Sebi Slaps Rs 33 Crore Fine on Varanium Cloud, 8 Others for Diversion of IPO Proceeds

New Delhi: Market regulator Sebi has slapped fines totalling Rs 33.08 crore on Varanium Cloud, its promoter Harshawardhan Hanmant Sabale, and seven others for misrepresenting the company’s financials and diversion of IPO proceeds.

Besides, the regulator barred Varanium Cloud Ltd (VCL) and Sabale from the securities markets for seven years.

Further, Sabale was also restrained from being associated with any listed company or a Sebi-registered intermediary as a director for 7 years.

The proceedings emanated from Sebi taking cognisance of media reports concerning the company, following which it conducted a preliminary examination into the affairs of VCL, an NSE Emerge listed entity.

Thereafter, an interim order was passed by Sebi in May 2024 against VCL and Sabale, followed by a confirmatory order in October. Subsequently, Sebi conducted a detailed probe into the alleged violations, leading to the present final order.

In its 155-page final order, Sebi directed VCL to bring back Rs 62.51 crore, comprising Rs 18.98 crore from IPO proceeds and Rs 43.53 crore from rights issue proceeds, along with 12 per cent interest from the respective dates of debit transactions from the company’s account.

The regulator said funds were transferred to related parties and other entities, and found that Rs 32.73 crore of the rights issue proceeds was transferred directly into Sabale’s account.

Separately, Sebi directed Sabale to disgorge unlawful gains of Rs 128.77 crore made through trading in Varanium Cloud shares.

The regulator said Sabale was at the centre of the alleged scheme and exercised control over the movement of funds from Varanium Cloud.

“VCL, spearheaded by Harshawardhan Sabale, raised funds from public investors with the claimed objective of expanding its business, including the establishment of data centres and digital learning centres.

“However, none of the money raised went where it was said to go. It was diverted instead and siphoned off to Sabale’s personal account, to group entities (such as VNPL, VEPL, etc) and to other entities (such as BM Traders),” Sebi said.

The regulator noted that he held 99.99 per cent in two entities, personally controlled the transfer of funds out of Varanium Cloud and received Rs 32.73 crore of rights issue proceeds directly into his account.

It further said the VCL’s post-listing revenue rose sharply, driven almost entirely by sales to a single offshore entity, Amtelfone Incorporated, whose operations could not be verified.

The markets watchdog noted that Sabale made unlawful gains by trading in VCL’s shares on the back of what it described as a “manufactured picture” of the company.

The regulator also examined the company’s reported sales and purchases and found that shareholders were misled by inflated figures during FY 2022-23 and FY 2023-24.

In certain instances, trade receivables and trade payables were also misstated. The regulator also found fictitious sales and purchases forming a substantial portion of the figures reported in the company’s financial statements.

For Q3 of FY24, Varanium reported consolidated revenue of Rs 395.15 crore, while its standalone revenue was only Rs 3.04 crore.

Sebi noted that this implied revenue of Rs 392.11 crore had been generated through Varanium Cloud Inc in less than two months.

When asked to provide supporting details, including invoices, contracts and employee information, the firm failed to provide the requisite documents, Sebi said.

Sebi also held that three key managerial personnel – executive directors Vinayak Vasant Jadhav and Fahim Iunus Shaikh and CFO Mukundan Raghavan – were liable for failing to discharge their duties.

Jadhav, Raghavan and Shaikh have each been barred from the securities market for one year and restrained from being associated with any listed company or Sebi-registered entity as a director or KMP during the period.

Sebi also acted against other entities and intermediaries.

Athos Capital Advisors Pvt Ltd and its director Jinesh Narottamdas Mehta have been barred for two years, while Raj Jagtani, proprietor of BM Traders, has been barred for four years.

Jagtani has also been restrained from being associated with any listed company or Sebi-registered intermediary as a director or key managerial person for four years.

First Overseas Capital Ltd, the lead manager to Varanium Cloud’s IPO, has been barred from the securities market for two years and prohibited from taking up any new issue-management mandate during the debarment period.

However, Sebi clarified that this two-year debarment will run concurrently with an earlier debarment imposed on First Overseas Capital through an order dated October 23, 2025.

On the monetary penalty front, Sebi imposed Rs 1.30 crore on VCL, Rs 20.40 crore on Sabale and Jagtani was fined Rs 10.10 crore. Athos Capital Advisors and Jinesh Mehta were each fined Rs 50 lakh, and First Overseas Capital was fined Rs 10 lakh.

Jadhav, Raghavan and Shaikh were also fined by Sebi Rs 6 lakh each.

Accordingly, the regulator found that these entities flouted Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms and other Sebi rules.

(Disclaimer: Except for the headline, this article has not been edited by HDFC Sky editorial team and is auto-generated from PTI feed.)