The Securities and Exchange Board of India (SEBI) has uncovered evidence suggesting that as much as ₹100 crore from initial public offering (IPO) funds may have been misappropriated in its ongoing investigation into nearly 20 small- and medium-enterprise (SME) issues managed by merchant banker First Overseas Capital (FOCL). This follows the agency’s decision to bar FOCL due to procedural lapses in the previous month.
Investigations have indicated a consistent pattern of diversion of public-issue proceeds among multiple SME listings handled by FOCL. Companies currently under scrutiny include Sameera Agro and Infra, Amanaya Ventures, QMS Medical Allied Services, Italian Edibles, Graphisads, Electro Force (India), Shree OSFM E-Mobility, and Varanium Cloud, according to anonymous sources.
“The investigation is still ongoing, with some cases at preliminary stages. SEBI has identified evidence of several crores being siphoned off from IPO proceeds of certain SME companies, involving transfers to entities linked to promoters or vendors lacking genuine operations,” a source familiar with the matter stated. “Orders regarding these issues are anticipated in the coming months.”
SEBI has carried out a forensic examination of bank statements, vendor records, and escrow-account transactions across multiple SME IPOs managed by FOCL. In some instances, funds that were intended for working capital or business expansion were diverted within weeks of the companies’ listings.
Over the past three years, these 20 companies have collectively raised approximately ₹560 crore through their public offers. The ultimate amount siphoned off may increase as the investigation continues, noted the source.
Last month, SEBI issued a final order against FOCL, centering on procedural breaches such as net-worth deficiencies, underwriting violations, and disclosure failings. The current investigation, as highlighted by sources, is distinct and aims to explore potential misappropriation of IPO proceeds in the issues overseen by FOCL.
The diversion of funds is part of a broader examination that may implicate both the merchant banker and company management. In earlier interim orders against two SMEs, SEBI indicated that offer proceeds were being misused through inflated vendor payments or advances to entities controlled by promoters. In the case involving Nirman Agri Genetics, for instance, it was reported that ₹18.89 crore, accounting for 93 percent of the raised funds, was misused. Similarly, in the case of Synoptics Technologies, nearly ₹19 crore was transferred from the escrow account just before listing, purportedly as issue-related expenses.
SEBI is assessing whether this same modus operandi was employed in other issues facilitated by FOCL, including those of Cell Point (India), On Door Concepts, Ducol Organics & Colours, and Ishan International.
Attempts to reach SEBI, FOCL, and the aforementioned SME companies via email did not receive any responses.
