Noida: Amid a recent surge in SME IPO listings, the tax department has launched a major crackdown over alleged irregularities in public issues. The investigation wing of the Income Tax Department carried out search operations at premises linked to Delhi-based merchant banker Kulbhushan Parashar. Officials said the action followed inputs pointing to “serious irregularities” in certain SME IPOs.
The raids were led by the Noida investigation unit under the supervision of the Principal Director of Income Tax (Investigation), Kanpur. According to department sources, nearly 20 locations across three cities were covered simultaneously, with the deployment of over 200 officials and personnel.
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Retail investors lured by promise of high returns?
Officials indicated that the SME segment has witnessed a sharp rise in listings over the past few months. During this period, intelligence inputs suggested that certain entities may have used IPOs as a “structured tool” to generate illicit gains. It is alleged that retail investors — particularly middle-class participants — were drawn in with assurances of high returns.
Preliminary findings suggest that shares were allegedly allotted to relatives, associates and purported dummy investors, including domestic staff, without genuine financial consideration. These holdings were later reportedly transferred through pre-planned arrangements to the actual beneficiaries.
Artificial demand, inflated prices
Sources claimed that such practices could have created artificial demand in the market, driving up share prices. Inflated valuations may have attracted unsuspecting investors, enabling a select group to earn substantial profits running into crores.
Officials said if the pattern is established, it could amount to violations not only of tax laws but also of capital market regulations. During the searches, authorities seized documents as well as digital devices, including laptops and server backups. The material is undergoing forensic examination to trace fund flows, identify ultimate beneficiaries and detect any coordinated trading patterns.
Findings may be shared with Sebi
Officials indicated that the findings of the probe could be shared with the capital market regulator, the Securities and Exchange Board of India (Sebi), along with other agencies. If regulatory breaches are confirmed, the entities and individuals concerned could face penalties, market bans or even prosecution under applicable laws.
Increased scrutiny on SME segment
Market experts note that while the SME platform serves as a crucial avenue for small and medium enterprises to raise capital, it typically has lower liquidity and higher price volatility compared to the main board. In such an environment, any collusive allocation or trading activity can significantly influence prices.
Experts have advised investors to independently evaluate company fundamentals, valuation metrics and disclosures in offer documents before investing in SME IPOs.
Departmental sources said the investigation is at a preliminary stage and may widen further. “More names could come under scrutiny as the probe progresses,” an official said, adding that the next course of action would be decided after detailed analysis of the seized documents and digital evidence.
The action is being viewed as a strong signal that regulatory authorities are closely monitoring the SME IPO space. Amid buoyant market conditions, the crackdown underscores the emphasis on transparency and investor protection in the capital markets.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
