Imagine you are watching a startup that promises to revolutionise the skies. They talk about high-tech surveillance, cutting-edge software, and a future where drones are as common as delivery bikes. You see their IPO on the SME exchange, and it is a massive hit. The subscription numbers are through the roof, the listing gains are mouth-watering, and the company seems to be winning massive contracts every other week. It feels like you have caught a rocket ship at the launchpad. But then, the market regulator steps in, takes a look at the cockpit, and realises that the pilot was just playing a high-stakes game of smoke and mirrors. This is exactly what seems to have happened with Dronecharya Aerial Innovations. When the Pune-based company listed on the BSE SME platform in late 2022, it was hailed as a pioneer in the Indian drone ecosystem. It raised nearly ₹34 crore from the public, promising that the lion’s share of this money, about ₹28 crore, would go toward buying drones and accessories to scale up its business. On paper, it was a dream story. In reality, the Securities and Exchange Board of India (SEBI) recently discovered that the reality was far more grounded and significantly messier.
According to SEBI’s investigation, which culminated in a massive 105-page order in late 2025, the company only spent a measly ₹70 lakh on actual drones. If you are doing the math, that is barely 2.5% of what they told investors they would spend. So, where did the rest of the money go? Well, it appears a large chunk was funnelled into what looked like inflated software purchases. The company reportedly paid nearly ₹6 crore to a vendor for software that typically costs just a few lakhs. When SEBI followed the money, they found that this cash did not stay with the software vendor for long. It was moved out almost immediately to various other entities, a classic red flag for fund diversion. But the plot thickens beyond just misusing the IPO proceeds. To keep the stock price buoyant and the investor excitement alive, the company allegedly engaged in some creative accounting and storytelling. SEBI found that about 35% of the company’s revenue in a single year came from just two entities. When the regulator dug deeper, they could not find evidence of any actual services or goods being delivered to these clients. In fact, some of the customer addresses listed by the company turned out to be residential apartments or unrelated small shops. Without these questionable revenues, the company’s healthy profit would have transformed into a staggering loss.
While the financial engineering was happening behind the scenes, the front-facing part of the business was busy with corporate announcements. The company released a steady stream of news about global partnerships, massive orders, and expansion plans. To a regular investor, it looked like a company on a fast track to success. To SEBI, it looked like a systematic plan to create artificial demand for the stock. This allowed pre-IPO investors and insiders a chance to exit their positions at highly inflated valuations, leaving the retail crowd holding the bag when the music finally stopped. This case is not just about one drone company; it is a symptom of a much larger fever in the SME IPO market. For a few years, the SME segment has been a playground for speculators. Because these companies are smaller, their share prices can be easily manipulated through circular trading, where a group of people buy and sell among themselves to drive up the price. SEBI has noticed this pattern repeatedly, where glossy prospectuses hide a maze of related-party transactions and accounting acrobatics.
The regulator is now fighting back with a heavy hand. In the Dronacharya case, it has banned the promoters from the securities market for two years and slapped them with hefty penalties. More broadly, SEBI has introduced much stricter rules for the entire SME segment. New companies now need to show a minimum operating profit before they can even think of an IPO. There are also new caps on how much promoters can sell during the listing and tighter controls on how they use working capital funds, which were previously a black hole for diverted cash. For the average investor, the DroneAcharya saga is a sobering reminder that tech-heavy narratives can often be light on substance. When a company promises the moon, it is worth checking if they even have a ladder. The SME exchange was designed to give genuine small businesses access to capital, but it also inadvertently gave fraudsters a stage. As SEBI tightens the screws, the era of easy, unverified SME riches might be coming to an end, forcing investors to look past the flashy headlines and deep into the actual bank statements.