Market regulator Securities and Exchange Board of India (SEBI) has exposed what it calls a ‘collusive’ scheme to siphon off most of the funds from Varyaa Creations Ltd’s small and medium enterprises (SME) initial public offering (IPO). In an interim order on 14 May 2025, SEBI says it found that only a fraction of the IPO’s Rs20.10 crore proceeds actually reached the company, while roughly 71% was diverted into the accounts of three unrelated entities on the instructions of the lead manager. The regulator’s findings paint a picture of systematic fund misuse: hundreds of lakhs were routed through shell companies and misclassified as issue-related expenses, bypassing Varyaa’s own bank account almost entirely. SEBI says these manoeuvres appear designed to use investor money for purposes other than those disclosed to shareholders.
After discovering that over 71% of the IPO proceeds were diverted to third-party entities on the instructions of the lead manager, the market regulator has frozen the shareholding of key promoters of Varyaa Creations, barred the company from accessing capital markets and restrained lead manager Inventure Merchant Banker Services Pvt Ltd from taking on any new merchant banking mandates until further notice.
In a strongly worded order, Ashwini Bhatia, whole-time member (WTM) of SEBI, raised serious concerns over increased instances of misuse of IPO proceeds by SMEs. "Over the past year, SEBI has had to repeatedly intervene in cases, especially in the SME segment, where IPO proceeds were misutilised or siphoned off. The task often feels Sisyphean—but when confronted with facts that strike at the very heart of investor protection and market integrity, SEBI’s hands are forced. Inaction is not an option."
"The stock exchanges, BSE and National Stock Exchange (NSE), are advised to take note of SEBI orders passed in respect of companies which got listed on the SME segment, and exercise due care and diligence while permitting listing. Instances like the present one, where the company barely got access to 30% of the issue proceeds, cannot definitely be in the interest of the investors in the securities market," he added.
Varyaa Creations, a jewellery firm listed on the BSE SME platform on 30 April 2024, had raised Rs20.10 crore through its fixed-price IPO. As per the interim order dated 14 May 2025, SEBI found that Rs14 crore of the IPO proceeds were transferred directly from the public issue escrow account to three entities—Kaveri Corporation, Maruti Corporation, and Overseas Metal and Alloys Pvt Ltd—on the day of listing itself. These transactions were executed based on written instructions from Inventure, the lead manager of the issue.
SEBI noted that the transfers were made under the pretext of IPO-related expenses, including issue management fees and commissions. However, this claim was found to be grossly inconsistent with the Rs60 lakh disclosed in the company’s prospectus as the estimated cost towards issue expenses.
Kaveri Corporation, identified as a sole proprietorship engaged in agriculture, withdrew the entire Rs4 crore it received in cash within 16 minutes of the transfer. It also received Rs5 crore from Maruti Corporation—another entity that received IPO funds the same day—which was again withdrawn in cash minutes later.
Meanwhile, Overseas Metal and Alloys, which received Rs5 crore from the IPO account, transferred Rs4.98 crore to a company identified as ‘transpaacific’ the very next day.
Mr Bhatia observed that none of these entities were disclosed in the prospectus, and no legitimate business links could be established between them and the company’s stated object of setting up a jewellery showroom in Agra.
“No disclosure was made regarding any payment to Kaveri Corporation, which is a sole proprietorship based in Ahmedabad, Gujarat, engaged in agricultural activity, or Overseas Metal and Alloys, also based in Ahmedabad. The absence of any business connection between the stated Agra showroom and the Gujarat-based Kaveri Corporation and Overseas Metal and Alloys, coupled with the immediate onward transfer or withdrawal of funds in cash, undermines the explanation offered and casts serious doubt on the authenticity and purpose of these transactions,” he says.
The regulator flagged this as a serious breach of disclosure norms and a probable case of fund siphoning.
The order further highlighted that the remaining Rs5.67 crore from the IPO proceeds was transferred to Varyaa’s own bank account, meaning the company had direct access to less than 30% of the total funds raised.
The promoters whose shareholding has been frozen include Pooja Vineet Naheta, Sarika Amit Naheta, Kusum Naheta, Jaineshaa Naheta, Pari Naheta, Vineet Naheta Hindu undivided family (HUF) and Amit Naheta HUF. SEBI also restrained Varyaa Creations from accessing the securities market and barred Inventure from taking on any new merchant banking assignments.
Inventure was directed to ensure that any ongoing mandates are placed under a monitoring agency to track fund usage, regardless of the issue size.
The regulator noted that Varyaa had also approved a proposal in April 2025 to raise Rs35 crore through a rights issue—more than what it had raised from its IPO just a year earlier. SEBI says further fundraising for the company is not permissible while serious concerns about fund misuse remain unresolved.
SEBI drew parallels with a similar pattern observed in the IPO of Synoptics Technologies Ltd, where funds were similarly routed to third-party entities on the instructions of the then lead manager, First Overseas Capital Ltd (FOCL). Incidentally, FOCL was the initial lead manager for Varyaa’s IPO before being replaced by Inventure following observations by the BSE.
Calling such cases a threat to investor protection and market integrity, SEBI emphasised that repeated misuse of public funds, especially in the SME segment, necessitates prompt and preventive intervention. It has advised the stock exchanges to exercise greater diligence in IPO listings to prevent further instances of such malpractice.
