SEBI Probes Merchant Banker For Misuse Of SME IPO Funds

The Securities and Exchange Board of India is looking into the workings of First Overseas Capital Ltd. or FOCL, for the misutilisation of IPO funds of small and medium enterprises, as per people in the know.

The SMEs that are under the investigative radar include Veerkrupa Jewellers Ltd., Varanium Cloud, Sameera Agro & Infra Ltd., Electro Force (India) Ltd, and several others, one of the people mentioned above said.

While a detailed inspection order has already been released against FOCL, extended investigation is underway to determine the use of funds from the SMEs that it led in their listing path. Orders in the matter of several such entities will soon be released upon completion of the investigation, NDTV Profit was informed.

The development comes after an order was passed by the markets watchdog on Oct. 3 against the merchant banker, banning it for a period of two years for not complying with net worth requirements.

There is a pattern of such cases being seen by the regulator and a broader examination is underway, sources said. In one such case, the regulator had found discrepancies in the utilisation of IPO funds of Synoptics Technology.

"Issue management fees, underwriting and selling commissions, registrar fees, and other IPO related expenses—Rs 19 Crore—was grossly disproportionate to the Rs 80 lakh disclosed as issue expenses in the RHP, and accounted for more than 54% of the total proceeds raised by Synoptics through the fresh issue of shares (Rs. 35.08 Crore) and 35% of the total issue size (Rs. 54.04 Crore)," as per the regulatory order against Synoptics Technology dated May 6.

The order also made an observation about FOCL, involved in the listing process of Synoptics. It stated that other companies handled by FOCL in their listing process might also come under SEBI's radar.

"FOCL, during the period May 01, 2022 to April 30, 2025, has undertaken IPO assignments for 20 companies which listed on SME segment of BSE and NSE. SEBI shall examine the utilization of funds raised in all these issues to identify whether a similar modus operandi was adopted in any of the other issues managed by FOCL during this period," the order had said.

To put things into perspective, VeerKrupa jewellers raised about Rs 8 crore from the market, Varanium Cloud raised Rs 36.6 crore, Electro Force Ltd raised Rs 80.7 crore and Sameera Agro and Infra raised Rs 62.6 crore from the listing.