Droneacharya Aerial Innovations Faces Two-Year Market Ban by SEBI

SEBI has placed a two-year market ban on Droneacharya Aerial Innovations along with its promoter-directors Prateek Srivastava and Nikita Srivastava due to a series of misstatements, fund misuse, and false financial reporting that deceived investors before and after the company’s IPO. The Pune-based drone startup, which debuted on the BSE SME platform in December 2022, managed to raise nearly Rs 34 crore through its public offering; however, SEBI’s ruling indicates the firm used a significant portion of these funds in ways that contradict the disclosures made in its prospectus.

Misappropriation of IPO Funds

Droneacharya allocated Rs 27.98 crore from its IPO for the procurement of drones and associated equipment. Nonetheless, SEBI discovered that the company actually spent only Rs 70 lakh on drones, while over Rs 27 crore was diverted through dubious payments for software and computer products without proper quotations being revealed in the IPO paperwork. Numerous invoices were found to be inflated, inconsistent with prevailing market rates, or issued by entities that were not genuinely involved in software development, as highlighted by the regulator. The conclusion was that the company and its promoters “mis-utilised, siphoned, and misrepresented” the use of IPO funds.

Fictitious Revenue Reporting

Additionally, inflated revenues in FY24 were revealed by the regulator. Droneacharya registered Rs 12.35 crore of earnings from Triconix and IRed without delivering any services or products. If this fabricated revenue, which accounted for 35% of their annual revenue, were excluded, the company would have shown a pre-tax loss instead of an Rs 8.44 crore profit. SEBI asserted that the promoters intentionally misrepresented the financial standing of the company to fabricate a misleading impression of growth.

Pre-IPO Fundraising Practices

The pre-IPO fundraising activities also came under scrutiny. From February to June 2022, Droneacharya issued over 60,000 optionally convertible preference shares to 199 investors, raising Rs 32.35 crore in the process. Investors, including public figures, reportedly received verbal assurances about a forthcoming stock exchange listing. Following the listing, Droneacharya disseminated several misleading operational announcements to sustain interest in the stock. It was calculated that 168 pre-IPO investors exited after the listing, securing Rs 89.6 crore in profits, including an astonishing 5,800% return for the daughter of a partner at Instafin Financial Advisors.

Undisclosed Related-Party Transactions

SEBI also noted undisclosed related-party transactions, where Droneacharya transferred Rs 10.6 crore to Awyam Synergies, a company fully owned by the promoters, without mentioning this in its annual reports or IPO documents. The statutory auditor, compliance officers, and the merchant banker faced criticism for facilitating, overlooking, or failing to detect these violations.

The actions taken by the regulator represent one of the most stringent interventions in the SME market in recent times, indicating enhanced oversight as startup listings continue to proliferate across the exchange.