Regulation 32 of SEBI LODR

Regulation 32 of the SEBI LODR states that when a listed entity raises funds through a public, right, or preferential issue, Qualified Institutions Placement (QIP), and the proceeds from such issue are used for a purpose other than what is stated in the offer document, or for a purpose other than what is stated in the explanatory statement to the notice issued for calling the General meeting for taking shareholders’ approval, (Deviation(s)

OR if there is any difference in the category-wise allocation of such revenues (Capital Expenditure, Sales and Marketing, Working Capital) from what is described in the offer document or explanatory statement accompanying the notice issued for summoning the General Meeting, (Variation(s))

The following mandates are also incorporated under Regulation 32 of SEBI LODR:

• Disclosure: Accordingly, the listed entity shall be required to submit a statement of such deviation(s) or variation(s) to the stock exchange on a quarterly basis, along with the declaration of financial results, within 45 days from the end of each quarter / 60 days from the end of the last quarter of the fiscal year, until the proceeds are fully utilized or the purpose has been achieved.

• Role of the audit committee: In addition, prior to submitting the aforementioned statements to the stock exchanges, such Statement of Deviation/ Variation Report shall be placed before the Audit Committee on a quarterly basis for their review, and after such review, the Statement, along with the Audit Committee’s comments, if any, shall be disclosed or submitted to the stock exchange in the prescribed format as per SEBI Circular bearing reference no. CIR/CFD/CMD1/162/2019 dated In addition, any variances should be explained in the Directors’ Report part of the Annual Report.
  Furthermore, the listed entity must prepare an annual statement of funds used for purposes other than those specified in the offer document or explanatory statement to the notice, have it certified by the listed entity’s statutory auditors, and present it to the Audit Committee for review until the entire amount raised through the issue has been fully utilized.

• Role of Monitoring Agency: If the Listed Entity has selected a monitoring agency to oversee the use of proceeds from public or rights offerings, the listed entity must disclose to the stock exchange(s) any comments or reports received from the monitoring agency within 45 days of the end of each quarter. If the listed business has selected a monitoring agency to oversee the use of proceeds from a public offering or rights offering, the monitoring agency’s report must be presented to the Audit Committee on a quarterly basis, as soon as it is received.
  If the business raised funds through Preferential Allotment or Qualified Institutional Placement, the listed entity must disclose the usage of such funds in its Annual Report each year until such funds are entirely utilized. Now the question is when the listed entity is required to appoint a monitoring agency, as per SEBI [ICDR] regulations 2009 amended wide 2017 amendment, where if the issue size exceeds one hundred crore rupees, the issuer shall make arrangements for the use of the issue proceeds to be monitored by a Monitoring Agency [credit rating agency registered with the Board].

• Disclosure Format (PDF & XBRL Mode): Because no format of statement of deviation/ variation has been defined since the application of Listing Regulations, i.e. December 2015, all listed companies have been making disclosure under Regulation 32 in their own formats and at random on a quarterly basis. As a result, SEBI has suggested a common format for revealing the statement of deviation/ variation in order to introduce consistency in the manner and frequency of reporting. SEBI has specified the PDF format on Statement of Deviation or Variation for proceeds of a public offering, rights issue, preferential issue, Qualified Institutions Placement (QIP), etc. in its Circular bearing reference no. CIR/CFD/CMD1/162/2019 dated December 24, 2019.
  Furthermore, with immediate effect, the Exchange has introduced the facility of filing Statement of Deviation or Variation in XBRL mode under Regulation 32 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 in order to make disclosure more accurate and efficient. As a result, it has been agreed that all listed companies must make Statement of Deviation or Variation (Regulation 32) filings in XBRL format in addition to PDF filings.
  As a result, listed companies must submit a Statement of Deviation or Variation in PDF mode in addition to the submission of financial results in PDF mode, and a Statement of Deviation or Variation in XBRL mode in addition to the submission of financial results in XBRL mode.

• Penalty for Non-Compliance: Disclosures should be as consistent as possible to avoid misunderstanding. One important point that listed companies should be aware of is that prior to the implementation of SEBI.
  Prior to the publication of this circular, with reference number CIR/CFD/CMD1/162/2019, dated December 24, 2019, there was no set deadline for the declaration of Statements of Deviation or Variation.
  It was very clear that until these funds are fully utilized or the purpose for which these proceeds were raised has been attained, listed entities must disclose to the Stock Exchange along with the declaration of financial results on a quarterly basis (within 45 days of the end of each quarter / 60 days from the end of the last quarter of the financial year).
  SEBI has specified a uniform structure for imposing fines as a first resort for non-compliance with certain Listing Regulations, including regulation 32 of the SEBI (LODR) Regulations, 2015, freezing of the promoter’s and promoter group’s entire shareholding, and Standard Operating Procedure for suspension of trading if the non-compliance is continuing and/or repetitive. According to the circular, any delay in making the disclosure under Regulation 32(1) of the SEBI (LODR) Regulation 2015 would result in a punishment of Rs. 1000/- per day till the delay is corrected.