You can reach out to the author on : [email protected]

www.asbanka.com

Latest posts by CA Adityavikram Banka (see all)

• SEBI Monitoring Agency Consultation Paper 2026: Mandatory Monitoring Agency for Every Issue, Direct Reporting to Exchanges and Promoter Demat Freeze Proposed - October 20, 2026
• RBI FERR FAQs October 2026: Which Forex Hedges Attract the 20% Foreign Exchange Risk Reserve and Which Do Not - October 20, 2026
• SEBI SME IPO Consultation Paper 2026: Rs 1,000 Crore Market Cap Test, Rs 3 Crore Profit and One-Share Trading Lot Proposed - October 16, 2026