SEBI Proposes Freezing Promoters' Demat Accounts Over Failure To Disclose Use Of IPO Funds

The Securities and Exchange Board of India (SEBI) has proposed a graduated enforcement mechanism under which stock exchanges would intimate depositories to initiate the freezing of promoters' demat accounts if listed companies fail to cooperate with agencies monitoring the utilisation of funds raised through securities issues.

Under the proposal, stock exchanges would first issue notices to non-compliant listed companies. If the monitoring agency fails to submit a subsequent complete report confirming rectification of non-cooperation and/or the company fails to pay the prescribed fine within 15 days of the notice, exchanges would issue notices to the company's promoters.

If the non-cooperation status remains unresolved and/or the fine remains unpaid after 10 days from the notice to promoters, the exchanges would intimate depositories to initiate the freezing of promoters' demat accounts under the applicable standard operating procedure (SOP).

The proposal forms part of a consultation paper issued by SEBI on October 13, seeking public comments on recommendations made by a working group reviewing the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The working group has recommended a fine of ₹50,000 for each instance of non-cooperation reported by a monitoring agency in a quarter. SEBI's additional proposal refers to fines for each instance of non-cooperation in a reporting quarter or half-year, as applicable.

Stock exchanges would be required to review compliance and issue notices to non-compliant listed entities within 30 days of the due date for submission of monitoring agency reports.

The consultation paper also proposes empowering monitoring agencies to submit reports directly to stock exchanges when listed companies fail to cooperate. Such reports would be based on the best available information and accompanied by a statement of non-cooperation.

If a company subsequently provides complete information, the monitoring agency would have to submit a complete report to the exchanges within 15 days of receiving the information. The report must explicitly state that the company has rectified its non-cooperation status for the relevant reporting period.

Stock exchanges would also be required to prominently display monitoring agency reports and, where applicable, statements of non-cooperation on their websites for investors' attention.

Separately, the working group has recommended mandatory appointment of monitoring agencies for all securities issuances, irrespective of issue size, excluding the offer-for-sale component.

The consultation paper invites comments from stakeholders until November 3, 2026.