SEBI fines merchant banker Swaraj Shares Rs 10 lakh over IPO due diligence

The Enforcement Action

The Securities and Exchange Board of India (SEBI) has imposed a monetary penalty of Rs 10 lakh on Swaraj Shares & Securities Private Limited, a SEBI-registered merchant banker (registration no. INM000012980), for due diligence and disclosure lapses across two open offers and two initial public offerings. The penalty was levied under section 15HB of the SEBI Act, 1992, by Adjudicating Officer Jai Sebastian in Adjudication Order No. Order/JS/VC/2026-27/32796, dated 28 October 2026.

The proceedings arose from a SEBI inspection of the merchant banker carried out from 9 to 11 July 2025, covering the period from 1 April 2022 to 31 March 2025. According to the order, SEBI found that the firm failed to disclose a subsisting stock exchange restraint on a target company in its open offer filings, and failed to independently verify working capital projections, underwriting arrangements and financial disclosures in two SME IPO prospectuses. SEBI also held that the firm had not implemented a functioning Structured Digital Database, a record required under the insider trading rules.

The firm must pay the penalty within 45 days of receiving the order. If it does not, the order states that recovery proceedings may begin under section 28A of the SEBI Act, including attachment and sale of property.

In its written reply dated 5 October 2026 and at a personal hearing on 21 October 2026, the firm contested most of the charges. It described several lapses as inadvertent, said it had no intention to mislead, and said it had strengthened its review procedures.

How the Scheme Worked

According to the order, the case concerns how a merchant banker carried out its gatekeeping role, and SEBI did not record any quantified investor loss. SEBI's findings fall into four strands.

The open offers. The first two findings concern open offers for G. D. Trading and Agencies Limited, now known as RRP Semiconductors Limited. According to the order, the target company and a co-promoter entity had been restrained by BSE, via a notice dated 21 August 2017, from accessing the securities market from 23 August 2017 to 22 August 2027. SEBI found that the merchant banker became aware of this restraint in December 2023, but did not mention it in the due diligence certificate it emailed to SEBI on 11 January 2024 for the first open offer. The order holds that this amounted to an untrue statement and the suppression of a material fact. A second open offer followed a share subscription agreement dated 23 April 2024 for 1,01,50,000 preferential shares, worth Rs 12,18,00,000, issued while the restraint was still in force. SEBI found that the firm filed the draft letter of offer on 30 April 2024 without "adequately examining or questioning the validity" of that triggering preferential issue. The order also notes that BSE revoked the listing approval for those preferential shares on 8 April 2025. The company has challenged that revocation before the Securities Appellate Tribunal (SAT), which directed status quo on 2 May 2025, and the matter remains pending.

The Micropro Software Solutions IPO. SEBI found that the firm relied on the issuer's own working capital estimates without independent checks. The prospectus said cash had been left out of the net working capital computation, but the underlying table included it. The order observes that, with cash excluded, the projected need could have been met from internal accruals, which "raised doubt" over whether IPO funds were needed for that purpose at all. Clause 2.1 of the underwriting agreement also referred to 94.98 per cent underwriting, while the prospectus and the firm's undertaking described the issue as 100 per cent underwritten. A registrar agreement addendum also lacked apparent stamp duty.

The Shoora Designs IPO. According to the order, projected working capital more than doubled, from Rs 15.52 crore (actual, 31 March 2023) to Rs 35.06 crore (projected, 31 March 2024), and the projection counted long-term loans and advances as current assets. The prospectus reported a weighted average return on net worth of positive 19.24 per cent, whereas SEBI computed negative 19.24 per cent from the prospectus's own figures and weights.

Insider trading controls. During the inspection, the firm was unable to demonstrate the software it used for its Structured Digital Database. SEBI noted that six of the eight IPOs the firm handled during the inspection period took place before it bought the software in May 2024.

The Law Invoked

The order holds that Swaraj Shares & Securities violated regulations 27(2), (3) and (5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. These require the manager to an open offer to carry out due diligence and to ensure that offer documents are true, fair and adequate. SEBI also found breaches of regulation 13 read with clauses 1, 3, 4, 6, 7 and 20 of Schedule III of the SEBI (Merchant Bankers) Regulations, 1992, the code of conduct requiring integrity, due skill and care, and independent professional judgement.

For the IPOs, the order cites regulation 245(3) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, which makes the lead manager responsible for verifying disclosures in the offer document, and point (e) of the instructions in Part A of Schedule VI read with regulation 245(2)(b), which bars forward-looking statements that cannot be substantiated. The order also refers to regulation 260(1), which requires an IPO to be fully underwritten. On database controls, it cites regulations 3(4), 3(5) and 9A and Schedule C of the SEBI (Prohibition of Insider Trading) Regulations, 2015.

The penalty was imposed under section 15HB of the SEBI Act, the residual provision for contraventions that have no separate penalty, which carries a minimum of Rs 1 lakh and a maximum of Rs 1 crore. The amount was set using the factors in section 15J.

What Happens Next

An adjudication order of this kind can be appealed to the Securities Appellate Tribunal under the SEBI Act, generally within 45 days of receipt. If the firm appeals, the SAT can confirm, reduce or set aside the penalty, and a further appeal on questions of law lies to the Supreme Court.

On quantum, the order records that the material on record does not show any quantifiable gain to the firm, or any quantified loss to investors, from the defaults. On repetition, it notes that a SEBI whole-time member order dated 19 August 2025 had suspended the firm for three months. SAT later modified that order, limiting the suspension to one month and directing the firm not to take on new clients for two months after the suspension ended. Weighing these factors, the Adjudicating Officer described the violations as "serious in nature".

The separate dispute over the RRP Semiconductors listing approval remains before SAT; this order does not decide it.

What It Means

The order is a reminder that a merchant banker is meant to be an independent gatekeeper, not a messenger for the issuer. SEBI's repeated finding in this order is that the firm "merely relied on and forwarded" figures prepared by the company. For small SME IPOs, the lead manager's checks are often the main independent scrutiny an offer document receives.

For ordinary investors, there are a few practical takeaways. Before applying to an SME IPO, read the "Objects of the Issue" and "Basis for Issue Price" sections closely. Check whether the working capital requirement makes sense against the company's past figures, and whether the reported ratios follow from the tables printed next to them. Check the lead manager's track record too: SEBI's list of registered merchant bankers and its enforcement orders page are both public.

In an open offer, any regulatory restraint on the target company matters to a shareholder deciding whether to tender. If a letter of offer is silent on known orders against the company, that is worth raising with the manager to the offer or with SEBI through its SCORES grievance portal.

FAQ

What exactly did SEBI order?

SEBI's Adjudicating Officer imposed a penalty of Rs 10 lakh on Swaraj Shares & Securities Private Limited under section 15HB of the SEBI Act, to be paid within 45 days of the firm receiving the order. The order, dated 28 October 2026, holds that the firm violated provisions of the Takeover, Merchant Bankers, ICDR and Insider Trading Regulations in connection with two open offers, two IPOs and its internal database controls.

Can the order be appealed?

Yes. An order of a SEBI Adjudicating Officer can be appealed to the Securities Appellate Tribunal, generally within 45 days. The tribunal can uphold, modify or set aside the penalty. This is a civil regulatory penalty, not a criminal finding.

Was any charge dropped?

Yes. On a discrepancy in the "Our Business" section of the Shoora Designs prospectus, where the narrative gave revenue as Rs 105.59 lakh but the adjacent table showed Rs 210.59 lakh, the Adjudicating Officer accepted that the error was inadvertent and understated rather than inflated the figure, and dropped that allegation.

How can I check whether a merchant banker or intermediary is registered?

SEBI publishes lists of registered intermediaries, including merchant bankers, on its website under the intermediaries section, and you can search orders against any entity on SEBI's enforcement pages. The registration number of the lead manager is printed on the cover page of every offer document.

This report is based on the official SEBI adjudication order dated 28 October 2026 in the matter of Swaraj Shares & Securities Private Limited, published on SEBI's enforcement orders page. The full order runs to 51 pages and is available as a PDF from SEBI.