SEBI FINES VEERKRUPA JEWELLERS AND MERCHANT BANKER ₹16 LAKH FOR MISUSE OF IPO ESCROW MECHANISM
FACTS OF THE CASE
IPO FUNDS RELEASED DIRECTLY FROM THE ESCROW ACCOUNT TO VEERKRUPA JEWELLERS BYPASSING THE COMPANY’S BANK ACCOUNT
SEBI penalized Veerkrupa Jewellers Ltd (VJL), its Managing Director Chirag Shah, and lead merchant banker First Overseas Capital Ltd (FOCL) with a total fine of ₹16 lakh because nearly the entire IPO proceeds (₹7.95 crore of ₹8.10 crore raised in July 2022) were released directly from the escrow account to gold vendors, bypassing the company’s bank account — a clear violation of SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations.
SEBI’S FINDINGS
VIOLATION OF ESCROW MECHANISM:
· Funds must first be credited to the issuer’s bank account before utilization.
· Merchant Banker FOCL instructed Axis Bank (banker to the issue) to transfer funds directly to vendors using Annexure A2 of the Escrow Agreement, which is meant only for intermediary expenses, not vendor payments
REGULATORY BREACHES:
Merchant Banker FOCL and its officials violated Regulations 271 & 272 of ICDR, 2018 and Merchant Banker Regulations.
Managing Director Chirag Shah breached fiduciary duties under LODR Regulation 4(2)(f)(iii)(3).
KEY POINT:
SEBI clarified that even if the funds were ultimately used for the disclosed purpose (gold purchases), compliance with the prescribed release mechanism cannot be bypassed.
KEY TAKEAWAYS
IPO proceeds must always flow through the issuer’s account before utilization.
Operational convenience or industry practice cannot override SEBI’s prescribed mechanisms.
Even without misappropriation, lapses in fund release procedures attract penalties to safeguard market integrity.
Veerkrupa Jewellers’ case shows that SEBI enforces strict adherence to fund release protocols, penalizing both issuers and merchant bankers when IPO proceeds bypass the mandated escrow-to-issuer route.
# Your Compliance expert R V
SECKAR, FCS, LLB 79047 19295,
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