Govt to scrutinise IPOs over Rs 50 cr

In a bid to protect investors amid a rush for public offers by corporate India, the government has decided to scrutinise all the IPOs that garnered more than Rs 50 crore (Rs 500 million) in the last three years to ascertain that funds were utilised for declared purposes.

As part of this drive, the Ministry of Company Affairs has directed the Registrar of Companies to "keep under watch" the IPOs that hit the market since 2004, garnering an estimated Rs 25,000 crore (Rs 250 billion).

During this period, Indian market was inundated by a number of mega and medium-sized public offers including from Reliance Petroleum, TCS, Patni Computers, Biocon, NDTV, IndiaBulls, Jet Airways and Suzlon.

The move coincides with market regulator SEBI's stern action against two depositories NSDL and CDSL and eight depository participants such as Karvy Stock Broking among other market players in the IPO scam.

Earlier, the ministry, headed by Prem Chand Gupta, had cracked a whip against vanishing companies as part of their drive to safeguard interest of investors and had booked many of the fly-by-night operators.

The government would keep a watch on the utilisation of funds raised from IPOs of Rs 50 crore and above, a ministry source said.

"The IPOs that hit the markets in the last three years would be under watch to ensure that the funds raised have been utilised as per the initially announced plans," the source said.

As per the plan, the RoCs, where the companies file their annual returns, would monitor the fund utilisation by them. Asked whether the government had identified a particular sector or a group of companies for the monitoring, the source said: "No such categorisation can be made as there are no specific complaints.

"It will be a part of the standard practice," the source said, adding that most of the annual returns are filed in the October-December period.

The markets, which have touched historic highs, have seen a flurry of IPOs as well as follow-on public offers as companies seek to raise capital to cash on the prevailing upbeat sentiments.

This year alone, around 40 companies have come out with IPOs to raise money from the market. The Company Affairs Ministry had launched a massive operation against vanishing companies in 2004, apart from strengthening efforts against serious corporate offenders through the Serious Fraud Investigation Office.

Many of the offenders have been put behind bars while some of the vanishing companies have filed their returns to comply with the guidelines.