The Securities and Exchange Board of India (“SEBI”) on 25 August 2025 passed a Final Order against Varanium Cloud Limited (“VCL”) and its key management for alleged fraudulent and misleading activities in connection with its Initial Public Offer (IPO), Rights Issue and subsequent disclosures.

BACKGROUND
The proceedings stemmed from SEBI’s preliminary examination pursuant to media reports and complaints regarding VCL’s financial statements and corporate announcements, which led to an Interim Order dated 10 May 2024 against VCL and its MD/Chairman, Harshwardhan Hanmant Sabale (Mr Sabale).

VCL raised approximately Rs 40.39 crore through its IPO in September 2022 (primarily for Edge Data Centres and Edmission Digital Learning Centres) and proposed a further Rs. 48.45 crore through a Rights Issue in September 2023. SEBI examined the utilisation of issue proceeds, financial statements, Prospectus disclosures, corporate announcements, related-party transactions, and the role of directors, the CFO, the merchant banker and other intermediaries.

SEBI’S FINDINGS
SEBI found that VCL misrepresented its financial statements and prospectus by showing fictitious sales and purchases, and that its disclosures on utilisation of IPO proceeds (including the Statement of Deviation dated 17 November 2023) were incorrect and misleading.

SEBI found that IPO and Rights Issue proceeds of Rs. 62.51 crore were diverted to related parties and other entities, including Rs. 32.73 crore transferred directly to Mr Sabale’s personal account. BM Traders (operated by Mr Raj Jagtani) received Rs. 19.66 crore in aggregate from the issue proceeds, of which Rs. 15.60 crore was transferred onwards; and that no adequate evidence of genuine business purpose was produced.

SEBI found several business announcements by VCL to be false and unsubstantiated. SEBI also found that the Company also failed to support the substantial increase in reported revenues (including those of its US subsidiary) with invoices, contracts or employee details. Pending litigation was omitted from the Letter of Offer, and the Prospectus contained material omissions and misstatements. Liability was fastened on the Company, its MD, Executive Directors and CFO.

SEBI found that the lead manager, First Overseas Capital Limited (FOCL), failed to exercise independent due diligence and did not disclose pending litigation. SEBI rejected FOCL’s defence that  it  could  rely  on  the  Company’s  representations  and  third-party  reports. Athos Capital Advisors Private Limited (ACAPL) and Mr Jinesh Mehta were held to have aided and abetted the misrepresentations; ACAPL received approximately Rs. 2.50 crore from VCL, and Mr Mehta admitted drafting portions of the Prospectus and assisting with fundraising.

SEBI’S DIRECTIONS
VCL was directed to bring back Rs. 62.51 crore (with 12% p.a. interest) within three months. Mr Sabale was directed to disgorge unlawful gains of Rs. 128.77 crore (with 12% p.a. simple interest) to the Investor Protection and Education Fund. VCL and Mr Sabale were debarred from the securities market for 7 years.

ACAPL and Mr Jinesh Mehta were debarred for 2 years; Mr Raj Jagtani/BM Traders for 4 years; the Executive Directors and CFO (Mr Vinayak Jadhav, Mr Mukundan Raghavan and Mr Fahim Shaikh) for 1 year; and FOCL for 2 years (to run consecutively with an earlier debarment). Monetary penalties were also imposed, including Rs. 20.40 crore on Mr Sabale, Rs. 13 crore on VCL and Rs. 10.10 crore on Mr Raj Jagtani.

Proceedings against the Company Secretary (Ms Hetal Somani) and a Non-Executive Director (Mr Kalpesh Acharekar) were disposed of without directions or penalty, the allegations against them being found unsustainable.

MHCO COMMENT
The order is significant for its treatment of misrepresentation in financial statements and public-issue disclosures, diversion of IPO and Rights Issue proceeds, and the accountability of directors, KMPs and intermediaries. It reiterates that a lead manager must conduct independent due diligence and cannot merely rely on the issuer’s representations or third-party reports.

SEBI did not fasten liability on every director or officer; allegations against the Company Secretary and non-executive director were dropped for want of material. Overall, SEBI characterised the matter as a fraudulent scheme of raising public funds on misleading disclosures, followed by diversion of proceeds and creation of a false picture of the Company’s performance. The restoration, disgorgement, debarment and penalty directions reflect the seriousness with which the conduct was viewed.

By:

• Mr. Bhushan Shah, Partner
• Mr. Abhishek Nair, Associate
• Ms. Sayali Kshirsagar, Associate

This update was released on 28 Aug 2026.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
Advocates, Solicitors and Notaries
T: +91 22 40565252
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