SEBI has barred Varanium Cloud Ltd and its promoter-managing director, Harshawardhan Hanmant Sabale, from accessing the securities market for seven years after finding that the company misrepresented financial information, made misleading disclosures and diverted funds raised through its initial public offering and subsequent rights issue. The regulator has also ordered the company to bring back ₹62.51 crore that it found had been diverted, along with 12% interest, while Sabale has been directed to disgorge ₹128.77 crore in alleged unlawful gains, plus interest.
The final order, issued on August 25, 2026, represents a major enforcement action against an SME-listed company and its promoter. SEBI found that ₹18.98 crore of IPO proceeds and ₹43.53 crore from the rights issue were diverted to related parties and other entities. The regulator said Sabale exercised control over the movement of the issue proceeds, with ₹32.73 crore of the diverted amount transferred to him. The order also found that the company had inflated reported financial activity through fictitious sales and purchases and made disclosures that misled investors.
SEBI Bars Varanium Cloud And Promoter
SEBI’s final order places Varanium Cloud and Sabale under a seven-year market ban. Sabale has additionally been restrained from associating with any listed company or SEBI-registered intermediary as a director or key managerial person during the period.
The regulator’s action follows an examination into the company’s IPO, rights issue, financial statements and subsequent transactions. The findings go beyond the diversion of public-issue funds and cover what SEBI described as misrepresentation of financial information and misleading disclosures.
Key Regulatory Actions
| Action | Details |
|---|---|
| Market ban on Varanium Cloud | 7 years |
| Market ban on Harshawardhan Sabale | 7 years |
| Sabale’s director/KMP restriction | 7 years |
| Funds SEBI found diverted | ₹62.51 crore |
| IPO proceeds diverted | ₹18.98 crore |
| Rights issue proceeds diverted | ₹43.53 crore |
| Amount ordered to be brought back by VCL | ₹62.51 crore + 12% interest |
| Sabale’s unlawful gains | ₹128.77 crore + 12% interest |
| Total monetary penalties imposed | ₹33.08 crore |
The monetary directions are separate from the market-access prohibition and are intended to address the funds diverted and gains that SEBI attributed to the conduct.
How IPO And Rights Issue Funds Were Diverted
According to the order, ₹62.51 crore was diverted from Varanium Cloud’s public-issue proceeds. This consisted of ₹18.98 crore from the IPO and ₹43.53 crore from the rights issue.
SEBI said the funds were transferred to related parties and other entities with which the company did not have legitimate business relationships. Sabale, according to the regulator, exercised control over the movement of the proceeds and approved the transfers.
A portion of the money was transferred directly or indirectly to Sabale and other entities.
Breakdown Of Diverted Funds
TOTAL FUNDS FOUND DIVERTED: ₹62.51 CRORE
IPO Proceeds
₹18.98 crore
│
├───────────────┐
│ │
Rights Issue Other Transfers
₹43.53 crore Related/Other Entities
│
└───────────────┐
↓
₹62.51 crore
Total Diversion
SEBI specifically attributed ₹32.73 crore of the diverted amount to transfers made to Sabale.
The regulator has directed Varanium Cloud to bring back the entire ₹62.51 crore, along with 12% interest calculated from the respective dates of the debit transactions.
SEBI Finds Financial Statements Were Misrepresented
The regulatory findings were not limited to the use of IPO proceeds.
SEBI said Varanium Cloud had misrepresented its financial statements and disclosures, including through fictitious sales and purchases. The regulator found that reported sales and purchases had been inflated and that some transactions were supported primarily by journal entries rather than adequate underlying evidence.
Such findings are particularly significant for public-market investors because financial statements form the foundation for assessing a company’s growth, profitability and valuation.
Areas Of Concern Identified By SEBI
| Area | SEBI’s Finding |
|---|---|
| Financial statements | Misrepresentation |
| Sales | Inflated/fictitious transactions identified |
| Purchases | Fictitious transactions identified |
| IPO disclosures | Misleading information |
| Rights issue | Proceeds diverted |
| Litigation disclosure | Pending litigation not adequately disclosed |
| Fund utilization | Public-issue money transferred to other entities |
The findings raise questions about the reliability of the financial information available to investors during the company’s fundraising and subsequent market activity.
₹2,683 Crore Acquisition Plan Also Came Under Scrutiny
SEBI also examined Varanium Cloud’s proposed acquisition of Fastway Transmissions Pvt. Ltd., which was valued at ₹2,683 crore.
The company had proposed financing part of the acquisition through a ₹1,250 crore preferential issue. According to SEBI’s findings, however, the acquisition did not ultimately materialize and the proposal was used to mislead investors into providing fresh capital through the preferential issue.
This formed part of the regulator’s broader assessment of how the company communicated its expansion plans to the market.
The episode illustrates why SEBI places significant importance on disclosures surrounding large acquisitions and fundraising proposals. Investors often assign higher valuations to companies announcing major expansion plans, especially when those plans appear capable of dramatically increasing revenue or market presence.
Promoter Gains Came Under The Scanner
SEBI also examined trading by Sabale and the promoter-group entity Varanium Networks Pvt. Ltd.
The company’s share price rose sharply after its listing, moving from ₹131 on September 27, 2022, to ₹1,526.15 on January 13, 2023, before falling to ₹17.75 by May 31, 2024, according to the regulator’s findings.
SEBI said Sabale and the promoter group sold shares during the period of elevated prices and made unlawful gains.
Varanium Cloud Share Price Movement Cited By SEBI
| Date | Share Price |
|---|---|
| September 27, 2022 | ₹131 |
| January 13, 2023 | ₹1,526.15 |
| May 31, 2024 | ₹17.75 |
From ₹131 to ₹1,526.15, the stock increased by more than 11 times at its cited peak. It subsequently fell to ₹17.75, representing a decline of nearly 99% from that January 2023 level.
SEBI calculated total promoter-group unlawful gains at ₹128.77 crore. Of this, ₹111.52 crore was attributed to Sabale and ₹17.25 crore to Varanium Networks.
Sabale held 99.99% of Varanium Networks and controlled the entity, according to the order.
Penalties Extend Beyond Varanium Cloud
SEBI’s enforcement action also covers several other entities and individuals that the regulator found had participated in or facilitated aspects of the transactions.
The final order imposes monetary penalties totaling ₹33.08 crore on Varanium Cloud, Sabale and seven others.
Penalty Breakdown
| Noticee | Penalty |
|---|---|
| Varanium Cloud | ₹1.30 crore |
| Harshawardhan Sabale | ₹20.40 crore |
| Raj Jagtani / BM Traders | ₹10.10 crore |
| Athos Capital Advisors | ₹0.50 crore |
| Jinesh Mehta | ₹0.50 crore |
| First Overseas Capital | ₹0.10 crore |
| Others | Balance of total penalty |
The penalties are in addition to the disgorgement and fund-restoration directions contained in the order.
BM Traders Received A Significant Share Of IPO Proceeds
SEBI’s findings regarding BM Traders provide another example of how the regulator traced the movement of public-issue money.
BM Traders, a proprietorship of Raj Jagtani, received ₹15.46 crore from the IPO proceeds, equivalent to 38.31% of the IPO proceeds cited in the order. It also received ₹4.2 crore from the rights issue.
The regulator noted that BM Traders was registered as a wholesale fruits and vegetables business but did not provide adequate invoices, project reports or other documentation to substantiate the transactions.
Of the ₹19.66 crore it received from the IPO and rights issue proceeds, ₹15.6 crore was subsequently transferred to several other entities.
SEBI concluded that Jagtani had aided and abetted the diversion and also failed to comply with regulatory summons.
Athos Capital Advisors Also Faced Action
SEBI separately examined transactions involving Athos Capital Advisors and its director Jinesh Mehta.
One transaction of approximately ₹2.97 crore had been recorded by Varanium Cloud as a purchase. However, the regulator found that the company’s own ledger described the amount as professional fees, while bank records showed payments of approximately ₹2.84 crore.
SEBI consequently concluded that the purported purchase transaction was fictitious.
The regulator also found that Athos Capital Advisors and Mehta had aided Varanium Cloud and its directors in a scheme involving misrepresentations in the company’s IPO prospectus.
Varanium Cloud’s IPO Background
Varanium Cloud was listed on the NSE’s SME platform in September 2022.
Its IPO involved 37 lakh equity shares offered at ₹122 per share, aggregating ₹45.14 crore. Of this, the net issue after the market-maker reservation portion amounted to approximately ₹42.85 crore.
IPO At A Glance
| IPO Parameter | Detail |
|---|---|
| Listing | September 27, 2022 |
| Issue size | 37 lakh shares |
| Issue price | ₹122 per share |
| Gross issue size | ₹45.14 crore |
| Net issue | ₹42.85 crore |
| Face value | ₹10 per share |
| Market | NSE SME |
The subsequent regulatory findings are therefore particularly significant because the company raised capital from public-market investors and then faced allegations concerning the use and disclosure of those funds.
Why The SEBI Action Matters For SME Investors
The Varanium Cloud case highlights the risks investors can face in smaller listed companies, where relatively limited public-market liquidity can sometimes coincide with sharp share-price movements.
SME stocks can experience substantial price volatility because their market capitalizations and trading volumes are generally smaller than those of large listed companies. Investors can therefore be particularly sensitive to corporate announcements, fundraising plans and financial disclosures.
The case also demonstrates the role of regulatory enforcement after a company has raised money from public investors.
SEBI’s investigation examined not only the original IPO but also subsequent rights fundraising, financial statements, corporate announcements and promoter trading activity.
The Bigger Picture
The Varanium Cloud order is a significant example of SEBI’s increasingly detailed scrutiny of SME-listed companies and the use of public-market capital. The regulator found a combination of financial misrepresentation, misleading disclosures and diversion of IPO and rights issue proceeds, leading to a seven-year market ban for both the company and its promoter.
For investors, the case reinforces the importance of examining how companies use funds raised through IPOs, rights issues and preferential offerings. Large expansion announcements and rapid share-price increases can create strong market narratives, but the sustainability of those narratives ultimately depends on verifiable business performance, transparent financial reporting and proper use of investor capital.
Looking Ahead
The immediate financial consequences for Varanium Cloud and Sabale are substantial. Varanium Cloud must bring back ₹62.51 crore plus 12% interest, while Sabale faces disgorgement of ₹128.77 crore plus interest. The seven-year market ban also prevents the company and its promoter from participating in the securities market during the specified period, while Sabale faces additional restrictions on serving as a director or key managerial person in listed companies and SEBI-registered intermediaries.
The broader significance of the case will likely extend beyond Varanium Cloud. SEBI’s findings show that the regulator can trace the movement of IPO and rights-issue proceeds across multiple entities and examine whether corporate disclosures accurately reflected underlying transactions. For SME investors and companies preparing to raise capital, the order reinforces a fundamental market principle: public funds must be used for disclosed purposes, financial statements must accurately reflect business activity, and promoters remain accountable for the movement and use of investor capital.
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