Why SEBI Must Stop ZEPTO IPO

Zepto, the quick commerce unicorn promising 10-minute grocery deliveries, filed its updated Draft Red Herring Prospectus (UDRHP) with SEBI around June 8, 2026, seeking to raise ₹8,010 crore through a fresh issue, alongside an Offer for Sale by early investors. The company aims for a July 2026 listing on BSE and NSE under the Regulation 6(2) route reserved for loss-making companies.

On paper, it is a classic growth story: revenue more than doubled to ₹22,624 crore in FY26, 1,139 dark stores across 66 cities, 48 million transacting users, and improving unit economics in Q4. Yet beneath this glossy narrative lies a troubling pattern of regulatory violations, governance failures, unresolved investigations, and financial vulnerabilities that SEBI cannot afford to ignore.

SEBI’s primary mandate is investor protection and market integrity. When a company seeking public money discloses multiple material risks — including personal summons to founders by the Enforcement Directorate under FEMA, qualified audit reports on internal controls, ongoing consumer protection penalties, labour disputes, food safety violations, and a CCI inquiry — the regulator has both the power and the duty to intervene. Allowing this IPO to proceed in its current form would expose retail investors to unacceptable risks and set a dangerous precedent.

1. The ED Summons Under FEMA: An Unresolved Shadow Over the Promoters

The most alarming disclosure in the UDRHP is the Enforcement Directorate (ED) summons issued to both co-founders and promoters — Aadit Palicha and Kaivalya Vohra — on April 8, 2026, under the Foreign Exchange Management Act (FEMA), 1999. This came barely two months before the DRHP filing.

The ED sought extensive personal and corporate information: foreign and overseas investments, audited financials since FY 2020-21, shareholding patterns, loans, guarantees, immovable properties, income tax returns, bank accounts, and details of the business model. The agency also probed the holding structure and the Scheme of Arrangement (the Singapore-to-India merger).

Both founders appeared before the ED:

• Kaivalya Vohra on April 17 and 22, 2026
• Aadit Palicha on April 20 and May 15, 2026

They claim to have provided all requested documents and follow-up information. As of the UDRHP date, there has been no further communication from the ED. However, the DRHP itself carries a stark warning in the risk factors section (reported as Risk Factor #29):

“We cannot assure you there will not be future inquiries or that these could escalate to investigations, legal proceedings or any possible penalties.”

Zepto is a foreign-owned and controlled company under FDI policy and FEMA rules. This status carries strict restrictions on business activities and downstream investments. An ongoing FEMA investigation into the very architects of the company — personally — is not a minor compliance footnote. It raises fundamental questions about the integrity of the capital structure, fund flows, and governance that public investors are being asked to underwrite.

Why this alone justifies halting the IPO: SEBI has previously taken strong action when promoter integrity or regulatory investigations cast doubt on disclosures. An unresolved ED probe two months before filing suggests either inadequate due diligence by the company’s advisors or a deliberate rush to list before potential adverse developments. SEBI must demand full clarity and, at minimum, a “no objection” or clearance status from the ED before allowing the issue to proceed.

2. Material Weaknesses in Internal Controls and Audit Trail Failures

One of the most under-reported but deeply concerning disclosures relates to statutory audit qualifications on internal controls.

According to detailed reporting on the DRHP:

• Auditors flagged a “material weakness” in IT general controls relating to access management and operations in FY24.
• Audit trail features for direct data changes in the accounting software were missing or disabled throughout FY25 and FY26.
• During the FY24 migration to a new accounting system, the audit trail functionality was not enabled for the entire year.
• Certain support software used for recording expenses entirely lacked audit trail capabilities.

These are not technical nitpicks. In a company that processes millions of orders daily, handles significant cash flows through dark stores, and is seeking thousands of crores from the public, reliable financial reporting and internal controls are non-negotiable. The absence of proper audit trails creates serious risks of data manipulation, errors, or undetected fraud — exactly the kind of governance failure that has destroyed investor wealth in past Indian listings.

SEBI’s ICDR regulations and listing obligations place heavy emphasis on robust internal controls and accurate disclosures. Qualified audit reports of this nature should trigger heightened scrutiny, if not outright rejection or deferral until remediation is independently verified.

3. Persistent Losses, Subsidiary Bleeding, and Questionable Path to Profitability

Despite impressive top-line growth, Zepto remains deeply unprofitable:

• FY26 net loss widened to ₹5,905 crore (from ₹4,700 crore in FY25).
• Three key subsidiaries — Kiranakart Wholesale, Zepto Marketplace, and Zepto Commerce — are loss-making. Zepto Marketplace alone lost ₹1,528.60 crore in FY26.
• The company has never reported a profit since its launch in July 2021.

While Q4 FY26 showed narrowing losses per order and better store productivity, these improvements come against a backdrop of heavy continued investment and subsidies. The IPO proceeds are earmarked heavily for expanding dark stores and paying lease rentals — essentially funding further burn rather than immediate profitability.

Retail investors in India have repeatedly suffered when loss-making tech and new-age companies list at high valuations only for the growth narrative to falter. SEBI has a responsibility to ensure that companies crossing the public market threshold demonstrate at least a credible, time-bound path to sustainable profits — not just “improving metrics” while losses keep mounting.

4. A Pattern of Regulatory Violations Across Multiple Fronts

The DRHP and contemporaneous reporting reveal a company repeatedly in conflict with regulators:

Consumer Protection (CCPA – Dark Patterns) Zepto Marketplace received a show-cause notice in January 2025 for “basket sneaking” (pre-ticked membership fees) and “drip pricing” (hidden charges). The CCPA imposed a ₹7 lakh penalty in December 2025. Zepto appealed and obtained an interim stay from NCDRC, but the matter remains pending. A second notice followed in June 2025 over alleged MRP violations and misleading advertisements. These practices directly harm consumers — the very base Zepto claims to serve.

Labour and Gig Worker Issues The company faces potential massive cost increases under the new Social Security Code as gig/delivery partners may need to be reclassified with mandatory benefits. There have been delivery partner strikes, minimum wage proceedings in Karnataka, and even a criminal complaint against founder Kaivalya Vohra in September 2024 regarding wage registers and slips.

Food Safety Violations Maharashtra FDA previously suspended the food business licence of Zepto’s predecessor entity over fungal growth on items and improper cold storage at a Dharavi facility. Food safety proceedings continue in multiple states.

Competition Commission Inquiry The CCI is actively inquiring into predatory pricing and anti-competitive conduct in quick commerce, with Zepto squarely in focus. A distributors’ federation has also complained to SEBI and CCI about deep discounting practices.

This is not an isolated compliance lapse. It is a pattern of pushing regulatory boundaries across consumer protection, labour, food safety, and competition law. Public listing should not become a shield or a reward for such conduct.

5. Timing, Transparency, and Precedent

The ED summons arrived in April 2026. The updated DRHP was filed in early June 2026. This compressed timeline raises uncomfortable questions about whether the company and its merchant bankers rushed the filing to lock in market momentum before potential adverse regulatory developments.

SEBI has the authority under the SEBI Act and ICDR Regulations to:

• Reject DRHPs or require material revisions
• Defer listings where material investigations are pending
• Mandate additional disclosures or third-party verification on critical issues (audit controls, FEMA compliance)

Past precedents exist where SEBI has acted decisively on governance or regulatory red flags. Allowing Zepto to list with so many open issues would signal that aggressive growth-at-all-costs models with weak compliance cultures can access public capital without meaningful accountability.

The Counter-Argument and Why It Fails

Defenders will argue that Zepto has shown revenue scale, operational improvements in Q4, a large user base, and that all risks have been “adequately disclosed” in the DRHP. They will point to successful listings of other loss-making tech companies.

These arguments miss the point. Disclosure is necessary but not sufficient when the underlying issues involve unresolved enforcement actions by the ED, material audit qualifications, and a clear pattern of regulatory conflict. “We have disclosed the risks” does not absolve SEBI of its gatekeeping responsibility. Retail investors — many of whom will be first-time participants in such high-risk issues — deserve more than a thick risk-factors section. They deserve a company whose house is in order.

Conclusion: SEBI Must Act Now

Zepto’s updated DRHP paints a picture of a company in a hurry — to raise capital, to list, and perhaps to outrun its regulatory problems. The combination of:

• Personal ED summons to promoters under FEMA with no resolution
• Material weaknesses in financial controls and audit trails
• Widening losses and subsidiary bleed
• Multiple pending actions from CCPA, CCI, labour authorities, and food safety regulators

…creates a risk profile that is simply too high for the Indian public markets at this stage.

SEBI should exercise its powers to halt or significantly defer the Zepto IPO. At minimum, it should require:

1. Written confirmation from the ED on the status and expected timeline of the FEMA proceedings.
2. Independent forensic audit or remediation certificate on the IT general controls and audit trail deficiencies.
3. Clearances or status reports from CCPA, CCI, and relevant labour/food safety authorities.
4. Enhanced disclosures on promoter liability and contingency planning for potential penalties or adverse orders.

The quick commerce sector is still evolving. Allowing a company with this many red flags to list would not just harm Zepto’s future investors — it would damage trust in India’s capital markets and the regulatory framework that protects them.

SEBI’s silence or inaction at this juncture would be a failure of its core mandate. The regulator must choose investor protection over expediency. The Zepto IPO, in its current form, should not be allowed to proceed.

This analysis is based on disclosures in Zepto’s updated DRHP (filed June 2026) and contemporaneous reporting from Financial Express, Medianama, CNBC-TV18, Economic Times, and The Hindu. All facts are drawn from public sources. This is an opinion and analytical piece intended to highlight regulatory and governance concerns.