SEBI Cracks Down On DroneAcharya, Founders Over IPO Fraud, Revenue Inflation

The Securities and Exchange Board of India (SEBI) has fined listed dronetech company DroneAcharya, its founders Prateek and Nikita Srivastava, and several associated advisors to the tune of INR 75 Lakh for alleged fraud, inflated revenues, bad disclosures and misuse of IPO funds. 

The markets regulator imposed a INR 10 Lakh penalty on the company, INR 20 Lakh each on founders, and additional fines of INR 10 Lakh on Instafin Financial Advisors, INR 10 Lakh on advisor Sandeep Ghate, and INR 5 Lakh on Micro Infratech for their roles in alleged scheme.

In its order based on its investigation report, the markets regulator also issued directions restricting DroneAcharya, its promoters, advisors, and intermediaries from buying, selling, or dealing in securities for a period of up to two years.  

The accused have also been directed not to dispose of or encumber any assets, including shareholdings, without SEBI’s permission. 

The company now is required to provide complete bank statements, financial records, and all agreements linked to some of the transactions that SEBI has flagged in its report. 

SEBI’s investigation report was formed after questioning the company’s founders, its investment advisors, auditors and other relevant personnel. The markets regulator has instructed the statutory auditor, merchant banker, and compliance officers to respond to charges of negligence and regulatory violations. 

Detailed replies have been sought from all parties explaining why final directions, including disgorgement, market bans, and further regulatory action, should not be imposed. The regulator emphasised that these measures are necessary to protect investors and prevent any further movement of funds while the investigation continues. 

SEBI company, its promoters Prateek Srivastava and Nikita Srivastava, advisory partners at Instafin Financial Advisors, and other intermediaries shows a “systematic attempt to mislead investors” both before and after DroneAcharya’s December 2022 listing on the BSE SME platform.

It has now asked all the named individuals and entities to explain why further action, including market bans and monetary penalties, should not be taken against them.

SEBI’s Investigation Into DroneAcharya 

While SEBI’s investigation report delves extensively into accusations of misleading corporate announcements  and pre-IPO side deals, the more severe concerns are related to revenue inflation and diversion of IPO proceeds. Here is a summary of some of the allegations raised by SEBI in its order that follows the investigation report: 

Inflated Revenues & Fictitious Sales

Close to 35% of DroneAcharya’s FY24 revenue, INR 12.35 Cr came from just two entities Triconix and IRed, but no actual deliveries of goods or services, and many of the listed customer addresses were either households or unrelated small shops. 

Without these entries, the company would have reported a loss of INR 3.91 Cr instead of a profit of INR 8.44 Cr. SEBI”s investigation report claims that the invalid revenue figure from Triconix and other entities was used to mislead orders to induce investors to buy shares of the company in the public markets. 

As we will see later, the report also alleges that the company colluded with its pre-IPO investors to issue optionally convertible preferential shares, which were converted into equity shares right before the IPO.  

Misuse And Diversion Of IPO Funds

SEBI also claims in its report that the company did not use IPO proceeds in line with its pre-listing disclosures and neither did it disclose any deviation or variation on utilisation of IPO proceeds.

For instance, of the INR 33.96 Cr raised in the IPO by DroneAcharya, INR 27.99 Cr was said to be intended for purchasing drones and accessories. However, SEBI’s investigation claims that only INR 70 Lakh was actually spent on drones, while the remaining INR 27.28 Cr was diverted into fixed deposits and routed through various accounts without proper disclosure. 

In this context, SEBI has flagged related party transactions between DroneAcharya and Awyam Synergies Private Limited (ASPL). 

Both companies share directors and around INR 10.8 Cr was transferred to ASPL by DroneAcharya between June and December 2022, and INR 8.16 Cr was transferred back by ASPL to DroneAcharya from September 2022 to August 2024. These bank transfers were not disclosed as related party transactions. 

Pre-IPO Fundraise Red Flags

Worryingly, SEBI also claims that DroneAcharya’s management colluded with its pre-IPO investors. It says that between February and June 2022, DroneAcharya raised INR 32.35 Cr from nearly 200 pre-IPO investors through optionally convertible preference shares (OCPS). 

According to SEBI, investors were promised a quick listing and high returns, claims that were instrumental in attracting funds. It is also being claimed that DroneAcharya decided to take up an IPO during these pre-IPO placement rounds in which investors were given OCPS. 

These OCPS were converted into equity shares before the IPO. 

SEBI observed that after the IPO in December 2022, DroneAcharya promoters and directors as well as InstaFin Financial Advisors deceived public investors with announcements of ‘non-binding’ or ‘trivial’ agreements to inflate revenue and profits. “They disclosed an invalid revenue figure from Triconix and used misleading orders to induce investors to buy DAIL shares.” 

Per SEBI, Instafin Financial Advisors and its partner, Sandeep Ghate, allegedly played a key role in promoting this investment pitch. Instafin also facilitate the pre-IPO placement rounds for the OCPS. 

“During December 23, 2022 to November 14, 2024, out of the 201 pre-IPO investors, 168 sold a total 74,42,000 shares for a sale value of INR 114.25 Cr and cumulatively gained INR 89.60 Cr,” SEBI’s report states, adding that this represented a gain of approximately 224.66%.

Giving an example, the regulator said that the daughter of advisor Ghate earned a profit of INR 6.1 Cr or a 5803.33% return on her investment. 

Failures By Auditor, Merchant Banker & Compliance Officers

SEBI also says that the company’s auditor Kishan Verma issued clean audit reports despite clear violations in revenue recognition and the misuse of IPO proceeds. 

The merchant banker, Corporate Capital Ventures, is said to have failed to flag the transactions with promoter-owned Awyam Synergies, which should have been disclosed in the IPO documents. 

Additionally, two compliance officers were pulled up for filing incorrect shareholding patterns and for failing to report deviations in the utilisation of IPO funds.

Inc42 has reached out to DroneAcharya for a response on the investigation and the notice. We will update this story if there’s a response from the company. 

Edited by Nikhil Subramaniam

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