True Colors Limited Faces Compliance Issue Over IPO Proceeds Placement in Q3FY26

True Colors Limited's quarterly monitoring report for the period ended December 31, 2025, has revealed a regulatory compliance issue concerning the placement of IPO proceeds. The textile company, which raised Rs 108.86 crore through its Initial Public Offer in September 2025, faced scrutiny from its monitoring agency Crisil Ratings Limited over the interim deployment of funds. Compliance Violation Identified The monitoring agency flagged that True Colors Limited had parked Rs 20 crore of unutilized IPO proceeds in a fixed deposit with Prime Co-Operative Bank Ltd, which is not included in the Second Schedule of the Reserve Bank of India Act, 1934. This placement violated the interim use of proceeds guidelines as specified in the company's offer document and SEBI ICDR regulations. Parameter Details Violation Amount Rs 20 crore Bank Prime Co-Operative Bank Ltd Interest Rate 8.10% Maturity Date April 16, 2026 Regulatory Issue Non-scheduled cooperative bank IPO Proceeds Utilization Status Out of the net proceeds of Rs 100.70 crore, True Colors Limited has utilized Rs 73.70 crore during the quarter across its stated objectives. The utilization breakdown shows significant progress in debt repayment and working capital funding. Object Allocated Amount (Rs crore) Utilized Amount (Rs crore) Unutilized Amount (Rs crore) Working Capital Requirements 48.90 28.90 20.00 Debt Repayment/Prepayment 41.83 41.83 Nil General Corporate Purposes 9.97 2.97 7.00 Total 100.70 73.70 27.00 The company completely utilized the allocated funds for debt repayment and prepayment of borrowings, while partial utilization occurred in working capital funding and general corporate purposes. Deployment of Unutilized Funds As of December 31, 2025, the total unutilized amount of Rs 27.00 crore was deployed across three fixed deposits with varying interest rates and maturity periods. Investment Type Amount (Rs crore) Interest Rate Maturity Date Prime Co-Operative Bank FD 20.00 8.10% April 16, 2026 HDFC Bank FD 6.00 5.75% May 4, 2026 Prime Co-Operative Bank FD 1.00 5.50% May 4, 2026 Company's Response and Corrective Action The Board of Directors clarified that the Rs 20 crore placement was made purely on commercial considerations due to the comparatively higher interest rate offered by the cooperative bank. The company emphasized that the funds remained fully traceable and under company control, with no diversion or utilization for purposes other than stated objectives. The company stated the placement was made in good faith without malafide intent, under unawareness of the specific regulatory restriction. Upon being informed of the compliance requirement, True Colors Limited immediately withdrew the entire amount, and as of February 13, 2026, the Rs 20 crore was credited back to the designated monitoring account. Monitoring Agency Assessment Crisil Ratings Limited, serving as the monitoring agency under SEBI ICDR Regulations, confirmed that proceeds towards the objects of the offer were utilized as per disclosures in the prospectus dated September 26, 2025. However, the agency specifically noted the deviation regarding the cooperative bank placement. The monitoring report indicated no other major deviations from earlier reports and confirmed that utilization aligned with the offer document requirements, except for the interim placement issue. The company has strengthened internal compliance controls to ensure strict adherence to applicable SEBI and monitoring framework requirements going forward. True Colors Limited, a player in the digital textile printing industry, has announced a significant strategic move that could reshape its business landscape. The company's Board of Directors has given the green light to a scheme of amalgamation, approving the merger of Inkia Inks Private Limited, a specialized ink manufacturer, into True Colors Limited. Key Details of the Merger Aspect Details Merger Type Amalgamation (merger by absorption) Companies Involved True Colors Limited (Transferee), Inkia Inks Private Limited (Transferor) Share Swap Ratio 83:100 Regulatory Approvals Required BSE Limited, National Company Law Tribunal, Shareholders and Creditors Strategic Rationale The merger aims to strengthen True Colors Limited's core business through backward integration in the digital textile printing ecosystem. This strategic move is expected to yield several benefits: Cost Optimization: By bringing ink manufacturing in-house, True Colors could potentially reduce its dependence on external suppliers and optimize production costs. Supply Chain Control: The merger may give True Colors greater control over its supply chain, particularly in the crucial area of ink production. Enhanced Product Portfolio: With access to Inkia Inks' specialized ink manufacturing capabilities, True Colors could potentially expand its product offerings and cater to a wider range of customer needs. Synergies: The combined entity is expected to benefit from operational synergies, potentially leading to improved efficiency and competitiveness in the market. Share Swap Details Under the terms of the merger, shareholders of Inkia Inks Private Limited will receive 83 fully paid-up equity shares of Rs. 10 each in True Colors Limited for every 100 fully paid equity shares of Rs. 10 each held in Inkia Inks Private Limited. Looking Ahead While the merger still requires various regulatory approvals, including those from the BSE Limited, National Company Law Tribunal, and the shareholders and creditors of both companies, it represents a significant step in True Colors Limited's growth strategy. The success of this merger could potentially position True Colors as a more vertically integrated player in the digital textile printing market. Investors and market watchers will be keen to observe how this strategic move unfolds and its impact on True Colors Limited's market position and financial performance in the coming quarters. We’re building Scanx - to help you express your trading & investing idea, to help you analyse the markets better. Stock Markets are the true indicator of the growth of any country's economy. We are bullish on India, we are bullish on India's prospects to be one of largest economies of the world. 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