SEBI fines Veerkrupa Jewellers MD and IPO banker over escrow lapse

The Enforcement Action

The Securities and Exchange Board of India (SEBI) has imposed monetary penalties totalling Rs 16 lakh on five parties connected with the July 2022 SME initial public offering of Veerkrupa Jewellers Limited (VJL), over the way the offer's escrow proceeds were released. The adjudication order, numbered Order/JS/VC/2025-26/32690-32694 and signed at Mumbai by adjudicating officer Jai Sebastian on 31 August 2026, was passed under Section 15-I of the SEBI Act, 1992, read with Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995.

The order names five noticees. VJL's managing director, Mr Chirag Arvindbhai Shah (PAN BFPPS0557F), was penalised Rs 5 lakh. The offer's lead manager, First Overseas Capital Ltd (FOCL, PAN AAACL4737A), was penalised Rs 5 lakh. Three individuals connected with the lead manager, Ms Mala Soneji (PAN BMKPS5731F), Mr Rushabh Pradeep Shroff (PAN ATZPS8741C) and Mr Satyen Bhupendra Dalal (PAN AACPD0426F), were penalised Rs 1 lakh, Rs 2 lakh and Rs 3 lakh respectively. All five penalties were levied under Section 15HB of the SEBI Act.

At the heart of the matter is a narrow but important question: how the money raised from the public actually left the ring-fenced public-issue account. According to the order, VJL raised Rs 8.10 crore in July 2022 to meet working-capital requirements, and almost the entire net proceeds moved straight out of the escrow account to four gold vendors. The noticees contested the characterisation, arguing the funds were used for the stated object and that no investor suffered loss.

How the Scheme Worked

Per the order, SEBI investigated the utilisation of VJL's IPO proceeds after examining the escrow account statement and information gathered from the company, its vendors, auditor, merchant banker and banker to the issue. It found that immediately upon receipt of the money, VJL remitted Rs 7.95 crore, which the order records as 100 per cent of the net IPO proceeds and 98.15 per cent of the gross proceeds, to four GST-registered gold and bullion vendors: Akshat Gold Private Limited (Rs 3.26 crore, 41 per cent), Karuna Bullion Private Limited (Rs 3.13 crore, 39.37 per cent), Navkar Gold (Rs 1.04 crore, 13.08 per cent) and Satva Gold (Rs 0.52 crore, 6.54 per cent).

The order's central finding is about the mechanism of release, not personal enrichment. Under the Public Issue Account cum Sponsor Bank Agreement (the escrow agreement) signed by VJL, Axis Bank, FOCL and registrar KFin Technologies, funds could be released two ways: through Annexure A2, which the lead manager alone was to use strictly for issue-management, registrar, advisory and other IPO-related intermediary fees; and through Annexure B2, which the company itself was to use, but only after FOCL issued a No Objection Certificate to the banker.

SEBI observed that the transfers to the vendors were instructed on Annexure A2, the form reserved for intermediary fees, and, per the order, were authorised by FOCL "under the garb of fees" of the lead manager, registrar, legal counsel and other intermediaries. The order records that the instruction forms dated 16, 18 and 19 July 2022 were signed by Ms Mala Soneji, then an authorised signatory at FOCL, a fact she and her reporting officer Mr Rushabh Shroff admitted before the investigating authority, and that VJL was not even copied on the payment instructions.

The order also records a documentary gap: FOCL told SEBI that VJL's requests to transfer funds to the third parties were received over WhatsApp on an account with the disappearing-messages feature switched on, so it could not produce dated copies. SEBI treated the failure to follow the prescribed escrow mechanism, and the resulting inability to trace the release of public money, as the core of the default. The proceedings followed a show-cause notice dated 12 March 2026 (a typographical date error was corrected by a supplementary notice dated 18 March 2026) and a personal hearing.

The Law Invoked

The order records violations of several provisions cited in the show-cause notice. Against Mr Chirag Arvindbhai Shah, SEBI invoked Regulation 4(2)(f)(iii)(3) of the LODR Regulations, 2015, which casts a duty on directors to act in the interests of the company and its stakeholders and to exercise due diligence.

Against First Overseas Capital Ltd, the order cites Regulation 271(1) and Regulation 272(1) and (3) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, which govern the responsibilities of the lead manager in an SME issue, together with Regulation 13 read with clause 4 of Schedule III of the SEBI (Merchant Bankers) Regulations, 1992; Regulation 13 read with clauses 21, 26, 27, 29 and 30 of that Schedule; and Regulation 14(1)(e) of the Merchant Bankers Regulations. These prescribe the code of conduct and diligence obligations of a registered merchant banker. The same ICDR and Merchant Bankers provisions, read with Section 27(1) of the SEBI Act on the liability of persons in charge, were invoked against Ms Soneji and Mr Shroff, and the Schedule III clauses against Mr Dalal.

The penalties themselves were imposed under Section 15HB, the SEBI Act's residual penalty provision for defaults where no specific penalty is otherwise prescribed. In fixing the amount, the order refers to the factors in Section 15J of the Act, being disproportionate gain, investor loss and the repetitive nature of the default.

What Happens Next

The order directs the five noticees to pay the penalties within 45 days through SEBI's online payment facility. It states that on failure to pay, recovery proceedings may be initiated under Section 28A of the SEBI Act, which allows attachment and sale of movable and immovable property to realise the amount along with interest.

An adjudication order of this kind is a SEBI finding that is not final for all time. It is appealable to the Securities Appellate Tribunal (SAT), and from there, on a question of law, to the Supreme Court. Until any such appeal is decided, the findings stand as the regulator's conclusions on the record.

This adjudication is a monetary-penalty follow-on to an earlier, separate action. The order notes a SEBI order dated 29 May 2026 in the same VJL matter, under the PFUTP Regulations, in which Mr Shah and Mr Shroff were each penalised Rs 20 lakh and FOCL Rs 30 lakh, with each restrained from the securities market for five years. SEBI cited that and other past defaults by FOCL as an aggravating factor here.

What It Means

For anyone who buys into an SME IPO, the case is a reminder that the escrow, or public-issue, account is a protection built for investors. The rules require money raised from the public to leave that account only through defined, documented instructions, so its use can be traced against the stated objects of the issue. SEBI's grievance here was that this discipline broke down and the lead manager used a fee-payment channel to move nearly all the proceeds out.

Notably, and to keep the record straight, the order does not allege that the proceeds were diverted for any purpose other than the stated object, or that any promoter derived a personal benefit; the noticees argued precisely this, that the entire net amount went to genuine, GST-registered vendors and no shareholder lost money. What SEBI found was a failure to discharge statutory obligations relating to the handling and release of public-issue proceeds, and a lapse in due diligence and governance.

The practical takeaway is verification. Any investor can check whether a merchant banker is SEBI-registered and whether it has a record of regulatory action through SEBI's intermediary and enforcement-order databases on www.sebi.gov.in, and can read a listed company's mandatory statement of deviation in the use of issue proceeds, which VJL itself filed for the quarter ended December 2022. These are the documents that let ordinary shareholders see where their money went.

FAQ

What exactly did SEBI order?

SEBI's adjudicating officer imposed monetary penalties totalling Rs 16 lakh on five parties connected with Veerkrupa Jewellers Limited's 2022 SME IPO: Rs 5 lakh each on managing director Chirag Arvindbhai Shah and lead manager First Overseas Capital Ltd, and Rs 1 lakh, Rs 2 lakh and Rs 3 lakh on three individuals linked to the lead manager. The penalties were levied under Section 15HB of the SEBI Act.

Did SEBI say the IPO money was stolen?

No. The order expressly records that it was not alleged the proceeds were diverted for any purpose other than the stated object of the issue, nor that any promoter gained personally. SEBI's finding is that the funds left the escrow account through the wrong, fee-reserved instruction channel, breaching the escrow agreement and the diligence obligations of the parties involved.

Are these findings final, or can they be appealed?

A SEBI adjudication order is appealable. Any aggrieved party may approach the Securities Appellate Tribunal (SAT), and thereafter the Supreme Court on a question of law. Until an appeal is decided, the order stands as SEBI's finding, and the penalties are payable within 45 days, failing which recovery may follow under Section 28A of the SEBI Act.

How can I check whether a merchant banker or IPO is regulated?

SEBI maintains public databases of registered intermediaries, including merchant bankers, and of its enforcement orders, on www.sebi.gov.in. Before applying to an SME IPO, investors can confirm the lead manager's registration, review the offer document's stated use of proceeds, and later read the company's statement of deviation to see how the money was actually used.

What should Veerkrupa Jewellers shareholders do now?

The order does not direct any refund or restitution and records no finding of loss to shareholders. Existing investors can monitor the company's exchange disclosures, including any statement of deviation and the outcome of any appeal, and can read the full order on the SEBI website.

This report is based on the official SEBI adjudication order dated 31 August 2026 in the matter of Veerkrupa Jewellers Limited, published by SEBI.