SEBI Bars Varanium Cloud And Promoter From Securities Markets Amid IPO Probes

Markets regulator SEBI on Monday affirmed its directions to bar Varanium Cloud and its promoter and MD Harshawardhan Hanmant Sabale from securities markets till the outcome of a probe into alleged mis-utilisation of IPO proceeds and manipulation of the company's financials. In May this year, SEBI passed an interim order that barred Varanium Cloud and its Managing Director Harshawardhan Hanmant Sabale from the securities market.

The regulator had also restrained Sabale from acting as a director or key managerial personnel of any listed company, or any SEBI-registered intermediary which intends to raise money from the public.

The order came after Varanium had filed an appeal against the Sebi's interim order in the Securities Appellate Tribunal. However, Varanium, did not make any submission on the merits of the prima facie findings in the order.

There was no record of any order passed by the SAT in respect of any pending appeal filed by the company.

After providing sufficient opportunities, in compliance with the principles of natural justice, have been provided to the noticees (Varanium Cloud and Sabale) to present their case, they have failed to avail the same, the regulator said.

"I, therefore, find that there is no ground for interfering with the interim directions issued vide the interim order. Accordingly, I deem it fit to confirm the directions," SEBI's whole-time member Ashwani Bhatia said in the confirmatory order.

SEBI in its interim order said, "The genesis of the prima facie violations observed in the matter has its roots in the SME IPO of Varanium, which continued through the bonus issue and stock split followed by the rights issue."

"It has prima facie emerged that the money raised through the IPO and subsequent rights issue was not used for the intended purpose mentioned in the offer documents. Instead, the promoter shifted part of IPO funds to an entity, BM Traders, and the end use of such funds is not known".

Sabale had spunned an intricate web of dubious transactions and tried to paint a picture that did not represent the fundamentals of the company.

The regulator noted that Varanium had made public announcements meant to give an impression to the investors that the company was a top-notch IT service provider that was entering greenfield areas.

In its effort to present such a picture, Varanium and its promoter entered into transactions that appeared only on paper and nothing was happening on the ground as claimed by the company.

In the entire sequence of events and the narrative built by the promoter (Sabale) through public announcements, a positive sentiment was created which induced a large number of retail investors to purchase the stock.

This presented an opportunity for the promoter entities to exit the company and reduce their stake significantly at the cost of gullible investors. The gains made by Sabale clearly showed the intent and purpose behind such public announcements.

By indulging in these activities, SEBI found that Varanium and Harshawardhan Hanmant Sabale, has violated the provisions of the Prohibition of Fraudulent and Unfair Trade Practices.

Certain complaints have raised concerns regarding financial statements published and corporate announcements made by Varanium Cloud Ltd, an NSE's SME platform, Emerge listed company.

Thereafter, the regulator examined the matter for the violations of Sebi rules. The examination covered by SEBI for the period from September 2022 to March 2024.

In September 2022, Varanium raised funds of Rs 40.39 crore through an initial public offering from public investors.