Mumbai — The Securities and Exchange Board of India has barred Varanium Cloud Limited and its Managing Director Harshawardhan Hanmant Sabale from the securities market for seven years after finding that the company misrepresented its data center operations, manipulated financial statements and diverted investor funds to promoter-linked entities.
SEBI also ordered Sabale to disgorge Rs 128.77 crore in unlawful gains, along with 12% interest, while directing Varanium Cloud to recover Rs 62.51 crore allegedly diverted from money raised from investors.
The case centers on the company’s September 2022 initial public offering and a subsequent rights issue. Varanium Cloud raised Rs 40.39 crore through its IPO, saying the proceeds would be used to establish containerized Edge Data Centers and Digital Learning Centers.
The following year, the company raised another Rs 48.45 crore through a rights issue. SEBI found that 89.83% of those proceeds were diverted to promoter-related entities, including Rs 32.73 crore that was transferred directly to Sabale’s personal bank account.
The regulator also found that Varanium Cloud made misleading claims about its data center infrastructure. The company had announced that it commissioned Edge Data Centers in Goa and Sawantwadi, but inspections by SEBI and the National Stock Exchange found no such facility at the registered address of the Sawantwadi center.
SEBI also questioned the claimed Goa facility after finding that it consumed just six units of electricity over a month, which the regulator said was inconsistent with the operation of a technology-intensive data center. The primary vendor associated with the projects also lacked the fixed assets needed to carry out the work, according to the order.
SEBI said it uncovered financial manipulation involving fictitious sales and purchase transactions. Varanium Cloud reported Rs 594.32 crore in sales to a single entity, Amtelfone Incorporated, over two financial years, but the regulator said the transactions were merely accounting entries and were not backed by actual banking receipts.
The company also reported significant revenue from its U.S.-based subsidiary, Varanium Cloud INC, despite the subsidiary having only $1,000 in capital and no employees. SEBI said the subsidiary was shown as generating Rs 392.11 crore in revenue in a single quarter.
According to the regulator, the financial statements were accompanied by misleading corporate announcements that helped create an inflated picture of the company’s business and growth prospects.
One such announcement, made in February 2023, involved a proposed Rs 2,683 crore acquisition of Fastway Transmissions Private Ltd. SEBI noted that the proposed deal was valued at nearly 20 times Varanium Cloud’s net worth.
The regulator said the company’s reported revenue later surged 984%, while its share price also climbed sharply, allowing promoter entities to sell shares at elevated valuations.
SEBI found that promoter entities made more than Rs 128.77 crore in unlawful gains by selling shares at inflated prices, resulting in losses for investors.
Sabale was also fined Rs 20.4 crore, while Varanium Cloud 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 Varanium Cloud and Sabale, was fined Rs 10.1 crore and barred from the securities market for four years.
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. (Source: IANS)
