SEBI imposed 2 year ban on Droneacharya and promoters over IPO fund misuse

SEBI has imposed a two-year market ban on Droneacharya Aerial Innovations and its promoter-directors Prateek Srivastava and Nikita Srivastava, calling out a web of misstatements, fund diversion and fictitious revenues that misled investors both before and after the company’s IPO. 

The Pune-based drone startup, which listed on the BSE SME platform in December 2022, raised nearly Rs 34 crore through its public issue, but SEBI’s order says the company used a large part of those funds in ways completely at odds with what it disclosed in its prospectus.

Droneacharya had earmarked Rs 27.98 crore from its IPO for purchasing drones and accessories. However, SEBI found that the company spent only Rs 70 lakh on drones, while over Rs 27 crore was diverted through questionable purchases of software and computer items whose quotations were never disclosed in the IPO document.

Several invoices were inflated, inconsistent with market pricing or raised by entities not actually engaged in the business of software development, the regulator noted. The watchdog concluded that the company and its promoters “mis-utilised, siphoned and misrepresented” the use of IPO proceeds.

The regulator also unearthed inflated revenues in FY24. Droneacharya booked Rs 12.35 crore of income from Triconix and IRed, even though no services were rendered and no goods were delivered. Without this fictitious revenue, amounting to 35% of annual sales, the company would have reported a pre-tax loss instead of an Rs 8.44 crore profit. SEBI said the promoters knowingly misrepresented the company’s financial performance to create a false impression of growth.

Pre-IPO fundraising also came under scrutiny. Between February and June 2022, Droneacharya issued over 60,000 optionally convertible preference shares to 199 investors, raising Rs 32.35 crore. SEBI noted that investors, including celebrities, were given verbal assurances that the company would soon list on the stock exchange. Once listed, Droneacharya pushed out a slew of “misleading” operational announcements to maintain interest in the stock. SEBI calculated that 168 pre-IPO investors exited post-listing, booking Rs 89.6 crore in gains, including a 5,800% return for the daughter of Instafin Financial Advisors’ partner.

SEBI also flagged undisclosed related-party transactions, with Droneacharya transferring Rs 10.6 crore to Awyam Synergies, a company fully owned by the promoters, without reporting this in its annual filings or IPO documents. The statutory auditor, compliance officers and merchant banker were also pulled up for aiding, overlooking or failing to detect these breaches.

The regulator’s action marks one of the most severe crackdowns in the SME market in recent months, signalling tightened oversight as startup listings continue to expand across the exchange.