The Securities and Exchange Board of India (SEBI) Chairman, Tuhin Kanta Pandey, outlined steps to strengthen oversight of listed entities and capital raising, adding that some listed companies with little or no economic activity function like shell companies and "add risk to the market."

During a panel discussion at NDTV Profit here, Pandey said the capital markets regulator is preparing a framework under which third-party monitoring agencies would verify whether funds raised through initial public offerings are being used for the purposes disclosed in offer documents.

Pandey said "public capital brings public responsibility" and stressed that companies must remain accountable for the manner of utilisation of investors' funds. He said SEBI is also reviewing the framework governing debenture trustees, with an emphasis on stronger oversight.

His remarks came after SEBI earlier this month floated a consultation paper aimed at strengthening monitoring of IPO proceeds. The proposal suggested making monitoring agencies mandatory for all public issues regardless of size, excluding the offer-for-sale component.

Stock exchanges will be empowered to fine a company Rs 50,000 for each reported instance of non-cooperation with a monitoring agency. Continued non-compliance could lead to depositories freezing promoters' demat accounts.

Companies reported for non-cooperation cannot terminate the agency's agreement or appoint a replacement until the default is cleared. The proposals are still in the open consultation phase and have not been made into rules.

IPO proceeds, currently, must be monitored by a SEBI-registered credit rating agency if the fresh issue size exceeds Rs 100 crore.

SEBI also considers revamping the framework for main-board IPOs and follow-on public offers, alongside a review of listing and disclosure obligations. The SME IPO framework and the Innovators Growth Platform, particularly for new-age companies, are also under review to improve access to public capital for growing businesses.

“SEBI is also piloting an AI-based tool to monitor disclosures by debenture trustees, stock exchanges, depositories and credit rating agencies. The tool is meant to flag early signs of corporate debt defaults,” the report cited Pandey.