The Securities and Exchange Board of India (SEBI) has barred Varanium Cloud Ltd (VCL) and its Managing Director Harshawardhan Hanmant Sabale from the securities market for seven years after finding alleged fund diversion, fabricated data centre operations and misleading financial disclosures.
The regulator has directed Sabale to disgorge unlawful gains of Rs 128.77 crore along with 12 per cent interest. VCL has also been ordered to recover Rs 62.51 crore allegedly diverted from funds raised from investors.
SEBI’s findings relate to VCL’s initial public offering (IPO) in September 2022 and a subsequent rights issue. The company raised Rs 40.39 crore through the IPO, stating that the funds would be used to establish containerised Edge Data Centres and Digital Learning Centres.
VCL raised a further Rs 48.45 crore through the rights issue in the following year. According to SEBI, 89.83 per cent of the rights issue proceeds were diverted to promoter-related entities, including Rs 32.73 crore transferred directly to Sabale’s personal bank account.
The regulator also found discrepancies in the company’s claims about its data centre infrastructure. VCL had announced the commissioning of Edge Data Centres in Goa and Sawantwadi. However, inspections by SEBI and the National Stock Exchange (NSE) allegedly found no such facility at the registered address of the Sawantwadi centre.
The purported Goa facility also came under scrutiny after SEBI found that it consumed only six units of electricity over a month. The regulator said this raised doubts about whether the claimed technology-intensive operations were actually being carried out. It also noted that the primary vendor associated with the projects did not have the fixed assets required to execute them.
SEBI further found alleged financial manipulation involving fictitious sales and purchase transactions. VCL reported sales of Rs 594.32 crore attributed to Amtelfone Incorporated over two financial years, but the regulator said these were merely ledger entries without corresponding banking receipts.
The regulator also questioned revenue reported by VCL’s US subsidiary, Varanium Cloud INC. Despite having capital of only $1,000 and no employees, the subsidiary was shown as generating Rs 392.11 crore in revenue in a single quarter, according to SEBI.
The regulator said misleading corporate announcements further contributed to an inflated perception of VCL’s business prospects. One such announcement in February 2023 concerned a proposed Rs 2,683-crore acquisition of Fastway Transmissions Private Ltd.
SEBI noted that the proposed acquisition value was nearly 20 times VCL’s net worth. It said the company’s reported revenue subsequently increased by 984 per cent, while its share price also rose sharply, enabling promoter entities to sell shares at elevated valuations.
According to SEBI, promoter entities made unlawful gains exceeding Rs 128.77 crore by selling shares at inflated prices, resulting in losses to investors.
The regulator has also penalised other individuals and entities allegedly linked to the scheme. Sabale was fined Rs 20.4 crore, while VCL was fined Rs 1.3 crore.
Raj Jagtani, proprietor of BM Traders, which SEBI identified as a front entity that received more than Rs 138 crore from VCL and Sabale, was fined Rs 10.1 crore and barred from the securities market for four years.
VCL executive directors Vinayak Vasant Jadhav and Fahim Iunus Shaikh, along with Chief Financial Officer Mukundan Raghavan, were each fined Rs 6 lakh and barred from the securities market for one year.
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