India’s IPO System Under Scrutiny: A Decade Of SEBI-Approved Listings That Burned Retail Investors (2015–2026)
Introduction: The Regulator’s Dilemma and the Retail Investor’s Blind Trust
India’s IPO market has experienced an extraordinary bull run through much of the decade ending in early 2026. Retail participation has exploded — tens of millions of new demat accounts opened, first-generation investors poured savings into IPO applications, and the social mythology of “listing day gains” became a cultural phenomenon, not just a financial event. Against this backdrop, the Securities and Exchange Board of India (SEBI) — the guardian of India’s capital markets — faces a structural tension at the heart of its existence: between the mandate to allow free capital formation and the equally important mandate to protect retail investors from predatory or reckless issuances.
This article is a documented examination of how SEBI, between 2015 and February 2026, approved IPOs that, in the considered assessment of market analysts, SEBI’s own subsequent enforcement actions, credible investigative journalism, and academic research, should have been examined with far greater scrutiny before being permitted to enter India’s public markets.
The categories of concern are distinct and must be understood separately: there are large mainboard IPOs approved despite sustained losses and exorbitant valuations; there are IPOs structured almost entirely as Offer-for-Sale (OFS) where no meaningful fresh capital went to the business; there are cases where regulatory and legal proceedings against the company or its affiliates were underway at the time of IPO approval; and there is an extensive ecosystem of SME IPO fraud in which SEBI’s subsequent enforcement orders reveal that the platform was being systematically abused to launder black money and defraud retail investors — with the exchange and regulator’s gatekeeping failing visibly.
None of these categories are speculation. All are documented in SEBI orders, court proceedings, credible media investigations, and official filings. The purpose of this article is to bring that documentation together in one place, in plain language, so that ordinary retail investors can understand the structural forces that have repeatedly cost them money.
Part I: The Structural Problem — How SEBI’s IPO Approval Works, and Where It Fails
Before examining individual cases, it is important to understand what SEBI’s IPO approval process does and does not include. When SEBI issues an “observation letter” on a Draft Red Herring Prospectus (DRHP), it is explicitly not a certification that the IPO is a good investment, nor that the company’s financials are sound, nor that the issue price is fair. SEBI has repeatedly and publicly stated this. Its review is primarily a disclosure review — it checks whether the mandated information has been disclosed, whether the format of the prospectus complies with ICDR Regulations, and whether material risk factors have been stated.
This is a critical distinction that millions of retail investors either do not know or choose to ignore. The fact that “SEBI has approved this IPO” carries, in practice, a halo of legitimacy that SEBI itself has not claimed to confer. When a retail investor reads that “SEBI has given the green light,” they interpret this as something far more substantive than a compliance-formatting exercise. That gap in public understanding — between what SEBI’s approval actually means and what retail investors believe it means — is one of the central structural problems of the Indian IPO market.
Additionally, SEBI’s framework for loss-making companies to list was progressively liberalised in the 2010s. The Innovators Growth Platform was created for early-stage companies, and the mainboard’s requirements were relaxed for companies backed by Qualified Institutional Buyers. Under ICDR Regulations, a company with no track record of profitability can list on the mainboard provided 75% of its issue is allocated to QIBs — the idea being that sophisticated institutional investors will serve as the vetting mechanism. In practice, as the 2021 IPO wave demonstrated, institutional investors in a liquidity-flooded bull market are not reliable filters for overvalued or structurally weak issuances; they frequently participate anyway, knowing they can exit more easily than retail investors once the lock-in expires.
Part II: Major Mainboard IPOs — Losses, Overvaluation, and Promoter Exits
1. One97 Communications (Paytm) — November 2021
IPO Size: Rs 18,300 crore (India’s largest at the time) Fresh Issue Component: Rs 8,300 crore OFS Component: Rs 10,000 crore (54.6% of the total issue) Issue Price: Rs 2,150 per share Listing Price: Rs 1,560 — a 27% crash on Day 1, the worst listing day fall in Indian history for an IPO of this size Current Performance: Down over 70% from issue price as of early 2026
One97 Communications, the parent of digital payments brand Paytm, had reported net losses of Rs 2,942 crore cumulatively for the three financial years FY2019 to FY2021 at the time it filed its DRHP. Its revenue had effectively stagnated over the same period — total income of Rs 3,186 crore in FY19 declined to Rs 3,186 crore in FY20 and improved only marginally to Rs 3,187 crore in FY21 (approximately flat for three years).
Despite this, the IPO was priced at a valuation of approximately Rs 1.39 lakh crore, implying a price-to-sales multiple of approximately 26 times forward FY23 estimated revenues — an extraordinary premium for a company that had never made a profit and whose top line had not grown in three years. Macquarie Research, in a note issued on listing day, described the company as having “too many fingers in too many pies” and declined to project a path to profitability in its analysis.
The OFS component of Rs 10,000 crore is where the structural criticism is most pointed. The largest beneficiaries of this OFS were Jack Ma’s Ant Financial (Netherlands) Holding B.V. via Alibaba Group, and SoftBank Group — both foreign entities that had invested at significantly lower valuations and were using the Indian public’s money to crystallise their returns.
Founder Vijay Shekhar Sharma, who held only a 9.1% stake (itself remarkably low for a founder, indicating heavy dilution over years of loss-funded growth), sold down from 9.1% to 6% — pocketing proceeds while holding a minimal stake. As market analysts writing in Moneylife and elsewhere noted at the time: when a promoter holds less than 10% of their own company and is simultaneously selling down, there is no meaningful alignment between the promoter’s interests and the retail investor’s.
Post-listing, SEBI’s own enforcement actions revealed further concerns. In separate proceedings, SEBI examined whether Paytm had violated Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 through selective disclosure of material information to certain institutional investors ahead of the IPO — a potential violation that disadvantages retail investors who access only the public prospectus.
Then, in January 2024, the Reserve Bank of India issued a devastating order against Paytm Payments Bank — an affiliated entity on which Paytm’s wallet business depended — citing “persistent noncompliance” and ordering it to stop accepting new deposits. Subsequently, India’s Financial Intelligence Unit fined the bank for routing funds towards illegal activities. These were regulatory failures that had been building for years and that SEBI’s IPO approval process, apparently, had not required Paytm to disclose with sufficient urgency as material risk factors.
Total documented unrealised losses for Indian individual retail investors who subscribed to the Paytm IPO exceeded Rs 9,949 crore within just three months of listing. A Moneylife analysis documented this with specific numbers from NSE shareholding data.
The Core Criticism of SEBI: Academic analysis (published in journals including UNNAYAN and on Taxguru) has argued that SEBI could have, and should have, rejected or returned the DRHP on the grounds that the basis for the offer price was “perfunctory” and contained no genuine valuation justification. The RHP’s “Basis for Offer Price” section, multiple analysts noted, carried what were described in Moneylife’s detailed analysis as “polite nothings” — non-specific claims about brand value and market potential that SEBI accepted “without a murmur.” The regulator’s own subsequent recognition of the damage done to retail investors stands as an implicit acknowledgement that something in its approval process failed.
2. Zomato Limited — July 2021
IPO Size: Rs 9,375 crore Fresh Issue Component: Rs 9,000 crore (primary issue) OFS Component: Rs 375 crore (by Info Edge India) Issue Price: Rs 76 per share Net Loss at time of IPO (FY21): Rs 816 crore; cumulative three-year loss was substantial
Zomato’s IPO in July 2021 was the first test of whether Indian retail investors were willing to back a loss-making unicorn. The company had reported a net loss of Rs 816 crore in FY21 and losses for every year of its existence. The company had no promoter as defined under SEBI’s regulatory framework — Deepinder Goyal, the founder and CEO, held approximately 5.5% stake, well below the 20% threshold that would classify him as a promoter under ICDR norms, and the company classified itself as “professionally managed with no identifiable promoter.”
This no-promoter structure deserves sustained attention. The purpose of promoter accountability in Indian securities law is to ensure that the people most responsible for a company’s actions have their personal wealth meaningfully tied to its long-term performance, and face enhanced legal liability for prospectus misstatements. When a founder holds 5.5% and classifies himself as a public shareholder rather than a promoter, this accountability is substantially diluted. SEBI, for much of the 2021 IPO wave, permitted this structure for technology companies — a policy choice that Outlook Business documented was creating a pattern of founders with minimal accountability who had effectively harvested most of the company’s value through prior fundraising rounds.
Zomato’s IPO had a relatively small OFS component (only Rs 375 crore by Info Edge), and the bulk of the Rs 9,000 crore fresh issue did go to fund the company’s operations. Zomato has, since listing, achieved profitability (reporting a net profit of Rs 351 crore in FY24), which makes its case more complex than some others on this list.
However, the criticism at the time of IPO was that retail investors were being asked to fund a business at Rs 8 billion valuation without any promoter accountability, on a loss-making trajectory, at a time when institutional investors including Alipay, Nexus Sunlight Fund, and Sequoia Capital had all already made secondary sales of their Zomato stake worth over Rs 2,300 crore in February 2021 — just five months before the IPO. Sophisticated early investors getting liquidity months before the IPO, while retail investors queue up to buy in at a higher valuation, is a pattern that recurred across the 2021 IPO wave.
3. CarTrade Tech Limited — August 2021
IPO Size: Rs 2,998.51 crore Fresh Issue Component: Rs 0 (Zero) OFS Component: Rs 2,998.51 crore (100% OFS) Issue Price: Rs 1,618 per share Post-Listing Performance: Stock crashed approximately 76% from issue price
CarTrade Tech’s IPO is perhaps the purest example of an issue where SEBI approved a public offering in which not a single rupee of the Rs 2,999 crore raised from the public went to the company’s operations, growth, technology infrastructure, or any business purpose whatsoever. Every paisa raised went to existing investors — primarily CMDB II (Rs 366 crore), Highdell Investment Ltd (Rs 1,360 crore), MacRitchie Investments Pte Ltd (Rs 821 crore), and Springfield Venture International (Rs 285 crore) — all financial sponsors who had backed the company at much lower valuations and were using the IPO as a pure exit mechanism.
The company’s founder Vinay Vinod Sanghi sold shares worth approximately Rs 103 crore through the OFS. By the December 2022 quarter, he held only 2.09% of the company he founded and had classified himself as a public shareholder — not a promoter.
What should have concerned retail investors, and arguably should have prompted SEBI to require more stringent disclosure of valuation basis, was the fact that CarTrade Tech had reported stagnant revenues and had not demonstrated a path to sustained profitability. The stock’s 76% crash from issue price, documented in the Outlook Business analysis of post-IPO new-age tech company performance, represents one of the largest wealth destructions of the 2021 vintage.
The fundamental policy question is straightforward: if a company’s IPO is entirely an OFS where the company itself receives no proceeds, what exactly is the “public interest” in permitting retail investors to participate? SEBI’s regulations permit 100% OFS structures, but the economic rationale for retail participation in such structures — beyond providing an exit ramp for institutional investors — is difficult to articulate.
4. Delhivery Limited — May 2022
IPO Size: Rs 5,235 crore Fresh Issue Component: Rs 4,000 crore OFS Component: Rs 1,235 crore (SoftBank selling down from ~22% to ~19%) Issue Price: Rs 487 per share Net Loss in 9 months FY22 preceding IPO: Rs 382 crore (adjusted loss before tax) Post-Listing Performance: Stock fell approximately 27% from issue price within months
Delhivery presented a specific concern that analyst SP Tulsian’s widely-read IPO review identified at the time: despite being India’s largest express logistics company after 10 years of operations, its adjusted EBITDA remained deeply negative at minus Rs 35 crore in 9 months FY22, and its freight handling costs consumed 72–75% of revenues, leaving structurally limited scope for profitability. The concern raised was that the company was attempting to list while the IPO market was still conducive (“making hay while the sun shines”), as the IPO came just before a significant market downturn.
A particularly notable structural concern was that Delhivery had Rs 1,700 crore in cash on its balance sheet at the time of filing, yet was seeking to raise Rs 5,235 crore — a large portion of which was earmarked for “inorganic targets” and “general corporate purposes” that were unidentified at the time of IPO. SEBI’s own rules, tightened after the 2021 IPO wave, require that unidentified inorganic acquisition plans not exceed 25% of fresh issue proceeds. Delhivery was operating close to this limit.
The co-founders held under 2% of the company each at listing and classified themselves as public shareholders, not promoters — continuing the accountability vacuum that characterised the 2021–22 tech IPO era.
5. FSN E-Commerce Ventures (Nykaa) — November 2021
IPO Size: Rs 5,352 crore Fresh Issue Component: Rs 630 crore (approximately 11.8% of total) OFS Component: Rs 4,720 crore (approximately 88.2% of total) Issue Price: Rs 1,125 per share
Nykaa occupies a distinctive position in this analysis because the company was, at the time of its IPO, one of India’s few profitable unicorns — it had reported a net profit of Rs 61.94 crore in FY21 after years of losses, making it genuinely different from the loss-making cohort discussed above. The specific concern regarding Nykaa is not financial weakness per se, but the overwhelming OFS-heaviness of its structure and the subsequent governance controversy that drew SEBI’s scrutiny.
Over 88% of the Rs 5,352 crore IPO was an Offer-for-Sale — meaning over Rs 4,720 crore flowed to existing shareholders, not to Nykaa itself. The sellers included the Sanjay Nayar Family Trust (husband of founder Falguni Nayar, and India chairman of KKR), which sold shares worth Rs 540 crore; TPG Growth IV; Lighthouse India Fund III; Sunil Kant Munjal; and over a dozen other early-stage investors and HNIs. The fresh issue of only Rs 630 crore was to be used for store expansion, warehouse build-out, and debt repayment.
The deeper governance controversy emerged in November 2022, when Nykaa announced a 5:1 bonus share issue timed, critics argued, to coincide precisely with the expiry of the lock-in period for pre-IPO shareholders — a manoeuvre that would allow early investors to sell their bonus shares immediately after the lock-in ended on their original shares. SEBI began scrutinising this bonus share issuance, examining whether it amounted to market manipulation or was structured to enable early investors to exit in a tax-advantaged manner.
CFO Arvind Agarwal resigned from the company in November 2022 even as SEBI’s scrutiny was underway. The episode became one of the most prominent corporate governance controversies of the 2022 Indian market and raised pointed questions about whether SEBI’s listing approval process had adequately examined the promoter’s fiduciary accountability to retail shareholders.
6. PB Fintech (PolicyBazaar parent) — November 2021
IPO Size: Rs 5,710 crore Fresh Issue Component: Rs 3,750 crore OFS Component: Rs 1,960 crore Issue Price: Rs 980 per share Net Loss at time of IPO: Consistent losses across multiple years Post-Listing: Stock fell approximately 57% from its peak; 39% below issue price by mid-2023
PB Fintech, the parent of insurance aggregator PolicyBazaar and credit comparison platform Paisabazaar, presented losses at IPO time and had founder Yashish Dahiya holding only 4.64% of the company — classified as a public shareholder, not a promoter. The OFS component included exits by SoftBank and other institutional investors who had invested at lower valuations.
7. Hyundai Motor India Limited — October 2024
IPO Size: Rs 27,870 crore (India’s largest ever as of listing date) Fresh Issue Component: Rs 0 (Zero) OFS Component: Rs 27,870 crore (100% OFS — the entire issue went to Hyundai Motor Company, the South Korean parent) Issue Price: Rs 1,960 per share Listing Day Performance: Stock fell 7.2% on Day 1, closing at Rs 1,819.60
Hyundai Motor India’s IPO replicates the CarTrade Tech structural problem at an entirely different scale. Not a single rupee from India’s largest-ever IPO went to fund Hyundai India’s operations, capital expenditure, EV infrastructure, or any business purpose in India. The entire Rs 27,870 crore went to Hyundai Motor Company of South Korea, which was monetising its stake in the Indian subsidiary.
SEBI approved this structure. Indian retail investors — allocated 35% of the issue, meaning approximately Rs 9,754 crore — were, in effect, writing a cheque to a South Korean conglomerate, receiving in exchange shares in the Indian subsidiary, which itself received no benefit from the transaction. The stock fell on listing day and continued to trade below its issue price for an extended period.
Critically, pre-IPO analysis by StoxBox noted that Hyundai Motor India had depleted its cash and bank balances by paying large dividends to its South Korean parent in the period immediately preceding the IPO — a pattern suggesting the parent had already extracted as much value as possible before the listing, leaving the listed Indian entity with less of the cash cushion retail investors might have assumed was available to fund growth. The same parent also retained the right to require an additional 7.5% stake sale within three years, creating a structural overhang on the share price.
SEBI’s approval of this structure — in which a foreign parent uses India’s public markets purely as a wealth-extraction mechanism without any fresh capital infusion into the Indian operations — has been described by market commentators as a failure of the regulator to ask the question of what public interest the listing served beyond providing a premium exit to a foreign entity.
Part III: The SME IPO Fraud Ecosystem — Documented Cases of SEBI-Approved Listings Used for Financial Crime
This section addresses a different and in some ways more alarming category: smaller companies, listed on BSE SME or NSE Emerge platforms, that used the IPO approval process not merely to execute overpriced exits, but to commit documented fraud — including financial statement manipulation, fund diversion, money laundering, and systematic price manipulation. In each case below, SEBI’s own interim and final orders constitute the evidentiary basis for the characterisation.
8. The 2015 SME Ring: Eco Friendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment, HPC Biosciences
SEBI’s landmark 2015 enforcement action — banning 239 entities in a single sweep — exposed the foundational vulnerabilities of the SME IPO platform. These four companies, all listed between 2012 and 2014 on the SME exchange, were at the centre of a coordinated network that SEBI described in its order as a systematic scheme to convert black money into legitimised stock market profits.
The mechanism, as SEBI’s investigation detailed, worked as follows: a “funding group” of nine entities provided seed capital to the four shell or near-shell companies; preferential allotments were made to front entities at pennies per share before IPO; the IPO price was inflated by engineering artificial demand through a coordinated network of buyers; post-listing, a “trading group” of entities ran up the stock price through coordinated transactions; and the “shortlisted group” of 186 entities collectively realised profits of Rs 614 crore from the exercise.
The promoters and directors of the four companies — all individuals who had received SME exchange approval and SEBI’s observation letter for their DRHPs — were among the 13 specifically named as key participants in the fraud and were barred from the securities market.
Eco Friendly Food Processing Park was engaged in agriculture processing, Esteem Bio Organic Food Processing similarly in agricultural activities, Channel Nine Entertainment in TV serial production, and HPC Biosciences in agricultural sciences — all nominally real businesses with real (if meagre) revenues. The fraud was not in inventing the company, but in using the company’s real existence as a vehicle for a money-laundering exercise in which retail investors who bought shares in the post-listing price run-up were the ultimate victims.
9. Varanium Cloud Limited — Listed 2022
Varanium Cloud, a technology company that listed on the SME platform in 2022, became the subject of a SEBI enforcement order in May 2024 after an investigation triggered by newspaper articles and public complaints about suspicious corporate announcements. SEBI’s order found that the company had manipulated its financial statements by recording fictitious sales and purchases — creating the appearance of revenue and business activity that did not exist in reality. The IPO proceeds were misused in a manner that SEBI described as allowing promoter entities to exit “at the cost of gullible investors.” The company and its promoters were banned from the capital markets.
The fact that the misrepresentation in Varanium Cloud’s financial statements was substantial enough to constitute fictitious sales and purchases raises the question: what did the merchant banker who managed the IPO and the auditors who signed off on the financial statements actually verify? SEBI’s subsequent investigation of 20 other SME IPOs managed by the same lead manager — First Overseas Capital (FOCL) — suggests that the verification failure was not isolated but systemic.
10. Add-Shop E-Retail Limited and White Organics Agro Limited — 2024 Action
SEBI’s May 2024 enforcement order against Add-Shop E-Retail and White Organics Agro — both SME-listed companies — revealed a similar pattern of manipulated financial statements, fraudulent supply-order announcements, and related-party transaction irregularities. Both companies and their promoters were banned from accessing the capital markets.
The timing of these actions, taken together with the Varanium Cloud action in the same month, prompted RPG Enterprises chairman Harsh Goenka to publicly call out the pattern on social media: “Promoters are inflating profits through profit entry and in nexus with Gujarati-Marwari brokers, driving their stock prices to unrealistic levels.” The post went viral because it articulated what many market participants had privately suspected: that a significant portion of SME IPO activity in the 2022–2024 period represented a revival of the Harshad Mehta and Ketan Parekh era’s market manipulation practices in a new and largely unmonitored segment.
11. Synoptics Technologies — Listed July 2023
Synoptics Technologies became the subject of a SEBI interim order in May 2024 after investigation revealed that three of the company’s promoters had siphoned over Rs 19 crore from IPO proceeds through fake counter-parties and mis-classified expenses. The pattern was explicit: money raised from the public in the IPO was routed out of the company through transactions with entities that did not provide any real goods or services in return.
SEBI barred the three promoters from the securities market and simultaneously docked First Overseas Capital (FOCL), the same lead manager involved in the Varanium Cloud case, for failing to conduct adequate due diligence and oversight of the use of proceeds. The fact that the same merchant banker appears in multiple fraud cases raises the question of whether SEBI’s registration and monitoring of Category I Merchant Bankers is sufficiently rigorous to prevent a single intermediary from facilitating multiple fraudulent listings.
12. Varyaa Creations — Listed April 2024
The Varyaa Creations case, which SEBI actioned in 2024, is alarming in its brazenness. SEBI’s investigation found that 71% of the company’s IPO proceeds — raised in April 2024 — were diverted on the very day of listing into entities linked to the IPO’s lead manager, Inventure Merchant Banking Services. SEBI froze promoters’ shares and barred Inventure from taking new assignments.
What makes this case particularly striking is not merely the fraud itself, but the timeline: the diversion happened on listing day — within hours of the IPO closing and shares being credited to investors’ accounts. The implication is that the fraud was not spontaneous or opportunistic but carefully planned well in advance of the IPO — meaning that the false financial disclosures and the diversion mechanism were in place before SEBI’s observation letter was ever issued. The IPO application process and the SEBI review that preceded it did not detect any of this.
Even more remarkably, at the time of SEBI’s action, Varyaa had already filed for a Rs 25 crore rights issue — a second public fundraising — suggesting the promoters had planned a follow-on extraction exercise using the IPO as a launchpad. SEBI’s action prevented this.
13. Debock Industries — Listed NSE Emerge June 2018, Migrated to Mainboard March 2022
Debock Industries presents a case that spans both platforms: it listed on the NSE SME platform, then migrated to the mainboard, and SEBI’s August 2024 order against it revealed years of coordinated fraud extending across both phases of its listed life. SEBI Whole Time Member Ashwani Bhatia described the company’s operations as revealing “a brazen and calculated effort to defraud investors and deceive regulatory authorities.”
The specifics are detailed: Debock allegedly used extensive related-party transactions to artificially inflate its revenue and profitability figures at the SME listing stage; after migrating to the mainboard, it continued with preferential allotments described by SEBI as “nothing more than a hollow pretence,” where shares were quietly transferred off-market to promoters who then sold them to unsuspecting public investors.
The promoter shareholding declined from 64.79% to 9.41% between FY2020-21 and FY2023-24, while public shareholding rose from 35.21% to 90.56% — a pattern indicating systematic promoter exit through the public market at the retail investor’s expense. SEBI ordered recovery of unlawful gains exceeding Rs 89.24 crore and barred key promoter Mukesh Manveer Singh from holding any managerial position in any listed company.
Part IV: Approved But Contentious — SEBI Gave the Nod Despite Active Legal Proceedings
14. API Holdings (PharmEasy) — SEBI Approved February 2022, IPO Not Launched
API Holdings, the parent of online pharmacy PharmEasy, received SEBI’s observation letter in February 2022 for a Rs 6,250 crore IPO. The case is included here because the concerns raised at the time of SEBI’s approval were substantial and well-documented, even though the company ultimately withdrew its DRHP in August 2022 citing “market conditions and strategic considerations” — sparing retail investors from what would likely have been a painful outcome given the company’s subsequent financial deterioration.
At the time of SEBI’s approval, the South Chemists & Distributors Association (SCDA) had filed a writ petition in the Delhi High Court against both CCI and SEBI, seeking to block the IPO.
The petition raised three substantive concerns: first, that API Holdings had acquired Thyrocare Technologies as a subsidiary without filing the required notification with the Competition Commission of India, potentially constituting “gun-jumping” under Section 43A of the Competition Act — a serious violation; second, that e-pharmacies like PharmEasy operated in a legal grey zone because the Drugs and Cosmetics Act, 1940 had no explicit provision for online pharmacy operations, and courts had in other contexts injuncted online drug sales; third, that the company’s corporate structure was deliberately misleading — the DRHP described Threpsi Solutions Pvt Ltd as owning the PharmEasy brand while Axelia Solutions operated the marketplace, creating confusion about which entity’s business was actually being presented to investors.
The Delhi High Court had issued notices to both SEBI and CCI requiring them to be present at a January 2022 hearing. SEBI went ahead and issued its observation letter in February 2022 — after the court had specifically asked it to respond to a petition challenging the IPO’s legality. This sequence — SEBI approving an IPO while a High Court was actively examining legal challenges to that very IPO — is precisely the kind of institutional gap that public interest advocates argue requires structural reform.
The subsequent history vindicates the caution. PharmEasy’s valuation was eventually marked down by over 90% from its peak of $5.6 billion to approximately $458 million by September 2024. Had retail investors bought into the IPO at the Rs 6,250 crore valuation that SEBI approved in February 2022, they would have faced losses of catastrophic proportions.
Part V: Systemic Patterns — What the Data Reveals About SEBI’s Structural Blind Spots
The cases documented above, spanning a decade and ranging from SME micro-cap fraud to landmark Rs 27,000 crore mainboard listings, share several structural features that point to systemic rather than isolated failures in SEBI’s IPO oversight architecture.
The OFS Blind Spot: SEBI’s regulations permit IPOs to be structured entirely or predominantly as Offer-for-Sale, with no minimum requirement for fresh capital infusion. The economic consequence is that retail investors’ money goes entirely to exiting shareholders rather than funding the business. In CarTrade Tech (100% OFS), Hyundai India (100% OFS), and Nykaa (88% OFS), the companies themselves received minimal or no benefit from the public market access that SEBI’s approval enabled. SEBI has shown awareness of this concern — it tightened norms requiring that fresh issues constitute at least some meaningful portion of total issue size for certain company categories — but enforcement has been uneven.
The Promoter Accountability Vacuum: A string of 2021–22 technology IPOs were approved by SEBI where the founders held single-digit percentage stakes and classified themselves as public shareholders rather than promoters. This structurally eliminates the enhanced liability and accountability that promoter classification carries under Indian securities law. The result, as documented by Outlook Business, is that founders who had already harvested substantial value through private funding rounds faced limited consequences if the public market listing destroyed value for retail investors.
The SME Platform Abuse Pattern: SEBI’s own data as of October 2024 showed that out of 417 NSE-SME-listed companies, 12 were suspended and 15 had seen no trading for over a month. On BSE, 28 of 328 SME-listed companies were suspended. These are companies that were approved through the exchange-based regulatory process and in many cases represent situations where retail investors have lost all or most of their investment. SEBI’s interim chairperson Madhabi Puri Buch acknowledged in March 2024 that there were “signs of manipulation in the SME segment” — a remarkably measured description of what its own enforcement orders described in language like “brazen fraud” and “calculated deception.”
The Merchant Banker Complicity Problem: SEBI’s enforcement findings in the Synoptics, Varyaa Creations, and Varanium Cloud cases all implicated the IPO lead managers — the very intermediaries whose SEBI registration is supposed to certify their competence and integrity as gatekeepers. The finding that a single merchant banker (First Overseas Capital) appears in multiple fraud cases, and that SEBI was separately investigating 12 investment banks for charging fees of 15%–71% of IPO issue size (versus the 2%–3% industry norm), points to a sector of registered intermediaries where predatory conduct had become normalised.
The Auditor Failure: In each SME fraud case, the financial statement manipulation that formed the basis of SEBI’s fraud finding had been audited and signed off on by a statutory auditor before being submitted to the exchange and incorporated in the DRHP. SEBI’s post-fraud orders repeatedly ask what the auditors were verifying, without providing satisfactory answers. The Institute of Chartered Accountants of India (ICAI) has not, to date, brought disciplinary proceedings against auditors who signed off on the fictitious accounts at Varanium Cloud or Add-Shop E-Retail — a gap that removes a crucial layer of accountability.
Part VI: SEBI’s Response and the Limits of Regulatory Reform
To be accurate about SEBI’s record, this analysis must acknowledge the reforms the regulator has undertaken in response to documented abuses. Following the 2024 wave of SME fraud exposures, SEBI proposed a comprehensive package of SME IPO reforms, including raising the minimum IPO size from no minimum to Rs 10 crore, doubling the minimum application size for retail investors from Rs 1 lakh to Rs 2 lakh (with a proposal to raise it further to Rs 4 lakh), restricting price manipulation on listing day by capping first-day gains at 90%, and establishing a compliance monitoring agency to track utilisation of IPO proceeds. These are meaningful interventions.
However, critics make a valid point: the pattern of SME fraud that these reforms address was visible and well-documented years before SEBI acted. The first large SME IPO ring was broken by SEBI in 2015 — more than nine years before the 2024 reforms package. The same money-laundering and price-manipulation mechanics that SEBI’s 2015 order described in detail appeared in substantially similar form in Varanium Cloud (2022), Add-Shop E-Retail (2024), Synoptics Technologies (2023), and Varyaa Creations (2024). If SEBI’s 2015 enforcement action had been followed by structural reform of the SME platform, the subsequent decade of retail investor losses might have been meaningfully reduced.
Conclusion: Disclosures Are Not Protection
The foundational tension in SEBI’s IPO framework is between two irreconcilable truths. The first is that SEBI, as a disclosure-based regulator, is not in the business of guaranteeing investment outcomes or certifying fair valuations. This is both legally accurate and operationally reasonable — a regulator that second-guesses every IPO valuation would create unacceptable barriers to capital formation. The second truth is that tens of millions of Indian retail investors do not, in practice, read 500-page prospectuses, do not understand the difference between a fresh issue and an OFS, and treat SEBI’s observation letter as a stamp of approval on the investment itself.
In that gap between these two truths, substantial wealth has been destroyed. The cases documented in this article — from the Rs 9,949 crore of individual retail investor losses in Paytm within three months of listing, to the Rs 614 crore extracted by the 2015 SME ring, to the Rs 89 crore unlawful gains at Debock Industries — are not isolated incidents.
They are the documented arithmetic of a structural imbalance in which the intermediaries who benefit from IPO approvals are resourced, incentivised, and in some cases actively conspiring to ensure approvals proceed, while the ordinary retail investor who funds the exercise has no meaningful protection beyond a prospectus they are unlikely to read and a regulator whose approval carries a halo of legitimacy it has formally disclaimed.
The reforms being implemented in 2025–26 are necessary. But they will not be sufficient unless SEBI also addresses the incentive structure of the merchant bankers and auditors who serve as gatekeepers, creates minimum accountability standards for founders in technology IPOs regardless of their stake percentage, mandates a minimum fresh issue component in large OFS-heavy listings, and seriously examines the basis-of-offer-price section of every DRHP rather than treating it as boilerplate.
Until those structural changes are embedded in the regulatory framework, the Indian retail investor will continue to be the last buyer at the party — the person who pays full price for the exit that sophisticated investors have been planning for years.
This article is based entirely on publicly available information including SEBI interim and final orders, court filings and proceedings, official company prospectuses and RHP filings, NSE and BSE shareholding data, and reporting from credible publications including Moneylife, Outlook Business, Business Today, The Week, Inc42, Fortune, Bloomberg, and CNN. Nothing in this article should be construed as investment advice. Readers are encouraged to verify all citations against primary source documents before drawing conclusions.
SEBI’s observation letter on a DRHP does not constitute an endorsement of the investment, a guarantee of returns, or a certification of the company’s financial soundness. All investors should conduct their own due diligence before subscribing to any IPO.
