SEBI Slaps ₹10 Lakh Fine on Merchant Banker Swastika Investmart for SME IPO Due Diligence Lapses

The Securities and Exchange Board of India (SEBI) has levied a monetary penalty of ₹10 lakh on SEBI-registered merchant banker Swastika Investmart Ltd for multiple compliance violations and failures in due diligence across Small and Medium Enterprise (SME) initial public offerings (IPOs).

In an adjudication order passed on November 4, 2026, SEBI Adjudicating Officer Amit Kapoor found that the intermediary violated code of conduct norms under Merchant Bankers Regulations and the SEBI (Issue of Capital and Disclosure Requirements) Regulations. The regulator highlighted that Swastika Investmart failed to independently substantiate claims in draft offer documents, neglected records of physical site inspections, and demonstrated systemic deficiencies in investor-related compliances.

Key Violations in Due Diligence

During its regulatory scrutiny, the capital markets watchdog examined offer documents managed by Swastika Investmart, including the SME issue of Aditya Ultra Steel Ltd.

The adjudication order detailed several critical lapses:

• Unverified Qualifications of Key Personnel: In the Aditya Ultra Steel SME IPO, the merchant banker failed to independently collect supporting documents to verify the educational credentials and past work experience of the company's directors and Key Managerial Personnel (KMPs). The intermediary merely relied on self-submitted curriculum vitae and company-provided confirmations without independent checks.
• Objects of the Issue Deficiencies: While the issuer planned to raise funds to finance working capital and execute capital expenditure for solar power facilities, Swastika Investmart failed to obtain independent calculations or a Chartered Accountant’s certificate to verify estimated working capital needs. Moreover, it relied on quotations from only a single vendor for the capital expenditure.
• Disproportionate Corporate Guarantees: The inquiry flagged an unverified corporate guarantee of ₹696 crore extended by an issuer entity with a reported net worth of ₹375.80 crore as of March 31, 2024. The merchant banker failed to scrutinize the terms or evaluate the risks associated with this exposure.
• Omission of Material Risks: The intermediary fell short in fully presenting customer concentration risks and lacked contemporaneous records proving that statutory site visits and physical verifications had taken place.

Regulatory Stance on Market Intermediaries

In response to the findings, Swastika Investmart submitted that it had initiated subsequent corrective measures and strengthened its internal systems. However, SEBI rejected the defense, emphasizing that ex-post corrections do not absolve registered intermediaries of their statutory duty of care during the inspection period.

While SEBI noted that the disproportionate financial gains accrued to the merchant banker or exact monetary losses inflicted on investors could not be definitively quantified, the Adjudicating Officer emphasized that merchant bankers occupy a position of trust as frontline gatekeepers of primary markets.

The penalty comes amid heightened scrutiny by Indian regulators over the SME IPO market, where retail participation has surged alongside concerns regarding aggressive valuations, unvetted disclosures, and inadequate verification of issuer business models. SEBI has repeatedly warned intermediaries that failure to perform independent due diligence undermines market integrity and leaves public market investors vulnerable to unvetted corporate claims.