Dronecharya’s IPO under scanner: Sebi strikes company, market promoters, fined Rs 50 lakh

The Securities and Exchange Board of India (Sebi) has barred SME Droneacharya Aerial Innovations (DIAL) and its promoters, Prateek Srivastava and Nikita Srivastava, from entering the securities market for two years after they were found guilty of misusing IPO proceeds, misrepresenting financial statements and embezzling company funds.Sebi has also reined in business consultancy Instafin Financial Advisors, its partner Sandeep Ghate and Micro Infratech Pvt. Ltd. from the markets and impose a total monetary penalty of Rs 75 lakh on the concerned entities.

The fine for the company and its promoters alone was Rs 50 lakh. Shares of Droneacharya Aerial Innovations have been listed on the BSE SME platform since December 23, 2022 and provide training in drone operation, supply and maintenance of drones and management consultancy and training services.

DAIL launched its IPO between December 12, 2022 and December 15, 2022, raising Rs 33.96 crore from D-Street investors.

The order followed a Sebi probe for financial years 2022-23 and 2023-24. The Sebi investigation found that DAIL engaged in deceptive practices orchestrated by its promoter directors, along with Instafin and its partner Ghate, by devising a fraudulent scheme that functioned as a fraud on investors trading in the scrip. The scheme involved the issuance of Optional Convertible Preference Shares (OCPS) through private placements prior to the IPO, with the promise of subsequent listing of DAIL on the stock exchange. Post-listing, DAIL misled the general public through false and misleading company announcements, artificially maintaining share prices so that pre-IPO investors could exit at manipulated prices for a period of time, to the detriment of public investors. The Sebi investigation found that the company inflated its profits and revenues.

Misuse of IPO Proceeds

The 105-page order said that Sebi’s investigation revealed that the company used only Rs 70 lakh of the Rs 27.98 crores earmarked for purchase of drones and related accessories from four suppliers.

As per the Sebi order, the company used Rs 27.28 crore for purposes other than those mentioned in the prospectus.

The company was also found to have made incorrect statements about discrepancies and omissions in its semi-annual reports on the use of IPO funds.

In their defence, the company and its promoters have ‘strongly argued’ that leveling such a serious allegation, where all their actions would be considered part of a fraudulent scheme, would brand the entire IPO and listing process of DAIL itself as fraudulent, which must be rejected outright.

Meanwhile, Sebi has allowed the promoters and other accused to exit/close all open positions in exchange-traded derivatives contracts.

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