SEBI debars Varanium Cloud, MD Sabale over IPO fund diversion

The Enforcement Action

The Securities and Exchange Board of India (SEBI) has passed a final order dated 25 August 2026 in the matter of Varanium Cloud Limited (VCL), the NSE Emerge-listed company that raised money from the public in September 2022. The order, bearing reference number WTM/AS/CFID/CFID-TPD/32680/2026-27, was passed by Whole Time Member Amarjeet Singh under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act, 1992.

SEBI debarred VCL and its promoter and managing director, Mr Harshawardhan Hanmant Sabale, from the securities market for seven years. It directed VCL to bring back ₹62.51 crore that the regulator found had been diverted from the company's public-issue proceeds, with interest at 12 per cent, within three months. Mr Sabale was separately directed to disgorge unlawful gains of ₹1,28,77,11,275 (about ₹128.77 crore), with 12 per cent interest, to SEBI's Investor Protection and Education Fund within forty-five days.

The order followed an interim order dated 10 May 2024 and a confirmatory order dated 21 October 2024, and a show-cause notice dated 20 October 2025. A SEBI final order is a regulator's finding on the civil-regulatory standard and is appealable to the Securities Appellate Tribunal. The order does not record any public response from Mr Sabale beyond the detailed written submissions he filed in the proceedings, which SEBI considered and rejected.

How the Scheme Worked

According to the order, VCL raised ₹40.39 crore in net proceeds through its September 2022 initial public offering on the NSE SME platform, with the stated objective of setting up containerised Edge Data Centres and digital learning centres, and later ran a rights issue. SEBI found that a total of ₹18.98 crore from the IPO proceeds and ₹43.53 crore from the rights-issue proceeds, aggregating ₹62.51 crore, had been "siphoned/ diverted/ mis-utilized" for purposes not envisaged in the prospectus and letter of offer.

The order records that Mr Sabale was the sole authorised signatory of the relevant bank account and approved the transfers. SEBI noted that ₹15.46 crore (38.31 per cent of net IPO proceeds) and ₹4.20 crore (8.67 per cent of net rights-issue proceeds) went to an entity called BM Traders, and that ₹32.73 crore from the rights-issue proceeds was transferred to Mr Sabale's personal account. BM Traders, the order states, received around ₹19 crore from the issues and ₹119.17 crore directly from Mr Sabale's personal account, roughly ₹138 crore in all, for which SEBI found "not even a single document or email or any other material" was produced to substantiate the transactions.

Separately, SEBI found that VCL misrepresented its financial statements through fictitious sales and purchases. Examining transactions with counterparties including Amtelfone Incorporated, Varanium Lifestyle, Varanium Networks, Varanium Earth, Amazon Web Services, Secur Credentials and Avance Technologies, the order concludes that several were "non-genuine and fictitious in nature and were made with a clear intent to overstate" revenue. SEBI also found that VCL made misleading corporate announcements, including about a preferential issue and acquisitions, that had "a direct impact on the price and volume" of the scrip, which hit the upper circuit on two trading days, while promoter-group entities sold shares. The regulator held that the promoter side booked unlawful gains of about ₹128.77 crore from selling 80.16 lakh shares over the period from November 2022 to March 2024.

The Law Invoked

The order cites the provisions it found VCL to have violated. On the misrepresentation and fund-diversion charges, SEBI held VCL liable under Section 12A(a), (b) and (c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(f), (k) and (r) of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003. These are the core anti-fraud provisions that prohibit deceptive devices and manipulative practices in dealing with securities.

The order also invokes Regulation 24(1) of the ICDR Regulations, 2018, on misleading information in a prospectus, and several LODR Regulations, 2015, including Regulation 32 on the statement of deviation in the use of issue proceeds, Regulation 31(1) on the shareholding pattern, Regulation 33 on financial results, and Regulation 34(3) read with Schedule V on related-party disclosures. Disclosure obligations under the SAST Regulations, 2011 were also engaged.

The monetary penalties were imposed under Sections 11(4A) and 11B(2) read with Sections 15A(a), 15A(b), 15HA and 15HB of the SEBI Act, which cover disclosure failures and fraudulent or unfair trade practices.

What Happens Next

The debarments, the restitution direction and the disgorgement take effect immediately. SEBI directed VCL to return the ₹62.51 crore to its own account within three months, and Mr Sabale to remit the disgorgement amount within forty-five days. The regulator also imposed penalties totalling several crore across the noticees, including about ₹20.40 crore on Mr Sabale and ₹1.30 crore on VCL, payable within forty-five days.

Other parties drew shorter debarments. Athos Capital Advisors and Mr Jinesh Mehta were debarred for two years, Mr Raj Jagtani, proprietor of BM Traders, for four years, and Mr Vinayak Vasant Jadhav, Mr Mukundan Raghavan and Mr Fahim Iunus Shaikh for one year each. The merchant banker, First Overseas Capital Limited, was debarred for two years, to run consecutively after an earlier debarment of 23 October 2025. Proceedings against two noticees were disposed of without directions or penalty.

Any noticee aggrieved by the order may appeal to the Securities Appellate Tribunal, and thereafter to the Supreme Court on a question of law. Until such an appeal succeeds, the directions stand. The findings are SEBI's own conclusions in a regulatory proceeding and remain subject to that appellate process.

What It Means

The order is a reminder that the SME segment, though smaller in ticket size, carries the same disclosure and governance obligations as the main board, and that SEBI is willing to trace issue proceeds transaction by transaction. For investors, the practical lesson is to scrutinise how a company says it will use IPO money and then check the statement of deviation that listed companies must file, which is exactly the document SEBI examined here.

There are concrete verification steps ordinary investors can take. A company's financial results, shareholding pattern and related-party disclosures are filed with the stock exchanges and are public; large, unexplained related-party flows or repeated revisions to the use of proceeds are warning signs worth noting before investing further. SEBI registration of intermediaries such as merchant bankers can be checked on the SEBI website.

For shareholders already affected, the restitution and disgorgement directions matter. The ₹62.51 crore is to be brought back into VCL's own account, and the ₹128.77 crore disgorgement is routed to the Investor Protection and Education Fund rather than paid directly to individual investors. Recovery in practice depends on the assets available and on the outcome of any appeal, so the figures on paper are a ceiling, not a guarantee.

FAQ

What is the legal status of the parties named in the order?

Per the order, these are SEBI's findings in a regulatory proceeding on the civil standard, not a criminal conviction. The order is appealable to the Securities Appellate Tribunal, and the directions remain subject to that appellate process. The persons named filed submissions in the proceedings, which SEBI considered before passing the order.

What exactly did SEBI order?

SEBI debarred Varanium Cloud Limited and its managing director for seven years, directed the company to bring back ₹62.51 crore of diverted issue proceeds with interest, directed the promoter to disgorge about ₹128.77 crore to the Investor Protection and Education Fund, imposed monetary penalties, and issued shorter debarments against several other noticees.

Can the order be appealed?

Yes. A party aggrieved by a SEBI order may appeal to the Securities Appellate Tribunal within the prescribed period, and from there to the Supreme Court on a question of law. Unless and until an appellate authority stays or sets aside the directions, they remain in force.

How can I check how a company has used its IPO money?

Listed companies must periodically file a statement of deviation or variation in the use of issue proceeds with the stock exchanges under the LODR Regulations. That statement, along with the prospectus objects, financial results and shareholding pattern, is publicly available on the exchange websites and lets investors compare stated intentions against actual utilisation.

Where can I read the official order?

The full 155-page final order dated 25 August 2026 is published on the SEBI website under Enforcement, Orders of Chairperson and Members. It sets out the findings, the tables of transactions, and the operative directions in detail.

This report is based on the official SEBI final order dated 25 August 2026 in the matter of Varanium Cloud Limited, passed by Whole Time Member Amarjeet Singh under reference WTM/AS/CFID/CFID-TPD/32680/2026-27.