Disparity gazes out in reporting utilisation

-Format indicates mandatory reporting by all listed entities

Pammy Jaiswal | corplaw@vinodkothari.com


Listed entities raise funds by way of public issue, rights issue, preferential issue and qualified institutional placement of specified securities or by way of public issue or private placement of debt securities. In each of the case, there is an offer document wherein objects of the issue are required to be specified.  There may be a categorised allocation that may be stated in the offer document with respect to objects of the issue. It is likely that a company may either end up using certain amounts for objects not stated in the offer document or beyond category wise limit specified. Utilisation of proceeds is monitored by the Audit Committee and also by the monitoring agency appointed in terms of SEBI ICDR Regulations, where required.

Reg. 32 (2) as well as Reg. 52 (7) of the SEBI Listing Regulations requires the listed entities to report the deviation and material deviation, respectively, in utilisation of the proceeds raised through corporate actions specified above.  Under Reg 32, the statement of deviation is required to be submitted on a quarterly basis; while Reg. 52 (7) mandates submission of along with half yearly financial results.

While the reporting requirement was there under clause 43A of the Equity Listing Agreement, there was no format for such reporting till December, 2019.

The format of the reporting was issued by SEBI under Reg. 32 (2) on 24th December, 2019[1] and thereafter under Reg. 52 (7) on 17th January, 2020[2]. This article highlights the deviation in the provisions and format and the practical issue faced by listed entities.

Contradiction in the provisions

Relevant extracts of Reg. 32 (applicable to companies with specified securities listed):

“(1) The listed entity shall submit to the stock exchange the following statement(s) on a quarterly basis for public issue, rights issue, preferential issue etc. ,-

(a) indicating deviations, if any, in the use of proceeds from the objects stated in the offer document or explanatory statement to the notice for the general meeting, as applicable;

(b) indicating category wise variation (capital expenditure, sales and marketing, working capital etc.) between projected utilisation of funds made by it in its offer document or explanatory statement to the notice for the general meeting, as applicable and the actual utilisation of funds.


Relevant extracts from Reg. 52 (applicable to companies with debt securities or NCRPS[3] listed):

“ (7) The listed entity shall submit to the stock exchange on a half yearly basis along with the half yearly financial results, a statement indicating material deviations, if any, in the use of proceeds of issue of non-convertible debt securities and non-convertible redeemable preference shares from the objects stated in the offer document.”

Chapter VI of the Listing Regulations is applicable on entities which have listed their specified securities as well as NCDs or NCRPSs or both.

Relevant extracts from Reg. 63 (2) (applicable to companies having specified securities and either debt securities or NCRPS[4] or both listed):

(2) The listed entity described in sub-regulation (1) shall additionally comply with the following regulations in Chapter V:

(a)  xxx

(b) xxx

(c) regulation 52(3), (4), (5) and (6);”

As evident above, Reg 52 (7) is not applicable to equity listed entities as it is required to comply with Reg, 32.

Disparity requiring clarification from SEBI 
1. Reporting of deviation in utilisation of proceeds in relation to debt securities/ NCRPS by equity listed entities

Reg. 52(7) is not applicable to companies that have listed i.e., specified securities as well as NCDs or NCRPs or both. Further, Reg, 32 only covers issuances relating to specified securities i.e. public issue, rights issue, preferential issue, QIP etc.

Pursuant to the aforesaid provisions, an equity listed entity is not required to submit details of deviation in utilisation of proceeds arising out of public issue or private placement of debt securities or NCRPS.

2. Requirement of NIL reporting

Reg 32 as well as Reg. 52(7) mandates reporting if there is any deviation. Requirement to submit a NIL report every quarter or half year respectively has not been expressly provided.

The format, on the contrary, provides as under:

Is there a Deviation / Variation in use of funds raised?                 Yes / No

While SEBI Circular does not provide any clear guidance on the said issue, ‘Guidance and FAQ on Regulation 32 of SEBI LODR, 2015 – Statement of deviation(s) or variation(s) issued by NSE states the following:

Since the Regulation only mentions about Statement of Deviation or Variation not about utilisation, is it mandatory for the Companies to give utilisation if there is no deviation or variation?

Reply: Companies need to give statement of utilisation as Regulation 32 (2) states that “The statement(s) specified in sub-regulation (1), shall be continued to be given till such time the issue proceeds have been fully utilised or the purpose for which these proceeds were raised has been achieved”. If companies do not give utilisation Exchange and Investors won’t know when the fund are fully utilised or the purpose for which these proceeds were raised has been achieved.”

3. Object of the issue

If disclosure under Reg. 32 as well as Reg. 52 gets triggered reporting only when there is a deviation or variation in the use of the proceeds from the objects mentioned in the offer document, it is important to clarify what events would amount to deviation.

One must understand that while the law uses the term objects of the issue, a company can raise funds for both general as well as specific purpose. For companies engaged in financing activities, the raising of funds is normally for general corporate purpose or working capital purpose unlike other classes of companies where the object for raising funds is specific.

Referring to the information memorandum of some of the NBFCs issuing debt securities, we find that the objects of the issue are generic in nature as follows:

  • Shriram Transport Finance Company Limited[5]

The Proceeds of the issue will be utilized for onlending to grow the asset book, financing of commercial vehicles.

  • Tata Capital Financial Services Limited[6]

For the purpose of onward lending, financing, and for repayment /prepayment of interest and principal of existing borrowings of TCFS.

General Corporate Purposes*

*The Net Proceeds will be first utilized towards the Objects mentioned above. The balance is proposed to be utilized for general corporate purposes, subject to such utilization not exceeding 25% of the amount raised in the Issue, in compliance with the SEBI Debt Regulations.

  • Fullerton India Credit Capital Limited[7]

The issuer shall use the proceeds from the issue  of the Debentures to finance business growth and general business purpose.

Further, some NBFCs and banking companies as mentioned below, have provided the following objects in their placement documents/ information memorandum:

  • L&T Finance Holdings Limited[8]

Subject to compliance with Applicable Laws and regulations, the Company intends to use the proceeds for redemption of preference shares, and funding the operations of the Company, including but not limited to, repayment of loans of the Company or to invest in its Subsidiaries in the form of Tier I and Tier II capital to enhance their capital adequacy.

  • HDFC Bank Limited[9]

Subject to compliance with applicable laws and regulations, we intend to use the Net Proceeds of the Issue, together with the proceeds of the ADR Offering and the Preferential Allotment, to strengthen our capital structure and ensuring adequate capital to support growth and expansion, including enhancing our solvency and capital adequacy ratio.

Whereas an infrastructure company like National Highways Authority of India Limited[10] provides a specific object in its offer document:

To part finance various projects being implemented by NHAI under the NHDP/Bharatmala Pariyojana and other national highway projects as approved by the Government of India.

When do we say amount is fully utilised?

In case of amounts raised for general purpose:

  • For NBFCs, the funds are raised to be deployed immediately either for refilling the working capital or direct investment or lending activities. Accordingly, one time intimation should suffice. The amount is said to be utilised for general purpose the moment the amount is transferred from separate bank account (opened under Section 42) to the regular bank account.
  • For other companies, where the funds are raised for a specific project or activity, then the reporting has to be made till the proceeds are fully utilised as per the specific object.

4. Review by the audit committee

The requirement of reporting under Reg. 32 is on a quarterly basis which means for the first three quarters, within 45 days from the end of the quarter and for the last quarter, within a period of 60 days from the end of the said last quarter.

However, the requirement of reporting under Reg. 52 is on a half yearly basis. The time period is 45 days from the half year end.

In both the cases, the audit committee has to review the said report and provide its comments, if any.

Disparity requiring clarification from SEBI

In view of aforesaid guidance from NSE, if ‘NIL’ reporting is mandatory, whether the ‘Nil’ report is also required to be placed before Audit Committee or the Board, as the case may be, and thereafter submitted to Stock Exchanges?

5. Timelines for submission under COVID situation

Normally, the companies are required to submit the certificate under Reg. 32 (2) within 45 days from the end of the quarter (for the first three quarters) and within 60 days from the end of the last quarter.  However, the time period allowed under Reg. 52 (7) is 45 days from the end of the half-year.

While SEBI has relaxed the timelines for submission of various returns/ intimations/ certificates and financial statements, however, the specific relaxation under Reg. 32 (2) as well as Reg. 52 (7) is still awaited.

In our view, considering the current situation, getting the comments of the audit committee within 45 days is not required in such cases and the same can be reviewed within the a period of 60 days or such extended time period as permitted by SEBI. Hence, there is no question for calling the meeting within such earlier time frame. Also, since this matter requires due discussion between the audit committee members, a circular resolution is surely not suggested.

6. Cases in which the monitoring agency has been appointed under ICDR

SEBI ICDR Regulations provide for appointment of a monitoring agency by the issuer in case the issue size exceeds INR 100 cr.

The monitoring agency is required to submit its report to the issuer in the specified format on a quarterly basis, till at least ninety five per cent. of the proceeds of the issue, excluding the proceeds raised for general corporate purposes, have been utilised.

Further, the format issued by SEBI under Reg. 32 also requires the issuer to mention about such monitoring agency along with its report/ comments.

Monitoring agencies have no relevance for bond issuances, therefore, the format under Reg. 52(7) does not require reporting on the same.


Pending clarification, in our view, a ‘NIL’ report may be filed by the companies. Further, as discussed above, SEBI should clarify on the applicability position for companies having both the specified securities and NCDs/ NCRPs or both listed.

Also, in view of the current pandemic surrounded situation, a clarification with respect to the timelines for reporting should also be given.

[1] SEBI Circular dated 24th December, 2019

[2] SEBI Circular dated 17th January, 2020

[3] Non Convertible Redeemable Preference Shares

[4] Non Convertible Redeemable Preference Shares

[5] https://www.bseindia.com/downloads/ipo/20204518228STFC%20IM%2003042020.pdf


[7] https://drupalbucketficc.s3.amazonaws.com/sites/default/files/2019-08/Signed-IM-Series-81.pdf

[8] https://www.ltfs.com/content/dam/lnt-financial-services/home-page/investors/documents/announcement/2019/Information%20Memorandum%20for%20issue%20of%20up%20to%20195,00,000%20NCRPS.pdf

[9] https://v1.hdfcbank.com/htdocs/common/pdf/Preliminary_Placement_Document2018.pdf

[10] https://www.bseindia.com/downloads/ipo/202045181841NHAI%20IM%2003042020.pdf

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *