SEBI Uncovers ₹100 Crore Siphoning of IPO Funds in FOCL-Managed SME Issues
The Securities and Exchange Board of India (SEBI) has uncovered evidence of misuse and diversion of up to ₹100 crore in initial public offering (IPO) funds across nearly 20 small and medium enterprise (SME) listings managed by First Overseas Capital Ltd (FOCL), according to people familiar with the matter.
The market regulator had barred FOCL last month for procedural lapses, but the latest findings suggest a deeper pattern of fund siphoning involving promoters, vendors, and related entities.
Emerging Pattern of Diversion
Investigators have identified repeated instances of fund diversion across several SME IPOs, including Sameera Agro and Infra, Amanaya Ventures, QMS Medical Allied Services, Italian Edibles, Graphisads, Electro Force (India), Shree OSFM E-Mobility, and Varanium Cloud, among others.
“SEBI has found evidence of a few crores being siphoned off from some SME companies’ IPO proceeds by transferring funds to entities linked to promoters or to vendors with no genuine operations,”
The regulator’s forensic review of bank statements, vendor records, and escrow-account flows revealed that proceeds earmarked for working capital or business expansion were in many cases diverted within weeks of listing.
Collectively, these 20 companies raised around ₹560 crore through public issues over the past three years. The total misused amount could rise further as investigations progress.
FOCL’s Role and Ongoing Probe
While SEBI’s earlier final order against FOCL cited procedural breaches — including net-worth shortfall, underwriting violations, and disclosure lapses — the ongoing probe is independent and focuses on potential fund misuse in IPOs handled by the merchant banker.
“The siphoning aspect is part of a broader, ongoing exercise that could involve both the merchant banker and company management,”
Modus Operandi: Inflated Payments and Related Entities
In earlier interim orders against two SMEs, SEBI had detailed how IPO proceeds were misused through inflated vendor payments and related-party transactions.
For example, in the Nirman Agri Genetics case, about ₹18.89 crore (93% of funds raised) was misappropriated, while in Synoptics Technologies, ₹19 crore was transferred from the escrow account on the eve of listing under the guise of “issue-related expenses.”
Sources added that SEBI is now reviewing whether the same modus operandi was applied in other FOCL-managed issues such as Cell Point (India), On Door Concepts, Ducol Organics & Colours, and Ishan International.
Regulatory Crackdown and Industry Implications
The ongoing investigation underscores SEBI’s tightening grip on SME IPO governance, which has expanded rapidly in recent years amid a flood of small-cap listings.
The regulator’s actions signal a broader effort to restore investor confidence, curb market abuse, and ensure accountability among merchant bankers overseeing SME public issues.
This case could lead to stronger due-diligence requirements and enhanced escrow monitoring for SME listings going forward.
For expert insights into India’s IPO compliance landscape and evolving SEBI oversight mechanisms, read analysis by Ranjit Jha (CEO) — a leading voice on capital market governance and financial transparency.
To explore how investor protection frameworks and forensic audits are reshaping the SME and startup listing ecosystem, connect with Rurash Financials — specialists in capital advisory, risk assessment, and structured financial solutions.