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In order to check the misuse of funds raised by companies via public offerings, the government has directed the Registrar of Companies (RoCs) to look for diversion of IPO funds while inspecting their annual accounts.
In a directive to RoCs and Regional Directors, the Corporate Affairs Ministry has asked them last week to check for fund diversions by companies from the objectives stated in the prospectus and related party transactions, and carry out inspections soon after the filing of annual accounts.
“It was often noticed that inspections carried out by RoCs on end use of IPO money needed a relook by the MCA. Now, we have given them a comprehensive check list of the areas they need to look into while carrying out inspections,” an official source told PTI.
Section 234 (1) of the Companies Act 1956 empowers the RoCs and RDs to inspect books of companies.
In an internal circular, the RoCs have also been told to carry out details inspection of the amount collected from the IPO proceeds, with a break up of face value, premium, name of the bank/branch and the account where the amount is deposited, along with confirmation from banks that the amount is available with them.
Besides, the RoCs will look into the break—up of the allotment, with the number of shares issued to Qualified Institutional Buyers, Promoters and public, details of the amount refunded and balance with the banks.
“In case of deviation from object,” the note said, RoCs will have to study the “date of resolution of issue, date of filing of the above with the RoC, number of shares and their face values, reason for deviation“.
RoCs have also been asked to collect details of the investment of the amount collected -- investment on objects stated in the prospectus and money routed in subsidiaries and group firms.
Currently, the MCA, through technical scrutiny of balance sheets, keeps a check if companies are using IPO proceedings as promised in the prospectus. The Ministry has also been asking Sebi to devise ways of monitoring the end use of money collected through IPOs to keep a check on the vanishing companies, especially after the IPO scam of the early 2000.
As per the Sebi data, Indian companies, both public and private, raked in about Rs 59,523 crore from the primary market in 2010. The total mop-up from IPOs is expected to touch Rs 90,000 crore this year.
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