Case Overview

Securities and Exchange Board of India (SEBI) conducted an inspection of Swaraj Shares & Securities Private Limited (Noticee), a SEBI-registered merchant banker (Registration No.: INM000012980), from July 09, 2025 to July 11, 2025, covering the period from April 01, 2022 to March 31, 2025. Based on inspection findings, SEBI initiated adjudication proceedings against the Noticee for alleged violations of multiple regulations:

  • Regulation 27(2), (3) and (5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations)
  • Regulation 13 read with clauses 1, 3, 4, 6, 7 and 20 of Schedule III of SEBI (Merchant Bankers) Regulations, 1992
  • Regulation 245(3) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations)
  • Point (e) under instructions of Part A to Schedule VI of ICDR Regulations read with regulations 245(2)(b) and (3)
  • Regulation 3(4) and (5) and Schedule C of SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations)
  • Regulation 9A of PIT Regulations

The Show Cause Notice (Ref. No. SEBI/HO/EAD-2/JS/VC/23287-88/2026) was issued on September 07, 2026, and the matter was heard on October 21, 2026 where authorized representatives of the Noticee appeared.

Principal Allegations and Findings:

1. First Open Offer - G.D. Trading and Agencies Limited (by Ira Ramesh Mishra):

The Noticee failed to disclose to SEBI and investors a material BSE restraint order (Notice No. 20170821-27 dated August 21, 2017) against the target company and its promoters, despite having knowledge since December 2023. The restraint order prohibited market access from August 23, 2017 to August 22, 2027. The Noticee submitted a due diligence certificate on January 11, 2024 without disclosing this material information, which was essential for investors to assess regulatory risks.

2. Second Open Offer - G.D. Trading and Agencies Limited (by R.K. Chodankar):

The Noticee proceeded with an open offer process despite the triggering event (preferential issue of shares) being undertaken during the subsistence of the same BSE restraint order. The Noticee failed to assess the legal validity of the underlying transaction and disclosed the restraint information only in the draft letter of offer dated April 30, 2024, resulting in delayed disclosure.

3. IPO of Micropro Software Solutions Limited:

  • Working Capital Requirements: Noticee relied solely on company-provided estimates without independent due diligence, failed to identify computational discrepancies where cash and cash equivalents were included despite contrary statements, and did not question why working capital needs could be met through internal accruals.
  • Underwriting Agreement: Clause 2.1 of the agreement showed underwriting of only 94.98% while the prospectus claimed 100% underwriting, violating Regulation 260(1) of ICDR Regulations.
  • RTA Addendum: An addendum dated October 23, 2023 was executed on plain paper without apparent stamp duty, and Noticee failed to scrutinize this material contract properly.

4. IPO of Shoora Designs Limited:

  • Working Capital Requirements: Noticee failed to verify mismatches between figures submitted to stock exchange and those in prospectus, did not question an abrupt 100%+ increase in projected working capital, and overlooked incorrect inclusion of long-term loans/advances in current assets computation.
  • Forward-looking Statements: The offer document contained unsubstantiated projections including working capital requirements for FY2025 and claims that funding would increase profitability.
  • Basis of Issue Price: The weighted average Return on Net Worth was incorrectly disclosed as positive 19.24% instead of negative 19.24% due to computational errors.
  • Our Business Section: Revenue from operations was inconsistently disclosed as ₹105.59 lakh in narrative vs ₹210.59 lakh in tabular section for FY2023.
  • Key Industry Regulations: Failed to include SEBI LODR Regulations and ICDR Regulations under the specific section meant for regulatory disclosures.

5. Structured Digital Database (PIT Regulations):

Noticee failed to demonstrate a functional Structured Digital Database during inspection, did not maintain a separate restricted list, and lacked documentation evidencing periodic review of internal controls and checks as required under PIT Regulations.

The Noticee's defense included claims that omissions were inadvertent, that they relied on company-provided information, and that some disclosures were made elsewhere in documents. However, the Adjudicating Officer rejected these arguments, emphasizing the merchant banker's non-delegable duty of independent due diligence.

Final Outcome

The Adjudicating Officer held that Swaraj Shares & Securities Private Limited violated:

  • Regulations 27(2), (3) and (5) of SAST Regulations
  • Regulation 13 read with clauses 1, 3, 4, 6, 7 and 20 of Schedule III of Merchant Bankers Regulations
  • Regulation 245(3) of ICDR Regulations
  • Point (e) under instructions of Part A to Schedule VI of ICDR Regulations read with regulations 245(2)(b) and (3)
  • Regulation 3(4) and (5) and Schedule C of PIT Regulations read with regulation 9A

A monetary penalty of ₹10,00,000 (Rupees Ten Lakh only) was imposed under Section 15HB of the SEBI Act, 1992. The penalty must be paid within 45 days of receipt of the order through SEBI's online payment facility. Failure to pay may lead to recovery proceedings under Section 28A of the SEBI Act.

Topics: SEBI Enforcement, Merchant Banking Compliance, Due Diligence Failures